UK: Appealing Arbitration Decisions

Last Updated: 1 June 2007
Article by Jeremy Glover

There are only limited circumstances in which you can appeal against the decision of an arbitrator. The recent case of The Trustees of Edmund Stern Settlement v Levy [2007] EWHC 1187 (TCC), a decision of HHJ Coulson QC, provides useful guidance if you are contemplating either appealing a point of law or because you consider that there were serious irregularities in the arbitration process.

Levy acted as the building surveyor in respect of extensive works at a family home. Disputes arose and Levy commenced arbitration proceedings for unpaid fees. He was met by a counterclaim for damages alleging professional negligence and fraud. Following a lengthy arbitration hearing, Stern issued an application seeking permission to appeal against the arbitrator’s decision on a point of law pursuant to Section 69 of the Arbitration Act 1996 and to set aside the award alleging that the arbitrator was guilty of serious irregularities pursuant to Section 68 of the same Act.

The Section 69 application related to the payment of part of Levy’s fee. The contract said that for the duration of Stage D, Levy was entitled to "35% payable in equal monthly charges for duration of contracted period." However, the expression "contracted period" was not defined in the contract. The arbitrator decided that it could only be a reference to the period of 22 weeks from the start to the planned finish of the works. Stern said that this was obviously wrong. How could Levy claim full entitlement to his Stage D fees after 22 weeks regardless of the value of work that had been completed by that date? Stern argued that Levy's fees should be paid in tranches based on the actual duration of the works, not based on the total value of the works.

The Judge set out the four requirements necessary to make a successful application under Section 69:-

  1. The identification of a key question of law as opposed to a complaint about the arbitrator’s findings of fact "masquerading" as a point of law;
  2. That the arbitrator was obviously wrong or, if it was a point of general or public importance, the arbitrator was at least open to doubt;
  3. That the point of law substantially affected the right to the parties in the arbitration; and
  4. That it was just and proper for the Court to determine the point of law.

The Judge was in no doubt that the true construction of the words in the letter describing the fee payable was a matter of law. As it was a one-off form of words, it could not be a matter of general or public importance. However, when it came to considering the arbitrator’s conclusion, the Judge did not consider that he was obviously wrong. Either interpretation was available to him and as the arbitrator was bound to, he chose one over the other.

Further, the Judge was aware that this was a question of construction which had to be answered against the background of the relevant factual material. Therefore, he said it should only be in the clearest of cases that when a Judge is considering Section 69 applications in similar circumstances, particularly bearing in mind that he will not have had the benefit of hearing the evidence, that he should substitute his own construction of the matter of the arbitrator. In reality this was a case where whichever of the answers the arbitrator preferred, he was going to be criticised by the other side.

Going further, the Judge did not think that the arbitrator’s decision on this point would have substantially affected the rights of the parties. This was because the relevant invoice against which the claim was made was not in fact calculated on the contractual basis for which Levy contended, but on the basis alleged by Stern. This was something disputed by Stern, but they were unable to take the point further because it was a clear finding of fact made by the arbitrator.

In relation to the Section 68 application, the Judge noted there were two principal ingredients required for a successful application:

  1. Failure on the part of the arbitrator to act fairly and to give each party an opportunity to present its case; and
  2. Substantial injustice as a result of that failure.

The Judge stressed that the "combination of these ingredients" must be enough to persuade the Court that the case is an extreme one "where the Tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected". (See Egmatra AG v Marco Trading Corporation [1999] 1 Lloyd's Report 862).

Stern's complaints were that the arbitrator failed to hold Levy to his pleaded case on the meaning of "contracted period" and that the arbitrator failed to require Levy to amend its pleaded case or to allow Stern the opportunity to make further submissions on the point once it turned out that the construction of relevant provisions was in fact in dispute. As the Judge noted, his conclusion that the arbitrator was not obviously wrong in his construction of the contract gave Stern a serious difficulty on this issue.

However, regardless of that, the Judge felt it was clear this was not the sort of extreme case for which Section 68 was intended. The reason he thought this was that there was a major debate during the arbitration on what the contract actually meant. The point of construction was in issue. The arbitrator reached the preliminary view to the effect that the words referred to the 22 weeks not the actual period and also, be it expressly or impliedly, invited further submissions from Stern on the point. Stern had not been prevented from revisiting the point again. Indeed, following production of the draft award, when the arbitrator asked the parties to identify the areas of contractual law, Stern did just that. Therefore, the point was at issue at the outset of the arbitration and remained as such throughout.

Accordingly the appeal against the arbitrator’s decision failed on both counts.

This article is based on an article from a forthcoming issue of the Fenwick Elliott Dispatch, a monthly newsletter which summarises recent key developments relating to contentious and non-contentious construction law issues. To see the current issue please visit www.fenwickelliott.co.uk.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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