In the recent Supreme Court case Aristos Michael et al v SPE Stroumpiou (Civil Appeal 190/12), dated 28 June 2018, the appellants appealed to the Supreme Court to set aside or annul the first-instance court judgment which upheld the arbitrator's decision.

Facts

On 2 May 2011 an arbitral award was issued against the appellants and in favour of the respondents for the amount of €462,652.84, plus interest and expenses. Following this award, the appellants filed Application 349/11 by which they requested to set aside and annul the arbitral award on the grounds of the irregularity of the proceedings and lack of impartiality of the arbitrator. The first-instance court upheld the arbitrator's decision and therefore, the appellants appealed to the Supreme Court to set aside and annul the judgment.

The appellants argued that the first-instance court failed to examine the illegality of the proceedings followed by the arbitrator and dealt only with the merits of the dispute between the parties. Essentially their main argument was that the court failed to examine whether the arbitral proceedings were in accordance with the judicial and procedural regulations, since arbitration proceedings are of a quasi-judicial nature. The appellants claimed that:

  • no minutes were held during the hearing, hence the first-instance court could not examine the regularity of the proceedings;
  • the arbitrator failed to examine the main arguments advanced by the appellants;
  • the arbitrator's decision was not sufficiently reasoned in respect to the final amount that was held to be owed by the appellants; and
  • the arbitrator was not impartial or objective.

The respondents agreed with:

  • the arbitration procedure that was followed;
  • the correctness of the arbitrator's decision; and
  • the arbitrator's impartiality.

Decision

The Supreme Court agreed with the appellants' position on the matter and stated that the first-instance court had failed to deal with the examination of the legitimacy of the arbitration proceedings and the manner in which the arbitrator had conducted the proceedings. The district court should have examined the above issues, taking into account that they constitute grounds which justify the annulment of an arbitral award according to Article 20 (Cap 4).

As far as the first point is concerned, the Supreme Court stated that the failure of the arbitrator to keep a record of the minutes throughout the arbitration proceedings or the failure to submit them as part of the evidence in the first-instance court was decisive in respect to the legality of the arbitration proceedings. The Supreme Court pointed out that, taking into account the nature of the arbitration as a quasi-judicial procedure, the arbitrator must comply with the rules of natural justice and the procedural rules applicable to judicial proceedings. It is well settled by case law that the trial minutes are the irreplaceable guide for those involved in the trial and only in exceptional cases can the Court of Appeal consult anything outside of the minutes.

In respect of the second point, the appellants made allegations of misleading behaviour by SPE. Specifically, they alleged that the bank deceived them in signing a loan agreement by allowing them to believe that they were signing a guarantee agreement. The Supreme Court noted that for some reason a discussion took place between the appellants and the arbitrator, which resulted in the appellants leaving the arbitration proceedings. In any case and despite the fact that the appellants left the arbitration proceedings, the Supreme Court reasoned that the arbitrator had to assess their allegations and determine whether the claim was justified. According to the Supreme Court, the nature of the dispute was not simple, since the appellants challenged the loan agreement itself and raised allegations of misleading behaviour and these were issues that the arbitrator should have examined.

Regarding the third point, the Supreme Court stated that the arbitral award lacked the necessary reasoning warranted by the rules of natural justice. First, while the evidence presented to the arbitrator explicitly referred to a loan agreement, in his decision the arbitrator referred to a bill of exchange. Second, he failed to explain how he concluded that the amount owed by the appellants was €462,652.84, since the loan agreement was for the amount of €210,000.

Further, the arbitrator's decision was considered to be generally irregular, since the decision itself was already drafted in advance by the respondents and the arbitrator just filled in the required 'decision' gaps on the document.

In relation to the fourth point and in correlation with the irregularity of the arbitral award, the Supreme Court concluded that the arbitrator was not impartial and objective. The court also took into account the fact that the arbitrator used to be an employee of and a senior officer at the respondent company, in addition to the fact that the whole procedure took place on the respondent's premises.

In light of the above, the Supreme Court ruled in favour of the appellants and the arbitral award was annulled.

For further information on this topic please contact Angela P Christodoulou at George Z Georgiou & Associates LLC by telephone (+357 22 763 340) or email (angela.christodoulou@gzg.com.cy). The George Z Georgiou & Associates LLC website can be accessed at www.gzg.com.cy.

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