In Tetrazzini Foods Limited v Abbacon Investment Limited the Lagos Court of Appeal recently ruled on the issuance of an arbitral award after the arbitrator's termination of proceedings in illegal circumstances.(1)
The appellant awarded a construction contract to the first respondent. The construction agreement included an arbitration clause. In the course of the contract's execution, the appellant became unsatisfied with the pace and quality of the work, took over the site and completed the construction itself.
The first respondent was aggrieved and applied for the appointment of a sole arbitrator, pursuant to the arbitration agreement. The second respondent was appointed as the arbitrator. He convened a preliminary meeting and ordered statements to be filed by the parties. The appellant defaulted, but received an extension until September 24 2009. However, the appellant missed this deadline, filing and serving its pleadings (defence and counterclaim) on October 7 2009, after which the proceedings commenced. On October 8 2009 the appellant was absent and not represented by counsel; no reason was advanced. Nevertheless, the second respondent conducted the hearing and thereafter terminated the arbitral proceedings.
On October 13 2009 the appellant's counsel wrote to the tribunal seeking time for an opportunity to represent the appellant. The second respondent did not respond. However, on October 28 2009 the second respondent delivered the award in favour of the first respondent and was silent on the appellant's counterclaim.
Aggrieved, the appellant filed suit before the Lagos State High Court to set aside the arbitral award, alleging lack of jurisdiction as a result of the termination of arbitral proceedings and misconduct by the arbitrator, stating the following instances:
- The arbitrator had failed to:
- give the appellant a fair hearing;
- consider all the issues placed before him for consideration; or
- give reasons for the award; and
- The arbitrator had received N300,000 from the first respondent without the knowledge of the appellant.
The first respondent argued that the appellant could not complain of the lack of a fair hearing, since it was given the opportunity to be heard but neglected to use it. The first respondent further argued that:
- the appellant's claim was not labelled a counterclaim; and
- failure to give reasons for the award and payment of the arbitrator's fee by one party do not amount to misconduct.
The court considered the parties' submissions and refused to set aside the award issued against the appellant. The appellant appealed to the Lagos Court of Appeal:
- questioning the manner in which the arbitral proceedings had been terminated on October 8 2009; and
- contending that terminating the arbitral proceeding removed the arbitrator's jurisdiction to issue an award.
In considering the appeal, the appeal court took into account Sections 26(3)(a), 27 and 30(1) of the Arbitration and Conciliation Act 1988.(2)
Section 26(3)(a) provides that the arbitral tribunal shall state on the award:
- the reasons on which it is based (unless the parties have agreed that no reasons are to be given or the award is on an agreed term);
- the date on which it was made; and
- the place of arbitration.
Section 27(1)(2)(3) provides thus:
"(1) The arbitral proceedings shall terminate, when the final award is made or when an order of the arbitral tribunal is issued under subsection (2) of this section.
(2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings when –
(a) the claimant withdraws his claim, unless the respondent objects thereto and the arbitral tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute; or
(b) the parties agree on the termination of the arbitral proceedings; or
(c) the arbitral tribunal finds that continuation of the arbitral proceedings has for any other reason become unnecessary or impossible.
(3) Subject to the provisions of sections 28 and 29 (2) of this Act, the mandate of the arbitral tribunal shall cease on termination of the arbitral proceedings."
Section 30(1) provides that where an arbitrator has engaged in misconduct or where the arbitral proceedings or award has been improperly procured, the court may set aside the award on the application of a party.
The court of appeal found that misconduct was established against the arbitrator; the award was therefore set aside.
In setting aside the award, the court held that it may set aside an award on the basis of misconduct pursuant to Section 30(1) of the Arbitration and Conciliation Act. It noted that the act did not define 'misconduct'. However, the court relied on Taylor Woodrow Nig Ltd v Suddueutsche Etna-Work GMBH,(3) where certain instances were listed to amount to misconduct, including where the arbitrator:
- fails to decide all the matters that were referred to him or her;
- fails to act fairly towards both parties – for example, by:
- hearing one party but refusing to hear the other;
- deciding in default of defence without clear warning;
- taking instructions from or talking to one party in the absence of the other; or
- taking evidence in the absence of one or both parties; or
- accepts the hospitality of one party, where it has been offered with the intention of influencing the decision.
In the case at hand, the Court of Appeal held the following:
- It was a misconduct for the arbitrator to terminate the proceedings in contravention of Section 27(1) of the Arbitration and Conciliation Act; and
- It was a misconduct for the arbitrator to hand down the award after he had divested himself of the jurisdiction to proceed in the arbitration.
Relying on KSUDB v Fans Construction Ltd (1990),(4) the court held that failure to determine all issues referred to an arbitrator amounted to a misconduct. The arbitrator did not consider all the issues placed before him for consideration and ignored the appellant's claim.
The court further held that the first respondent's argument that the appellant's claim had not been labelled as a counterclaim was untenable because the appellant's claim had accompanied its reply to the first respondent's claim. The court stated that arbitration was designed to remove some of the formalities of court proceedings in order to make dispute resolution easier and more straightforward.
It was also held that failure of the arbitrator to comply with Section 26(3)(a) of the Arbitration and Conciliation Act (ie, the obligation to give reasons for the award) amounted to misconduct. Relying on Brewer Handelsgellschaft V Westzucker (No 2),(5) the appeal court stated that a reasoned award must:
- set out the evidence led by the parties;
- set out what did or did not happen as between the parties;
- explain why, in the light of the events, the arbitrators have reached their decision; and
- state what the decision is.
In the case at hand, the award failed to include the elements required to make it a reasoned award.
The case was remitted to the chief judge of Lagos State to appoint another arbitrator.
The court of appeal, having found that misconduct was established against the second respondent, was right to set aside the award.
For further information on this topic please contact Rosaline Eshett at Dorothy Ufot & Co by telephone (+234 1 463 1723) or email ([email protected]). The Dorothy Ufot & Co website can be accessed at www.dorothyufotandco.com.
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