In Fayleigh Ltd v Plazaway Ltd Trading as Hotel Partners and Francis Murphy [2014] IEHC 52, the High Court considered whether an award should be remitted back to the arbitrator.

Speedread

The Irish High Court has remitted an arbitration award to the arbitrator, due to his failure to consider potentially relevant evidence. The judgment considers the scope of the court's jurisdiction to remit or set aside an arbitral award on the grounds of misconduct. The court did not find any evidence of personal or actual misconduct or bias on the part of the arbitrator, but found that the arbitrator had made a mistake in not examining the relevant evidence.

This case was decided under the Arbitration Acts 1954-1998, in respect of a dispute which arose between the parties around December 2008 or January 2009. While the 1954-1998 Acts have been repealed and replaced by the Arbitration Act 2010, the 2010 Act only applies to arbitrations commencing after its operative date of 8 June 2010.

Background

Section 36 of the Arbitration Acts, 1954-1998 allows the court to remit an award back to the arbitrator:

  1.  In all cases of reference to arbitration, the Court may from time to time remit the matters referred or any of them to the reconsideration of the arbitrator or umpire.
  2. Where an award is remitted, the arbitrator or umpire shall, unless the order otherwise directs, make his award within three months after the date of the order."

Section 38 provides that the court may set aside an arbitrator's award where:

  1. an arbitrator or umpire has misconducted himself or the proceedings, or
  2. an arbitration or award has been improperly procured…"

Section 36 does not specify the grounds upon which an arbitration award may be remitted. Instead such grounds are to be found in common law. While the courts do not have an unlimited discretion to remit an award, in McCarthy v Keane [2004] 3 I.R. 617, the Supreme Court held that the grounds for remittal are not limited to the four traditional grounds, developed over time of:

  • Error on the face of the award.
  • Mistake.
  • New material evidence.
  • Misconduct.

In that case, the court noted that:

"the discretion to remit could be invoked where it would be inequitable for the award to take effect or where the dispute between the parties had not been adjudicated in accordance with overarching requirements of fairness or to the extent envisaged in the arbitrator's terms of reference".

In regard to the meaning of "misconduct", Fennelly J stated: "the notion of misconduct does not connote moral turpitude." Rather, it is used in the technical legal sense as denoting irregularity and arises where a party is "procedurally disadvantaged by the rulings of the arbitrator". Fennelly J stated that:

"the standard or test of misconduct of such nature would be something substantial, something which smacks of injustice or unfairness".

Accordingly, a mere error on the part of the arbitrator would not constitute misconduct.

In Galway City Council v Kingston and another [2010] 3 I.R. 95, O'Donnell J at the Supreme Court stated:

"The position has thus been reached where this approach can and should be taken to each of the grounds for remittal…namely, that it is not enough that there should be an error or misconduct, or new evidence, etc., but that the factor must reach the level of being 'so serious and so substantial, or so fundamental, that it smacks of injustice and the court cannot permit it to remain unchallenged'." 

O'Donnell J noted that: "evidence is relevant to an issue when if accepted it would tend to prove or disprove it".

Facts

The applicant, Fayleigh Ltd, the owners of Trim Castle hotel, had entered into a written agreement in early 2006, with Plazaway Ltd, a hotel management company, for the latter to manage the hotel. The agreement contained an arbitration clause in the event of disputes arising between the parties. A dispute arose in December 2008 / January 2009, and the matter was referred to arbitration. 

The central issue concerned when and how the agreement had come to an end in 2008, and in particular, whether it occurred in March or December 2008. The contract provided for a termination payment. The hotel owners claimed that they had not terminated the contract; that had been done by the management company in March 2008, and as a result no termination payment was due to the management company. The hotel owners contended that the management company had stepped back from the full management services in March 2008, but had continued to provide some limited services from April to December 2008, following discontinuance of the management agreement. In support of this contention, the hotel owners compiled a dossier in 17 lever arch files of documents discovered by the management company, containing colour-coded bundles in a way that allegedly confirmed the hotel owners' argument.

During the arbitration hearing, the arbitrator determined that the 17 files should not be put to the hotel owner's witnesses, stating that to do so would "seriously inhibit and delay the progress of this arbitration". Instead, the arbitrator indicated that he would read them, and construe them and their relevance, by reference to the pleadings, and in the context of the other evidence.

The arbitrator upheld the claim of the hotel management company in full, and rejected the counterclaim for negligence and other defaults by the hotel owners. In giving his award, he noted that he had not admitted the 17 files, because he did not consider them appropriate.

The hotel owners applied to the court for an order remitting an arbitration award for further consideration, or alternatively, an order setting aside the award on the ground of misconduct, on the basis that the arbitrator had not considered the files. They also contended that the arbitrator had made basic and obvious errors of calculation in regard to the management fees and termination payment allegedly owed.

Decision

Ryan J. found that by not considering the proffered files at all, the arbitrator was guilty of misconduct in the technical legal sense. He stated that: "A party putting forward evidence in support of its case and to defeat the opponent's is deprived of a fair hearing if the tribunal rejects the evidence out of hand". The arbitrator was held to have made a serious mistake in ignoring a large body of potential evidence. There was a significant, even substantial risk of injustice. Accordingly, the award could not be left alone.

The judge noted that there were a number of ways in which the arbitrator might have addressed the practical question of how he was going to deal with the large volume of material in the 17 files. For example, the arbitrator could have asked counsel for the hotel owners to produce the most relevant documents, or a synopsis of the material, so as to enable the arbitrator to proceed at a reasonable pace and reach a conclusion.

The Court concluded that remittal of the award to the arbitrator, with a direction for him to take account of the seventeen files, and with liberty to re-open the hearing for further evidence or submissions in light of these files, was the most appropriate remedy. It held that to set aside the award and order a complete rehearing had several disadvantages, including time and cost, particularly as the arbitration had already taken some 100 hours without examining the files.

The Court further held that the hotel owners had made out a case for reconsideration of the calculation of the amount due to the management company, in the event that they are found to be entitled to succeed on their claims.

Comment

This decision is a useful reminder of the scope of the court's jurisdiction to remit or set aside arbitration awards on the grounds of misconduct. It also serves as a warning to arbitrators that refusing to consider or admit potentially relevant evidence may lead to their award being remitted or set aside. It highlights, once again, that there must be very clear grounds amounting to injustice before an award will be remitted or set aside. The high threshold required for the remittal or setting aside of an arbitral award under the 1954-1998 Acts was also recently demonstrated by the decision of Kelly J in Dunnes Stores v Holtglen Ltd [2012] IEHC 93.

The grounds for challenging an award under the Arbitration Act 2010 are even more limited. The 2010 Act introduces the UN Model Law on International Commercial Arbitration into Irish law, Article 34 of which contains six narrow grounds upon which a court may set aside an arbitral award. However, it is worth noting that Article 34(2)(a)(ii) permits an award to be set aside where a party "was unable to present his case". In addition, Article 18 provides that "each party shall be given a full opportunity of presenting his case."

In light of the fact that the hotel owners in this case were unable to present their case in full, due to the arbitrator failing to consider or admit potentially relevant evidence, it is possible that this application would also have succeeded if it had been made under the 2010 Act. However, the recent decision by Hedigan J in Ruairi O'Cathain v Diarmuid O'Cathain [2012] IEHC 223 shows that the courts will construe restrictively the grounds for setting aside an arbitration award under Article 34, in accordance with their preference for minimal interference with arbitral awards.

This note was first published by Practical Law Arbitration. Reproduced with permission of the publisher. For more information, see http://uk.practicallaw.com.