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Error of law leads to remission of issue to arbitrator, not the Award set aside

I’ve been sent a judgment from earlier this year: Maurice J Bushell & Co v Graham Irving Born. It is all about whether, following an arbitration, the court should allow an appeal on a point of law under section 69 of the Arbitration Act 1996 and, if so, should the matter be remitted back to the arbitrator (the tribunal). As someone who sometimes sits as an arbitrator (as well as in other dispute resolver capacities), I found it an interesting judgment.

Those keen-eyed among you will know that it isn’t the first time I’ve blogged about arbitration in the past couple of years, including on the increasing use of arbitration domestically. That’s certainly been born out from my experience this year, having already completed three arbitration awards (which is three more than I completed in the whole of 2016!).

Maurice J Bushell & Co v Graham Irving Born

This was a dispute between a firm of accountants, Maurice J Bushell & Co, and a former partner, Mr Born. I confess that it’s not the most interesting set of facts you’ll read this year, so I’ll try and keep my summary brief.

Mr Born was a partner until 2002, when he retired and set up his own practice. Disputes then arose over repayment of sums in Mr Born’s current account and Mr Born’s pension under the partnership agreement. Mr Born also wanted to sell his shares in an unlimited service company to his former partners.

The parties’ dispute was referred to arbitration under the rules of the Chartered Institute of Arbitrators (CIArb). Over a period of about eight years, a number of arbitration awards were made. The fifth award (issued in April 2016) dealt with costs, finding that Mr Born was the “winner”. The award noted that:

“… neither party had behaved unreasonably to the extent that costs should be awarded on an indemnity basis.”

As Mr Born had been partially successful on four issues, and the firm partially successful on two issues, the arbitrator concluded that:

“… because of the relative importance of the two major issues, the pension annuity and the respondent’s interest in the company and the time take up by these issues, I find that the respondent, that is Mr Born, was substantially more successful than the claimant firm.”

Consequently, the arbitrator found a net sum was due to Mr Born.

Unhappy with the outcome, the firm applied for leave to appeal under section 69 of the Arbitration Act 1996.

Leave to appeal hearing

It is apparent from the judgment that there was something of a debate before leave to appeal was granted. However, ultimately the judge was satisfied (and Mr Born conceded) that the arbitrator had erred in law in one respect and may not have resolved another of the issues. A number of reasons were given for this.

On appeal, what was the appropriate remedy?

I thought the discussion at the appeal hearing about what was the appropriate remedy was the interesting part of the judgment. The main issue was what order the court should make under section 69(7), which provides that the court may:

  • Confirm the award.
  • Vary the award.
  • Remit the award to the tribunal, in whole or in part, for reconsideration in the light of the court’s determination.
  • Set aside the award in whole or in part, but only if it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.

In considering this point, the court noted that the proviso (that an award should only be set aside if it was inappropriate to remit to the tribunal) recognised the importance in arbitration of:

“… party autonomy and the respect that is to be given to  the parties’ agreement and the process which they have implemented for arbitration.”

Here, the court had to consider the firm’s position that it had lost confidence in the arbitrator, given the mistakes that led to the error of law, and the critical comments he had made about the firm and its solicitors in relation to the appeal. The test seemed to be similar to the one applied to questions of bias and apparent bias, that is, would an objective bystander:

“… reasonably conclude that there would be a real possibility that one of the parties will not obtain a fair and impartial rehearing of its costs application.”

Ultimately, the court concluded that the issue should be remitted to the tribunal. It rejected the firm’s arguments that it should set aside the award and determine the relevant issue itself. It did not find the firm’s reasons “compelling”.

In my view, what was more interesting was how the court dealt with the impartiality point, noting as it did, that there was insufficient doubt over it:

“It is in the nature of these appeals that arbitrators sometimes state views in response to receiving the appeal papers and the subsequent exchanges do not, in my judgment, demonstrate a sufficient risk of lack of impartiality going forward. Where an arbitrator, especially a non-lawyer arbitrator, makes a mistake in law, which is the way in which this appeal is framed, then it requires considerably more, in my judgment, to find that remission is inappropriate.

This would require a real risk that even with the benefit of the court’s judgment or in this case, the agreement of the parties that such an error was committed, the arbitrator will still, consciously or unconsciously be biased against the applicant – in order, in effect to find some other way of doing something that is wrong in law as a court of law has determined.”

It is also worth remembering that the arbitrator was said to have made an error of law. The appeal was not based on allegations of misconduct or some other irregularity that might justify the arbitrator’s removal (as occurred in Secretary of State for the Home Department v Raytheon Systems Ltd). It would have been interesting to see if the firm would have pursued an appeal on the basis of a serious irregularity (under section 68) if the parties had decided to exclude the right of appeal on a point of law (section 69 is a non-mandatory section of the Arbitration Act 1996).

Length and value of dispute

This judgment provides evidence of the judiciary’s continuing support for arbitration, which is certainly encouraging. However, it appears to have taken around eight years to reach a costs award, and this clearly does nothing to promote the confidence of parties or lawyers in the process of arbitration.

The exact sums in dispute aren’t clear, but it doesn’t appear to have been a particularly substantial dispute. That being the case, if the claim was being commenced today, perhaps the parties would have considered using the CIArb’s Business Arbitration Scheme, which the CIArb says is designed to:

“… provide simple, cost-effective, and timely resolution of disputes of low to medium monetary value (£5,000- £100,000) before a sole arbitrator.”

This leads to an award being issued within 90 days of the arbitrator’s appointment.

Although this dispute did not concern a construction or engineering dispute, another alternative would have been for the parties to use the RICS’s fast track arbitration rules, which are also aimed at lower value disputes.

Even if these rules were not adopted, there is absolutely no reason why an arbitration should take eight years if the process is effectively managed.

MCMS Ltd Jonathan Cope

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