Irish High Court Refuses to Set Aside Arbitral Award on Grounds of Procedural Unfairness under UNCITRAL Model Law

In Deluxe Art & Theme Ltd v Sheffs Ltd [2014] IEHC 695, the Irish High Court considered an application to set aside an arbitral award on the ground of procedural unfairness due to the arbitrator's alleged failure to give the applicant an opportunity to present its case in relation to the issue of estoppel.

Speedread
The Irish High Court has dismissed an application to set aside an arbitral award on the ground of procedural unfairness due to the arbitrator's alleged failure to give the applicant an opportunity to present its case in relation to the issue of estoppel. The court held that, in finding that the applicant was estopped from invoking a clause in the contract, the arbitrator had used the word "estopped" in the general sense of "prevent", rather than in the strict legal sense. Although it was unfortunate that the arbitrator chose to use a word with a distinct legal connotation, its use did not bring about a sufficient injustice to allow the award to be set aside.

The case serves as a reminder of the limited jurisdiction of the Irish courts to set aside an arbitral award under Article 34 of the UNCITRAL Model Law.

Background
Section 6 of the Irish Arbitration Act 2010 provides for the UNCITRAL Model Law to govern arbitrations within Ireland. Article 34 of the Model Law sets out the grounds on which a court may set aside an arbitral award. Article 34(2) provides that an award may be set aside by the court only if:

"(a) the party making the application furnishes proof that:

(i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of this State; or

(ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or

(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law; or

(b) the court finds that:

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or

(ii) the award is in conflict with the public policy of this State."

Facts
The parties had entered into a contract in April 2009, under which the applicant agreed to provide and install Fit-Out works at a cost of €1.2 million. A dispute subsequently arose between the parties, which was referred to arbitration, under the terms of the contract. The President of the Royal Institute of Architects of Ireland appointed an architect as the sole arbitrator. The applicant sought a declaration that it was entitled to exercise a lien over unfixed materials or goods on the respondent's premises to the value of €75,536.72, pursuant to Clause 34(b) of the contract, which provided:

"In addition to all other remedies the Contractor upon the said determination may take possession of and shall have a lien upon all unfixed materials and goods intended for the Works which may have become the property of the Employer under this Contract until payment of all money due to the Contractor from the Employer."

In the alternative, the applicant sought an award of €60,427.58 inclusive of VAT in respect of the contract works which was allegedly due and owing.

The arbitrator's award
The arbitrator refused to grant the declaration sought by the applicant, finding that the applicant was "effectively estopped from invoking Clause 34(b) by his own actions" including handing over possession of the site and the disputed loose fixtures and fittings, as well as accepting that the outstanding monies would be paid by the respondent out of the projected cash-flow. Instead, the arbitrator awarded the applicant €60,427.58 inclusive of VAT plus interest at the rate of 8% per annum from 24 August 2009 until the payment was made. However, as the respondent company was in receivership and in liquidation, this monetary award was of little or no value to the applicant.

Parties' submissions
The applicant sought an order, pursuant to Order 56, r. 3(1) (i) of the Rules of the Superior Courts and Article 34(2)(a)(ii) and (iii) of the Model Law, setting aside the arbitration award. The applicant contended that the award, and in particular the arbitrator's finding that the applicant was estopped from invoking Clause 34(b) of the contract which allowed it to exercise a lien, was incorrect. This alleged estoppel had not been raised at any stage by the respondent and no evidence was adduced in support of it. Further, no opportunity had been given to the applicant to make submissions in regard to it.

The applicant claimed that the words "otherwise unable to present his case" used in Article 34(2)(a)(ii), although not clearly defined, introduced the notions of fair procedures and natural justice that are associated with the requirement that an arbitrator not misconduct himself during the proceedings. The applicant submitted that it was denied an element of procedural fairness in the conduct of the arbitration by the arbitrator's failure to give it the opportunity to adequately present its case in relation to the issue of estoppel. Therefore, it argued that the conduct of the arbitrator, in relation to his finding of an estoppel, was clearly unjust (citing Cameroon Airlines v Transnet Limited [2004] EWHC 1829 and Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14).

In addition, the applicant submitted that by addressing an issue that was not raised by the parties to the arbitration, the arbitrator had strayed beyond the "scope" of the terms of the arbitration and therefore breached Article 34(2)(a)(iii).

Furthermore, the applicant claimed that the alleged procedural unfairness was in conflict with the "public policy" of the state and this was a further ground for setting aside the award, under Article 34(2)(b)(ii). However, it was accepted at the hearing of the motion that the time limit for setting aside an award on the grounds of public policy under section 12 of the 2010 Act (56 days from the making of the award) had expired.

The respondent, on the other hand, submitted that although the arbitrator had used the word "estopped", he was not actually referring to the distinct legal doctrine of estoppel as it is known to contract law, but was rather using the term in the sense that is usually attributed to it in common parlance, that is - "precluded from" or "not entitled to" carry out some action or other.

Decision
The High Court dismissed the application to set aside the award.

Gilligan J held that the jurisdiction of the court to set aside an arbitral award is very limited and may only be exercised for a reason specified in Article 34 of the Model Law (citing Snoddy v Mavroudis [2013] IEHC 285).

It was clear that the word "estoppel" could be used in non-legal contexts and may have other meanings attributed to it. Gilligan J found that although use of the word "estoppel" in the general sense of "prevent" may be rare, it is not unheard of. He noted that it would be unusual for an arbitrator to have used the word estoppel in the strict legal sense without examining the complex jurisprudence that surrounds the application of the doctrine.

The arbitrator had engaged in a comprehensive interpretation of Clause 34(b) of the contract and concluded that the applicant could not exercise the contractual lien provided therein, as it did not meet, or no longer met, the conditions required by the provisions governing the exercise of that power.

Gilligan J held that the court also had to have regard to the views of O'Donnell J in Galway City Council v Samuel Kingston Construction Ltd and Anor [2010] IESC 18 in which it was held that a court should set aside an award where the offending matter is so substantial or so fundamental that it would be clearly unjust to allow the award to stand. Examples of such misconduct given by O'Donnell J included refusing to hear evidence on a material aspect of a dispute, adopting procedures that placed one party at a clear advantage, acting with a clear level of favouritism towards one of the parties or deciding a case on a point that was not put to the parties. Gilligan J concluded that Clause 34(b) of the contract was argued in full before the arbitrator, and the use of the term "estopped" was not "so substantial or so fundamental that it would be clearly unjust to allow the award to stand."

Furthermore, Gilligan J did not consider that use of the term brought the applicant within the provisions of Article 34(2)(a) or (b) of the Model Law.

Comment
This is an interesting decision which, once again, demonstrates the narrow grounds for challenging an arbitral award available in Article 34 of the Model Law. In particular, it shows the high threshold of misconduct that must be met before Article 34(a)(ii) can be invoked to set aside an award. It also serves as a warning to arbitrators to use clear and unambiguous wording when making their award, with a view to minimising the potential for confusion to arise amongst the parties in relation to the reasons for the award.

Case
Deluxe Art & Theme Ltd v Sheffs [2014] IEHC 695 (Bailii)

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

For further information please contact Davinia Brennan or Joe Kelly.

Date Published: 6 August 2015