1995 No. 411 SP.

IN THE MATTER OF THE ARBITRATION ACTS 1954 AND 1980 AND

IN THE MATTER OF AN ARBITRATION

BETWEEN

In this case the Plaintiffs seek to set aside an arbitration award made on the 27th March, 1995. The circumstances giving rise to the award were as follows. On the 2nd March, 1991 the Defendant quoted for the construction of a dwelling house for the Plaintiffs. The price quoted was £55,300 exclusive of VAT which was indicated as being at the rate of 12 1/2%. The quotation was accepted, but at the Defendant's request, it was agreed that VAT at such rate would be payable only on the sum of £27,000 provided that the balance was paid in cash. A subsequent agreement was reached on the 10th April, 1991 in relation to renovation works of a cottage for a total sum of £6,600.

The work carried out was more extensive than anticipated and a considerable claim arose for extras. By the beginning of the year 1992, the Plaintiffs had paid the sum of £97,000 and the Defendant was still seeking the further sum of £62,379.20 - calculated on the basis that only £92,000 had been paid. The Plaintiffs refused to pay any further sum and in April 1992 they made an offer of £20,000 to discharge any further liability to the Defendant. This offer was rejected and was subsequently withdrawn.

The parties being unable to settle their differences decided to arbitrate. They appointed an Arbitrator who issued directions. In the event the arbitration proceeded by way of full pleadings and lasted over a period of four months. During this period it was at hearing on eighteen days commencing on the 6th September, 1994 and finishing on the 28th January, 1995.

The Defendant's claim was for a total sum of £119,334.90 under several headings. The Plaintiffs' counterclaim for the sum of £32,981.20 under several headings. In the course of the hearing they were allowed to amend this counterclaim to claim a total sum of £108,837.67. The Arbitrator made his award on the 27th March, 1995. By the award he directed that the Plaintiffs pay to the Defendant the sum of £13,270.10 inclusive of VAT in full and final settlement of all claims and counterclaims, such payment to be made within ten days of the date of his award. The award further ordered the Plaintiffs to pay the Defendant's costs of the arbitration including the costs for the preliminary hearing and the amended counterclaim on a party and party basis, such costs to be taxed in default of agreement. The award further directed the payment by the Plaintiffs of the Arbitrator's costs which he measured at £29,237.82 inclusive of VAT. The award also included one other item which is immaterial to the present proceedings. Having received notice of the making of the award both parties sent a moiety of the Arbitrator's costs to the Arbitrator and received on the 22nd May, 1995 copies of the award. On the 3rd July, 1995 the Plaintiffs sought from the Arbitrator reasons for his award which he refused to give. Such refusal being contained in a letter dated the 13th July, 1995. The proceedings to set aside the award were commenced on 3rd July, 1995.

The Defendant submits that the application is out of time. By Order 56 Rule 4 of the Rules of the Superior Courts 1986 an application to set aside an Arbitrator's award must be made within six weeks after the award has been made and published to the parties, or within such further time as shall be allowed by the court. The authorities show that the period of six weeks runs not from the time when the parties received copies of the award or become aware of its contents but from the date when it is actually made. In the present case that date was the 27th March, 1995 and accordingly the proceedings have not been brought within the six week time period.

In answer to this submission, Counsel for the Plaintiffs relies upon the judgment of Parker J. "The Archipelagos" 1979 2 Lloyds 289 in which he reviews the authorities from which the rule relied upon by Counsel for the Defendant had been established. Parker J. accepted that there were passages in earlier judgments which might qualify the rule, but nevertheless held that since the rule had been in existence and followed for 140 years, he would not in any event have altered it. In his view to do so would have meant that time would not begin to run for a wholly indefinite period if neither side took up the award. Before exercising discretion to extend the time, he held that an adequate explanation for the delay had to be given. Although the only explanation given was ignorance of the rule that time ran from the date of the making of the award had been made known to the parties, time was extended because the delay was only for four days and Solicitors were abroad.

In the present case, those advising the Plaintiffs were equally unaware of the rule. They clearly thought the six week period ran from the date of receipt of the award. In my view, the facts in this case justify an extension of time for the following reasons:

1. The award was taken up jointly upon a date when the six week period had already run. In these circumstances, it would be unfair to enforce the rule, since this would have required the issue of proceedings before it could have been known whether or not there was a need to do so.
2. While the time, if any, to be extended depends upon the facts of each case six weeks will be allowed from the date of receipt of the award since the rule was apparently equally unknown to the Defendant until the adjourned hearing of this summons on the 15th January, 1996. Neither in the Affidavits filed on behalf of the Defendant nor at the hearing on the 4th December, 1995 was the issue raised.

The Plaintiffs rely upon three main submissions in support of their application:

1. That the Arbitrator has refused to give reasons for his award.
2. That the contract was illegal in that it sought to evade the payment of VAT.
3. That the Arbitrator failed to take account of the open offer of £20,000 made by the Plaintiffs when deciding to award costs to the Defendant.

The Arbitrator swore an Affidavit on 12th January, 1996 in which he deals with these and other matters. He says that at a preliminary hearing before he gave his directions he indicated to the parties that he would not give a reasoned award unless specifically asked to do so by one of the parties. He also indicated that this would be subject to the proviso that, if asked, he would then consider whether or not he would accede to such request. At the same time he indicated that it was not his practice to do so. The Affidavits of the parties put in issue whether or not this was the situation. Whether it was or not one thing is clear and that is that at no time did Counsel for the Plaintiffs make any application to the Arbitrator specifically asking him to state reasons for his award. The giving of reasons for an award must be dependent upon the issues which arise in the course of the hearing. What might be appropriate in one case need not necessarily be appropriate in another. In any event it has always been open to parties to an arbitration to require the Arbitrator to frame his award in the form of a case stated though he is not obliged to do so. A statement before directions are given on the part of an Arbitrator that it is not his practice to give a reasoned award seems to be inappropriate.

The Plaintiffs having had the opportunity to ask the Arbitrator to state his award in the form of a case for the opinion of the court or, alternatively, to give reasons for what he has done, it is not now open to them to complain that this was not done. Arbitration is an alternative to litigation through the courts. Its merit is that it is cheaper and speedier. At the same time it is an acknowledgement by the parties that they are placing their problem before an Arbitrator for his final decision. It must, therefore, be only in rare circumstances where justice can obviously be seen not to have been done that the Courts should entertain applications to set aside such awards or to remit them to the Arbitrator for further consideration. Such steps on the part of the Court should be taken only where there is some form of misconduct either by the Arbitrator or in the course of the proceedings in some other way. This is indicated by the Arbitration Act 1954 Sections 31 and 38. Much of the complaint made by the Plaintiffs in the present case is in reality an effort to appeal the decision of the Arbitrator and as such is a misunderstanding of the function of the Arbitrator and the system of arbitration itself.

The courts will not stand over an illegal contract. In the present case the Arbitrator has made it clear that he did not regard the contract as being one to defraud the Revenue in respect of VAT. There is no reason for seeking to upset that decision upon the grounds that it could not have been come to. The Arbitrator heard the evidence and was in a proper position to ascertain the truth.

In relation to the award of costs the Arbitrator has in his Affidavit indicated that he awarded the costs of the hearing including the preliminary hearing for the costs of the application to amend the counterclaim to the Defendant upon the basis that he had succeeded in obtaining an award in his favour. He appears to have been unaware that costs normally follow the event which in a case where an offer or a lodgment has not been exceeded by the award favours the party making such offer or lodgment. Had he taken into account the fact that the Plaintiffs had made an open offer of £20,000 which was in excess of the sum awarded to the Defendant he would not necessarily have made the same award as to costs.

In Keenan -v- Shield Insurance 1988 IR 89 the Court upheld an arbitration award. In the judgment of McCarthy J. consideration was given to the circumstances in which an award might be set aside. He said that an error appearing on the face of the award might be so fundamental that the courts cannot stand aside and allow it to remain unchallenged. It seems to me that that in the event is the situation in the present case although the error does not appear expressly on the face of the award it is nevertheless clear from the Affidavit of the Arbitrator and implicit from the award itself that the Arbitrator failed to take into account the offer which had been made. In my view such a failure cannot be regarded as merely being an error within jurisdiction or a failure to decide a legal matter in accordance with the proper law. It seems to me that to allow the award to stand with the direction as to costs would be to indicate a severe injustice. The Arbitrator has not considered the question of costs in the light of the fact that the event was in fact in favour of the Plaintiffs and not of the Defendant. The matter will be remitted to him to make such award as he considers to be proper having regard to that factor.

Doc. No. VOG v CALL