Arbitration - application for removal of an arbitrator.
Before : |
W. J. Bailhache, Q.C., Deputy Bailiff, and Jurats Le Cornu and Marett-Crosby. |
Between |
Houze Construction Limited |
Representor |
And |
Degano Limited |
Respondent |
Advocate S. Franckel for the Representor.
Advocate R. Wakeham for the Respondent.
judgment
the deputy bailiff:
1. The Court received an application by the Representor for an order pursuant to Article 26 of the Arbitration (Jersey) Law 1998 ("the Arbitration Law") for the removal of the arbitrator, a well known Channel Island advocate ("the arbitrator") on the ground that he had misconducted himself and/or the arbitration proceedings between the parties.
2. The Representor was the main contractor engaged under a building contract to carry out works to a property in St Brelade. The Respondent was a sub-contractor employed by the Representor to carry out some of those works. A dispute arose, we are told as to the quality and finish of the flooring, which was not resolved, and on 4th October 2010 the Respondent issued a summons claiming the sum of £40,404.61 as the balance due to it in respect of the works which had been carried out at the property. The case was placed on the pending list and on 23rd November 2010 the Representor filed an answer denying that the sums claimed were due as alleged or at all, but for the reasons set out in that answer also seeking to set off so much of the debt as did exist against the counter-claim which was lodged. The counter-claim was in the sum of £93,300. The proceedings were stayed on 1st December 2010 on an application by the Representor, in order that the dispute could proceed to arbitration.
3. The parties agreed the terms of the appointment of arbitrator and the arbitrator accepted appointment on that basis on 17th March 2011. The terms of appointment required the arbitrator to conduct the arbitration in accordance with the rules which the parties agreed should govern the arbitration. The terms of appointment also made it plain that the arbitrator had full discretion to deal with all legal and other costs and disbursements which had already been incurred by the parties in bringing the dispute before the Royal Court. The terms of appointment reflect the contract which the parties agreed with each other and with the arbitrator.
4. For the purposes of this judgment the primary rules which we have considered are the following:-
"7.2 Unless the arbitrator otherwise directs the arbitration will proceed on the basis of pleadings exchanged as hereafter set out.
7.3 All pleadings should contain all allegations of fact or matters of opinion which it is intended to establish by evidence and set out all items of relief or other remedies sought together with total value of all quantifiable sums claimed, and must be signed by or on behalf of the party advancing it. Where the respondent denies any allegation (a) he must state his reasons for doing so; and (b) if he intends to put forward a different version of events from that given by the claimant he must state his own version.
...
7.6 Unless the arbitrator otherwise directs the parties will exchange pleadings as follows:
(a) within 14 days of the receipt by the claimant of the arbitrators acceptance of the appointment the claimant shall send to the arbitrator and to the other party particulars of the claim;
(b) within 14 days of the receipt of the particulars of claim the respondent will send to the arbitrator and to the other party a Defence but if no Defence is served within that time limit or such extended time limit as the arbitrator may allow then the respondent will be debarred from serving a Defence and pleadings are deemed to be closed;
(c) if the respondent wishes to make any counter-claim then a counter-claim shall be served with the defence;
(d) within 14 days of the receipt of the Defence and counter-claim (if any) the claimant may send to the arbitrator and to the other party a reply (and Defence to counter-claim if any), but if no Defence to counter-claim is served within that time limit or such extended time limit as the arbitrator may allow then that claimant will be debarred from serving a Defence to counter-claim and pleadings are deemed to be closed on that issue.
(e) within 14 days of the receipt of a Defence to counter-claim (if any) the respondent may send to the arbitrator and to the other party a reply to the Defence and counter-claim and pleadings are closed on the expiry of that time limit or such extended time limit as the arbitrator may allow or on the service of a reply to Defence to counter-claim if sooner;
(f) any further pleadings may only be served with the leave of the arbitrator;
(g) when a party has been debarred from serving a Defence or Defence to counter-claim under 7.6(b) or (d) the other party or parties shall still be required to prove any allegations made in the particulars of claim or counter-claim as the case may be.
7.7 Before or after close of pleadings the arbitrator may give detailed directions with any appropriate time-table for all further procedural steps in the arbitration, including (but not limited to) the following:
(a) any amendment to, expansion of, summary of, or reproduction in some other format of, any pleading or any extension or alteration of time limits for pleadings; (...)"
5. For the purposes of these terms of reference the claimant is the Respondent for the present proceedings, Degano Limited and the Respondent is the Representor in the current proceedings, Houze Construction Limited.
6. On 17th March 2011, the arbitrator wrote to the advocates for the Respondent and the Representor indicating his intention to seek, with the co-operation of both parties, to facilitate an orderly and speedy decision in the matter. The arbitrator also indicated he did not wish to depart from the provisions of rule 7.6 and he therefore directed the Respondent to send in the particulars of claim within 14 days of receipt of that letter, and the Representor to send in any defence and counter-claim in accordance with rule 7.6(b), quoted above. That letter was received by Messrs. Sinels, acting for the claimant, on 22nd March 2011, and the 14 day period therefore commenced on that date. Absent any extensions of time, the particulars of claim should therefore have been delivered by close of business on 5th April 2011.
7. On 4th April the Representor and Respondent communicated by email as to the extent to which the claimant's pleading should include references to without prejudice save as to costs correspondence. They did not agree. On 6th April, after time had expired for the filing of the particulars of claim, the Respondent applied to the arbitrator for directions as to how the question of the without prejudice save as to costs correspondence should be dealt with. During the next six days, pending the response from the arbitrator, the Respondent was out of time for the purposes of making any claim according to the rules of the arbitration which had been agreed by the parties. On 12th April, the arbitrator responded giving directions as to how the without prejudice correspondence should be treated in the pleadings. He added:-
"As a result of my delay in replying to you I give each of you a five day extension to the deadlines".
8. If that five day extension referred to the deadline of 5th April, it had of course already expired by that time. Subsequently it was clarified that the five day extension ran from 12th April insofar as the Respondent was concerned, to enable it to file particulars of claim. Although there is another possible construction, one assumes that as the extension was given to each of the parties, the five day extension meant that the Representor had 19 days after receipt of these particulars of claim in order to file a Defence.
9. It appears the Respondent filed the particulars of claim on 13th April. The 19 day period for filing the Defence therefore expired on Monday 2nd May. Pausing there, it is right simply to note that the Easter weekend accounted for four of those days between 22nd and 25th April, and the Royal wedding and May Bank Holiday accounted for a further four of those days from 29th April to 2nd May. In fact there were therefore nine working days after receipt of the particulars of claim before the time expired in accordance with the ruling which had been given.
10. The Representor failed to meet the deadline which was imposed. On 11th May, the further Bank Holiday of Liberation Day having intervened, the Respondent applied to the arbitrator for a ruling that, pursuant to rule 7.6(b) the Representor was out of time for filing a Defence and that accordingly it was debarred from serving a Defence and pleadings were deemed to have been closed. The same day the arbitrator responded to say this:-
"I thank you for your email. I was anticipating an email from one or both of the parties.
I confirm that I have received no word from Advocate Young. That being the case, my understanding is the same as yours, but before I take a decision I am asking him by copy of this email, to let me know if he has anything to add. Unless I hear from him within 48 hours I shall proceed as requested. "
11. Advocate Young immediately emailed the arbitrator to indicate that the particulars of claim had in fact been filed rather later than originally anticipated, and that he believed that it would not be necessary to request formally an extension of time. He however said that he did make that request if it were necessary to do so. To this the arbitrator responded:-
"Thank you for your email. You were amiss in anticipating that a similar period would be provided without you having to raise the issue. Advocate Chiddicks and you drew up the arbitration agreement, which you have signed. My task is to implement what the two of you decided and I agreed to. I am open to consider any mutual agreement you reach between you but otherwise I am bound by the terms of the written agreement.
By copy of this email I am asking Advocate Chiddicks to let me have his response".
12. The arbitrator received a response from Advocate Chiddicks to indicate that his clients did not agree any extension of time. As a result, on 12th May, the Representor's lawyers applied for an extension of time the grounds of which were as follows:-
(i) Providing an equivalent time period for pleadings;
(ii) Allowing the Representor to deal with persons out of the jurisdiction during that period;
(iii) Accounting for bank holidays which have significantly impaired the working time available to the Respondent.
13. The Representor submitted that in order to do justice as between the parties, and taking into account the timescales and purpose of the pleadings, it would be fair and reasonable to grant the extension requested.
14. It is right to add that on 11th May, the Representor had also sent to the arbitrator, without prejudice to any arguments in relation to an extension of time, the Representor's answer and counter-claim. The arbitrator acknowledged receipt of the email but indicated that he had not opened the documents as he wished first to consider the Respondent's response.
15. The Respondent did indeed respond to Advocate Young's letter to the arbitrator seeking the extension of time. It was indicated that the Respondent's position had not altered and no extension of time was agreed. Nothing further was said because the Respondent did not wish to incur costs necessarily.
16. To that email, the arbitrator responded:-
"I appreciate what you say about not incurring costs but it would help me if you would say a little more. For this purpose I shall put my own time and costs at a standstill."
17. Thus encouraged, Advocate Chiddicks sent a four page letter to the arbitrator on 13th May in which he objected to the extension of time on various grounds. Essentially the contentions were that Advocate Young had not accurately reflected the position in his application. There had been no inequality between the parties. The agreed terms of reference were clear and no application to vary the same had been sought. The Representor had at all levels failed to engage in the process and to adhere to procedure and the claimant Respondent was suffering unjustly as a result of the Respondent's conduct.
18. The arbitrator took time to consider the matter. On 8th June he sent a draft decision to both advocates but before issuing the decision he asked if there were any factual errors in the script or any errors in his application of the arbitration agreement or of law. The draft decision made it plain that no extension of time would be granted, and accordingly under rule 7.6(b) the Representor would be debarred from serving any answer and counter-claim and the pleadings would be deemed to be closed. On 13th June, Advocate Young on behalf of the Representor, asked if he might have until close of business of 17th June to respond and that was agreed by the arbitrator. Detailed submissions were made by Advocate Young on 17th June. The same day, Advocate Chiddicks indicated that he did not agree Advocate Young's letter, and he complained about the allegedly unreasonable behaviour of the Representor. He concluded that he did not propose to waste his client's time and costs in preparing a response unless the arbitrator deemed it necessary.
19. On 22nd June the arbitrator sent an email to Advocate Chiddicks, copied to the Representor's lawyer, to the effect that if he wished to comment on Advocate Young's letter of 17th June he should do so within the next four working days. In effect, this gave Advocate Chiddicks until close of business on 27th June. The same day Advocate Chiddicks sought clarification from the arbitrator that that was the time allocated to him, and said he would take instructions. The following day, the arbitrator responded to allow Advocate Chiddicks a further two days until Wednesday 29th June and he added this:
"The reason for my request is that I am required to make decisions on evidence which has been adduced. I am not saying that you need to give further evidence. I am merely telling you that it is for you to decide whether or not your brief rebuttal of Advocate Young's letter is sufficient for your purposes. I very much appreciate the costs that your client has incurred already."
20. Thus encouraged, Advocate Chiddicks submitted a five page letter to the arbitrator on 28th June. On 17th July, the arbitrator wrote to both advocates. He accepted in a minor respect one of the complaints which Advocate Young had made and therefore amended the draft decision of 7th June but otherwise maintained his decision to refuse the extension of time for the following reasons:
(i) Time started running on the day that Advocate Chiddicks received the arbitration agreement signed by the arbitrator, namely 22nd March 2011.
(ii) Advocate Young did not complain about the late filing of the particulars of claim but for the reason given that time did not start running until 22nd March, there was in fact nothing for him to complain about and Advocate Chiddicks had acted reasonably.
(iii) He accepted Advocate Young's argument that the agreement provided for an equivalent time period for pleadings, but that was subject to any extension that might be granted to the parties. The additional five days had been granted to Advocate Chiddicks from 12th April and he had adhered to that timetable.
(iv) The Representor's arguments regarding having to deal with persons outside the jurisdiction were rejected. If that were to have caused a difficulty, the Representor should have made an application before the expiration of the time period. In any case, Advocate Young had had adequate time to take instructions.
(v) He did not accept Advocate Young's arguments regarding bank holidays having impaired the working time available to the Representor. He could have applied to an extension prior to the expiration of the time period as the bank holidays were not unexpected events. The proper course was to make an application before the expiration of time and not afterwards.
21. That being the factual history, the application made by the Representor was for the arbitrator's appointment to be terminated. The argument was two-fold - firstly that the arbitrator had acted unfairly in his treatment of the parties in relation to questions of extension of time, and secondly that the facts indicated that the arbitrator was not impartial, alternatively there was at least a reasonable fear that he was not impartial and there was a real possibility of bias in favour of the Respondent.
22. Article 26 of the Arbitration Law provides as follows:-
"(1) Where an arbitrator or umpire has misconducted himself or herself or the proceedings, the Court may removed the arbitrator or umpire.
(2) Where an arbitrator or umpire has misconducted himself or herself or the proceedings, or an arbitration or award has been improperly procured, the Court may set the award aside.
..."
23. Article 28 of the Arbitration Law provides for further powers in the Court where an arbitrator has been removed.
24. In addition, the Court has an inherent jurisdiction to exercise supervisory control over an inferior tribunal by way of judicial review.
25. Notice of the application to the Court was given to the arbitrator. It is clear from correspondence which we have seen that the arbitrator was concerned as to the potential impact on his reputation of a Court decision on the Representor's application. As a result he wrote a letter to both parties setting out his approach to the questions he had decided. In that letter he emphasised that he had not in his view at any stage been biased against the Representor. He pointed out that he was an advocate of great experience, and that he had in various ways given much public service.
26. In addition to sending this letter, which was copied to the Judicial Greffier, the arbitrator attended in Court before us. He said that he did not want to be a party to the proceedings, and did not intend to appeal the Court's decision. He made the point that the Court's decision might effect his reputation. He also wanted the Court to have the opportunity to cross examine him as to what he had done. He confirmed that he was willing to continue with the arbitration and that the present proceedings would not lead him to be predisposed against the Representor. We appreciate the courtesy which the arbitrator has shown the Court by his appearance.
27. It appears that the Arbitration Law does not make any provision for serving notice upon the arbitrator where an application is made to the Court to have him removed pursuant to Article 26. Whether it is within the statutory framework in the United Kingdom, or part of the procedure and practice which has grown up, we are not clear, but we were advised that it is common practice in that jurisdiction to give notice to the arbitrator and to give him an opportunity of being heard in respect of any such application. We accept that the Court's decision in such matters may affect an arbitrator's reputation but with suitable anonymity given in the judgment, it seems to us that it ought to be possible to ensure that that factor carries relatively little weight. What is important is that the grounds of any decision of the arbitrator which has been made should be clear. We do not think it is appropriate for the Court to carry out any cross examination of the arbitrator and we did not do so. The merits or otherwise of the decisions which the arbitrator has taken should be determined upon the reasons given at the time and not on any ex post facto justification which might be presented. If there is an allegation of bias or perceived bias, then it may be necessary to give the arbitrator the opportunity of responding to any specific allegations which appear outside the ambit of the record of proceedings. For these reasons we think it is right to give the arbitrator notice of an application which is made under Article 26 but we do not think it is appropriate formally to convene the arbitrator as a party as a general rule, although in particular cases from time to time it may be desirable to do so.
28. The parties were both agreed that the Law insofar as allegations of bias or the perception of bias is concerned is to be found in the case of Magill-v- Porter [2001] UKHL 67. The test is whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.
29. The case for the Representor essentially amounted to this. The arbitrator had on occasion volunteered to the Respondent extensions of time which he denied to the Representor. The arbitrator had also reminded the Respondent that he was open to submissions, but he did not do this with the Representor. The combination of these two characteristics which the proceedings to date demonstrated showed that there was no even handed treatment of the parties to the arbitration. For that reason, it was contended that the informed observer would conclude that there was a real possibility that the arbitrator was biased.
30. The Court has looked carefully at all the papers which have been put before us. We have noted that Advocate Franckel, on behalf of the Representor, expressly excluded from his attack, any suggestion of any lack of personal integrity on the part of the arbitrator. He confirmed there was certainly no allegation of dishonesty or anything of that nature, it was simply down to the lack of even handedness which the Representor perceived.
31. In our judgment, this case does not get anywhere near establishing that the arbitrator was biased or to the reasonable informed observer would give the appearance of being biased. The contentions amount to saying that because the Respondent has had the benefit of some procedural decisions which have gone its way, it follows that the informed observer would conclude that the arbitrator might be biased. That is not a contention which this Court accepts, having regard to the material which has been put before us.
32. During the course of the hearing I asked the parties whether they would be able to acquiesce in an extension of time to file a Defence and counter-claim if a further application were made to the arbitrator at this stage. The Representor would have been prepared to accept such a solution. Through Advocate Wakeham, the Respondent made it plain that it would not. This was its right. However, the consequence of taking that decision was that the Court was obliged to recognise that the effect of the arbitrator's decision dated 7th June, but received in July after representations had been made to him, was that there would be a very one sided arbitration indeed. The Representor would not be able to assert any independent challenges to the claims made by the Respondent, nor assert any counter-claim. All the Representor would be able to do would be to put the Respondent to proof of its claim. It would not be able to file or adduce evidence which went to establishing its counter-claim, or indeed possibly even its defence.
33. Two consequences seem to us to flow from this state of affairs. First of all, it is apparent that if the arbitration proceeds on this basis, there is a substantial risk that the final award will be the subject of further proceedings on the grounds of mistakes of law or other misconduct of the proceedings on the part of the arbitrator, if he is not removed at this stage. The second consequence is that if he is not removed and if the final award is not susceptible to challenge not least because we have not set aside the arbitrator's appointment in these proceedings, then there would be a real risk of injustice in the handling of the claim and counter-claim.
34. Neither of these possibilities is attractive. It seems to us that it is necessary to go further in examining the Court's powers under Article 26 of the Arbitration Law in the context of the procedural decisions which the arbitrator has taken so far.
35. In our view Article 26 should be given its natural meaning. If the Court is of the view that the arbitrator has misconducted the proceedings, then in the exercise of its discretion, if that misconduct is considered sufficiently serious, the Court may remove the arbitrator. We have noted that this power is similar to the power conferred on the High Court by section 23 of the Arbitration Act 1950. As was set out in AT&T Corporation and Lucent Technologies Inc. -v- Saudi C Company [2000] CLC 1309, a decision of the Court of Appeal delivered on 15th May 2000:
"It will be noted from the terms of S.23, that the High Court is given a discretion to remove an arbitrator and to set aside an award subject to it being established that the arbitrator has misconducted himself or the proceedings. This conduct can take many forms. For there to be the necessary misconduct to enable the Court to exercise its powers under S.23, there need not be any capable or blameworthy behaviour on the part of the arbitrator. It can be sufficient if there is a "procedural mishap.
47. What is relied upon here by AT&T is an asserted non-compliance by Mr Fortier with the terms of the arbitration agreement. In particular the failure to comply with Article 2.7 of the ICC Rules, to which we have already referred. Non-compliance with the terms of an arbitration agreement can amount to misconduct.
..."
36. In our judgment it is at this point necessary to return to the rules which govern this arbitration. These were contractually agreed. In the absence of any breach of those rules, and/or in the absence of any other justified complaints about misconduct, it would be hard to see how an assertion that the arbitrator has misconducted himself or the proceedings could be maintained. On this occasion, the rules made it plain that there was a timetable which was anticipated by the parties for the purposes of filing pleadings. One can imagine that there might be cases where the parties agreed a rigid timetable from which there could be no departure. We do not need to determine whether, if that had been the case, an application such as the present one could be maintained. We leave that over for consideration after full argument, including argument on the law of contract, should those circumstances arise. By contrast here however, the rules conferred a discretion upon the arbitrator to grant extensions of time, as is clear from rule 7.6 and indeed 7.7. There is no doubt that the rules permitted the extension of time to be granted after time had expired - because indeed time had expired for the purposes of filing the particulars of claim when the arbitrator granted the first extension.
37. The rules are silent as to whether the application for the extension of time is required to be brought before time has expired. The rules are also silent as to the matters which the arbitrator should take into account for the purposes of considering any application for an extension.
38. Neither is there much in the Arbitration Law itself which is helpful in this respect. Article 31 does contain provisions about a delay in prosecuting claims - there is implied in every arbitration agreement, unless the contrary is expressed, a duty on the claimant to exercise due diligence in the prosecution of the claimant's claim, and where there has been undue delay by a claimant, the Court may make an order terminating the arbitration proceedings and prohibiting the claimant from commencing further proceedings. Interestingly, however, Article 31(3) requires the Court not to make such an order prohibiting further arbitration proceedings unless it is satisfied that the delay has been intentional or that there has been inordinate and inexcusable delay on the part of the claimant or the claimant's advisers which put at risk the fairness of a trial of the issues in the arbitration proceedings or which have caused or are likely to cause serious prejudice to the other party. These provisions point to a requirement that the arbitration proceedings shall be fair.
39. It does appear from the final version of the arbitrator's decision to refuse an extension of time that the arbitrator placed considerable reliance upon the fact that the application for an extension was not made prior to the expiration of the time within which the answer and counter-claim should have been filed. If this was the case, there is in our judgment no sufficient basis for such a finding. We consider that the problem, and it is a very serious problem, with the process which has been adopted is that the arbitrator has allowed procedure to become the master of justice such that the real issues would not in fact be ventilated in the arbitration if that decision were to stand. In our view this amounts to a misconduct of the proceedings which goes to the very heart of them. The Representor was late in filing the answer and counter-claim. It may be that some sanction would be, and indeed is, available to visit a costs penalty on the Representor for that default. However that is not a basis in our judgment to prevent the Representor from running in effect the defence which it would otherwise be entitled to run in the course of the arbitration.
40. There are occasions in court proceedings where time limits are ultimately enforced, but the Court is always reluctant to reach that stage unless the defaulting party is given some notice as well as opportunity to rectify his default or there is no other solution which is capable of providing justice to the parties. The Court does not easily drive a party from the judgment seat. The effect of the arbitrator's decision was just that, in relation to the claims which the Representor wished to run in the arbitration. We do not think that was fair and we cannot allow such a decision to stand, particularly given the short period of overrun and the other circumstances which we have described.
41. For these reasons, the Court grants the prayer of the representation that the arbitrator be removed pursuant to Article 26(1) of the Arbitration Law by reason of his unreasonableness in failing to grant to the Representor an extension of time to enable the answer and counter-claim to be filed.
42. I will now hear submissions on costs.
Authorities
Arbitration (Jersey) Law 1998.
Magill-v- Porter [2001] UKHL 67.
Arbitration Act 1950.
AT & T Corporation and Another v Saudi Cable Company [2000] CLC 1309.