Court will not set aside arbitrator's award unless error of law fundamental

Arbitration - Application to set aside award - Error of law - Common law jurisdiction to set aside arbitrator's award - Basis for setting aside arbitrator's award - Whether arbitrator entitled to decide question of law erroneously - Arbitration Act 1954 (No 26), sections 36 and 38.

The High Court (before Mr Justice Kelly); judgment delivered 25 March 1998.

The court has a common law jurisdiction to set aside an award of an arbitrator where an error of law appears on its face. Such an error must be so fundamental that the court cannot stand aside and allow it to remain unchallenged. However, if a specific question of law is referred to an arbitrator for decision the award will not be set aside merely because the decision on the question of law is an erroneous one. Mr Justice Kelly in the High Court so held in dismissing the plaintiff's claim and saying that the plaintiff did not establish an error of law on the face of the arbitrator's award and even if the statement to which the plaintiff took exception did constitute an error of law it was not so fundamental that the court would be justified in setting aside the award.

James P. Salafia SC, Ercus Stewart SC and John T Gibbons BL for the plaintiff; Anthony Kidney SC and Frank Duggan BL for the defendant.

Mr Justice Kelly said that this was an application by the plaintiff to set aside parts of two awards made in arbitration proceedings conducted between the plaintiff as claimant and the defendant as respondent. The plaintiff was a publican and owner of a licensed premises known as Saints and Scholars in Limerick city. The defendant insured the plaintiff's premises, through a master policy negotiated by the Vintners Federation of Ireland, from 28 March 1991. On 9 February 1994 damage was caused to the plaintiff's premises, allegedly caused by bursting or overflowing of water tanks which led to the collapse of a floor and the premises was closed on a temporary basis on 27 February 1994. The plaintiff then sought to be indemnified by the defendant in respect of the property damage and consequential loss. The defendant did not accept that the loss had been caused in the manner alleged and denied liability.

This dispute went to arbitration and on 2 October 1995 the arbitrator made an interim award whereby the plaintiff was held to be entitled to recover one third of the loss and damage suffered by him as a result of the collapse of the floor.

On the 16 July 1996 the arbitrator made a second interim award dealing with material damage and consequential loss. The plaintiff argued that there was an error of law on the face of this second award which caused the arbitrator to go wrong in his approach to the question of consequential loss. The arbitrator fixed a period of 78 days, commencing on 9 February 1994 and ending on 27 April 1994, as the appropriate period for the calculation of consequential loss.

It was argued that this period was inappropriate and was fixed at 78 days because of the incorrect view the arbitrator took of the duties owed by the plaintiff towards the defendant. The arbitrator stated in his second interim award that there was an obligation on the plaintiff to minimise any interruption or interference with his business and that he was to act "as if he were uninsured". The arbitrator then made a finding of fact that the plaintiff had not focused on his duty to mitigate his loss and that if he had done so the repairs could have been carried out and the premises reopened within two months. He rejected the reasons advanced by the plaintiff for not carrying out the repairs, which were the financial difficulties in financing such repairs and also the claim that public liability insurance would be withdrawn if he reopened his premises.

Mr Justice Kelly considered the law in relation to applications of this sort. An application to set aside an arbitrator's award can arise pursuant to section 36 of the Arbitration Act 1954 in situations where there was a monetary miscalculation in the award or where a particular credit was given or not given or where the award was uncertain or ambiguous or where the arbitrator himself seeks to rectify some error. The plaintiff conceded at the end of the hearing that he could not bring himself within the rubric of section 36. Section 38 of the 1954 Act provides for the setting aside of an award where an arbitrator has misconducted himself or the proceedings but that section was not relevant to this case.

As a result, it was the court's common law jurisdiction which was being invoked. The common law jurisdiction to set aside an award of an arbitrator for an error of law on the face of the record survived the passing of the Arbitration Act 1954 and this is clear from the Supreme Court case of Keenan v Shield Insurance Company Ltd [1988] IR 89. However, this is a jurisdiction which is to be exercised sparingly and Mr Justice McCarthy in Keenan was of the view that the error in question would have to be so fundamental that the court could not stand aside and allow it to remain unchallenged. This approach was reiterated by the Supreme Court in the case of McStay v Assicurazioni Generali SPA [1991] ILRM 237 where the then Chief Justice Mr Justice Finlay referred to the general desirability, subject to common law and statutory exception, of ensuring that an arbitrator's decision be final. Mr Justice Kelly referred to the House of Lords decision in Absalom Limited v Great Western (London) Garden Village Society [1933] AC 592 and said that a distinction had to be drawn between cases where a question of law becomes material to an arbitration and cases where a specific question of law is referred to an arbitrator for decision. While the instant case was in the former category it was clear that where a specific question of law was referred to an arbitrator his decision would not be set aside merely because the decision on the question of law was an erroneous one.

Mr Justice Kelly said that the expression "the claimant is expected to act as if he were uninsured" which appeared in the arbitrator's second interim award was taken from a textbook called Principles and Practices of Interruption Insurance by an author called Hickmott. While the plaintiff contended that this phrase amounted to an erroneous expression of his obligations in law the defendant contended that the phrase was being taken out of context and in fact amounted to no more than a consideration by the arbitrator of the plaintiff's obligation to mitigate his damage. Mr Justice Kelly said that a plaintiff is in fact under no common law duty to mitigate his loss and can act in a manner he judges to be in his best interests. However, a defendant will not be liable for all the loss suffered by the plaintiff as a consequence of his acting in this way and will only be liable for such part of the plaintiff's loss as can properly be regarded as caused by the defendant's breach of duty. However, the common law position was supplanted here by the provisions of the contract of insurance and the general conditions thereof which did impose a duty to mitigate.

The damage to the premises was caused on 9 February 1994 and the plaintiff closed the premises on 27 February 1994 at which point the defendant had not yet decided whether the policy would apply in respect of the damage. There followed a chain of correspondence wherein the plaintiff sought confirmation that he would be covered by the policy and the defendant sought further time for inquiries into the matter. Finally, on 19 July 1994 the defendant repudiated the plaintiff's claim saying that the loss fell beyond the scope of the policy. This decision was overturned by the arbitrator in his first interim award and the plaintiff claimed that as his premises was closed for the entire period during which the scope of the policy was being considered then it was this period which was the appropriate one for the calculation of consequential loss. The defendant argued that the plaintiff was under a contractual duty to commence works of reinstatement with reasonable dispatch and that this issue was fully argued before the arbitrator. On that basis it was argued that there was no error of law on the face of the record and that the arbitrator had simply found as a fact that the plaintiff was in a position to carry out repairs and his reason for not doing so was not well founded.

Mr Justice Kelly said he was not satisfied that an error of law appeared on the face of the arbitrator's award. The arbitrator fixed the period of 78 days having heard all the evidence before him and the plaintiff was now ascribing an inappropriate significance to a phrase taken out of context. While the phrase may have been better worded it was in reality a reference to the plaintiff's contractual duty to mitigate. However, if it was an error of law on the face of the award then it was not of such a fundamental type that would call for the intervention of the court. In essence the plaintiff was seeking a rehearing of his consequential loss claim even though it had already been fully considered by the arbitrator and the court would not allow the plaintiff to adopt such a course. The plaintiff's application was dismissed.

Solicitors: Holmes, O'Malley Sexton (Limerick) for the plaintiff; Francis X. Burke & Co (Dublin) for the defendant.