Stern Settlement v Levy

Permission to appeal an arbitration award under section 69 of the Arbitration Act 1996 requires a true question of law, an obviously wrong decision (or a decision open to serious doubt on a question of general public importance), substantial effect on the parties’ rights, and a conclusion that it is just and proper for the court to intervene. A construction which is reasonably open to the arbitrator will not satisfy the “obviously wrong” threshold.

A section 68 challenge requires both a failure to act fairly and substantial injustice. The remedy is reserved for extreme cases. A party does not lose its right to object under section 73 where it has consistently raised the alleged irregularity and taken available opportunities to present its case.

The Stern Trustees engaged Levy as building surveyor for extensive works. A dispute arose over the meaning of “contracted period” in the fee provisions, and Levy commenced arbitration proceedings for unpaid fees. The Trustees counterclaimed for professional negligence and fraud.

The arbitrator awarded Levy on the fee-construction issue and rejected the fraud allegation. The Trustees applied for permission to appeal on a point of law under section 69 of the Arbitration Act 1996 and to set aside the award for serious irregularity under section 68. The central issues were whether the arbitrator’s construction was obviously wrong, whether any error substantially affected the parties’ rights, and whether the arbitration had been conducted unfairly.

1. Section 69 application dismissed. The construction of the fee provisions was a question of law. However, the arbitrator’s interpretation, although open to criticism, was reasonably available. The alternative construction strained the contractual wording and created difficulties with the agreed monthly payment mechanism. The court should only substitute its own construction in the clearest cases, particularly where the arbitrator had heard the relevant factual evidence and applied ordinary contractual construction principles.
2. The Trustees also failed to establish substantial effect on the parties’ rights. The relevant invoice had in fact been calculated on the basis for which the Trustees contended. Further, the dispute over fee calculation could not, on the arbitrator’s findings, justify termination of the contract. Even if the arbitrator had erred, the alleged error would not have materially affected the parties’ rights.
3. Section 68 application dismissed. Section 68 required a failure by the arbitrator to act fairly and substantial injustice. The statutory remedy was confined to an extreme case in which the conduct of the arbitration had gone so wrong that justice required correction.
4. The Trustees had not lost their right to object under section 73. They had debated the construction issue at the start of the arbitration, maintained their position, and repeated their arguments after receiving the draft award.
5. The arbitrator’s treatment of the pleading was imperfect, and his interruptions of the representative appearing for the Trustees were unfortunate. Nevertheless, the construction issue was ventilated from the outset, remained live, and the Trustees had ample opportunity to make submissions. No injustice resulted and the conduct did not amount to serious irregularity.

The judgment concerned first-instance applications arising from an arbitration award dated 19 February 2007. The applications under sections 69 and 68 of the Arbitration Act 1996 were both dismissed.