Penwith District Council v VP Developments Ltd

An appeal from an arbitral award requires a properly arguable question of law. The court will not permit a party to recast a challenge to primary facts, factual inferences or the arbitrator’s evaluation of evidence as an error of law.

On an appeal under the Arbitration Act 1979, the court must distinguish the arbitrator’s ascertainment of facts, ascertainment and application of law, and ultimate decision. Only the legal stage is ordinarily reviewable. Where the arbitrator has made rational findings of fact and applied the relevant legal principles to them, criticism of wording or an alleged misreading of authority does not establish a material error of law.

The claimant sought leave to appeal under the Arbitration Act 1979 from an interim award concerning compound interest on sums allegedly due under a 1987 building-maintenance contract.

The arbitrator found that correspondence before the contract was made showed that the parties would reasonably have contemplated the claimant’s need to increase its bank borrowing. Applying the second limb of Hadley v Baxendale, he awarded compound interest as damages.

The claimant argued that the arbitrator had erred in law and that his findings were irrational. The central issue was whether the proposed appeal raised a properly arguable question of law rather than a challenge to factual findings or inferences.

1. Leave refused. The application disclosed no properly arguable question of law and was without merit.

2. Under sections 1(3) and 1(4) of the Arbitration Act 1979, leave is discretionary and requires a question of law whose determination could substantially affect the parties’ rights. The authorities establish a presumption that arbitral awards are final. Except in cases concerning standard terms, the arbitrator must generally be shown to have been obviously wrong.

3. The court adopted the distinction identified in Finelvet AG v Vinava Shipping Co Ltd: the arbitrator first determines the facts, including disputed primary facts; secondly determines the applicable law, including the material legal rules and relevant facts; and thirdly reaches a decision in light of the facts and law. Only the second stage is ordinarily appealable.

4. The arbitrator had found facts from the correspondence and oral evidence, drawn an inference from those facts, and applied the second limb of Hadley v Baxendale. His conclusion that the parties contemplated loss caused by funding an overdraft was a rational application of law to fact. The court would not substitute its own view of the evidence.

5. An allegation that no reasonable arbitrator could have reached the factual conclusion does not convert the issue into a question of law. Wednesbury principles, applicable in public law, did not govern this arbitration. A possible misuse of terminology, such as referring to reasonable foreseeability rather than reasonable contemplation, was peripheral and did not amount to a material legal error.

6. The general observations in London Underground Ltd v Citylink Telecommunications Ltd applied equally to applications under the 1979 Act. Challenges to findings of primary or secondary fact must not be dressed up as questions of law.

Not stated in the judgment.