Insight

Rhona Henry says the existing dilemma as to whether court intervention in the arbitration process is appropriate, and to what extent, is once again controversial by virtue of the Arbitration Bill, 2008 (the “Bill”).

One of the most contentious powers of the courts under the existing regime in Ireland, with respect to domestic arbitrations, is the power of the court to set aside an arbitrator’s award - in other words, to interfere with the final and binding nature of an arbitrator’s award. The intention behind Section 32 of the Bill seems to be to extend the ability of the courts to interfere with an award of an arbitrator, but is this really the case ?

At present, there are separate regimes in Ireland governing domestic arbitration and international
commercial arbitration. The main purpose of the new legislation is to apply the United Nations
Commission on International Trade Law Model Law on International Commercial Arbitration (the
“Model Law”) to all domestic arbitrations in Ireland.

Currently the Model Law, by virtue of the Arbitration (International Commercial) Act, 1998 applies in Ireland in relation to international commercial arbitration only. The new Bill consolidates all existing legislation in Ireland with respect to arbitration and repeals the Arbitration Acts 1954 – 1998 (the “Acts’). The idea behind the amalgamation of these regimes is cohesion in the law and with a view to marketing Ireland more successfully as a location for arbitration.

The Bill is drafted to adapt the Model Law to domestic arbitrations in Ireland with certain changes, ie. agreed modifications to the Model Law which are to apply in Ireland. The age old question of in what circumstances should a court be permitted to overturn an arbitrator’s award once again raises its divisive head under the proposed new legislation. This has the effect of casting doubts on any comfort which parties to a dispute take that, in terms of the dispute resolution process, arbitration is the end of the line. We may now be moving towards a situation where contractors and employers will have to put further thought into the agreement to arbitrate in construction contracts. Under the Bill, the parties can opt in or opt out of the application of additional grounds for setting aside an arbitrator’s award. The real question is, however, do the additional grounds provided for in the Bill really extend the ability of the courts to set aside an award beyond the circumstances provided for in the Model Law ?

This article takes a brief look at the rights of a court to set aside an arbitrator’s award pursuant to:
(a) the existing regime; and
(b) the new provisions introduced by the Bill to apply to domestic arbitrations (ie. the Model Law as modified).

EXISTING REGIME FOR SETTING ASIDE AWARDS

The Acts allow the High Court to set aside an arbitrator’s award where the arbitrator has:

• misconducted himself/herself or the proceedings; or
• where an arbitration or award has been improperly procured.
  

In certain circumstances an aggrieved party to an arbitration, in certain circumstances, may actively challenge an arbitrator’s award by commencing proceedings to have the award set aside1. At common law, an award may be set aside because there is an error of law on the face of the award. What is misconduct? Although not defined in the Acts, case law assists in determining how it is to be interpreted. In a recent case before the Commercial Court2 , the Commercial Court rejected Galway City Council’s application to have a new arbitrator appointed for a complete rehearing of the case, on a number of grounds including on the basis that the arbitrator fell asleep during the hearing. Counsel for Galway City Council argued that the arbitrator was guilty of serious misconduct and sought not to have the arbitrator’s initial finding set aside, but to remove the arbitrator for the remainder of the arbitration. Mr Justice Bryan said that it was accepted by both sides that the arbitrator fell asleep a number of times during the hearing. However, he said that there was no way of verifying that the arbitrator’s initial finding would not have been different had he remained awake.

NEW PROVISIONS OF THE BILL

Section 32(1)(a) and (b) of the Bill provides for two additional optional grounds for setting aside
arbitration awards in domestic arbitrations.

Taking these provisions in reverse order, Section 32(1)(b) states that the court can set aside an award where the conduct of the arbitration was “ so procedurally unfair that it would be unjust not to set it aside” . It is not clear if this terminology seeks to widen the Model Law which effectively provides that to successfully apply to set aside an award, a party must prove either that there has been a procedural error with respect to the running of the arbitration (in this regard there are specific provisions setting out what constitutes procedural errors) or that the award is in conflict with public policy. The question then is, if it does not provide additional grounds for setting aside awards as set out in the Model Law then why include it as a modification to the Model Law ? And if it does, then what specifically are those additional grounds ?

Section 32(1)(a) provides that a court can set aside an award where there is an error of law so
fundamental that “it would be unjust not to set aside, or remit to the arbitral tribunal, the award or some part thereof”. The position at the moment in Ireland is that there may be a statutory power to set aside an award on the grounds of an error of law under the Acts. There is also a common law right to set aside an award if there is an error of law on its face.

The ability of an aggrieved party to seek to have an award overturned on a question of law is
contained in the new legislation. The wording used in the section is consistent with jurisprudence in Ireland on the issue which provides that the error of law must be on the face of the award and it must be fundamental. However, it remains to be seen how the courts will interpret this new provision. In conclusion, it is not clear at the moment whether the new legislation aims to provide a greater entitlement in Ireland to seek to set aside an arbitrator’s award than that currently provided for under the Model Law. Given that the new legislation expressly provides that an arbitrator must now give reasons for an award3 (although this would always have been implied under the rules of procedural fairness), this will likely assist a party wishing to challenge an award. It remains to be seen whether the new legislation will be adapted as currently drafted or whether there will be some clarity on the issues raised and changes to the Bill as drafted.

1 Section 38, Arbitration Act 1954
2 Galway City Council v Samuel Kingston Construction Ltd (ref. Irish Times Tuesday , June 17, 2008)
3 Article 31(2) of the Model Law
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© Matheson Ormsby Prentice 2009

This article was first published in Construction & Property News (February 2009).

The Information in this document is provided subject to the Legal Terms and Liability Disclaimer contained on the Matheson Ormsby Prentice website. The material is not intended to provide, and does not constitute, legal or any other advice on any particular matter, and is provided for general information purposes only.

For further information, please contact Rhona Henry, Associate in the Projects, Energy and Construction Group at Matheson Ormsby Prentice; email: rhona.henry@mop.ie or telephone +353 1 232 2000.