Arbitration — Whether successful party under arbitration award entitled to defend claim by arbitrators for fees and expenses on ground that arbitrators’ award of costs wrong in law — Whether arbitrators have a cause of action for recovery of fees
In accordance
with Jewish law the Beth Din of the Federation of Synagogues, acting as
arbitrators under the Arbitration Acts 1950 and 1979, made an award in favour
of the appellant in respect of a claim by A and L. Following the usual
practice, the Beth Din made no award as to the parties’ respective legal costs,
but in respect of their own fees and expenses made an unreasoned award that the
appellant should pay half of these. In appealing against judgment against him
under Ord 14 of the RSC in a claim by the trustees of the Beth Din for its
fees, the appellant contended that: (1) the trustees were the wrong claimants;
(2) there had not been a proper judicial exercise of the arbitrators’
discretion, because the award of costs did not follow the event and no reasons
for the award had been given; (3) the appellant’s counterclaim had not been
taken into account.
federation and therefore the federation’s trustees were the proper plaintiffs.
The claim to the arbitrators’ fees and expenses lay under an implied contract
that parties to an arbitration will pay such costs. The appellant’s remedy in
respect of the alleged failure by the arbitrators properly to exercise their
judicial discretion on costs should have been raised by appeal under section 1
of the Arbitration Act 1979, or for remission under section 22 of the
Arbitration Act 1950 to seek reasons. The time-limits and procedure were
prescribed by Ord 73 of the RSC. He could not challenge the award by way of a
defence to claim against him on behalf of the arbitrators. The counterclaim was
implausible.
The following
cases are referred to in this report.
Antaios
Compania Naviera SA v Salen Rederierna AB
[1985] AC 191; [1984] 3 WLR 592; [1984] 3 All ER 229; [1984] 2 Lloyd’s Rep 235,
HL
Blexen
Ltd v Trentham (G Percy) Ltd [1990] 2 EGLR
9; [1990] 42 EG 133
Crampton
& Holt v Ridley & Co (1887) 20 QBD
48
Foster v Great Western Railway Co (1882) 8 QBD 515
King v Thomas McKenna Ltd [1991] 2 QB 480; [1991] 2 WLR 1234;
[1991] 1 All ER 653, CA
Pioneer
Shipping v BTP Tioxide Ltd (‘The Nema’)
[1982] AC 724; [1981] 3 WLR 292; [1981] 2 All ER 1030; [1981] 2 Lloyd’s Rep
239, HL
Smeaton
Hanscomb & Co Ltd v Sassoon I Setty Son
& Co (No I) [1953] 1 WLR 1468; [1953] 2 All ER 1471
Wandsworth
London Borough Council v Winder [1985] AC
461; [1984] 3 WLR 1254; [1984] 3 All ER 976; 83 LGR 143, HL
This was an
appeal by David Baram from an order of Mr Graham Hamilton QC (sitting as a
deputy judge of the Queen’s Bench Division), who had dismissed with costs the
appellant’s appeal from an order of Master Prebble refusing leave to defend in
an action brought by the respondents, Arnold Cohen and four others.
Jack Denbin
(instructed by Davison Stone & Lewis, of Sheffield) appeared for the appellant;
Stephen Shaw (instructed by Franks Charlesly & Co) represented the
respondents.
Giving the
first judgment at the invitation of Dillon LJ, HIRST LJ said: This is an
appeal from the order of Mr Graham Hamilton QC, sitting as a deputy judge of
the Queen’s Bench Division, made on March 1 1993, dismissing with costs the
appeal of the defendant, Mr David Baram, from an order of Master Prebble dated
January 26 1993, by which the learned master refused to give the defendant
leave to defend in this action, brought by the plaintiffs, Mr Arnold Cohen and
four others, who are the trustees of the Federation of Synagogues.
The appeal
centres entirely on an order for costs made by the Beth Din of Federation of
Synagogues, London, in an arbitration between the two claimants (Mr Landau and
Mr Adler) and the present appellant, who was the respondent in the arbitration.
The factual
background and history of the course of proceedings is as follows. The
respondents in this appeal are, as I have already mentioned, the trustees of
the Federation of Synagogues, which is one of the two main orthodox synagogual
institutions in this country. The institution has its own religious court,
called a ‘Beth Din’, to which parties who so desire can refer disputes. The
court sits as a court of arbitration.
In February
1991, the appellant submitted to the jurisdiction of the Beth Din by a written
agreement for submission, dated February 21 1991, in respect of a dispute
involving himself, in this case as respondent, and Mr Landau and Mr Adler as
claimants.
The submission
was in the following terms:
In the matter
of the Arbitration Acts 1950 and 1979 and in the matter of an Arbitration
between Mr Landau and Mr Adler (claimants) and Mr Baram (respondent).
Whereas a
dispute or difference has arisen and still exists between the claimants and the
respondents, and the parties have failed to come to terms;
And whereas
it is the desire of the parties to refer such dispute or difference by way of
Din Torah to the arbitration and final decision of the Beth Din of the
Federation of Synagogues, London;
Now therefore
the parties agree as follows:–
1. The parties
hereby agree to refer to the arbitration and final decision of the Beth Din of
the Federation of Synagogues, London, all disputes or difference between them,
and all claims which either party alleges that he has against the other party,
for determination by way of Din Torah according to the rules of procedure
customarily employed in arbitrations before the Beth Din, and according to
principles of Halachah and/or general principles of equity customarily employed
in arbitrations before the Beth Din.
2. The
parties hereby agree each on their part to accept and perform the award of the
said Beth Din touching all disputes, differences and claims between the
parties, which award shall be final and binding . . .’, — the critical words
–‘. . . and to pay such costs as the Beth Din may determine within the period
specified in the award.
3. The
parties hereby agree that should either party, after the preliminary hearing
has been heard inter partes, subsequently fail without good cause to
attend any subsequent hearing, the Beth Din may proceed to determine the matter
ex parte.
Then the
document is signed by the two claimants and the present appellant. It is dated
February 21 1991.
It should be
noted that it is common ground between the parties that so far as the parties’
own legal costs are concerned in a Beth Din arbitration it is an established
principle of Jewish law that each should bear their own costs. It is therefore
also common ground that the reference which I highlighted, that is the
agreement to pay such costs as the Beth Din may determine, refers to the
arbitrator’s own costs and/or fees and not to the parties’ legal costs.
There is a
parallel submission to arbitration, dated the same date, of another dispute,
with a reference in identical terms, although the roles of claimant and
respondent are reversed. That second dispute (in what I will call the second
arbitration) has not yet been adjudicated upon.
The Beth Din
sat on four occasions, with three arbitrators, during the course of 1991, and
published its award on the merits in March 1992 in favour of the present
appellant, the respondent in the arbitration. In addition, the Beth Din ordered
that the costs, that is their costs, should be divided equally between the two
sides, with the present appellant being ordered to pay the sum of £2,000 by way
of costs within 30 days and Messrs Landau and Adler being ordered to pay the
same amount within the same period. No reason was given by the arbitrators for
the order which they made in that form, nor were the costs particularised, nor
were they broken down between fees and expenses.
The award was
sent to the appellant under cover of a letter dated March 12 1992. However,
despite subsequent demands for payment, he declined to pay. In consequence this
action, seeking recovery of the £2,000 costs awarded against him, has been
brought.
The plaintiffs
issued Ord 14 proceedings on August 17 1992, which resulted in a summary
judgment in the plaintiffs’ favour by the master, to which I have already
referred, which was upheld by the learned judge.
The appellant
raised with the master and the judge, and repeated in this court, a number of
grounds which he contends entitle him to unconditional leave to defend, all of
which were rejected by the learned judge.
They fall
conveniently under three headings, which I shall outline before considering
them separately.
The first
heading is ‘respondents’ status’. The appellant challenged the eligibility of
the present respondents, as trustees of the federation, to bring these
proceedings, contending that the arbitrators themselves were the proper
plaintiffs. There was also a question as to the locus standi of the
respondents to sue as plaintiffs for recovery of their fees and expenses. Both
points are disputed by the respondents.
The second
heading is ‘proprietary of the award of costs and Ord 73′. The appellant
contends that the award was flawed on a number of separate grounds. First, he
contends that, as a matter of law, the arbitrators’ decision on costs was not a
judicial exercise of their discretion, because they failed to apply the general
rule that costs follow the event a fortiori since they failed to give
any reasons for their decision to depart from that general rule.
Second, he
contends that the arbitrators’ award of costs, and the procedure adopted in
relation to it, conflicted in a number of respects with Jewish law and the
principles of Halachah. I do not need to detail the various contentions under
this head.
The
respondents contend that it is not open to the appellant to raise these matters
by way of defence in the action on the ground that, by virtue of Ord 73, r2 of
the Rules of the Supreme Court, the only available challenge on these grounds
is via an application for leave to appeal under section 1(2) of the Arbitration
Act 1979, or by an application for an order for remission under section 22 of
the Arbitration Act 1950 or section 1(5) of the Arbitration Act 1979 for
reconsideration and/or the furnishing of reasons, and that in default of such
application the arbitration award is final, valid and unassailable.
The appellant
contends that he cannot be prevented from raising these matters by way of
defence, irrespective of the requirements of Ord 73, and that, in any event, he
is precluded on religious grounds from making any application of this type to
the court.
This is the
major issue in the case and is one of significant importance.
The third
heading is ‘counterclaim’. The appellant contends that he has a valid
counterclaim which on ordinary principles should be treated as a set-off and
should entitle him to unconditional leave to defend. This is rebutted by the
respondents.
I shall deal
with these three issues under the same headings in the same order.
Respondents’
status
I am
completely satisfied that the present respondents, as trustees of the
federation, are the correct plaintiffs. The arbitration took place under their
aegis and the expenses which were incurred were incurred by them. The
arbitrators themselves are employees of the federation and would not in any
event, in my judgment, have been appropriate plaintiffs. The submission as to
the locus standi of the respondents to sue as plaintiffs for their fees
and/or expenses was not eventually pursued by the appellant before us, rightly
in my judgment, since it is necessary, in order to give business efficacy to
the arrangements between the arbitrators and the respective parties, to imply a
contract that the parties respectively will honour the arbitrators’ award of
costs in consideration of the arbitrators on their part proceeding with the
arbitration: Mustill and Boyd, Commercial Arbitration 2nd ed, p233. Crampton
& Holt v Ridley & Co (1887) 20 QBD 48 at p54 per AL
Smith J.
On this
contract they are plainly entitled to sue, though of course normally the
problem does not arise because it is customary for arbitrators to exercise a
lien on the award pending payment of their costs: Mustill and Boyd,
p235.
Propriety
of the award of costs and Ord 73
It is
convenient first to deal with the appellant’s reliance on his own religious
objections to litigating in a secular court. While, of course, fully respecting
his religious scruples they are, in my judgment, entirely a matter for his own
conscience and cannot be relied upon to exonerate him from compliance with the
general law. Ord 73 and the Arbitration Acts thus apply to this case completely
unimpaired.
Ord 73, r2(1)
and (2) provide as follows:
(1) Every application to the Court —
(a) to remit an award under section 22 of the Arbitration
Act 1950, or
(b) to remove an arbitrator or umpire under
section 23(1) of that Act, or
(c) to set aside an award under section 23(2)
thereof, or
. . .
(e) to determine under section 2(1) of the
Arbitration Act 1979, any question of law arising in the course of a reference,
must be made by originating motion to a single judge in court
(2) Any appeal to the High Court under section
1(2) of the Arbitration Act 1979 shall be made by originating motion to a
single judge in court.
The verbs
‘must’ and ‘shall’, in those two subrules respectively, should be particularly
noted.
Ord 73, r5 (1)
and (2) lay down time-limits for such summonses or motions.
Section 1(1)
of the Arbitration Act 1979 provides, so far as relevant, that the previous
procedure for the statement of a special case by arbitrators to the High Court
shall cease to have effect.
Subsection (2)
stipulates as follows:
Subject to
subsection (3) below, an appeal shall lie to the High Court on any question of
law arising out of an award made on an arbitration agreement; and on the
determination of such an appeal the High Court may by order —
(a) confirm, vary or set aside the award; or
(b) remit the award to the reconsideration of the
arbitrator or umpire together with the court’s opinion on the question of law
which was the subject of the appeal;
and where the
award is remitted under paragraph (b) above the arbitrator or umpire shall,
unless the order otherwise directs, make his award within three months after
the date of the order.
(3) An appeal under this section may be brought
by any of the parties to the reference —
(a) with the consent of all the other parties to
the reference;
or
(b) . . . with the leave of the court.
(4) The High Court shall not grant leave under
subsection (3)(b) above unless it considers that, having regard to all the
circumstances, the determination of the question of law concerned could
substantially affect the rights of one or more of the parties to the
arbitration agreement; and the court may make any leave which it gives
conditional upon the applicant complying with such conditions as it considers
appropriate.
(5) . . . if an award is made and, on an
application made by any of the parties to the reference, —
(a) with the consent of all the other parties to
the reference,
or
(b) . . . with the leave of the court,
it appears to
the High Court that the award does not or does not sufficiently set out the
reasons for the award, the court may order the arbitrator or umpire concerned
to state the reasons for his award in sufficient detail to enable the court,
should an appeal be brought under this section, to consider any question of law
arising out of the award.
As is very
well known, the scope for leave to appeal against an arbitration award under
section 1 of the 1979 Act has been very narrowly circumscribed by the decisions
of the House of Lords in The Nema [1982] AC 724 and The Antaios
[1985] AC 191.
Section 22 of
the Arbitration Act 1950, which has not been repealed, also gives power to the
court to remit an award.
The effect of
section 1 of the 1979 Act on appeal against an order for costs in an
arbitration have been considered by the Court of Appeal in two recent cases,
upon which Mr Shaw strongly relies. In Blexen Ltd v G Percy Trentham
Ltd [1990] 42 EG 133, [1990] 2 EGLR 9*, the Court of Appeal, consisting of
Lloyd and McCowan LJJ and Sir John Magaw, were concerned with an appeal
concerning an arbitration award of costs.
*Editor’s
note: Also reported at [1990] 2 EGLR 9.
At p134 Lloyd
LJ stated:
Mr Thomton
argues that the wrongful exercise of the arbitrator’s discretion as to costs
does not give rise to any question of law. If it does, it is not a question of
law arising out of an award on an arbitration agreement within the meaning of
section 1(2) of the 1979 Act and therefore section 1(1) does not apply.
I find that
argument difficult to follow. The arbitrator has explained his reasons for
making his order as to costs in great detail in his final award. The award was
made pursuant to an arbitration agreement. If the arbitrator had erred in his
approach the error must be one of fact or law. If it was an error of fact his
finding of fact is conclusive. If it was an error of law then it would be open
to the claimants to apply for leave to appeal on that question of law. I can
see no difference between an error of law in a reasoned award as to costs and
any other error of law.
Then it was
said that even if there was an error of law on the face of the award there is a
parallel jurisdiction to set aside or remit for misconduct which survives the
1979 Act. The claimants can therefore choose their remedy. I do not agree. It
is of course perfectly true that Parliament did not in 1979 repeal section 23
of the 1950 Act. The power to set aside or remit for misconduct survives. But
the question is whether that power exists when the only misconduct alleged is
an error of fact or law in a reasoned award. I am quite clear that it does not.
To hold otherwise would defeat one of the main purposes of the 1979 Act.
Whatever may have been the position as to costs in the old days the only course
open today, where an arbitrator states his reasons, is to challenge those
reasons by seeking leave to appeal on a question of law under section 1(3) of
the 1979 Act. This the claimants never did.
I say nothing
about what would be the appropriate procedure where an arbitrator states no
reasons for his award as to costs.
The doubt,
expressed in the last sentence I have just quoted, was laid to rest in the
subsequent case of King v Thomas McKenna Ltd [1991] 2 QB 480,
where the Court of Appeal, consisting of the Master of the Rolls (Lord
Donaldson of Lymington) Ralph Gibson and Nicholls LJJ, considered another
appeal concerned with an arbitrator’s award of costs, this time in a case where
no reasons had been given. As a result of the Master of the Rolls’ judgment,
with which Ralph Gibson and Nicholls LJJ agreed, the court clearly held that
the same principle as had been laid down in the earlier case also applied where
the arbitrators had failed, as in the present case, to give any reasons (at
pp494 to 495).
Mr Jack Denbin
submits that these cases, and indeed the whole scheme of the Arbitration Act
1979, are not applicable, because he seeks to raise the question as to the
propriety of the award of costs by way of a defence to the action brought by
the present respondents as plaintiffs.
In support of
this submission he cited the case of Wandsworth London Borough Council v
Winder [1985] AC 461, where the House of Lords held that Ord 53 of the
Rules of the Supreme Court, dealing of course with judicial review, did not
shut out a private citizen’s right to challenge a decision of a local
authority, under their powers laid down by the Housing Act, when that private
citizen was defending an action by the local authority for arrears of rent.
In my
judgment, the very important principle laid down in the Wandsworth case
has no bearing whatsoever on the present case.
Section 1 of
the Arbitration Act 1979, as interpreted by the Court of Appeal in the Blexen
and King cases, lays down mandatorily that any challenge to an award of
costs by arbitrators on grounds of misconduct, or on the grounds of
misapplication by the arbitrators of some general legal principle or of Jewish
law, must be brought by way of an application for leave to appeal under the
1979 Act. Ord 73, r2(2) prescribes that such application must be made by originating
motion to a single judge in court and Ord 73, r5(2) lays down the time-limits.
No such
application having been made in the present case, the arbitrators’ award stands
as a final, valid and unassailable award and the appellant is, in my judgment,
precluded from raising these issues by way of defence in these proceedings or
by any other route save that prescribed by the 1979 Act and Ord 73.
As an
alternative he could, of course, have sought a remission for reconsideration,
or for the giving of reasons under section 22 of the 1950 Act, or perhaps
preferably now, under section 1(5) of the 1979 Act, on the ground that the
award of costs was devoid of reasons and prima facie contrary to the
general law that costs should follow the event in arbitrations as in court
proceedings: Smeaton Hanscomb & Co Ltd v Sassoon I Setty Son
& Co (No 1) [1953] 1 WLR 1468. This he never did; nor, most
regrettably, did he even trouble to apply to the arbitrators direct for an
explanation of their reasons. Had he done so I think it more than likely that
he would have received an explanation which would have averted this litigation.
It follows
from the above that, in my judgment, Mr Stephen Shaw’s submissions, based on
Ord 73 and the Arbitration Act 1979, are soundly based and the appellant is
debarred from raising the issues concerning the propriety of the costs award by
way of defence in this action.
It follows
that the respondents, as plaintiffs, were entitled to summary judgment under
Ord 14, subject only to the counterclaim.
Counterclaim
This is dated
September 23 1992. It claims that the respondents
determine the reference. The counterclaim is as follows:
Accordingly
in the premises and by virtue of the foregoing the plaintiffs are in breach of
the arbitration agreement and the defendant has suffered vexation, distress,
loss, damage and special damage.
Under
‘particulars’ it says:
The
Particulars will be served separately in the form of a schedule.
No particulars
have been forthcoming for this somewhat ambitious claim under those various
headings, though more than a year has elapsed since the counterclaim was
served.
It is well
settled, and Mr Denbin was perfectly entitled to submit as a matter of general
law, that where a defendant in Ord 14 proceedings has a bona fide and
plausible counterclaim, the court will generally, in the exercise of its
discretion, treat it as a set-off and grant unconditional leave to defend, or
at least order a stay of execution until the counterclaim is determined.
However, in my
judgment, this counterclaim is extremely implausible. When asked when and how
the arbitrators declined to proceed with the second arbitration, in other
words, when asked to identify his cause of action on the counterclaim, Mr
Denbin relied solely on two letters dated August 15 1991 and October 15 1992,
in each of which the arbitrators stated expressly, and in terms, that they were
ready to proceed with the second arbitration when requested for a hearing date,
thus taking a posture the very opposite of that which is suggested against
them, namely that they declined to proceed.
Mr Denbin then
sought to rely on a letter dated June 11 1993 where the arbitrators indicated
that they were not willing to go ahead with the second arbitration until the
present dispute about costs in the first arbitration was resolved.
It might be
said, in passing, that it seems somewhat unjustifiable to criticise the
arbitrators for declining to embark on the second arbitration and incur further
expenses while the costs of the first arbitration were still in the melting
pot.
Be that as it
may, this letter, in any event, cannot possibly be relied upon to found a cause
of action on this counterclaim, since it is dated a long time afterwards.
Quite apart
from this consideration, as Dillon LJ pointed out in argument, the proper
course for a party in the position of this appellant, if the arbitrators did
indeed decline to proceed, is to apply to the court either for an order that
the arbitration should proceed forthwith, or for an order that fresh
arbitrators should be appointed.
By neglecting
to pursue this course, the appellant has failed to mitigate the damage which he
alleges, not very convincingly, he has suffered as a result of this delay. Such
mitigating steps taken punctually would have eliminated, or at least reduced to
an insignificant amount, any such damage.
In
consequence, in the exercise of my discretion, I would not be prepared to treat
this counterclaim as a set-off against the respondents’ established claim
though, of course, the appellant is free, if he sees fit to do so, to pursue
the counterclaim as a separate action.
For all these
reasons I would dismiss this appeal.
I should add
that there was an application to adduce fresh evidence before us of
correspondence subsequent to the learned judges’ hearing. One of the letters
was the one of June 11 1993, to which I have referred. That application was
allowed.
MANN LJ agreed and did not add anything.
Agreeing, DILLON
LJ said: I add a few comments only on three minor aspects.
The first is
that we admit the new evidence that the appellant sought to have admitted on
the appeal because, and only because, one of the letters referred to in that
was the letter which he claimed showed that the trustees had refused improperly
to proceed with the second arbitration. It is therefore necessary, as Hirst LJ
has explained, to consider the submissions founded on the letter.
The second
point is as to the point of the locus standi of the trustees to sue for
arbitrators’ costs which the Beth Din ordered Mr Baram to pay. It would be more
accurate to say that the point in its broadest form was initially taken by the
court, rather than by Mr Denbin. Mr Denbin asserted that the trustees had no locus
standi, and was not greatly concerned to consider whether anyone else had a
locus standi. Indeed, on some of his submissions he was concerned to set
up that there was a contract and that the Beth Din had been in breach of it. It
had occurred to the members of the court that there might be a more formidable
difficulty in the way of the trustees, in that the normal procedure is for an
arbitrator to rely on not releasing his award until his fees have been paid,
and there was no clear authority that an arbitrator had a right to sue in
implied contract for payment of the arbitrators’ fees.
To my mind the
reasoning of AL Smith J, in Crampton & Holt v Ridley & Co
(1887) 20 QBD 48, on this point is convincing. It is the right approach that
the trustees can sue on an implied contract for the £2,000.
The final
point is this. It was claimed in the notice of appeal that the award against Mr
Baram of £2,000 arbitrators’ costs was made by the Beth Din in excess of
jurisdiction.
In his
skeleton argument Mr Denbin relied, for that proposition, on a decision in Foster
v Great Western Railway Co (1882) 8 QBD 515. He said that it was beyond
the jurisdiction of the Beth Din to award costs against the successful party in
the arbitration. But Foster’s case is trenchantly criticised by Devlin J
in Smeaton Hanscomb & Co Ltd v Sassoon I Setty Son & Co,
to which my lord has already referred.
In my
judgment, it is inapplicable under the new regime established under the 1979
Arbitration Act, even if it was still valid before that.
I would, as
indicated, dismiss this appeal.
HIRST LJ added: I fully agree with Dillon LJ’s judgment and, particularly,
with his important reference to the old case in the last section of his
judgment.
Appeal
dismissed with costs. Leave to appeal refused.
