Court dismissed motion to set aside arbitration award, finding no misconduct or error of law despite Greek text reference.

[*160] 1983 Oct. 19

(NIKITAS, P.D.C. AND N. NICOLAOU, D.J. )

IN THE DISTRICT COURT OF NICOSIA

In the matter of an Arbitration between

CYBARCO LTD. v. UNIVERSAL LIFE INSURANCE

COMPANY LTD. ,

and

In the matter of an Arbitration Award dated

19.8.80,

and

In the matter of the Arbitration Law, Cap. 4.

Application by Universal Life Insurance Company Ltd,

(Applicants).

(Application No. 39/80).

Arbitration

- Arbitration award - Setting aside of - Principles applicable - When is the Court free to look at documents in the arbitration record - Neither misconduct nor error of law could be inferred from the award or the documents it incorporated.

L. Demetriades, for the Applicants.

T. Papadopoulos, for the Respondents.

JUDGMENT

The Judgment of the Court was delivered by:-

NIKITAS, P.D.C.:- This is a [*161] motion to set aside or remit for further consideration an award made on August 8th, 1 980, by Mr, St.Evangelides who acted as arbitrator in a dispute between the applicants, Universal Life Insurance Co. Ltd., who were respondents in the arbitration proceedings, and Cybarco Ltd., a building company.

The dispute arose upon a contract entered into between the parties on 24th August,

1 977, whereby the present respondents to whom I will refer for convenience as the contractors agreed to build a number of flats for the applicants (hereafter to be called the employers), the architects being Messrs. Zembylas & Kythreotis of Nicosia, and an English firm called M.D.A. being the quantity surveyors of this building project.

It is not without importance to observe that before the signing of the contract, that is, on 31st March, 1977, the employers invited tenders for the building of their premises. The point was raised before the arbitrator what was the date of submission of the contractors' tender, a matter bearing a close connection with the principal issue referred to arbitration as will be shown later, the employers contending that it was the 20th June, 1977, whereas the contractors submitted the 2nd May, 1 977, was the correct date. The arbitrator decided this point in favour of the contractors and gave reasons for his finding which cannot be faulted in any way. At any rate no dispute arises with regard to that and the arbitrator’s finding is not impugned by the employers.

The parties used the standard form of building contract sponsored by the respective local associations of civil [*162] engineers and architects and building contractors. The printed form used was in Greek, but as the arbitrator found, the parties modified the' printed form by striking out a number of clauses and inserting new clauses in English. One of these modifications concerned clause 7(D) and it is convenient at this stage to refer to it as it is the very clause that gave rise to the differences of the parties. It is set out verbatim by the arbitrator in his award. So far as material it reads:-

”D) Wages

" In, the event of an increase or decrease in the wages in excess of 3% as provided below, the total amount of the work certified, excluding amounts certified in favour of sub-contractors and suppliers nominated by the architect shall be increased or decreased accordingly. In order to ascertain the existence of an increase or decrease in wages or to determine the amount of such increase or decrease the .following provisions shall apply :-

"The official index of wages as at the date of submission of tenders shall be deemed to be the basic indication. The said official index shall be published quarterly or at such intervals as the Government shall prescribe,” .

The arbitrator was required to decide what was the' official index of wages under the provisions of that clause the [*163] crucial sentence calling for interpretation being "the "official index of wages as at the date of submission of "tenders shall be deemed to be the basic indication."

The contractors contended at the arbitration that the clause should be construed as meaning that the basic index was the latest official index which had been published by the date of the submission of the contractors' tender, that is, by the 2nd May, 1977, which according to the facts found by the arbitrator was the index for February 1977 released on 30. 4.77 at the figure of 107. Counsel for the contractors further contended that if the clause did not bear that meaning there was an ambiguity which should be resolved by the reception of evidence by the arbitrator. The employers' position which is also set out in the award (see the relevant paragraphs at pages 5 and 6 was that there is no ambiguity and that the appropriate index was the one issued later on the 16th July, 1977, and was applicable to May, 1977.

There is again no complaint that the arbitrator misconceived, or misstated the arguments of counsel. From the documentary evidence before him the arbitrator found as a fact that the average monthly index of wages is published by the appropriate department at irregular intervals and to quote his own words "it is issued some weeks after the end of the month to which the index refers. He then proceeds to illustrate by example his finding. Thus the indices applicable to January and February, .1977 were issued on the. 30th April and that of May 1977 on July 16th. 1977. [*164]

As we have indicated the case tarns on the construction to be given to the phrase "the official index of wages " as at the date of the submission of tenders shall be deemed " to be the basic indication". The arbitrator thought that the meaning of this clause was clear and unambiguous and said so in his award.

Before we consider the objections taken to the award it is convenient to quote first those parts incorporating his reasoning which are under attack. At page 33 of exh. C, i.e., page 5 of the award the arbitrator states:-

"Personally I do not think that there is an ambiguity. The words mean the index which was in existence at the

time of the submission of the tender, the index which was valid on that date and this was the latest index which had

been issued by the date of the submission, by the 2. 5.1977, and this is the index for February 1977, i.e. 107.

In the Greek text it is stated clearly that "O telefteos ekdothis kyvernitikos dihtis imeromisthion shall be the basic index. In the English text the words used are 'The Official index of wages as at the date of the submission' . In my opinion the words in English are a nonliteral translation of the English words and they convey the same meaning. The intention was to substitute the date of the submission of the tender for the date of the signature of the contract and [*165] not to change anything else. 'As at the date' means something which was there at t he date. In any case the interpretation which the Respondents give to the words 'as at the date' does not fit to the words used. The index of 115 which was issued on the 16. 7.1977 was not 'as at the date' of the submission of the tender. The most that one could argue is that it was the index for that date, but even this would not. be correct."

The arbitrator goes on to explain - first two paragraphs at page 34 of exh. -that this is so because the index figure expresses the average wages of the month to which it relates but not necessarily the index of any particular day of that month. So, as he says:-

"....what we know about May 1977 is that the index for that month was 115 but we cannot say that the index for the 2nd May was 115. It might have been but it might have not."

And the arbitrator concludes his award in the following terms:-

"For the above reasons my answer to the question referred to me; what is the official index of wages which is deemed to be the basic indication for the purposes of clause 7D of the building contract between the parties is that it is the index for February 1977 which had been issued on the 30th April, “1977, and was valid on the 2nd May, 1977, i.e. 107".

Learned counsel for t he employers turned the spotlight on the passage in the award which we have underlined and [*166] it is upon that passage that his main criticisms were focussed. Mr. Nathanael sought to attack the award upon the grounds that there was error of law discoverable on the face of the award and that the arbitrator misconducted himself or the proceedings. In essence the same reasons were advanced in support of both grounds, namely, that in construing the wages clause the arbitrator based himself on or was influenced by the Greek text as the above extract from the award demcnstrates and he therefore received and acted upon extrinsic and inadmissible evidence.

Counsel invited us to look at the record of the arbitration proceedings in deciding the issue raised in this case. It is to be noted that the whole record is exhibited to the affidavit sworn by counsel for the employers in verification of the award. Counsel drew our attention to Russell on Arbitration, 19th ed. p. 441 and 442 and to a number of cases establishing that where a party seeks to set aside an award as being bad on its face and a fortiori in cases of legal miscondut the Court is entitled to peruse not only the award itself but all the documents which it incorporates. In the submission of counsel there has been in the instant case express or implied incorporation of the contract clause and the pleadings in the award and the whole of the record may be looked at and be evaluated by the Court.

Counsel for the employers referred us also to a line of cases in which the principles underlying the setting aside of awards have been expounded. He laid stress in parti- [*167] cular on the decision in Walford, Baker & Co,, v. Macfie & Sons (1915) 84 L.J.K.B. 2221 in which, as he submits, a similar situation arose and the award was set aside for legal misconduct. In parenthesis, s.20(2) of the Arbitration Law, Cap. 4, on which the present motion is founded, is

modelled on the provisions of s'.23 (2) and (.3)) of the English Arbitration Act 1950. The only judicial precedent in

Cyprus is the decision in Galatis v. Saw ides & Another, (1966) .1.. C.L.R. 87 where English authorities in this field of

law were quoted with approval and followed. It is therefore legitimate in searching for solutions to analogous problems in this jurisdiction to resort to English case law which grew' from the vast number of commercial arbitrations in the City, the international centre for arbitration.

A further ground which in reality is closely inter- 1 woven with the first is that as, the arbitrator found that' there was no ambiguity in the wages clause he should not have resorted to extraneous matter, i e., the Greek text, contrary to the basic rule of construction that the meaning of an expression in a document is to be collected from the document 2 itself.

It will be recalled that t he arbitrator said in the course of his award that the construct ion placed upon , the material words by the employers did not fit those words and went on to explain why. On the basis of what the arbitrator ' stated on this occasion, counsel for :the employers argued that the arbitrator was not asked to give his opinion as to the index [*168] in force on a particular day and consequently as counsel put it "he laboured under a misunderstanding as to what it was asked from him by the employers and what was the natural meaning of the words".

Learned counsel for the contractors submitted on the authority, inter alia, of Giacomo Costa Fu Andrea v. British Italian Trading Co., Ltd., (1962) 2 All E.R, 53, that neither the pleadings nor the other material forming part of the record can be looked at in determining whether there is an error of law on the face of the award when compared with such material, as there was no particular reference in the award to any part of the record.

While on this topic we might as well say that according to the standard criterion confirmed by Lord Denning in Blaiber & Co., Ltd. v. Leopold Newborne (London) Ltd., (1953) 2 Lloyd’s Rep, 427, namely, that the Court is free to look at documents, in the arbitration record only where they are expressly or impliedly incorporated in the award, clause 7D is set out fully by the arbitrator in his award and is therefore expressly incorporated in it and can be seen by the Court. The pleadings, however, are on a different footing and should not be viewed by the Court. The arbitrator said at the very beginning of his decision:-

"In accordance with the pleadings, at the material time, the Claimants were carrying on the business of contractors and the respondents the business of Insurance and in addition they constructed [*169] '' for sale a housing project comprising the erection of a large number of housing units."

In our judgment the reference to the pleadings for the purpose of merely describing the business status of the parties does not "incorporate" them into the award. The decision of Willis J. in Belsfield Court Construction Co., Ltd. v. Pywell (1969) 2 Doyd’s Rep. 588 is, we believe, on the point. He held, as we read from the headnote, that

" (1) Pleadings had not been referred to by the arbitrator so as to incorporate them into the award; they had simply been referred to as a convenient method of making clear the items in respect of which he was '' making or not making award (see p. 590, col. 1and 2);

" (2) pleadings were not in a special case, and there was no authority for saying they could be looked at in every case (see p. 591, col. 1).

In the submission of counsel for the contractors where, as in this case, the matter referred to arbitration is one of construction the decision of the arbitrator cannot be set aside simply because the Court holds an opposite view. This proposition underfied the decision in Re King and Duveen (1913) 2 K.B.32 and was followed and amplified in the case of Government of Kelantan v. Duff Development Co., Ltd.,(1923) A.C. 395. The principle is stated fully in the headnote to the case which reads:- [*170]

"Where a question of construction is specifically referred to arbitration the decision of the arbitrator on that point cannot be set aside because the Court would have come to a different ''conclusion, unless it appears on the face of the award that the arbitrator has proceeded illegally; ''i.g., that he has decided on evidence which is ''inadmissible or on principles of construction which ''the law does not countenance."

In that case complaint was made that in construing a deed the arbitrator had wrongly taken into account "the circumstances attending the preliminary negotiations and the conclusion of the agreement and received evidence there of. Though the matter was not stricto sensu within the ambit of the reference it was held that the arbitrator was entitled to have regard to the circumstances in which a deed came to be executed

not only for the purpose of making intelligible the terms of the deed and applying them to the facts, but also for the purpose of implying in the deed a

covenant which was not expressed therein, but which he is satisfied by the evidence of the circumstances surrounding the execution the parties intended to agree to."

Mr, Papadopoulos pointed out the similarities between the Kelantan case and the present situation and submitted that the arbitrator simply referred to the Greek text by way of explanation or elaboration in his argument after making a clear finding that the text applicable was the English one [*171] which as he found was free from any ambiguity; and that in any event he was at liberty to look at a document, that is, the Greek text, which was an exhibits in the arbitration and comment on it. It follows therefore that there was no error on the face of the award nor misconduct in the sense in which these words are legally defined. And citing Selby v. Whitbread & Co., (1917) 1 K.B. 736 counsel urged the Court to approach the case with a view to supporting the award rather than destroying it.

Alternatively, it was said that on the assumption that the Court is free to see the evidence on record it can only find, on a proper analysis of the material, that the arbitrator did not go wrong in this case.

Those being in a summary the rival contentions of the parties we now have to decide whether an error of law on the face of the award or misconduct has been established. We gave our ruling earlier with regard to the documents which we are going to see because such a decision is a necessary prerequisite for enabling the Court to determine whether the award contains an error of law on its face or the arbitrator has been guilty of misconduct.

An error of law in the sphere of arbitration law has been defined in Champsey Bhara & Co. , v. Jivraj Balloo Spinning and Weaving Co., Ltd. ( 1923)All E. R.Rep. p. 235; -

"An error of law on the face of an award means that there is to be found in the award, or a document actually incorporated therein, as for [*172] instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and '' is erroneous. The award will stand unless, on the'' face of it, the arbitrator has tied himself down to some special legal proposition, which, when examined, appears to be unsound."

Misconduct is a wider concept. The nature of the behaviour envisaged by the term is stated in the following passage from 2 Halsbury's Laws of England, 3rd ed., para. 126, p. 57:-

"What constitutes ’misconduct It is difficult to give an exhaustive definition of what amounts to misconduct on the part of an arbitrator or umpire. The expression is of wide import, “including on the one hand bribery and corruption and '' on the other a mere mistake as to the scope of the '' authority conferred by the agreement of reference or '' a mere error of law appearing on the face of the award,"

Instances of misconduct are to be found in the same paragraph. The most recent authority on the subject is the decision of Sir John Donaldson in Moran v. Lloyd’s,

(1983) 2 All E.R, 200 in which inconsistency in the findings of an umpire was alleged. In dismissing an application for leave to appeal against an order refusing to set aside an arbitration award or to remit it to the umpire the Master of the Rolls held that:- [*173]

"The applicant had failed to make out an arguable case of misconduct under s. 23 of the 1950 Act.It was doubtful whether inconsistency between one pant of an award and another could ever constitute or evidence misconduct by an arbitrator or umpire and the overwhelming likelihood was that it would merely show error of law or of fact, or both which in ''themselves did not amount to misconduct."

In the Walford case on which counsel for the employers relied the essence of the decision was given by Lush J. He said at page 22 -23:-

".. when it appears that an umpire allows to be given, and acts upon, evidence which is absolutely inadmissible, and which goes to the very root of the question before him, this court has ample jurisdiction to set the award aside on the ground of legal misconduct on the part of the umpire. Furthermore, this award is inconclusive, and on that ground also it cannot stand."

In our view the Walford case is inapplicable because it differs from this case in at least one essential particular. In Walford the arbitrator decided as to the rights of the parties, not under the contract upon which the arbitration proceeded, but under another contract. The circumstances of this case are entirely different. As the extracts from the arbitratoros

decision that we have cited clearly show there [*174] was no misunderstanding or confusion as to the identification and interpretation of the relevant part of the contract. All along he spoke of the English version of clause 7D and made an express finding in this respect. He then dealt with all the substantial points that were raised and stemmed from the original dispute and made his award in a perfectly clear and perfectly unambiguous manner. It is not therefore correct to say that he based his

decision on the Greek text. The main reasoning is independent from his comment on the Greek text. And we do not forget that he passed those remarks on the Greek text which, as it was conceded, was an exhibit in the arbitration proceedings. In other words he was commenting on evidence in the case. This is no doubt another vital difference between the Walford case and the case in hand. A very instructive case on the point under discussion is Macpherson Train & Co., Ltd. v. J. Milhem & Sons, (1955) 1 Lloyd’s Reports

597. In this case though the arbitrator received and acted upon strictly inadmissible evidence the Court refused to set aside or remit his award for misconduct on the general ground that it was evidence commonly admitted in commercial arbitrations and it was unchallenged. In our judgment the reference of the arbitrator to the Greek text is not in the circumstances a ground for invalidating his decision.

With regard to the last ground put forward by counsel for the employers it must have become apparent from the relevant passage of the award that we have quoted earlier that the arbitrator in rejecting the meaning attached to the wages clause by the employers he proceeded to reason on the basis of [*175] material which was properly before him and was closely associated with the contract clause. In our opinion that passage does not contain any error of law on the face of it and undoubtedly there was no misunderstanding on the part of the arbitrator as to what was the subject matter of the reference.

In the light of the guidelines laid down by the House of Lords in Kelantan and the Privy Council in the earlier case of Attorney-General of Manitoba v. Kelly and Others, (1922) All E.B.Rep 69 we do not express any view as to the

conclusion we would have reached if we ourselves had to decide the issue and not the arbitrator. We simply state that neither misconduct nor error of law can be inferred from the award or the documents it incorporates.

For the above reasons the motion fails with costs against the employers-applicants which will be assessed by the Registrar

Motion fails with costs.