[1983] 2 All ER 200

Moran v Lloyd’s

ADMINISTRATION OF JUSTICE; Arbitration, Courts

COURT OF APPEAL, CIVIL DIVISION

SIR JOHN DONALDSON MR, DILLON LJ AND SIR GEORGE BAKER

1, 2 MARCH 1983

Court of Appeal – Leave to appeal – Necessity – Appeal against order refusing to set aside arbitration award or to remit it to umpire – Whether order refusing to set aside or remit award an interlocutory or a final order.

Arbitration – Award – Leave to appeal against award – Setting aside or remitting award – Allegation of misconduct of umpire by reason of inconsistency in findings – Whether inconsistency amounting to misconduct by umpire – Whether leave to appeal ought to be granted – Arbitration Act 1950, ss 22, 23 – Arbitration Act 1979, s 1.

Arbitration – Award – Leave to appeal against award – Setting aside or remitting award – Allegation of misconduct of umpire – Whether ‘misconduct’ applying to procedural errors by umpire – Arbitration Act 1950, s 23.

The applicant, an underwriting member of Lloyd’s, was the respondent in an arbitration between himself and the Committee of Lloyd’s. The arbitration was constituted under the Lloyd’s Act 1871, but was subject to the provisions of the Arbitration Act 1950 and the Arbitration Act 1979. By s 20 of the 1871 Act a member of Lloyd’s could be excluded from membership if he had been guilty, inter alia, of ‘any act or default discreditable to him as an underwriter or otherwise in connection with the business of insurance’, provided that such guilt had first been determined by arbitration proceedings. The Committee of Lloyd’s made ten allegations of discreditable conduct against the applicant and at the ensuing arbitration the umpire found him guilty of five of the complaints. The applicant applied for leave to appeal against the award pursuant to s 1 of the 1979 Act, and for an order under ss 22(1)a or 23(2)b of the 1950 Act remitting the award to the umpire or setting it aside on the ground that the umpire had misconducted himself in the proceedings. The judge dismissed the applications and also refused leave to appeal from his refusal to make an order under s 22 or s 23 of the 1950 Act. The applicant appealed to the Court of Appeal, contending (i) that leave to appeal to the Court of Appeal was not required because the judge’s refusal was not an interlocutory but a final order since it finally determined the rights of the parties in relation to the award, and (ii) that alternatively, if the judge’s order was interlocutory, leave to appeal ought to be granted because the applicant could show an arguable case of misconduct on the part of the umpire, namely that the umpire had made a finding of guilt in relation to one complaint which was inconsistent with his failure to find guilt in relation to other complaints, and had found against the applicant on a basis which had not been put forward by Lloyd’s, thereby depriving him of an opportunity of properly defending himself.

a    Section 22(1), so far as material, provides: ‘In all cases of reference to arbitration the High Court or a judge thereof may from time to time remit the matter referred … to the reconsideration of the arbitrator or umpire.’

b    Section 23(2), so far as material, provides: ‘(2) Where an arbitrator or umpire has misconducted himself or the proceedings … the High Court may set the award aside’.

Held – (1) The question whether an order was interlocutory or final was to be determined by the nature of the application and not by the nature of the order which the court eventually made. Since an order made on an application to set aside an award was interlocutory it followed that an order made on an application to remit an award was also interlocutory. Accordingly, since the applications under s 22 and s 23 of the 1950 Act were both interlocutory, leave to appeal was required (see p 203 c to f, post); Re Croasdell200 and Cammell Laird & Co Ltd [1906] 2 KB 569 followed; Salter Rex & Co v Ghosh [1971] 2 All ER 865 considered.

   (2) Leave to appeal would not be granted, however, for the following reasons—

   (a) 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 part 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 (see p 204 f g and p 205 c, post);

   (b) when considering a claim for remitting an award under s 22 of the 1950 Act on the ground of inconsistency, a distinction was to be drawn between the operative parts of the award and the reasoning for it. While inconsistency of reasoning would at most give rise to a right of appeal if it showed an error of law, inconsistency or ambiguity in the operative parts of an award might require remission to the arbitrator or umpire to enable him to resolve such inconsistency, since it would not be right to enforce an award in an ambiguous or inconsistent form. However, the applicant had shown no arguable ground for remission either on the basis of any internal inconsistency or for inconsistency in the reasoning (see p 204 h to p 205 c, post); Oleificio Zucchi SpA v Northern Sales Ltd [1965] 2 Lloyd’s Rep 496 considered;

   (c) failure by an arbitrator or umpire to allow a party a reasonable or proper opportunity to put forward his case could constitute misconduct for the purposes of setting aside an award or for exercising discretion to remit it, but on the facts there were no arguable grounds for alleging that there had been such misconduct (see p 205 b c, post).

   Per curiam. (1) Since the 1979 Act has created restrictions on the powers of the court to intervene in arbitration proceedings, ss 22 and 23 of the 1950 Act are not to be used as a means of circumventing those restrictions (see p 204 e f, post).

   (2) The terminology of s 23 of the 1950 Act, which provides remedies where an arbitrator or umpire has ‘misconducted himself or the proceedings’, can give rise to a wholly misleading impression of the complaint made against the arbitrator or umpire since s 23 is not confined to dishonesty or breach of business morality, which the terminology more usually implies, but can also apply to procedural errors (see p 203 f to j, post).

Notes

For what constitutes misconduct, see 2 Halsbury’s Laws (4th edn) para 622, and for cases on the subject, see 3 Digest (Reissue) 279–285, 1853–1880.

   For the Arbitration Act 1950, ss 22, 23, see 2 Halsbury’s Statutes (3rd edn) 451, 452.

   For the Arbitration Act 1979, s 1, see 49 ibid 59.

Cases referred to in judgment

Ames v Milward (1818) 8 Taunt 637, 129 ER 532.

Bozson v Altrincham UDC [1903] 1 KB 547, CA.

Croasdell and Cammell Laird & Co Ltd, Re [1906] 2 KB 569, CA.

Oleificio Zucchi SpA v Northern Sales Ltd [1965] 2 Lloyd’s Rep 496.

Salaman v Warner [1891] 1 QB 734, CA.

Salter Rex & Co v Ghosh [1971] 2 All ER 865, [1971] 2 QB 597, [1971] 3 WLR 31, CA.

Cases also cited

Becker v Marion City Corp [1977] AC 271, [1976] 2 WLR 728, PC.

Steinway & Sons v Broadhurst-Clegg (1983) Times, 25 February, CA.

Application for leave to appeal

The applicant, Christopher John Moran applied for leave to appeal against the order of Lloyd J dated 16 October 1982 dismissing his application for an order that the award dated 24 September 1982 made by Andrew Leggatt QC, the umpire in proceedings [*202] brought against the applicant pursuant to s 20 of the Lloyd’s Act 1871, be set aside or remitted. The facts are set out in the judgment of the court.

Mark Littman QC, John Finnis and Julian Burling for the applicant.

Peter Scott QC and Anthony Boswood for Lloyd’s.

Cur adv vult

2 March 1983. The following judgments were delivered.

SIR JOHN DONALDSON MR. The applicant, Christopher John Moran, an underwriting member of Lloyd’s, was the respondent in an arbitration between him and the Committee of Lloyd’s. The umpire was Mr Andrew Leggatt QC. The arbitration was constituted under the Lloyd’s Act 1871 (34 & 35 Vict c xxi), but the Arbitration Act 1950 and the Arbitration Act 1979 applied to it.

   Section 20 of the 1871 Act, as amended, renders a member of Lloyd’s liable to exclusion from membership by the votes of four-fifths of such members of the society as are present at a meeting specially convened for the purpose, if the member has violated any of the fundamental rules of the society or been guilty of an act or default discreditable to him as an underwriter or otherwise in connection with the business of insurance. However, this power of exclusion can only be exercised if the fact that the member has violated such a rule or has been guilty of such an act has first been determined by arbitral award and, in making such an award, the arbitrators and umpire are bidden to take into account all the circumstances of the case, moral as well as legal.

   The Committee of Lloyd’s alleged ten specific counts of discreditable conduct and by his award dated 24 September 1982 the umpire found the applicant guilty under nos 3, 4, 7, 8 and 9.

   The applicant then moved the Commercial Court for (a) leave to appeal against the award pursuant to s 1 of the Arbitration Act 1979, and (b) an order setting aside the award or remitting it to the umpire on the grounds that the umpire had misconducted himself or the proceedings. The latter order was sought under ss 22 and 23 of the Arbitration Act 1950.

   On 18 October 1982 Lloyd J dismissed both applications. His decision to refuse leave to appeal to the High Court cannot be questioned in this court, since such an appeal does not lie without the leave of Lloyd J and he refused it. Lloyd J also refused leave to appeal against his refusal to set the award aside or to remit it. Section 1(6)(a) of the 1979 Act does not apply to such an application and we now have to consider (a) whether leave to appeal is required, (b) if so, whether it should be granted, and (c) if leave to appeal is not required or we grant it, whether the appeal should be allowed.

Is leave to appeal required?

One might well have thought that this was no longer an open question, but it is a fact that I personally can never remember an occasion when I have appeared before or sat in the Commercial Court where it has been explored in the context of a motion to set aside or remit an award. Invariably when such a motion was considered, counsel said something along the lines of, ‘No one seems to know whether leave to appeal is required and whether my client has 14 days or six weeks in which to appeal. Would you therefore give leave to appeal and extend my time to six weeks de bene esse?’, and the judge agreed. A series of judgments by McNair J, to which we were referred by counsel for Lloyd’s, bears out this recollection. The time for appealing is no longer in doubt following the amendment of RSC Ord 59, r 4. It is four weeks from the date on which the judgment or order of the court below was signed, entered or otherwise perfected. However the question of whether leave to appeal is needed remains and has now to be determined.

   In the absence of an order under s 18(1)(h)(vi) of the Supreme Court Act 1981 the question depends on whether the order sought to be appealed was or was not an [*203] interlocutory order. This also determines whether the Court of Appeal is properly constituted for the hearing of the appeal if it consists only of two judges (see s 54(4)). One might, therefore, have expected there to be clear rules for the determination of what is and what is not an interlocutory order, but that is not yet the case, although there is power to make rules to this effect under s 60(1) of the 1981 Act.

   In Salter Rex & Co v Ghosh [1971] 2 All ER 865, [1971] 2 QB 597 Lord Denning MR, with the agreement of Edmund Davies and Stamp LJJ, drew attention to the two different tests which have from time to time been applied in deciding whether a judgment or order is final or interlocutory. In one (that adopted by Lord Alverstone CJ in Bozson v Altrincham UDC [1903] 1 KB 547 at 548) the yardstick was whether the judgment or order as made finally disposed of the rights of the parties. In the other (that adopted by Lord Esher MR in Salaman v Warner [1891] 1 QB 734) the yardstick was the nature of the application to the court, from which it follows that the order had always to be interlocutory or final whether or not the application was successful. Lord Denning MR adopted Lord Esher MR’s test, adding that in case of difficulty it was important to look to previous decisions of the court.

   An order made on an application to set an award aside for misconduct has in fact been the subject of a previous decision of this court. In Re Croasdell and Cammell Laird & Co Ltd [1906] 2 KB 569, a court consisting of Collins MR and Vaughan Williams, Romer, Cozens-Hardy, Fletcher Moulton and Farwell LJJ held that an order setting an award aside was interlocutory. While it is true that a court of six has no greater jurisdiction, and its decision no greater force as a precedent, than a court consisting of a lesser number of judges, this was, without doubt, a very strong court. Counsel for the applicant seeks to distinguish this decision on various grounds, the principal ground being that there had been important changes in the law of arbitration since 1906. However, in our judgment the decision is quite indistinguishable. An order made on an application to remit an award is at least as interlocutory as one made on an application to set the award aside and the decision in Croasdell would therefore apply equally to such an order. Accordingly we ruled during the course of the argument that the applicant must seek leave to appeal before the merits of his complaints against the judge’s order could be considered in depth.

Should leave to appeal be granted?

Counsel for the applicant wishes to argue, as he did before Lloyd J, that the umpire misconducted himself or the proceedings and that, on that account, the award should be set aside or remitted to the umpire for further consideration.

   In para 67 of its 1978 Report on Arbitration (Cmnd 7284) the Commercial Court Committee drew attention to the fact that the term ‘misconduct’ can give a wholly misleading impression of the complaint being made against an arbitrator or umpire. It said:

   ‘”Misconduct”

   67. Section 23 of the 1950 Act provides certain remedies if the arbitrator or umpire has “misconducted himself or the proceedings“. Few would object to this terminology if what was referred to was dishonesty or a breach of business morality upon the part of the arbitrator or umpire. But the section has been held to apply to procedural errors or omissions by arbitrators who are doing their best to uphold the highest standards of their profession. In this context the terminology causes considerable offence, even in a permissive society. The Committee would like to see some other term substituted for “misconducted” which reflects the idea of irregularity rather than misconduct. It may be said that this point is merely cosmetic, but arbitrators are not to be criticised for their sensitivity and the Courts should not be required to use opprobrious terminology about arbitrators and be obliged to take time explaining that when they have found that the arbitrator has misconducted himself, they were not using the words in any ordinary sense.’

   Unfortunately no effect was given to this recommendation in the 1979 Act. [*204]

   This is just such a case as the committee had in mind. Counsel for the applicant expressly disavows any intention of impugning the honour, integrity or professional competence of the umpire, but is forced to use the term ‘misconduct’ because the only relevant power to set the award aside is contained in s 23 of the 1950 Act which uses this term. In fact what he wishes to argue in this court is that the umpire erred in two respects, namely that his finding of guilt in relation to complaint no 3 is inconsistent with his failure to find the applicant guilty in relation to complaints nos 1 and 2 and that, in relation to complaints nos 4 and 9, the umpire found against the applicant on a basis which had not been put forward by Lloyd’s, thereby inadvertently depriving the applicant of an opportunity of adequately defending himself.

   Section 22 of the 1950 Act differs from s 23 in that it gives a power of remission, as contrasted with a power to set aside, and in that its exercise does not depend on a finding of misconduct on the part of the arbitrator or umpire. It is in terms wholly discretionary, but that discretion has to be exercised in accordance with established principles.

   For present purposes it is only necessary to say, as counsel for the applicant fully accepted, that the authorities established that an arbitrator or umpire does not misconduct himself or the proceedings merely because he makes an error of fact or of law. Similarly the power of remission under s 22 has never been exercisable merely on the basis that the arbitrator or umpire has made such an error. Prior to the passing of the 1979 Act, the only occasion on which an error of fact could be used to justify the intervention of the court was when it appeared on the face of the award. This power of intervention has been abrogated by s 1(1) of the 1979 Act. Similarly the only occasion on which an error of law could be used to justify the intervention of the court was where it appeared on the face of the award or where the question of law was raised by a special case stated for the opinion of the court. Again this power of intervention has been abrogated by s 1(1) of the 1979 Act, although a new right of appeal on questions of law has been created. This was the right which the applicant sought to exercise, but for which he failed to obtain leave from Lloyd J, a decision from which he is unable to appeal.

   We stress this aspect in order to make it clear to all who are concerned in and with arbitration that neither s 22 nor s 23 of the 1950 Act is available as a back-door method of circumventing the restrictions on the court’s power to intervene in arbitral proceedings which have been created by the 1979 Act.

   Returning to the complaint of inconsistency, we doubt whether, as such, inconsistency between one part of an award and another could ever constitute or evidence misconduct on the part of an arbitrator. The overwhelming likelihood is that it would merely constitute or evidence error of law or of fact or both and these do not amount to misconduct. Halsbury’s Laws of England suggests the contrary and cites Ames v Milward (1818) 8 Taunt 637, 129 ER 532 as authority (see 2 Halsbury’s Laws (4th edn) para 622). But that was a case not of misconduct, but of error of law on the face of the award at a time when this was a ground for setting aside.

   If the applicant’s notice of motion is to be strictly construed, we need not go beyond a consideration of whether an arguable case of ‘misconduct’ has been made out. So far as that is concerned, we are quite clear that it has not. However, in view of the seriousness of the matter from the point of view of the applicant, we do not think that it would be right to take so narrow a view of the proceedings. We have therefore considered the possibility of a claim for remission under s 22 in the absence of any misconduct. In this context we think that a distinction has to be drawn between the award itself (the operative or decisive part of the award) and the reasons for that award. Inconsistency of reasoning may betray an error of fact, but it is in the nature of arbitral proceedings that this must be accepted by the parties. Alternatively it may betray an error of law. That may give rise to a right of appeal, but it has no other effect. Inconsistency or ambiguity in the operative parts of the award, the parts which would ‘be enforced in the same manner as a judgment or order to the same effect’ if application were made under s 26 of the 1950 Act, may be another matter. The executive power of the state to enforce an award is not to be invoked in an inconsistent or ambiguous form and in such an event it [*205] might well be right to remit the award to the arbitrator or umpire under s 22 to enable him to resolve the ambiguity or inconsistency.

   This was the view of the law expressed by McNair J in Oleificio Zucchi SpA v Northern Sales Ltd [1965] 2 Lloyd’s Rep 496. There have been few judges more experienced in the law of arbitration and we respectfully agree with his view. Applying this to the award under consideration we can detect no arguable grounds for remitting the award on the basis of any internal inconsistency. Indeed we can detect no arguable grounds for alleging inconsistency even in the reasoning.

   This brings us to the submission in relation to complaints nos 4 and 9. Any failure to give a party a reasonable and proper opportunity to put forward his own case and to rebut that of the opposite party is undoubtedly capable of constituting ‘misconduct’ of the proceedings justifying the court in setting the award aside pursuant to s 23 of the 1950 Act or, alternatively, of constituting a circumstance which would justify the court in remitting the award to the arbitrator or umpire for further consideration pursuant to s 22. But in the present case we can again detect no arguable grounds for submitting that this occurred.

   For these reasons the application for leave to appeal will be dismissed.

Application dismissed.

Solicitors: Goodman Derrick & Co (for the applicant); Freshfields (for Lloyd’s).

Diana Procter Barrister.