Power to set aside arbitral award

An arbitral award procured in violation of the principles of natural justice is subject to annulment

Arbitrators are subject to review by the court, and where an arbitrator has committed misconduct or the arbitration was improperly procured, the court may order their removal or set the award aside.

The quasi-judicial duty of an arbitrator requires them to consider their appointment, whether there has been compliance with the relevant arbitration clause and whether the provisions of Arbitration Law have been followed. The rules of natural justice govern the exercise of their jurisdiction and they are therefore bound to review the legality of the proceedings which led to their appointment, particularly when one of the parties is absent.

In conducting the arbitration, it is the duty of the arbitrator to ascertain that all parties have been duly informed of their right to participate in the arbitration and be heard. All documents and information related to the arbitration should be communicated to all parties. Any violation of the principles of natural justice by the arbitrator constitutes misconduct and the court may order the annulment of their award.

In the context of the execution of a building contract for an apartment building, differences arose between the owner and the contractor. The agreement contained a clause that provided that in the event of a dispute, it would be submitted in writing to the architect for resolution by him, as was done. However, the contractor disagreed with the architect’s decision and activated the procedure provided for in the agreement to refer the dispute to arbitration. The owner was not informed of the appointment of the arbitrator, nor of the proceedings conducted and was informed of the arbitral decision after it was issued and served to him.

The owner applied to the court seeking an order to set aside the arbitral award, claiming that the appointment of the arbitrator was invalid and illegal and that the arbitral proceedings were conducted in violation of the building contract and Arbitration Law.

The District Court of Nicosia examined the application and issued a decision on June 21, judging that based on the testimony presented before it the owner had discharged the burden of proof to show he was never notified of the intention to appoint an arbitrator and the consequent appointment of one.

Based on his testimony, which was uncontradicted, the court found he was never properly notified of the arbitration proceeding, after the unilateral appointment of the arbitrator, so he could participate in it and to be heard. The arbitration agreement was not served to him, nor does he appear to have received any letters or instructions from the arbitrator, nor the statement of claim or any documents filed in the proceeding by the contractor.

The court indicated that at no time was the owner served with any notice under section 11(b) of the Arbitration Law and the owner was not notified of the contractor’s unilateral appointment prior to the the arbitration proceedings. For these reasons, it concluded, the appointment of the arbitrator was in violation of the arbitration clause of the agreement, but also of article 11(2) of the law. It said the owner was deprived of the right to appoint an arbitrator of his own choice or approval. Therefore, the entire process were deemed void ab initio, due to the arbitrator’s lack of jurisdiction to act as an arbitrator.

The court concluded that the arbitrator proceeded to issue the disputed award knowing that the owner had not received any relevant documents, minutes or instructions from him. As case law indicates, arbitration is always conducted in accordance with established legal principles and each arbitrator is obliged to observe the procedural rules applicable to judicial proceedings in order to ensure equality, a basic principle of law. Therefore, it ruled that the arbitrator’s actions constituted a violation of the principles of natural justice, misconduct and his decision was subject to annulment.

George Coucounis is a lawyer specialising in the Immovable Property Law, based in Larnaca, e-mail coucounis.law@cytanet.com.cy, www.coucounislaw.com