Vogelaar v. Callaghan [1998] IESC 9 (13th July, 1998)

1. This is an appeal from a judgment and order of the High Court (O’Sullivan J) which was given on the 28th July last year and it is what one might describe as the penultimate act in a very long, unfortunate and protracted saga arising out of a building contract which went to arbitration. The plaintiffs, whom for the sake of clarity I shall call the owners, and the defendant whom I shall call the builder had several disputes in relation to a building and what was owed by the owner to the builder. It is unnecessary to go into all those matters. They were referred, the issues in dispute, to the arbitration of Mr. Padraig Murray, a well known and experienced architect, of

course. He conducted what in the event turned out to be an extremely protracted arbitration and one which certainly in terms of the costs which were incurred was out of all proportion to the sums involved, or significantly out of proportion to the sums involved and as a result of that arbitration the arbitrator found that the builder was owed a sum of some thirteen thousand pounds, by the owners and if matters had ended there, then further litigation mightn’t have resulted but he also directed that the owners were to pay the builder’s costs. The difficulty which that created was that, as is now quite clear, there had been an open offer on the 15th April 1992 made by the owners to the builder to dispose of the whole matter for the sum of £20,000. So that in accordance with the well established law and practice as to costs in arbitrations, that should have had the same effect in general terms as if a lodgment had been made in civil proceedings and the plaintiff in the action had failed to recover damages in a sum in excess of the lodgment. However, as I have said, the arbitrator decided, notwithstanding that fact, to award the costs of the entire arbitration to the builder, and that led to proceedings being instituted in the High Court which came before Mr. Justice Barron, in 1996, in which the plaintiffs sought to set aside the arbitration award on a number of grounds.

decided to award costs to the builder and in relation to that matter it is important to cite what the learned High Court judge said. He said, in relation to the award of costs, that the arbitrator had in his affidavit indicated that he awarded the costs of the hearing including the preliminary hearing from the costs of the application to amend the counterclaim to the defendant, i.e. to the builder, upon the basis that he had succeeded in obtaining an award in his favour. He appears to have been unaware that costs normally follow the event which in a case where an offer or a lodgment has not been exceeded by the award favours the party making such offer or lodgment. Had he taken into account the fact that the plaintiffs had made an open offer of £20,000 which was in excess of the sum awarded to the defendant, he would not necessarily have made the same award as to costs. Towards the end of his judgment, he goes on to say:

“it seems to me that to allow the award to stand with the direction as to costs would be to create a severe injustice. The arbitrator has not considered the question of costs in the light of the fact that the event was in fact in favour of the plaint ifs and not of the defendant, that is, in favour of the owners and not of the builder The matter will be remitted to him to make such award as he considers to be proper having regard to that factor.”

3. The matter thereupon came back before the arbitrator and counsel appeared before him at the hearing in relation to the matter of costs and it appears, and is not indeed disputed by Mr. Kilty BL on behalf of the builder, that at that hearing before the arbitrator there were a lengthy submissions and discussions concerning the effect of an open offer and indeed what an open offer was, or what constituted an open offer. It appears that there was in fact no discussion of the principle matter which arose, namely the effect if any on the order as to costs, of any residual discretion that there might be in the arbitrator, as to how he was to deal with the costs, because while, as Barron J found there had been an open offer and as he further found, costs normally follow the event, there would clearly be a discretion in the arbitrator remaining as to how he should approach the costs and that would clearly arise in this case. It is not disputed that there was a relatively significant amendment of the claim being brought by the owner, or the counterclaim being brought by the owner in response to the builder’s claim, to him, and it was not in dispute that the builder hadn’t contributed in any way to that and that this was a matter which was really had to be laid at the door of the owners and the real question the arbitrator had to deal with, when the matter came back before him, was not whether there had been an open offer or not. There had been, because of there having been an open offer the effect was quite clear, namely, that the costs should follow the event, the event in this case being that the award had been

less than the amount of the open offer. Accordingly the event, as lawyers would understand it, was that the builder had lost the case because if he had accepted the offer as he should have done, there would have been no need for any arbitration at all, so that in that sense, the costs should follow the event. That was the finding of the High Court in general terms, that the costs should follow the event but the arbitrator would, like any court dealing with the matter, have a residual discretion remaining in him to deal with the costs, so as to reflect any contribution that the owner’s conduct of the litigation had made to unnecessarily prolonging it, because it would clearly be unjust that the builder should have to bear the costs of an unnecessarily protracted arbitration.

4. Unfortunately the arbitrator does not seem in the way he dealt with the matter to have appreciated that, because he embarked on a lengthy and really quite unnecessary hearing, as to whether there had been an open offer and if so what the effect of an open unconditional offer was, when there was really no doubt, or should have been no doubt as to what the position was in relation to this particular arbitration having regard to the clear and unequivocal finding of the High Court, that there had been an open offer and that it had to be reflected in the arbitrator’s award.

“During the course of the hearing I concluded that had the experts for the Respondent prepared adequate proper extensive and independent reports and valuations prior to the commencement of the arbitration in September, not only would there have been no necessity to amend the counterclaim but the hearing involving claim defence and counterclaim could have been concluded in a period of six days or less.”

6. Now that was clearly an important finding, by the arbitrator, and one that he was fully entitled to make, and indeed very properly made because it was one that would undoubtedly affect the way he exercised the residual discretion as to costs that he had. He goes on to say in paragraph 9 that his award of £13,270.10 in favour of the builder stands. That again is not challenged and could not be challenged. He then goes on to deal with the costs in this manner:

7. If one pauses there, if that was all we were concerned with there could be no possible challenge in my view to the arbitrator’s award as being in any way erroneous in point of law or in any way being susceptible to being set aside because having regard to his finding that the arbitration, were it not for the manner in which it had been conducted on behalf of the owner, could have been concluded in the period of six days or less. He was entitled to come to the conclusion that the owner should not recover more than six days costs. That would be a significant loss, of course, to the owners because they would have to bear the costs of the remaining days of the arbitration themselves. Of course that could be quite a significant penalty, if I can put it like that but could be seen as representing no more than justice to the builder who was not responsible for it being prolonged that long and who should not be asked to pay for more than the costs of a six days’ arbitration. It is even unnecessary to express views as to the merits because it was clearly a matter which the arbitrator was entitled to take into account, that’s what he was there for. He was the person who conducted the arbitration and heard all the evidence and

who concluded who was at fault in this respect and he was perfectly entitled so to do. It is the clauses which follow which create the real problem in this case where he goes on to say that “the owners shall pay 9/15s of the builder’s costs in the arbitration including the preliminary costs etc.” Of course, that finding inevitably meant that not merely were the owners, who it must be remembered had succeeded in the arbitration, going to have to pay their own costs of 9 days but they were going to have to pay in addition the builders’ costs of those 9 days. It was that order as to costs which led to the present proceedings which were commenced again by special summons seeking to set aside that part of the award and it came on before O’Sullivan J on the 28th of July of last year as I have said. In an ex tempore judgment he said that, having considered the matter, he would make an order enforcing so much of the award as ordered the builder to pay 6/15s of the plaintiffs’ taxed costs and ancillary orders in respect of that, but then went on to say and this is the crucial part of his judgment:

April 1996 which has in my view determined the matter and held that, an open offer of £20, 000 having been made by the owners, it is not open to the arbitrator to treat that offer as withdrawn. I therefore order that such part of the said award as determined that the owners should pay 9/15 of the builders’ taxed costs in the arbitration including the costs of preliminary hearings in the amended counterclaim on a party and party basis and that the owners should pay 9/15 of the costs of the award of £29,137.82 inclusive of VAT in the arbitration be and the same are set aside so that this matter be remitted to the arbitrator to make such award as he considers proper having regard to the court’s findings herein.

From that order the builder has appealed to this court and Mr. Kilty on his behalf submits in effect that this was an exercise by the arbitrator of his discretion as to costs and that is it is one that shouldn’t be interfered with by this court because as he rightly says, of course, the arbitrator is the person who is seised of this matter. He was the person who heard the whole arbitration and he refers, of course, to the well known jurisprudence of this court in relation to arbitrations that this court must under no circumstances act as an appeal from

findings by arbitrators and can only set aside awards by arbitrators, where the parties have agreed to take that course of going to arbitration or are statutorily obliged to go to that particular form of dispute resolution in limited and defined circumstances. It is an inevitable consequence that they must take the arbitrator’s award as they find it and they can only ask the High Court to interfere where it appears that the arbitrator has in some way misconducted himself or made an error as to his jurisdiction or an error of law which is patent on the face of his award.

For their part the owners don’t quarrel with the finding of the High Court judge and they are obviously satisfied with the order setting aside so much of the award as gave costs against them but it is an important feature of the last act of this protracted drama, if I can call it, that, that they don’t claim or contend that the matter should go back to the arbitrator so that they should be awarded more costs than the six days that he thought proper to award to them and there is no cross appeal from Mr. Justice O’Sullivan’s order.

So we are solely concerned then with whether the High Court judge was right in setting aside so much of the arbitrator’s award as actually awarded costs of the nine days to the builder as against the owners. Now I am satisfied that the arbitrator was in error and it was indeed an error which - in the technical sense in which that word is used in relation to arbitrations and I want to emphasise that could be described as misconduct but not, of course, intentional

misconduct by the arbitrator. He appears not to have appreciated, it in quite clear, the significance of the finding by the High Court that the open offer which had been made was an unconditional open offer and in general should attract the consequence of costs following the event subject to any discretion there might be as to the extent of those costs or any penalty the plaintiffs might suffer because of any contribution they made to a protracted hearing. He doesn’t appear to have understood that properly because it is quite clear that the parties didn’t really get an opportunity to address him on that crucial matter. The hearing before him appears to have been in effect a discussion as to whether indeed this was an unconditional offer, what the effect of such an offer was and so on.

In those circumstances, and bearing in mind that the court should not interfere with arbitrator’s awards lightly and that the whole disposition of the court should be against so doing I am nonetheless satisfied that the High Court was correct in finding that the provision in the award that the owners should pay 9/15s of the costs to the builder, that the owners should bear that very significant burden of costs was clearly an error, on the face of the award, having regard to the express finding of the High Court that there had been an unconditional offer and that the costs were to be determined in the light of that unconditional offer. Whether it is going too far even in the technical sense to

describe that as misconduct in the arbitrator’s part it is probably unnecessary to say, because when one looks at all the agreed facts it is quite clear that there was an error on the face of the award in an arbitration the result of which was that one party succeeded and the other party did not, because that is the effect of a party failing to beat a lodgment under the law or equally failing to beat an open offer in an arbitration. It cannot be consistent with justice that that party should end up paying a significant part of the other party’s costs of the arbitration which effectively wipes out and more than wipes out the limited order for costs in his favour. In those circumstances and on the particular facts of this case I am satisfied that the High Court was perfectly correct in setting aside that part of the arbitrator’s award and I would accordingly propose to dispose of the matter by simply affirming the order of the High Court insofar as it so decided.

The only other matter that really remains then is as to whether any useful purpose is to be served by sending it back to the arbitrator to make a final award and it seems to me, as Mr. Stewart SC has properly and sensibly conceded, that there is no possible point in its going back to the arbitrator to see can he get more of the costs of the hearing. Mr. Kilty for his part accepts that, whatever finding this court makes and, of course, he urges us to set aside that finding by the High Court and restore the arbitrator’s original award, at this stage it is in no one’s interest that the matter should return to the arbitrator. I

am satisfied that, in a case like this, where the court is doing no more than simply setting aside part of the arbitrator’s award and confirming it in all other respects, the situation in this court at all events, whatever the situation has been in High Court, is that complete finality should be achieved so far as that is humanly possible, Accordingly, I would dispose of the appeal by dismissing the appeal but varying the order of the learned High Court judge by deleting so much of it as remitted the matter to the arbitrator for a further hearing.

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Supreme Court of Ireland Decisions

Vogelaar v. Callaghan [1998] IESC 9 (13th July, 1998)