014-SLLR-SLLR-2002-V-1-LANKA-ORIX-LEASING-COMPANY-LTD-v.-PINTO-AND-OTHERS.pdf
Lanka Orix Leasing Comapny Ltd. v. Pinto and Others
115
SC
LANKA ORIX LEASING COMPANY LTD
v.
PINTO AND OTHERS
SUPREME COURTAMERASINGHE, J.,
ISMAIL, J. ANDWIGNESWARAN, J.
SC APPEAL NO. 67/2000SC (HC) LA NO. 25/2000HIGH COURT NO. HC/ARB/332/99SEPTEMBER 25, 2001
Arbitration – Arbitration Act, No. 11 of 1995 – Enforcement of "award on agreedterms" – Sections 14, 25 and 31 of the Act – Mere record of a settlement notenforceable.
In the course of an arbitration under the Arbitration Act, No. 11 of 1995, theappellants and the respondents – partnership arrived at a settlement on 18.11.1998in terms of section 14 of the Act. That agreement was recorded and signed bythe parties and the arbitrator. However, no arbitral award was made in terms ofsection 14 (3) and section 25 (1) of the Act pursuant to such agreement; norwas a copy of such award made and signed by the arbitrator delivered to therespondents as required by section 25 (4) of the Act. Thereafter, the appellantsought to enforce the settlement before the High Court of Colombo under section31 of the Act "deeming it an arbitral award in terms of the provisions of sections14 and 25 of the Act No. 11 of 1995".
Held:
The so called award, viz, the document containing the settlement dated 18.11.1998tendered for enforcement was not in conformity with the law. A formal award onagreed terms should have been prepared and signed by the arbitrator in termsof sections 14 (3) and 25 (1) of the Arbitration Act and a copy thereof shouldhave been delivered to the respondents as required by section 25 (4) of theAct. The mere recording of the agreement was not enforceable in terms ofsection 31 of the Act.
APPEAL from the judgment of the High Court.
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Romesh de Silva, PC with Hiran de Alwis for appellant.
M. U. M. Ali Sabry with Manoj Nanayakkara for respondents.
Cur. adv. vult.
November 29, 2001WIGNESWARAN, J.
The appellant and respondents arrived at a settlement on 1
11.1998 before an Arbitrator in the presence of lawyers appearingfor either side. Trevor Felix Nihal Pinto represented the respondents'partnership T. F. N. Pinto & Sons'. The Legal Officer of the appellantLimited Liability Company and the abovesaid T. F. N. Pinto on behalfof the respondents' partnership signed the said settlement. Thesettlement signed by parties and the Arbitrator (marked document "C")is annexed to this judgment as a schedule.
Since the respondents defaulted payment in terms of thesettlement, the appellant sought to register and enforce the abovesaid 10settlement in the High Court of Colombo deeming it an ArbitralAward in terms of the provisions of sections 14 and 25 of theArbitration Act, No. 11 of 1995.
The High Court Judge, Colombo, by his order dated 01. 08. 2000refused enforcement with costs payable by the appellant. He held thatthere had been non-compliance with the provisions of section 25 (4)of the Arbitration Act.
Leave to appeal was granted by the Supreme Court on20. 11. 2000 against the said order on the question whether thelearned High Court Judge was in error in holding in the circumstances 20of the case, specially having regard to Document "C" (vide scheduleto this judgment), that a failure to deliver notice formally rendered theaward unenforceable.
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It was contended before us by Mr. Romesh de Silva, President'sCounsel, that the purported arbitral award was on agreed terms, signedand accepted by the parties present in person and represented byAttorneys-at-law to whom signed copies of the purported arbitralaward was delivered and therefore the question of conforming tothe provisions of section 25 (4) of the Arbitration Act did not arisein this instance. It was submitted that the respondents having been sodefaulters in terms of the Lease Agreement between parties who hadbreached the terms and conditions of the settlement reachedbetween them, the purported arbitral award must be allowed to beregistered and enforced.
Mr. M. U. M. Ali Sabry, Counsel for the respondent argued thatdocument 'C' did not constitute an arbitral award in terms of the Law,that in any event no notice was given in terms of section 25 (4) ofthe Arbitration Act and that the application for Leave to Appeal hadnot sought to vacate or set aside the High Court Judge's order dated
8. 2000 and therefore, the Supreme Court could not grant a relief *onot prayed for. These matters would presently be examined.
Validity of document 'C' (vide schedule) for Enforcement :
Document ’C' is an agreement entered before the Arbitrator. It setsout the settlement arrived at between parties. Item 4 specifically statesthat in terms of the agreement reached the parties to enter into anarbitral award on agreed terms in Colombo. It further states, that thearbitral award on agreed terms to be entered was set out in document'C' in terms of section 14 read with section 25 of the Arbitration Act,
No. 11 of 1995.
Section 14 reads as follows:50
It shall not be incompatible with arbitration proceedingsfor an arbitral tribunal to encourage settlement of the
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dispute and, with the agreement of the parties, the arbitraltribunal may use mediation, conciliation or any otherprocedure at any time during the arbitral proceedings toencourage settlement.
If, during arbitral proceedings the parties settle the
dispute, the arbitral tiribunal shall, if requested by theparties, record the settlement in the form of an arbitralaward on agreed terms.eo
An arbitral award on agreed terms shall be made inaccordance with section 25 and shall state that it is anarbitral award on agreed terms.
An arbitral award on agreed terms has the same statusand effect as any other arbitral award made in respectof the dispute.
Section 25 reads as follows :
The award shall be made in writing and shall be signedby the arbitrators constituting the arbitral tribunal. In arbitralproceedings with more than one arbitrator, the signatures 70of the majority of the members of the arbitral tribunal shallsuffice, provided that the reason for any omitted signature
is stated.
The award shall state the reasons upon which it is based,unless the parties have agreed that no reasons are tobe given or the award is an award on agreed terms undersection 14.
The award shall state its date and place of arbitrationas determined in accordance with section 16. The awardshall be deemed to have been made at that place. so
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After the award is made, a copy signed by the arbitratorsconstituting the arbitral tribunal in accordance with sub-section (1) of this section shall be delivered to each party.
For the determination of this matter sections 31 (1) and (2) arealso important. The said section reads as follows :
31.(1) A party to an arbitration agreement pursuant to which an
arbitral award is made may, within one year after theexpiry of fourteen days of the making of the award, applyto the High Court for the enforcement of the award.
An application to enforce the award shall be accompanied 90by –
the original of the award or a duly certified copy ofsuch award; and
the original arbitration agreement under which theaward purports to have been made or a duly certifiedcopy of such agreement.
When section 31 (2) (a) refers to the original of the award it refersto the decision of the arbitral tribunal on the substance of the dispute(vide section 50) made in writing and signed by the Arbitrator in termsof section 25 (1) and cannot refer to any document of agreement i°°signed by parties and the Arbitrator which does not have the stampof an award. An award is delivered by the Arbitrator, not by the parties.When section 25 (2) refers to an "award on agreed terms" undersection 14, it means the recording of the settlement between partiesin the form of an arbitral award but on agreed terms. The award muststate when prepared and signed by the Arbitrator that it is an arbitralAward on agreed terms. In this instant document 'C' says in its lastparagraph that an "arbitral award on agreed terms to be entered",etc. In the 4th item of the agreement it is stated as follows:
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”4. On these terms the parties agree to enter into an arbitral award 110on agreed terms in Colombo."
Nowhere is it said that the an arbitral award on agreed terms ishereby entered nor does document 'C' refer to itself as an arbitralaward on agreed terms in its caption or elsewhere. A mere recordingof the agreement of parties should not be considered as an award.Such recording is only a statement of the agreement between parties.
The award itself must be capable of enforcement. It must, therefore,have the stamp and sanctity of an award like a decree which lucidlyand succinctly sets out the order or direction in a judgment. TheArbitrator is expected to look into the validity, legality, enforceability, 120etc., of the terms of settlement and enter a formal arbitral award onthe basis of the agreed terms. Suppose parties agree upon a courseof action which is unenforceable since it is contrary to the policy ofthe law the Arbitrator is expected to call up the parties and have itchanged or rectified. For example, document 'C‘ in item 3 speaks ofa sum of Rs. 1,626,514 payable on default when the amount agreedin item 1 was only Rs. 1,000,000 as full settlement. There shouldhave been an award for Rs. 1,626,514, for such a sum to becomepayable on default. There is no such award.
It is to correct such lapses that the formal award before preparation 130and signature must have the Arbitrator's fullest attention. He cannotmerely sign any and every agreement between parties and allow itto be taken to Court for enforcement. Arbitrators need not be lawyers.
But, they should ascertain whether all parts or portions of agreementsare capable of conformation and / or enforcement or otherwise. Tothat extent they must be trained and experienced.
Further, it is also desirable to put the terms of settlement into anenforceable form when there is an element of future performance.Although many settlements involve immediate implementation of theagreed terms, settlements such as the one under consideration, have 140
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provisions for payment of instalments and for further transactions tobe carried out in terms of the agreement. Thus, an Arbitral Tribunalis expected to ensure that its award is not only correct and properbut also valid and enforceable. It is only an award which will qualifyfor recognition and enforcement under the law (not mere agreementof parties) which will be admitted by Court. Thus, in this regard theArbitrator has a role to play even where parties come to a settlement.
Sometimes original Court judges who record a settlement in apartition action for example, forget that the interlocutory decreeprepared on the basis of such settlement would confer a conclusive 150right in rem to parties and therefore the Judge is under an obligationto examine the settlement from the standpoint of the provisionsof the Partition Act and see that all matters in dispute are adequatelydetermined without leaving room for future uncertainty. Failure on thepart of Judges to adequately examine the terms of settlementbetween parties have given rise to much heartache and furtherlitigation between parties.
An arbitral award is final and binding on the parties to the arbitrationagreement (vide section 26). Therefore, the Arbitrator is duty boundto examine the agreement between parties and enter an enforceable ieoarbitral award on agreed terms.
Further, section 33 of the Arbitration Act recognises a foreignarbitral award as binding and enforceable. So too, our awards arethemselves equally recognised in foreign lands. Therefore, there mustbe formality, unambiguity and per se enforceability when such awardsare taken to foreign lands. Thus, the necessity for a formal arbitralaward in terms of the agreement entered becomes all the morenecessary. Mere agreement of parties cannot be sent for enforcementabroad.
The learned President's Counsel for the appellant took up the 170position that provisions of section 25 (4) of the Arbitration Act would
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not apply where parties are present at the time the settlement isreached in Court. It must be noted that section 25 (1) refers to allawards generally and section 25 (2) inter alia refers to award onagreed terms under section 14. When section 25 (4) mandates a copyof the award to be delivered to each party it refers to section25 (1). In other words whether the award is one which carries thereasons for the order or no reasons due to agreement of parties oran award on agreed terms, the delivery of a signed copy of the awardon the parties has been mandated. Therefore, it is to be inferred that 180a copy is expected to be delivered after the award is signed evenin respect of an award on agreed terms, because a formal awardon agreed terms signed by the Arbitrator was contemplated evenafter the entering of the terms of settlement between parties.
I, therefore, conclude that the so-called award (document "C")tendered for enforcement in this case was not in conformity with theLaw. A formal award on agreed terms should have been prepared,signed by the Arbitrator and a copy thereof should have beendelivered to the respondents.
Notice of Award under section 25 (4) :190
Since Mr. Romesh de Silva, President's Counsel, argued that nocopy need have been delivered, parties being aware of the settlement,it appears that he was not interested in pursuing the question as towhether a copy was, in fact, delivered on the respondents. No proofof delivery in any event was produced in the High Court and thelearned High Court Judge held that it was imperative that an arbitralaward to be lawfully effective and enforceable a copy should havebeen delivered on the parties. I do agree with his finding in this regard.Even though there was no proper arbitral award before Court in thisinstance, delivery of a copy of the arbitral award on agreed terms 200signed by the Arbitrator, in terms of section 25 (4) of the ArbitrationAct, was imperative.
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Can Court Grant a Relief Not Prayed For?
The application for Leave to Appeal had not specifically soughtto set aside and / or vacate the High Court Judge's order dated1. 8. 2000. What have been prayed for are (i) Leave to Appeal againstthe said order dated 1. 8. 2000 (ii) enforcement of the so-calledarbitral award marked 'C' (iii) entering of judgment and decreeaccordingly and (iv) costs.
It is possible to argue that since Leave to Appeal was prayed for 210against the order dated 1. 8. 2000 with enforcement of the so-calledarbitral award coupled with a prayer for the entering of judgment anddecree accordingly, what it meant was the setting aside of the orderdated 1. 8. 2000 to be replaced by a judgment and decree allowingthe enforcement of the so-called arbitral award. But, this matter isnot relevant since I have already confirmed the judgment of the learnedHigh Court Judge and also held that the so-called arbitral award(document 'C') was not really an award in terms of the Law.
I, therefore, dismiss the appeal with taxed costs payable by theappellant to the respondents.220
The Schedule above referred to:
Document 'C‘
– Arbitration -By and between
Lanka Orix Leasing Co., Ltd. – claimantv.
T. F. N. Pinto & Sons – respondent
Date : 18th November, 1998Time : 4.00 p.m.
Arbitrator : Mr. Shamil Perera
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Appearances : Mr. Hiran de Alwis, Attorney-at-Law for LOLC Ltd.
Mr. S. Mohamed, Legal Officer of LOLC Ltd.
Mr. Primal Karunaratne and Mr. Manoj NanayakkaraAttorneys-at-law for Mr. Pinto.
Mr. T. F. N. Pinto is present.
Mr. R. Rajanayake is absent and unrepresented.
The parities have arrived at a settlement. Mr. Pinto on behalf ofthe partnership T. F. N. Pinto & Sons agrees to the settlement inthe following manner:
Mr. T. F. N. Pinto agrees to pay LOLC Ltd, a total sum of 240
Rs. 1 million as the full and final settlement of the claim.
Payment is to be effected in the manner set out herein:
A sum of Rs. 10,000 to be paid monthly for the monthsof November and December, 1998 and January, 1999,on or before the last date of each particular month.
A sum of Rs. 100,000 to be paid on or before the lastdate of February, 1999.
The balance sum to be paid in instalments of Rs. 27,200per month commencing from March, 1999, to bepaid in 32 consecutive monthly instalments. Each monthly zsoinstalment to be paid on or before the last date ofeach month.
If Mr. Pinto defaults in the payment of any two instalments(not being consecutive), the lessor company is entitled to thefull amount due, namely a sum of Rs. 1,626,514 together withfurther interest at 36% per annum till payment in full.
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On these terms the parties agree to enter into an arbitral awardon agreed terms in Colombo.
The arbitral award on agreed terms to be entered is set out abovein terms of section 14, read with section 25 of the Arbitration Act,No. 11 of 1995.
sgd.sgd.
LANKA ORIX LEASING CO., LTD T. F. N. PINTO & SONS
sgd.
ArbitratorTime : 5.30 p.m.
AMERASINGHE, J. – I agree.ISMAIL, J. – I agree.
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Appeal dismissed.