LIGHT WEIGHT BODY ARMOUR LTD . v. SRI LANKA ARMY

045-SLLR-SLLR-2007-V-1-LIGHT-WEIGHT-BODY-ARMOUR-LTD-.-v.-SRI-LANKA-ARMY.pdf


CA
Elangakoon v Officer-in-Charge, Police Station, Eppawaia and
another (Sarath De Abrew J,)
411
LIGHT WEIGHT BODY ARMOUR LTD.v
SRI LANKA ARMY
SUPREME COURTTILAKAWARDANE, J.
DISSANAYAKE, J.
SOMAWANSA, J.
SC (HCA) 27A/2006SCHCLA 69/2005HC COLOMBO 125/4OCTOBER 27, 2006
NOVEMBERS 27, 2006
Arbitration Act- 11 of 1995 – Section 25, Section26, Section31, Section 32(1)- Award — Grounds of Challenge? – Award against public policy? Is it aground? – 1958 New York convention.
A dispute in relation to the payment of a certain sum of money by therespondent to the claimant-appellant was referred for arbitration. The matter
412
Sri Lanka Law Reports
[2007] 1 Sri L.R
contested at the arbitration focused on the quality of the body armour supplied bythe claimant-appellant, as to whether it met the specification as set out in thetender documents.
The award was in favour of the claimant appellant. The respondent preferred anapplication under section 32(1) of the Arbitration Act seeking to set aside the awardto the High Court. The High Court set aside the award.
In appeal, in the Supreme Court, it was contended by the appellant, that there wasa valid award in terms of section 25(2) and that the award was not against publicpolicy and merits or findings of the award could not be challenged.
Held:
Section 32 contains the sole grounds upon which an award may bechallenged or set aside Courts have no jurisdiction to correct patent andglaring error of law in an award unless the error can be established to be ajurisdictional error or can be shown to be of such a nature as to render theaward contrary to public policy.
The Arbitration Act – contemplates that the award is not susceptible and notvulnerable to any challenge except that permitted under the Act. This is on thebasis that it is conclusive as a judgment between the two parties and couldonly be set aside on the grounds explicitly set out in section 32.
PerShiranee Tilakawardane, J.
"In exercising jurisdiction under section 32 Court cannot sit in appeal over theconclusions of the Arbitral Tribunal by scrutinizing and reappreciating the evidenceconsidered by the Arbitral Tribunal. The Court cannot re-examine the mentalprocess of the Arbitration Tribunal contemplated in its findings nor can it revisit thereasonableness of the deductions given by the arbitrator – since the arbitraltribunal is the sole judge of the quantity and quality of the mass of evidence ledbefore it by the parties – the only issue that needs consideration is whether thepurported fundamental flaws of the award in question would tantamount to aviolation of public policy.'
The doctrine of public policy is somewhat open ended and flexible capable ofwide and expansive definition, it is this flexibility leading at times, toinconsistency and unpredictably in application, which has led to judicialcensure of the doctrine and earned it the reputation as one of the morecontroversial exceptions to the enforcement of arbitral awards.
Per Shiranee Tilakawardane, J.
“Public policy is generally those moral social or economic considerations which areapplied by courts as grounds for refusing enforcement of the arbitral award,another view would equate public policy with the policy of law, whatever leads tothe obstruction of justice or violation of a statue or is against the good morals of asociety can be deemed as being against public policy and therefore notsusceptible to enforcement, further instances such as corruption, bribery and fraud
sc
Light Weight Body Armour Ltd. v Sri Lanka Army
413
and similar serious cases would constitute a ground for setting aside an award."
It is generally understood that the term public policy which was used in 1958New York Convention and many other treaties covered fundamental principlesof law and justice in substantive as well as procedural aspects.
The arbitral award is not in violation of the public policy of Sri Lanka.
APPEAL from a judgment of the Colombo High Court.
Cases referred to:
Richardson v Metis -1824 Bing 228
D.S.T. v Rakoil.
Deutche Schachtbau- und Triefbohrgesellscraft mbh v RasAlkaimah NationalOil Company 1987 – Uoyds Rep. 246.
Aravinda Rodrigo for claimant respondent-petitioner.
Sanjay Rajaratnam DSG with Viral Dayaratne SSC for respondent-petitioner-respondent.
May 23, 2007
SHIRANEE TILAKAWARDANE, J.
The notice of arbitration dated 17th August 2000 (X7) referred adispute that had arisen between Light Weight Body Armour Ltd. theClaimant-Respondent-Petitioner and the Sri Lanka Army, theRespondent-Petitioner-Respondent relating to the payment of US$549,240/- being the balance sum due for the supply of body Armour bythe Claimant-Respondent-Petitioner to the Sri Lanka Army.
The matters contested at the arbitration focused on the quality ofthe body Armour supplied by the claimant – as to whether it met thespecifications set out in the tender documents and whether therequirements as to ballistic suitability had been met in terms of theAgreement.
At the hearing, parties led the evidence of several witnesses andproduced several documents. The unanimous decision of the 3Arbitrators was delivered on 7th 2004, in favour of the claimant-respondent-petitioner (P8). In terms of this Award the petitioner wasawarded a sum of US$ 549,240/- together with legal interest thereon(at the rate applicable on the date of the Award) from 1.6.1999 till
and from 19.3.2001 on the said sum of US$ 549,240/- till7.7.2004 and from 7.7.2004 with further legal interest at the same rateon the aggregate amount of the Award and costs in a sum of Rs.250,000/- payable to the claimant by the respondent.
414
Sri Lanka Law Reports
[2007] 1 Sri L.R
The respondent did not comply with the Award. The respondentthereupon preferred an application in terms of section 32(1) of theArbitration Act No. 11 of 1995 seeking to set aside the Award dated 7thJuly 2004. After hearing both parties, the High Court Judge Colombo,in his judgment dated 21.09.2005 set aside the aforesaid ArbitralAward (X19). The said judgment incisively considered the merits of thecase and the evaluation of the facts pertaining to all the issuescanvassed during the Arbitration, including matters pertaining to theburden of proof on the litigating parties and the ballistic suitability of thebody Armour.
On 25.04.06 Leave to Appeal was granted against the said HighCourt Judgment on the questions of law set out in paragraphs 22(a) to
of the petition.
The only two matters urged by the petitioners and the respondentsduring the hearing of this case and in the written submissions wereconfined to-
Whether it was a “valid Award" in terms of section 25(2) of theArbitration Act in as much as the determination that had beenmade with regard to the ballistic capability, was wrong onlybecause it was "abrupt", meaning that such could not havebeen reached logically and inferring thereby that it was aperverse determination.
Whether the Award was against public policy?
Counsel for the respondent-petitioner-respondent has submittedthat the Award is analogous to an Award that had no reasons andtherefore was in contravention of the statutory form and content of anAward as set out in section25(2) of the Arbitration Act. According to therespondent-petitioner-respondent, the award was fundamentallyflawed as it had not dealt adequately with the question of "ballisticcapability" and did not contain "valid reasons" for the findingscontained therein and it contained internal contradictions on thequestion of misrepresentation.
The claimant-respondent-petitioners contended that the ArbitralAward was not against public policy and that the merits or findings ofthe Award could not be challenged as the Award which ran into severalpages had set out reasons, which logically led to the findings and
Light Weight Body Armour Ltd. v Sri Lanka Army
SC(Shiranee Tilakawardane, J.)415
therefore the conclusions could not be challenged. The claimant-respondent-petitioner also submitted that the merits of an ArbitralAward could not be considered in an Appeal, which takes the patternof a regular Appeal. It was contended that an Award could only be setaside in terms of the statutory provisions contained in section 32(1) ofthe Arbitration Act.
It was considered by all Counsel at the inception of the hearing thatthe only grounds on which an Award could be set aside were containedin section 32(1) of the Arbitration Act No. 11 of 1995. Indeed theapplication for setting aside the Award before the High Court was madeonly in terms of section 32(1) of the Arbitration Act. Parties alsoconceded that it was an immutable fact that section 26 of theArbitration Act provides clearly that an Arbitral Award is final andbinding on the parties to the Arbitration Agreement.
Section 32 of the Arbitration Act sets out the grounds upon which anapplication could be made to the High Court by a party to the arbitrationseeking to set aside an arbitral Award section 32(1) stipulates that –
"An Arbitral Award made in an Arbitration held in Sri Lanka may beset aside by the High Court, on application made therefore, withinsixty days of the receipt of the Award –
(a) Where the party making the application furnishes proof
that-
a party to the arbitration agreement was under someincapacity or the said agreement is not valid under the lawto which the parties have subject it or, failing any indicationon that question under the law of Sri Lanka; or
the party making the application was not given propernotice of the appointment of an arbitrator or of the Arbitralproceedings or was otherwise unable to present his case;or
(Hi) the Award deals with a dispute not contemplated by or notfalling within the terms of the submission to Arbitration, orcontains decisions on matters beyond the scope of thesubmission to Arbitration.
Provided however that, if the decision on matterssubmitted to Arbitration can be separated from those not
416
Sri Lanka Law Reports
120071 1 Sri L.R
so submitted, only that part of the Award which containsdecisions on matters not submitted to Arbitration may beset aside; or
the composition of the arbitral Tribunal or the arbitralprocedure was not in accordance with the agreement ofthe parties, unless such agreement was in conflict with theprovisions of this Act, or, in the absence of suchagreement, was not in accordance with the provisions ofthis Act; or
(b) Where the High Court finds that –
the subject matter of the dispute is not capable ofsettlement by Arbitration under the law of Sri Lanka; or
The Arbitral Award is in conflict with the public policy of SriLanka."
On a bare reading of section 32(1), it is clear that the openingparagraph applies to both sub-paragraphs (a) and (b) of the section.The difference between the two sub-paragraphs (a) and (b) is that theformer requires an applicant to furnish proof of four situations, whereasthe latter permits the High Court to find ex mero muto on the factspleaded, in order to determine whether an Award should be set asideon these grounds.
Section 32(1) contemplates that a party wishing to have an arbitralAward set aside must satisfy the Court that his allegations are true. Theonus of proving grounds under section 32(1 )(a) rests solely on theparty who makes the application to set aside the Award.
On the other hand, section 32(1 )(b) permits the High Court to cometo a finding as to whether the subject matter of the dispute is incapableof being settled under Sri Lankan law or whether the Award is in conflictwith public policy of Sri Lanka – such consideration only confined to thepleadings placed before it by an application made to Court within thestipulated time period. Though it does not require the party to furnishproof in order to have the Award set aside, it is imperative undersection 32(1 )(b) that there should be sufficient material in theapplication for the High Court to come to a finding or determination thatthe Award should be set aside on the ground set out in that section.
sc
Light Weight Body Amour Ltd. v Sri Lanka Army
(Shiranee Tilakawardane, J.)
417
It is important to remember that when parties choose Arbitration asa means of dispute settlement, they do so to the exclusion of all otherforms of settlement. Parties who wish to take advantage of theopportunity to decide and resolve the important issues relating to thedispute by themselves are aware that the Award is final and bindingbetween the parties as provided under section 26 of the Arbitration Act.The only exception to this rule is provided in the ground enumeratedin Part VII of the Arbitration Act. Section 32 of the Act contains thegrounds and the time period within which an Arbitral Award may bechallenged.
Considering the respondent-petitioner-respondent's challenge thatthe award is fundamentally flawed and liable to be set aside based onthe alleged flaws in the arbitrators approach to the question of fraudand innocent misrepresentation, and the proof thereof, I find thiscontention to be untenable in law,since error of law on the face of therecord is not a valid ground of challenge of an arbitral award undersection 32 of the arbitration Act. As section 32 contains the solegrounds upon which an Award may be challenged or set aside, courtshave no jurisdiction to correct patent and glaring errors of law in anAward unless the error can be established to be a jurisdictional error orcan be shown to be of such a nature as to render the Award contraryto public policy.
In India prior to enactment of the Indian Arbitration Act of 1996 anerror of law apparent on the face of the record was recognized as avalid ground upon which an arbitral Award could be challenged. Earlierthe position under the Act of 1940 was that an arbitral Award issusceptible to challenge if an erroneous proposition of law is stated asa basis of the Award. With the enactment of the Arbitration Act in 1996the present Indian position is similar to that of Sri Lanka and thegrounds of challenges are restricted to those specified in section 34 ofthe Indian Arbitration Act.
Arbitration is an alternate means of dispute resolution which hasbeen introduced and developed in order to reduce the amount of timespent in litigation. In this light, the Arbitration Act contemplates that thearbitral Award is not susceptible and not vulnerable to any challengeexcept that permitted under the Act. This is on the basis that it isconclusive as a judgment between the two parties and could only beset aside the grounds explicitly set out in section 32 of the Act. The
418
Sri Lanka Law Reports
[2007] 1 Sri L.R
onus of proving that if fell within the ambit of the said provision lies onthe party making such an application. The legislative intend behind theAct is clearly that a degree of finality attaches to the decision of theArbitral Tribunal, which is the Judge of both, questions of fact and lawreferred to it.
Thus in exercising jurisdiction under section 32 of the Act, the Courtcannot sit in appeal over the conclusions of the arbitral Tribunal by re-scrutinizing and re-appraising the evidence considered by the arbitralTribunal. A plain reading of section 32 precludes judicial demolition ofan Award on the facts elicited therein. The Court cannot re-examinethe mental process of the Arbitral Tribunal contemplated in its findings,nor can it revisit the "reasonableness" of the deductions given by thearbitrator, since the Arbitral Tribunal is the sole judge of the quantityand quality of the mass of evidence led before it by the parties.
Therefore in light of section 32, the contention of the respondent-petitioner-respondent that the Award should be set aside on the basisthat it is fundamentally flawed on fact and law is of no merit. The onlyissue that needs consideration is whether the purported fundamentalflaws of the award in question would amount to a violation of publicpolicy in Sri Lanka.
In their written submissions, the respondent-petitioner-respondentsfocused on section 32 of the Arbitration Act, and contended that sincethe award was fundamentally flawed, an ordinary, reasonable and fullyinformed member of the public would find it offence that the Award wasto be enforced by a Court of law. In support of this position, it was alsosuggested by the respondent-petitioner-respondent that the concept ofpublic policy should be expanded beyond that of illegality andimmorality.
The doctrine of public policy is somewhat open ended and flexible,capable of wide and expansive definition. It is this flexibility leading attimes, to inconsistency and unpredictability in application, which hasled to judicial censure of the doctrine and earned it the reputation asone of the more controversial exceptions to the enforcement of Arbitralawards. In Richardson v Mellid1), the Court succinctly observed thatpublic policy is “….a very unruly horse, and once you get astride it younever know where it will carry you. It may lead you from sound law. Itis never argued at all but when other points fail. The Court in D.S.T. v
sc
Light Weight Body Armour Ltd. v Sri Lanka Army
(Shiranee Tilakawardane, J.)
419
Rakoil,(2) Deutsche Schachtbau-und Tiefbohrgesellscraft mbh v RasAIKaimah National Oil Company(3> state that "considerations of publicpolicy can never be exhaustively defined, but they should beapproached with extreme caution …. It has to be shown that there issome element of illegality or that the enforcement of the award, wouldbe clearly injurious to the public good or, possibly, that enforcementwould be wholly offensive to the ordinary responsible and fullyinformed members of the public on whose behalf of the powers of thestate are exercised."
The concept of public policy is not immutable. Rules which rest onthe foundation of public policy, not being rules of fixed customary law,are capable on proper occasion of expansion or modificationdepending on the circumstances. Public policy is generally thosemoral, social or economic considerations which are applied by Courtsas grounds for refusing enforcement of an arbitral Award. The Houseof Lords in 1853 described the public policy as "that principle of lawwhich holds that no subject can lawfully do that which has the tendencyto be injurious to the public or against public good."
Another view would equate public policy with the "policy of law".Whatever leads to the obstruction of justice or violation of a statute oris against the good morals of a society can be deemed as beingagainst public policy and therefore not susceptible to enforcement.(Vide, Dr. B.P. Saraf, J.&S.M. Jhunjhunuwala, J., on The Law ofArbitration and Conciliation at page 361).
It is generally understood that the term public policy which was usedin 1958 New York Convention and many other treaties coveredfundamental principles of law and justice in substantive as well asprocedural aspects. Thus instances such as corruption, bribery andfraud and similar serious cases would constitute a ground for settingaside. However, the facts of this case do not bear out any suchincident of illegality, fraud or corruption in order to validate a challengeon the ground of public policy.
It is also important that a Court considering a challenge on the basisof public policy bear in mind the possibility of the misuse of this doctrineby a defendant in order to avoid the consequences of the arbitralaward. Certainly the uncertainty and inconsistencies concerning theinterpretation and application of public policy could encourage the
420
Sri Lanka Law Reports
[2007] 1 Sri LR
losing party to rely on the doctrine of public policy to resist, or at thevery least delay enforcement of the arbitral award. Therefore the Courtmust also bear in mind the very legitimate concern that it may afford anunsuccessful defendant and/or the state a second 'bite' at frustratingenforcement.
In this case clearly the decision had been taken on the basis of thefacts that were on record. Therefore the inadequacy, inadmissibility orimpropriety of the evidence, particularly when both parties wererepresented, had the full opportunity to argue and present theirrespective cases and adduce any evidence they pleased, cannot becanvassed before the enforcing Court. In light of the evidence onrecord and the submissions of the parties, I find that the arbitral awardis not in violation of the public policy of Sri Lanka.
Having considered the merits of the contentions raised by the partiesin their legal context, I find that the Arbitral Award is not open tochallenge on the ground that the arbitral Tribunal has reached a wrongor erroneous conclusion on the ballistic capability of the Armour, or hasfailed to appreciate or conclude on the findings. The parties haveconstituted the tribunal as the sole and final judge on the factsconcerning their dispute and bind themselves as a rule to accept theArbitral award as final and conclusive. The Arbitral Tribunal is the solejudge of the quality as well as the quantity of evidence and it is not openfor the court to take upon itself the task of being a judge of the evidencebefore the tribunal. It is not open to the Court, in terms of the ArbitrationAct to probe the mental process of the decision contained in the Awardand to even speculate or query the reasoning that impelled the decision.Therefore an Award is not as a rule vulnerable to challenge except tothe process and ambit contained in section 31 of the Act.
In these circumstances we see no merit in the arguments of therespondent-petitioner-respondent and find that the learned High CourtJudge erred in deciding to set aside the award of the Arbitrators. TheJudgment of the High Court is set aside. The appeal of the claimant-respondent-petitioner is allowed. No costs.
DISSANAYAKE, J.I agree.
SOMAWANSA, J. – I agree.
Appeal allowed.