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SC delivers landmark judgment in HNB-Soul Entertainments appeal

Friday, 5 July 2013 00:00 -     - {{hitsCtrl.values.hits}}

  •  Supreme Court judgment refers to ‘astonishing award’ to Soul by arbitral tribunal, upheld by High Court
  • SC Judges say arbitral tribunal was ‘confused’ and had strayed from its mandate
  • Judgment says High Court had erred in not recognising tribunal’s exceeded mandate
  • Highest Court awards lease arrears and appeal costs to HNB
In a judgment dated 25 June 2013, the Supreme Court set aside an arbitral award of December 2003 in favour of Soul Entertainments and a corresponding High Court Judgment which affirmed that award and refused to set it aside. The dispute between the parties arose from an arbitration initiated by HNB against Soul Entertainments for the recovery of the arrears of lease rentals and the value of a set of sound speakers used in a Band, due to the breach of that agreement by Soul Entertainments. The arbitral award in favour of Soul Entertainments although determining that it was in arrears of lease rentals rejected the claim made by HNB and instead directed HNB to pay Soul Entertainments a sum of money based on the latter’s counter-claim. In a judgment delivered by Justice Saleem Marsoof PC (with Amaratunga, J. and Ratnayake PC, J. agreeing) the Supreme Court stated that the manner in which the arbitral tribunal arrived at its “astonishing award” was most revealing, and demonstrates not only that the arbitral tribunal was altogether confused in regard to what exactly was legitimately in issue in the case, but also that it had wittingly or unwittingly strayed outside its mandate. “Learned President’s Counsel for HNB has submitted that by reason of Article 24 of the Lease Agreement (C1), SOUL was precluded from challenging HNB’s title to the subject matter of the lease or the validity of the Lease Agreement which it had honoured by paying 28 out of the 36 lease rentals, and in fact it had not sought to question the title of HNB or its right to enter into the Lease Agreement through its correspondence or its Statement of Defence, and that by allowing SOUL to raise issues Nos. 9 and 10, the arbitral tribunal had not only allowed SOUL to approbate and reprobate, but the tribunal itself blatantly exceeded its mandate. He therefore submitted that in terms of the proviso to Section 32(1)(a)(iii) and Section 34(1)(a)(iii) of the Arbitration Act No. 11 of 1995, all parts of the arbitral award that exceeded the mandate of the tribunal should be severed from the rest of the award falling within the ambit of the dispute voluntarily and properly placed before the arbitral tribunal for determination, and I am of the view that the said submission is well founded,” the judgment said. The Supreme Court held that the High Court had fundamentally erred in failing to take cognisance of the fact that the arbitral tribunal had manifestly exceeded its mandate in allowing certain issues suggested by Soul Entertainments to stand, and basing its judgment on the findings of the arbitral tribunal on these issues. In the circumstances the Supreme Court had no hesitation in holding that the arbitral tribunal had exceeded its jurisdiction contrary to law. “The jurisdiction of the High Court under Part VII of the Arbitration Act is confined to the setting aside and the recognition and enforcement of arbitral awards, and does not allow the High Court or this Court to reconstruct arbitral awards on the basis of their findings. Accordingly, answering question [3], I hold that the award made by the arbitral tribunal in favour of HNB for the sum of Rs. 1,462,832, being the lease rentals in arrears and interest thereon up to the date of the award namely, 9 December 2003, may be severed from the award made by the tribunal in favour of Soul for a sum of Rs. 4,250,000 by way of damages, to enable the award in favour of HNB to be recognised and enforced, and the award in favour of Soul to be set-aside as being in excess of the mandate of the tribunal,” the Supreme Court judgment said. In reaching its verdict, the Supreme Court had focused on four primary questions in the context of which the several substantive questions on which the Court had granted leave to appeal could be answered. The judgment said the Court had gone into the question of an excess of jurisdiction, failure to object to jurisdiction, severability of the award and public policy in reaching its conclusion. The Supreme Court severed those parts of the award which were legal and made order as prayed for by HNB for the sum of Rs. 1,462,832 being the lease rentals in arrears with interest thereon at the legal rate from 31 May 1998 until the date of the award namely, 9 December 2003, and thereafter on the aggregate amount until payment in full, be recognized and enforced. The High Court was directed to file the award and give judgment in terms of the said award in favour of the Claimant-Respondent-Appellant (HNB) for the said sum of Rs. 1,462,832 and interest thereon as aforesaid, and to enter decree accordingly. The Supreme Court awarded HNB costs of the appeals and costs in respect of the several applications filed in the High Court in a sum of Rs. 125,000. Nigel Hatch P.C. with K. Geekiyanage and P. Abeywickrema appeared for HNB while Harsha Amarasekara P.C. with K. Pieris appeared for the Respondents. The case was argued in June 2011 with Written Submissions made in July 2011.

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