Arbitrators are mortal. They may make mistakes in issuing their awards. In what circumstances may they correct an award?

The scope of the authority of an arbitral tribunal to alter its award after the issuance of the award has been examined in a recent Scottish case NKT Cables A/S v. SP Power Systems Limited, [2017] CSOH 38. The Scottish court held that the arbitrator did not have the authority to issue an amended award. This decision raises important issues about the authority of an arbitral tribunal to amend its award.

The Theory Behind The Authority To Amend An Arbitral Award

As we will see from the cases and the arbitration statutes, there are two basic theories or justifications underlying the authority of an arbitral tribunal to amend its award. One justification is a narrow one:

an arbitral tribunal should have power to amend patent mistakes in its award, such as an arithmetic or grammatical mistake.

The other theory is that the arbitral tribunal should have power to properly express its substantive intention, and if it has failed to do so in its award, it should be able to amend the award to make that intention clear.

The second theory is controversial because it might be used by the arbitral tribunal to change its award, and such a result is contrary to the finality of arbitral and judicial decisions, and the rule that after making his or her decision, a judge and arbitrator is functus officio, that is, his or her office and function is ended.

Statutory Authority In Ontario To Amend An Arbitral Award

Both section 44 of the Ontario Arbitration Act, 1991 (AA) and Article 33 of the Model Law attached to the Ontario International Commercial Arbitration Act (ICAA) contain a “slip or omission” type of power for the arbitral tribunal to amend its decision. The domestic Act contains three powers: in section 44(1), the power to correct typographical errors, errors of calculation and “similar errors” in the award; and in section 44(2), the power to amend the award so as to correct an “injustice caused by an oversight on the part of the arbitral tribunal”. In addition, under section 44(3), the tribunal may “make an additional award to deal with a claim that was presented in the arbitration but omitted from the earlier award.”

Article 33(1)(a) of the Model Law attached to ICAA contains the narrow power to amend the award contained in section 44(1) of the AA. The arbitral tribunal has no broader power without the involvement of one of the parties. Under Article 33(1)(b), if the parties agree, the tribunal may give an interpretation of a specific point or part of the award. Under Article 33(3), if one party applies to the tribunal for such a remedy, the tribunal may “make an additional award as to claims presented in the arbitral proceedings but omitted from the award.”

It should be noted that there may a “slip or omission” provision in the Rules of Civil Procedure governing court orders and judgments. In Ontario, that provision is found in Rule 59.06. One issue is whether the arbitral and judicial “slip or omission” provisions should be similarly interpreted, or whether the judicial rule should be interpreted differently because of the public nature of court proceedings, because of the way that judicial orders and judgments are pronounced, issued and entered, and because judicial orders and judgments are appealable.

The Decision In NKT Cables A/S V. SP Power Systems Limited

NKT applied to court to enforce an adjudication award made under the Housing Grants, Construction and Regeneration Act 1996 in the amount of about £2.1million.  That amount was specified in an amended decision of the Adjudicator.  In the alternative, NKT sought to enforce the Adjudicator’s original decision in the amount of about £1.8 million.

In his Award, the Adjudicator inserted the wrong number for the gross value of the Contract, namely of £9,376,220.72.  In the court proceedings, the parties agreed that this number was a “rogue” figure and could not be derived from any part of the Adjudicator’s award.

After the award was issue, NKT then wrote the Adjudicator, copying SP, pointing out this error and also referring to other amounts which it said were relevant, being amounts for variations and claims (the “Agreed Claims”), and interest (the “Agreed Interest”). In its letter, NKT requested that the Adjudicator issue an amended award “to correct the apparent slip.”

That night, the Adjudicator sent an email to the parties correcting his award, adopting the numbers set forth in NKT’s letter.

In this process, the Adjudicator did not ask for or receive any submissions from SP, which thereafter complained about an absence of natural justice.

The Adjudication regime applicable to this Adjudication contained a “slip or omission” provision, which enabled the Adjudicator to “correct his decision so as to remove a clerical or typographical error arising by accident or omission.” However, the court held that this provision did not, for timing reasons, apply to this Adjudication. Nevertheless the court found that this provision was incorporated into the Adjudication agreement as an implied term.

The court held that, while the Adjudicator had the authority to correct the gross value of the Contract, since both parties agreed that there was an error in its calculation, he had no authority to insert the amounts for the Agreed Claims or Agreed Interest. Those amounts were in contention, were not dealt with in the original award, and the Adjudicator had no jurisdiction to insert them into the award by way of a correction.

The court said:

“In considering whether the amendment to include the Agreed Interest and the Agreed Claims was within the scope of the slip rule, I proceed on the basis that the Agreed Claims and the Agreed Interest were matters that were before the Adjudicator and had been referred to in the submissions or documentation considered by him.  Neither party suggested otherwise.  It would appear that parties expected him to take these two matters into account in any award.  However, neither of these items was referred to in terms in the Original Decision or in the Adjudicator’s calculation of the sum due to the pursuer.  Accordingly, while the Adjudicator accepted that there was an apparent error in omitting these from his calculation, and when reminded of these sought to include them in the Amended Decision, he was not giving effect to his first thought and intention.  The fact that there was no intention to do so that may be discerned from the Original Decision.  The omission was clearly an intra vires error but, in my view, that does not mean it falls within the slip rule.  In other words, in his purported correction to include the Agreed Claims and the Agreed Interest, the Adjudicator was not bearing to be giving effect to his first thoughts and intention, as it was put in Bloor (at page 319)Rather, he was seeking to correct an error which was a true omission, in the sense that on the face of his Decision he had given no thought to these two matters at the time of undertaking his calculation or promulgating his Decision, and, therefore, treatment of these figures did not form part of his first intention when making the Original Decision.  In my view, what the Adjudicator purported to do in redoing his calculation to include the figures for Agreed Claims and Agreed Interest in the Amended Decision was outwith the scope of the slip rule, whether as formulated in regulation 22A or as might be implied in like terms at common law.“ (underlining added)

Discussion

The decision in NKT Cables A/S v. SP Power Systems Limited may be contrasted with a 100 year old decision of the Saskatchewan court in Debret v. Debret, 1917 CarswellSask 123, 10 Sask. L.R. 366.

The parties referred to the Master by way of arbitration certain issues in dispute between them. The parties agreed that the plaintiff was entitled to a 1/6th share of the crop grown in 1916 on the half section in question. The arbitrator’s award did not mention this 1/6th share. After his award was filed the Master issued a statement saying that “On consulting my notes at the time of filing this award I find that I omitted to include in the award a direction that the defendant Lawrence Debret is to deliver to the plaintiff, Mathias Debret, 1-6th of the grain in his possession from the crop of 1916, which appears to be 1,464 bushels of wheat and 1,947 bushels of oats. This was agreed on at the hearing.”

The Saskatchewan court held that, while the functus rule used to be the law, now section 8 of the Saskatchewan Arbitration Act states that the arbitrator has the authority to “correct in an award any clerical mistake or error arising from any accidental slip or omission.” The court stated:

“In my opinion, the failure of the arbitrator to include in his award the 1/6th share of the crop for 1916 was a clerical mistake or error arising from an accidental slip or omission within the meaning of the statute. The subsequent addition of this share to the written award did not necessitate any new determination or judgment on his part as in In re Stringer and Riley Brothers, [1901] 1 Q.B. 105, 70 L.J.K.B. 19, and in those cases where the arbitrator misapprehended the facts and subsequently sought to make a new award upon the true facts. The finding in this case had already been made by the agreement of the parties, but that finding was omitted from the report….I think the arbitrator was entitled to supply the omission.”

Both of these decisions dealt with the attempted correction by the arbitrator/adjudicator of something that did not appear on the face of the original award, that is, to correct an omission. In NKT v. SP, the correction was not allowed, whereas in Debret it was allowed. What is the difference?

It seems that, in NKT v. SP, the Agreed Clams and Agreed Interest, while referred to as ‘Agreed’ were still in substantial dispute as to whether they should be allowed in the award. Moreover, these amounts were necessary ingredients in arriving at the final award. The Adjudicator did not, in his original award, make an explicit decision about how these items should be taken into account, even though the parties expected him to do so. Therefore, his subsequent award was not a correction of his original award but a new award.

In Debret, the fact referred to in the amended award had been agreed to by the parties, both as a fact and that it would be part of the award. Moreover, it appears to have been a discrete item that was not necessary for the calculation of the other elements of the award. Unlike in NKT v SP, there was no decision-making function that the arbitrator had to exercise in relation to this fact. Accordingly, its omission from the award was a true “slip or omission.”

The fact that, in NKT v. SP, the Adjudicator had not referred to the Agreed Claims and Agreed Interest in his original award should not, it is submitted, be dispositive of the issue. Otherwise, an “omission” could never fall within the “slip or omission” provision; and the decision in Debret could not be correct. Rather, the issue is whether the omitted item was in fact disputed or undisputed. Even if agreed upon as to amount, a claim may still be contentious for any number of reasons. But if it is truly undisputed as to fact and as to its proper inclusion in the award, then the “slip or omission” provision should apply to it if the arbitrator fails to refer to it in the award. The decision in NKT v SP seems to be justifiable only on the basis that the Agreed Claims and Agreed Interest were disputed so far as their inclusion in the award.

It is possible to conceive of situations in which even an omission of a disputed issue from the award should be correctible, even under the narrow form of the “slip or omission” provision. If the arbitral tribunal accidentally left out a page of its award on which it dealt with that issue – and can positively demonstrate that this has occurred – it seems that the tribunal should be able to issue a corrected award with that page in it.

A number of issues arise from an Ontario perspective in relation to the NKT decision. Would the “omission” in NKT fall within section 44(2) of the AA as amounting to “an injustice caused by an oversight on the part of the arbitral tribunal” or within section 44(3) as “an additional award to deal with a claim that was presented in the arbitration but omitted from the earlier award”? Or would the omission fall within Article 33(3) of the Model Law, if that Law had applied and NKY had applied to the tribunal for “an additional award as to claims presented in the arbitral proceedings but omitted from the award”?

There are a number of other decisions in Canada dealing with the “slip or omission” section in arbitration statutes. Perhaps the leading case is the decision of the British Columbia Court of Appeal in Westnav Container Services Ltd. v. Freeport Properties Ltd., 2010 CarswellBC 124, 315 D.L.R. (4th) 649, from which leave to appeal to the Supreme Court of Canada was denied. The factual situation in Westnav decision is opposite to that in the NKT v. SP. Instead of remedying an omission, the arbitrator deleted something from the original award.

Freeport subleased land to Westnav. Westnav exercised a right to renew the sublease. The parties agreed to submit the fair market rent to arbitration. In his award, the arbitrator accepted the direct comparison method. In his analysis of the direct comparison approach, the arbitrator mistakenly said the rent for a particular property (the Ewan property) was $4.38 per square foot for the building, whereas that rent represented the rent for both the building and the land.

Westnav applied to the arbitrator for correction of “what appears to be an accidental or arithmetical error” or alternatively for clarification pursuant to s. 27 of the Act. Freeport contended the award should remain as it was. The arbitrator released a corrected award, acknowledged the error, but stated that the decision as to rent was the same. The corrected award deleted the mention of the particular property from the analysis and included fresh passages explaining the original conclusion.

Under section 27(1) of the Commercial Arbitration Act of British Columbia, the arbitrator had the authority to correct: a clerical or typographical error, an accidental error, slip, omission or other similar mistake or an arithmetical error made in a computation.

The British Columbia Court of Appeal held that the arbitrator had done none of these things and had acted without authority. It said:

“The arbitrator deleted, in the discussion as to valuation in his corrected ruling, all reference to one of only two properties he had originally specifically referred to in his comparative analysis….It must be taken by the reference to the Ewen property in para. 90 of the original award that the evidence of this property was material to the decision. It was not open to the arbitrator, in my view, to simply delete all reference to evidence which was sufficiently cogent to him as to comparability that he made prominent mention of it in the original award…Objectively, the appearance is that the arbitrator has changed his mind as to the comparability of the subject property to the Ewen property. I do not understand the arbitrator to deny that he originally considered the Ewen property comparable to the property in issue. If the Ewen property was reasonably comparable, the fact that the rent was for both land and buildings would be relevant to valuation. Nevertheless, it was ignored entirely in the analysis in the corrected award…..I recognize in this unfortunate situation the arbitrator has sought to rescue the arbitration process through his correction ruling. However, and with respect, I have come to the view that in doing so he has stepped outside his jurisdiction. The matter is one of the integrity of the arbitration process. Viewed objectively one may ask whether an objective bystander, reading these awards, could have confidence in the outcome in light of the arbitrator’s silence in the corrected award on the effect of the Ewen property as a comparable on his analysis, given its prominence in the analysis in the original award. I conclude the answer is in the negative. I consider an objective review of the award reveals a correction in reasoning through exclusion from the reasons of a factor previously considered material, creating objectively an impression the corrected award was an alternate explanation for the result rather than clarification of the original reasoning.” (underlining added)

In its decision, the B.C. Court of Appeal referred to the judgment of Sir John Donaldson M.R. in Mutual Shipping Corp. v. Bayshore Shipping Co., [1985] 1 All E.R. 520:

“It is the distinction between having second thoughts or intentions and correcting an award of judgment to give true effect to first thoughts or intentions, which creates the problem. Neither an arbitrator nor a judge can make any claim to infallibility. If he assesses the evidence wrongly or misconstrues or misappreciates the law, the resulting award or judgment will be erroneous, but it cannot be corrected either under s 17 or under Ord 20, r 11. It cannot normally even be corrected under s. 22. The remedy is to appeal, if a right of appeal exists. The skilled arbitrator or judge may be tempted to describe this as an accidental slip, but this is a natural form of self-exculpation. It is not an accidental slip. It is an intended decision which the arbitrator or judge later accepts as having been erroneous.”

A decision which demonstrates a much broader approach to the power to correct the arbitral award is the decision of the Ontario Divisional Court in Canadian Broadcasting Corp. v. Joyce, 1997 CarswellOnt 2861, 34 O.R. (3d) 493. In that case, the arbitrator had held, in his interim decision, that the employee had been terminated for just cause. Then in his final award, the arbitrator found that he had been incorrect, that the job was incapable of performance, and that the employer was 75 percent at fault.

The Divisional court refused to set aside the final award. It held that the fact that the first award was an interim award made no difference: “the mere fact that the award was entitled an interim award does not in itself create an opportunity to later change a finding contained in it.” However, the court adopted the following words of Sopinka J. in Chandler v. Assn. of Architects (Alberta), [1989] 2 S.C.R. 848:

“To this extent, the principle of functus officio applies. It is based, however, on the policy ground which favours finality of proceedings rather than the rule which was developed with respect to formal judgments of a court whose decision was subject to a full appeal. For this reason I am of the opinion that its application must be more flexible and less formalistic in respect to the decisions of Administrative Tribunals which are subject to appeal only on a point of law. Justice may require the reopening of administrative proceedings in order to provide relief which would otherwise be available on appeal.” (underlining added)

The Divisional Court concluded as follows:

“ In his final award, Arbitrator Joyce concluded that the employer was 75 percent at fault and the employee 25 percent at fault and at Pg.35 thereof says,…”I was wrong in my having fallen into the trap of neatly categorizing the dismissal in terms commonly employed when an employee is unable to perform a job in a satisfactory manner.”….I accept that statement of Arbitrator Joyce and conclude that the words relied on by the C.B.C., constituted an error in expressing the manifest intention of Arbitrator Joyce. His manifest intention was to see Mr. Rist compensated for something that was largely not his fault. That is made quite clear in his words both before and after the fateful passage, in his interim conclusion that Mr. Rist should not be reinstated, but should be compensated if he had jurisdiction to do so, and in the fact findings throughout the interim award which led him to that conclusion….I find that Arbitrator Joyce was correct in acknowledging his error, and find that such error falls within the quite narrow ambit of the exception of an error in expressing the manifest intention of the fact finder.” (underlining added)

This decision is a quite remarkable recognition of the arbitrator’s right to change his mind on a central ingredient in the arbitration. Even though the arbitrator had made a key finding – that the dismissal was for cause – the arbitrator was entitled to change that finding because it was incorrectly stated. That approach, clearly, is a different and broader one than that adopted in the previous decisions referred to in this article.

To minimize the chances that the arbitral tribunal may issue an award with a mistake in it, the tribunal may consider issuing the award in draft form. In doing so, it may advise the parties that it will not permit re-argument but will allow the parties to draw any slips or omissions in the draft award to the tribunal’s attention and allow an opportunity to settle the terms of the order contained in the award. This is my practice in issuing awards. This practice depends on the good faith of the parties and assumes that they will not abuse this process by taking ex parte or secret steps to frustrate the settlement, issuance and enforcement of the award.

See Heintzman and Goldsmith on Canadian Building Contracts (5th ed.), chapter 11.

NKT Cables A/S v. SP Power Systems Limited, [2017] CSOH 38

Arbitral awards – functus officio – jurisdiction to correct arbitral awards – slips and omissions            

Thomas G. Heintzman O.C., Q.C., LLD (Hon.), FCIArb                             June 5, 2017

www.heintzmanadr.com

www.constructionlawcanada.com