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• Background
• Submissions
• Analysis And Recommendation

6 Perverse findings of fact and errors of law

BACKGROUND

115 THE ISSUE WE CONSIDER in this chapter is whether a perverse finding of fact should be regarded as a question of law for the purposes of clause 5(1)(c) of the Second Schedule to the Arbitration Act 1996, and whether any amendment to the Act is desirable in this respect.¹⁶⁷

116 In paragraph 27 of our preliminary paper we noted that the question was expressly left open by the Court of Appeal in Doug Hood. Nevertheless, the Court of Appeal did see some force in the argument that a perverse finding of fact should not amount to an error of law. Blanchard J, delivering the judgment, said:¹⁶⁸

In Edwards (Inspector of Taxes) v Bairstow [1956] AC 14 at 29 Viscount Simonds said that findings of fact made by a tribunal could be set aside by a court if it appeared that the tribunal had acted without evidence, or upon a view of the facts which could not reasonably be entertained. The authors of Mustill and Boyd, Commercial Arbitration assert at pp592–593 and 596 that this principle cannot be applied to the review of arbitral decisions. To do so, they say, would be to broaden the basis on which arbitral awards can be appealed on questions of law. This would be contrary to the general principle that the arbitrator is master of the facts (now to be found in this country in article 19(2) of the First Schedule to the 1996 Act) and to the specific aims of the legislation, which include the promotion of finality in arbitral awards and limiting of judicial intervention. See also David Williams QC, Arbitration and Dispute Resolution [2000] NZ Law Review 61 at pp77–78. Citing Russell on Arbitration (21st ed 1997) para 8–057.

117 We also note that rule 887(2)(a) of the High Court Rules seems to assume that a claim of no evidence to support a finding of fact will be regarded as a question of law. The validity of that rule would depend upon whether the Act contemplated an appeal to lie in such circumstances.

SUBMISSIONS

118 Submitters addressed two questions. First, they considered what is meant by the phrase “error of law”. Second, submissions were made on the reform issue as to what matters should come within that term. Several submissions in fact linked the two issues; that is, they submitted that because the term “error of law” had been interpreted in a certain way, then that meaning should apply in the context of the Act.

119 The competing contentions as to whether a perverse finding of fact made by an arbitrator should constitute an error of law for the purposes of clause 5(1)(c) of the Second Schedule to the Act can be summarised as follows:

(a) Because the term “error of law” has been interpreted in other contexts as including perverse findings of fact, it was inappropriate to exclude perverse findings of fact made by arbitral tribunals from the purview of the phrase.

(b) As a matter of justice, a party ought to be able to challenge a decision, which has no evidence to support it, or one which no reasonable arbitral tribunal could have made.

(c) Perverse findings of fact should be excluded from the ambit of the phrase “error of law” because inclusion of such a ground runs contrary to the underlying themes of the Act; that is, reduced judicial involvement and increased powers for the arbitral tribunal.

(d) There is “a growing tendency” for parties to exclude rights of appeal, which offers implicit support for limiting rights of appeal. We note at this stage, however, that we are not satisfied a broad conclusion can be drawn from the single submission made on that issue.

ANALYSIS AND RECOMMENDATION

120 We agree that there is clear authority for the proposition that a perverse finding of fact, or one based on no evidence, may amount to an “error of law”. The most commonly cited case on the point is Edwards (Inspector of Taxes) v Bairstow,¹⁶⁹ which we note was applied at least three times by the Court of Appeal in 2001 in the context of employment law appeals.¹⁷⁰ Another example where perverse findings of fact have been held to be errors of law are appeals to the Privy Council under the Medical Act 1983 (UK). In a recent case, Lord Steyn delivering the Privy Council’s advice said:

A clearly erroneous [factual] finding may disclose an error of law warranting interference. And a material misunderstanding of the evidence may amount to an error of law ... Without trying to be exhaustive about the circumstances in which they may intervene their Lordships are satisfied that their appellate jurisdiction is wide enough to ensure that justice is done.¹⁷¹

121 The cases, however, also show that whether or not the appellate body has power to interfere with factual findings (as errors of law) usually depends upon the context of the legislation and the nature of the challenge. Thus, in Stefan v General Medical Council Lord Steyn prefaced his comments above by saying:

The distinction between law and fact is often crucially influenced by the context.¹⁷²

In an earlier decision Steyn LJ (as he then was) made similar comments:¹⁷³

It is often difficult to decide what is a question of law, or a question of mixed law and fact, rather than a pure question of fact. In law the context is always of critical importance. The inquiry “is it a question of law?” must therefore always be answered by the counter-inquiry “for what purpose?”... In short the closest attention must always be paid to the context in order to decide whether a question of law arises.

122 We are of the view that in the context of an appeal from an arbitral award it would be inappropriate to include a perverse finding of fact within the term “error of law”. We have come to that view for the following reasons:

• While there is an immediate attraction to the notion that a finding of fact based on no evidence or a finding to which no reasonable arbitrator could come should be regarded as an error of law as a matter of justice, that initial attraction must yield to the fact that the person who has made the findings is a person chosen by the parties to the dispute to decide their dispute or, at least, has been appointed by a body in whom they have reposed confidence for that purpose. There is a difference in kind between consensual resolution of disputes by arbitration and resolution of a dispute by a judicial officer of a court or tribunal who happens to sit on the particular case.
• From a purely pragmatic point of view any advantages of arbitration in relation to cost and timeliness may be outweighed if, on an application to leave to appeal under clause 5(1)(a) it is necessary to transcribe all of the evidence heard by an arbitral tribunal in order to demonstrate to a High Court judge that no evidence on a particular point existed. It is also difficult to see how the streamlined process for determining applications for leave to appeal contemplated by both the Court of Appeal judgment in Doug Hood Ltd,¹⁷⁴ and by Part 17 of the High Court Rules would be workable if alleged perverse finding of fact amounted to a question of law for the purposes of clause 5 of the Second Schedule of the Act.

123 We note that these views are supported by contemporary judicial comments concerning the role of appeals in arbitration. In Pupuke Service Station Ltd v Caltex Oil (NZ) Ltd Lord Mustill said:

Where the criticism is that the arbitrator has made an error of act, it is an almost invariable rule that the court will not interfere. Subject to the most limited exceptions, not relevant here, the findings of fact by the arbitrator are impregnable, however, flawed they may appear. On occasion, losing parties find this hard to accept, or even understand. The present case is an example.¹⁷⁵

124 In Geogas SA v Trammo Gas Ltd Steyn LJ said:¹⁷⁶

The arbitrators are the masters of the facts. On an appeal the court must decide any question of law arising from an award on the basis of a full and unqualified acceptance of the findings of facts of the arbitrators. It is irrelevant whether the court considers those findings of fact to be right or wrong. It also does not matter how obvious a mistake by the arbitrators on issues of fact might be. This is of course, an unsurprising position. After all, the very reason why parties conclude an arbitration agreement is because they do not wish to litigate in the court. Parties who submit their disputes to arbitration bind themselves by agreement to honor the arbitrators’ award on the facts. The principle of party autonomy decrees that a court ought never to question arbitrators’ findings of fact.
... since 1979 a number of unsuccessful attempts have been made to invoke the rule that the question whether there is evidence to support the arbitrators’ findings of fact is itself a question of law. The historical origin of the rule was the need to control the decisions of illiterate juries in the 19th century. It never made great sense in the field of consensual arbitration. It is now a redundant piece of baggage from an era where the statutory regime governing arbitration, and the juridical philosophy towards arbitration, was far more interventionist than it is today...

125 In summary, we consider that the Arbitration Act should be amended to state expressly that perverse findings of fact, or findings based on no evidence, do not constitute “errors of law” for the purposes of clause 5(1)(c) of the Second Schedule to the Act. In order to give effect to our recommendation we recommend that the Act be amended by concluding within the definition section a definition of the term “error of law”.