HIGH COURT, ACCRA
DATE: 26 MAY 1967
BEFORE: AMISSAH J.A.
CASES REFERRED TO
(1) Samuel v. Cooper (1835) 2 Ad. El. 752; 111 E.R. 290.
(2) Mills v. Bowyers’ Society (1856) 3 K. & J. 65; 69 E.R. 1024.
(3) R. S. Hartley Ltd. v. Provincial Insurance Co., Ltd. [1957] 1 Lloyd’s Rep. 121.
(4) Landauer v. Asser [1905] 2 K.B. 184; 74 L.J.K.B. 659; 93 L.T. 20; 53 W.R. 534; 21 T.L.R. 429; 10 Com. Cas. 265.
NATURE OF PROCEEDINGS
APPLICATION by the defendant to set aside an award made in favour of the plaintiff by an arbitrator.
The facts are sufficiently set out in the ruling of Amissah J.A. sitting as an additional judge of the High Court.
COUNSEL
B. A.Yankson for the applicant.
W. E. Offei for the respondent.
JUDGMENT OF AMISSAH J.A.
The defendant has asked this court to set aside an award made by the arbitrator, Mr. Jonathan Arthur, in this dispute which was referred to him. Counsel has argued on the defendant’s behalf that the arbitrator misconducted himself to his client’s prejudice in that the arbitrator wrongly construed what was in fact a tenancy agreement between the plaintiff and the defendant as a contract of employment. Thus consequences which flow from the one type of agreement but not from the other have been wrongly attributed to that other to the defendant’s detriment. The arbitration arose out of an agreement whereby the defendant undertook to manage the plaintiff’s bakery. The plaintiff was described in the agreement as the employer and the defendant as the employee.
There was the clause usual in service agreements that the employee shall devote his services exclusively to the management of the employer’s business. But there was another clause somewhat unusual in agreements of this kind that the employee was to receive by way of remuneration after all expenses of the business have been paid the first £G100 per month of the net profit and all net profits over £G350 per month. In effect the employee was entitled to keep all net profit above £G250 made by the bakery in a month, the employer getting a fixed £G250.
[p.374] of [1967] GLR 372
For two months in 1963, the defendant failed to pay the plaintiff the stipulated £G250. The plaintiff therefore put an end to the agreement and sued the defendant for damages, both general and special, for the breach of the agreement. The special damage was founded on damage and loss to the bakery premises and equipment. Except for a very minor item, the plaintiff was unable to prove this, and his claim for damages on this score therefore failed. But in the course of the arbitration the defendant volunteeredinformation to the effect that he had while managing the plaintiff’s bakery been managing another and even more profitable bakery. The plaintiff therefore amended his claim to include this breach. Damages for this and for the breach occasioned by his failure to pay the agreed monthly sum were assessed at £G4,000. The defendant has once before requested this court to set aside the original award of the arbitrator. Archer J. who dealt with the application then thought it unjust to set aside the award either in whole or in part. But he decided to remit the award of £G4,000 damages to the arbitrator for reconsideration with a direction that he should allow the defendant’s counsel to adduce further evidence with regard to the defendant’s management of the other bakery in answer to the amendment of the statement of claim which referred to this management as a breach. The arbitrator did take further evidence. I think the crux of his decision after the specific part of the award had been remitted to him lies in the following pronouncement which the arbitrator made after reviewing the fresh evidence he had taken: “The further evidence has not shaken any earlier view that the defendant committed a breach of exhibits A and B (namely the documents embodying the agreement between the parties) when during their subsistence he took over the management of the French Electric Bakery. Indeed my understanding of the defendant’s latter evidence is that even though he admits managing the French Electric Bakery at the same time as he managed the International or Ideal Bakery he is saying that he did so for some reasons which he considered good, i.e. (a) that the plaintiff knew of this and did not complain and (b) that if he had not managed the French Electric Bakery he could not have found money to pay his rent to the plaintiff. In other words the defendant is in effect saying that ‘even though I have committed a breach of exhibits A and B there are good reasons for the said breach.’ The reasons given for the breach have already been rejected by me. As I have rejected the reasons it means that my first award should stand and it so stands …
[p.375] of [1967] GLR 372
In the result I still hold that the defendant has committed a breach of exhibits A and B and that my earlier award of £G4,000 damages in favour of the plaintiff stands.” Obviously the reconsideration of the award was confined to whether the further evidence disproved a breach or not. But there was another issue which the arbitrator should have adverted to, namely, that even if there was a breach, whether £G4,000 is a proper assessment of the damages recoverable. After all every aspect of the award of the £G4,000 was remitted for reconsideration. The remission was not confined to that aspect dealing solely with the commission or otherwise of the breach. Indeed, I do not think that the direction to the arbitrator to take further evidence requested him to restrict the consideration of such evidence to the determination of the narrow issue of breach or no breach. With the remission of the award of £G4,000 for reconsideration, the arbitrator’s original powers as to this award were revived. He had to reconsider not only whether a breach had been committed but also, should it be decided that there has been a breach, the proper damages which flowed from it. It does not appear that this was appreciated by the arbitrator.
The question therefore is whether this failure to reconsider all matters concerning the award of the £G4,000 amount to misconduct in the arbitrator. Misconduct in this connection does not mean perverseness. The word is often used with reference to an arbitrator in a sense denoting irregularity, and not moral turpitude. It is also used where there has been a breach of natural justice. And where there has been such misconduct, an award resulting there from has been set aside or remitted for reconsideration. Thus in Samuel v. Cooper (1835) 2 Ad. & El. 752 not all the matters in difference in the cause between the parties referred to the arbitrator were decided upon. The award was therefore set aside. On this principle, if an award is remitted to the arbitrator and he fails to consider and therefore to decide on all questions appertaining thereto, the arbitrator must equally be guilty of misconduct. In Mills v. Bowyer’s Society (1856) 3 K. & J. 65, it was held inter alia that if a mistake has been made in the award, notapparent on the face of it, and such mistake is admitted in an affidavit by the arbitrators, such an admission is sufficient to set aside the award or to refer it back. So also, if the arbitrators insist that they have made no mistake, but state the principle upon which they made the award, and the court is of the opinion that such principle is not consistent with the reference. In the instant case what the arbitrator said upon the
[p.376] of [1967] GLR 372
remission amounts to this, the further evidence does not lead me to change my mind as to the breach; as regards other matters, I did consider them in my original award so I need not reconsider them again. I think this inconsistent with the terms of the remission. On this ground I think the defendant’s complaint is justified.
I should, perhaps, mention here that I do not think that misconstruing a tenancy for a service agreement is misconduct. No breach of natural justice is occasioned thereby. Nor is there strictly speaking an irregularity by the arbitrator in the discharge of his functions. It is, if anything, a mistake of law. And it is not misconduct for an arbitrator to make a mistake of law (see R. S. Hartley Ltd. v. Provincial Insurance Co., Ltd. [1957] 1 Lloyds Rep. 121). It is difficult for me to appreciate the significance of this alleged misconstruction. Mr. Yankson argued that if the agreement was not a service agreement then the provision calling upon the defendant to devote his time exclusively to the management of the plaintiff’s bakery is in restraint of trade. But if the agreement is not a service agreement neither does it conform to any of the recognised arrangements which give rise to covenants in restraint of trade. And if the stipulation is in restraint of trade, proof has to be given that it is reasonable between the parties and does not tend to injure the public. But as the nature of the provision was not attacked on this ground before the arbitrator, no opportunity was given for such proof, at least where the onus lies on the plaintiff, to be given.
Misconduct in an arbitration, however, is not the only ground for which an award may be set aside. There are others. One such ground upon which an award may be set aside arises where the arbitrator has gone wrong on a point of law, and that error in law appears upon the face of the award (see per Lord Alverstone C.J. in Landauer v. Asser [1905] 2 K.B. 184 at p. 187). The defendant has therefore argued that this award is bad on its face. The substance of this argument is in part a repeat of that urged in support of the complaint as to the arbitrator’s misconduct: he misconstrued a tenancy agreement as a service agreement. In addition it was urged on this ground that fantastic damages were awarded when there was no evidence of damage or loss suffered by the plaintiff. If the term that a fixed amount out of the proceeds of the bakery per month be paid to the plaintiff inclines to the view that the agreement was one of a tenancy, then the term of exclusive devotion counterbalances it in favour of a contract of employment. A further look at the agreement (exhibit A) shows that apart from devoting his whole time to the service of the employer, the employee had at all times to obey and comply with the awful demands and directions of the employer in relation to the [p.377] of [1967] GLR 372
business; he had to the utmost of his skill and ability to serve and promote the interests of the employer and the business. If the employee wilfully neglected or refused or through serious illness extending over a period of two months was unable to perform any of the duties devolving upon him under the agreement, or if he be guilty of gross disobedience of the directions of the employer or guilty of misconduct, then power was given to the employer to dismiss him immediately. All these point to a contract of employment. There does not seem to me to be any principle whereby all these provisions can be wiped out so as to make the agreement completely conform to the normal characteristics of a different type ofagreement just because of one unusual term in the agreement. While the contract subsisted, I do not think that the doctrine of restraint of trade was relevant. There is nothing illegal or contrary to public policy in providing that while a covenantor continues to manage the covenantee’s business, the said covenantor should devote his time exclusively to that business. Other considerations may, of course, arise if there is a covenant restricting the covenantor’s freedom of action after the contract of management has ceased.
I therefore agree with the arbitrator that there was a breach of the agreement when the defendant without the consent of the plaintiff undertook the management of the other bakery. He has also held that there was a breach when the defendant failed to pay the agreed monthly sum to the plaintiff. The difficulty which has arisen in this case is that one breach, namely, the management of the second bakery, was completed long before the termination of the agreement. The agreement lasted from July 1960 to April 1963. The defendant managed the second bakery from some time in 1960 to 1961. The agreement therefore continued for over a year after the management of the second bakery had ceased. If the defendant had not confessed it in the course of the arbitration, the injured party would never have known about it. And it is logical to assume that he did not know about it because it really caused him no material damage. If the plaintiff was entitled to anything at all for this breach it must be so nominal damages. But as the arbitrator dealt with the two breaches together and awarded the heavy sum of £G4,000 it is impossible to tell the figure at which he assessed the plaintiff’s entitlement for this particular damage. There are grounds for questioning whether the assessment of damage was based on correct principles. This is how the arbitrator dealt with the matter in his original award:
“I have already held that the defendant committed a breach of exhibits A and B (1) when he undertook the management of the French Electric Bakery and (2) when he failed to pay the [p.378] of [1967] GLR 372
agreed profit of £G250 a month to the plaintiff. Having so held the plaintiff is entitled to damages. I now come to the difficult question of assessing damages, i.e. what is the measure of damages suffered by the plaintiff.
The plaintiff is claiming damages of £G6,500. The lifespan of exhibit A is five (5) years calculating from 1 July 1960. By the evidence on record the defendant left the bakery at the end of April 1963 so that at the time that the defendant left the bakery exhibit A had 26 months to run. It follows that if exhibit A has run full circle the plaintiff would have been entitled to £G250 a month (vide exhibit B) for the said 26 months, i.e. £G6,500. But has the plaintiff suffered damages by way of loss of profit up to £G6,500? The evidence shows that after the defendant left the Ideal Bakery at the end of April 1963 the plaintiff managed the said bakery. In cross-examination the plaintiff said I have been operating the bakery since the defendant left. I don’t know whether I am a better businessman than the defendant. Since I took over the bakery after the defendant left things have not worked satisfactorily. Things have not worked satisfactorily because I have not much time to devote to the bakery (I have another bakery business). Secondly there is lack of equipment and third the ovens are damaged.’ There is no evidence on record to show how much the plaintiff earned at the Ideal Bakery for the time he managed the same. However, the evidence shows things did not work satisfactorily due, inter alia, to the fact that the plaintiff had another bakery business and could not devote his whole time to the affairs of the Ideal Bakery. In view of the fact that the plaintiff managed the Ideal Bakery after the departure of the defendant seems to indicate that the plaintiff did not suffer loss of £G250 a month. As I have already indicated the evidence does not show what the earnings of the bakery were at that time but the evidence further shows that the plaintiff did not have things running smoothly. I am of the considered view that upon a careful assessment of the facts the plaintiff is entitled to £G4,000 damages and I so award.” It was the plaintiff’s duty to mitigate the damages and to that end he undertook the management of the bakery himself after the termination of the agreement. It was the easiest thing to find out from him how much he actually made after he took over. The plaintiff made some vague statements about things not working out well since he took over without telling in concrete figures how[p.379] of [1967] GLR 372 bad things did become. When the addendum to the original agreement, namely, exhibit B, was made the parties agreed that the monthly profit of the bakery was £G600. Out of this the plaintiffs share was to be £G250. The defendant said that he increased the business of the bakery. But however much he did so, the plaintiffs share was still £G250. In the light of this, the plaintiff’s statement that things did not work out satisfactorily and that he may not be as good a businessman as the defendant, may not mean that he was not making the £G250 a month clear profit. If he was, there is absolutely no justification for awarding him the £G4,000. If he was not then his damages are what he could have made under the contract less what he did in fact make. Without knowledge of what he did in fact make where this factor was ascertainable, the arbitrator took upon himself an unnecessarily difficult task. His estimate was based on nothing more than conjecture.
For the reasons given, I think this court should interfere with this part of the award. Counsel for the plaintiff has argued that this would amount to a review of the order of Archer J. But that, in my view is wrong. These proceedings have then been taken upon a request to set aside the reconsidered award, not the original award. In respect of this reconsidered award there is no order of Archer J. to vary or otherwise review. No question of a review therefore arises. Archer J. found it unjust to set aside the original award either in whole or in part in view of the circumstances prevailing at the time he considered the matter. He thought that the matter could be properly disposed of if the disputed award were remitted for reconsideration. It is now clear that the arbitrator will be in some difficulty in bringing an open mind to the problems at issue. The only proper order the court can make in this situation is to set aside the reconsidered award. I do accordingly set aside the award of £G4,000.
DECISION
Application granted.
Award set aside.
S.E.K.
