Shuttari v Solicitors Indemnity Fund

This is a renewed application for permission to appeal from an order made on 20 May 2004 by Mr Jules Sher QC, sitting as a Deputy Judge of the High Court in the Chancery Division, on an application under section 68 of the Arbitration Act 1966. The application—which the judge refused—sought an order remitting for reconsideration an award dated 22 November 2003 in an arbitration between the applicant, Miss Fawzia Shuttari, and the Solicitors' Indemnity Fund. The issue in the arbitration was whether Ms Shuttari, a solicitor, had acted dishonestly in relation to a mortgage transaction. Ms Shuttari had acted in the transaction for both purchaser and mortgagee. She was sued by the mortgagee, Paragon Finance, on the basis of an allegation that she was party to a mortgage fraud. She sought cover from her insurers, the Solicitors' Indemnity Fund ("SIF"). SIF refused cover on the basis of rule 14.1 of the Solicitors' Indemnity Rules. The rule provides that the fund will not afford indemnity in respect of any dishonest or fraudulent act or omission. The SIF did not allege fraud or dishonesty in terms as extensive as those in the action brought by Paragon; but it did rely on dishonesty in relation to the report on title dated 11 June 1991, which Miss Shuttari had given to the mortgagee. Put shortly, she had signed a report in which she confirmed that she had investigated title and that she had read and would comply with the Mortgagee's Instructions to Solicitors in all respects; when, as she subsequently acknowledged, she had not done investigated further and had not complied with her mortgagee's instructions.

When the SIF invoked rule 14.1, Ms Shuttari, as she was entitled to do, invoked rule 20 of the Solicitors' Indemnity Rules. Under that rule, a solicitor who is dissatisfied with the SIF's decision to refuse cover can refer the dispute to arbitration. She did so on 13 May 1999.

Mr Philip Naughton QC was appointed arbitrator on 28 March 2003. There was a hearing before him in September 2003. But that hearing was adjourned—due, I think, to Miss Shuttari's indisposition—and it was refixed for 23 October 2003. On that date, shortly before the hearing was due to begin, Ms Shuttari produced a letter bearing that date from the Forensic Services Director of the Nottinghamshire Healthcare NHS Trust, a Dr Harris. The text of the letter is set out by the judge at paragraph 25 of his judgment. On the basis of that letter, in which Dr Harris had said that he would be willing to produce a report if he were given time to do so, counsel for Ms Shuttari sought an adjournment of the arbitration hearing. The arbitrator refused that application, for the reasons which are set out by the judge at paragraph 26 of his judgment. He, the arbitrator, pointed out there was no indication whether the report which Dr Harris might produce would have any bearing on the issues which he had to decide in the arbitration. The arbitration proceeded; and the arbitrator published his award at the end of November 2003. He found against Ms Shuttari.

Ms Shuttari issued proceedings under section 68 of the Arbitration Act 1996 on 23 December 2004. The grounds of her application were set out by the judge at paragraph 28 of his judgment. In substance, her complaint was that the arbitration was unfair or causative of substantial injustice because the arbitrator had refused her application to have an adjournment to put in a report which Dr Harris might produce in the future. By the time the matter came before the judge (but again at the last minute) Dr Harris' report had become available. So the judge had the advantage of seeing what the report would have said if the arbitrator had granted the adjournment to enable it to be written and put in.

The judge reminded himself of his jurisdiction under section 68 of the Arbitration Act 1996. Under that section a party may challenge an award on the grounds of serious irregularity affecting the tribunal. A serious irregularity includes a failure of the tribunal to comply with section 33 of the Act, if the court considers that that failure has caused or will cause substantial injustice to the applicant.

The judge directed himself, correctly, that he had to consider, first, whether there had been a failure to comply with section 33 of the Act—in particular with section 33(1)(a), the duty to act fairly and impartially and to give each party a reasonable opportunity of putting his case; and, second, whether, if so, that failure had caused or would cause substantial injustice to Ms Shuttari.

In a judgment of conspicuous care, if I may say so, the judge considered both those questions. He answered them both in the negative. In relation to the first, he said at paragraph 55:

"I find it impossible to say that by refusing the adjournment asked for, the arbitrator failed to give Ms Shuttari a reasonable opportunity of putting her case. Taking everything together, it seems to me that he gave both parties more than a reasonable opportunity of putting their cases and, in my judgment, quite rightly, in view of the very serious nature of the allegation against Ms Shuttari, he gave her every indulgence in enabling her to do so."

Strictly, having held that there was no failure to give Ms Shuttari a reasonable opportunity to put her case, the judge did not need to go on to consider the second question—whether the supposed failure had caused or would cause her any substantial injustice. But, recognising the importance of the matter to her, he did consider that question. He addressed it in some detail at paragraphs 58–67 of his judgment. It is sufficient, I think, to refer to the passages in paragraphs 62–63 where the judge said this:

"62. I have carefully considered the question and I do not consider that substantial injustice will occur if I dismiss this challenge to the award. Indeed, I do not consider that the new evidence would have a realistic chance, if admitted, of causing the arbitrator to reverse his findings. It seems to me that section 68 is really to be treated as a last resort to be invoked only in extreme cases. It will be remembered that the highest the expert can put the evidence is, in the words of Dr Harris, that:

'… when in a depressed state she would not necessarily have been aware of the fact that she was doing wrong …'

63. Dr Harris is telling the court that she might not have been aware of the fact that she was doing wrong, but he cannot say one way or the other. And that, of course, is the highest he puts it, and that is before being cross-examined and before any contrary evidence that might be called by the SIF."

The judge then went on to say this at paragraph 64:

"It should not be forgotten that on the face of the material there was plain dishonesty. Ms Shuttari signed a report on title which any honest solicitor would recognise as dishonest and, it is accepted, so would she in a normal state of mind. What is being said is that there was such an impairment of that state of mind that it deprived her of an appreciation of the dishonest nature of what she was doing."

The judge pointed out the difficulty that would have faced Ms Shuttari if she had sought to rely on Dr Harris's report. The report was made some thirteen years after the event; and Dr Harris could not say, one way or the other, what her state of mind would have been at these times. In those circumstances the judge came to the conclusion that, even if the report had been in front of the arbitrator, it was quite impossible to say that it would have made any difference to the arbitrator's decision.

The judge's order was made on 20 May 2004. The appellant's notice was filed on 7 September 2005, some fifteen months out of time.

The grounds of appeal—which cover many pages—seek to reopen the question whether the arbitrator was entitled to hold that Ms Shuttari was dishonest for the purposes of rule 14 of the Solicitors' Indemnity Rules. But that was not the issue before the judge on the application made to him under section 68 of the Arbitration Act 1996: nor could it have been, under that section. If Ms Shuttari had sought to challenge the award on a point of law—that is to say on the basis of an argument that the arbitrator had applied a wrong test to the question of dishonesty—she could have appealed under section 69 of the Act. But she did not choose to do so, as her claim form makes clear. In my view, in so far as she now seeks to challenge the judge's conclusions on the point which she did raise under section 68 of the Act, there is no prospect of success. I would refuse the application on that ground.

I should add, also, that I can see no ground for extending time on the basis that Ms Shuttari puts forward: namely that it took fifteen months to decide whether to challenge the judge's conclusion.

That was the position as it appeared before the oral hearing this morning. But her counsel now puts forward a quite different case. He now asserts that the Arbitration Act 1996 simply does not apply—both as a construct of domestic law and of Convention law. There is, of course, reference in his submissions to Article 6 of the Convention. He says that, if there is no true arbitration, the decision of Mr...