Arbitration finality and counterclaims: failure to decide counterclaims invalidated the award, and a later reference was barred.

An arbitration award was found unsustainable where the arbitrator failed to consider the respondents' counterclaims, because both claim and counterclaim had to be dealt with before making an award; the remand for fresh consideration was upheld and the later review was set aside for lack of review grounds. The principles of res judicata, constructive res judicata, and Order 2 Rule 2 CPC were held applicable to arbitration proceedings, so claims arising from the same terminated contract that could have been raised earlier were barred in a later reference. The first award failed, the second reference and award were barred, and the High Court's decision was affirmed.

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Issues: (i) Whether the order remitting the first arbitration award for fresh consideration and setting aside the subsequent review was legally sustainable in view of the Arbitrator's failure to consider the respondents' counterclaims. (ii) Whether the second arbitration reference and award were barred by res judicata, constructive res judicata, and Order 2 Rule 2 of the Code of Civil Procedure, as applied to arbitration proceedings.

Issue (i): Whether the order remitting the first arbitration award for fresh consideration and setting aside the subsequent review was legally sustainable in view of the Arbitrator's failure to consider the respondents' counterclaims.

Analysis: The award in the first reference was made without considering the counterclaims at all, although the Arbitrator was obliged to deal with both the claim and the counterclaim before making an award. Such an omission rendered the award legally unsustainable and amounted to misconduct of the Arbitrator and the proceedings. The earlier order of remand for fresh consideration was therefore justified. The later review order could not stand because no error apparent on the face of the record or sufficient reason for review had been shown.

Conclusion: The remand order was valid and the review order was rightly set aside, in favour of the respondents.

Issue (ii): Whether the second arbitration reference and award were barred by res judicata, constructive res judicata, and Order 2 Rule 2 of the Code of Civil Procedure, as applied to arbitration proceedings.

Analysis: The Court held that the principles of res judicata and constructive res judicata apply to arbitration proceedings because the Code of Civil Procedure governs them and because the policy of finality and avoidance of multiplicity of proceedings applies equally. The claims raised in the second reference arose from the same terminated contract and could have been raised in the first reference. The same reasoning also attracted the bar under Order 2 Rule 2, since a party cannot split an entire cause of action and pursue it in piecemeal references.

Conclusion: The second reference and award were barred and could not be sustained, in favour of the respondents.

Final Conclusion: The award in the first reference was invalid for failure to consider counterclaims, and the second reference was barred by the principles governing finality of proceedings. The appeals therefore failed and the High Court's decision was upheld.

Ratio Decidendi: In arbitration proceedings governed by the Code of Civil Procedure, an arbitrator must decide the claim and counterclaim together, and where a dispute arising from one terminated contract could have been raised in an earlier reference, a later reference is barred by res judicata, constructive res judicata, and the rule against splitting a single cause of action.

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