Source: https://lawexplores.com/15-key-issues-in-dispute-resolution/
Timestamp: 2020-07-14 00:56:24
Document Index: 431734139

Matched Legal Cases: ['art 1', 'art 31', 'EWCA ', 'art 31', '§ 3', '§ 3', '§ 3', '§ 3', '§ 3', '§ 3', '§ 4', '§ 5', '§ 6', '§ 7', '§ 8', '§ 9', '§ 10', '§ 11', '§ 12', '§ 13', '§ 14', 'EWCA ', 'EWCA ', 'EWCA ', 'UKHL ', 'UKSC ']

15 KEY ISSUES IN DISPUTE RESOLUTION |
The two most common forms of dispute resolution, which require an agreement, are arbitration and adjudication. Of course, there is mediation but the agreements there are a bit more casual, as one cannot be forced to mediate, but one can be required to arbitrate, or be subject to adjudication. Under the Housing Grants, Construction and Regeneration Act 1966, however, the statutory requirements overshadow individual contracts regarding adjudication (see Chapter 14). Internationally, most large-scale infrastructure projects provide for adjudication of their disputes with referral to arbitration thereafter, according to international standards developed by such groups as the International Chamber of Commerce or the Chartered Institute of Arbitrators. FIDIC, for example, provides for a specific Dispute Adjudication Agreement as part of its dispute resolution procedures flowing from the dispute adjudication board procedures in its contracts. Looking then to the most prevalent form of dispute resolution, arbitration, we find that in England, for example, arbitration is generally subject to the Arbitration Act 1996 and further, particular arbitration clauses can have additional requirements such as being subject to the Construction Industry Model Arbitration Rules. With the advent of adjudication in the UK, arbitration has become a bit more rare but remains applicable to disputes and, in particular, construction disputes, where it is still possible to obtain highly qualified construction arbitrators who know what “section modulus” is or where a “soffit” belongs.
Unfortunately, arbitration, which was initially meant to provide a quick resolution of a commercial dispute by an knowledgeable arbitrator has, over the years, expanded into what to many seems similar to actual court proceedings, with all that entails, such as delay in getting to the hearing, lawyers causing difficulties and the attendant costs. Judges, in particular, who frequently have to review arbitral awards, have noted this situation; for example, in Northern Regional Health Authority v Derek Crouch Construction Company Limited,1 the court wrote: “[a]rbitration is usually no more and no less than litigation in the private sector”.
While this may be true, the Arbitration Act, along with other international requirements, promotes the use of effective and speedy arbitration to help temper this view and goes a long way towards providing a compelling reason not to litigate.
1 [1984] 1 QB 644.
As to the Arbitration Act 1996, it states in section 1 that its overriding principles are that:
“… The provisions of this Part are founded on the following principles, and shall be construed accordingly –
the parties shall be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest;
in matters governed by this Part, the court should not intervene except as provided by this Part.”
The Act then defines such an arbitration agreement in sections 5 and 6 as follows:
“5 Agreements to be in writing
The provisions of this Part apply only where the arbitration agreement is in writing, and any other agreement between the parties as to any matter is effective for the purposes of this Part only if in writing. The expressions ‘agreement’, ‘agree’ and ‘agreed’ shall be construed accordingly.
There is an agreement in writing –
In this Part an “arbitration agreement” means an agreement to submit to arbitration present or future disputes (whether they are contractual or not).
The reference in an agreement to a written form of arbitration clause or to a document containing an arbitration clause constitutes an arbitration agreement if the reference is such as to make that clause part of the agreement.”
Then, following along this path, once section 5 and 6 have been complied with, the parties must proceed to arbitration and are precluded from commencing court litigation. If one party decides to start legal proceedings instead of arbitration, the other can ask the court to transfer the matter to arbitration or, as is more likely, to enjoin further court proceedings pending the outcome of the arbitration.2 In Halki Shipping Corp v Sopex Oil Ltd,3 the court dealt with both the 1996 Act and its repeal of the former Arbitration Act 1975 as well as the mandatory nature of the 1996 Act. In this case Halki was a shipowner who had an agreement, under a charterparty, with Sopex, which provided for arbitration in respect of any disputes arising from it. Halki issued a summons under the Rules of the Supreme Court, Order 14 for summary judgment as to a claim for demurrage against the Sopex. Here, Sopex had successfully applied for a stay of proceedings under the Arbitration Act 1996 section 9 on the grounds that the proceedings brought by Halki were in respect of a matter, which, under the charterparty, was to be referred to arbitration. Halki appealed, contending that the repeal by the 1996 Act of the Arbitration Act 1975 section 1, which provided that a stay of proceedings could be refused if “there was not in fact any dispute between the parties with regard to the matters agreed to be referred”, simply “removed a superfluity” and did not change the law as stated in Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH,4 so that the fact that a defendant refused to admit an indisputable claim did not create a dispute under the arbitration agreement.
2 See e.g. Paul Newman, “Commercial Arbitration: Part 1”, Construction Newsletter, 2009.
3 [1998] 2 All ER 23.
The court did not agree and dismissed the appeal, stating that the contention that neither the 1975 Act section 1, nor its repeal, affected the law could not be supported and the removal of that ground for refusing a stay of proceedings had to be viewed as an important difference between the two Acts, which left almost all disputes within the arbitration clause to be referred to arbitration. The repeal of the 1975 Act section 1 showed that Parliament did not consider that the court’s summary jurisdiction under Order 14 was a necessary safeguard against delay in arbitration proceedings and the 1996 Act emphasised the importance of ensuring that the parties’ decision to go to arbitration was respected. The key question, therefore, was whether there was any dispute within the meaning of the arbitration clause where one party claimed a sum that the other party refused to pay, or denied was owed. In the instant case there was a dispute according to the ordinary use of the English language and accordingly, per the 1996 Act, so long as there was a valid arbitration agreement there was a mandatory stay of proceedings. The court wrote:
“… I take s 1 in general and s 1(b) in particular as emphasising the importance of the fact that the parties have chosen an alternative form of dispute resolution, namely arbitration, and should not be limited in that preference unless ‘such safeguards are necessary in the public interest.’
Therefore, it is important to read the contract before commencing court proceedings. For instance, in Ardentia v British Telecommunications [2008] EWHC B12 (Ch) the claimant and the defendant were in dispute over software licences and payments and BT’s wish to appoint an alternative supplier. Ardentia sought an interim injunction to stop the appointment of the third party supplier (which the judge dealt with) but the underlying dispute was transferred to arbitration. The contract was clear. Clause 7.1.3 of the Dispute Resolution Procedure stated – ‘ If the Contractor intends to commence court proceedings it shall serve written notice on BT of its intention and BT shall have 15 (fifteen) business days following receipt of such notice to serve a notice in reply on the Contractor requiring that the dispute should be referred to arbitration ….”
When there is a valid contract, which provides for arbitration of any dispute, the defendant is usually the one who has the option of demanding that arbitration proceeds rather than a court action. So, for example, if the claimant commences proceedings it is the defendant/respondent who has the right to compel arbitration pursuant to section 9 of the Arbitration Act 1996. Occasionally, however, the defendant/respondent does not immediately proceed to compel the claimant but rather conducts itself in a way to suggest that it agrees with proceeding in court instead – sometimes this is actual and most often, however, it is accidental – either way the claimant will attempt to use this as a basis for claiming that the arbitration provisions of the agreement have been waived as the defendant/respondent has “taken a step in the proceedings”. This “taken a step” situation raises all sorts of additional questions, the least of which is exactly what is “a step”. The Irish case of O’Dwyer & Anor v Boyd5 reviewed the various authorities and provided the analysis. O’Dwyer was an appeal from an order of the High Court granting a stay of specific performance proceedings instituted by O’Dwyer against Boyd so as to enable certain matters to be referred to arbitration in accordance with the terms of a contract of sale.
4 [1977] 1 WLR 713.
The contract of sale was dated 21 August 1998 and was in a standard Law Society form. That standard form included “General Conditions of Sale” which, by virtue of paragraph 2 of the special conditions, were to be incorporated into the contract. Condition 51 of the general conditions clearly stated that all differences and disputes between the vendor and the purchaser, in relation to certain listed matters, were to be referred to arbitration.
The matters that are relevant to the issue of “steps in the proceeding” are that on 11 April 2000, O’Dwyer served notice of a motion for judgment in default of defence, which came on for hearing on the 8 May 2000. The motion was listed and at that stage O’Dwyer’s affidavit and exhibits were before the court but no affidavit was filed on behalf of Boyd. Counsel for Boyd requested a three-week adjournment, which was opposed, but despite this the court granted an adjournment of one week. Apparently, it had been indicated that Boyd might want to bring a motion to have the proceedings stayed so that there be a reference to arbitration under the contract. The court gave liberty to serve short notice of motion to refer the matter to arbitration for the same date as the resumed hearing of the motion for judgment. On 11 May 2000, a notice of motion was served seeking a stay of the specific performance proceedings under the then applicable Arbitration Act, of which the then subsection (1) read:
“… (1) If any party to an arbitration agreement, or any person claiming through or under him, commences any proceedings in any court against any other party to such agreement, or any person claiming through or under him, in respect of any matter agreed to be referred to arbitration, any party to the proceedings may at any time after an appearance has been entered, and before delivering any pleadings or taking any other step in the proceedings, apply to the court to stay the proceedings, and the court, unless it is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings.”
The court found that subsection (1) clearly provided that the application for the stay had been made at the right time, the court had very limited discretion to refuse. By “right time” the court meant that the application must be made “before delivering any pleadings or taking any other step in the proceedings”. This became the central issue in the appeal.
5 [2002] IESC 54.
After several adjournments dealing with additional affidavits, the ultimate hearing took place on 3 October 2000 and the stay was granted resulting in the appeal. The Court of Appeal reviewed the situation and wrote:
“… The appellants have included every conceivable point that could be made on their behalf in the notice of appeal but it emerged from the hearing that in reality the substantial grounds of appeal can be reduced to two. These are:
… The appellants’ argument is that their litigation directed towards obtaining title and vacant possession is a specific performance suit in which they are also claiming damages and that the scope of their action goes well beyond so called “error” in description which they deny existed. They say that the arbitration effectively deprives them of their specific performance suit.
If the appellants are wrong about that, the High Court still had no jurisdiction to grant the stay because the respondent had taken a step in the proceedings within the meaning of section 5 of the Arbitration Act, 1980. This ground of appeal is essentially contained in paragraph 5 of the notice of appeal.
The other grounds of appeal are not really stateable in law though it is very understandable that the appellants would have regarded them as relevant. Ground No. 1 refers to section 26 of the Arbitration Act, 1954. That section reads as follows:
‘26. Unless a contrary intention is expressed therein, every arbitration agreement shall, where such a provision is applicable to the reference, be deemed to contain a provision that the arbitrator or umpire shall have the same power as the court to order specific performance of any contract other than a contract relating to land or any interest in land.’
The appellants seem to take the view that because of this section issues in their specific performance suit cannot be referred to arbitration. That is a misreading of the section. If the matter substantially in dispute in this case goes to arbitration, the arbitrator will, in the first instance, be concerned with whether Condition 33 applies at all. My impression is that the appellants would obviously like that issue to be decided by a court and not by an arbitrator, but they have signed a contract which says that that issue does have to go to an arbitrator. All the provisions of the Arbitration Acts will apply to any such arbitration including of course, if difficult legal questions arise, the power of the arbitrator to state a case to the High Court. But Condition 51 of the general conditions incorporated in the contract which the appellant signed incontrovertibly provides that the applicability of Condition 33 is itself to be arbitrated on as distinct from the issues under Condition 33. If the arbitrator came to the conclusion that Condition 33 was applicable, then he or she would go on to determine whether there should be an abatement of the purchase price. In the meantime, this specific performance suit does not disappear. It is simply stayed pending the outcome of the arbitration. There is no question of the arbitrator granting a specific performance order and, therefore, there is no question of any contravention of section 26 of the Arbitration Act, 1954. If and in so far as there are issues outstanding after any abatement of purchase price has been determined they will come to be determined by the court if necessary.
Moving now to the second substantial ground of appeal that is to say that the court had no jurisdiction to order the stay because the respondent had taken a step in the proceedings, it is only fair to say that although many relevant and useful cases have been cited none of them are quite on all fours with what happened in this case.
Before reviewing the case law, I think it useful to refer first to textbook passages on which the appellants have particularly relied. The passage most favourable to the appellants’ point of view is probably that contained in Halsbury’s Laws of England, 4th edition, reissue, Volume 2 at paragraph 627. The passage in question reads as follows:
‘The applicant must have taken no step in the proceedings after acknowledgment of service. A step in the proceedings is an act which both invokes the jurisdiction of the court and which demonstrates the applicant’s election to allow the action to proceed. An applicant may take what would otherwise be a step if he makes it clear that that act is done without prejudice to his right to apply for a stay. Steps in the proceedings have been held to include: the filing of an affidavit in opposition to a summons for summary judgment, service of a defence, and an application to the court for leave to serve interrogatories, or for a stay pending the giving of security for costs, or for an extension of time for serving a defence, or for an order of discovery, or for an order for further and better particulars. The following have been held not to be steps: acts preliminary to the issue of proceedings, a request in correspondence for an extension of time for serving a defence, the filing of affidavits in answer to an application by the plaintiff for the appointment of a receiver, transferring a summons into counsel’s list, applying to strike out a defective statement of claim, resisting an application for an interlocutory injunction by putting in evidence and appearing in court, and applying for a stay on grounds other than that the dispute was subject to an arbitration payment’.”
In a footnote to that passage there is a very general statement in the following terms:
“Any act which does not involve the court does not invoke its jurisdiction: … as a general rule any application to the court, or filing of pleadings or documents, does invoke its jurisdiction and does amount to a step in the proceedings: … under certain circumstances, however, such actions may not amount to steps.
The appellants also relied on a passage in the Law and Practice of Commercial Arbitration in England, second edition, Mustill and Boyd. The passage appears at p 472 and with reference to what is a ‘step in the proceedings’ reads as follows:
‘The reported cases are difficult to reconcile, and they give no clear guidance on the nature of a step in the proceedings. It appears, however, that two requirements must be satisfied. First, the conduct of the applicant must be such as to demonstrate an election to abandon his right to stay, in favour of allowing the action to proceed. Second, the act in question must have the effect of invoking the jurisdiction of the court.’
To arrive at a true understanding of the correct principles to be applied it is necessary to review the actual decided cases. At this stage I should make it clear that although I will be reviewing the cases I will be doing so in the context of one aspect only of this case. In ground 5 in the notice of appeal the appellants rely on three distinct alleged ‘steps’. Two of these are in my view unstateable for the reasons which I will be indicating. Serious consideration has only to be given to the third. Associated with the contract of sale there had been a tenancy agreement between the respondent and the appellants. In 1999 the respondent purported to terminate that tenancy agreement and issued ejectment proceedings against the appellants in the District Court. The appellants claim that the issuing of the District Court ejectment proceedings constituted a ‘step’. This argument cannot be sustained since clearly the alleged ‘step’ was not a ‘step’ in these specific performance proceedings brought in the High Court but rather the institution of different litigation in a different court.
The second alleged ‘step’ is the imposing on the appellants the necessity to make an application to the High Court for liberty to serve out of the jurisdiction in South Africa because the respondent would not nominate their Dublin solicitors to accept service. While it was very understandable that the appellants should be highly aggrieved by this behaviour on the part of the respondent it cannot be said to constitute a ‘step’. The behaviour complained of was not part of the proceedings itself.
The third ‘step’ alleged by the appellants is undoubtedly arguable and requires serious consideration. This relates to the application to McCracken J for an adjournment of the motion for judgment. After carefully considering the decided cases which I am about to review, I have come to the conclusion nevertheless that that was not a ‘step’ within the meaning of the Arbitration Act, 1980. By merely applying for an adjournment the respondent was not indicating to the court one way or the other whether he intended to participate further in the proceedings and indeed the question of reference to arbitration was raised. The adjournment was in my view nothing more than a holding operation.
The leading English case on the question of what constituted a ‘step’ was for many years Ford’s Hotel Co Limited v Bartlett [1896] AC 1. Quite apart from any persuasive value which the case may have, it is of importance in Ireland in that it was relied on and effectively followed by Finlay P in O’Flynn v An Bord Gais Éireann [1982] ILRM 324, a case to which I will be referring in more detail in due course. In the Ford’s Hotel case a defendant had taken out a summons and had obtained an order for further time for delivering a defence. This was held to be a ‘step’ in the proceedings within the meaning of the similar provision contained in the Arbitration Act, 1889. In the O’Flynn case as will be seen, Finlay P approved the following passage from the speech of Lord Halsbury:
‘The intention of the legislature in giving effect to the contract of the parties, and saying that one of them should be entitled to make an application to insist that the matter should be referred according to the original agreement, was that they should at once, and before any further proceedings were taken, specify the terminus a quo, and that if an application to stay proceedings was made under those circumstances, then that the court should enforce the contractual obligation to go to arbitration. My Lords, that seems to be a very wise provision: that costs should not be thrown away in beginning to litigate.’
Three of the five Law Lords delivered opinions and there is some slight discrepancy between them as to whether it was the application for the extension of time or the actual making of the order for the extension of time or a combination of both which constituted the ‘step’ but nothing turns on that for the purposes of this appeal. In this case the respondent never made any application to the court for an extension of time to deliver a defence or indeed any other application other than for an adjournment which must necessarily be noncommittal. But it was not entirely noncommittal in that short service was allowed for the bringing of a motion to stay the proceedings.
For a ‘step’ to be constituted it may not be essential that the parties seeking the stay has himself or herself made some application to the court. In the English case of Pitchers Limited v Plaza Queensbury Limited [1940] 1 All ER 151 it was held that opposition to a summons for leave to sign final judgment before the Master was a ‘step’. However, the case is somewhat unusual in that as was pointed out in the judgment of Slesser LJ that was not a case where an application for a stay was made at the same time as leave to sign judgment was opposed. At the stage when the matter was before the Master there was no application to stay on the grounds of arbitration. That only first arose on appeal to the judge. But again the facts are far removed from this case where all that was asked for was a straightforward adjournment.
The next case of importance is the Irish case of O’Flynn already cited. I referred to the fact that Finlay P in that case approved of the interpretation of the relevant section by Lord Halsbury in the Ford’s Hotel case but he went on to make the following observation:
‘… it seems clear that the step which should be held fatal to a party seeking to refer a matter to arbitration is a step which involves costs, in other words a step which invoked the jurisdiction of the court at his instance or which institutes some matter whether by way of motion or otherwise in the court. In the case of the Brighton Marine Palace and Pier Limited v Woodhouse [1893] 2 Ch 486 it was held that an agreement reached by letter between the parties for the extension of time for a defence was not the taking of a step by the defendant which could debar him from obtaining a staying order under the Acts. In the course of the judgment of North J in that case he points out that it was not a proceeding in the action but rather in a sense outside the court.’
In one sense an application for an adjournment is the invoking of the court’s jurisdiction but that is not sufficient for it to constitute a ‘step’, it is a totally neutral act in the context of whether it is an intention to refer to arbitration or proceed with litigation.
Finally I would refer to the modern English case of Turner & Goudy v McConnell and Anor [1985] 1 WLR 898. In that case, a Court of Appeal consisting of Dillon LJ and Mustill J (as he then was and who was one of the co-authors of the work cited earlier) held that the defendants had taken a step in the proceedings by filing an affidavit showing cause why summary judgment should not be entered against them and by appearing before the Master thereby causing judgment to be deferred by an adjournment; and that therefore it was too late to apply for a stay under the Arbitration Act 1950. The judgment of the court was delivered by Dillon LJ, and he succinctly explains the reasoning behind the court’s decision in the following passage towards the end of his judgment at p 903:
‘In the present case the defendants were required under Order 14 to show cause why judgment should not be entered against them. They had to do that by affidavit or otherwise. They did it by filing the affidavit, which I have mentioned, which put forth at length the reasons why they contended that judgment should not be entered against them. Their position that they were opposing the application was maintained by the presence of the solicitor for the defendants before the Master on the 3rd of May and it was because of the contentions put forth in the affidavit, and not withdrawn, that the Master necessarily adjourned the proceedings to a more appropriate date.
They have therefore, in my judgment, taken a step in the action by filing the affidavit to show cause why judgment should not be entered against them and by appearing before the Master on the 3rd of May with the consequence that judgment was deferred by the adjournment and, in my judgment, it is too late for them in June to decide that they want a reply for a stay for arbitration.’
It is clear from that passage that the circumstances of that case were also entirely different from the circumstances of this case where the respondent did nothing except to apply for an adjournment.
The appellants in different connections have referred the court to a number of other authorities which I do not propose to review as I do not think they are relevant. At this stage I would just summarise the legal position in which the appellants find themselves.
They are faced with an application for a stay which was for the reasons which I have indicated made in time and is not defeated by any step taken by the respondent.
I would dismiss the appeal.”
Once it has been determined that a valid arbitration agreement exists, it can be enforced, and the recalcitrant party compelled to arbitrate, but there are other essential parts of an arbitration agreement that must be taken into consideration.
One of the major problems encountered in agreements to arbitrate is the lack of a clear statement that the parties have agreed to binding arbitration. Some writers6 have used the example of a “problem” arbitration clause, which recited:
“In case of dispute, the parties undertake to submit to arbitration, but in case of litigation the Tribunal de la Seine shall have exclusive jurisdiction.”
With this particular clause, unfortunately, the question becomes just exactly how will any dispute be resolved? The real intent of the drafter of this clause would certainly have been to help the parties quickly avoid difficulties when a dispute occurred but, unfortunately, it was drafted in a way that would undoubtedly cause more difficulty than intended. Obviously, this should be avoided and it is always wise to avoid any changes to settled arbitration clauses and should at a minimum require the parties to submit to binding arbitration without any other provisions. In this regard article II.1 of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention, states:
“… Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which … may arise between them … concerning a subject matter capable of settlement by arbitration.”
Again, the caveat is that if the arbitration clause is not clear on whether or not the parties have definitely agreed to submit to binding arbitration, it will not be enforced.
Another critical, but seemingly simple, provision is how the arbitration mentioned in the arbitration agreement will commence. A typical clause may state simply: “Any disputes arising out of this Agreement will be finally resolved by binding arbitration”.
6 L Craig, R Park and J Paulsson, “International Chamber of Commerce Arbitration sec 9.02”, 2nd edn, Oceana Publications, 1990.
This sort of provision would be enforceable, but unless the parties can agree on all of the other details, such as how the arbitrator will be appointed in the event they cannot choose, and where the arbitration should be held, etc., it will still require resort to the courts, which is something such clauses are intended to prevent. Several writers7 feel that there are certain specific provisions that should be contained in any agreement to arbitrate and these include:
what disputes will be arbitrated;
the rules that will govern the arbitration;
the institution, if any, that will administer the arbitration;
the procedural law that will apply to the arbitration;8
the number of arbitrators and how they will be chosen;
an agreement that judgment may be entered on the award;
a provision as to whether or not the award should be a “reasoned award”;
a provision as to whether or not the substantive law of any particular jurisdiction will govern;
a provision governing interim relief, i.e. the appointment of an emergency arbitrator or obtaining injunctive relief;
whether claims by or against company affiliates and/or parent companies are covered by the arbitration;
whether issues arising from the presence of multiple parties, such as whether or not related arbitration proceedings may be consolidated, or whether provisions (other than those stated in the selected arbitration rules) should apply to selecting the arbitrator;
a provision as to the scope and/or extent of disclosure/discovery and the procedures to be followed, such as resort to the International Bar Association;
whether there is a need for a waiver of sovereign immunity;
whether special confidentiality protection is needed; and
whether to authorise arbitrators to award legal fees and costs.
Of these provisions the one that comes up is whether pre-arbitration disclosure can occur. In EDO Corporation v Ultra Electronics Ltd,9 it was found that the procedure for pre-action disclosure provided by section 33(2) of the Senior Courts Act 1981 and CPR Part 31.16 was not available to a party where the underlying dispute arose out of a contract, which required any dispute to be determined by arbitration.
7 See e.g. John M Townsend, “Drafting arbitration clauses: Avoiding the 7 deadly Sins”, Dispute Resolution Journal, Feb–April 2003.
8 It is important to determine or state what the “seat” is, thus for example if the arbitration is one in England and England is not stated as the seat it will be enforced either through the Geneva Convention or the New York Convention but will not be subject to any review by the English courts.
9 [2009] EWHC 682 (Ch).
In this case EDO and Ultra were both successful bidders in relation to sonar systems for a Royal Navy Destroyer. In preparing the bid and supplying the sonar, they had entered into two contracts with each other. In each contract Ultra was prohibited from using certain information, which had been provided by EDO, for anything other than the Royal Navy contract. In each contract there was an arbitration agreement. Then later, Ultra was a successful bidder for a sonar system for the Australian Navy. EDO took the position that Ultra misused some of the information that had been provided to it in the context of the Royal Navy work in order to win the Australian contract. However, in order to see whether this was the case, EDO applied for pre-action disclosure of parts of Ultra’s bid to the Australian Navy.
The court found that it did not have jurisdiction to make an order for pre-action disclosure in aid of an arbitral process. Section 33(2) of the Senior Courts Act 1981 requires that an applicant should “appear in the High Court” or be “likely to be a party to subsequent proceedings in that court”. On the contrary, the parties were bound to arbitration by the terms of their contracts so would not be litigating in the English court. The court noted that, had the legislature intended for those who were likely to be parties to arbitral proceedings to have similar ancillary assistance to that provided by section 33(2), it would have made an express provision to that effect either within the Senior Courts Act or, more probably, within section 44(2) Arbitration Act 1996.
The case of EDO Corporation is authority for the proposition that the courts do not have jurisdiction to entertain an application for pre-action disclosure whether the contract incorporates an arbitration agreement. Although this point does not appear to have been considered at a higher level, it was conceded in a more recent case, Barrier Ltd v Redhall Marine Ltd,10 in which Barrier acknowledged that, in order to succeed in its application for pre-action disclosure, it had to show that there was no arbitration clause in the relevant contract.
Thus, one should be careful in the drafting of an arbitration clause for, where the contract that forms the basis of a dispute contains an arbitration clause pre-action disclosure, it is not going to be available either through a court or through any pre-arbitral mechanism, as there will at that point be no arbitrator(s) appointed to hear the application, which is yet another reason to provide for a method to obtain this result in the arbitration agreement itself.
Another aspect of disclosure has to do with whether evidence presented in an arbitration is subject to disclosure elsewhere. In one of a series of cases entitled Michael Wilson & Partners Ltd v Emmott,11 Michael Wilson Partners appealed against a decision authorising the disclosure, for the purposes of proceedings in New South Wales and in the British Virgin Islands, of documents generated in an English arbitration. In the underlying matter, Michael Wilson Partners had been established to provide legal services in Kazakhstan. Emmott was a solicitor who had joined them as a director and senior lawyer under an agreement containing an arbitration clause. After five years he had left Michael Wilson Partners and set up a competing business together with two other former employees of the company. It was claimed by Michael Wilson Partners that this was part of a scheme to divert their business in breach of contract and in breach of trust and they commenced arbitration in London and court proceedings against Emmott and others in England, New South Wales, the British Virgin Islands, Jersey and Colorado. In the arbitration Emmott sought an order permitting disclosure of documents from the London arbitration in the foreign proceedings on the basis that Michael Wilson Partners’ case at arbitration was materially inconsistent with that advanced in other proceedings and it had been presenting those courts with a misleading or inaccurate picture. The judge ordered disclosure on the basis that it was in the interests of justice so that the foreign courts would not be misled, or potentially misled, where the cases that were being advanced in the various proceedings were essentially raising the same or similar allegations. Emmott took the position that the appeal should be dismissed as academic because the documents in issue had been made available to the foreign courts and Michael Wilson Partners submitted that there was no jurisdiction to make such an order for disclosure of documents in favour of a non-party in proceedings before the court unless such documents were a matter of public record and that, further, there was no basis for such a jurisdiction in relation to documents generated in an arbitration. As such, the disclosure order constituted an unwarranted intrusion into the confidentiality of arbitrations, which could only be overridden in the public interest in the context of a dispute between a party to the arbitration and a stranger. The Court of Appeal reviewed the situation and dismissed the appeal.
10 [2016] EWHC 381 (QB).
11 [2008] EWCA Civ 184, [2008] Bus LR 1361.
Its decision was based upon:
“the fact the court should not refuse to hear the appeal because it had become academic. It was possible that either side might wish to disclose more arbitration documents to one or more of the courts hearing aspects of the dispute. The determination of the appeal might give some guidance if further disclosure were requested. Further the judge had jurisdiction to determine the question of confidentiality. There was an implied obligation, arising out of the nature of arbitration itself, on both parties to an English arbitration not to disclose or use for any other purpose any documents prepared for and used in the arbitration, and as such Ali Shipping Corp v Shipyard Trogir [1999] 1 WLR 314 applied. That obligation was not limited to documents that contained material that was confidential, such as trade secrets. If the implied agreement of the parties was the basis of the obligation of confidentiality, it ought to follow that disputes about its limits were within the scope of the arbitration agreement and should be determined by the arbitral tribunal. On the evidence of the reported cases, however, when a dispute had arisen as to the applicability and extent of confidentiality it had been resolved by an application to the court for an injunction to restrain disclosure. The application in the instant case should be regarded as the mirror-image of such an application, namely as a claim for a declaration that the confidentiality obligation did not apply. Michael Wilson Partners did not seek a stay of Emmott’s application but rather it took the point that the only way in which the documents could be obtained was by a request under the Evidence (Proceedings in Other Jurisdictions) Act 1975. There was nothing in that point, since the 1975 Act only applied to requests for evidence and there was no case for suggesting that the material sought was evidence in that sense. Further there was an exception to the obligation of confidentiality where the interests of justice required it, London and Leeds Estates Ltd v Paribas Ltd [1995] 1 EGLR 102 and Ali Shipping v Shipyard Trogir applied. In the circumstances the judge had been right to order disclosure in the interests of justice since otherwise there was a possibility that the foreign court would be misled.”
Increasingly, arbitrators have to come to grips with electronic disclosure, i.e., e-disclosure of electronically stored information (ESI).12 Indeed, most companies, as well as business individuals, handle their communications electronically and it has become very common for no “original” copies of a document to exist, but rather only as ESI, e.g. Word, Excel, PDF files, email, etc., which can contain not just the document but also who produced the document and other encrypted information such as the creation date, document title, edits, changes and hidden notes known collectively as “metadata”. Many jurisdictions have restrictions on such data and its transfer, such as the EU Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995, which dealt with the protection of individuals with regard to the processing of personal data and on the free movement of such data. Unfortunately, the mass of information has reached the door of arbitration so arbitrators, as well as parties, should be acquainted with the problems and concerns related to disclosure/discovery of “e” information and, while the courts have dealt with these disclosure situations for several years, arbitration is not litigation.
12 See David Howell, “Developments in Electronic Disclosure in International Arbitration” Dispute Resolution International Vol 3 No 2, October 2009.
The fact of the matter is that currently the issue of electronic disclosure does not come up that often in international arbitrations. However, the situations are changing and arbitrators should be aware of how to best handle this situation if it develops. It should be noted, however, that “there is clearly a broad and strong consensus among arbitration users from both civil and common law jurisdictions that litigation-style ‘discovery’ (in particular US litigation-style discovery), which is based upon a positive obligation to disclose and produce all non-privileged documents relevant to the issues pleaded (whether helpful or harmful to a party’s case), has no place in international arbitration.13
In the UK, under the Civil Procedure Rules (CPR), the obligation of “standard disclosure” in litigation compels a party to disclose materials on which it intends to rely: that adversely affect its own case, that adversely affect another party’s case, or that support another party’s case. The scope of litigation discovery in the US is “wider and extends to any material relevant to the subject matter of the action and also any material that appears reasonably calculated to lead to discovery of admissible evidence”.14 This is similar to the UK position before the CPR, when parties were required to produce all background materials and any documents leading to a “train of enquiry”, in addition to all documents supportive of or adverse to each party’s case. It should be noted in this context, most civil law jurisdictions impose few, if any, documentary disclosure obligations on parties to litigation.15
While some arbitral organisations, such as the London Court of International Arbitration (LCIA), require parties to disclose documents on which they choose to rely,16 there “is no disclosure obligation in arbitration equivalent to the wide obligation of discovery that exists in litigation in many common law jurisdictions”. The usual situation is that, in fact, it is the arbitral law of the seat of the arbitration that will govern disclosure in general and e-disclosure in particular.
It has been considered that while “production” normally refers to the delivery of documents, whereas “disclosure/discovery covers the broad spectrum of requests for, and objections to, the physical production of otherwise relevant and material documents, and encompasses production”.17
16 See e.g. article 15.6 of the LCIA Arbitration Rules.
Under the IBA Rules on the Taking of Evidence in International Commercial Arbitration, permissible, narrow and specific requests for documents, or categories of documents, that are considered relevant and material to the outcome of the case, may be made.18 However, the tribunal may, at its discretion, refuse such a request on various grounds, e.g. it would be an unreasonable burden to produce the requested evidence, as well as fairness or equality between the parties.
This requires the tribunal to balance the amount and nature of the dispute and the likely relevance and materiality of the documents requested to the outcome of the case, against the cost and burden of giving disclosure.
“That balancing exercise will also be influenced by the legal and cultural background of the tribunal and counsel.”19
“However if it is accepted (as reflected in the IBA Rules) that parties should be entitled to seek disclosure of documents that are relevant and material to the outcome of the case, having due regard to balancing the amount and nature of the dispute, the likely relevance and materiality of the documents and the cost and burden of giving disclosure, it is not productive to take the position that electronic disclosure ‘has no place in international arbitration’.[20] In this regard it is helpful to look to ‘litigation’ activities have sorted out this situation and a good example of this can be seen from the Sedona Conference (2002), which brought together counsel, judges and IT experts who developed concepts for the discovery of electronic data in a litigation context. The result of those efforts was the ‘Sedona Principles on the Disclosure of Electronic Data’.”21
The techniques suggested by the Sedona Conference can be summarised as follows:
early consideration of electronic disclosure by the parties, their counsel and by the tribunal, in cases where the time and cost of electronic disclosure may become burdensome and contentious;
allocate costs as one means to moderate the potentially oppressive effects of extensive requests for electronic disclosure;
in a litigation context shift all or some of the costs of production to the requesting party where the electronic data sought is not reasonably accessible;
leaving it open to the requesting party to offer to bear the cost of disclosure, either on a final basis or subject to the final discretionary award on such costs dependent upon the outcome of the arbitration;22
a “responding party should follow reasonable procedures to protect privileges and objections in connection with the production of electronically stored information”.
17 See David Howell, “Developments in Electronic Disclosure in International Arbitration” Dispute Resolution International Vol 3 No 2 October 2009.
18 See article 3.9 of the IBA Rules.
19 Ibid, at 750.
21 See “Sedona Principles: Best Practices, Recommendations and Principles for Addressing Electronic Document Production”, January 2004. It is interesting to note that the work of the Sedona Conference was drawn upon in the Cresswell Report of 2004 in the UK, resulting in the Practice Direction to Part 31 of the English Civil Procedure Rules (CPR31) in November 2005, followed by amendments to the US Federal Rules of Civil Procedure in December 2006.
22 Ibid, at 750.
The Chartered Institute of Arbitrators Protocol for E-disclosure in Arbitration
The Chartered Institute of Arbitrators (CIArb) Protocol was developed as a checklist for arbitrators, parties and counsel having to deal with electronic disclosure issues and includes:
whether documents in electronic form are likely to be the subject of a request for disclosure (if any) during the course of the proceedings and if so; what types of electronic documents are within each party’s control and what are the computer systems, electronic devices, storage systems and media on which they are held;23
what (if any) steps may be appropriate for the retention and preservation of electronic documents, having regard to a party’s data retention policy and practice (provided that it is unreasonable to expect a party to take every conceivable step to preserve every potentially relevant e-document);24
what rules and practice apply to the scope and extent of disclosure of electronic documents in the proceedings, whether under the agreed arbitration rules, the applicable arbitral law or under any agreed rules of evidence;25
whether the parties have made, or wish to make if they have not done so, an agreement to limit the scope and extent of electronic disclosure of documents;26
what tools and techniques27 may be usefully considered to reduce the burden and cost of e-disclosure (if any), including:
limiting disclosure of documents or certain categories of documents to particular date ranges or to particular custodians of documents;
the use of agreed search terms;
the use of agreed software tools;
the use of data sampling; and
the format and methods of e-disclosure.
whether any special arrangements with regard to privilege, or waiver of privilege, in respect of electronic documents disclosed may be agreed;28
whether any party and/or the tribunal may benefit from professional guidance on IT issues relating to e-disclosure having regard to the requirements of the case.
23 CIArb Protocol for E-disclosure in Arbitration, at § 3(i) and (ii).
24 Ibid, at § 3(iii).
25 Ibid, at § 3(iv).
26 Ibid, at § 3(v).
27 Ibid, at § 3(vi).
28 Ibid, at § 3(vii).
“Reflecting the appropriate scope of disclosure in international arbitration contained in the IBA Rules, any request for the disclosure of electronic documents should properly contain a description of the document or a narrow and specific requested category of documents; a description of how the documents requested are relevant and material to the outcome of the case; a statement that the documents are not in the possession or control of the party requesting the documents, and a statement of the reason why the documents are assumed to be in the possession or control of the other party.[29]
In making any order or direction for e-disclosure, or for the retention and preservation of electronic documents, the tribunal should have proper regard to the appropriate scope and extent of disclosure of electronic documents in the proceedings, whether under the agreed arbitration rules, the applicable arbitral law or any agreed rules of evidence (eg, the IBA Rules). The tribunal should also have due regard to any agreement between the parties to limit the scope and extent of disclosure of documents.[30]
In making any order or direction for e-disclosure, the tribunal should have regard to considerations of reasonableness and proportionality; fairness and equality of treatment of the parties and ensuring that each party has a reasonable opportunity to present its case, by reference to the cost and burden of complying with the order or direction. This will require balancing considerations of the amount and nature of the dispute, and the likely relevance and materiality of the documents requested, against the cost and burden of giving e-disclosure.[31]
The primary source of disclosure of electronic documents should be reasonably accessible data, namely active data, near-line data or offline data on disks. In the absence of particular justification, it will normally not be appropriate to order the restoration of back-up tapes; erased, damaged or fragmented data; archived data; or data routinely deleted in the normal course of business operations. A party requesting disclosure of such electronic documents may be required to demonstrate that the relevance and materiality outweigh the costs and burdens of retrieving and producing the same.[32]
However, in considering these issues due regard must be paid to improvements in the available techniques for recovery of electronic data (for example, in the recovery of data from back-up tapes). The production of electronic documents ordered to be disclosed should normally be made in the format in which the information is ordinarily maintained or in a reasonably usable form. The requesting party may request that the electronic documents be produced in some other form. In the absence of agreement between the parties, the tribunal should decide whether production of electronic documents ordered to be disclosed should be in native format or otherwise.[33]
A party requesting disclosure of metadata in respect of electronic documents should be required to demonstrate that the relevance and materiality of the requested metadata outweigh the costs and burdens of producing the same, unless the documents will otherwise be produced in a form that includes the requested metadata.[34]
The tribunal should consider the appropriate allocation of costs in making an order or direction for e-disclosure.[35]
The tribunal should establish a clear and efficient procedure for the disclosure of electronic documents, including an appropriate timetable for the submission of requests for e-disclosure and compliance with the same.[36]
The tribunal should require that a producing party gives advance notice to the requesting party of the electronic tools and processes that it intends to use in complying with any order for disclosure of electronic documents.[37]
The tribunal may, after discussion with the parties, obtain technical guidance on e-disclosure issues as it considers necessary and appropriate. Such discussion shall include who shall be instructed to provide technical guidance and the costs expected to be incurred. The costs of the same shall be included in the costs of the arbitration.[38]
In the event that a party fails to provide disclosure of electronic documents ordered to be disclosed or fails to comply with any agreement between the parties or any order of the tribunal as to the giving of electronic disclosure, the tribunal shall be entitled to draw such inferences as it considers appropriate when determining the substance of the dispute or any award of costs or other relief.39
29 Ibid, at § 4.
30 Ibid, at § 5.
31 Ibid, at § 6.
32 Ibid, at § 7.
33 Ibid, at § 8.
34 Ibid, at § 9.
35 Ibid, at § 10.
36 Ibid, at § 11.
37 Ibid, at § 12.
The concept of confidentiality is closely linked to that of privacy. The law of the UK has always maintained that absent an agreement by the parties, everything that occurs in an arbitration is private to the extent that even a common tribunal in linked English arbitrations cannot order the two arbitrations to be heard together, however close the links between the issues and the parties. In Oxford Shipping Co Ltd v Nippon Yusen Kaisha (The Eastern Saga)(No 2),40 there was a dispute between a shipowner and a charterer under a charterparty and a closely related dispute between the charterer and subcharterer, which were both referred to arbitration. The question arose as to whether there was power to order a consolidation of hearings without the consent of all the parties and the court specifically held that an arbitrator has no power to order the consolidation of hearings of disputes arising out of separate, though related, agreements without the consent of all parties. The current state of the law regarding confidentiality/disclosure in the UK is as per Ali Shipping Corp v Shipyard Trogir.41 The disclosure of arbitration documents can be made with the express, or implied, consent of the party to the arbitration who originally produced the material and that disclosure can be made in accordance with an order or leave of the court. However, where a court rules in favour of a third party’s right to disclosure of documents from an arbitration to which he is not a party, the party ordered to make disclosure would not be in breach of contract by making such disclosure, though he would, no doubt, have a duty to inform the court of the existence of the confidentiality obligation and give notice of the disclosure application to the other arbitrating party.42 Further, as stated in Ali, disclosure can be made if it is reasonably necessary for the enforcement of the legal rights or protection of the legitimate interests of an arbitrating party and, as set forth in Emmott, disclosure can be made where the interests of justice or public interest require such disclosure.
Generally, disclosure falls into certain defined categories, such as disclosed documents that have a separate and distinct confidentiality, apart from their disclosure in the arbitration. So, for example, documents disclosed in UK court proceedings may only be used for the purposes of those proceedings unless the documents are referred to in a public hearing, the parties agree, or the court gives leave.43 Other categories include pleadings or submissions where their confidentiality flows from the privacy of the arbitration itself and, except for situations such as those in Emmott, the use of such pleadings elsewhere would be rare. Another category is witness statement and/or transcripts of oral proceedings elsewhere. Since witnesses in arbitration have a right of confidentiality, per the decision in London & Leeds Estates Ltd v Paribas (No 2),44 their use elsewhere would also be rare, except for public policy reasons or to impeach. Finally, the other category is the award itself and here, too, the confidentiality of awards also follows from the privacy of arbitrations but being the intended product of the arbitration process and determinative of the parties rights, any obligations of confidentiality cannot prevent the use of the award for enforcing those rights.45
38 Ibid, at § 13.
39 Ibid, at § 14.
40 [1984] 2 Lloyd’s Rep 373.
41 [1998] 1 Lloyd’s Rep 643.
42 See the earlier cited case(s) Emmott v Michael Wilson & Partners [2008] 1 Lloyd’s Rep 616.
43 See e.g. CPR rule 31.22.
Enforcement of foreign awards in the UK
The common assumption has generally been that once an international arbitration award is obtained, its enforcement was just a matter of course under both the New York Convention and the Arbitration Act 1996. Recent court rulings, however, have reinforced the notion that whether or not to enforce at the courts’ discretion should not be taken for granted. Article V.1 of the New York Convention states that “Recognition and enforcement of the award may be refused at the request of the party against whom it is invoked …”. In the UK the use of the word “may” means that it is within the courts’ discretion to deny enforcement. One case demonstrative of the courts’ exercising their discretion is Dallah Real Estate & Tourism Holding Co v Pakistan.46 Here, Dallah, a Saudi Arabian company, entered into an agreement in September 2006 with the Ministry of Religious Affairs of the Government of Pakistan in which it signed a memorandum of agreement under which Dallah agreed to acquire land in Mecca, build accommodation suitable for pilgrims and lease it to the Ministry for 99 years and that, additionally, the Ministry, by ordinance, established a trust known as the “Awami Hajj Trust” as a vehicle for the project. The trust was to accept deposits from Hajj pilgrims and invest them in Sharia-compliant schemes to help meet the costs of the pilgrimage. However, while the agreement was entered into in September 2006, the Awami Hajj Trust in December 2006 ceased to exist as a legal entity. Dallah entered into an agreement with the trust that provided for disputes to be settled by arbitration under the rules of the International Chamber of Commerce (ICC), Paris. The agreement contained no express choice of law. Thereafter, a dispute arose under the agreement and the Awami Hajj Trust issued proceedings in Pakistan. About 16 months later, Dallah commenced a claim against the Government through the ICC in Paris; however, the Government refused to participate in the arbitration proceedings or sign the terms of reference, on the basis that it was not a party to a valid arbitration agreement. The Government took the position that it had merely established a trust vehicle and that Dallah had entered into an agreement for the project with that trust vehicle and not with the Government. Further, in that agreement the Government was not expressly a party, nor did it sign it in any capacity. Ultimately, the tribunal found that the Ministry of Religious Affairs, Government of Pakistan, was bound by the arbitration agreement and in its final award the tribunal awarded Dallah over US$18 million in damages for breach of contract.
44 [1995] 1 EGLR 102.
45 See e.g. Simon Crookenden QC, “Who Should Decide Arbitration Confidentiality Issues?” Arbitration International, Vol 25, No 4 (2009).
46 [2009] EWCA Civ 755.
When Dallah sought to enforce the award in the UK, the judge, applying French law as the law of the place where the award was made under the Arbitration Act 1996 section 103(2)(b), held that the Government was not a party to the arbitration agreement and that, consequently, the award could not be enforced. Dallah took the position that the judge had erred in interpreting section 103(2) as requiring or permitting him to reconsider the issue of the arbitrator’s jurisdiction by way of a rehearing and that he failed to apply the French law correctly. Dallah further took the position that the Government was estopped from denying that the arbitration agreement was valid because the arbitral tribunal was a court of competent jurisdiction and the failure of the Government to challenge the award before the French courts had rendered the award final and conclusive. In the alternative, Dallah argued that even if the award was not valid, the judge had discretion to enforce it and should have done so.
The Court of Appeal dismissed the appeal by Dallah, holding that the wording of the 1996 Act reflected faithfully that of the New York Convention 1958. The wording of section 103(2) required that the party wishing to challenge the recognition and enforcement of a Convention award had to be entitled to ask the court to reconsider all relevant evidence on the facts, including foreign law. The argument that some more limited review of the arbitrator’s decision on their jurisdiction was desirable or necessary was rejected. The Court of Appeal also found that the judge correctly applied the principles of French law to the evidence before him and was entitled to conclude that it was not the subjective intention of all the parties that the Government should be bound by the agreement or the arbitration clause. It further found that the arbitral tribunal did not constitute a court of competent jurisdiction for the purpose of creating an issue estoppel, per the holding in Carter v Ahsan (No 1),47 as that depended on whether the parties to the award had agreed to confer jurisdiction upon it, since the arbitrator’s jurisdiction was derived from the consent of the parties and that issue – and hence the validity of the award – was the very issue that fell to be decided in the instant proceedings. Here, too, it noted that the time allowed for challenging the award in France would not have begun to run until Dallah took steps to enforce it and it had not done so. As such, the award had not become invulnerable to challenge in the French courts. However, even if it was invulnerable, it would not be sufficient to prevent the Government from challenging its recognition and enforcement in England on the grounds set out in section 103(2)(b). The Court of Appeal took the view that the Arbitration Act 1996 and the New York Convention preserved the right of a party to a foreign arbitration award to challenge enforcement on grounds that impugned its fundamental validity and integrity. There was no obligation on the Government to challenge the award in France. As to the use of the word “may”, the Court of Appeal took the position that while
“it might be that the use of the word ‘may’ in s 103(2)(b) gave the court a discretion to permit enforcement even where one of the grounds justifying refusal had been established, Dardana Ltd v Yukos Oil Co (No 1) [2002] EWCA Civ 543, [2002] 1 All ER (Comm) 819 and Kanoria v Guinness [2006] EWCA Civ 222, [2006] 2 All ER (Comm) 413 considered. However, if the person opposing recognition or enforcement of an award could prove that he was not a party to the relevant arbitration agreement, it would rarely, if ever, be right to recognise or enforce it solely on the ground that he had failed to take steps to challenge it before the supervisory court, Svenska Petroleum Exploration AB v Lithuania (No 1) [2005] EWHC 9 (Comm), [2005] 1 All ER (Comm) 515 considered. It would not be a proper exercise of the court’s discretion in the instant case to allow enforcement of the award once it had reached the conclusion that there was no valid arbitration agreement between Dallah and the Government.”48
47 [2007] UKHL 51, [2008] 1 AC 696.
48 [2010] UKSC 46,
It is interesting to note that here Dallah took the position that even if the Government were to establish that the arbitration agreement was not valid, the court should still exercise its discretion to allow enforcement of the award. As was just discussed, this position was rejected with the court taking different views as to the discretionary language in the Act. In this regard Moore-Bick LJ “accepted the existence of a very restrictive notion of discretion, expressing his agreement with comments made in previous cases, including the fact that the grounds for refusing enforcement under the Act are concerned with the ‘fundamental structural integrity of the arbitration proceedings’ and therefore the court is unlikely to allow enforcement of an award if it is satisfied that its integrity is fundamentally unsound”. Then Rix LJ felt that “the discretionary language of the Act is expressing a limitation on the court’s power to refuse enforcement rather than granting a discretion to enforce despite the existence of a proven defence”.
The Court of Appeal was also faced with coming to grips with the important issue of whether, when a party challenges the recognition and enforcement of a New York Convention award under section 103(2)(b) of the Arbitration Act as to jurisdiction, the court required to have a full hearing of all the relevant evidence, or was it instead to be just a review of the decision of the arbitrators on the issue of jurisdiction?
The trial court had reasoned that the language of section 103(2) of the Act “reflects faithfully that of the [New York] Convention,” and it then rejected the argument that international comity and the general “pro-enforcement” approach of both the New York Convention and Part III of the Act favoured “deference to an international arbitral tribunal’s decision on its own jurisdiction and that section 103(2)(b) should permit only limited review by a court of a tribunal’s findings”. The trial court justified a reopening of the tribunal’s award on the basis of the statutory construction of section 103(2)(b). This was “despite the Government’s French law expert accepting in the High Court that, in general, the arbitrators had generally applied the correct test as would be enunciated by a French court”. Here, the trial court then took it upon itself to reopen the tribunal’s decision and reached the opposite conclusion to the tribunal – finding that the Government of Pakistan had proved, pursuant to section 103(2)(b) of the Act, that under French law the arbitration agreement was not valid as between it and Dallah and, accordingly, the trial court refused enforcement of the tribunal’s award in the UK. It should be clear that here, the Court of Appeal confirmed the trial court’s interpretation of section 103(2)(b) and agreed that it required a full rehearing as to the validity of the arbitration agreement, not just a review of an arbitral tribunal’s decision. In reaching this conclusion, the Court of Appeal rejected the suggestion that section 103(2)(b) only permitted the court to conduct a rehearing in circumstances where an arbitral tribunal’s decision was “clearly wrong”.
Thus, this relatively recent case shows that when an award under the New York Convention is opposed in the UK under section 103(2), the court is required to consider all relevant factual evidence relied on by the party opposing enforcement and if this “evidence” has already been considered by the arbitral tribunal then the task of the court in the UK will be to conduct a rehearing, not a review.
The troubling aspect of this decision is that both the English High Court and Court of Appeal took it upon themselves to set aside, in effect, an award of an international arbitration tribunal where the arbitrators correctly applied French law and where the UK courts had so agreed, i.e. that the arbitrators had properly applied the correct legal test under French law. Such conduct raises the spectre of review over all such similar enforcement proceedings and creates concern as to whether any foreign award is truly final and enforceable through the UK courts.
Dallah was later applied in Yukos Capital Sarl v OJSC Oil Co Rosneft.49 In Yukos the court had to address whether they could enforce an award that had been set aside in the seat of arbitration (Russia). The four awards made in Yukos’ favour were annulled by the Moscow Arbitrazh Court (upheld on appeal). Yukos successfully sought subsequent enforcement in the Netherlands. When OJSC failed to pay, Yukos commenced proceedings in the High Court of England. Referring to the judgment of Rix LJ in Dallah, Simon J held [at paragraph 20]:
”In my judgment the answer to the question is not provided by a theory of legal philosophy but by a test: whether the Court in considering whether to give effect to an award can (in particular and identifiable circumstances) treat it as having legal effect notwithstanding a later order of a court annulling the award. In applying this test it would be both unsatisfactory and contrary to principle if the Court were bound to recognise a decision of a foreign court which offended against basic principles of honesty, natural justice and domestic concepts of public policy.”
The judgment also addressed Moore-Bick LJ’s discussion of the “more-favourable-right” provision in article VII(1) of the New York Convention. It should be noted that the Arbitration Act does not contain a corresponding identical provision (the most relevant being section 104). The court in Yukos considered the application of the “more-favourable-right” discretion at common law, concluding that it was a narrow discretion with limited application in England.
As to the enforcement of foreign awards, the recent case of Diag Human Se vs/ Czech Republic,50 is applicable. Here the court found that there was no reason why issue estoppel might not, in an appropriate case, arise from rulings made by a foreign court in the course of enforcement proceedings, including enforcement proceedings under the New York Convention 1958.
Additionally, in the Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd,51 Coeclerici commended an arbitration in London. A settlement sum was reached before the hearing which provided that Coeclerici would be entitled to an immediate consent order if the sums were not paid, and when the sum was not paid Coeclerici applied to the arbitral tribunal for a consent award. Gujarat argued that they had not been given a reasonable opportunity to present their case. Despite this the consent award was given and Gujarat applied to the court to have the award set aside. The issue before the court was whether the applicant had a “reasonable opportunity” to present its case and, ultimately, dismissed the application. Coeclerici applied to have the award enforced in Australia and, enforcing the award, the Federal Court held that there was issue estoppel regarding Gujarat’s argument of a “reasonable opportunity to respond”. It would seem logical that if a party is unsuccessful in an application to set aside an award at the seat of arbitration this may give rise to an estoppel preventing the unsuccessful party from bringing the same defence.
49 [2014] EWHC 2188 (Comm).
50 [2014] EWHC 1639 (Comm).
51 [2013] EWHC 1987 (Comm).
Serial adjudication decisions
Adjudication conundrum
Pursuant to the Housing Grants, Construction and Regeneration Act 1996 (HGCRA), section 108 states in part:
But what happens if one of the parties then decides to re-refer the same dispute to another adjudicator? The HGCRA is silent on this issue though some writers feel that it is “an implied term in every construction contract that, where one of the parties has referred a dispute to an adjudicator, who has made a valid decision, neither party will refer the same or substantially the same dispute in a subsequent adjudication”.52 The Scheme for Construction Contracts does, however, provide some guidance in paragraph 9(2) where it states:
“9(2) An adjudicator must resign where the dispute is the same or substantially the same as one which has previously been referred to adjudication, and a decision has been taken in that adjudication.”
The problem that arises is what constitutes “the same or substantially the same” in this context, especially in a construction setting. Another problem is what if the facts are the same but the adjudicator is faced with new evidence and/or different legal arguments?
In PT Building Services Ltd v Rok Build Ltd,53 Rok opposed the enforcement of an adjudicator’s decision because it felt that the adjudicator had no jurisdiction and had informed the first adjudicator of this jurisdictional challenge reserving its rights on this issue. Then, PT Building issued a second notice of adjudication and this time Rok argued that the second adjudicator also had no jurisdiction, but this time the grounds were that the dispute referred was the subject of the previous adjudicator’s decision and, as a result of this argument, the second adjudicator resigned. Despite the audacity of Rok, PT took the position that as Rok had taken the benefit of the adjudicator’s decision and used it to persuade the second adjudicator to resign, Rok had elected to take the benefit of the decision and could not now assert that it was not valid and binding. Rok did not agree and, instead, took the position that it had made no election preventing it from being able to challenge the decision.
52 See e.g. Peter Sheridan, “Same difference: Successive Adjudications”, Construction Law Journal, Construction Act Review, October 2009.
53 [2008] EWHC 3434 (TCC).
The court sided with PT and ruled that by relying on the first decision and persuading the second adjudicator to resign, Rok had elected to treat the first decision as a valid and binding decision and that Rok had obtained a clear benefit, i.e. the resignation of the adjudicator by relying on that decision, and it could not now challenge it in enforcement proceedings.
In a similar vein is Linnett v Halliwells LLP,54 where Linnett, the adjudicator, was not paid because Halliwells considered that he had no jurisdiction to decide the dispute referred to him. Then, in connection with a second adjudication, Halliwells relied on the decision in the first adjudication. Again, in doing so, Halliwells obtained the benefit of the first decision in the second adjudication and was precluded from asserting that the adjudicator did not have jurisdiction to make the first decision and was thus bound by the first decision.
Pushing this concept a bit further is Redworth Construction Ltd v Brookdale Healthcare Ltd,55 where Brookdale opposed Redworth’s attempted enforcement of an adjudicator’s decision, because there was no contract in writing. During the enforcement proceedings Redworth relied on documents it had not relied upon when challenging the jurisdiction of the adjudicator for want of a written contract. The court took the position that, where a party seeks to put its argument in a certain way in order to obtain a benefit, such as the adjudicator’s decision, which it did in fact obtain, then, under the principle of election, it would not be just to allow that party to depart from that election or to depart from its original argument in order to subsequently elect to present a different argument to obtain another benefit. Accordingly, the court held that Redworth could not rely upon documents not previously raised in order to support the adjudicator’s decision that he had jurisdiction. As a result, the adjudicator’s decision was not enforced as no written contract was found to exist.
It should be noted that in the more recent Purton (t/a Richwood Interiors) v Kilker Projects Ltd,56 in which Mr Justice Stuart-Smith, after agreeing with the doubt expressed about the correctness of Redworth Construction Ltd in Nickelby FM Ltd v Somerfield Stores Ltd,57 held that – in cases where there can be no doubt that the adjudicator, if properly informed, should and would have concluded that he had jurisdiction; and the proper basis of jurisdiction does not make a difference to the substantive outcome – the courts should not shut out claimants who come before the courts to enforce the adjudicator’s decision. The jurisdiction to refer a contract to adjudication is dependent on the existence of a construction contract and a dispute arising under it, Mr Justice Stuart-Smith found, and not on identifying each and every contractual term with complete accuracy so that referral becomes a formalistic obstacle course.
Thus, the principle of “election” dictates that a party who elects to accept the benefit under an instrument (such as an adjudicator’s decision) will be bound and prevented from either acting inconsistently with its election or from subsequently electing to present a different argument to obtain another benefit. Further, as to adjudicator’s decisions, a party cannot both assert that an adjudicator’s decision is valid and at the same time challenge its validity. A party must elect to take one course or the other.58
54 [2009] EWHC 319 (TCC).
55 [2006] EWHC 1994 (TCC).
56 [2015] EWHC 2624 (TCC).
57 [2010] EWHC 1976 (TCC)
58 See Gary Brewer, “Rights and remedies: PT Building Services v ROK Build”, ContractJournal.com, 10 March 2009.
In Sherwood & Casson Ltd v Mackenzie,59 Sherwood, as a subcontractor to Mackenzie, made three interim applications for payment, the third of which included a claim for certain variations. When it was not paid, Sherwood commenced an adjudication pursuant to the HGCRA 1996. In its response, Mackenzie submitted two lists of countercharges and the adjudicator decided that Mackenzie would have to pay Sherwood £6,631. Later, when Sherwood prepared its final account, it included a variation account that listed the same variations as had previously been listed in the adjudication, but several of the sums now claimed, while supported by documentation, differed from the original claim. The account also included a claim for loss and expenses arising from the prolongation of the Works and a detailed response to the countercharges raised by Mackenzie in its response to the first adjudication. This then led to a second adjudication where Mackenzie disputed these new charges and Sherwood sought payment of its final account. The second adjudicator decided that the second dispute, relating to the variations, was not substantially the same dispute as that determined in the first adjudication, but the dispute regarding countercharges was substantially the same and so he was bound by the decision of the first adjudication on that issue. The second adjudicator also decided that Mackenzie owed a further sum. After the second decision, Sherwood brought a claim for summary judgment and Mackenzie took the position that the second adjudicator was not entitled to hear the disputes relating to variations and countercharges. The court allowed the application for summary judgment in the sum of £14,198.26 and found that the second adjudicator had the jurisdiction to decide whether the disputes before him were the same, or substantially the same, as those dealt with at the first adjudication and was bound to resign if finding that they were. Also, the court, applying the holding in Project Consultancy Group v Trustees of the Gray Trust,60 found that it could review that decision and, after reviewing the second adjudicator’s decision, found that there were no grounds for finding that the adjudicator had erred in the instant case. He identified significant differences between the subcontractor’s interim and final applications. Here, it should be noted, that the court found many significant differences between Sherwood’s interim and final applications, and while it was possible that a final account could, on different facts, be substantially the same as the preceding interim account, that was not the case here.
This situation was looked at in a slightly different way in the Scottish case of Skanska Construction UK Ltd v ERDC Group Ltd,61 where Skanska claimed that the adjudicator had no jurisdiction to hear a second dispute relating to sums due under the construction contract and took the further position that the terms of the contract prevented ERDC from referring to, or providing as evidence, any documentation which had not been available at the time of a prior adjudication. Initially, in the first adjudication, ERDC had a claim for direct loss and expense against Skanska relating to extensions of time and disruption. At that time, the adjudicator had found that no payment was due to ERDC. When ERDC submitted its final account to Shanska, it again referred to adjudication a claim for direct loss and expense relating to extensions of time and disruption. Skanska took the position that the second adjudicator should resign on the ground that the dispute was essentially the same as had been referred to adjudication previously, but the second adjudicator refused to resign, finding that the original dispute related to an interim payment and the sums ERDC was entitled to at that time, while the second adjudication related to an adjustment of the subcontract involving different contractual provisions. The court took the position that the second adjudicator was correct and that the fundamental nature of the disputes was different and, citing Sherwood, found that the dispute before the second adjudicator related to a different stage of the contract, as compared to the dispute referred to the first adjudicator, with the result that different contractual provisions applied, further information would be available and different considerations and perspectives may have applied.
59 [2000] 2 TCLR 418.
60 [1999] BLR 377.
61 [2003] SCLR 296.
It is interesting to note that each of these types of case involves the court in a factual review, but generally the trend is towards enforcing the adjudication decision unless, in fact, the second decision is based not just on similar facts but apparently the “exact same” facts and even then it is difficult to dispense with the second adjudication decision. Take, for example, Holt Insulation Ltd v Colt International Ltd,62 where the facts were exactly the same but the request was slightly different. Here, Colt asked the first adjudicator to order “immediate payment of the balance of the sum due” arising from its most recent application for payment (note here that it was a specific request for a specific sum). The first adjudicator took its task literally, i.e. to decide whether the precise sum claimed by Colt was, or was not, due. As he could not agree that the total of what was claimed was due, and his jurisdiction did not allow him to come up with any alternative valuation, his decision was that no money was due. A bad result for Colt, to say the least, and one that led to Colt’s commencing a second adjudication, the only change being that this time its claim was for immediate payment of the balance due under the interim application or, alternatively, “such other sum or sums as the adjudicator shall decide to be fair and reasonable in the circumstances of the claims”. Other than that the facts were exactly the same. Based upon the facts being exactly the same, Holt called the second adjudicator’s attention to paragraph 9(2) of the Scheme for Construction Contracts Regulations 1998 and pointed out that “An adjudicator must resign where the dispute is the same, or substantially the same, as one which has been previously referred to adjudication and the decision has been taken in that adjudication”. The second adjudicator took the view that there was a further and discrete issue, which did not arise in the earlier referral, and proceeded to go through all the amounts involved in the application and adjudication and, dealing with each claim and counterclaim, made an award for a sum payable to Colt. Holt refused to pay and asked the court to set the decision aside, claiming that a subcontractor who “claims a large sum and fails, for whatever reason, cannot reshape his claim very slightly in the light of the award and claim a smaller sum and seek a second adjudication”.
Colt put up the interesting argument that the decision by the first adjudicator was based upon a specific claim for a specific amount, which the adjudicator held was not recoverable, while the second adjudication dealt with a more flexible claim for valuations on different aspects of the contract. The court reviewed the situation and concluded that while the reference may have related to the same matters arising out of contractual relations between the parties, they did not relate to the same dispute and, in the court’s view, the difference was that the Notices of Referral were “crucially different” and found for Colt.
62 Unreported, 23 July 2001 LVO1 5929, HC (TCC).
A good review of all the applicable cases was undertaken by the court in Benfield Construction Limited v Trudson (Hatton) Limited.63 Here, Benfield had been hired by Trudson to do design and construction work and the contract incorporated the JCT standard form which stated that the decision of an adjudicator would be binding and that the parties were to comply with such decision. The parties signed a handover form confirming that the Works were accepted as being complete, subject to various outstanding defects being dealt with in a reasonable time. Unfortunately, it was later claimed by Trudson that, due to a particular defect, it could not certify practical completion. Benfield, however, pointed out that this particular defect had not been previously identified in the handover form and, therefore, practical completion was effective from the date of handover. Trudson then served two notices of adjudication. In the first adjudication Trudson sought a declaration that practical completion had not occurred at the date of referral. Here, the court later held that the various passages from the first adjudication documents made plain that the dispute, as to practical completion, was both a matter of fact and also something that, according to Benfield, was deemed to have happened as a result of the contents of the handover form. The adjudicator decided that practical completion had not occurred at the date of the adjudication notice. The second adjudication concerned liquidated damages and the same adjudicator decided that Trudson was entitled to liquidated damages.
Benfield then commenced a third adjudication seeking declarations to the effect that Trudson was not entitled to liquidated damages on the grounds that Trudson had taken partial possession on the handover date and, by reference to the contract, practical completion had occurred. The adjudicator found for Benfield deciding that Trudson was not entitled to liquidated damages. Trudson took the position that this adjudicator had no jurisdiction to reach his decision as the dispute was the same, or substantially the same, as the dispute referred to and decided in the first two adjudications. Benfield argued that there was no jurisdictional issue and that practical completion and partial possession were two completely different concepts and that, therefore, the first two adjudications had dealt with different issues than the third one as the argument concerning partial possession had not actually been raised in the first two adjudications and, therefore, it was entitled to bring the third adjudication. The court took the view that were real grounds for concluding that the adjudicator in the third adjudication had erred in deciding that there was no overlap with the first two adjudications.
“The third adjudication found that practical completion had taken place and that Trudson was not entitled to liquidated damages, whereas the first two adjudications found the direct opposite, which obviously amounted to an overlap. Further, it was clear that the adjudicator in the third adjudication did not have the necessary jurisdiction to deal with the dispute in question. There were no different material facts presented, or detailed issues considered, in the third adjudication that had not already been presented, and although practical completion and partial possession were different legal concepts, the underlying dispute of the earlier and latter adjudications was whether practical completion had occurred and whether liquidated damages were due. Therefore the dispute in the third adjudication was the same or substantially the same as the disputes that had been decided earlier. If Benfield wished to rely on the partial possession argument, then it should have raised such an argument at the first two adjudications. By allowing a party to fight certain issues on one set of legal arguments and, if it lost on those arguments, allowing it to dispute the same issues by a different set of legal arguments, it would amount to an abuse of the process of adjudication.”
63 [2008] EWHC 2333 (TCC), see also Daniel Atkinson, “Benfield Construction Limited v Trudson (Hatton) Limited”, Atkinsonlaw.com, 12 October 2008.
Accordingly, the court found that the adjudicator in the third adjudication had no jurisdiction as the dispute there raised the same, or substantially the same, matters.
In reaching the conclusion it did, the court reviewed the earlier cases of VHE Construction Plc v RBSTB Trust Co,64 Mivan Limited v Lighting Technology Projects Limited65 and Skanska Construction UK Ltd v The ERDC Group Ltd,66 where the material relied on in the second adjudication was different from that relied on in the first, giving rise to a separate and distinct factual enquiry the second time round. The court here observed that later examples of the trend were the decisions in Emcor Drake & Skull Limited v Costain Construction Limited67 and David McLean Contractors v The Albany Building Limited.68 As mentioned earlier, in Sherwood, courts would give considerable weight to the decision of the adjudicator and would embark on a jurisdictional enquiry only where there were real grounds for concluding that the adjudicator had erred in deciding that there was no substantial overlap. Here, in Benfield, the court took the position that “any decision by an adjudicator, including one on jurisdiction, was a matter which ought to be the subject of careful consideration by the court in circumstances where that court was being invited not to enforce the adjudicator’s decision”.
Paragraph 9.2 of the Scheme for Construction Contracts provided that an adjudicator must resign where the dispute is the same, or substantially the same, as one that has previously been referred to adjudication and a decision has been taken in that earlier adjudication. “Accordingly, the parties may not refer a dispute to adjudication in such circumstances, per Dyson LJ in Quietfield Ltd v Vascroft Construction Ltd,69 where there was an imperfect analogy with the rules of issue estoppel developed by the common law to prevent successive litigation over the same matter.” The court in Benfield considered that Dyson LJ’s remarks were consistent with points made by His Honour Judge Humphrey LLoyd QC in KNS Industrial Services v Sindall Ltd70 and Lord MacFadyen in Construction Group Centre Limited v The Highland Council.71 Further, as this was a JCT contract, Clause 39A.7.1 provided a limit to serial adjudications per HG Construction Ltd v Ashwell Homes (East Anglia) Ltd.72
Then, the court set out several principles regarding serial adjudications, which are:
“The parties are bound by the decision of an adjudicator on a dispute or difference until it is finally determined by court or arbitration proceedings or by an agreement made subsequently by the parties.
The extent to which a decision or a dispute is binding will depend on an analysis of the terms, scope and extent of the dispute or difference referred to adjudication and the terms, scope and extent of the decision made by the adjudicator. The approach was to ask whether the dispute or difference was the same or substantially the same as the relevant dispute or difference and whether the adjudicator has decided a dispute or difference, which was the same or fundamentally the same as the relevant dispute or difference.
The approach must involve not only the same but also substantially the same dispute or difference. This was because disputes or differences encompass a wide range of factual and legal issues. If there had to be complete identity of factual and legal issues then the ability to readjudicate what was in substance the same dispute or difference would deprive clause 39A.7.1 of its intended purpose.
Whether one dispute was substantially the same as another dispute is a question of fact and degree.
An issue which one party could have raised a particular issue in an adjudication but did not do so, could not be taken subsequently, to be distinguished from applications for extensions of time where there was a changing factual position and later extensions of time were based on a different set of facts.”
64 [2000] BLR 187.
65 [2001] ADJCS 04/09 (TCC).
66 [2003] SCLR 296.
67 [2004] EWHC 2439 (TCC).
68 [2005] EWHC B5 (TCC).
69 [2007] BLR 67.
70 [2000] EWHC 75 (TCC).
71 [2002] BLR 476.
72 [2007] EWHC 144, [2007] BLR 175.
Then, by applying these principles, he
“… held that it could not sensibly be argued that there are no real grounds for concluding that the adjudicator in the third adjudication erred in deciding that there was no such overlap. In the first adjudication, it was decided that practical completion had not taken place on 17 August 2007, whilst in the third adjudication, it was decided that practical completion must indeed be deemed to have taken place on that very date. Similarly, in the second adjudication it was decided that the employer was entitled to some £75,000 worth of liquidated damages, whilst in the third adjudication it was decided that the employer was not entitled to any liquidated damages at all.”
He held that in those circumstances it was difficult to imagine a more obvious case of overlap and a starker case of fundamentally contrary decisions.
The court also held that it was necessary to distinguish between, on the one hand,
“… the underlying dispute between the parties, and the issues/argument on the other. Partial possession and practical completion might be different legal concepts and, depending on the facts, they might give rise to different issues, maybe even different disputes, between the contracting parties. However in the instant case it was held that the underlying dispute in the first and second adjudications was whether practical completion under the terms of the building contract could be said to have occurred on 17 August and, if it had not, whether liquidated damages were due to Trudson. The legal concept of partial possession only mattered because it was a way in which Benfield could argue that practical completion had occurred (or should be deemed to have occurred) on 17 August 2007 and that, therefore, there was no liability to pay liquidated damages.”
Thus, if Benfield had wished
“… to rely on the partial possession argument under clause 17.1, separately and independently of the central argument that it had already made about the handover form in the first and second adjudications, then it was plainly obliged to raise that matter there. If Benfield failed to emphasise sufficiently the effect of that handover form as a matter of contract construction, then that was entirely a matter for Benfield.”
The court took the position that it would be an abuse of the process of adjudication to allow one party to raise one legal issue at a time, in serial adjudications extending over many months or even years, until that party achieved a result that it liked. It would place an intolerable burden on the other party. It was not the purpose for which adjudication was designed. Accordingly, the court held that the third adjudicator did not have jurisdiction and declined to enforce the award writing:
“… It would mean that a contractor could fight about practical completion and liquidated damages based on one set of legal arguments arising out of agreed facts and then, if it lost on those arguments, could dispute both practical completion and liquidated damages all over again, by reference to another set of legal arguments which arose out of exactly the same facts, and which, for whatever reason, it had not deployed first time round. It seems to me that such a method of proceeding would be an abuse of the process of adjudication. And that is not an idle point: the parties to adjudication do not recover their costs, no matter how successful they might be. Allowing one party to raise one legal issue at a time, in serial adjudications extending over many months or even years, until that party achieved a result that it liked, would place an intolerable burden on the other party. It was not the purpose for which adjudication was designed.”
Following this comes the case of Interserve Industrial Services Ltd v Cleveland Bridge UK Ltd,73 where a novel approach was taken. Here, a dispute arose as to the responsibility of each party for delays which occurred during the Works and the issue became whether the defendant was entitled to withhold payment on the grounds that the defendant was pursuing a further adjudication in which it reasonably expected to recover an equivalent sum and submitted that: (1) that sum ought to be set off against the award in the earlier adjudication; (2) alternatively, there should be a stay of execution pending the enforcement of the later adjudication decision.
The court held that where the losing party in an adjudication then pursued a new adjudication, in which it expected to recover an equivalent sum, it was not entitled to withhold payment of the earlier adjudication award. Here, Cleveland had been in breach of contract for ten weeks by reason of its failure to pay the sums awarded in the earlier adjudication. That fact was not affected by the adjudicator’s decision in the later adjudication. Further, the court felt that imposing a stay of execution would have the same practical effect as allowing a defence of set-off and also Cleveland had not shown there were special circumstances why a stay should be granted. Not surprisingly, the defendant did not succeed with this argument. The relevant CIC Model Procedure terms included the following:
“4. The Adjudicator’s decision shall be binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement.
5. The parties shall implement the Adjudicator’s decision without delay whether or not the dispute is to be referred to legal proceedings or arbitration …
31. The parties shall be entitled to the redress set out in the decision and to seek summary enforcement, whether or not the dispute is to be finally determined by legal proceedings or arbitration. No issue decided by the Adjudicator may subsequently be referred for decision by another adjudicator unless so agreed by the Parties.”
“… Where the parties to a construction contract engage in successive adjudications, each focused upon the parties’ current rights and remedies, in my view the correct approach is as follows. At the end of each adjudication, absent special circumstances, the losing party must comply with the adjudicator’s decision. He cannot withhold payment on the ground of his anticipated recovery in a future adjudication based upon different issues.
The matter may be tested in this way. Interserve now asserts a claim to well over £3 million which will be advanced in adjudication number four. If Mr Hargreaves’ contention is right, the existence of that claim could be relied upon as a reason for Interserve to withhold payment of the sum which will be due in respect of adjudication number three on 17 February. If Mr Hargreaves’ argument is correct, it would have a bizarre consequence in cases such as the present, where there is a series of consecutive adjudications between the same parties. The result might be that no adjudicator’s decision is implemented, each award simply takes its place in the running balance between the parties. Such an outcome is plainly contrary to the policy of the 1996 Act.”
73 [2006] EWHC 741 (TCC).
The court’s decision in Interserve was followed in YCMS Ltd (t/a Young Construction Management Services) v Grabiner,74 where the court wrote:
“… Finally, I turn to the Third Decision. These courts have from 1998 onwards taken the view that adjudicators’ decisions are to be enforced summarily and expeditiously unless there is a valid jurisdictional or natural justice ground which renders enforcement inappropriate. There is perhaps unfortunately nothing in the HGCRA which legislates for setting off one adjudicator’s decision against another. It is in these circumstances that the dictum of [of the court] in the Interserve case is so apposite. It is not accepted by YCMS that the Third Decision is enforceable. Because the decision has only relatively recently been issued, YCMS reserve their position so far as enforceability is concerned. It took a jurisdictional objection during the Third Adjudication and it may seek to rely on that in any enforcement proceedings in relation to the Third Decision.
It follows from my views above that YCMS have established that the First Decision should be enforced. I see no good reason to depart from the approach adumbrated by [by the court] in the Interserve case. I do not consider that the fact that a Third Decision has been reached which on its face allows to the Defendants a net recovery is a special circumstance which justifies departing from the general rule that valid adjudicators’ decisions should be enforced promptly. Things might be different if there were effectively simultaneous adjudications and decisions. There is no suggestion that YCMS or the Defendants are in financial difficulties and will not be able to pay the sums said to be due on the First Decision or said to be due the other way on the Third Decision. There is no prejudice to the Defendants in having to honour the First Decision, which should have been honoured some 14 months ago, albeit I accept that it was not the Defendants’ fault as such that proceedings for enforcement were delayed against them.”
Whilst the cases cited deal with the issue of parties deciding to re-refer the same dispute to another adjudicator, or so-called “serial adjudication”, Amey Wye Valley Ltd v Hertfordshire District Council75 is the most recent. Here the parties had entered into a contract in 2003 for repair and maintenance works to highways and roads in Hertfordshire over a 10-year period. During 2005, they fell into a dispute as to how to calculate the price adjustment for inflation under the contract, and so entered into a side agreement, VOP3, to resolve that dispute. However, the parties could not agree what VOP3 required, or what it actually meant. This prompted two adjudications, at Amey’s instigation. The first was tasked with deciding, amongst other things, how VOP3 should work; the second was concerned with putting money figures to the first’s findings (which were binding, neither party having served a notice of dissatisfaction). Mr Molloy, the second adjudicator, decided that there had been a substantial overpayment to Amey, on account of inflation, and that this sum – around £9.5million – should be repaid to HDC.
74 [2009] EWHC 127 (TCC).
75 [2016] EWHC 2368 (TCC).
HCD commenced enforcement proceedings. Amey resisted enforcement, on the grounds that Mr Molloy did not follow or apply what Mr Entwistle, the first adjudicator, had decided, and accordingly had acted without jurisdiction. Mr Justice Fraser rejected Amey’s challenge. Citing the Court of Appeal’s decision on serial adjudication in Quietfield v Vascroft,76 amongst other authorities, the judge stated that (i) adjudicators’ decisions will be enforced, regardless of errors of fact or law; (ii) an adjudicator’s decision will not be enforceable to the extent that s/he purports to decide again that which has already been decided by a previous adjudication; and (iii) with regard to scope, the dispute should not be looked at in isolation, and the adjudicator is entitled to examine the terms, scope and extent of the dispute previously referred and the earlier decision; it is what the first adjudicator decided which determines how much or how little remains to be considered by the subsequent adjudicator.
Applying the above, Mr Justice Fraser held that, provided Mr Molloy was resolving the dispute referred to him, and not re-deciding something that was not (because it had already been decided by Mr Entwistle), then he had jurisdiction to determine the dispute, regardless of whether he made mistakes in doing so. Mr Molloy had not only known, but had applied, Mr Entwistle’s decision; put another way, Mr Entwistle had decided how VOP3 would work, and Mr Molloy had decided the consequences of that (and, to the extent that there were errors in his decision, those were errors of fact or law and did not affect the enforceability of the decision).
Amey Wye Valley Ltd is notable, then, because it underlines the courts’ apparent frustration in dealing with adjudication enforcement proceedings. As Mr Justice Coulson put it, in Penten, above:
“The topics raised at adjudication enforcement hearings seem to change with the seasons. A few years ago, those debates centred on alleged breaches of natural justice. More recently, it was the intricacies of the payment notice/payless notice regime which held centre stage. And now the wheel has turned again and the courts are grappling with the consequences of what might be termed serial adjudication …”77
Interserve leads to the concept of set-off in adjudications, which, as noted in YCMS, is not provided for under HGCRA. This was dealt with in HS Works Ltd v Enterprise Managed Services Ltd,78 where HS applied to enforce an adjudication decision made against the Enterprise and, at the same time, Enterprise applied to enforce a later adjudication decision made against HS. Here, the subcontract between the parties had lasted several years, after which HS submitted its final account causing the parties to disagree over the value of HS’s work and the extent of Enterprise’s entitlement to withhold payment in respect of contra-charges. HS gave notice of adjudication in relation to the disputed contra-charges and alleged that Enterprise had not served a valid withholding notice and, thus, was unable to withhold the contra-charges and put forward an alternative case if such notices were held to be valid.
The adjudicator agreed that there had been no valid notice and did not consider the alternative case ordering Enterprise to pay HS the sums equivalent to the disputed contra-charges. The parties did not reach agreement on the value of HS’s work and Enterprise referred that issue to a second adjudication. HS took the position that this second adjudicator would be unable to calculate the final account within the 28-day period allowed given the complexity of the dispute and that he should, therefore, resign – which was refused – and he ultimately made a declaration that the value of HS’s work was lower than it would have been in accordance with the first adjudication. Enterprise took the position that the decision of the first adjudicator was invalid because he had been jurisdictionally bound to address, in his decision, the alternative cases put forward by the parties. HS claimed that the second adjudicator’s decision was invalid because no crystallised dispute had been referred to him, meaning he had had no jurisdiction and he had acted unfairly by not resigning.
76 [2007] BLR 67.
77 [2016] EWHC 317 (TCC) at 1.
78 [2009] EWHC 729 (TCC).
The court held that the first adjudicator had not been bound jurisdictionally to address the alternative case put forward by HS, as his jurisdiction was defined by the notice of adjudication and the nature of the dispute referred to him. That dispute had involved an
“… assertion that as there were no effective withholding notices, the contra-charges were not properly withheld: logically, if that case was upheld, there was no need for the adjudicator to consider the alternative case. It was generally not incumbent on an adjudicator to make findings on every issue arising in the reference, save to the extent that it was necessary to explain what he did decide. Although the ambit of the reference might unavoidably be widened by the nature of the defence, if an adjudicator decided that a defence was a bad one, there was no need to address the facts that supported that defence.”
The court also decided that as “the parties had been in dispute over the value of the works by the time that HS had submitted its final account, there could be no doubt that the parties remained in dispute throughout the first adjudication in respect of the contracharges: detailed arguments and evidence had been deployed on that issue”. HS had continued to reject Enterprise’s figures as to the sums due after the first adjudication. Thus, by the time Enterprise served the second notice of adjudication, there was a dispute both as to the value of the final account and as to the contracharges. The court also looked at the problem of complex adjudications, where the dispute was so extensive that an “adjudicator or the defending party could not easily deal with it in the 28-day period the court had to consider whether, and on what basis, the adjudicator felt able to reach a decision in the time available, and what opportunities were available to the defending party before the start of the adjudication to address its subject-matter” and found that the second adjudicator had acted fairly in not resigning as he was an experienced adjudicator – and there was no suggestion that he thought he could not act fairly – and he had done a thorough and conscientious job in producing the decision. All this aside, the court then dealt with whether one decision could be set off against another, i.e. whether both decisions were valid and enforceable, in which case the court should enforce them both, provided that separate proceedings had been brought to enforce each decision as well as how each decision was to be enforced, as it might be inappropriate to permit a set-off of one financial decision where the first decision had been predicated upon a basis that there could be no set-off. Here, the court found that both the instant decisions were valid and enforceable. The second adjudicator had only made a declaration as to the net value of the final account. He had not ordered HS to pay any balance back to Enterprise. By implication from the Housing Grants, Construction and Regeneration Act 1996, section 108(3) and the Scheme for Construction Contracts (England and Wales) Regulations 1998, Schedule 1 para 23, the subcontract had to be read as requiring the parties to comply with the valid decision of an adjudicator, including when the decision was declaratory. Both the parties and the court were required to give effect to both decisions and that involved bearing in mind that each decision should have been complied with upon receipt. The orders would be drawn to reflect the net effect of the judgment and as such Enterprise would pay HS the difference between the sums due pursuant to the decisions.
The court gave the following steps that needed to be considered as to whether to permit a set-off of one decision against another:
“(a) First, it is necessary to determine at the time when the court is considering the issue whether both decisions are valid; if not or if it can not be determined whether each is valid, it is unnecessary to consider the next steps.
(b) If both are valid, it is then necessary to consider if both are capable of being enforced or given effect to; if one or other is not so capable, the question of setoff does not arise.
(c) If it is clear that both are so capable, the court should enforce or give effect to them both, provided that separate proceedings have been brought by each party to enforce each decision.
(d) How each decision is enforced is a matter for the court. It may be wholly inappropriate to permit a set-off of a second financial decision as such in circumstances where the first decision was predicated upon a basis that there could be no set-off.”