Technology and Construction Court

PRICE V CARTER

Technology and Construction Court

Edwards-Stuart J

18 June 2010

THE FULL TEXT OF THE JUDGMENT OF EDWARDS-STUART J

Introduction

1. This is an application for permission to appeal, if required, under section 69 of the Arbitration Act 1996 ("the Act") and to extend the time pursuant to CPR 62.9 for appealing against the award under section 69 and for challenging the award under sections 67 and 68 of the Act, if such an extension of time is necessary (which is in issue).

2. By an order dated 26 April 2010 Ramsey J directed that the application for permission to appeal should be heard either at the start of or at the hearing of the substantive appeals on 10 June 2010. During the course of the hearing I told the parties that I would reserve judgment on the questions of permission for leave to appeal, the application to extend time and in relation to the substantive appeals. One of the reasons for doing this was, as I have indicated, that the issues in dispute included the questions of whether the Claimants ("Mr and Mrs Price") required permission under section 69 at all and whether they needed an extension of time.

3. The award against which the appeal is made is that of Mr James Middleton-Stewart RIBA, FCIArb, issued on 8 March 2010. The dispute that was referred to him arose out of a contract made between Mr and Mrs Price and the Defendant ("Carter") for the demolition of a bungalow and the construction of a new house at CarlyonBay, St Austell, Cornwall.

4. The contract was based on the JCT Minor Works Building Contract 2005 Edition, Revision 1 (2007) and the price was £226,000. The contract was dated 23 November 2007. Very shortly afterwards Carter started to carry out the work. The completion date was 26 May 2008. The work was delayed and on 24 July 2008 Mr and Mrs Price took possession of the site. Carter was granted an extension of time of 9 weeks up to that date, but no further extension of time was granted. The architect certified that Practical Completion was achieved on 18 February 2009.

5. During the later part of 2008 there were discussions between the parties as to how they should resolve the disputes that had by then arisen. Mr and Mrs Price wanted to negotiate a settlement of the dispute on the grounds that this would be the least expensive way of reaching a successful conclusion. The contract provided for the resolution of disputes by both adjudication and arbitration, but in the Contract Particulars the nominated adjudicator was the architect, who was also the Contract Administrator. Unsurprisingly, perhaps, by the time disputes had arisen Carter had misgivings about having the architect as the adjudicator.

6. On 24 December 2008 Carter's solicitors, Follett Stock, served a Notice of Arbitration on Mr and Mrs Price. The parties did not agree on the choice of arbitrator and by a letter dated 17 February 2009 Mr Middleton-Stewart was appointed by the RIBA.

7. Following Mr Middleton-Stewart's award of 8 March 2010 Mr and Mrs Price issued this claim on 26 April 2010, outside the 28 day time limit provided for by section 70 of the Act. However, Mr and Mrs Price contend that the claim is not out of time because there was an outstanding process of review of the award, the result of which was not notified to Mr and Mrs Price until 29 March 2010 (at the earliest). If that is right, then Mr and Mrs Price have started this claim within time.

The grounds of appeal

8. For reasons which will become clear later in this judgment, I propose to start by considering the merits of the various grounds of appeal. These can be summarised as follows:

(1) Under section 67 of the Act, it is contended that the arbitrator had no jurisdiction to enter into the reference because the primary mode of dispute resolution required by the contract was adjudication, not arbitration. Alternatively, it is contended that the Notice of Arbitration was defective.

(2) Under section 68 of the Act, it is contended that there were serious irregularities in the conduct of the reference that caused serious injustice to Mr and Mrs Price. In summary, it is complained that the arbitrator delegated some of his duties to an assessor and then refused to allow the parties any opportunity to challenge or question the substance of the assessor's evidence; the arbitrator refused to consider certain claims that were introduced by Mr and Mrs Price towards the end of the arbitration; the arbitrator had no satisfactory reason for resolving the issue about the date of Practical Completion; and the arbitrator failed to consider whether or not Mr and Mrs Price were entitled to liquidated or other damages. This is not an exhaustive summary of the grounds put forward in the Claim Form, but covers the main points raised during the hearing of the appeal.

(3) Under section 69 of the Act, it is contended that the arbitrator's conclusion that the notice of termination issued by the architect in August 2009 was wrong in law.

9. Neither of the points made under sections 67 and 69 have any merit whatever and so I can dispose of them briefly at the outset.

Lack of jurisdiction - the appeal under section 67

10. Articles 6 and 7 of the Contract are as follows:

"Article 6: Adjudication

If any dispute or difference arises under this Contract either Party may refer it to adjudication in accordance with clause 7.2.

Article 7: Arbitration

Where Article 7 applies, then, subject to Article 6 and the exceptions set out below, any dispute or difference between the Parties of any kind whatsoever arising out of or in connection with this Contract ... shall be referred to arbitration in accordance with Schedule 1 and the JCT 2005 edition of the Construction Industry model Arbitration Rules (CIMAR). The exceptions to this Article 7 are ... [these are not relevant]."

11. Clauses 7.2 and 7.3 of the Contract are as follows:

"Adjudication

7.2 If a dispute or difference arises under this Contract which either Party wishes to refer to adjudication , the Scheme shall apply except that for the purposes of the Scheme the Adjudicator shall be the person (if any) and the nominating body shall be that stated in the Contract Particulars.

Arbitration

7.3 For the purposes of Article 7, if it applies, the procedures for arbitration are set out in Schedule 1. "

The Contract Particulars state that "Article 7 and Schedule 1 (Arbitration) apply".

12. It was submitted by Mr Ben Beaumont, who appeared for Mr and Mrs Price, that the effect of Articles 6 and 7, taken together, was that the adjudication provision prevailed so that adjudication became the primary mode of dispute resolution so that, as I understood the argument, unless both parties agreed otherwise a dispute had to be referred to adjudication in preference to arbitration. Mr Beaumont submitted at paragraph 25 of his skeleton argument that "Adjudication is the first step for dispute resolution for payment issues under this form of contract and if negotiated settlement was not forthcoming it was right that adjudication be followed". I am not sure that this submission, taken by itself, goes far enough, but I will take the submission to be as I have already summarised it.

13. The basis for the submission is the presence of the words "subject to Article 6" in Article 7. This means, submits Mr Beaumont, that Article 6 is intended to have priority over Article 7. I disagree. If the words "subject to Article 6" were not included in Article 7, then arbitration would become the mandatory method of dispute resolution. This is because, if one removes those words, Article 7 would effectively read:

"any dispute or difference between the Parties ... shall be referred to arbitration ...".

In other words, the reference of any dispute to arbitration would be mandatory.

14. In my judgment, the purpose of including the words "subject to Article 6" was to give the parties the alternative of referring a dispute to adjudication if that is what they wished to do. Apart from anything else, the contract would have to include such a provision if it was to be compliant with section 108 of the Housing Grants, Construction and Regeneration Act 1996 ("HGCRA"). The two articles taken together give the parties or, more correctly, the party who wishes to have a dispute resolved, the choice of either adjudication or arbitration. Or, indeed, if one party referred a dispute to arbitration, the other party could at the same time refer the same dispute to adjudication with the result that there would be parallel proceedings by way of both arbitration and adjudication in respect of the same dispute (this is because section 108 of HGCRA confers a right to adjudication "at any time": see Herschel Engineering v Breen Property (2000) Con LR 1, Dyson J).

15. There are, of course, forms of contract which provide that the reference of a dispute to adjudication is a necessary prerequisite of the right to refer that dispute to arbitration, but these usually do so in clear terms. There is no such clarity of language here. In my judgment, the effect of Articles 6 and 7 is that a party who wishes to refer a dispute for resolution has the choice of either adjudication or arbitration. If he chooses arbitration, the other party has no option but to accept that choice. Although it seems that there was some change of position in Carter's camp, in that it appeared at one point that Carter was prepared to accept adjudication as the mode of dispute resolution provided that the adjudicator was not the architect, in the end Carter chose to issue a Notice of Arbitration and that was that. It is of interest, although in no way decisive, that when Carter's solicitors first indicated that they proposed to refer the dispute to arbitration, the response of Mr and Mrs Price (in a letter dated 15 December 2008) was simply to acknowledge receipt of the letter and the enclosed lever arch file, with some complaints about the manner of its delivery, but to say nothing about the fact that arbitration was not the appropriate method of dispute resolution.

16. In a subsequent letter dated 23 January 2009, Mr and Mrs Price said that they did not agree to arbitration and felt that they were being "compelled toward proceedings in an unreasonable manner". Whilst this certainly went further than their earlier letter of 15 December 2008, again it did not say that arbitration was not the permitted mode of dispute resolution.

17. For the reasons that I have given, I consider that there is nothing in the point that the arbitrator lacked jurisdiction to enter into the reference, and accordingly I regard this ground of appeal as hopeless.

18. However, a further point was taken by Mr Beaumont in relation to the Notice of Arbitration itself. At paragraph 38 of his skeleton argument he submitted that the Notice did not comply with rule 2.1 of the CIMA Rules because it did not require Mr and Mrs Price to agree to the appointment of an arbitrator. The relevant parts of the Notice were as follows:

". . . This notice is also required to make any proposals our client may have in respect of the arbitrator.

Our client proposes one of the following as arbitrator. Both have indicated their willingness and ability to act as arbitrator in this dispute:

. . .

We invite you to make such proposals as you may yourselves have for the name of the arbitrator. We will consider them with our client. If the parties cannot agree on the name of the arbitrator by 7 January 2008, being 14 days from the date of this letter, it will be open to either party to apply to the nominating body named in the Contract for the appointment of an arbitrator. That body is the Royal Institute of British Architects."

19. The relevant CIMA rules are as follows:

"2.1 Arbitral proceedings are begun in respect of a dispute when one party serves on the other a written notice of arbitration identifying the dispute and requiring him to agree to the appointment of an arbitrator: but see Rule 3.6 and Section 13 (Application of Limitation Acts).

2.2 The party serving notice of arbitration should name any persons he proposes as arbitrator with the notice or separately. The other party should respond and may propose other names.

2.3 If the parties fail to agree on the name of an arbitrator within 14 days (or any agreed extension) after:

(i) the notice of arbitration is served, or

(ii) a previously appointed arbitrator ceases to hold office for any reason,

either party may apply for the appointment of an arbitrator to the person so empowered."

It can be seen at once that the person who drafted the Notice of Arbitration served by Carter had these rules well in mind. In my judgment the provision in rule 2.1 for the Notice to require the other party "to agree to the appointment of an arbitrator" is simply a shorthand for the process described in rule 2.2. What the party serving the Notice has to do is to name any persons he proposes as arbitrator (either in the Notice or separately). In the Notice he may also, although the rule does not require this, invite the other party to respond and, if he wishes, to propose any other names.

20. Mr Beaumont's submission is that in the case of this Notice "the key element of requiring [Mr and Mrs Price] to agree to the appointment of the arbitrator is absent". I disagree. I consider that the Notice did invite Mr and Mrs Price to agree to the appointment of one or other of the two arbitrators named in the Notice. That is what the rules required and in my judgment this Notice achieved it.

21. Accordingly the appeal on the grounds of lack of jurisdiction fails.

Error of law - the appeal under section 69

22. This ground of appeal was in fact abandoned, very realistically if I may say so, by Mr Beaumont during the course of the hearing. Very shortly, the reason for this concession is that the relevant provision for termination provides that, if the contractor is in breach of certain obligations under the contract, the employer may give notice of that fact and require the breach to be remedied. If the breach persists thereafter for 7 days, the employer may then terminate the contract. In this case the two letters relied on as validly terminating the contract were written by the architect on 31 July and 6 August 2009, respectively, and so, even if the breach complained of existed, it had not persisted for 7 days before the second letter (of termination) was written. By definition, therefore, two letters written 6 days apart could never give rise to a valid exercise of the right to terminate under the relevant provision.

23. Accordingly, the arbitrator's conclusion on this issue was plainly correct and so this ground of appeal fails. Had it been necessary to do so, I would have held that in fact Mr and Mrs Price did not require the leave of the court to bring an appeal under section 69 because the parties had specifically agreed (by paragraph 5 of Schedule 1 to the Contract) that either of them would have the right to appeal to the courts on any question of law arising out of an award under section 69(2)(a) of the Act.

Serious irregularity - the appeal under section 68

24. For the purposes of this part of the judgment I will take the grounds of appeal under section 68 as they are described and set out in Mr Beaumont's principal skeleton argument, although not necessarily in the same order.

Failure to admit additional claims

25. As I have already noted, by a letter dated 17 February 2009 Mr Middleton-Stewart was appointed arbitrator by the RIBA. In due course he gave directions for the conduct of the arbitration requiring Carter to provide an outline statement of case by 30 April 2009 and from Mr and Mrs Price to provide an outline response by mid May 2009. Following this exchange of pleadings it was directed that the arbitrator would answer three preliminary questions, which he did (at least as to the two of them) in an award dated 11 December 2009.

26. Following a site visit, which took place on 25 January 2010, Mr and Mrs Price wrote to the arbitrator asking him to add further items to the Counterclaim. These were as follows:

• Hairline cracking to the external render

• Further investigation of internal cracking

• Plumbing alterations (repeating an item already scheduled)

• External works matters, principally related to settlement

• Cracks and water penetration into shed and garage.

27. It was accepted by Mr Beaumont that none of these items was included in the original Counterclaim. It seems to me that in these circumstances the arbitrator may not have had jurisdiction to deal with these items without Carter's consent. However, if I am wrong about that I consider that the arbitrator had a discretion whether or not to admit these items into the reference at such a late stage, just as a judge would have had in a claim proceeding in the High Court. I did not understand Mr Beaumont to challenge this.

28. At paragraph 1.13 of his Award, the arbitrator said this:

"I indicated to the parties my preliminary views on the matters raised, that I was reluctant to allow further delay and costs in the referral and that I only saw commercial benefit in bringing additional matters into the referral if the parties mutually consented that my award would thereby be conclusive of all matters in dispute arising out of the contract. Such agreement was not forthcoming and I have noted Carter's view that I do not have jurisdiction to deal with these additional matters exceeding the original statement of counterclaim. I therefore confirm that the additional matters identified above do not form part of this referral and consideration has not been given in formulating this award."