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Late decision
Difficulties have arisen in the past where an adjudicator noticed a mistake after issuing the award and sought to correct if later. Challenges were made on the basis that there was no power to do so. Since 1 October 2011 adjudicators are now permitted to correct typographical or clerical errors.20
Severance
Where part of the decision is found to have been reached outside the adjudicator’s jurisdication, it is open to the court to sever the decision and enforce the part of the decision which is not challenged. For example, in a case where there was a preexisting dispute relating to certain damages and the notice of adjudication extended also to liquidated damages, the adjudicator was found to have no jurisdication in relation to the new liquidated damages claim although the balance of the decision could be severed and enforced.21
24.1.6An unenforceable decision?
A finding by the court that a decision is unenforceable may have significant implications for all concerned. If the adjudicator’s decision was unenforceable because of a breach of natural justice, the Court of Appeal has found that the parties, in one case, did not receive what they had bargained for and hence the adjudicator was unable to recover his fees.22 Where the decision is found to be unenforceable the decision is treated as not having been reached so parties are free to make a fresh referral to adjudication.
24.2ARBITRATION
Arbitration is a procedure for the resolution of disputes which is, for the most part, under the control of the parties.
24.2.1The nature of arbitration
In any consideration of arbitration, it is important to understand at the outset that, whereas there is normally an automatic right to take a dispute to court, the right to go to arbitration is by its nature more restricted. Arbitration can only arise where certain conditions are met. In particular, there must be:
20LDEDCA 2009, section 140.
21Beck Interiors Ltd v UK Flooring Contractors Ltd [2012] EWHC 1808 (TCC).
22PC Harrington Contractors Ltd v Systech International Ltd [2012] EWCA Civ 1371.
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1.A genuine dispute or difference between the parties, of a kind ‘justiciable at law’. This means that the arbitrator’s award must be capable of enforcement as if it were a judgment of a court.
2.A binding contractual agreement to submit that dispute to arbitration by a third party chosen either by the parties or in accordance with their instructions. Such an agreement may be made when a dispute has arisen; however, it is more common for a contract to provide from the outset that any dispute arising between the parties shall be finally determined by arbitration. In either case, the arbitration agreement itself need not name the arbitrator; the parties may and frequently do provide for a professional body to nominate a suitable person.
3.A reference to arbitration in accordance with whatever procedure is laid down in the agreement. Thus, for example, ICC 11 clause 66C(1) requires a ‘notice to refer’ (to arbitration), which must be served no later than three months after the decision of an adjudicator. NEC 3 requires the dispute to have been referred first to adjudication before a reference to arbitration is made (clause W1.4 or W2.4). Equally, under FIDIC 1999 Red Book, unless agreed otherwise, the parties may only refer to arbitration the DAB’s decision that has not become final and binding (clause 20.6).
It should be noted that, while it is perfectly possible to make a valid arbitration agreement by word of mouth, the Arbitration Act 1996 only applies to arbitration agreements which are made in writing. This is important, because the Act lays down detailed rules about the way in which arbitrations are to be conducted, including details of how they are controlled by the courts in terms of hearing appeals, removing arbitrators for misconduct and so on. Fortunately, section 5 of the Act provides a very wide definition of what is meant by ‘in writing’ for this purpose. It will include not only a written agreement (whether or not it is signed), but also an agreement made by exchange of letters and any agreement evidenced in writing. Moreover, in a provision that changes the previous legal position, section 5 provides that an oral agreement to be bound by a set of written terms (for example those contained in a standard form building contract) is to be treated as an agreement in writing.
Arbitration has traditionally been the construction industry’s preferred means of settling disputes, and most standard form contracts have, therefore, contained arbitration clauses for many years. However, aware that most disputes are now resolved by adjudication, and that issues which are not so resolved are frequently concerned with points of law, such as the extent of the adjudicator’s powers, the drafters of JCT SBC 11 (and, indeed, all of the 2011 suite of JCT contracts and its predecessor 2005 suite) decided to make litigation the default dispute resolution procedure. According to JCT SBC 11Articles 8 and 9, therefore, disputes will be settled in court unless the parties specifically show their preference for arbitration by making an appropriate entry in the Contract Particulars.
24.2.2The arbitrator’s jurisdiction
The jurisdiction of the courts to hear cases arising out of disputes between contracting parties is virtually unlimited (although a contract may provide that it
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cannot be exercised until after the parties have been to arbitration). By contrast, an arbitrator is empowered to decide only those disputes which are specifically referred, and which fall within the scope of the arbitration agreement under which the appointment is made. It may therefore be that, for certain kinds of dispute, litigation is the only available solution.
It was formerly the case that an arbitrator did not have power to decide any question on which his or her own jurisdiction depended, such as whether the contract containing the arbitration agreement was void. Hence, if a dispute arose over such a matter, it could only be dealt with by a court. However, this has been altered by section 30 of the Arbitration Act 1996, which provides that, unless the parties agree otherwise, the arbitrator may decide whether there is a valid arbitration agreement, whether the arbitration tribunal is properly constituted and whether matters have been properly referred to arbitration. This does not completely rule out a reference to the court, but section 32 provides that such a reference can only be made with the written consent of all parties, or by permission of the arbitrator in circumstances where the court is satisfied that it is likely to save costs and that there is good reason for it. In any event, section 31 provides that a party who wishes to claim that the arbitrator lacks jurisdiction from the outset must do so before taking any steps to answer the case on its merits. Section 31 also provides that, if the question of jurisdiction arises during the course of arbitration proceedings, a party who wishes to object on that ground must do so as soon as possible.
Whether or not a dispute falls within an arbitration agreement depends on the wording of that agreement. In this connection it appears that the phrase ‘arising under’ is narrower than either ‘arising out of’ or ‘arising in connection with’ a contract, and that it does not include claims in tort for misrepresentation or attempts to establish a collateral contract.23 Where the wider form of words is used, the arbitrator has power to rectify the contract on the ground of mistake or misrepresentation.24 Such power is given expressly under JCT 98 clause 41B.2 and (where the parties specifically choose arbitration) under JCT SBC 11 clause 9.5. The wider form of words has also been held to cover ordering a sub-contractor to contribute towards the damages payable by a main contractor in a fatal accident claim, and to decide whether damages should be reduced on the ground of contributory negligence.25
The arbitration clauses found in most standard form construction contracts are widely drafted. For example, JCT SBC 05, Article 8 is couched in wide terms, the crucial passage stating any dispute or difference between the Parties of any kind whatsoever arising out of or in connection with this Contract. ICC 11 clause 66C states ‘all disputes arising under or in connection with the Contract’. However, all these forms of contract specifically exclude from arbitration disputes concerning the enforcement of an adjudicator’s decision.
23Fillite (Runcorn) Ltd v Aqua-Lift (1989) 45 BLR 27.
24Ashville Investments Ltd v Elmer Contractors Ltd [1988] 2 All ER 577.
25Wealands v CLC Contractors Ltd [1999] BLR 401.
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It has been decided by the House of Lords that formulations of this kind are sufficient to cover a dispute as to whether the contract has been terminated by repudiatory breach or frustration.26
In former centuries arbitrators were expected to decide disputes, not according to legal principles, but on the basis of what they regarded as just and equitable. This has remained the position in many countries but, until recently, English law insisted that an arbitrator’s award must be based on strict legal principles, irrespective of the parties’ wishes or instructions. That rigid rule has been altered by section 46 of the Arbitration Act 1996, which provides that, if the parties agree, their dispute can be decided in accordance with whatever considerations are agreed by them or determined by the arbitrator. Notwithstanding this increased flexibility, however, an arbitrator can only award those remedies arising under the general law (such as damages) or for which the contract in question makes provision. Thus, for example, a contractor cannot be ordered to do remedial work as an alternative to paying liquidated damages.27
24.2.3Arbitration procedure under the 1996 Act
The intention underpinning the Arbitration Act 1996 is that the parties should be encouraged to take control of the dispute resolution procedure that they have chosen and to use its inherent flexibility so as to obtain the maximum possible benefit. This intention, and indeed the general philosophy of the Act, may be seen in three specific provisions. First, section 1 sets out three basic principles, in accordance with which the rest of the Act is to be construed. These are:
That the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense.
That the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest.
That the court should not intervene except where the Act itself provides.
Section 33 then sets out the general duty of the arbitration tribunal. This is:
To act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting its case and of dealing with that of its opponent.
To adopt suitable procedures so as to provide a fair means for the resolution of the matters to be determined, while avoiding unnecessary delay or expense.
Lastly, section 40 imposes a general duty on the parties to do all things necessary for the proper and expeditious conduct of the proceedings, including complying without delay with any decision of the arbitrator as to procedural or evidential matters, or with any other order or directions of the arbitrator.
26Heyman v Darwins Ltd [1942] AC 356.
27BFI Group of Companies Ltd v DCB Integration Systems Ltd [1987] CILL 348.
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Procedure in general
Sections 33 to 41 of the Arbitration Act 1996 make it very clear that the procedure to be adopted at arbitration is, first and foremost, for the parties to agree (which they may do for instance by incorporating a set of model rules in their contract). Anything not specified by the parties is for the arbitrator to decide. There is clearly no presumption that the proceedings will follow closely along the lines of an action in court; the Act provides, for example, that (subject to what the parties may agree) the arbitrator may decide whether or not to enforce the strict rules of evidence, and may take the initiative in ascertaining the facts and the law. However, it is also provided that, in the absence of agreement to the contrary, a party to arbitration is entitled to be represented, either by a lawyer or by any other person.
The control exercised by the arbitrator is considerable, and it is backed by farreaching powers to deal with a party who fails to ‘do something necessary for the proper and expeditious conduct of the arbitration’. Thus, where a claimant is guilty of ‘inordinate and inexcusable delay’ in pursuing a claim, leading to a substantial risk that a fair resolution of the dispute will not be possible or causing serious prejudice to the respondent, the arbitrator may dismiss the claim altogether. If a party without good reason fails to attend a hearing or to make a written submission when required, the arbitrator may continue with the proceedings on the basis of such evidence as is available (which will of course normally consist of the evidence given by the other party). And, if a party fails without good reason to comply with any of the arbitrator’s orders or directions, the arbitrator may make a ‘peremptory order’ specifying a time for compliance and this, in turn, may be enforced by a court.
Whether or not the procedure at arbitration follows that of a court, the result that it produces, namely the arbitrator’s award, will closely resemble a court judgment. This resemblance is strengthened by the fact that the Arbitration Act 1996 empowers the arbitrator (provided the parties agree to this) to grant a range of remedies similar to those obtainable in court (including injunctions, orders for specific performance of a contract and declarations). The arbitrator may also make provisional awards, add interest to any sum due and make orders as to liability for costs.
It has long been the practice, in industries where arbitration is a common method for the resolution of disputes, to have standard sets of rules to govern arbitration procedures. The arbitration clauses in the contracts used by those industries can then simply state that any arbitration shall be conducted in accordance with the appropriate set of rules.
In the construction industry, the passing of the Arbitration Act 1996 has brought about the drafting of rules of particular importance. Of relevance to JCT contracts are the Construction Industry Model Arbitration Rules 2011 (CIMAR).
CIMAR Arbitration Rules 2011
CIMAR not only follows the 1996 Act, but actually reproduces much of the statutory text, which it then amplifies and extends. These Rules do not remove any of the powers which the arbitrator would have under the Act and they also provide that, once an arbitrator is appointed, the parties will not make any agreement which
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would have the effect of amending or conflicting with the Rules. CIMAR further contains important provisions dealing with the consolidation of arbitrations under different contracts, although the effectiveness of these will inevitably depend upon the agreement of all the parties involved, and empowers the arbitrator to grant provisional relief.
CIMAR provides a choice of three procedures, each of which may be suitable for different types of dispute. At one extreme is the ‘full procedure’ (rule 9), which would be expected to follow fairly closely the litigation model. This is regarded as appropriate for large and complex cases, where disputes over the facts are such that witnesses ought to give evidence orally and be subjected to cross-examination. By contrast, the ‘documents only’ procedure (rule 8) is one in which the arbitrator reaches a decision on the basis of written statements, documents such as specifications, letters, site minutes and experts’ reports and (if necessary) a site inspection. This procedure is appropriate where the issues involved do not require oral evidence or the sums in dispute do not warrant the cost of a hearing. This might be, for example, where the dispute relates to the valuation of work, investigation into the cause of defects or interpretation of the contract. An award following a ‘documents only’ arbitration is to be made within one month.
The ‘short hearing’ procedure (rule 7) is specifically designed for disputes which are to be settled primarily by the arbitrator inspecting work or materials. The expectation is that, in addition to making a site visit, the arbitrator will conduct a hearing of not more than one day (which the parties may agree to extend) at which each party will have a reasonable opportunity to state its case. Expert evidence may be given, but the cost of this is only recoverable if the arbitrator rules that it was necessary in order to reach his or her decision. Once again, the arbitrator is required to make an award within one month.
As to which of the three procedures is to be adopted in any given case, CIMAR (rule 6.2) makes clear that this is for the arbitrator, rather than the parties, to decide. However, the Rules provide that the parties are to inform the arbitrator of their views as to which procedure would be appropriate (and as to the probable length of any required hearing) and, if the parties are in agreement as to which procedure they wish to follow, it seems unlikely that an arbitrator would insist on a different one.
Where the parties to a JCT contract opt for arbitration as their dispute resolution procedure, a special version of CIMAR called the ‘JCT 2011 edition’ is used (see JCT SBC 11 Article 8 and clause 9.3). This contains, in addition to the basic rules, a section called ‘JCT Supplementary and Advisory Procedures’, of which Part A lists a number of mandatory provisions and Part B a number which the parties may expressly agree to include. Of the ways in which these change the basic CIMAR rules, the most important is probably to include a presumption in favour of the ‘documents only’ procedure, subject to any contrary agreement by the parties or a considered decision by the arbitrator to use the full procedure.
ICC International Court of Arbitration Rules
References to arbitration under the FIDIC 1999 Red Book are to be in accordance with the Arbitraiton and ADR rules published by the International Chamber of Commerce, based in Paris. These are not designed to comply with the UK’s
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Arbitration Act 1996, but are quite independent of it. The procedures are developed specifically for international contracts, which may not be subject to UK statutes. The latest version was published in 2011 and came into force on 1 January 2012.
24.2.4Control by the courts
The Arbitration Act 1996 contains a number of provisions under which the courts exercise a measure of control over arbitrations, while they are taking place. Two of the most important of these are the court’s power, in appropriate circumstances, to remove an arbitrator and to give a ruling on a particular point of law.
Removal of arbitrator
Section 24 of the Arbitration Act 1996 (a provision which cannot be excluded) provides that any party may, on giving notice to the other party and to the arbitrator, apply to the court to remove the arbitrator from office on certain specified grounds. If such an application is made, the arbitrator is entitled to appear before and be heard by the court before it makes its decision. Moreover, the fact that an application has been made does not prevent the arbitrator from continuing with the arbitration and even making an award.
Earlier legislation gave power to remove an arbitrator for ‘misconduct’, a term which was widely interpreted so as to include procedural irregularity as well as any intentional wrongdoing. The 1996 Act is clearly intended to be somewhat narrower in scope, as may be seen from the limited grounds on which an application to remove the arbitrator may be made. These are:
That there are justifiable doubts as to the arbitrator’s impartiality.
That the arbitrator lacks the qualifications required by the arbitration agreement.
That there are justifiable doubts as to the arbitrator’s physical or mental capacity to conduct the arbitration.
That the arbitrator has refused or failed to conduct the proceedings or to use all reasonable despatch and that this has caused substantial injustice to the applicant.
The first of these grounds is arguably the most important, since it is essential that an arbitrator should be free from any form of bias in favour of one party. In cases decided on similar provisions in earlier legislation, it has been held that the crucial test is whether there is a ‘real danger’ of bias. The fact that an architect or engineer named as arbitrator is associated with, or even an employee of, the client has never been regarded as an automatic reason for disqualification.28 However, where the connection is too close it may give rise to reasonable suspicion of bias.29 Moreover, where a contract administrator is appointed as arbitrator (at one time a common practice, though rare today), they will be disqualified from dealing with a
28Eckersley v Mersey Docks and Harbour Board [1894] 2 QB 667.
29Verital Shipping Corporation v Anglo-Canadian Cement Ltd [1966] 1 Lloyd’s Rep 76.
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dispute in which they are the real defendant.30 In other cases, arbitrators have been removed for showing bias against a witness on racial grounds, or simply for using such sarcastic and hostile language as to convince one party that their minds are already made up and that a fair hearing is impossible.31
The last of the grounds for removal might seem at first sight to be potentially very wide. However, it is clear from the government committee on whose report the 1996 Act was based that this is intended only to apply to those rare cases where the arbitrator’s conduct is in effect frustrating the purpose of arbitration as stated in section 1 of the Act.
Determination of preliminary point of law
Section 45 of the Arbitration Act 1996 provides that, unless the arbitration agreement provides otherwise, a party may apply to the court for a ruling on any question of law arising in the proceedings. A party making such an application must first give notice to the other party, and the court can only give its ruling if it is satisfied that the point in question is one which ‘substantially affects the rights of one or more of the parties’.
This procedure is subject to complex procedural rules. In particular, it requires the consent either of the arbitrator or of all the parties to the arbitration. Furthermore, where it is made without the consent of all the parties, the court must be satisfied that determining the question of law is likely to produce substantial savings in costs and that the application was made without delay.
24.2.5Challenging an arbitrator’s award
Appeals on a point of law
Section 69 of the Arbitration Act 1996 provides for a right of appeal to the High Court (normally, in construction cases, the Technology and Construction Court) on any question of law arising out of an arbitrator’s award. Such an appeal cannot be brought unless any process of appeal or review provided by the arbitration agreement itself has first been exhausted. Furthermore, an appeal must normally be brought within 28 days of the date of the award (or the end of an arbitral appeal or review process).
It should be noted that the procedural rules governing this right of appeal are extremely complex. Similar wording in previous legislation has given rise to a great deal of litigation and has been interpreted by the courts in a highly restrictive way. Briefly, the position is that an appeal against an award requires either the consent of all parties to the arbitration or the leave of the court. Such leave is only to be granted where the court is satisfied that four requirements have all been met. These are that:
30Nuttall v Manchester Corporation (1892) 9 TLR 513.
31Turner (East Asia) PTE Ltd v Builders Federal (Hong Kong) (1988) 42 BLR 122.
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determination of the question of law will substantially affect the parties’ rights;
the question is one that the arbitrator was asked to determine;
either the arbitrator’s decision is obviously wrong or the question is one of general public importance (a test which is very difficult to satisfy in relation to a ‘one off’ contract) and the arbitrator’s decision is open to serious doubt; and
despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in the circumstances for the court to determine the question.
It is also worth noting that the conditions on which it is possible to appeal from the court’s decision (either on the point of law itself or on whether or not to grant leave to appeal) are even more restrictive.
Lack of jurisdiction
Section 67 of the Arbitration Act 1996 provides that in two circumstances a party may, after giving notice to the other party and to the arbitrator, challenge an arbitration award on the ground of lack of jurisdiction. In both cases, a challenge of this kind, like an appeal on a point of law, cannot be brought unless any process of appeal or review provided by the arbitration agreement itself has first been exhausted. And, again like an appeal on a point of law, a challenge must normally be brought within 28 days of the date of the award or the end of an arbitral appeal or review process.
The first type of challenge arises where the arbitrator has made a decision as to his or her own jurisdiction. As we saw in Section 24.2.2, this is a power that arbitrators formerly did not have, but which was given to them by section 30 of the 1996 Act. It is provided that, while a challenge of this kind is under way, the arbitrator may continue with the proceedings.
The second circumstance mentioned above is where the arbitrator has made an award that the applicant believes there was no jurisdiction to make. The Act provides that, where such a challenge is made, the court is empowered to confirm the award, vary it, or set it aside in whole or in part.
Serious irregularity
Section 68 of the Arbitration Act 1996 provides that a party may, after giving notice to the other party and to the arbitrator, challenge an arbitration award on the ground of ‘serious irregularity affecting the tribunal, the proceedings or the award’. Once again, a challenge of this kind cannot be brought unless any process of appeal or review provided by the arbitration agreement itself has first been exhausted, and it is subject to the 28-day time limit.
Section 68 contains an exhaustive list of the things that may constitute ‘serious irregularities’ for this purpose. They range from the arbitrator’s failure to act impartially, or acting in excess of his or her powers, through procedural errors in conducting the arbitration, to awards that are uncertain, ambiguous or contrary to public policy. However, an overriding requirement is that, in order to take action, the court must consider that the irregularity in question has caused or will cause substantial injustice to the applicant.