Construction contract — Standard arbitration clause — Employer alleging breach of contract by appellant — Whether “dispute” between parties — Whether valid decision of engineer as condition precedent to arbitration — Scope of arbitration — Appeal dismissed
The appellant carried out substantial renovation works to a motorway viaduct pursuant to a contract with the respondent. The contract incorporated clause 66 of the Institution of Civil Engineers standard conditions of contract, which provided for dispute or differences to be, in the first instance, referred to and settled by the contracted engineer. If the engineer failed to give a decision within three months of the referral, or if either party were dissatisfied with the decision given, the matter could be referred to arbitration.
Defects later appeared in the viaduct. Pending any full investigation of the defects and their cause, the appellant indicated that it did not accept responsibility. In December, the respondent wrote to the appellant alleging that it was in breach of contract, and inviting it to confirm this by a date four days from the date of the letter. The appellant replied that it was not in a position to comment on liability. The respondent referred the matter to the engineer, against which there was also a possible claim in respect of the faults. The engineer produced a decision indicating that the appellant was in breach of contract. The appellant did not confirm that it accepted that decision, and the respondent gave a notice referring the matter to arbitration.
The appellant disputed the arbitrator’s jurisdiction, arguing that the engineer’s decision was invalid on the grounds that: (i) at the date of the decision, there was no dispute between the parties within the meaning of clause 66; and (ii) it had not been reached by a fair process. The appellant also argued that any arbitration should be limited to the matters expressly identified by the engineer. The arbitrator rejected those arguments, a decision subsequently upheld by a judge. The appellant appealed.
The implication of any decision in favour of the appellant was that the respondent would be unable to give a contractually valid notice of arbitration sufficient to start arbitration proceedings within the statutory limitation period.
Held: The appeal was dismissed.
1. It was worth noting that clause 66 referred not just to a “dispute” but also to a “difference”, which was a less hard-edged concept. Commercial good sense suggested that clause 66 should not be construed with legalistic rigidity so as to impede the parties from starting timely arbitration proceedings. An inclusive interpretation should be taken of what constituted a dispute or difference. If the due operation of the mechanism of clause 66 was really to be seen as a condition precedent to the ability to begin arbitration proceedings within a limitation period, the parties could not have intended to afford one another opportunistic technical obstacles to achieving this beyond those that the clause necessarily required. The existence of a dispute might involve affording a party a reasonable time to respond to a claim; what constituted a reasonable time would depend upon the facts of the case and the relevant contractual structure. In the present case, the judge had correctly found that: (i) the respondent’s letter constituted a claim; (ii) the positions of all the parties were well defined and unsurprising and (iii) it was inconceivable that the appellant, or any other party, would admit liability at that stage. The imminent end of the statutory limitation period was also relevant. In all the circumstances, the judge had been entitled to find that the deadline given for responding to the respondent’s letter was not unreasonable, and that there was a dispute or difference capable of being referred to the engineer: Monmouthshire County Council v Costelloe & Kemple Ltd (1965) 63 LGR 429, Ellerine Bros Property Ltd v Klinger [1982] 1 WLR 1375 and Halki Shipping Corporation v Sopex Oils (The Halki) [1998] 1 WLR 726 considered.
2. Compliance with the rules of natural justice was not required of an engineer giving a decision under clause 66. The engineer did not have to reach a decision by a judicial process. It had to act “fairly”, but “fairness” should be tempered to the particular facts and occasion: Canterbury Pipelines Ltd v Christchurch Drainage Board (1979) 16 BLR 76 applied; AC Hatrick (NZ) v Nelson Carlton Construction Co (in liquidation) [1964] NZLR 72 considered. There had been no instance of unfairness in the present case that would invalidate the engineer’s decision so as to prevent the respondent from starting timely arbitration proceedings. The engineer was not disqualified from giving a valid decision on the ground that it was itself the object of an equivalent claim. This was an unavoidable potential incidence of the contractual relationship between the parties. An engineer could readily be in a position of conflict, and was not disqualified as a matter of principle. It was a matter of fact and degree, and there were very special facts in the present case.
3. The judge had correctly decided that the matters referred to the engineer for decision embraced all actual or suspected defects and that the notice of arbitration embraced all claims in the respondent’s December letter. The “matter” in clause 66 was that referred to the engineer and was not confined to that which the engineer decided.
Vivian Ramsey QC and Simon Hughes (instructed by Wragge & Co, of Birmingham) appeared for the appellant; John Marrin QC and Sarah Hannaford (instructed by the Treasury Solicitor) appeared for the respondent.
Sally Dobson, barrister
