Morris Homes (West Midlands) Ltd v Keay [2013] EQHC 932 (TCC) looks at the steps a party will need to take if it wishes to appeal an award of an arbitrator.
The original case involved an agreement between the parties for Morris Homes (West Midlands) Limited (Morris Homes) to develop a medical centre in Birmingham. Morris Homes suspended construction in the middle of 2008 and carried out no further work until the start of 2010, claiming that continuing with the development would have been risking “commercial suicide”.
As with many similar agreements, the contract between the parties effectively required Morris Homes to:
1) commence the works as soon as reasonably practicable;
2) carry out works diligently; and
3) use all reasonable endeavours to ensure that the works were completed as soon as reasonably practicable. (See box.)
The arbitrator found that Morris Homes was in breach of the contract and made an award in the Keays’ favour. Morris Homes accordingly sought leave to appeal the arbitrator’s decision.
The court’s power to consider an appeal from an arbitrator’s decision is limited by section 69 of the Arbitration Act 1996, such that the party seeking leave to appeal needs to demonstrate that the decision of the tribunal on the question is obviously wrong, or the question is one of general public importance and is at least open to serious doubt, and that it is just and proper in all the circumstances for the court to determine the question.
While the arbitrator dealt with a number of issues, only two came before the court:
1) The proper construction of the scope of Morris Homes’ contractual duties contained at clauses 3.1 and 4 of the agreement; and
2) The extent of the Keays’ loss.
Contractual duties
Morris Homes had argued that it was not in breach of its contractual obligations, concentrating on clause 4 and the obligation to use all reasonable endeavours to ensure completion as soon as reasonably practicable. It contended that in the summer of 2008, because of the financial crisis, it was faced with commercial suicide if it continued with the project. It argued that an obligation to use all reasonable endeavours did not oblige it to risk that.
The arbitrator found that Morris Homes was “quite clearly” in breach of the obligation at clause 3.1, to carry out the works diligently as a result of the period for which all work was stopped. Compliance with clause 4 (completing the works as soon as reasonably practicable), did not save the failure to comply with clause 3.1. The arbitrator was clear that the obligations under the contract were separate and each had to be satisfied.
The court looked at whether the obligation to carry out the works diligently referred to the manner or the timing of the works. It concluded both. “Diligently” required Morris Homes to carry out the works in the correct manner using the correct tools and materials, but also to continue with the works and proceed with them in a timely manner.
The delay in completion was an obvious failure to comply with this provision and that failure was not saved by the fact that, in the circumstances, completion was delivered as soon as reasonably practicable.
In a similar way, a developer could not, under a contract such as this, deliver a development on time but without having used sufficient quality materials and expect not to be held to be in breach.
The court also considered whether the arbitrator’s decision was open to serious doubt, but concluded that since “subtle and complex” arguments raised by the Keays would need to be considered to decide the question, this precluded it from being a matter that was open to serious doubt.
The court also considered whether a clear interpretation would constitute a matter of public importance. In this case there were unusual circumstances in that the tenant would be a doctor and PCT funding was required such that there were genuine reasons why the building did need to be completed as soon as possible. The facts were so specific that the application was not wide enough to be of public importance.
Losses
Morris Homes also argued that the Keays had in fact suffered no loss as a result of the delay, and indeed suggested that the delay had in fact been of benefit to them.
The court considered the question of whether the arbitrator was correct in determining that the Keays had suffered a loss as a result of the alleged benefit of not paying the development costs earlier.
The original plan was that the funding would come as a gift from the Keays’ parents. As the development was delayed, the parents retained the money and had accordingly gained from the delay. However, on a full analysis of the financial situation, the Keays’ own position was almost neutral.
The arbitrator was required to consider the effect on the parties only, and as the parents were not a party to the proceedings any effect on them was irrelevant. As such, the arbitrator’s decision was not in serious doubt, and it would not be just and proper for the court to determine the issue.
As far as a question of public importance was concerned, to have determined the case on this point would have been a determination of facts, not law; section 69 deals only with appeals on a point of law.
Common-sense approach
Keay is undoubtedly a useful case looking at the steps that need to be taken to obtain leave to appeal a decision of an arbitrator on a point of law.
The court appeared to take a fairly common-sense approach, finding that the need to raise subtle and complex arguments meant that a decision could not be summarily open to serious doubt. Circumstances particular to a matter would not be of general public importance and the finances of an entity not a party to the arbitration are not relevant.
Delivering a development “as soon as reasonably practicable” did not remedy any previous breach of a requirement to proceed diligently with the development.
Clauses from the contract
Clause 3.1: “The landlord shall as soon as reasonably practicable commence and thereafter diligently carry out the Works in accordance with the planning permission and all other relevant permissions consents and the documents… in a good and workmanlike manner with good-quality materials…”
Clause 4: “The landlord shall use all reasonable endeavours to ensure that the Works are completed as soon as reasonably practicable as part of the development unless prevented or delayed by any cause or circumstance not within the reasonable control of the landlord, in which case the landlord shall be entitled to an extension of time equal to the period of such delay.”
Alan Walker is a partner and Sophie Morley is an associate at DWF
