Dandara South East Ltd v Medway Preservation Ltd and another

Contract – Dispute – Expert determination – Claimant purporting to terminate contract for sale of land and claiming repayment of deposit – Defendant applying for stay of proceedings to determine dispute by expert determination procedure in contract – Whether expert determination clause separable from contract as a whole – Application granted The claimant buyer and the first defendant seller entered into a contract for the sale of land at Commissioner’s Road, Strood, Kent. The contract was subject to two conditions precedent: (i) the carrying out of earthworks on the land by the second defendant contractor; and (ii) the issue of a practical completion statement. Under clause 28, any dispute or difference between the parties in connection with the contract was to be submitted for determination by an expert. By clause 31, the courts of England and Wales had exclusive jurisdiction to settle any dispute arising from the contract. The claimant subsequently claimed that it was entitled to terminate, and had terminated, the contract by notice in accordance with clause 8. Despite clause 28, the claimant issued proceedings claiming repayment of the deposit. The defendants challenged the jurisdiction of the court and applied for a stay to enable the dispute between the parties to be determined by the expert determination procedure provided for in the contract. The claimant contended that, on its true construction, the expert determination provision did not extend to the present dispute. The contract had now come to an end, and the expert determination provision was not separable from it. Regardless of the separability of the expert determination provision, it was unsuitable for the resolution of the dispute between the parties and the court should refuse to grant a stay as a matter of discretion. Held: The application was granted. (1) The construction of an arbitration clause started on the assumption that the parties, as rational businessmen, were likely to have intended that any dispute arising out of the relationship into which they had entered should be decided by the same tribunal. An arbitration clause should therefore be construed in accordance with that presumption, unless the language made it clear that certain questions were to be excluded from the arbitrator’s jurisdiction. Where parties made an agreement for a particular form of dispute resolution, they should be held to that agreement: Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334, Fiona Trust and Holding Corporation v Privalov [2007] Bus LR 1719 and Barclays Bank plc v Nylon Capital LLP [2012] Bus LR 542 considered. (2) While the principle of separability was enshrined in section 7 of the Arbitration Act 1996 for arbitration agreements, there was no authority concerning expert determination. As arbitration would usually be an alternative to a court for the resolution of all the disputes between the parties, it would not accord with the presumed intention of sensible businessmen to draw fine distinctions between similar phrases to allow a part of the dispute to be outside the arbitration and allocated to the court. In contradistinction, expert determination clauses generally presupposed that the parties intended certain types of dispute to be resolved by expert determination and other types by the court (or if there was an arbitration clause by arbitrators). The parties had agreed two types of dispute resolution procedure for disputes which might arise under the agreement. (3) Unlike the position under agreements with arbitration clauses, the parties had chosen two alternative forms of dispute resolution. There was, therefore, no presumption in favour of giving a wide and generous interpretation to the jurisdiction of the expert conferred by the expert determination clause. The question was whether the dispute was within the jurisdiction of the expert conferred by the expert determination clause or within the jurisdiction of the English court. It was a question of construction with no presumption either way. Clause 28 was an all-embracing provision, requiring all disputes concerning the contract to be subject to expert determination. The natural reading of the clause was that any dispute concerning the contract would be so subject. That would include a dispute whether the contract had been validly terminated, or whether one party was in continuing breach. The wording of clause 28.1 mirrored the breadth of disputes generally subject to an arbitration clause. The parties, as business people operating in property development, were objectively to be taken to know that the wording employed was apt, as in an arbitration clause, to cover all disputes arising in relation to the agreement. (4) The fact that the expert determination procedure was not carved out of the court’s jurisdiction favoured a one-stop construction of clause 28. There was no reason in principle why an expert determination clause could not be separable from the contract in which it was found, the question being dependent on the parties’ intentions. It was established that an arbitration clause was a separate agreement from the main contract, to give effect to the parties’ presumed intentions unless they expressly agreed otherwise. Furthermore, the question for present purposes was whether clause 28 was separable, in relation to a dispute whether the contract had been terminated by notice or whether the claimant was in repudiatory breach of it. Before it was established that it was presumed that an arbitration clause was separable in relation to all forms of dispute, it was considered that it would be presumed to be separable in relation to supervening events: see Heyman v Darwins [1942] AC 356. (5) The allegation here was that the contract was terminated by a supervening event and not that there was never a binding contract between the parties. Accordingly, clause 28 was the contractually agreed method for the resolution of all disputes in relation to the contract, and not limited in the way contended for by the claimant. Clause 28 was separable from the contract, at least for the purposes of determining a dispute whether it had been terminated by a supervening event. Parties to construction contracts regularly agreed that disputes of fact would be resolved by an expert in a short period of time, without disclosure of the kind that would be ordered in court proceedings. The claimant’s assertion that the dispute in this case would be too complex for an expert was maintained only at a high level. There was no substantial reason why clause 28 was unsuitable for determination of the dispute. The court would make an order staying the claim to enable the parties’ compliance with clause 28: Cott UK Ltd v FE Barber Ltd [1997] 3 All ER 540 considered. Greville Healey (instructed by Wedlake Bell LLP) appeared for the claimant; Dalton Hale (instructed by Warners Law LLP, of Tonbridge) appeared for the defendants. Eileen O’Grady, barrister Click here to read a transcript of Dandara South East Ltd v Medway Preservation Ltd and another