Documents – Pre-arbitration protocol – Arbitration agreement – Defendant employing claimant as sub-contractor on development – Dispute arising in respect of various financial entitlements – Claimant seeking pre-action disclosure of substantial amount of documentation – Whether court having power to order pre-arbitration disclosure – Whether underlying agreement between parties containing arbitration clause – Application dismissed
The defendant company was engaged by the Secretary for State for Defence to redevelop residential units for service personnel and their families. The defendant employed the claimant company as the primary sub-contractor. The sub-contract was a cost-plus arrangement with comparable “pain/gain” provisions which were intended to incentivise the claimant to minimise costs incurred delivering the work. It contained detailed terms relating to the final sum payable to the claimant but, in general terms, incentive arrangements were made based on the financial outcome under the prime contract whereby the claimant was to receive an agreed share of any cost saving under the prime contract and to pay an agreed share of any costs overrun.
The works were substantially completed in December 2012 and the defendant was negotiating a settlement in respect of the prime actual costs incurred in providing the works and adjustments to target/maximum costs. A dispute arose between the claimant and the defendant concerning their various financial entitlements. In November 2012, the claimant’s solicitor had sent a letter pursuant to the pre-action protocol relating to proposed proceedings for declaratory relief. The claimant sought pre-action disclosure of a substantial amount of documentation from the defendant.
Clause 29.1 of the sub-contract stated that, in the event of a “dispute” as defined in the dispute procedure at schedule 5 arising, or a matter being referable to the disputes review board (DRB) in accordance with the specific conditions of the contract, the parties had agreed to follow the dispute procedure set out in the schedule 5 which in reality involved four dispute resolution processes (negotiation, DRB involvement and recommendations, mediation (if agreed to by both parties) and arbitration.
A preliminary issue arose whether there was an arbitration clause in the underlying agreement between the parties, in which case the court had no power to order pre-arbitration disclosure.
Held: The application was dismissed.
(1) The court had no jurisdiction to make an order under CPR 31.16 for pre-action disclosure where the dispute between the parties would be decided in arbitration. It was therefore necessary to analyse what the sub-contract said about dispute resolution in the context of section 6(1) of the Arbitration Act 1996 which defined “arbitration agreement” as meaning “an agreement to submit to arbitration present or future disputes (whether they are contractual or not)”: Travelers Insurance Company Ltd v Countrywide Surveyors Ltd [2010] EWHC 2455 (TCC); [2010] PLSCS 257 applied.
(2) There was no evidence before the court as to why no DRB had been appointed and the parties could still appoint appropriate members of the DRB if they so wished. If one party refused to appoint, it would be in breach of the dispute procedure and specific performance could be sought requiring it to do so. Although it might be argued that the refusal of that party was such that the contractual dispute resolution machinery had broken down enabling the parties to proceed to court, there had been no suggestion that that stage had yet been reached. Although it would be unusual, there was no reason in principle or policy to prevent DRBs also acting as arbitrators in relation to the same project. It could be advantageous in that members of the DRB might well have acquired a good working and practical knowledge of the project and all the disputed problems which had arisen as it proceeded.
(3) The court attached importance to the opening words prefacing the dispute procedure which required the parties to use best endeavours to resolve any dispute in accordance with one of the dispute resolution procedures set out therein. Any argument that because there was no DRB in place the dispute procedure could not be operated was unjustified. There was machinery still available for the DRB to be appointed and appropriate steps could be taken to secure the appointment if either party dragged its feet. There had been no suggestion that the parties had mutually abandoned the dispute procedure or that some waiver or estoppel operated to enable either party to by-pass that procedure and proceed in court. The dispute procedure expressly provided that a dispute should be finally settled by arbitration administered by the DRB. That was relatively mandatory language and told the parties that, if negotiations, DRB recommendations and mediation failed, the final and binding dispute resolution method was arbitration. The court was in no doubt that that was what the parties had agreed.
(4) If the DRB refused or failed within a reasonable time or at all to decide that the matter should go to arbitration, thus potentially denying or at least delaying final dispute resolution and consequently justice as between the parties, section 16(1) of the Arbitration Act 1996 gave the parties a very wide freedom in connection with the appointment of arbitrators and provided a default procedure if they had not agreed on the appointment of arbitrators. The fact that the agreement to refer disputes to arbitration depended upon the exercise of an option did not prevent it from being an arbitration agreement. Similarly, the fact that a dispute resolution clause required parties to go through various other dispute resolution approaches before arbitration was initiated could still be an arbitration agreement within the 1996 Act. It followed that, on the evidence, the parties had agreed to refer the disputes to arbitration with the DRB to be the arbitrators and the court had no power to order pre-action disclosure.
Nerys Jefford QC (instructed by TLT LLP) appeared for the claimant; Steven Walker QC (instructed by Pinsent Masons LLP) appeared for the defendant.
Eileen O’Grady, barrister
Documents – Pre-arbitration protocol – Arbitration agreement – Defendant employing claimant as sub-contractor on development – Dispute arising in respect of various financial entitlements – Claimant seeking pre-action disclosure of substantial amount of documentation – Whether court having power to order pre-arbitration disclosure – Whether underlying agreement between parties containing arbitration clause – Application dismissedThe defendant company was engaged by the Secretary for State for Defence to redevelop residential units for service personnel and their families. The defendant employed the claimant company as the primary sub-contractor. The sub-contract was a cost-plus arrangement with comparable “pain/gain” provisions which were intended to incentivise the claimant to minimise costs incurred delivering the work. It contained detailed terms relating to the final sum payable to the claimant but, in general terms, incentive arrangements were made based on the financial outcome under the prime contract whereby the claimant was to receive an agreed share of any cost saving under the prime contract and to pay an agreed share of any costs overrun.The works were substantially completed in December 2012 and the defendant was negotiating a settlement in respect of the prime actual costs incurred in providing the works and adjustments to target/maximum costs. A dispute arose between the claimant and the defendant concerning their various financial entitlements. In November 2012, the claimant’s solicitor had sent a letter pursuant to the pre-action protocol relating to proposed proceedings for declaratory relief. The claimant sought pre-action disclosure of a substantial amount of documentation from the defendant.Clause 29.1 of the sub-contract stated that, in the event of a “dispute” as defined in the dispute procedure at schedule 5 arising, or a matter being referable to the disputes review board (DRB) in accordance with the specific conditions of the contract, the parties had agreed to follow the dispute procedure set out in the schedule 5 which in reality involved four dispute resolution processes (negotiation, DRB involvement and recommendations, mediation (if agreed to by both parties) and arbitration.A preliminary issue arose whether there was an arbitration clause in the underlying agreement between the parties, in which case the court had no power to order pre-arbitration disclosure.Held: The application was dismissed. (1) The court had no jurisdiction to make an order under CPR 31.16 for pre-action disclosure where the dispute between the parties would be decided in arbitration. It was therefore necessary to analyse what the sub-contract said about dispute resolution in the context of section 6(1) of the Arbitration Act 1996 which defined “arbitration agreement” as meaning “an agreement to submit to arbitration present or future disputes (whether they are contractual or not)”: Travelers Insurance Company Ltd v Countrywide Surveyors Ltd [2010] EWHC 2455 (TCC); [2010] PLSCS 257 applied.(2) There was no evidence before the court as to why no DRB had been appointed and the parties could still appoint appropriate members of the DRB if they so wished. If one party refused to appoint, it would be in breach of the dispute procedure and specific performance could be sought requiring it to do so. Although it might be argued that the refusal of that party was such that the contractual dispute resolution machinery had broken down enabling the parties to proceed to court, there had been no suggestion that that stage had yet been reached. Although it would be unusual, there was no reason in principle or policy to prevent DRBs also acting as arbitrators in relation to the same project. It could be advantageous in that members of the DRB might well have acquired a good working and practical knowledge of the project and all the disputed problems which had arisen as it proceeded.(3) The court attached importance to the opening words prefacing the dispute procedure which required the parties to use best endeavours to resolve any dispute in accordance with one of the dispute resolution procedures set out therein. Any argument that because there was no DRB in place the dispute procedure could not be operated was unjustified. There was machinery still available for the DRB to be appointed and appropriate steps could be taken to secure the appointment if either party dragged its feet. There had been no suggestion that the parties had mutually abandoned the dispute procedure or that some waiver or estoppel operated to enable either party to by-pass that procedure and proceed in court. The dispute procedure expressly provided that a dispute should be finally settled by arbitration administered by the DRB. That was relatively mandatory language and told the parties that, if negotiations, DRB recommendations and mediation failed, the final and binding dispute resolution method was arbitration. The court was in no doubt that that was what the parties had agreed.(4) If the DRB refused or failed within a reasonable time or at all to decide that the matter should go to arbitration, thus potentially denying or at least delaying final dispute resolution and consequently justice as between the parties, section 16(1) of the Arbitration Act 1996 gave the parties a very wide freedom in connection with the appointment of arbitrators and provided a default procedure if they had not agreed on the appointment of arbitrators. The fact that the agreement to refer disputes to arbitration depended upon the exercise of an option did not prevent it from being an arbitration agreement. Similarly, the fact that a dispute resolution clause required parties to go through various other dispute resolution approaches before arbitration was initiated could still be an arbitration agreement within the 1996 Act. It followed that, on the evidence, the parties had agreed to refer the disputes to arbitration with the DRB to be the arbitrators and the court had no power to order pre-action disclosure.Nerys Jefford QC (instructed by TLT LLP) appeared for the claimant; Steven Walker QC (instructed by Pinsent Masons LLP) appeared for the defendant.Eileen O’Grady, barrister
