Fire damage – Insurance policy – Arbitration clause – Whether clause appointing independent appraisers constituting arbitration clause within Arbitration Act 1996 – Whether claimant entitled to stay of damages claim under section 9 – Whether claimant entitled to stay in exercise of court’s inherent jurisdiction – Application granted in part
The claimant was the freehold owner of a Grade II listed property with a swimming pool enclosed in a pool house. The pool house was destroyed by fire in July 2009. It was not disputed that the claimant was entitled to maintain a claim under an insurance policy with the defendant insurer in respect of the losses caused by the fire. However, an issue arose whether it had been necessary to demolish the whole of the structure and rebuild it. The defendant suggested that part of the substructure could have been retained and reused. The amount involved in that issue was about £200,000. The claim under the policy was in excess of £2m.
The defendant asserted that it had admitted liability under the policy, but the policy contained an arbitration clause (clause 2) which applied to any dispute about the amount to be paid under the policy and that the parties had elected to have the dispute resolved in accordance with the clause. In those circumstances, the defendant submitted that it was entitled to have the proceedings stayed as of right under section 9 of the Arbitration Act 1996. Alternatively, if the court was not persuaded that the clause was a valid arbitration clause, the claimant asked for a stay of the proceedings pursuant to the inherent jurisdiction of the court under section 49 of the Senior Courts Act 1981 so that the parties could continue to resolve their dispute by the process they had chosen.
The claimant resisted the application on the grounds that: (i) clause 2 was not an arbitration clause within the 1996 Act so that the claimant was not entitled to a stay under section 9: the process envisaged by the clause was one of expert determination, not arbitration; (ii) the dispute was not limited to the amount of the loss and so the clause did not apply; (iii) it would be inappropriate to stay the proceedings under the court’s inherent jurisdiction since it was more convenient to have all the matters resolved by the court; and (iv) in any event, the dispute resolution machinery under the clause had broken down or was inoperable and so the procedure was no longer available.
Held: The application was granted in part.
Clause 2 did not cease to be an arbitration clause simply because it provided that a decision in writing agreed by two independent appraisers would be binding on the parties. That meant no more than that if the appraisers were agreed as to the amount of the loss, there was no dispute to put before an arbitrator. There was nothing objectionable in the parties being able to withdraw their dispute from the arbitral process at any time. In general, it was open to parties to resolve their dispute by agreement and terminate the process.
The real difficulty lay in the fact that clause 2 provided that what would be binding was “a decision in writing agreed to by the two appraisers or either appraiser and the arbitrator”. Section 33 of the 1996 Act expressly provided that an arbitrator had to act fairly and impartially. Section 1 provided that the object of arbitration was to obtain the fair resolution of disputes by an impartial tribunal. Implicit in that was that it was the arbitrator alone who was to make the decision and not the arbitrator in conjunction with someone else. The process envisaged by clause 2 appeared to contemplate that the arbitrator, having considered the representations made by the two independent appraisers, would reach his or her own conclusions and notify the two appraisers of his conclusions or set them out in a draft decision. If either of the two appraisers was prepared agree, all well and good. However, it had to be at least possible that neither appraiser was prepared to agree to the provisional conclusions as they stood and that one or both of them might then indicate to the arbitrator that, if the provisional conclusions were modified, he or she could then agree to them.
If the arbitrator could not make a decision without having to secure or negotiate the agreement to it by another person, it could not be regarded as the decision of the arbitrator alone. A sole arbitrator had to be able and competent to make his own independent decision on all matters put before him.
By the time the appraisers had identified any differences between them to be submitted to the arbitrator, they would have already reached their own conclusions on the value of the claim and so could not turn round and purport to be independent arbitrators. A necessary attribute of an arbitration agreement was that there should be an agreement to refer disputes to a person other than the court who was to resolve the dispute in a manner binding on the parties to the agreement. In all the circumstances, clause 2 was not an arbitration clause within the meaning of the 1996 Act and the application for a stay under section 9 failed: David Wilson Homes Ltd v Survey Services Ltd [2001] BLR 267 considered.
However, the court had a wide discretion whether or not to grant a stay in circumstances such as the present and the claimant had not begun to show that the machinery of the arbitration clause had broken down or was incapable of being operated. The parties had entered into the arbitration clause process without protest and had invested considerable sums in that process. The fairest and most appropriate course would be for the process to continue. The court was far from satisfied that there would be a speedier resolution of the dispute if it was continued by way of litigation in the court rather than by the process under the arbitration clause. Therefore the court would grant a stay of the proceedings under its inherent jurisdiction: Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334 considered.
Peter Fraser QC (instructed by Russell-Cooke LLP) appeared for the claimant; Adam Constable QC (instructed by Kennedys) appeared for the defendant.
Eileen O’Grady, barrister
