This article considers what changes might occur for UK arbitration post-Brexit. Arbitration is excluded from EU law, and the New York Convention remains unaffected. Some believe arbitration might increase due to uncertainties in enforcing court judgments in Europe post-Brexit.

This article considers what the arbitration landscape will look like when (or perhaps if) the UK leaves the EU, and concludes that big changes are unlikely.

Irrespective of the type of Brexit that the Government chooses, many commentators believe that there will be little change to arbitration in the UK in a post-Brexit world. Arbitration is, after all, one of the areas that is not directly governed by EU law. Arbitration is excluded from EU law by Regulation (EU) 1215/2012. Matters such as the composition, creation, and authority of an arbitral tribunal as well as the arbitral proceedings and challenges to the award are not governed by EU law and so will not be affected by any form of Brexit.

The July 2018 Thomson Reuters report on the impact of Brexit on dispute resolution clauses indicated that many people thought that arbitration might increase at the expense of litigation following Brexit. This was because of a feeling of uncertainty in enforcing a court judgment in Europe post-Brexit and the view that the New York Convention 1958 would not be affected by Brexit. All Member States of the EU are signatories to the New York Convention.

Oral and non-commercial arbitration agreements

It is correct that the New York Convention 1958 will not be affected by any form of Brexit. However, not all arbitration awards can be enforced internationally by using the New York Convention. There are six[1] EU member states which have ratified the New York Convention with the ‘commercial’ reservation. In cases where a party needed to enforce a non-commercial arbitration in one of these states it would first need to have the award registered as a judgment at the seat of the arbitration and then enforced as a judgment. Non-commercial disputes would include employment, media, sports, and family arbitrations. Similarly, an arbitration agreement must be in writing if recognition and enforcement under the New York Convention is to be obtained.[2] If the arbitration agreement is not in writing, then any subsequent award cannot be enforced under the New York Convention. However, an award made under an oral arbitration agreement, or a non-commercial award may be recognized as a judgment and enforced by the courts.

The UK Government proposes repealing most of the Brussels Regime in the event of a no-deal Brexit.[3] The Government’s draft regulations would make the Brussels Regime redundant (except during the transition period) and:

‘jurisdiction and the recognition and enforcement of judgments will be determined by a combination of the existing common law and statute which currently applies to cases to which the Brussels regime does not apply’.[4]

It may therefore be more difficult in a post-Brexit world to enforce awards that are non-commercial, or where the arbitration agreement is not in writing in EU Member States if these need to be enforced as judgments of the court.

Further, there will be instances where a party to an arbitration will need the assistance of the courts in the arbitration procedure. There are two areas where a no-deal Brexit will have an effect of the court’s powers to assist the arbitration procedure.

Anti-suit injunctions

The first instance relates to anti-suit injunctions. In West Tankers,[5] the Court of Justice of the EU held that an anti-suit injunction issued by an English court to prevent court proceedings progressing where there was an arbitration clause was contrary to EC Regulation 44/2001. At the time, the UK Government sought to have the decision overturned by a change to the Brussels I Regulation, but this was rejected. If a no-deal Brexit occurs the Court of Justice of the EU will no longer have direct jurisdiction in the UK. In such a case the English courts could issue anti-suit injunctions where proceedings are started in any EU Member State in breach of an arbitration agreement. There will be no reason why the UK courts would treat EU Member States differently to how they treat the courts of any other non-EU jurisdiction. As stated in C v D:[6]

‘Time and again the English courts have granted an injunction to restrain a … breach of an arbitration agreement where the rights of the parties are clear.’

This statement was recently approved in Atlas Power Ltd & Ors v National Transmission and Despatch Co Ltd[7], where the High Court granted an anti-suit injunction to restrain a defendant from challenging (in the Pakistan courts) a partial final LCIA award issued in a London arbitration.

Worldwide freezing orders

The second instance relates to worldwide freezing orders. The power of the courts in England and Wales to issue freezing orders in support of arbitration proceedings is given in s.44(2)(e) of the Arbitration Act 1996. Here the courts may, in certain circumstances, issue an interim injunction in support of the arbitral proceedings. The elements required for a court to issue a freezing order include: (1) a good arguable case; (2) whether the order will be effective over the respondent’s assets; (3) whether there is a real risk of dissipation of assets; (4) whether the granting of the injunction is just and reasonable.[8] The applicant will also need to show that the Arbitral Tribunal is unable to act effectively. The main problem with worldwide freezing orders is that, to be effective, often they require the support of the courts where the assets are located.

The current position of EU courts is to enforce worldwide freezing orders. The issue was considered in Meroni v Recoletos Ltd[9]. The European Court found that it was not contrary to public policy to allow the worldwide freezing order to be enforced. It found that the court in which registration of the worldwide freezing order was sought could not review any findings of fact or law, and could not refuse to recognise or enforce a judgment from another EU state unless that would constitute “a manifest breach of a rule of law recognised as essential in the legal order of the Member State in which enforcement is sought…”

Once Brexit occurs the obligation for one Member State to enforce judgments or orders in another Member State on this basis may no longer apply. Therefore, unless the UK and the EU enter into a further agreement for the recognition and enforcement of judgments, there may be a risk that the effectiveness of worldwide freezing orders will be reduced when they are directed towards an EU Member State.

Comment

There will be very few changes to arbitration law in the UK resulting from any form of Brexit. However, where the UK courts are required to assist in supporting the arbitration proceedings then some changes may occur. This will be more pronounced where a no-deal Brexit occurs. Some of these changes may give the courts more power, as they will not be subject to EU law; however, it is also possible that the effectiveness of some court orders may be reduced because the UK is no longer part of the EU.

Please get in touch at joanne.clarke@howardkennedy.com or victoria.tyson@howardkennedy.com with your thoughts or to discuss any concerns.

[1] These countries are Cyprus, Denmark, Romania, Slovenia, Hungary, and Poland.

[2] New York Convention 1958, Art. IV.I(b).

[3] See the draft Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019 issued on 12 December 2018.

[4] See [7.2] of the Explanatory Memorandum to the draft Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019.

[5] Allianz SpA v West Tankers Case C-185/07.

[6] [2007] 2 Lloyd’s Rep 367.

[7] [2018] EWHC 1052.

[8] Belair v Bassel LLC [2009] EWHC 725, Dadourian Group International Inc v Simms (No 1) [2006] 1 WLR 2499 and Mobil Cerro Negro Ltd v PDVSA [2008] 1 CLC 542.

[9] Case C-559/14.

FIDIC is arguably the most widely used standard form of international construction contract but reported FIDIC cases are rare. Is it time for an increased publication of FIDIC cases? There are three categories of decisions arising out of FIDIC dispute resolution provisions: 1. Decisions of the Engineer or the Dispute Adjudication Board (DAB), which will generally not be published or reported to anyone other than the parties involved in the dispute. 2. Decisions of arbitral tribunals, which are not usually made public although this is subject to certain exceptions. 3. Decisions of national courts, which are a relatively rare occurrence for the reasons discussed below.

FIDIC is arguably the most widely used standard form of international construction contract but reported FIDIC cases are rare.  Is it time for an increased publication of FIDIC cases?

There are three categories of decisions arising out of FIDIC dispute resolution provisions:

1. Decisions of the Engineer or the Dispute Adjudication Board (DAB), which will generally not be published or reported to anyone other than the parties involved in the dispute.
2. Decisions of arbitral tribunals, which are not usually made public although this is subject to certain exceptions.
3. Decisions of national courts, which are a relatively rare occurrence for the reasons discussed below.

FIDIC-related arbitral cases 

Although there are some publicly available FIDIC-related decisions, FIDIC itself does not maintain a public library of them.  The International Chamber of Commerce (“ICC”) is perhaps the most prolific publisher of FIDIC cases, which is not that surprising given that most FIDIC disputes will be finally settled by ICC arbitration. Over the years, extracts, anonymous summaries and translations of various ICC decisions and awards dealing with FIDIC contracts have been published by the ICC and in legal journals.  The extracts published by the ICC are always confidential.  There is no published guidance from the ICC about how or why it decides to publish extracts in certain cases and not others.  Instead, it seems that the ICC considers the extracts that it publishes to be informative examples.  The extracts cover different substantive areas including construction as well as procedural topics including interim measures, jurisdiction and multi-tiered dispute resolution.  In 2015, the ICC published extracts from a further 17 decisions or awards issued by ICC arbitral tribunals relating to the multi-tiered dispute resolution provisions in FIDIC contracts and, in particular the DAB process, with commentary from Christopher Seppälä, in its inaugural “Dispute Resolution Bulletin”.  Awards dating from as recently as 2014 were included.  This is a marked shift away from the ICC’s previous position not to publish awards until three years after the case has been closed.

Although the ICC has for many years published extracts from FIDIC-related arbitral awards, Christopher Sepp lä applauded this most recent publication describing it as “an event of considerable importance, for two main reasons.  First, DABs have become the preferred method for resolving international construction disputes under such contracts (rather than having them settled by the Engineer or international arbitration).  Second, the awards are relatively recent – they were all issued between 2008 and 2014 – and all but two relate to the latest suite of FIDIC construction contracts for major works published in 1999 [the Red and Yellow 1999 Books].”[1]

The extracts from FIDIC cases published by the ICC are important for a number of reasons:

• Generally, they show the sorts of disputes being addressed by ICC arbitral tribunals, and the questions they are deciding, be they procedural, substantive, legal or factual.
• The extracts can give guidance to parties facing similar issues, showing the reasoning of previous arbitral tribunals, what issues of fact, contract, law or procedure were considered, and how the arbitral tribunal decided particular questions.
• The extracts reveal the arguments raised by the parties to the dispute which may be a source of inspiration for other parties.
• The extracts may inform the decisions of future arbitral tribunals deciding similar questions. Arbitral tribunals may find reassurance or inspiration in the reasoning of previous arbitral tribunals faced with similar questions.  However, they will not be bound by these previous decisions.

The extent to which the ICC’s extracts contribute to a body of FIDIC case law is necessarily limited, however, because:

• They are only extracts. It has been pointed out that “[w]hen extracts, digests or summaries are published, there is usually no way to ascertain their accuracy.  If they have been translated into another language as well, this may only enhance the risk of error.”[2]
• They are anonymous. Parties seeking guidance from them do not always know the governing or procedural law and therefore the extent to which, if at all, the legal framework of the decided dispute is similar to their own.  They do not always know all the procedural or factual issues, some of which may have been key to the decision-making process.  They do not know the identity of the arbitral tribunal or its experience and legal background which may have influenced each individual arbitrator’s position or thinking on certain issues.
• In sum, it is not always possible to get a feel for the “correctness” of the award.

National court decisions 

Very few FIDIC cases are considered by national courts.  This is because FIDIC contracts usually contain an arbitration clause and the majority of arbitral awards are complied with voluntarily.  National courts hear such cases in limited circumstances, such as if one party wants to remove an arbitrator or set aside or enforce an award.  The paucity of decisions by national courts on FIDIC contracts means that, when a national court does decide a FIDIC related issue, there is great interest.  This has been seen recently with, for example, the decisions of the Singapore High Court and Court of Appeal in the “Persero” cases relating to the enforcement of DAB decisions[3] and in Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar relating to issues arising under the FIDIC 1999 Yellow Book (the Howard Kennedy International Construction team (formerly Corbett & Co.) acted for the Government of Gibraltar).[4]  This interest does not, however, necessarily equate to a requirement that arbitral tribunals or even other national courts follow the decisions.

Howard Kennedy International Construction team research into published FIDIC cases

Research by our International Construction team has identified approximately 130 reported or published court decisions and published extracts of decisions or awards by arbitral tribunals concerning or mentioning FIDIC contract disputes in the period 1974 to 2015.  In addition to these cases, there are other arbitral awards relating to FIDIC contracts that are referred to, anonymously, in textbooks and articles in legal journals and elsewhere.  Of the approximately 130 decisions we have identified, 61 are ICC arbitral awards or decisions (we have not found any published non-ICC arbitral decisions or awards) and 66 are court decisions.  The majority of the court decisions come from England and Wales.  Others come from India, South Africa, Trinidad and Tobago, Singapore and Australia as well as several other jurisdictions.[5]  We are publishing its list with this newsletter.

It is safe to assume that there are many unreported FIDIC-related arbitral awards in existence.  By way of example, we have been involved in a significant number of international arbitrations relating to FIDIC contracts which resulted in decisions or awards that have not been published and remain confidential.  Almost all of these were ICC arbitrations.  The ICC deals with many construction and engineering arbitrations each year (in 2014, 21% of the ICC Court’s total case load came from construction and engineering disputes[6]).  A fair percentage of these are likely to relate to FIDIC contracts.

The pros and cons of publishing more FIDIC-related arbitral awards 

So, should more FIDIC-related arbitral awards be published and, if so, how?  We want your views.

The benefits of having a body of published, accessible, full arbitral awards (not extracts, not anonymous) dealing with FIDIC-related disputes would include:

• Transparency in the final settlement of FIDIC related disputes.
• The development of a body of case law relating to FIDIC contracts, even if arbitral awards in commercial arbitration do not constitute binding precedent, and even if some awards are better reasoned than others.
• Such case law would assist with the development of consistent rules for recurring issues. In turn, this would assist with predictability in the administration of FIDIC contracts and the equal treatment of parties to those contracts.
• The better understanding by FIDIC users of the arbitral process.
• The assessment by FIDIC users of potential arbitrators through access to their published awards.
• The improvement of the quality of awards because of increased exposure and competition.

On the other hand:

• As noted by English judges in respect of the impact on the common law system of a huge volume of unreported cases deriving from the growing number of computerised databases: “… there is no pre-selection. Large numbers of decisions, good and bad, reserved and unreserved, can be accessed.  Lawyers frequently feel that they have an obligation to search this material.  Anything which supports their client’s case must be drawn to the attention of the court …”.[7] In other words, without any selection, there may be a torrent of published cases, and the usefulness of previous decisions might be neutralised as lawyers would eventually find support in previous decisions for any argument they care to run!
• Full publication would come at the price of confidentiality which, according to recent surveys,[8] remains important to many users.
• How could an increased publication of FIDIC-related decisions come about? Suggestions include amending national arbitration laws, amending the rules of arbitral institutions, amending FIDIC contracts to permit publication of arbitral awards and encouraging parties to FIDIC contracts and arbitration to agree to publication of awards.
• Who would publish the complete awards? If it was FIDIC, parties would have to send them to FIDIC for publication.  If it was the arbitral institutions, they may have to amend their rules.  If it was an independent body, for example a FIDIC users committee, it would have to rely on parties sending awards for publication.

Conclusion

• National court decisions relating to FIDIC projects will continue to appear sporadically and may give guidance but will not necessarily be binding on other courts or arbitral tribunals.

• The routine publication of complete, un-redacted arbitral awards on FIDIC disputes is unlikely. This is because parties would have to forgo confidentiality which, on the basis of recent surveys, they are unwilling to do.

• It is unclear who would be in charge of this publication exercise and how, practically, it would come about.

• Although such publication would be welcome for the sake of transparency, it may simply leave parties and arbitral tribunals swamped with a large volume of contradictory arguments and decisions.

• Publication by the ICC of anonymous extracts of FIDIC-related arbitral awards is valuable because the ICC has sifted and analysed the awards and the extracts comprise the only constant source of information on FIDIC awards. However, the extracts can do no more than what has already been described by the ICC, which is to inform, enlighten and contribute to greater transparency in the dispute resolution process.

[1] See the “ICC Dispute Resolution Bulletin 2015 No 1” available from the ICC Dispute Resolution Library at www.iccdrl.com.  See also the FIDIC commentary on this development at http://fidic.org/node/8818.

[2] Christopher Seppälä “The development of a case law in construction disputes relating to FIDIC contracts”, ICLR [2009] 105.

[3] The series of cases involving PT Perusahaan Gas Negara (Persero) TBK and CRW Joint Operation.

[4] Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC) and [2015] EWCA Civ 712 (Court of Appeal).

[5] Including Northern Ireland, Tanzania, the Falkland Islands, Jamaica, Papua New Guinea, New Zealand, Botswana, the Philippines, Malaysia, Nairobi and Switzerland.

[6] Source: “2014 ICC Disputes Resolution Statistics” available at http://www.iccdrl.com.

[7] Per Laddie J in Michaels v Taylor Woodrow [2001] Ch 493 and quoted by Lord Carnworth of Notting Hill JSC in his address for the NMLR Annual Lecture Series in 2012 “Judicial Precedent – Taming the Common Law”.

[8] Such as the 2010 and 2015 International Arbitration Surveys by White & Case LLP and Queen Mary, University of London.

As disputes under the FIDIC forms of contract are normally resolved in private Dispute Adjudication Board (“DAB”) proceedings or confidential arbitration proceedings, reported FIDIC cases are rare and often of considerable precdential value either formally or informally. In this article, originally published in The International Construction Law Review, Victoria Tyson considers one such recent decision which was transferred from the Gibraltar courts.

As disputes under the FIDIC forms of contract are normally resolved in private Dispute Adjudication Board (“DAB”) proceedings or confidential arbitration proceedings, reported FIDIC cases are rare and often of considerable precedential value either formally or informally. This article considers one such recent decision which was transferred from the Gibraltar courts specified in the  particular conditions of the contract (in lieu of arbitration) to the more specialised Technology and Construction Court of England and Wales by the agreement of the parties during the pre-action protocol process.

The case was Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar1 and concerned a dispute arising out of a £30 million contract for design and construction work to the  Gibraltar Airport (“the contract”). The contract incorporated the FIDIC Conditions of Contract for Plant and Design Build for Electrical and Mechanical Plant, and for Building and Engineering  Works, designed by the Contractor, 1st Edition 1999, commonly known as the Yellow Book.

Under the current arrangements, the road to the Spanish border (the Winston Churchill Avenue) traverses the airport runway so that the road must be closed when the runway is in use. In an  attempt to relieve the congestion caused by the frequent closure of this road, the works included the construction of a new dual carriageway road and a twin bore tunnel under the eastern end of the  airport runway, known as the Frontier Access Road.

The contract was entered into in November 2008 and works commenced in December 2008. After over two-and-a-half years of work on the two- year project, when little more than 25% of the work  had been done, the contract was terminated. The large Spanish civil engineering company 1 Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC);  [2014] BLR 484 Obrascon Huarte Lain (“OHL”) was the contractor. It commenced proceedings against the employer, the Government of Gibraltar 2 . Although Gibraltar is famous for its rock and  despite the airport site’s historic military use, the contractor argued inter alia that it had encountered more rock and contaminated material in the ground excavated on the site than would have been  reasonably foreseeable by an experienced contractor at the time of tender. The contractor also argued that as a result of a report it had commissioned, which concluded that airborne contamination  on the site posed a serious risk to the health of those working in the tunnel, it was necessary to suspend the tunnel excavation works and re-design the tunnel. There followed very little activity by the  contractor between 20 December 2010 (the date of the report) and 28 July 2011 (the date of the employer’s notice of termination). During this period of inactivity the contractor suggested a new  budget of some £98 million (over three times the original contract price) would be needed to complete the works.

The court disagreed with the contractor’s arguments and found, inter alia, that the contractor had failed to proceed with the design and execution of the works with due expedition and without delay.  It awarded the contractor just one day extension of time from the 660 days originally claimed (reduced to 474 days in the amended particulars of claim submitted during the trial itself). The  court was especially critical of the report heavily relied upon by the contractor to support its suspension of the works and redesign of the tunnel, which it described as “palpably and obviously inept,  was clearly worked on by OHL and cannot have been considered by OHL to be independent or competent”.

The main issue revolved around the termination of the contract. The court found that the contractor was responsible both in law and fact for the termination and that the employer had lawfully  terminated the contract. In determining responsibility for the termination of the contract, the court considered the following matters which are discussed in this article:

1. Was the engineer entitled to issue notice to correct on 16 May 2011
   and/or 5 July 2011 under clause 15.1?
2. Was the employer entitled to terminate the contract under clause

15.2? In particular:
(a) Did the contractor fail to comply with the notice to correct pursuant to clause 15.2(a)? 2 The Howard Kennedy International Construction team (formerly Corbett & Co.) acted on behalf of the Government of Gibraltar in this case. 3 Paragraph 332.© Informa UK  plc 2014 a commercially sensible construction and one to be encouraged; the construction industry would not benefit from trivial contractual failures giving rise to notices to correct, which if not  complied with, would in turn lead to contractual termination. Mr Justice Akenhead supported his view with reference to various authorities 4 . He emphasised that what is trivial and what is  significant or serious, will depend on the facts and gave the example that one day’s culpable delay on a 730-day contract or 1m² of defective paintwork out of 10,000m² good paintwork would not, if  reasonable and sensible commercial persons had anything to do with it, justify termination even if the contractor did not comply with the clause 15.1 notice. Nonetheless, despite this very well- reasoned guidance, it cannot be ignored that on its face the express wording “any obligation” in clause 15.1 is very broad indeed. It perhaps remains open to argument in other forums and  jurisdictions that a failure to carry out any obligation need not be an important or material obligation. There is also no express time limitation, so in theory it might be possible for the notice to  correct to deal with a failure which occurred months or years earlier and which then had, and still has, no significant impact on the contractor’s operation (provided that it can still be remedied).  Hopefully, the next edition of the FIDIC Yellow Book will resolve any ambiguity.

Mr Justice Akenhead’s second point was that the specified time for compliance within the clause 15.1 notice must be reasonable in all the circumstances prevailing at the time of the notice. He gave  the example that if 90% of the workforce had gone down with cholera at that time, the period given for compliance would need reasonably to take that into account, even if that problem was the  contractor’s risk. He said that it may well be relevant to take into account whether the clause 15.1 notice is coming out of the blue or if the subject-matter has been raised before and the contractor has  chosen to ignore what it has been told. He emphasised that what is reasonable is fact sensitive 5 .

His third point was that clause 15.1 is designed to give the contractor an opportunity and a right to correct its previous and identified contractual failure.

His final point was that given the potentially serious consequence of non-compliance, clause 15.1 notices need to be construed strictly but may be construed against the surrounding facts 6 . 4 Lord  Diplock in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201D; [1984] 2 Lloyd’s Rep 235; [1984] 3 WLR 592; [1984] 3 All ER 229, Hudson’s Building and Engineering  Contracts , 12th Edition, paragraph 8.056, Lord Steyn in Mannai Investment Co Ltd v Eagle Star Assurance Company Ltd (HL) [1997] UKHL 19; [1997] AC 749; [1997] 2 WLR 945; [1997] 3 All ER  352. 5 See, for example, Shawton Engineering Ltd v DGP International Ltd (t/a Design Group Partnership) (CA) [2005] EWCA Civ 1359 at paragraph 69. 6 Mannai Investment Co Ltd v Eagle Star  Assurance Company Ltd [1997] UKHL 19 per Lord Steyn.

WAS THE EMPLOYER ENTITLED TO TERMINATE THE CONTRACT UNDER CLAUSE 15.2?

The court then reviewed clause 15.2 the contract, which states:
“15.2. The Employer shall be entitled to terminate the Contract if the Contractor:

(a) fails to comply … with a notice under sub-clause 15.1 …
(b) … plainly demonstrates the intention not to continue performance of his obligations under the Contract,
(c) without reasonable excuse fails:
(i) to proceed with the Works in accordance with clause 8 … or;
(ii) to comply with a notice issued under sub-clause 7.5 …

In any of these events or circumstances, the Employer may, upon giving 14 days’ notice to the Contractor, terminate the Contract and expel the Contractor from Site.”

The employer served a notice of termination on 28 July 2011 on the grounds set out in clauses 15.2(a), (b) and (c).

Clause 15.2(a)

The court was asked to decide whether, as at 28 July 2011, the employer was entitled to serve a notice of termination under clause 15.2(a) of the contract by reason of the contractor’s failure to  remedy the defaults notified in notices to correct issued by the engineer on 16 May 2011 and/or 5 July 2011. Mr Justice Akenhead found that the employer was so entitled to serve a notice of  termination on 28 July 2011 on the basis that the contractor had failed to comply with the clause 15.1 notices to correct. He was clear that the contractor’s right to re-design the tunnel did not  outweigh its obligation to get on with the works 7 .

Clause 15.2(b)

In respect of clause 15.2(b) the court was asked to decide whether, as at 28 July 2011, the employer was entitled to serve a notice of termination pursuant to clause 15.2(b) of the contract because the  contractor had demonstrated an intention not to continue with the performance of its obligations under the contract. Mr Justice Akenhead found that the employer was entitled to serve a notice of  termination pursuant to clause 15.2(b) of the contract because the contractor had plainly demonstrated an intention not to continue with the performance of its obligations under the contract. He  drew a verbal and contractual distinction between an intention to continue performance and an intention to continue performance of the contractual obligations. He said that a clear avowed  intention to perform, but not by reference to important contractual terms, could demonstrate such an intention. The demonstration can be judged by reference not only to the words used but also to  the actions. On the other hand, a simple disagreement between parties about what the contract meant, or disagreement about whether the contractor had some claim entitlement, would in itself not  demonstrate such an intention 8 .

The court was also asked to decide whether any entitlement which the contractor might have had, as at 28 July 2011, to an extension of time for the completion of the works, would mean that the  employer was no longer entitled to serve a notice of termination pursuant to clause 15.2(b) of the contract. Mr Justice Akenhead found that as the contractor was entitled to only one day’s extension  of time as at 28 July 2011, such limited entitlement did not mean that the employer was no longer entitled to serve a notice of termination pursuant to clause 15.2(b) of the contract.

Clause 15.2(c)

In respect of clause 15.2(c) the court was asked to decide whether, as at 28 July 2011, the employer was entitled to serve a notice of termination pursuant to clause 15.2(c)(i) of the contract. Mr  Justice Akenhead found that the employer was entitled to serve a notice of termination pursuant to clause 15.2(c)(i) of the contract because the contractor had failed to proceed with the works with  due expedition and without delay and had therefore failed to proceed in accordance with clause 8.1, such as to give the employer an entitlement to terminate the works, and the contractor had no  “reasonable excuse” for such failure. He was critical of the contractor who had “consciously and with its eyes open wrongly and wrongfully suspended the work … and within a few weeks had  embarked on a wholly unnecessary re-design of the tunnel” 9 .

He further stated that the fact that liquidated damages (in this case Delay Damages) are permitted for the failure by the contractor to complete on time, does not qualify the right to terminate under  clause 15.2 for failure to proceed with due expedition and without delay. The parties must be taken to have known that these were both remedies, albeit on its proper construction minor or  insignificant breaches of the progress obligations would not justify termination under clause 15 10 .

Finally, in respect of both clauses 15.2(b) and (c), Mr Justice Akenhead gave two basic points of principle which are useful for general application 11 .
8 Paragraph 360.
9 Paragraph 357.
10 Paragraph 325.
11 Paragraph 356

Firstly, he said the test must be an objective one in relation to the grounds in both sub-paragraphs. So, if the contractor privately intended to stop work permanently but continued openly and  assiduously to work hard at the site, this would not of itself give rise to a plain “demonstration” of intention not to continue performance. Similarly, the fact that the contractor was, and had for many  months been, doing no work of any relevance without contractual excuse could, without more, objectively judged, give rise to a conclusion that it had failed to proceed in accordance with  clause 8 for the purpose of clause 15.2(c)(i).

Secondly, he again emphasised that the grounds for termination must relate to significant and more than minor defaults on the part of the contractor on the grounds that it cannot mutually have  been intended that a (relatively) draconian clause, such as a termination provision, should be capable of being exercised for insignificant or insubstantial defaults.

Therefore, he said a few days’ delay in the context of a two-year contract would not justify termination under clause 15.2(c)(i) and an unwillingness, or even refusal, to perform relatively minor  obligations would not justify termination under clause 15.2(b).

In summary, he found that the contract was lawfully terminated by the employer on 20 August 2011 pursuant to clause 15.2 of the contract.

MUST THE BREACH OF CONTRACT WHICH IS  RELIED UPON TO TERMINATE THE CONTRACT BE ANALOGOUS TO A REPUDIATORY BREACH OF CONTRACT?

The wording in clause 63.1 of the old FIDIC Red Book 1987 expressly permitted the employer to terminate the employment of the contractor where the engineer certified to the employer, with a copy  to the contractor, that in its opinion the contractor had “repudiated the Contract” but this wording was deleted from the FIDIC 1999 editions.

Nonetheless, the contractor argued (with reference to various authorities) that, where “a contract contains a provision such as clause 15.2 which entitles an employer to terminate by reason of a  failure to remedy a breach of contract which has been the subject of a clause 15.1 notice (or to terminate by reason of a breach of contract such as one of those of the type identified in clause 15.2(b)  and (c)) the breach of contract that is relied upon must be serious and one which is analogous to a repudiatory breach of contract” 12 . Mr Justice Akenhead disagreed with the contractor’s argument.  He stated that any suggestion that the breach of contract relied upon is analogous to a repudiatory breach of contract goes too far (at least as a general proposition) for a number of  reasons.

12 Paragraph 322.

Firstly, he said it is necessary to consider each contract, whether it is a lease, leasehold development, construction or other commercial contract, on its own terms. For example, if the termination  clause allows for termination “for any breach of contract no matter how minor”, the meaning is clear and does not require some repudiatory breach.

Secondly, most of the authorities referred to did not involve contracts like the contract in this case. The contract lists grounds on which termination can take place including clause 15.2(b) (where the  contractor “plainly demonstrates the intention not to continue performance of his obligations under the Contract”) which is not unlike the test for English common law repudiation. This ground can  be, and is, contractually distinguished from the other grounds, such as clause 15.2(c)(i) (failure “to proceed with the Works in accordance with clause 8”, that is in effect often a failure to proceed with  “due expedition and without delay”). He queried why the contract would have both the “intention not to continue performance of [contractual] obligations” as well as failure to proceed with due expedition and without delay unless they are, or can be, two separate grounds.

Thirdly, the cases relied upon by the contractor in its submissions had a relatively simple right to terminate (for a, or any, breach). In this contract under clause 15.2(a) (failure “to comply … with a  notice under sub-clause 15.1”) there was a warning mechanism whereby termination could be avoided by the contractor’s compliance with the clause 15.1 notice. In that sense, the contractor is given  the chance to avoid termination whilst the simple termination for any breach can come out of the blue. Commercial parties would sensibly understand that this contractual chance is a warning as  well to the contractor and the remedy is in its hands in that sense.

Finally, Mr Justice Akenhead accepted that the editors of Hudson’s Building and Engineering Contracts13 have properly set out the correct proposition that determination clauses such as this one  will generally be construed as permitting termination for significant or substantial breaches as opposed to trivial, insignificant or insubstantial ones. He stated that this accords with commercial common sense.

WILL TERMINATION OCCUR IF THE CONTRACTOR HAS BEEN PREVENTED OR HINDERED FROM REMEDYING THE FAILURE FOR WHICH THE NOTICE TO CORRECT
IS GIVEN UNDER CLAUSE 15.1?

Although there was no suggestion that the employer had hindered or prevented the contractor, Mr Justice Akenhead was clear that termination could not legally occur if the contractor has been  prevented or hindered 13 Hudson’s Building and Engineering Contracts , 12th Edition, paragraph 8.056 from remedying the failure for which the notice is given under clause 15.1 14 .

He stated that clauses 15.1 and 15.2(c) must, as a matter of common sense, pre-suppose that the contractor is given the opportunity by the employer actually to remedy the failure of which it is given  notice under clause 15.1. In that context, termination could not legally occur if the contractor has been prevented or hindered from remedying the failure within the specified reasonable time. This  stems from a necessarily implied term under English law that the employer shall not prevent or hinder the contractor from performing its contractual obligations; there is also almost invariably an  implied term of mutual co-operation. Therefore, if the engineer has served a clause 15.1 notice to remedy a breach of contract, and the employer hinders or prevents the contractor from remedying  the breach, the employer may not rely on the contractor’s failure in order to terminate the contract. This is because the employer should not be entitled to rely on its own breach to benefit by  terminating 15 . He gave the example of an employer who, following the service of a clause 15.1 notice, denies site access to the contractor to enable it to put right the notified failure.

WAS THE NOTICE OF TERMINATION DATED 28 JULY 2011 A VALID AND EFFECTIVE NOTICE PURSUANT TO CLAUSE 15.2 BECAUSE IT WAS NOT SERVED AT THE ADDRESS FOR  SERVICE OF THE CONTRACTOR AS STATED IN THE APPENDIX TO TENDER?

Clause 3.1 stated how communications were to be made:
“Wherever these Conditions provide for the giving or issuing of approvals, certificates, consents, determinations, notices and requests, these communications shall be:
(a) …
(b) Delivered, sent or transmitted to the address for the recipient’s communications as stated in the Appendix to Tender. However:
(i) If the recipient gives notice of another address, communications shall thereafter be delivered accordingly; and …”
The clause 15.2 notice of termination dated 28 July 2011 was sent by the employer to the contractor’s site office rather than to the contractor’s Madrid office, which was the address specified in the Appendix to Tender.
The contractor argued that it was therefore invalid and ineffective, and on 3 August 2011 wrote stating that this amounted to a repudiatory breach of the contract and purported to accept such  repudiation. 14 Paragraph 324.
15 See for example, Alghussein Establishment v Eton College [1988] 1 WLR 587

The court was asked to decide whether the notice of termination dated 28 July 2011 was a valid and effective notice pursuant to clause 15.2 of the contract because it had not been sent to the address  for service of the contractor as stated in the Appendix to Tender. It concluded that the employer’s notice of termination dated 28 July 2011 was a valid and effective notice pursuant to clause 15.2 of  the contract.

Although the Madrid office was given in the Appendix to Tender, Mr Justice Akenhead noted that throughout the project, correspondence (including the clause 15.1 notices to correct) had been sent  to the contractor’s site office without any objection. The project was being run by the contractor from the site office with this office handling the vast bulk of the correspondence, including letters,  emails, and technical documentation such as method statements etc. The project manager, with very substantial authority, was based there. He found that in these circumstances, in effect and in  practice the parties operated as if the site office was an appropriate address at which service of notices could be effected.

Relying on various authorities, 16 Mr Justice Akenhead drew the following conclusions when finding that service of the 28 July 2011 termination notice to the wrong address was not fatal.

His first conclusion was that termination of the parties’ relationship under the terms of such contracts is a serious step. There needs to be compliance with the contractual provisions to achieve an  effective contractual termination.

Secondly, as a general rule, where notice has to be given to effect termination, it needs to be in sufficiently clear terms to communicate to the recipient clearly the decision to exercise the contractual  right to terminate.

Thirdly, it is a matter of contractual interpretation, (i) as to the requirements for the notice, and (ii) whether each and every specific requirement is an indispensable condition without compliance  with which the termination cannot be effective. He said that this interpretation needs to be tempered by reference to commercial common sense.

Fourthly, in the contract in this case, neither clause 1.3 nor clause 15.2 used words such as would give rise to any condition precedent or making the giving of notice served only at the contractor’s  Madrid office a pre-condition to an effective termination. He said that the key elements of the notice procedure involve securing that the contractor is actually served with a written notice and  receives the notice and, it being clear and unambiguous, that the notice is one being served under 16 Bremer HandelsGesellschaft MBH v Vanden (HL) [1978] 2 Lloyd’s Rep 109, Worldpro Software  Ltd v Desi Ltd [1997–98] TLR 279, Rennie v Westbury Homes (Holdings) Ltd (CA) [2007] EWCA Civ 1401, PHRJ Newbold and Others v The Coal Authority (CA) [2013] EWCA Civ 584; [2014] 1  WLR 1288 clause 15.2, namely that 14 days’ notice of termination is being given by the employer to the contractor, such as to enable it to expel the contractor from the site.

Fifthly, he said the primary purpose of clause 1.3 is to provide an arrangement whereby notices, certificates and other communications are effectively dispatched to, and received by, the contractor.  The primary purpose of a clause 15.2 termination notice is to ensure that the contractor is made aware that its continued employment on the project is to be at an end.

His final conclusion was that the service of a clause 15.2 notice at the contractor’s Madrid office as such was not an indispensable requirement either of clause 15.2 or clause 1.3. Provided that service  of a written clause 15.2 notice was actually effected on the contractor’s affiliates at a sufficiently senior level, then that would be suffi cient service to be effective. Mr Justice Akenhead stated that  these conclusions applied both in relation to termination clauses in commercial and thus engineering and building contracts in general and specifically in relation to the contract in this case.

DID THE SERVICE OF THE TERMINATION NOTICE TO THE “WRONG” ADDRESS AMOUNT TO A REPUDIATION?

The contractor sought to argue that the service of the notice of termination dated 28 July 2011 to the wrong address was ineffective and thus amounted to a repudiation of the contract by the  employer which it elected to accept on 3 August 2011, such that the contract was terminated on that date. Although Mr Justice Akenhead concluded that it was not necessary for him to decide this  issue, 17 he stated that his findings would have been that the service of an otherwise valid and actually well-founded termination notice at the technically wrong address could not in law and on the  facts of this case, amount to repudiation (with reference to various authorities 18 ).

Therefore, the contractor was not entitled to treat what was otherwise a legally and factually proper clause 15.2 termination notice as a repudiation (as it purported to do). Consequently, he found  that the contractor itself repudiated the contract by the terms of its letter dated 3 August 2011 by wrongfully treating the contract as at an end, even though it was not accepted as such by the  employer.
17 Paragraph 375.
18 Freeth v Burr (1874) LR 9 CP 208; [1874–80] All ER 751, Ross T Smyth & Co Ltd v T D Bailey, Son & Co
(HL) (1940) 67 Ll L Rep 147; [1940] 3 All ER 60; [1940] 56 TLR 825 and Eminence Property Developments
Ltd v Heaney [2011] 2 All ER 223

Published in International Arbitration Law Review This article is divided into four parts: Part 1 introduces the dispute resolution mechanism adopted by FIDIC in the 1999 Conditions of Contract and explains the gap that exists in the Conditions if a

Published in International Arbitration Law Review

This article is divided into four parts:

Part 1 introduces the dispute resolution mechanism adopted by FIDIC in the 1999 Conditions of Contract and explains the gap that exists in the Conditions if a winning party in DAB proceedings wishes to enforce a binding but not final DAB decision: the contract does not expressly provide a mechanism to enforce a binding DAB decision.

Part 2 gives consideration to how different arbitral tribunals and courts have approached this gap. In addition to the published awards and decisions of Singapore that have been the subject of much debate, key reasoning of five unreported awards that the author’s firm has dealt with have been reproduced.

Part 3 discusses:

• whether a winning party should bring one set of proceedings encompassing both the underlying merits and the application for enforcement of the binding DAB decision by way of an interim or partial award or whether to refer to arbitration as the sole issue of the enforcement of the DAB’s decision (and hence apply for a final award); and
• whether a winning party should pursue, as its basis for enforcement, damages for breach of contract or specific performance. Three discrete obstacles are identified in relation to the former and the difficulties associated with pursuing the latter are also exposed.

Part 4 considers the wording adopted by FIDIC in the 2008 Gold Book and 2011 Subcontract forms and discusses the recommendations of the Beau Rivage Working Group.

Part 1: The dispute resolution mechanism in the contract

Fédération Internationale des Ingénieurs–Conseils (‘FIDIC’) was founded in 1913 and in August 1957, FIDIC published its first standard form contract—Conditions of Contract (International) for Works of Civil Engineering. That contract, which became known as the Red Book, was revised in July 1969 (2nd Edn), March 1977 (3rd Edn), September 1987 with an amendment in 1992 (4th Edn) and a supplement in November 1996 introducing the concept of a Dispute Adjudication Board (DAB). The Red Book was for use in civil engineering works. Another contract for electro-mechanical works (the Yellow Book) was introduced in 1963, revised in 1980 (2nd Edn) and 1987 (3rd Edn). Up until the 3^rd Edn of the Yellow Book and 4^th Edn of the Red Book, the forms were classified by different engineering disciplines. In 1995, FIDIC brought out its first design and build form: Conditions of Contract for Design Build and Turnkey (the Orange Book).

The 1999 FIDIC Suite

• The Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (the new Red Book).[1]
• The Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant and for Building and Engineering Works, Designed by the Contractor (the new Yellow Book).[2]
• The Conditions of Contract for EPC Turnkey Projects (the Silver Book).[3]
• The Short Form of Contract (the Green Book).[4]

The 1999 forms have been classified in accordance with the allocation of design and existence of engineer. The Conditions of Contract for Design Build and Operate Projects (the Gold Book) was published in 2008 and addressed a number of issues that had been identified by users of the 1999 forms. It is understood that the second edition of the 1999 forms will be published at some point in 2013. References to clauses in this paper are references to FIDIC 1999 Red Book unless otherwise stated.

Clause 20 of the FIDIC 1999 Red Book forms sets out the multi-tier dispute resolution mechanism adopted under the contract to deal with claims, disputes, and arbitration:

• Sub-Clause 20.1 [Contractor’s Claims]:
  • defines the notification process that a contractor must follow if it wishes to progress a claim;
  • explains the draconian “barring” consequences if the notification period is not observed; and
  • sets out the obligations of the engineer in responding in the first instance to that claim, first approving and disapproving, and then in a formal Sub-Clause 3.5 determination if agreement cannot be reached.[5]
• Sub-Clauses 20.2–20.3 are the provisions dealing with the appointment of the Dispute Adjudication Board.
• Sub-Clause 20.4:
  • provides the mechanism by which the parties can refer a dispute of any kind whatsoever to the DAB;
  • defines the time-scales in which the DAB must make a reasoned decision; and
  • sets out the means for the parties to give notice if they are dissatisfied with the DAB’s decision (or failure to give a decision) and explains the effect of the DAB’s decision depending on whether a notice of dissatisfaction has been issued:
    • If no notice of dissatisfaction is given by the Parties, then the DAB’s decision becomes “final and binding”.
    • If one or both of the parties gives a notice of dissatisfaction, the DAB’s decision is “binding”.
    • In both cases, the parties must give prompt effect to the DAB’s decision.
  • Sub-Clause 20.5 explains the 56 day mandatory period set down for the purposes of achieving amicable settlement.
  • Sub-Clauses 20.6–20.8 provide the three routes permissible under the contract for a dispute to be referred to arbitration as follows:

1. The first route is contained in Sub-Clause 20.6[6] and arises if the contractor has referred a dispute to the DAB,[7] the DAB has given a reasoned, timely decision (or failed to give a decision), either or both Parties is/are dissatisfied with the DAB’s decision (or failure to make a decision) and either or both Parties issue/s a notice of dissatisfaction (NOD) within 28 days of receipt of the decision and the 56 day period for amicable settlement discussions[8] to take place (20.5) has expired. At that point, the dispute can be referred to an arbitral tribunal.
2. The second route to arbitration is contained in Sub-Clause 20.7 and arises if neither of the parties gives a valid notice of dissatisfaction in relation to the DAB’s decision (i.e. within 28 days of receipt of the DAB’s decision or if applicable within 28 days of the expiry of the 84 day period in the event that a DAB fails to make a decision). In this case, the DAB’s decision becomes “final and binding”.[9] Sub-Clause 20.7 can then be utilised to enforce the DAB’s final and binding decision in arbitration without a requirement of the arbitrator considering the merits of the dispute.
3. The third route to arbitration, provided for in Sub-Clause 20.8, allows the arbitral tribunal to be seized in circumstances in which for any reason, the DAB is not in place. In such circumstances, if there is a dispute between the parties, the dispute can be referred directly to the arbitral tribunal and the parties will not need to go through the processes in Sub-Clause 20.4 [Obtaining DAB’s Decision] or 20.5 [Amicable Settlement].

The gap in the general conditions relating to enforcement of “binding” DAB decisions

As set out above, Route 2 makes express provision via a referral to arbitration for the enforcement (specific performance) of DAB Decisions which are final and binding.

No express provision is made in Clause 20 or elsewhere in the 1999 forms:

• permitting the enforcement of binding DAB Decisions, i.e. DAB decisions where a notice of dissatisfaction has been given by a party; and
• specifying the consequences that flow from breach of the fourth paragraph of Sub-Clause 20.4 FIDIC 1999 Red Book[10] which provides that:

“The [DAB’s] decision shall be binding on both Parties, who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award”.

Parties wishing to enforce a binding DAB decision cannot rely on Routes 2 or 3. The former only applies to the enforcement of final and binding decisions. The latter cannot apply as a DAB is necessarily in place if it has just given a decision.[11] That leaves Route 1 as the only possible route to enforce a binding DAB decision under the contract.

Professor Nael Bunni identifies this as a gap in the contract conditions[12] and suggests that:

• there is no remedy offered by cl.20 of the 1999 FIDIC Red Book, other than that of treating the non-compliant party as being in breach of contract and, accordingly, liable for damages; and
• Sub-Clause 20.7 of the 1999 FIDIC Red Book is of no assistance to the aggrieved party in this scenario as it applies only to DAB decisions which have become final and binding.

Mr Seppälä acknowledges the gap (as identified by Professor Bunni) but opines:[13]

“some arbitral tribunals and courts have inferred from Sub-Clause 20.7 of the FIDIC Red Book’s expressly providing for the enforcement of arbitration of final and binding decisions of a [DAB] that ‘binding’ decisions of a DAB … should not be enforced by arbitration. This article … submits that this was not FIDIC’s intention.”

Mr Seppälä concludes after reciting the history of Sub-Clause 20.7 that:

“Nothing was intended to be implied about merely a ‘binding’ decision as it was obvious, or so it was thought at the time — that such a decision, together with the dispute underlying it, could be referred to arbitration … it was unnecessary to deal with binding decisions, as it was clear — or so it was thought — that, as these had been the subject of a notice of dissatisfaction, these could, by definition, be referred to arbitration under Sub-Clause 20.6.”

In the author’s view, the wording in Sub-Clause 20.6 (Route 1) of the contract does not make it “obvious” that both:

• the binding DAB decision (for enforcement purposes); and
• the dispute underlying it

can be referred to arbitration.

Mr Seppälä,[14] in his latest article, questions whether, as a practical matter, a dispute over the enforcement of a DAB decision is distinguishable from one over the merits of the decision.

The author submits that there is a clear distinction. The former, if permissible, results in an award for sums adjudged as due by the DAB. The latter results in a fresh determination of the matters referred to the DAB by the arbitral tribunal and a final and binding award on the dispute in question that supersedes the DAB’s decision and puts an end to the dispute.[15]

The author considers that the natural reading of Route 1 is that it was envisaged that just the latter would be referred to arbitration. It is clear (at least to this author) that the arbitral tribunal is empowered to embark upon a de novo consideration of the merits of the dispute and to then give a final award on the dispute.

The author considers that it is arguable that the former could also be referred to arbitration via Route 1 but it is certainly not obvious—particularly, as no express mechanism was built into the contract to cater for the situation where a party might want that binding DAB decision to be enforced by the arbitral tribunal akin to Sub-Clause 20.7.

In the author’s view, a party wishing to enforce a binding DAB decision, has to exercise some considerable ingenuity. In Part 3, the author considers what the contractor needs to do to get a binding DAB decision enforced.

Does the intention behind Sub-Clause 20.7 assist in filling the gap?

The author suggests that whilst the intention behind Sub-Clause 20.7 is very interesting it does not aid the interpretation of how to fill the gap in the contract as drafted. The author understands from Mr Seppälä’s article[16] that the intention behind including Sub-Clause 20.7 in the General Conditions was to ensure that there was a mechanism by which a losing party to a DAB’s decision which is final and binding who fails to comply with that decision can refer the failure itself to arbitration, as Sub-Clause 20.6 expressly prohibits this.

The intention behind Sub-Clause 20.7, therefore, was to empower the arbitral tribunal to grant specific performance or enforce a final and binding DAB decision without the need to consider the underlying merits of the dispute giving rise to the award.

In Professor Bunni’s article[17] he poses the following questions:

“What would the situation be if the non-compliant party submitted in defence a challenge to the reasoning contained in the DAB decision? Indeed what would the situation be if the non-compliant party submitted a counterclaim relating to the merits of the dispute? will the arbitral tribunal decline jurisdiction, as these submissions ought properly to be made pursuant to arbitration under Sub-Clause 20.6 and not 20.7?”

The author has always considered that the final paragraph of Sub-Clause 20.4[18] made it clear that if the decision has become final and binding on both parties, an arbitrator will not be empowered to open up such a decision and so should dismiss:

• any defence challenging the reasoning; and/or
• any counterclaim stemming from the decision that has become final.[19]

It is unfortunate that the wording of Sub-Clause 20.7 expressly refers back to arbitration under Sub-Clause 20.6 (which expressly states in its opening words, only applies to decisions that have not become final and binding). Professor Bunni[20] proposes a solution to this problem with his proposal of adding “subject to Sub-Clause 20.7” in the first sentence of Sub-Clause 20.6.[21]

Part 2: Case law and articles addressing the enforcement of binding dab decisions

Parties who have taken a dispute to the DAB and have obtained a decision that awards them a sum of money have considered that, as a result of the wording in the fourth paragraph of Sub-Clause 20.4 (that provides that the decision is binding, and that prompt effect should be given to the decision unless and until it shall be revised in an amicable settlement or an arbitral award), they should be paid immediately the sum adjudged as due by the DAB. This view is taken despite the fact that there is no express mechanism provided in the contract to enforce that “binding” DAB decision—the gap in the General Conditions.

This part considers the cases and awards that have considered the various attempts made by the DAB winning party to enforce the binding DAB decision in arbitration.

The author is aware of three reported decisions concerning this issue:

• ICC Case 10619 which concerns the enforceability of an engineer’s decision under the FIDIC 4th Edn contract.
• Judge Ean’s decision in the High Court of Singapore in the Persero[22]
• The Singapore Court of Appeal’s decision judgment dismissing the appeal in the Persero case[23], dated 13 July 2011.

The DBF newsletter of September 2010 reported a case without publishing the award itself. This can be referred to as the DBF case.

Howard Kennedy’s International Construction Team (formerly acting as Corbett & Co) have acted as counsel in relation to five unreported decisions in relation to ICC arbitrations concerning this subject:

• ICC Case 11813/DK, interim award dated 1 December 2002.
• ICC Case 16119/GZ, partial award dated 29 November 2009.
• ICC Case 16948/GZ, final award dated 3 March 2011.
• ICC Case 16949/GZ, procedural order dated 23 March 2011.
• ICC Case 15751/JHN, partial award dated 20 May 2011.

A summary of the outcome of all of the above cases is set out below.

Four arbitral tribunals enforced the binding DAB decision:

• The arbitral tribunal in ICC Case 10619,[24] considered the enforceability of an engineer’s decision under the 4th Edn of the Red Book (the 1987 Red Book with 1992 amendments). The arbitral tribunal stated that the decision should be enforced as it was simply the law of the contract. Mr Seppälä then wrote an article[25] putting forward the suggestion that this reasoning was equally applicable to a binding DAB decision under the 1999 Red Book.
• This reasoning appears to have been followed in the first case under the 1999 Red Book concerning a binding DAB decision: the DBF In this case, the contractor sought a partial final award, and the merits of the arbitration were before the arbitrator to be determined in the final award. The contractor failed to refer to the DAB the failure to pay prior to its referral to arbitration. The author suggests that for the reasons given below, this case was wrongly decided. First, as the dispute was not referred first to the DAB prior to referral to arbitration and secondly as a partial final award is an inappropriate device for enforcement.[26]
• A sole arbitrator in ICC Case 16948/GZ,[27] said a final award was acceptable to enforce a binding DAB decision. The author suggests that for the reasons given below, this case was wrongly decided as a final award is not an appropriate device for enforcement. This was also the view of the Singapore Court of Appeal in Persero.
• A sole arbitrator in ICC Case 15751/JHN[28] made a partial final award to the effect that a party should be required to pay that sum decided by the DAB and interest from the date when payment was due by way of damages for breach. The arbitrator was referred to the High Court of Singapore’s decision in Persero.[29] The merits were before the arbitral tribunal in this case and the contractor had referred the failure to pay to the DAB prior to its application for a partial final award. The author suggests that for the reasons given below, this case was wrongly decided as a partial final award is not an appropriate device for enforcement.

Three arbitral tribunals and the courts in Singapore declined to enforce the binding DAB decision:

• In ICC Case 11813/DK, the arbitral tribunal declined to make an interim award on the basis that the contract provides no basis for an arbitral tribunal to make an award enforcing a binding DAB decision.[30]
• The Persero case:

The High Court of Singapore set aside an arbitral award in which the arbitral tribunal issued a final award enforcing a DAB’s decision. The merits of the case were not referred to the arbitral tribunal.[31] The High Court set aside the award on the basis that failure to pay (the second dispute) did not go to the DAB prior to arbitration. Other obiter comments were also made by Judge Ean in relation to whether the arbitral tribunal could enforce without a consideration of the merits of the case.[32]

The Singapore Court of Appeal[33] upheld the High Court’s decision but on different grounds. The Court of Appeal held that a final award without a hearing on the merits was “unprecedented” and “unwarranted” but that as long as the merits are placed before the arbitral tribunal, in principle, an interim or partial award enforcing a binding DAB’s decision should be possible.[34]

• A sole arbitrator in ICC Case 16119/GZ[35] suggests that a partial final award (and the author suggests that it follows that also a final award) are inappropriate devices to allow enforcement but suggests, obiter, that an interim award might be effective. This reasoning is consistent with the ratio of the decision of the Court of Appeal in the Persero case but inconsistent with its obiter comments which suggested that a partial award (as opposed to an interim award) is a permissible device. See the discussion below on whether an arbitral tribunal should issue a partial or final award concerning a binding DAB decision.
• The sole arbitrator in ICC Case 16949/GZ[36] concluded that damages could not include the sum adjudged as due by the DAB and so declined to enforce. In this case, the contractor opted to seek a final award (i.e. the merits were not for determination by the arbitral tribunal).

Part 3: In light of the case law, what should a party wishing to enforce a binding DAB decision do?

After a party has referred its dispute to the DAB under Sub-Clause 20.4 and the DAB has given its timely reasoned decision, if either party issues a notice of dissatisfaction concerning the DAB’s decision, that decision will be binding[37] (not final and binding) and the winning party can then refer that dispute (“the underlying merits”) to arbitration. In addition, if the losing party before the DAB fails to pay, the winning party might wish to seek to “enforce” the DAB’s binding decision.

Issue 1: At this point, the winning party must choose whether to bring one set of arbitration proceedings encompassing both the underlying merits and the application for enforcement of the DAB’s binding decision by way of an interim or partial award, or whether to refer to arbitration as the sole issue the enforcement of the DAB’s decision and hence apply for a final award.

Issue 2: The winning party will also need to ensure that there is a valid juridical basis on which to pursue its remedy, whether it be damages for breach of contract and/or an action for specific performance (enforcement).

Issue 1: What proceedings should be brought?

The key to answering this question lies in an understanding that an award is final (with the exception of an interim award), and a DAB decision amounts to interim relief. As set out below, the better view is that a final award should not be issued for interim relief. The terminology of different awards must first be examined.

Terminology

The Final Report on Interim and Partial Awards of the working party on dissenting opinions and interim and partial awards of the ICC Commission on International Arbitration, chaired by Martin Hunter in 1990[38], used the following terminology for the purposes of its report:

“For the purposes of this Report only, an ‘interlocutory decision’ is one which, not necessarily in the form of an award, is made prior to the last or sole award; an ‘interim award’ is a general term used to describe any award made prior to the last award in a case; a ‘partial award’[39] is a binding determination, in the form of an award, on one or more (but not all) of the substantive issues”.

This report concluded (and the author agrees) that it is impossible to find a terminology acceptable to everyone in different countries concerning the divergent uses of the terms “interim”, “partial” and “interlocutory”.

Fouchard, Gaillard, and Goldman explain that a “final Award” is used to mean very different things, but the better interpretation is that:

“ … an award is a decision putting an end to all or part of the dispute, it is therefore final with regard to the aspect or aspects of the dispute that it resolves.”[40]

The word “interim” is sometimes used interchangeably with “partial” to describe a final award.[41] The words “interlocutory” and “provisional” are often used to mean the same thing. Sometimes the word “interim” is used to mean “interlocutory” or “provisional”.[42]

Whatever the language adopted, in principle, it is suggested that there is a distinction between:

• an award which finally disposes of a matter and is enforceable (a final award or a partial final award); and
• a decision that does not finally dispose of a matter and is not enforceable (an interim award).

Purists might argue that all awards are, by definition, final and so interim or provisional awards should never be described as awards as such.

Can a final award be given for relief which is not final?

Many commentators, and the Supreme Court of Australia, consider that an arbitral tribunal should not give a final award for relief which is not final as such an award is likely to be unenforceable. The only commentator that dissents from this view is Gary Born, after a consideration of authorities from the United States.

According to Lew, Mistelis and Kroll, the prevailing position in relation to the enforcement of interim awards dealing with interim relief is dealt with by the Resort Condominiums[43] case where the court held that an interim award is not enforceable under the New York Convention or Australian law.

The Resort Condominiums case states:

“whilst it is true that a valid interlocutory order is in one sense ‘binding’ on the parties to the arbitration agreement … an interlocutory order which may be rescinded, suspended, varied or reopened by the tribunal which pronounced it is not ‘final and binding’ on the parties.”

This view is supported by:

• Craig Park and Paulsson;[44]
• Gaillard and di Pietro;[45]
• Kronke et al, who describe the Resort Condominiums case as the leading case on this topic;[46] and
• Dr Peter Binder.[47]

Gary Born states:

“historically, some (older) authorities held that only ‘final’ arbitral awards could be enforced, and that ‘provisional’ measures were by definition not ‘final’ …. There was (and remains) a substantial body of commentary also concluding that provisional measures are not recognizable or enforceable as ‘final’ arbitral ‘awards’ under either the New York Convention or national arbitration legislation.”[48]

He then goes on to cite American authorities and concludes[49] that the “better view is that provisional measures should be and are enforceable as arbitral awards”.

Accordingly, if the majority of commentators’ views are to be adopted, any award related to interim relief is unlikely to be enforceable under the New York Convention.

Is a binding DAB decision interim relief? The fourth paragraph of Sub-Clause 20.4 provides that the DAB’s decision shall be binding “unless and until it shall be revised in an amicable settlement or arbitral award”. If one or both of the parties issue a notice of dissatisfaction, the dispute can be referred on to amicable settlement and then arbitration.

As the DAB decision (after a notice of dissatisfaction has been issued) can be referred on to arbitration, the DAB’s decision amounts to interim relief pending a final award on the same dispute in arbitration (assuming the matter does not settle in the amicable settlement period).

What form of award should a party seek/what should the arbitral tribunal issue?

If it is accepted that a binding DAB decision amounts to interim relief, then the better view is that an arbitral tribunal should not issue a final award for relief which is not final. Accordingly, it would be inappropriate for a winning party:

• To refer as the sole issue to the arbitral tribunal the losing party’s failure to pay, i.e. to seek a final award concerning the DAB decision only.
• To refer the underlying merits to arbitration and then seek a partial award as a partial award is a final award.

By process of elimination, the author considers that the most appropriate manner in which to enforce a binding DAB decision is to refer the underlying merits and then seek an interim award.

Interim award

As the DAB’s decision amounts to interim relief, it would be appropriate for the winning party to make an application for provisional payment. Such an application ought to take the form of an application for an interim and conservatory measure under Art.23 ICC Rules.[50] The law of the forum will spell out the circumstances or criteria which must exist before the court can grant interim or conservatory measures, e.g. prima facie establishment of a case, urgency and irreparable harm, or serious or actual damage, if the measure requested is not granted (see, e.g. s.44 of the English Arbitration Act 1996). Some still cite the traditional grounds of “periculum in mora” (danger in delay) and “fumus boni iuris” (presumption of sufficient legal basis).[51]

It is submitted that, in the typical case concerning a binding DAB decision, it will be difficult to persuade the arbitral tribunal that the necessary circumstances or criteria set out in the preceding paragraph will be fulfilled to justify an arbitral tribunal issuing interim or conservatory relief. Ordinarily, it is suggested that there will be no urgency or real risk of irreparable harm or serious or actual harm if the contractor is not paid the sums ordered by the DAB, pending a final determination of these matters by the arbitral tribunal, as interest is an adequate remedy. Furthermore, even if an interim order or award were to be made, it would not be enforceable under the New York Convention.[52]

Final award inappropriate

The author suggests that in principle, it would be inappropriate for a party to seek either a final award[53] or a partial final award in relation to the enforcement of a DAB decision as:

• This would amount to giving a final award in relation to interim relief—such an award is not likely to be an enforceable award (see above).
• A partial final award would have the effect of rendering final and binding (a partial final award is a final and binding award) a decision that was always only intended to have binding-only status.
• A partial (final) award concerning sums owed at DAB level has the effect of finally resolving payment of sums owed at DAB level when such sums will be revisited in arbitration—resolving an issue which is yet to be resolved.
• The final entitlement of a party to money can only be finally resolved in arbitration by the arbitral tribunal in its final award.

These were essentially the winning arguments run by the author as counsel in ICC Case 16119/GZ.

The contrary view advanced by Frederic Gillion[54] is that the contractor should seek a partial final award, as such an award would:

“simply be one giving full immediate effect to the winning party’s right to have a DAB decision complied with promptly in accordance with Sub-Clause 20.4 or to damages in respect of the losing party’s breach of Sub-Clause 20.4. That award will be final in that it will dispose of the issue of the losing party’s failure to give prompt effect to the DAB decision, which is a substantive claim distinct from the underlying dispute covered by the DAB decision”.[55]

The author considers that this contrary view is fallacious, as a partial final award pertaining to the sums ordered as due by the DAB does not solely represent a final resolution of the issue that there has been a non-payment. Such an award goes further and finds that the sums fall due in an enforceable final award. The contractor’s entitlement to those sums has not been finally resolved and so should not be the subject of a final award.

If this contrary view is correct, the contractor would be granted a final enforceable award for sums that can and indeed are likely to be revised in arbitration: the relief sought by the contractor, properly analysed, is not final relief.

Following the reasoning in the Resort Condominiums case, regardless of the label put on the award,[56] the substance of the award is that non-final relief is being sought: the payment of sums declared to be due by a DAB whose decision can be overturned in arbitration. Such an award, whatever it is called, will be treated by most courts as unenforceable.[57]

The absurdity of enabling such an award to be enforceable is evident by virtue of the fact that there would ultimately be two potentially conflicting enforceable awards when the final award is given:

• the sums determined as due by the DAB reflected in the partial award (or final award if the contractor takes the DAB enforcement issue as the sole issue to an arbitral tribunal as in the Singapore case) enforcing the DAB’s decision; and then
• the sums finally awarded as due by the arbitrator in its final award (or in a separate arbitral award commenced in relation to the merits if such a route is chosen).

It has been suggested that the final award could reverse the finding in the partial final award. However, if that is the case, it follows that the partial final award can never have been a final award. It must have been an interim/provisional order/award since a final award can never be revised. This would not, of course, be the case if the first award was interim and so could be superseded in the final award.[58]

Mr Seppälä in the context of his criticism of the Singapore Court of Appeal’s judgment sees no difficulty in the concept of a final award in relation to the enforcement of a binding DAB decision. He states that:

“While recognising that a binding but non-final decision of a DAB may be enforced by an interim or partial award, the CA appears to have difficulty accepting that such decision may be enforced by a final award even though the Majority Members had expressly reserved PGN’s right, in the award, to commence an arbitration to open up, review and revise the award. The CA’s difficulty is hard to understand. The final award merely declared that the DAB decision was binding on PGN and, thus, to be given immediate effect by it until such time (if any) as it was opened up, reviewed and revised in arbitration. It clarified the parties’ rights in the interim pending a final decision by arbitration. This was the effect of the final award.”[59]

In the author’s view, it would be perfectly permissible for an arbitral tribunal to make a mere declaration that the DAB decision was binding and that the non-paying party must give immediate effect to it.[60] What an arbitral tribunal should not do is to go further and give a final award in relation to interim relief resulting in an award which is unlikely to be unenforceable. The sole arbitrator in ICC Case 16119/GZ made a declaration to the effect that the DAB decision was binding but did not go further and make an order for payment for precisely this reason. The central reason for this was that:

“[I]t goes against the whole essence of a final award to make an order that could be revisited or reversed in a further award”.

Accordingly, the author considers that a partial (final) award should not be made in relation to a binding DAB decision—only an interim order/award should be made.

How should an arbitrator determine whether to grant an interim or partial award?

The ICC Report[61] gives guidance on how arbitrators should approach interim awards as follows:

“In general, the Working Party was of the opinion that in ICC arbitrations the presumption should be in favour of a single final award which decides all of the claims and issues to be determined; and that except when the parties have indicated a joint wish to the contrary, the arbitrator should examine the justification for issuing an interim or partial award in a critical manner and should not do so unless there are circumstances which weigh clearly in favour of taking this course. These circumstances should be set out in the interim or partial award itself.”

Issue 2: Damages for breach of contract or specific performance

There appear to be two juridical bases that a winning party might wish to pursue when seeking to obtain from an arbitral tribunal payment of the monies adjudged as due by a DAB:

• damages for breach of contract: the employer’s failure to pay amounts to a breach of the fourth paragraph of Sub-Clause 20.4, i.e. a failure on the employer’s part to promptly give effect to the binding DAB’s decision,[62] and that such breach can be referred to arbitration via Route 1 (Sub-Clause 20.6); or alternatively
• specific performance: the winning party could argue that the arbitral tribunal ought to exercise a power of specific performance. The latter route has not been explored fully in the case law above.

Damages

If the winning party is seeking damages, it will have to surmount three obstacles in order for the binding DAB decision to become the subject of an award:

• the dispute must be referred to the DAB first;
• the principal sum adjudged as due by the DAB must constitute damages for breach of contract;
• the arbitral tribunal must be able to make a summary decision (i.e. not consider the merits).

Obstacle 1: DAB first

The winning party will need to refer the dispute to the DAB first (and to wait for the expiry of the 56 days amicable settlement period provided in Sub-Clause 20.5) before the arbitral tribunal can be properly seized of the dispute. This is due to the wording in the first sentence of Sub-Clause 20.6. The author suggests that a failure to do so will result in the arbitral tribunal lacking jurisdiction to consider the dispute. This was the correct conclusion reached by the High Court in the Persero case.[63]

Obstacle 2: Loss argument

An arbitral tribunal will have to conclude that damages for breach of the fourth paragraph of Sub-Clause 20.4 include the principal sum[64] adjudged as due by the DAB. Two sole arbitrators in unreported cases reach this conclusion. Frederic Gillion also supports this view.[65]

The author suggests that at least under English law,[66] the opposing and more compelling argument is that the loss that flows from the breach of contract would be limited to a claim for interest and/or costs and not the sum contained within the DAB decision itself.

Obstacle 3: Summary relief

The author considers that the wording in Sub-Clause 20.6 does not require a consideration of the merits. The author considers that Sub-Clause 20.6 contains a power to open up, review and revise but no obligation on the arbitral tribunal to do so.[67] While Sub-Clause 20.6 does not expressly state that summary enforcement is possible, it also does not exclude the possibility. If an arbitral tribunal does need to consider the merits in order to enforce, the author suggests that there can be no efficient means for the arbitral tribunal to consider those merits somehow separately to the underlying dispute. The arbitral tribunal may as well finally determine the matter rendering any enforcement application redundant.[68]

Specific performance

A winning party wishing to enforce the DAB’s decision may attempt to invite the tribunal to exercise its power of specific performance—assuming it can convince the arbitral tribunal that it has such a power.

As this option does not rely on the wording of the contract obstacles 1–3 relating to damages (which do stem from the wording of the contract) do not present themselves. Accordingly, if seeking specific performance, the winning party will not need to refer the matter to the DAB first, will not have any issues concerning losses arising from breach of contract and will not be restricted by the wording of Sub-Clause 20.6 (if it exists at all) concerning the necessity to consider the merits first.

Does the arbitral tribunal have the power to order specific performance?

As the contract does not expressly provide the power to grant specific performance (Sub-Clause 20.7 which is a power to grant specific performance of a final and binding DAB decision does not cover binding decisions), an arbitral tribunal would have to be satisfied that either the ICC Rules or the applicable law expressly or impliedly conferred it.

It might be argued (although the author has his doubts as to this argument) that the ICC Rules give the arbitral tribunal an inherent power to grant specific performance. Under the 1988 ICC Rules there was no express authority to make awards or issue orders for interim measures, but Craig Park and Paulson nevertheless opined in the 2^nd Edn of its seminal work on ICC arbitration that ICC arbitrators did indeed have the inherent power to make interlocutory orders. However, an examination of the 1988 Rules might have led many to conclude that such an inherent power was difficult to reconcile with those Rules.

There are ICSID cases which suggest that an arbitral tribunal has an inherent power to grant specific performance.[69] There is also authority for the proposition that even if there is no express power to award specific performance the courts will nevertheless have such a power.[70]

An express power to grant specific performance might be found in the applicable law. In England, for example, s.48 of the Arbitration Act 1996 does provide a power to the arbitral tribunal to order specific performance of a contract. It is arguable, however, that this section was conceived with the final award in mind (as opposed to a provisional order).[71]

How should an arbitral tribunal exercise its power?

It is well known that in common law systems, specific performance is deemed to be an equitable form of relief and as such an exceptional remedy, available only in situations where damages do not provide an adequate remedy[72] but that in civil law jurisdictions, specific performance is not a discretionary extraordinary remedy but the general rule.[73]

Redfern and Hunter state that:

“the question of whether an arbitral tribunal is empowered to order specific performance is thus rarely an issue in international arbitration. However, the question whether it is an appropriate remedy, and whether it can effectively be granted in the circumstances of the particular case, may prove less straightforward.”[74]

How this power could be exercised in the context of Sub-Clause 20.4 has not been expressly explored in the cases concerning this issue discussed above.[75]

If an arbitral tribunal considers that it has the power of specific performance, it will have to determine how to exercise that power. At least in common law jurisdictions, whether or not it is appropriate will involve the exercise of the arbitral tribunal’s discretion.

Part 4: Bridging the gap

The FIDIC Gold Book[76]

Under the Gold Book conditions, the Sub-Clause dealing with the enforcement of DAB decisions is dealt with in Sub-Clause 20.9:

“20.9 Failure to comply with the Dispute Adjudication Board’s Decision. In the event that a Party fails to comply with any decision of the DAB, whether binding or final and binding, then the other Party may, without prejudice to any other rights it may have, refer the failure itself to arbitration under Sub-Clause 20.8 [Arbitration] for summary or other expedited relief, as may be appropriate. Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision] and Sub-Clause 20.7 [Amicable Settlement] shall not apply to this reference.”

The new Gold Book Guide[77] provides:

“If a decision of the DAB has become binding, i.e. immediately upon its issue, or final and binding after 28 days with no Notice of dissatisfaction being issued by either Party, and a Party has failed to comply with the decision, then the other Party can refer the failure to arbitration. In such a case there is no requirement to obtain a further decision from the DAB under Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision] or attempt to settle the matter amicably according to Sub-Clause 20.7 [Amicable settlement]. Unless the applicable Law provides otherwise, a Party cannot challenge a DAB decision after it becomes final and binding as provided for in Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision].”

The Subcontract Conditions[78]

Sub-Clause 20.6 of the subcontract provides:

“In the event that a Party fails to comply with any decision of the Subcontract DAB, then the other Party may, without prejudice to any other rights it may have, refer the failure itself to arbitration under Sub-Clause 20.7 [Subcontract Arbitration] for the purpose of obtaining an award (whether interim or other) to enforce that decision. There shall be no requirement to obtain a Subcontract DAB’s decision or to attempt to reach amicable settlement in respect of this reference.”

The difference in wording between the Gold Book and the Subcontract Conditions are set out in the table below:

The new wording of the Gold Book and Subcontract form resolves obstacles 1, 2 and 3 discussed in the context of the damages option above as they:

• Provide express wording that enable a party to refer to arbitration a failure to comply with any DAB decision, whether it be binding, or final and binding. The Gold Book actually states in terms “whether binding or final and binding”. The Subcontract no doubt considered these additional words superfluous. Both contracts clearly apply to “any DAB decision” which includes binding and final and binding.
• Make it clear that the parties do not have to pursue a claim based on damages for breach of contract. A clear contractual right has been given to enforce the DAB’s decision (akin to a power of specific enforcement).
• In Sub-Clause 20.9 of the Gold Book (equivalent of 20.7 in the 1999 forms) Sub-Clause 20.6 (equivalent of 20.4 in the 1999 forms) is expressly disapplied. Accordingly, the dispute does not have to be referred back to the DAB first. The Gold Book Guide and the Subcontract make it even clearer that it is unnecessary to refer a failure to the DAB first.
• The failure itself can be referred to arbitration in the new books. Accordingly, it is not necessary for the merits to be considered. The Gold Book anticipates the contractor to seek “summary or other expedited relief as may be appropriate”.

It is interesting that the Subcontract form does not adopt the same wording but instead provides that a party can obtain “an award (whether interim or other) to enforce that decision”.

If the contractor is seeking enforcement of a final and binding decision, then it will be seeking a final award to enforce the decision. There is no doubt about that.

The wording “interim or other” must therefore be referring to the enforcement of a binding DAB decision. It is of note that the only form of award which is expressly suggested is an interim award, which accords to the author as the only appropriate form of award. It seems that the reference to “or other” is reference to either a partial or final award. This article has set out above the reasons for why these forms of award are inappropriate.

Beau Rivage

The Beau Rivage recommendation for the enforcement of binding DAB decisions commences:

“Because of its provisional nature, the decision cannot be given as such any enforceable value through a final award unless first reviewed on the merits.”

The author endorses the conclusion reached by the Beau Rivage Working Group that a final award cannot be given enforceable value because of its provisional nature for the reasons given in the Resort Condominiums case.

The author considers, however, that the addition of the words “unless first reviewed on the merits” confuses matters. As set out previously, the concept that there needs to be a review on the merits is not found in the general conditions itself and is derived from the flawed logic adopted by the High Court in the Persero case.

The Beau Rivage recommendation appears to proceed on the basis that if the issue concerning a review on the merits is removed then the issue concerning the enforceability of a temporary measure somehow disappears. This, in the author’s view is illogical.

In the author’s view, under the Gold Book, it is inappropriate for a final award to be given in relation to a provisionally binding decision, notwithstanding the fact that the Gold Book confers a contractual right on a party to refer a failure to comply with the binding DAB decision to the arbitral tribunal. There is no problem, in principle, in giving an interim award, which is possibly why the wording of the Subcontract form specifically suggests such an award.

Conclusion

A winning party at DAB level wants to be paid the money adjudged as due by the DAB. That is what the contract says the losing party should do in the fourth paragraph of Sub-Clause 20.4; prompt effect should be given to the DAB’s decision. If a losing party fails to pay, what the winning party really wants is to force the losing party to pay or order the defaulter to comply with the obligation set out in the contract promptly to give effect to the DAB’s decision.

Properly analysed, therefore, the author considers that the relief that the winning party is hoping to obtain is the “enforcement” of the DAB’s decision (as opposed to a claim for damages). Ordinarily arbitral tribunals do not have enforcement powers. They certainly do not have powers to enforce arbitral awards under the New York Convention. That is the domain of national courts, which possess coercive powers to enable them to enforce awards. These powers form part of the prerogative of the state. One has to question, therefore, whether even if an arbitral tribunal has a power of specific performance, such a power can be interpreted as being a power to enforce that should be exercised.

In relation to an award, a party can always go to a national court for enforcement. As there is no treaty concerning the enforcement of DAB decisions, however, it is doubtful whether a national court, if presented with a DAB decision, will be prepared to treat it as an arbitral award and then enforce it. One has to question, therefore, whether an arbitral tribunal ought to have the power of enforcement of a DAB’s decision when a national court is not likely to have that power.

The author asks rhetorically: why should an arbitral tribunal convert a binding decision into a final and binding award so that it can be enforced by a national court, when its true nature is that it is interim relief, and when ordinarily a national court would not enforce interim relief?

In conclusion, the author considers that after a winning party has received a DAB decision and the losing party has issued a notice of dissatisfaction, the winning party should wait for the 56 day amicable settlement period to expire, prior to issuing a Request for Arbitration referring the underlying dispute to arbitration for a final resolution of the merits.

If a winning party wishes to pursue enforcement of the binding DAB decision, it should hedge its bets and seek a declaration[79] that it is entitled to either an interim or a partial award based on either damages or specific performance. To avoid arguments concerning the damages claim, the winning party would be well advised to refer the dispute first to the DAB.

The author considers that the main difficulty in the breach of contract route (as long as the dispute is referred to the DAB first) is winning the argument that the principal sum amounts to damages for breach of contract.

In relation to the specific performance route, the author considers that a winning party may well be able to establish that the tribunal has a power of specific performance but convincing the arbitral tribunal to exercise that power for enforcement of a provisional DAB decision will be the difficulty.

If an arbitral tribunal sees a way through one or both of the above routes, it will still have to grapple with the most appropriate form of award to make. In the author’s opinion, there are good reasons why a partial and/or a final award should not be made. The author considers that, if an award is to be made, the most acceptable form of award, is in principle an interim award/ However, the difficulty in persuading an arbitral tribunal for an interim award stems from the difficulty in establishing periculum in mora and fumus boni iuris.

Epitaph

There are many statistics available that suggest that projects that deploy DABs resolve disputes without the parties needing to have recourse to arbitration. That is good for the industry.

It should not be ignored, however that there are also projects in which parties have adopted the 1999 forms but deleted the DAB provisions. This may have been done for various reasons, one of them being the fear that the DAB’s decision will not be enforceable. The author does not encourage this practice, as the 1999 forms provide a complete dispute resolution mechanism. Deleting a chunk of it is not desirable, particularly if the chunk deleted is not replaced with something else.

All that a party needs to do after receiving a DAB’s decision is to issue a notice of dissatisfaction to ensure that the DAB decision is not final and binding. If there is a risk (and the author suggests in this article that there is a distinct risk) that the binding DAB decision is not enforceable, whatever the wording adopted (including the new Gold Book and Subcontract wording), then one has to question whether the DAB can or should survive in its present form.

Please get in touch at joanne.clarke@howardkennedy.com or victoria.tyson@howardkennedy.com with your thoughts or to discuss any concerns.

[1] 1999 Red Book is not a revision of the 4th Edn. But it embodies nearly all the concepts of the old Red Book but with different arrangement of text and significant changes:

• Changed role of engineer — cl.3.
• Sub-Clauses 2.4, 2.5.
• Fitness for purpose.

[2] 1995 Orange Book/1987 Yellow Book became 1999 Yellow Book.

[3] The Silver Book was completely new.

[4] The Green Book was completely new.

[5] The clause is not clear at this stage as to whether there are two steps here for the engineer (approval/disapproval of the claim and then a subcl.3.5 determination) or just one step, namely that the approval/disapproval itself is a subcl.3.5 notice. It is submitted that it is more likely to be the former as otherwise there would be no opportunity for the engineer to seek further particulars.

[6] The relevant wording in subcl.20.6 for Route 1 is as follows: “Unless settled amicably, any dispute in respect of which the DAB’s decision (if any) has not become final and binding shall be finally settled by international arbitration”.

[7] Sub-Clause 20.4 allows the parties to refer any dispute whatsoever.

[8] It is mandatory that the 56 day period expires. Iti s plainly desirable for the parties to engage in productive settlement discussions but even if there are no settlement discussions at all, the 56 day period must expire prior to a request for arbitration being issued.

[9] See final paragraph of subcl.20.4 which states “if the DAB has given its decision as to a matter in dispute to both Parties, and no notice of dissatisfaction has been given by either Party within 28 days after it received the DAB’s decision, then the decision shall become final and binding on both Parties”.

[10] FIDIC Conditions of Contract for Building and Engineering Works designed by the Employer General Conditions.

[11] In the Red Book, as there is provision for a standing DAB this would certainly be the case. In the Yellow and Silver Books where there is provision for ad hoc DABs it may not necessarily be so obvious.

[12] Nael Bunni, “The Gap in Sub-Clause 20.7 of the 1999 FIDIC Contracts for Major Works” [2005] I.C.L.R. 272.

[13] Christopher Seppälä, “Sub-Clause 20.7 of the FIDIC Red Book does not justify denying enforcement of a ‘binding’ DAB decision” (2011) 6(3) Construction Law International.

[14] Seppälä, “How not to interpret the FIDIC disputes clause: The Singapore Court of Appeal Judgment in Persero” [2012] I.C.L.R. 4, 18.

[15] See the wording in the second and third paragraphs of subcl.20.6 “the arbitrator(s) shall have full power to open up, review and revise any certificate, determination, instruction, opinion or valuation of the Engineer, and any decision of the DAB, relevant to the dispute … neither party shall be limited in the proceedings before the arbitrator(s) to the evidence or arguments previously put before the DAB to obtain its decision, or to the reasons for dissatisfaction given in its notice of dissatisfaction. Any decision of the DAB shall be admissible in evidence in the arbitration” and the commentaries cited by the Singapore Court of Appeal in CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] SGCA 33 at [53], [54], [66].

[16] It is mandatory that the 56 day period expires. It is plainly desirable for the parties to engage in productive settlement discussions but even if there are no settlement discussions at all, the 56 day period must expire prior to a request for arbitration being issued.

[17] Sub-Clause 20.4 at p.282.

[18] The Green Book was completely new.

[19] Pierre M. Genton and Paul-A Gélinas “Compliance with and Enforceability of a Dispute Board Decision: Recommendations by the International Beau-Rivage Palace Forum Working Group” (2012) 28(1) Constr. L.J. 3. The Beau-Rivage Palace Forum Working Group describes its purpose as “to propose improvements to current DB Rules with respect to the prompt enforcement of DB decisions, be they binding and final or binding only”. Issue 1 at p.6 speaks of “a general consensus that a final decision [absence of NoD] is not subject to review on the merits.” At p.4, the recommendations make proposals on how subcl.20.7 should be improved. They suggest that “it should be expressly stated that failing a timely given NOD, the arbitrator shall neither have jurisdiction nor power to open up, review and revise the decision, but only to ascertain that the parties and the DB complied with the provisions of the contract”. The Guide to the new Gold Book states as follows “unless the applicable law provides otherwise, a Party cannot challenge a DAB decision after it has become final and binding as provided for in Sub-Clause 20.6 [Obtaining Dispute Adjudication Board’s Decision]”. It is interesting that the guidance anticipates there being a possibility that the applicable law may potentially allow a party to challenge a decision that is rendered contractually final. The author considers that the guidance given in the new Gold Book adequately covers this recommendation from Beau Rivage. Beau Rivage’s second recommendation concerning subcl.20.7 provides that “wording could be introduced to provide for expedited proceeding or fast track arbitration or even an ‘on documents only’ procedure.” The Gold Book speaks of “summary or other expedited relief, as may be appropriate”.

[20] Sub-Clause 20.4 allows the parties to refer any dispute whatsoever.

[21] The Gold Book resolves the concern that subcl.20.7 [1999 books] refers to subcl.20.6 which only applies to DAB’s decision that have not become final and binding. Sub-Clause 20.8 Gold Book [equivalent of 20.6 in the 1999 forms] adds the words “subject to Sub-Clause 20.9 [quasi equivalent of 20.7 in the 1999 forms]”. The Subcontract for some reason omits to include these words.

[22] PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2010] SGHC 202; 137 Con L.R. 69.

[23] CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] SGCA 33.

[24] ICC Case 10619, “the question now arises as to whether and on what legal basis this Tribunal may adjudicate the present dispute by an interim award…there is no reason why in the face of such a breach the Arbitral Tribunal should refrain from an immediate judgement giving the Engineer’s decisions their full force and effect. This simply is the law of the contract. In this respect, this Tribunal wishes to emphasise that neither the provisions of Article 23 of the ICC Rules, nor the rules of the French NCPC relating to the référé provision are relevant. For one thing, the judgment to be hereby made is not one of a conservatory or interim measure, strictu sensu but rather one of giving full immediate effect to a right that a party enjoys without discussion on the basis of the Contract and which the parties have agreed shall extend at least until the end of the arbitration. For the second thing, the will of the parties shall prevail over any consideration of urgency or irreparable harm or fumus boni juris which are among the basics of the French référé provision”.

[25] Seppälä “Enforcement by an Arbitral Tribunal of a Binding but not Final Engineer’s or DAB’s decision under the FIDIC Conditions” (2009) 414.

[26] It is the author’s understanding that the Persero judgment of the High Court of Singapore (which provided referral to the DAB first to be mandatory under the General Conditions of Contract) was not before the arbitral tribunal. Had the reasoning in the Persero case been followed, the arbitral tribunal would not have enforced purely as the dispute was not referred to the DAB first. There is also a difference between the DBF case and the Persero case in that in the former the merits were before the tribunal and in the latter they were not.

[27] In ICC Case 16948/GZ, the Sole Arbitrator, in a final award, ordered the employer to make an immediate payment of the sums determined to be due by the DAB + interest and costs on the basis that “the Employer was liable for all damages resulting from or in connection with the failure to perform on time or in accordance with the terms of the agreement or not to perform at all [the Employer’s breach of the fourth paragraph of Sub-Clause 20.4] … the Claimant has the right to receive the amount which the DAB considered was due” ([134]). This case has been reported in more detail in Oana Soimulescu and David Brown “Enforcement of binding DAB decisions: A fresh approach to Clause 20 of the 1999 FIDIC Conditions of Contract” [2012] 19.

[28] In ICC Case 15751/JHN, the sole arbitrator determined that “it seems to me that the better solution in an appropriate case is that if a Party is obliged to pay a sum of money under a Decision of a DAB in respect of which an NOD has been served and he has failed to do so in breach of Sub-Clause 20.4, that party should be required to pay that sum and interest from the date when payment was due by way of damages for breach of Sub-Clause 20.4, not by way of enforcement of the decision nor by way of pre-judging the underlying substantive dispute. I consider the present to be an appropriate case and will so order”.

[29] At that stage, the Court of Appeal’s decision had not been published.

[30] The reasoning given by the arbitral tribunal was as follows: “The tribunal does not accept that the [DAB decision] rendered by the DAB pursuant to the Contract, provides a basis for awarding any amounts on an interim basis. It is common ground that the DAB Decision was the subject of a Notice of Dissatisfaction … the Notice of Dissatisfaction stated [the employer’s] dissatisfaction with substantially all of the DAB’s decision … notice of dissatisfaction was served in accordance with Article 20 of the Contract (and it is agreed, within the contractually specified period for such notices). As a consequence of the [employer’s] notice of dissatisfaction, the DAB decision did not become ‘final and binding’ upon the parties, as provided by the eighth sub-paragraph of Article 20.4 of the Contract’s General Conditions. This subparagraph provides: ‘If the DAB has given its decision as to a matter in dispute to both Parties, and no notice of dissatisfaction has been given by either Party within 28 days after it received the DAB’s decision, then the decision shall become final and binding upon both parties.’ Conversely, if a notice of dissatisfaction is given, then nothing in Article 20.4 provides that the DAB decision will be final and binding on the parties, and, on the contrary, the clear inference of subparagraph 8 is that the decision will in these circumstances not be final and binding* There is nothing in the wording of Article 20.4 (or otherwise) to support [employer’s argument] that a DAB decision remains final and binding in part, to the extent that the Notice of Dissatisfaction does not express dissatisfaction with the DAB decision. The [employer] presently disputes liability for the amounts which the DAB Decision found to be due. Absent some basis in the contract for concluding that the DAB decision binds the employer, and cannot be disputed by it, there are no grounds for holding the employer liable for the amounts stated herein. For the reasons detailed above, there is no such basis, in Article 20.4 of the General Conditions, nor does the Tribunal see any serious argument that any other provision in the contract provides such a basis. *Subparagraph 5 of Article 20.4 of the General Conditions provides that ‘both Parties shall promptly give effect to every DAB’s decision, unless and until it shall be revised in an amicable settlement or an arbitrate [sic] award as described below’. The Tribunal is not prepared to conclude, particularly on a summary basis, that this provision requires the parties to carry out directions of a DAB decision in circumstances in which a notice of dissatisfaction is tendered in respect of such decision under subparagraph 8. Such an interpretation would seem to deprive the procedures of subparagraph 8 of much of their apparent purpose. In any event, the Tribunal does not interpret the DAB decision as directing the employer to pay the amounts referred to therein to the contractor irrespective of other claims; rather, the DAB Decision simply provides a resolution of particular disputes submitted to it, without purporting to address the parties’ other rights or to direct any action on the part of either party.”

[31] The case of PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2010] SGHC 202 concerned a pipeline project under the FIDIC 1999 Red Book. Various disputes arose that were referred to the DAB. The DAB decided, inter alia, that the employer owed the contractor a sum of money. The employer issued a notice of dissatisfaction (NOD) and failed to pay the sum determined as due by the DAB. The contractor applied directly to the ICC arbitral tribunal for a final award enforcing the DAB’s decision on the basis that there had been a breach of the fourth paragraph of subcl.20.4. Note, the contractor did not first refer the failure to pay as a second dispute to the DAB nor did the contractor refer the merits to arbitration. A majority of the arbitral tribunal gave a final award finding the sum awarded by the DAB to be due without considering the merits. The contractor applied to set aside the arbitral award.

[32] Paragraph 38 of the Persero judgment poses the judges solution of how to enforce a binding but not final DAB decision. The judge suggests that following a notice of dissatisfaction, the losing party should ask the tribunal to review and revise the DAB decision and the winning party should ask the tribunal to review and confirm the DAB decision. It seems to the author that the Judge is differentiating between the process intended under subcl.20.6—a de novo hearing, and a new process invented purely for enforcing a DAB decision (review and revise/confirm). The judge also appears to suggest (although it is far from clear) that an interim award is permissible in advance of obtaining the award confirming and revising the DAB decision. If there truly is a distinction being made, then the process of a review of the DAB’s decision could lead to three possible awards:

1. An interim award enforcing the DAB’s decision (the precise basis on which has not been clarified).
2. A partial award reviewing and revising the merits of the DAB Decision.
3. A final award concerning the dispute.

Such a solution, it is submitted would be wholly inefficient. The idea that an arbitrator should review the merits only of the DAB decision and then go on to consider the entire dispute de novo is absurd. If the judge did not intend to make such a distinction and envisaged that the final award was the award reviewing and revising/ confirming the DAB decision, then this award should not have been characterised as being limited to a review of the DAB decision. A de novo hearing allows new matters not raised before the DAB to be raised. Further, if this was what was intended, this process would not amount to the enforcement of the DAB decision at all. This reading would not assist the reader in understanding how the interim award enforcing the DAB decision should be pursued. The final interpretation is that the judge envisaged the following:

1. An interim award which is in fact the award reviewing the DAB decision.
2. A final award.

If this is the correct interpretation then again this is absurd as it would be highly inefficient for an arbitrator to go to the trouble of reviewing and revising/confirming a DAB decision, i.e. assessing in detail the merits of the dispute that were before the DAB and then doing almost the same thing again in the de novo determination resulting in the final award. This would not achieve the claimant’s objective of a summary enforcement procedure for the DAB decision. It would be quicker for the claimant to proceed directly to a final award and not to pursue an enforcement at all. Finally, on the face of it, [38] suggests that an award can be made for the entire claim. There is a suggestion earlier in the judgment (at [34]) that an interim or provisional award would be limited only to indisputable amount. The Court of Appeal did not sanction the notion of “review and revise/confirm” adopted by the High Court. It may be that this is because the Court of Appeal was also not convinced by this approach.

[33] On July 13, 2011, the Singapore Court of Appeal in CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] SGCA 33 dismissed an appeal of the decision of the High Court on the basis that: “There appears to be a settled practice, in arbitration proceedings brought under sub-cl 20.6 of the 1999 FIDIC [Red Book], for the arbitral tribunal to treat a binding but non-final DAB decision as immediately enforceable by way of either an interim or partial award pending the final resolution of the parties’ dispute. What the Majority Members did in the Arbitration — viz, summarily enforcing a binding but non-final DAB decision by way of a final award without a hearing on the merits — was unprecedented and, more crucially, entirely unwarranted under the 1999 FIDIC [Red Book].”The CA reasoned that:

• A reference to arbitration under subcl.20.6 in respect of a binding DAB decision is in the form of a rehearing so that the entirety of the parties’ dispute(s) can finally be resolved afresh.
• Sub-Clause 20.6 requires the parties to finally settle their differences in the same arbitration, both in respect of the non-compliance with the DAB decision and in respect of the merits of that decision. In other words, subcl.20.6 contemplates a single arbitration where all the existing differences between the parties arising from the DAB decision concerned will be resolved. This observation is consistent with the plain phraseology of subcl.20.6, which requires the parties’ dispute in respect of any binding DAB decision which has yet to become final to be “finally settled by international arbitration”.
• Sub-Clause 20.6 clearly does not provide for separate proceedings to be brought by the parties before different arbitral panels even if each party is dissatisfied with the same DAB decision for different reasons.

[34] Mr Seppälä’s latest article, Seppälä, “How not to interpret the FIDIC disputes clause: The Singapore Court of Appeal Judgment in Persero” [2012] I.C.L.R. 4 concludes that “the Singapore courts misunderstood those Sub-Clauses [20.4 to 20.7] and the CA misinterpreted the TOR and the ICC Rules as well. Those courts should have left this award alone”. Further consideration is given of the issues arising in the Persero case below.

[35] In ICC Case 16119/GZ, the sole arbitrator declined to order payment of the sums adjudged to be due by the DAB for the following reasons: “Failure to comply with the DAB’s decisions is a breach of contract. The appropriate method of enforcing a DAB’s decision is therefore by way of an action for breach of contract. The DAB decisions are binding as a matter of contract (fourth paragraph of Sub-Clause 20.4) although they are not final as notices of dissatisfaction have been submitted by both Parties. The DAB decisions enjoy this binding character unless and until revised by the final award. As the DAB decisions are binding, the sums recognized under those decisions are due and payable until the revision of those decisions in the Final Award. Whilst the decisions are binding, they are not final. The DAB decisions are not final, and any payment awarded by those decisions may be revised and reversed. Therefore, the Sole Arbitrator cannot issue any final award ordering the payment of the sums decided by the DAB. By necessity, the payment ordered should be provisional or temporary. The partial award requested cannot definitively determine the payment issues and, consequently, any order for payment at this stage must be provisional. It goes against the essence of a final award to make an order that could be revisited and reversed in a further award . … In conclusion the payments awarded under the DAB’s decision will be revisited by the Sole Arbitrator and cannot be the subject of a final partial award and again the subject of the final award.”

[36] In ICC Case 16949/GZ the sole arbitrator declined to make a final award (the merits were not in front of him) on the basis that “though non-compliance with DAB decisions No.2 and 3 would amount to a breach of contract, the consequences of such breach would hardly be a claim for damages of the same amounts already awarded.” The arbitrator then went on to admit under art.19 of the ICC Rules the introduction of a new claim—namely the merits which were not initially placed before the arbitral tribunal. The arbitrator would then proceed in the final award to determine what payment was due to the claimant.

[37] Under the fourth paragraph of subcl.20.4.

[38] “Final Report on Interim and Partial Awards of the working party on dissenting opinions and interim and partial awards of the ICC Commission on International Arbitration” chaired by Martin Hunter (International Court of Arbitration Bulletin, 1990 Vol.1, No.2 ICC).

[39] Julian D M Lew, Loukas A Mistelis, Stefan M Kroll, Comparative International Commercial Arbitration (Kluwer Law International, 2003) (hereafter referred to as “Lew Mistelis and Kroll”) at paragraph 24-17 explain that “an award is final in this sense [referring to the sense above] if it produces res judicata effect between the parties and can be challenged or enforced without necessarily terminating the complete arbitration proceedings”.

[40] Emmanuel Gaillard, John Savage Fouchard Gaillard and Goldman on International Commercial Arbitration (Kluwer Law International, 1999) p.740 at para.1359.

[41] Herbert Kronke, Patricia Nacimiento, Dirk Otto and Nicola Christine Port Recognition and Enforcement of Foreign Arbitral Awards A global Commentary on the New York Convention (Kluwer Law International, 2010) at p.155 (hereafter referred to as “Kronke et al”) state: “In complex matters, arbitration tribunals occasionally issue interim or partial awards on selected issues. The difference between an ‘interim’ and a ‘partial’ award is that an interim award is not a definite adjudication of the matter in dispute but is subject to a subsequent review by the arbitration tribunal. A partial award, by contrast, is an award that is a final ruling on an isolated matter that may be appropriate for resolution at an early stage, such as jurisdiction of the tribunal, validity of an arbitration agreement, or the general basis of liability. Unfortunately, the two terms are often mixed up, and in reality most ‘interim awards’ are in fact ‘partial awards’ that are final determinations of a specific issue.”

[42] Lew Mistelis and Kroll explain at p.634, “According to the working group preparing the Model Law an interim or interlocutory or provisional award is an award which does not definitively determine an issue before the tribunal. The definition is in line with the general meaning of the term ‘interim’ as opposed to ‘final’. However, the definition was not adopted in the final text of the Model law. One of the reasons was that in practice the term ‘interim award’ is often used interchangeably with that of ‘partial awards’.”

[43] Resort Condominiums International Inc (USA) v Ray Bolwell and Resort Condominiums (Australasia) Pty Ltd (Australia) (1994) 9(4) Mealesy’s IAR A1 (1995) a decision of the Supreme Court of Queensland, Australia.

[44] W. Laurence Craig, William W. Park and Jan Paulsson, International Chamber of Commerce Arbitration 3rd Edn (US, Oceana Publications Inc, 2000), para.26.05: “Recognition and enforcement under the New York Convention of what is essentially an interlocutory order, modifiable by the arbitral tribunal in accordance with changes of circumstances but rendered in the form of awards must remain doubtful. There is a certain flaw in attempting to use the New York Convention, which was designed to insure enforcement of decision which put an end to a dispute between arbitrating parties, or at least part of a dispute, to secure enforcement of a decision which might, for instance, seek to preserve the status quo until a final arbitration award can be rendered. The flaw was precisely recognised in a much commented Australian case, Resort Condominiums v Bolwell.”

[45] Emmanuel Gaillard and Dominico di Pietro, Enforcement of Arbitration Agreements and international arbitral awards the New York Convention in practice (London: Cameron May, 2008), p.150: “It is advocated that only orders which finally settle one or more of the issues which have validly come within the jurisdiction of the arbitral tribunal should qualify for recognition and enforcement under the Convention … the word final implies that once the issue has been adjudicated it would no longer be possible, not even if the tribunal wished, to reopen the issue … as far as the arbitral procedure is concerned those issues are res judicata …. It is clear that even though the content of interim measures of protection may at times coincide with the content of the final award settling the disputes between the parties, interim measured differ radically from final awards. By definition, interim measures are temporary in nature, while one of the main features of awards is that they decide definitively one or more of the disputes submitted to the jurisdiction of the arbitral tribunal. The enforceability of interim measures under the Convention should therefore be dismissed out of hand.”

[46] Kronke, Nacimiento, Otto and Port, Recognition and Enforcement of Foreign Arbitral Awards A global Commentary on the New York Convention (2010), p.155: “The New York Convention does not expressly address these types of awards [referring to interim and partial awards]. Most courts take the view that true interim awards, which are not final adjudications by the arbitration tribunals, and which can be overturned by arbitration tribunals at a later stage, are not enforceable under the New York Convention. The situation is different for partial awards. As a general rule, partial awards may be enforced under the New York Convention … uncertainty whether an issue decided by a partial award is really ‘final’ can also impede enforcement.”

[47] Dr Peter Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions, 3rd Edn (London: Sweet & Maxwell, 2009), p.798: “Finality exists when the ability of the parties to bring direct and collateral challenges against the award ceases. The specifics of finality are contextual. In arbitration, an award is final when it is no longer capable of revision by the arbitral tribunal. This is more apparent from the French version of article 33(2) a translation of which provides that the award ‘is not susceptible to appeal before an arbitral authority’ (‘Elle n’est pas susceptible d’appel devant une instance arbitrale’). Under many national arbitration regimes, finality results when the arbitral award is no longer susceptible to invalidation by a reviewing court. In arbitration under the UNCITRAL Rules, finality attaches when the arbitral tribunal’s decision becomes irrevocable. A strong indication of finality is that all the technical requirements for making an award have been satisfied, i.e. the award is made in writing by a majority of the tribunal’s members, includes reasons, unless otherwise agreed, and the date and place where the award was made, and is signed by at least two of the three arbitrators. Upon satisfaction of these requirements, the tribunal’s decision is locked in and the opportunity for further modification no longer exists…are all UNCITRAL awards final? The rule of finality in Article 32(2) does not distinguish between the various types of award (final, interim, interlocutory and partial) identified in Article 32(1). In practice, however, interim, interlocutory, or partial awards require special consideration. To be sure, final awards are definitive not only because they dispose of all the parties’ claims, but also because the rendering of a final award terminates the tribunal’s mandate under many national arbitration laws. By contrast, interim, interlocutory and partial awards often resolve discrete claims or issues without severing the tribunal’s powers. One commentator suggests this continuing role of the tribunal leaves open the possibility that the tribunal might amend its decision. (see I Dore, The UNCITRAL Framework for Arbitration in Contemporary Perspective (1993) 36 (‘the authorisation for “partial” awards suggests a lower degree of finality than separate final awards on different issues’). We disagree as to interlocutory and partial awards as those terms have been used by the Iran-US Claims Tribunal to indicate decisions on discrete issues or a portion of a group of claims. In these cases, the Tribunal consistently ruled that such awards were final and could not be reopened. A NAFTA Chapter 11 Tribunal reached the same conclusion with respect to a previously rendered partial award. In contrast, interim awards on interim measures of relief are made in response to a set of contemporaneous circumstances, and while such rulings may not be revisited, they may be replaced by subsequent interim awards issued in response to a new request for interim measures made on the basis of changed circumstances”.

[48] Gary B. Born, International Commercial Arbitration (Kluwer Law International, 2009), Vol.2 , p.2020.

[49] Born, International Commercial Arbitration (2009), Vol.2 , p.2020. This is the citation adopted by Christopher Seppälä in isolation in his article “Enforcement by an Arbitral Tribunal of a Binding but not Final Engineer’s or DAB’s decision under the FIDIC Conditions” (2009) 414.

[50] Derains and Schwartz suggests that the variety of conservatory and interim measures encountered in ICC arbitration proceedings is enormous and includes: orders for provisional payment in Yves Derains and Eric A. Schwartz, A Guide to the ICC Rules of Arbitration, 2nd Edn (Kluwer Law International, 2005 ), p.297.

[51] Working Party of the ICC Commission Report: “34. Where only one of the parties asks for an interim or partial award, the Working Party is of the opinion that the arbitrator should make such an award only if, on balance, he is concerned that it serves the interests of the effective and efficient conduct of the arbitration. 35. In general, the Working Party is of the opinion that in ICC arbitrations the presumption should be in favour of a single final award which decides all of the claims and issues to be determined; and that — except when the parties have indicated a joint wish to the contrary — the arbitrator should examine the justification for issuing an interim or partial award in a critical manner and should not do so unless there are circumstances which weigh clearly in favour of taking this course.”

[52] According to Lew, Mistelis and Kroll, Comparative International Commercial Arbitration (2003), the prevailing position in relation to the enforcement of interim awards dealing with interim relief is dealt with by a decision of the Supreme Court of Queensland, Australia (Resort Condominiums International Inc (USA) v Ray Bolwell and Resort Condominuims (Australasia) Pty Ltd (Australia) (1994) 9(4) Mealesy’s IAR A1 (1995). The court held that an interim award is not enforceable under the New York Convention or Australian law. They stated that “the ‘Interim Arbitration Order and Award’ made by the arbitrator … is not an ‘arbitral award’ within the meaning of the Convention nor a ‘foreign award’ … it does not take on that character simply because it is said to be so …”.

[53] For different reasons, the Court of Appeal in the Persero case also ruled that a single arbitration should be brought.

[54] Frederic Gillion, “Enforcement of DAB Decisions under the 1999 FIDIC Conditions of Contract: A recent development: CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK” [2011] I.C.L.R. 388, 408.

[55] This second view proceeds on the basis that either there is a power to specifically enforce, or it is a claim for damages that the loss question dealt with above encompasses the principal sum.

[56] It was held in the Resort Condominiums case that “the ‘Interim Arbitration Order and Award’ made by the arbitrator … is not an ‘arbitral award’ within the meaning of the Convention nor a ‘foreign award’ … it does not take on that character simply because it is said to be so …”. Kronke, Nacimiento, Otto and Port, Recognition and Enforcement of Foreign Arbitral Awards A global Commentary on the New York Convention (2010) explain that “the label attached to a decision is not always decisive; it is the substance that counts. For example, courts have occasionally interpreted “orders” by arbitration tribunals to be awards, provided they are final decisions on an issue.”

[57] Article 35 of the 1998 ICC Arbitration Rules (and art.41 of the 2012 Arbitration Rules) provide a general rule that: “In all matters not expressly provided for in these Rules, the Court and the Arbitral Tribunal shall act in the spirit of these Rules and shall make every effort to make sure that the Award is enforceable at law.”

[58] Furthermore, the fairness of this approach is questionable since there is always the risk that the contractor might become insolvent between the making of the partial award and the final award.

[59] By way of analogy, Mr Seppälä refers to the enforceability of provisional measures by an arbitral award and cites Gary Born who suggests that the “better view is that provisional measures should be and are enforceable as arbitral awards” .The author suggests that the position concerning the enforcement of provisional measures is by no means clear-cut as set out in the commentaries above.

[60] Gaillard and Di Pietro, Enforcement of Arbitration Agreements and international arbitral awards the New York Convention in practice (2008) state “a declaratory award establishes and settles with binding effect the legal relationship of the parties in dispute. Declaratory awards are particularly useful where the parties have an ongoing business relationship. Declaratory relief has become a frequent remedy in international arbitration. In the Aramco arbitration, for example, it was agreed that the award should be of declaratory effect only, with neither of the parties claiming damages for any alleged injury. The Arbitral tribunal observed in this respect that: ‘there is no objection whatsoever to Parties limiting the scope of the arbitration agreement to the question of what exactly is their legal position. When the competence of the arbitrators is limited to such a statement of the law and does not allow them to impose the execution of an obligation on either of the Parties, the Arbitration Tribunal can only give a declaratory award’”.

[61] Citation for this report is at fn.39 above, three categories are allocated:

• Those decisions which should, whenever made, be scrutinised by the Court of Arbitration pursuant to art.21 and which should therefore be made in the form of an award.
• Those which should not be scrutinised pursuant to art.21, and which should therefore not be made in the form of an award.
• Interlocutory decisions which may or may not be in the form of an award at the time they are made, but which, if not so made must ultimately be incorporated into an award to be scrutinised by the Court of Arbitration pursuant to art.21.
• Where only one of the parties asks for an interim or partial award, the working party is of the opinion that the arbitrator should make such an award only if, on balance, he is concerned that it serves the interests of the effective and efficient conduct of the arbitration. Where the parties are not agreed, the working party considers that the arbitrator should look primarily to the following factors for guidance:
• Article 26 of the ICC Rules which calls upon the arbitrator to make “every effort to make sure that the award is enforceable at law”.
• Whether the law of the place of the arbitration permits a party to challenge an interim or partial award (either generally or dependent upon the subject of the particular award).
• Whether the circumstances of a particular case are such that finality and/or enforceability of a decision on a particular point is in the interests of the effective and efficient conduct of the arbitration. Fifteen further guidelines are then given.

[62] The High Court of Singapore considered the employer’s failure to pay the sum adjudged as due by the DAB in the first referral amounted to a second dispute capable of being referred to a DAB for determination at [30]–[31] of the judgment of Judge Ean of the Singapore High Court in PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2010] SGHC 202.

[63] And aligns with Frederic Gillion’s views at p.401 of his article “Enforcement of DAB Decisions under the 1999 FIDIC Conditions of Contract: A recent development: CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK” [2011] I.C.L.R. 388, 401.

[64] ICC Case 15751/JHN and ICC Case 16948/GZ.

[65] Gillion, “Enforcement of DAB Decisions under the 1999 FIDIC Conditions of Contract: A recent development: CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK” [2011] I.C.L.R. 388, 406 asserts “the correct measure of damages for a breach by the losing party of its obligations under Sub-Clause 20.4 to give prompt effect to a DAB decision is for payment of the amount awarded by the DAB, and not simply interest”. His reasoning is that “in most jurisdictions, the basic principle of damages for breach of contract is to put the claimant into the same financial position in which he would have been had the contract been properly performed”. His conclusion is that “… if the losing party had promptly given effect to the DAB decision, the other party would have received the amount awarded by the DAB”.

[66] This opposing view is supported as follows:

• In ICC Case 16949/GZ, the sole arbitrator suggests that damages for breach of contract “would hardly be a claim for damages of the same amounts already awarded”.
• Judge Ean in the High Court of Singapore in the Persero case also saw this as a potential issue when she issued the following note of caution: “Suing in contract for breach may not be the best practical move for the winning party, especially when the decision only relates to payment of money. The winning party may need to prove damages, which may be no more than a claim for interests on the sum owing.”
• Seppälä in his article “An Engineer’s Dispute Adjudication Board’s Decision is Enforceable by an Arbitral Award” White & Case December 2009, recognises that the tribunal in ICC Case 101619 could have taken this approach but chose not to. He states: “The Tribunal could have held merely that the Employer was in breach of contract and required the Employer to pay damages for such breach, represented by interest on the amount of the unpaid decisions. But, instead, the Tribunal ordered the Employer to pay the amount of the Engineer’s decisions on the ground that ‘this is simply the law of the Contract’”.
• Edwin Peel makes a distinction under English law (Edwin Peel (ed.) Trietel on The Law of Contract (London: Sweet & Maxwell, 2007), para.21-001 between:
  • an action for a price; and
  • an action for damages.

He considers that an action for an agreed sum differs from a claim for damages not only in its nature, but also in its practical effects. The former is a claim for specific enforcement of the defendant’s primary obligation to perform what he has promised. The latter arises where the agreed sum is not paid, and the claimant also suffers additional loss. In these circumstances, he may be entitled to bring both the action for the agreed sum and an action for damages.

[67] The notion that an arbitral tribunal needs to consider the merits of the case in order to enforce a binding DAB decision stems from Judge Ean’s flawed reasoning in the High Court of Singapore in the Persero case. Footnote 27 above demonstrates the difficulties that the author has with Judge Ean’s reasoning. The Court of Appeal did not adopt the idea of reviewing and revising/confirming the DAB’s decision but stated at [66] of its judgement that “a reference to arbitration under Sub-Clause 20.6 …in respect of a binding but non-final DAB decision is clearly in the form of a rehearing so that the entirety of the parties’ disputes can finally be resolved afresh.” Taken in isolation, it may be that this sentence is interpreted as suggesting that under subcl.20.6 there has to be a hearing of the merits. In the following sentence of the same paragraph, however, the Court of Appeal conclude: “While there is a theoretical gap in the immediate enforceability of such a DAB decision under the 1999 FIDIC Conditions of Contract, both ICC Case No 10619 and the case mentioned in the September 2010 DBF newsletter suggest that the practical response is for the successful party in the DAB proceedings to secure an interim or partial award from the arbitral tribunal in respect of the DAB decision pending the consideration of the merits of the parties’ dispute(s) in the same arbitration.” The Court of Appeal appear, therefore, to be suggesting that an interim or partial award is permissible (without hearing the merits) in circumstances in which the merits will be heard later in the same arbitration.

[68] The Beau Rivage report proceeds on the basis of the Singapore courts’ premise that an award concerning DAB enforcement is not possible without a review on the merits. In the author’s view, this was not necessary. See fn.27 above.

[69] In the ICSID case of Enron Corporation and Ponderosa Assets L.P. v The Argentine Republic “The Tribunal accordingly concludes that, in addition to declaratory powers, it has the power to order measures involving performance or injunction of certain acts.” See also, Christoph Schreuer “Non-pecuniary remedies in ICSID arbitration” [2004] 20(4) Arbitration International 325.

[70] (2001) and Alan Redfern and Martin Hunter with Nigel Blackaby and Constantine Partasides, Redfern and Hunter on International Arbitration, 5th Edn (Oxford: Oxford University Press, 2009), fn.57 on p.531 (para.9.52).

[71] In the author’s opinion, despite the authorities above, it may still be arguable that if the arbitral tribunal does not have a power to order specific performance in relation to a binding DAB decision under the:

• General Conditions of the FIDIC contract (which is clear); or
• ICC Rules (which is doubtful); or
• applicable law;

it follows that the winning party will not be able to specifically enforce the DAB’s decision.

[72] In an English case concerning a breach of a covenant to repair—Rainbow Estates Ltd v Tokenhold [1999] Ch. 64, the High Court gave guidance on when it might be appropriate to grant specific performance: “Subject to the overriding need to avoid injustice or oppression, the remedy should be available when damages are not an adequate remedy or, in the more modern formulation, when specific performance is the appropriate remedy.”

[73] See, for example, Risk allocation in the FIDIC Conditions of Contract (1999) for Construction (Red Book) and the FIDIC Conditions of Contract (1999) for EPC/Turnkey Projects (Silver Book) from the perspective of a German lawyer Rechtsanwalt Dr Götz-Sebastian Hök (published on the FIDIC.org website [Accessed June 26, 2012]).

[74] Redfern and Hunter with Blackaby and Partasides, Redfern and Hunter on International Arbitration (2009), para.9.52.

[75] ICC Case 10619 appears to be predicated on the basis that the arbitrator does have a power to order specific performance (“giving the Engineer’s decisions their full effect”) of a binding DAB decision. Whilst the thinking behind ICC Case 10619 is not spelt out, it may be that the arbitral tribunal considered it had an inherent power to specifically enforce “the law of the contract”. Mr Seppälä does not consider the ICC Case 10619 award to be based on a cause of action for damages for breach of contract as he recognises in his article Seppälä, “An Engineer’s Dispute Adjudication Board’s Decision is Enforceable by an Arbitral Award” White & Case December 2009, that the tribunal in ICC Case 10619 could also have taken this alternative approach: “The Tribunal could have held merely that the Employer was in breach of contract and required the Employer to pay damages for such breach, represented by interest on the amount of the unpaid decisions. But instead, the Tribunal ordered the Employer to pay the amount of the Engineer’s decisions on the ground that ‘this is simply the law of the Contract’. In the author’s [Mr Seppälä’s] view, this is the right approach.” It is unfortunate that the “the law of the contract” solution put forward in ICC Case 10619 is not explained. It is not clear where in the law of the contract a power is given to an arbitral tribunal to enforce an Engineer’s (or DAB’s) decision. Ordinarily, an arbitral tribunal (unlike a court) will not have the power to award specific performance unless that power is expressly bestowed upon it by the Parties. In certain circumstances, the contract may do that (e.g. subcl.20.7). In other circumstances, the applicable law may provide the solution (e.g. s.48 of the English Arbitration Act 1996).

[76] The FIDIC Conditions of Contract for Design, Build and Operate projects First edition 2008.

[77] FIDIC DBO Contract guide for the FIDIC Conditions of Contract for Design, Build and Operate projects First edition 2011.

[78] Conditions of Subcontract for Construction (First Edition, 2011). For building and engineering works designed by the Employer.

[79] A declaratory award would establish the legal position between the parties definitively and would be binding on the parties. Some legislation expressly empowers an arbitral tribunal to make a declaration (See for example s.48(3) of the English Arbitration Act 1996). It should be noted that whilst declaratory relief is capable of recognition, it is not capable of enforcement. See Redfern and Hunter with Blackaby and Partasides, Redfern and Hunter on International Arbitration (2009), para.9.63.

Parties should decide early whether to include court jurisdiction for appeals on legal questions in arbitration. Excluding court jurisdiction ensures finality, cost savings, and speed. Including it addresses concerns about arbitrators' legal interpretation abilities. The 1996 Act allows this choice.

This article is divided into five parts, namely:

• Introduction;
• How can the court’s jurisdiction be ousted (‘Are you out?’);
• How can the court’s jurisdiction be included (‘Are you in?’);
• When will the courts give permission to appeal; and
• Procedural aspects of s.69 of the English Arbitration Act 1996 (‘the 1996 Act’).

Introduction

The fundamental message behind this article is that the parties should agree at as early a stage as possible on whether:

• they wish to oust the jurisdiction of the courts in relation to appeals on a question of law (‘Are you out?’—s.69(1))
• or whether they wish to agree to include the ability to appeal to the courts on a question of law (‘Are you in?’—s.69(2)).

Parties that opt for arbitration as a means to resolve their dispute(s) will usually have as their objectives:

• finality,
• a wish to avoid the tiers of appeal that are available in court proceedings,
• a wish to save costs, or
• an interest in a speedy resolution to their dispute.

Therefore, if the parties wish to give effect to these objectives and ensure their award is free from challenge on a question of law, they are encouraged to opt for the former option.

Parties are only likely to opt for the latter option if they are concerned about the arbitrator’s ability to interpret the law properly. This will normally be a concern when a non-lawyer is instructed as arbitrator. This seems to be a widespread practice in the construction industry as some standard form construction contracts specifically include[1] a clause expressly including jurisdiction.

Parties wishing to oust the jurisdiction of the courts can do so by:

• expressly stating so in an express clause;
• by adopting institutional rules that contain an express clause to the same effect, e.g. ICC Rules;
• by enabling the tribunal to determine the dispute ex aequo et bono or as amiable compositeurs; or
• by opting for a system of law that is not English law to govern the arbitration.

Parties wishing to include the jurisdiction of the courts can do so by including an express clause (either by way of a bespoke clause or by adopting a clause in one of the standard forms).

What is important is that the 1996 Act gives the parties an ability to choose. Parties are encouraged to exercise that choice, as not to choose will leave them at the mercy of the courts on an application for leave to appeal.[2] If the decision is left in the hands of the court, i.e. on an application for leave to appeal, the courts must now work through the statutory criteria set out in s.69(3)(b)–(d) (see below).

The intention of the architects of the 1996 Act was to severely restrict the scope of permission to appeal.[3] It appears that this objective has been met, as there do not seem to be many successful s.69 applications getting through the system. However, the criticisms that the courts do not appear to be applying s.9(3)(d) as it was envisaged and the potential misinterpretation of Northern Pioneer[4] may mean that there will be an increased spurt of applications in the future (see the fourth part of this article for full discussion as to why these conclusions have been reached).

General background

Before the 1996 Act was the Arbitration Act 1979 (“the 1979 Act”), before that, the Arbitration Act 1975 and before that, the Arbitration Act 1950 (“the 1950 Act”). By 1979 the “special case” procedure and the widely abused “error on the face of the award” challenge were abolished. After the 1979 legislation came into force, however, several foreign commentators still viewed the English courts with scepticism. Several foreign commentators warned that while the front door was now bolted to the dangers of the special case, the English courts would find a new means to break the back door.[5]

After some 10 years of the 1979 Act, however, Craig, Park and Paulsson[6] reported that

“recent English Court decisions provide every evidence that English judges will restrain abusive challenges to awards. The High Court has shown itself unwilling to let its residual power to set aside an award for ‘arbitrator misconduct’ be used as an avenue for ‘backdoor’ appeal of awards subject to an exclusion agreement”.

The senior judiciary were supportive of the philosophy behind modern international commercial arbitration embodied in the doctrines of party autonomy; a need for a reduced role for the courts; and the need for speed and finality in arbitration awards. In the House of Lords, Lords Diplock and Roskill made comments supportive of these principles and critical of court procedure under the previous legislation. In the Nema,[7] Lord Diplock said:

“The parties should be left to accept, for better or for worse, the decision of the tribunal that had chosen to decide the matter in the first instance.”

In Antaios,[8] Lord Diplock said:

“unless judges are prepared to be vigilant in the exercise of the discretions conferred upon them … they will allow to be frustrated the intention of Parliament, as plainly manifested by changes in procedure that these statutes introduced, to promote speedy finality in arbitral awards rather than that insistence upon meticulous semantic and syntactical analysis of the words in which the business men happen to have chosen to express the bargain made between them, the meaning of which is technically, though hardly commensensically, classified in English jurisprudence as a pure question of law” [emphasis added].

After referring to his judgment in the Nema case, Lord Diplock commented in Antaios that:

“at that time the way in which the parliamentary intention was being thwarted was by parties to arbitrations applying for leave to appeal from any award that involved a question that was even remotely arguable as to the construction of the relevant contract, and by some, though not all commercial judges following a policy of granting leave in virtually all such cases, albeit upon conditions …”.

Lord Roskill in the Antaios case agreed with Lord Diplock and added:

“Moreover with all respect to the three arbitrators in the present case, whose lengthy reasons for their award I have read with admiration for their legal learning, if reasons from which the Act of 1979 makes provision are to be given with such elaboration, the very preparation of those reasons must itself defeat the possibility of obtaining speedy arbitral decisions, independently of any question of further delay brought about by a possible appeal or appeals. In general businessmen are interested in the decision, not in its underlying legal philosophy, however much lawyers have that wider interest.”

The Departmental Committee on the Law of Arbitration, chaired by Lord Steyn, regarded a series of decisions relating to procedural mishap[9] as a “retrograde development which unjustifiably militates against the finality of arbitration awards under English law“.

Partly as a result of these adverse decisions, the 1979 Act was considered in need of repeal. Alongside these developments, the United Nations Commission on International Trade Law (‘UNCITRAL’) produced the Model Law in 1985. Other countries were adopting the UNCITRAL Model Law into their laws.[10]

In England, the task of considering whether or not to adopt this Model Law was undertaken by a Committee of the Department of Trade and Industry chaired by Lord Mustill. That committee produced a report in 1989.[11] The report’s conclusion accepted by the UK Government was not to adopt the Model Law. The recommendations made in this report led to the drafting of the first Arbitration Bill that was produced in February 1994. This Bill turned out to be a big disappointment. The chairmanship of the Departmental Advisory Committee (‘DAC’) was then taken over by Lord Steyn and then finally Lord Saville. A further Bill was produced in December 1995 with the help of Toby Landau and parliamentary counsel. A comprehensive DAC report on this Bill was then produced[12] (‘the DAC report’). It was this report that formed the basis of the 1996 Act. The DAC report is still always cited as an aid to construction of the 1996 Act and is a strong indication of the intention behind the legislators of the 1996 Act.

After the 1996 Act came into force, Lord Mustill and Stewart Boyd Q.C. described it as follows:

“The [Arbitration] Act [1996] has however given English arbitration law an entirely new face, a new policy, and new foundations. The English judicial authorities … have been replaced by the statute as the principal source of law. The influence of foreign and international methods and concepts is apparent in the text and structure of the Act and has been openly acknowledged as such. Finally, the Act embodies a new balancing of the relationships between parties, advocates, arbitrators and courts which is not only designed to achieve a policy proclaimed within Parliament and outside, but may also have changed their juristic nature.”

Lord Wilberforce stated[13]:

“I have never taken the view that arbitration is a kind of annex, appendix or poor relation to court proceedings. I have always wished to see arbitration, as far as possible, and subject to statutory guidelines no doubt, regarded as a freestanding system. Free to settle its own procedure and free to develop its own substantive law—yes its substantive law.”

In Seabridge Shipping AB v AC Orssleff’s EftF’s A/S,[14] Thomas J. gave guidance under the 1996 Act as follows:

“One of the major purposes of the Arbitration Act 1996 was to set out most of the principles of the law of arbitration of England and Wales in a logical order and expressed in a language sufficiently clear and free from technicalities to be readily comprehensible to the layman. It was to be in ‘user friendly language’ As this has been the achievement of the Act, it would in my view be a retrograde step if when a point arose reference had to be made to pre-Act cases, references to such cases should only generally be necessary in cases where the Act does not cover a point …A Court should in general comply with the guidance given by the Court of Appeal and rely on the language of the 1996 Act.”

The recent 2005 House of Lords case of Lesotho Highlands Development Authority v Impregilo SpA (‘the Lesotho case’)[15] considered the 1996 Act in some detail. Lord Steyn sets out[16] the ethos of the 1996 Act and describes the changes brought about by the 1996 Act as radical. The preface from Mustill and Boyd, Commercial Arbitration, and Lord Wilberforce’s speech are also referred to (set out above). Lord Steyn sets out his approach to the interpretation of the 1996 Act[17] and poses himself a question: can they realistically be asked to interpret the 1996 Act in the light of pre-existing case law? His answer was plain: “Clearly not“. Lord Steyn, specifically cited Thomas J. in the Seabridge case and clearly goes further than Thomas J. did in answer to the question relating to pre-1996 authorities. Lord Steyn also re-emphasises Lord Wilberforce’s point that there are many laymen that get involved in arbitrations and that many arbitrations are conducted by non-lawyers.

More detailed background to s.69—right of appeal on a question of law

The DAC received a number of responses in its consultation to abolish the right of appeal on the substantive issues in the arbitration. It seems that the arguments in support of abolition were as follows:

• If parties agree on arbitration as a means to resolve their dispute, they should be able to rely on the decision of their chosen arbitrator as opposed to the decision of a court, whether or not their arbitrator has misinterpreted the law or not. If the parties wished for the courts to determine their dispute, they would not have agreed to have the dispute referred to arbitration.
• The UNCITRAL Model Law does not contain a provision to allow appeals on a point of law.
• Many other countries have adopted the UNCITRAL Model Law.

While these arguments are perfectly tenable, the DAC decided not to embrace them and follow the abolitionists. In their opinion, a more important consideration was that if the parties had agreed on a given system of law, the parties should be entitled to expect that the law would be applied properly by their chosen arbitrator. Failure to apply the law properly would do a disservice to the parties and would not achieve the result contemplated in the arbitration agreement.

This argument, of course, presupposes that the courts are in a better position to apply the law than the arbitrators. Such a proposition may well be true if the English courts are applying questions of domestic law. It is not so persuasive when the English courts are required to interpret international law.[18] There is a contingent that considers that the courts are no better placed to apply the law than a chosen arbitrator, particularly if such arbitrator has legal training. However, it seems that the main rationale behind the DAC is that as there are a number of non-lawyers acting as arbitrators; it is those individuals who may misapply the law, and the courts should provide a means to remedy such misapplication.

Another argument in support of the retention of appeals on a question of law is that it enables the courts to allow precedents to develop in the area of commercial law, particularly on matters of public importance.

1. V. Veeder Q.C.[19] acknowledges that it is a historical oddity that English law still allows an appeal on a question of law despite abolitionist arguments rejected by the DAC. He describes that oddity as follows:

“it is an English oddity which has helped to make English Commercial law the most useful and popular system of law in world trade. It remains unthinkable that the symbiotic link should be broken between commercial arbitration, the development of the English law and the English Commercial Court; and I can do no better than to quote from Lord Diplock’s 1978 Alexander lecture: ‘Even the most radical would-be reformers of our arbitration law do not recommend that the Special Case procedure or something like it should not be available to parties to an arbitration if this be a term of the agreement between them. It has proved a most effective instrument in the development of English commercial law; and has given to it a degree of certainty that has made it a popular choice as the law to govern commercial contracts even though they have no territorial connection with this country'”.[20]

The DAC therefore proposed what they considered to be a limited right of appeal with safeguards which would still be consistent with the fact that the parties have chosen to take their disputes to arbitration as opposed to the courts.

Lord Mustill and Stewart Boyd Q.C. describe the right of appeal to be:

“in a considerably attenuated form … compared with the right of appeal conferred by the Arbitration Act 1979, there are a number of changes, all of which are inspired by a general tendency against intervention in the decision of the chosen tribunal”.[21]

Under the Arbitration Act 1979, there was an ability to exclude the right to appeal on a point of law, but such rights were restricted, in relation to domestic agreements, special categories and statutory arbitrations. The 1996 Act does not include such restrictions and reference to the term “exclusion agreement” has been abandoned.

In relation to appeals, Lord Saville[22] stated:

“we have very severely limited the right to apply to appeal from an arbitration award … This new provision means that over and above the court’s being satisfied that the tribunal was obviously wrong in law or (in a case of general importance) that its conclusion was at least open to serious doubt, there will have to be something else which makes it just and proper for the court to substitute its own decision for that of the tribunal. This should, and is intended to make successful applications for leave to appeal from an arbitration award very rare indeed.”

How the court’s jurisdiction can be ousted (‘Are you out?’)

Section 69(1) of the 1996 Act provides that, unless otherwise agreed by the parties, a party to arbitral proceedings may (upon notice to the other parties and to the tribunal) appeal to the court[23] on a question of law arising out of an award made in the proceedings. An agreement to dispense with reasons for the tribunal’s award shall be sufficient to exclude the court’s jurisdiction under this section.

As s.69(1) is “unless otherwise agreed by the parties“, it is a non-mandatory provision of the 1996 Act:[24] the parties are free to agree to exclude s.69[25] of the 1996 Act either expressly or by agreeing to dispense with reasons for the tribunal’s award.[26] In circumstances in which the parties agree that no reasons at all should be given, the parties will have effectively ousted the jurisdiction of the courts, as no reasons can be analysed and hence no error of law can be identified.[27]

However, the practice that developed before the 1996 Act was for arbitrators to publish their reasons in ‘confidential’ form in those cases where the parties had not asked for the award to be stated in the form of a special case. Publishing confidential reasons which did not form part of the award enabled the arbitrator to provide the parties with an explanation of his reasoning without at the same time providing an opportunity to challenge the award on that ground.

This practice has lingered on, subsequent to the passing of the 1996 Act, and the courts have considered that if, by agreement between the parties, the arbitrator publishes his reasons in a separate document on terms (express or implied), the parties are not to refer to them in connection with any proceedings relating to the award, the parties are bound in contract to each other and to the arbitrator not to make use of them in that way[28] (see Tame Shipping Ltd v Easy Navigation Ltd (‘The Easy Rider’)).[29]

If the parties do agree to exclude s.69, they must do so in writing: s.5(1) of the 1996 Act makes it clear that the expression “agreed” must be construed only if in writing. There is no reference in the 1996 Act as any form of words that should be used to effectively exclude the jurisdiction of the courts.

The parties can either use an express clause or rely on institutional rules when ousting the jurisdiction of the courts.

Express clause

Care must be taken to ensure that an express clause is clear and unambiguous. Unfortunately, it is so often the case that the arbitration clause is simply a ‘midnight’ clause. A form of words[30] to oust the jurisdiction of the courts of England is as follows:

“The parties agree that the award is final and binding. The parties expressly agree to oust the jurisdiction of the courts to hear appeals on a question of law (as it is permitted to do under section 69(1) English Arbitration Act 1996).”

Institutional rules

The following rules have the effect of ousting the jurisdiction of the courts under s.69:[31]

• 28.6 of the ICC Rules;
• 29.2 of the LCIA Rules; and
• 22(a) of the LMAA Rules.

“Final and binding”

The words “final and binding“, which are found in many arbitration rules, (e.g. UNCITRAL Arbitration Rules (Art.32(2)), AAA International Arbitration Rules Art.27(1)), have not been considered in any English case law.

The Brief Introduction to the LCIA rules states as follows:

“it is almost universally the case that the rules of the foremost international arbitration institutions (of which the LCIA is one) expressly provide that any award will be final and binding and will be complied with without delay. By agreeing to be bound by such rules, the parties usually also exclude any right of appeal on the merits to a national court which may have jurisdiction to hear such appeal.”

The rationale behind the thinking set out in the introduction to the LCIA rules is that, if an award is final and binding, by definition it should not be subject to appeal. The concept of finality is at the cornerstone of arbitration as a practice.

Canada

In Canada, the parties similarly can opt to exclude the jurisdiction of the courts. In Labourers International Union of North America, Local 183 v Carpenters and Allied Workers (‘Local’),[32] an Ontario case, the courts held that the words “final and binding” do operate as an exclusion agreement. In another case in Canada, National Ballet of Canada v Glasco,[33] the courts had to consider how to interpret an arbitration clause that contained a clause referring to a single arbitrator for “binding arbitration” that would be “fully and finally disposed of” in the arbitration. The courts considered that a different interpretation should be given in a case that uses the word “binding” without reference to the word “final“, i.e. “final and binding“. Accordingly, despite the words used, “fully and finally disposed of” were not sufficient to oust the jurisdiction of the court. In the author’s view this decision is curious, as using the words “fully and finally disposed of” suggests that the intention of the parties was to preclude an appeal as it is only if there is no appeal that the decision would be fully and finally disposed of.

Australia

Raguz v Sullivan[34] states that the New South Wales Court of Appeal held that “mere agreement that an award shall be ‘final and binding’” would not be an exclusion agreement, especially in light of the fact that s.28 of the Act provides this as a general rule in any event (Corner v C & C News Pty Ltd[35] is cited).

Case law in Australia on the meaning of the words “final and binding” is helpful as the structure of their Commercial Arbitration Act 1984 (“CAA 1984”) is similar to the 1996 Act, in so far as the text of s.28 CAA 1984[36] is similar to the text in s.58(1) of the 1996 Act.[37] For this reason, arguably, the English courts are more likely to follow the Australian approach than the Canadian approach to the words “final and binding“, i.e. that these words alone are not sufficient to oust the jurisdiction of the courts under s.69.

The GAFTA Rules: can the exercise of an final and binding “absolute discretion” amount to an effective exclusion of the court’s jurisdiction under s.69?

In the GAFTA Rules, r.22 refers to the Board having an “absolute discretion” that shall be final and binding. The courts in England have had to consider this wording on a number of occasions. In the author’s view, the GAFTA Rules should simply be amended in order to avoid this complication in the future.

Essentially there are two camps:

• Camp 1: The camp that states that the word “absolute” adds nothing to the word “discretion” and therefore as it is a discretion being exercised as opposed to a final decision being made, it can be reviewed (under s.69).
• Camp 2: The camp that states that the word “absolute” must mean something and that it essentially means that the decision becomes unfettered and unrestrained hence making it a final (and binding) decision (excluding s.69).

In Cook Industries v BV Handelmaatshchappij Jean Delvaux,[38] the court of first instance (Leggatt J.) favoured Camp 2; he accepted the buyer’s case that “an absolute discretion” was “one which is unfettered and unrestrained, not subject to review by any court“. He stated:

“that was indeed the intention of the parties, or must be taken to have been their intention by entering into a contract in these terms. They intended that the arbitrator, umpire, or as here, Board of Appeal should enjoy the widest possible discretion not subject to review of the Court.”

Leggatt J. considered a number of authorities to support his conclusion (of Camp 2), in particular Lord Denning’s judgment in Ward v James[39] where Lord Denning asked: “what does the word ‘absolute’ discretion mean here? Does it add anything to the word ‘discretion’?”

Leggatt J. points out that Lord Denning was referring to the use of the word “absolute” in the context of the Rules of the Supreme Court that were subsequently held to have been ultra vires. Lord Denning continues to say:

“in Whipps v Powell Duffryn Engineering Co. Ltd, Lord Justice Harman said, ‘every discretion is absolute if you do not confine it, and for myself I do not think the word “absolute” adds to the matter at all’ and in Hennell v Ranaboldo Lord Justice Diplock said the same. But I rather think that the word ‘absolute’ was used here in the sense we speak of an ‘absolute monarch’. It means that the discretion is unfettered and unrestrained, not subject to review by any court.”

Leggatt J. also considers cases (supporting Camp 1), particularly Associated Provincial Picture Houses Ltd v Wednesbury Corp[40] and Timmerman’s v Sachs.[41] The notion of “Wednesbury unreasonableness” is now firmly embedded in case law relating to public law. The case concerned the power of the courts to interfere with an act of executive authority exercising their discretion. Lord Greene M.R. in that case said:

“a person entrusted with a discretion must so to speak, direct himself properly in law. He must call to his own attention to the matters which is bound to consider. He must exclude from his consideration matters which are irrelevant to what he has to consider. If he does not obey those rules, he may truly be said, and often is said to be acting ‘unreasonably’.”

In the Timmerman’s case, Parker J. said that:

“it is conceded that once it is held that the Board of Appeal had an absolute discretion that is the end of the matter, because there is nothing in the special case upon which I could conceivably say that the Board were wrong in coming to the conclusion which they did”.

This reasoning suggests that in the event that there was something wrong the court would have had a review.

Sir John Donaldson M.R. (with whom Goff L.J. and Sir Roger Ormrod agreed) essentially disposes of the point in one paragraph, at p.127 of his judgment:

“The first question which arises is whether the Court can review a discretion which is in terms stated to be ‘absolute’. For my part I have no doubt that it can. One has only to consider the possibility of mala fides … or the taking account of a matter which on no conceivable view could be regarded as relevant. In such cases the Court could and should intervene.”

Essentially, therefore, it seems that Sir John Donaldson came to his conclusion on the meaning of “absolute discretion” by relying on the public law notion derived from the Wednesbury case. This is not absolutely clear, however, as he does not state any authority to support this proposition. It seems reasonable to assume, however, that he relied on the authorities discussed by Leggatt J., namely Wednesbury, to arrive at his conclusion.

In Ad Hadha Trading Co v Tradigrain SA,[42] the Board had published a correction to its award and declined to give reasons for its decision to extend time because it held that it was not required to do so. Mr Morris Q.C. was essentially arguing Camp 2: the GAFTA Rules contain an agreement dispensing with the need for giving reasons for its decision: the rules contain an agreement that dispensing with reasons is “an absolute discretion” and the last sentence of r.22 states that “any decision made pursuant to this rule shall be final, conclusive and binding“.

Judge Havelock Allen Q.C. favoured Camp 1 and did not accept Mr Morris’s submission. His reasoning was that the conferring of an “absolute discretion” does not, of itself, preclude review of the exercise of that discretion by the court even though the scope of any possible review may be very narrow.

Judge Havelock Allen Q.C. relied on Sir John Donaldson’s judgment in Cook in support of his judgment.[43] His reasoning (in considering the 1950 Arbitration Act) was that a court can review a discretion that is in terms stated to be “absolute“.

Judge Havelock Allen Q.C. concedes first that the grounds on which the exercise of a discretion are very strictly circumscribed (limited to bad faith and the taking into account of wholly extraneous matters) and then states: “Necessarily the circumstances would be extreme and the instances rare.”

Judge Havelock Allen Q.C.’s conclusion is (and reference is expressly made to s.69) that if there is a possibility of review by the court it cannot be inferred that an agreement to confer an absolute discretion on an arbitral tribunal carries with it an agreement to dispense with reasons for the tribunal’s decision in exercising that decision.

Judge Havelock Allen Q.C. arrives at his conclusion by stating at [31] of his judgment:

“it is plain that the conferring of an “absolute discretion” does not itself preclude review of the exercise of that discretion by the Court.”

Judge Havelock then cites Sir John Donaldson’s judgment in Cook in support of his own judgment.

In the author’s opinion, in the light of the recent judgment of Lesotho re-emphasising the principles to be applied when interpreting the 1996 Act and urging courts not to rely on pre-1996 authorities, it is arguable that Mr Havelock Allen Q.C. ought not to have simply relied on the pre-1996 Act authority of Cook to support Camp 1. In the author’s view, an opportunity was missed to re-consider whether in fact Leggatt J. was correct to support Camp 2.

An interesting aspect of this discussion is that the courts have not differentiated between a discretion exercised by a public authority (as in the case of Wednesbury) and the exercise of a discretion conferred to it by an arbitration agreement. It is quite likely that a plain reading of the section to a non-lawyer (“the board of appeal may in its absolute discretion … any decision made by pursuant to this Rule shall be final conclusive and binding“) would result in the impression that the board’s decision would be final and binding. The author submits that there is a difference between a public authority exercising a discretion and a body authorised to make a decision by the parties to an arbitration agreement.

Ex aequo et bono or amiable compositeur

Section 46(1)(b) of the 1996 Act enables the arbitral tribunal to decide a dispute in the case ex aequo et bono or as amiable compositeur (such clauses are sometimes referred to as ‘equity clauses’). As a system of law has not been chosen by the parties, it follows that no question of law can arise for decision (either as a preliminary determination in accordance with s.45 of the 1996 Act) and therefore s.69 of the 1996 Act is effectively excluded by the parties.[44] It is not intended to expand on this ground as it is self-explanatory.

Opting for a system of law that is not English law

Section 82(1) of the 1996 Act defines question of law as meaning:

“for a court in England and Wales a question of law of England and Wales, and for a court in Northern Ireland, a question of law of Northern Ireland”.

The following cases have considered s.82:

• Egmatra AG v Marco Trading Corp;[45]
• Sanghi Polyesters Ltd;[46]
• Hussman (Europe) Ltd v Al Ameen Development & Trade Co;[47]
• Reliance Industries Ltd v Enron Oil;and
• Gas India Ltd & Natural Gas Corp[48] and Athletic Union of Constantinople v (1) National Basketball Association (2) Phoenix Suns (3) Federation Internationale de Basketball EV.[49]

The policy of the courts in these cases seems to be to delimit the questions of law which can be appealed to questions of English law. These cases support the proposition that awards based on foreign applicable law are likely to be excluded.

It is unfortunate that, to some extent, section s.82 is open to interpretation. This would have been avoided if “a question of law of England and Wales” read as “a question of English law“. In a non-arbitration context, the cases of MCC Proceeds v Bishopsgate Investments[50] and Morgan Grenfell & Co Ltd v Sace Speciale per Lassicurazione del Credito all’Esportazione[51] have been cited as support for the proposition that the courts have greater freedom to reach different conclusions on foreign law than in respect of straight forward findings of primary fact. Although application of these cases was rejected at first instance in the Athletic Union case, it is in the author’s view arguable that the door is not closed to similar arguments in the future. It is unfortunate that the Court of Appeal was not able to deal with the point substantively for procedural reasons in the Athletic Union case.

How can the court’s jurisdiction be included? (‘Are you in?’)

Section 69(2) provides that an appeal can only be brought with the agreement of all the other parties to the proceedings, or with the permission of the court. Section 69(2) therefore allows the parties to agree on a right to an appeal on a point of law without having to obtain permission from the court. The 1996 Act is silent as to when such an agreement can be entered into between the parties. There seems to be no reason why the parties cannot agree in advance of any disputes arising, i.e. in the arbitration agreement itself; or in any ad hoc/submission agreement or after the award itself has been rendered.

The DAC considered whether for the purposes of s.69(2)(a) the parties can agree in advance, i.e. in an arbitration clause in the underlying contract, that an appeal on a question of law can be agreed:

“The clause is intended to encompass such agreements, and in our view it plainly does so since the word agreement is not qualified. However, such an agreement will not automatically allow an appeal unless it complies with the other conditions set out in section 69 and 70.”

Unfortunately, the DAC’s comments are a little confusing/ambiguous, as the DAC does not specify which other conditions in ss.69 and 70 are being referred to. The only sensible and logical reading of the comments is that reference to ss.69 and 70 are references to the conditions in s.70(2) and (3) and s.69(4).

Irrespective of any agreement that an appeal should be allowed from an arbitrator’s award, there can be no similar agreement for there to be an appeal to the Court of Appeal by virtue of s.69(6):

“the leave of the court is required for any appeal from a decision of the court under this section to grant or refuse leave to appeal.”

Other requirements that must be fulfilled

As long as s.70(2) and (3) are complied with, s.69(2)(a) has the effect of precluding either party from having to satisfy the court that permission should be given.

Express clause

In the same way as an express clause can be used to oust the jurisdiction of the courts, there is no reason why a clause cannot be used to include the jurisdiction. Many of the comments made in the previous part of the article as to the need for clear and unambiguous clauses equally apply to this part. A suggested clause would be similar to the one found in the JCT (98) Contract:

“the parties hereby agree pursuant to section 69(2) Arbitration Act 1996 that either party may appeal to the High Court on any question of law arising out of an award made in an arbitration under an arbitration agreement and the parties agree that the High Court should have jurisdiction to determine any such question of law.”

Case law to consider on the point include Taylor Woodrow Civil Engineering Ltd v Hutchinson IDH Development Ltd[52] and Fencegate Ltd v NEL Construction.[53]

When will the courts give permission to appeal?

If there is no agreement between the parties and permission to appeal is required, permission shall only be given if the court is satisfied that:

• the determination of the question will substantially affect the rights of one or more of the parties[54];
• the question is one which the tribunal was asked to determine[55];
• on the basis of the findings of fact in the award the decision of the tribunal on the question is obviously wrong; or
• the question is one of general public importance and the decision of the tribunal is at least open to serious doubt; and
• despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the court to determine the question.

Section 69(3) is clear as to its intention that all the criteria in subsections (a) to (d) need to be satisfied in order for permission to be given.

The wording in s.69(3)(a) is almost identical to s.1(4) of the 1979 Act. Under the 1979 Act, the first case to consider that form of words was the Nema.[56] In the case of the Antaios,[57] Lord Diplock again had cause to consider the circumstances in which permission to appeal should be given. Section 69 of the 1996 Act, although heavily influenced by the Nema guidelines, has replaced them and adds further new statutory criteria. Section 69(3)(b)–(d) are all new statutory criteria adopted by the 1996 Act.

Section 69(3)(c) and the CMA case

In the Northern Pioneer case, Lord Phillips said that:

“the statutory criteria are strongly influenced by the Nema guidelines. They do not however follow these entirely. We have concluded that they open the door a little more widely to the granting of permission to appeal than the crack that was left by Lord Diplock”.

Lord Phillips sets out guidelines on the criteria to s.69 of the Act and the departure from the Nema guidelines. The following question is identified: if the commercial court judge formed the view that the arbitrators were probably right, was the fact that the Court of Appeal might take a different view a sufficient ground for granting permission to appeal?

Sir John Donaldson M.R. answered this question in his judgment in the Court of Appeal in the Antaios case by saying that, in the event that there are known to be differing schools of thought, each claiming their adherents among the judiciary, and the Court of Appeal, given the chance, might support either the school of thought to which the judge belongs or another school of thought, permission to appeal should be allowed as long as ss.1(4) and 1(7) are complied with.

Lord Diplock’s answer to the same question (overturning Sir John Donaldson’s judgment) is that it is the very nature of judicial discretion that within the bounds of “reasonableness” in the wide Wednesbury sense of that term, one judge may exercise the discretion one way whereas another judge might have exercised it in another. Accordingly, Lord Diplock concludes that this would not normally provide a reason for departing from the Nema guidelines.

Lord Phillips concludes at [60] of his judgment in the Northern Pioneer case that:

“We do not consider that this part of the Nema guidelines [Lord Diplock’s answer to the question] survives the provisions of section 69. The criterion for granting permission to appeal in section 69 (3)(c)(ii) is that the question should be one of general public importance and that the decision of the arbitrators should be at least open to serious doubt. These words impose a test which is broader than Lord Diplock’s requirement that permission to appeal should not be given ‘unless the judge considered that a strong prima facie case had been made out that the arbitrator had been wrong in his construction’. Section 69(3)(c)(ii) is consonant with the approach of Sir John Donaldson MR in the Antaios. The guideline of Lord Diplock which has been superseded by section 69(3)(c)(ii) was calculated to place a particularly severe restraint on the role of the commercial and higher courts in resolving issues of commercial law of general public importance”.

Now that the Nema guidelines have been replaced by statutory criteria, the flexibility of guidelines given by the judiciary ceases. Lord Diplock was interpreting essentially what is now s.69(3)(a) and he used the words “obviously wrong“, which were clearly adopted by the drafters in the Act in s.69(3)(c)(i). The fact that the legislators adopted this but allowed as an alternative the criterion in s.69(3)(c)(ii) has had the effect of lowering the threshold from “obviously wrong” to “open to serious doubt” (when there is a question of general public importance). This was the intention of the legislators as set out in paras 287–291 DAC report.

In the event that the question is not of public importance, Lord Diplock’s view will continue to prevail and the extract from Lord Phillips’s judgment in the Northern Pioneer case will not be relevant.

The oft-cited quotation from Lord Phillips[58] is nothing more than a reiteration of what was intended by the architects behind the 1996 Act, as can be seen by the DAC report,[59] and should not be cited out of context. There is no new point raised. It is clear from the criteria set out in s.69(3) that in a case where there is a question of general public importance, the threshold that needs to be overcome (“open to serious doubt“) is lower than is usually the case (“obviously wrong“) as derived from the Nema test.

As a matter of policy, however, the Northern Pioneer case does appear to bring to the fore again that the courts are keen to emphasise the importance of the development of the commercial law (that “English oddity“).

Section 69(3)(d)

The final condition in s.69(3) is s.69(3)(d): that “it is just and proper in all the circumstances for the court to determine the question“. This clause, in effect, gives the court an overriding discretion as to whether or not to give permission. Although, expressly, there was no such provision in the 1979 Act, it seems that the courts considered that there was an inherent discretion in determining permission and, for example, National Rumour Co SA v Lloyd-Libra Navegacao SA[60] introduced the principle that quick arbitrations should not be granted leave save in exceptional circumstances. Lord Saville considered that:

“there will have to be something else which makes it just and proper for the court to substitute its own decision for that of the tribunal. This should and is intended to make successful applications for leave to appeal from an arbitration award very rare indeed”.

The DAC[61] stated that the reason for the inclusion of the section was that the court should be satisfied that justice dictates that there should be an appeal; in considering what justice requires, the fact that the parties have agreed to arbitrate rather than litigate is “an important and powerful factor“.

Stewart Shackleton[62] considered that the function of s.69(3)(d), presumably with the intention of the DAC in mind, was for the courts to balance the state’s interest in the exclusive production of English legal norms with the parties’ decision not to resolve disputes via local courts and to accord weight to the parties’ choice of arbitration rather than litigation.

The Court of Appeal in the Northern Pioneer case did not provide guidance on how to assess whether it would be just and proper in circumstances where a question of law was a question of general public importance and also open to serious doubt.

The omission by the Court of Appeal of consideration of s.69(3)(d) in the Northern Pioneer case could be perceived as the courts impliedly finding that if a question was considered to be of public importance and open to serious doubt, then it would follow that it must also be just and proper under s.69(3)(d) to give permission. This, however, was not a ruling that was made, and it is submitted that the proper construction of the statute should be that permission to appeal should not be granted except in the most exceptional circumstances (following the approach in the National Rumour case).

The courts in general do not seem to have adopted s.69(3)(d) in the way in which it was intended. Without guidance from the higher courts. However, it does not seem likely that the courts will alter this practice particularly in the light of the Northern Pioneer case.

As a result of this lack of guidance in the Northern Pioneer case, a question arises: how should the courts consider s.69(3)(d) after concluding that subsections 69(3)(a), (b), and c(ii) are made out?

It is obvious that the parties wished for the dispute to be disposed of by arbitration as an arbitration cannot go ahead without the consent of the parties (at least at the outset). The guidance given by the DAC[63] and the test posed by Stewart Shackleton,[64] therefore, seem very difficult to apply. If the parties were that committed to the process of arbitration as a final and binding process, then surely they would exercise their right to oust the jurisdiction of the courts under s.69(1). It will be of no surprise to the winning party, however, if the losing party soon after receiving the award is quick to resile from its original intentions to arbitrate or be bound by any arbitration award. The losing party is likely to go to any lengths to attempt to set aside the award, particularly when large sums of money are involved.

Jackson J. stated in Surefire Systems Ltd v Guardian ECL Ltd[65]:

“there are good reasons for parties in the construction industry to choose arbitration. The parties obtain a resolution (almost always a final resolution) of their disputes by a suitably qualified individual of their own choosing. There is, however, a price to be paid. The parties cannot have their cake and eat it. The parties cannot refer their factual or technical disputes first to an arbitrator and then to a judge of the TCC.”

Readers of this authority, however, should note that Jackson J. was only considering the situation between the parties when no decision was exercised to include the jurisdiction of the courts under s.69(2). In such circumstances, the parties arguably can have their cake and eat it (provided only the appeal is on a question of law). This leads on to the thorny question of whether an issue is one of law or one of fact.

Question of law vs question of fact

An appeal under s.69 of the 1996 Act can only be on a question of law, not on a question of fact. This distinction is notoriously difficult to draw and arises in almost all areas of law when it comes to a question of appeal. A detailed analysis of the distinction between a question of law and a question of fact is not attempted in this article. There is a multitude of case law in which the courts have had to consider whether an issue falls into the category of an error of law or simply a finding of fact.[66]

The latest guidance comes from the Technology and Construction Court (‘TCC’). In Demco Investments & Commercial SA v SE Banken Forsakring Holding Aktiebolag,[67] Cooke J. stated that the legislative intent of s.69(3) of the Act was to prevent parties seeking to dress up questions of fact as questions of law. Jackson J. expressly approved this approach in the Surefire case and added that any party seeking leave to appeal under s.69 must take, as his starting point, the arbitrator’s findings of fact. He must then identify the question of law arising from those facts, on which the arbitrator fell into error.

In Northern Elevator Manufacturing v United Engineers (Singapore),[68] the proposition was put forward that for the purposes of the 1996 Act, an error of law arises where the arbitrator errs in ascertaining the legal principle which is to be applied to the factual issues in the dispute, and does not arise if the arbitrator, having identified the correct legal principle, goes on to apply in incorrectly.

The Northern Elevator proposition was endorsed by H.H. Judge Coulson in Benaim (UK) Ltd v Davies Middleton & Davies Ltd (No.2)[69] and reference was also made to Lord Steyn’s judgment in The Matthew[70] that there can be no error of law if the arbitrator reached a decision which was within the permissible range of solutions open to him.

In 2005 there were a number of cases in which the error of law was unclear. In Plymouth City Council v DR Jones (Yeovil) Ltd,[71] H.H. Judge Coulson criticised such conduct and emphasised that:

“in an application of this sort, the alleged error of law should be set out in clear, unambiguous terms by a claimant, and made directly referable to a paragraph or paragraphs of the award. This has just not been done here”.

Procedural aspects of s.69

An application for permission to appeal must identify the question of law to be determined and state the grounds on which it is alleged that permission to appeal should be granted. The court shall determine an application for permission to appeal under this section without a hearing unless it appears to the court that a hearing is required. The permission of the court is required for any appeal from a decision of the court under this section to grant or refuse permission to appeal. On an appeal under this section the court may confirm the award, vary the award, remit the award to the tribunal, in whole or in part, for reconsideration in the light of the court’s determination, or set aside the award in whole or in part. The court shall not exercise its power to set aside an award, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.

The decision of the court on an appeal under this section shall be treated as a judgment of the court for the purposes of a further appeal. But no such appeal lies without the permission of the court which shall not be given unless the court considers that the question is one of general importance or is one which for some other special reason should be considered by the Court of Appeal.

Should there be a hearing to determine the issue of permission?

The presumption under s.69(5) is that there should not be a hearing. The court can, however, decide to conduct a hearing to determine the matter if required. There is no guidance in the statute as to the circumstances that should be taken into account in making this decision.

In the Fencegate[72] case, H.H. Judge Anthony Thornton Q.C. envisaged that no hearing would be required. In HOK Sport Ltd v Aintree Racecourses Co Ltd,[73] H.H. Judge Thornton Q.C. allowed a hearing for an application for permission. In Bulfracht (Cyprus) Ltd v Boneset Shipping Co Ltd (‘Pamphilos’),[74] Colman J. considered that it was sensible and more cost-effective to allow oral argument where an application was brought together with a related s.68 challenge.[75] Following the Northern Pioneer[76] case, it seems that the practice that is encouraged by the Court of Appeal is clear written grounds and submissions without an oral hearing that are succinct enough to enable a Commercial Court judge to consider the grounds within a 30-minute time slot. This indeed was what was envisaged in the DAC report.[77]

In Newfield Construction Ltd v John Lawton Tomlinson, Kathleen Christine Tomlinson[78], H.H. Judge Coulson n highlighted that parties were tempted to use the cover of a s.68 application in order to argue the detail of their s.69 application orally. He described such a course as contrary to the Arbitration Act and the CPR and stated that it would not be permitted.

In relation to documentation, Judge Coulson considered that he should only have regard to the award itself which in that case includes correspondence in which the arbitrator set out his reasons for the costs award and documents on which he relies in giving that explanation.[79] Jackson J. in the Surefire case reiterated this approach as follows:

“the evidence which is admissible on an application for leave to appeal is strictly limited. Such evidence will generally comprise (a) the award itself and (b) any evidence relevant to the issue whether the identified question of law is of general public importance. In some cases, it may also be necessary to look at the pleadings, or written submissions in the arbitration, in order to ascertain what were the questions which the arbitrator was asked to determine[80]. . . where an application for leave to appeal is made, the court should not be burdened with vast tracts of inadmissible evidence, nor should the court be burdened with many pages of intricate argument about the factual issues which the arbitrator has decided. The preparation of such material is a waste of time, effort and costs.”[81]

The practice of the courts in giving reasons when granting/refusing permission to appeal

The general practice of the courts under the 1979 Act was to give no reasons. This changed after the 1996 Act. In the North Range Shipping case, the Court of Appeal considered whether the Antaios guidelines should be upheld in the light of Art.6 of the European Convention on Human Rights.[82] Tuckey L.J. gave the lead judgment (in which he made reference to comments made by Bingham L.J.) that he personally regretted that commercial judges should have been enjoined against giving reasons in [the Antaios] way[83]; Judge David Steel’s practice as set out in Mousaka Inc v Golden Seagull Maritime Ltd[84]:

“to go further than merely refusing permission (with or without express reference to the statutory criteria) and to give some reasons why I had concluded that the arbitrators were correct (or at least not prima facie wrong) on the merits”

and the general principle that the right to a fair hearing generally carries with it an obligation to give reasons.[85]

Tuckey L.J. states in the North Range Shipping case[86] that the Antaios guidelines no longer hold good and gives guidance as to the extent of reasons that should be given.

Is there a route of appeal to the Court of Appeal if the High Court judge refuses permission to appeal?

Tuckey L.J. sets out in his reasoning at [11] of his judgment in the North Range Shipping case that it is clear that there is no appeal from the judge’s refusal to give permission on the merits. This follows from the language of the statute, s.69(8) and was confirmed by the Court of Appeal in the case of Henry Boot Construction (UK) Ltd v Malmaison Hotel.[87] Nor could the judge have given permission to appeal to the Court of Appeal because s.69(8) only applies if there has been a decision of the court of first instance “on an appeal“. If the judge refuses permission to appeal, then there is no appeal.

Does the court have a residual jurisdiction conferred to it by CPR 52.10(2)(a)?

The court does have a residual jurisdiction to set aside a judge’s decision for misconduct and a general power to set aside a decision under CPR 52.10(2)(a)[88] which is not circumscribed by s.69 of the 1996 Act.[89]

Please get in touch at joanne.clarke@howardkennedy.com or victoria.tyson@howardkennedy.com with your thoughts or to discuss any concerns.

[1] See standard from contracts such as cl.9.7 JCT 2005 SBC/Q for an example.

[2] The word now used post-Civil Procedure Rules 1998 is “permission”; accordingly throughout this article the term “permission” will be used even when referring to leave under the old law.

[3] As recently as August 2005, Mr Justice Jackson considered in Surefire Systems Ltd v Guardian ECL Ltd [2005] EWHC 1860 that there seemed to be a widespread misunderstanding about the role of the court in relation to construction arbitrations and so in order to dispel that notion he emphasised (at [42]) that where parties enter into an arbitration agreement their rights thereafter to challenge the arbitrator’s award are strictly limited by the AA 1996; and no application for leave to appeal will be granted unless the prospective applicant can surmount the substantial hurdles set up by s.69.

[4] CMA CGM SA v Beteiligungs-Kommanditgesellschaft MS Northern Pioneer Schiffahrtgesellschaft MBH & Co (2003) 1 W.L.R. 1015 (“the Northern Pioneer”).

[5] This is the way the Hon. Anthony Diamond and V. V. Veeder Q.C. described the position shortly after the 1979 Act came into force in the article “The New English Arbitration Act 1996: Challenging an English Award before the English Court” (????) 8 Am. Rev. Int’l Arb. 47.

[6] ICC Arbitration (2nd edn, 1990).

[7] Pioneer Shipping Ltd v B.T.P. Tioxide Ltd (Nema) [1981] UKHL J0716-1.

[8] Antaios Compania Naviera S.A. v Salen Rederierna A.B (the “Antaios”) [1985] A.C. 191

[9] King v Thomas McKenna Ltd [1991] 2 Q.B. 480; Indian Oil Corp v Coastal (Bermuda) Ltd (1990) 2 Lloyd’s Rep. 407; Breakbulk Marine v Dateline (1992) unreported; Fletamentos Maritimos SA v Effjohn Int’l BV (No.2) (1997) 1 Lloyd’s Rep. 295.

[10] See in particular the laws of France and Switzerland.

[11] “A New Arbitration Act?: The Response of the Departmental Advisory Committee to the UNCITRAL Model Law (1989)” (1990) 6 Arbitration International 1.

[12] Departmental Advisory Committee on Arbitration Law, Report on the Arbitration Bill (1996).

[13] In the second reading of the Bill in the House of Lords explained his view of the philosophy enshrined in the Act in Hansard, at col.778 on January 18, 1996.

[14] [1999] 2 Lloyd’s Rep. 685.

[15] [2005] UKHL 43.

[16] ibid., in Pt XI of his judgment.

[17] ibid., in Pt XII of his judgment.

[18] N.B. only a question of English law can be appealed under s.69 of the 1996 Act by virtue of s.82 of the 1996 Act.

[19] In Ch.14 of J. Lowry and L. Mistelis (eds), Commercial Law Perspectives and Practice (Butterworths, 2005).

[20] He goes on to make comparisons with other countries: “In countries that have long broken the link between commercial arbitration, the development of national law and the state courts (like Sweden), there has grown up increasing complaints that the development of commercial law has withered away to the great disadvantage of the commercial community. Furthermore, over the last ten years the English oddity has become increasingly popular outside England, a useful example appears from the practice of the parties to arbitrations in the USA.”

[21] At p.356 of their commentary on the 1996 Act contained in Commercial Arbitration (2001), Companion Volume to the Second Edition.

[22] On November 29, 1996, Lord Saville, Lord Appeal in Ordinary, gave the Donald O’May lecture in Maritime Law at the Institute of Maritime Law of the University of Southampton. The revised text of the lecture was published in an article: Lord Saville, “The Arbitration Act 1996” [1997] Lloyd’s Maritime and Commercial Quarterly 502.

[23] s.105 of the Act defines “the court” as the High Court or a county court subject to further provisions set out in subss.2 and 3 of s.105.

[24] See s.4 of the 1996 Act (relating to the mandatory provisions of the 1996 Act).

[25] N.B. s.68 is mandatory and cannot be excluded so in some circumstances a challenge may still be mounted on s.68 grounds. Discussion of s.68 of the 1996 Act is outside the scope of this article.

[26] The non-mandatory s.52(4) of the Arbitration Act 1996 states that the award shall contain reasons for the award unless it is an agreed award or the parties have agreed to dispense with reasons.

[27] See below for further detail on the courts practice on giving reasons.

[28] For an analysis of whether the reasons can be referred to by the courts on a s.68 application, further consideration should be given to the Tame Shipping case (fn.28 below), Atlantic Lines and Navigation Co Inc v Italmare SpA (“The Appollon”) [1985] 1 Lloyd’s Rep. 597, and to Mutual Shipping Corp v Bayshore Shipping Co (“The Montan”) [1984] 1 Lloyds Rep. 389.

[29] [2004] 2 Lloyd’s Rep. 626.

[30] Suggested by the author.

[31] See Sanghi Polyesters Ltd (India) v The International Investor (KCFC) (Kuwait) [2000] 1 Lloyd’s Rep. 480, or the recent Lesotho case.

[32] (1997) 34 O.R. (3d) 472.

[33] (2000) 186 D.L.R. (4th) 347.

[34] [2000] N.S.W.C.A. 240.

[35] [1989], unreported.

[36] “Awards to be final. Unless a contrary intention is expressed in the arbitration agreement, the award made by the arbitrator or umpire shall, subject to this Act, be final and binding on the parties to the agreement.”

[37] This states that an award is final and binding but in s.58(2) it is expressly clarified that this does not affect the right of a person to challenge an award in accordance with the provisions of Pt 1of the 1996 Act.

[38] [1985] 1 Lloyd’s Rep. 120, CA.

[39] [1966] 1 Q.B. 273.

[40] [1948] 1 Q.B. 223.

[41] [1980] 1 Lloyd’s Rep. 194.

[42] Queen’s Bench Division (Bristol Mercantile Court) [2002] 2 Lloyd’s Rep. 512.

[43] He describes Sir John Donaldson’s judgment as “a slightly different view as to whether an absolute discretion was capable of review” when comparing it to Leggatt J.’s view. In fact, Sir John Donaldson took the opposite view to that of Leggatt J.

[44] The alternative is to opt for a system of law under s.46(1)(a) of the 1996 Act.

[45] [1999] 1 Lloyd’s Rep. 862.

[46] [2000] 1 Lloyd’s Rep. 480.

[47] [2000] 2 Lloyds Rep. 83.

[48] [2002] 1 All E.R. (Comm) 59.

[49] 2001, unreported.

[50] (1999) C.L.C. 417: The Times, December 7, 1998.

[51] December 21, 1999.

[52] (1988) 75 Con. L.R. 1.

[53] (2001) 82 Con. L.R. 41.

[54] For a question of law to substantially affect the rights of one or more of the parties would involve that point of law affecting the entire outcome of the arbitration, not a small part of the award. President of India v Jadranska Slobodna Plovidba [1992] 2 Lloyd’s Rep. 274.

[55] The 1996 Act, s.69(3)(b), requires the question to be one which the tribunal was asked to determine. The significance of this additional criterion is that the question of law must have been raised at the arbitration proceedings. This has had the effect of reversing the decision in Petraco (Bermuda) Ltd v Petromed International SA [1988] 2 Lloyd’s Rep. 357. The effect of this section is that the parties are estopped from seeking permission to appeal on a point not raised at the arbitration. This clearly narrows the scope of appeals that were open under the 1979 Act.

[56] Pioneer Shipping v B.T.P. Tioxide (“The Nema”) [1982] A.C. 724.

[57] Antaios Compania SA v Salen AB (“The Antaios”) [1985] A.C. 191.

[58] “[T]he statutory criteria are strongly influenced by the Nema guidelines. They do not however follow these entirely. We have concluded that they open the door a little more widely to the granting of permission to appeal than the crack that was left by Lord Diplock.”

[59] fn.11 above, at paras 287–291.

[60] [1982] 1 Lloyd’s Rep. 472.

[61] fn.11 above, at para.290.

[62] In the article “The internationalisation of English Arbitration Law” (2000) 11(1) ICC International Court of Arbitration Bulletin.

[63] See fn.59 above.

[64] See fn.60 above.

[65] [2005] EWHC 1860.

[66] By way of example, in Boulos Gad Tourism v Uniground Shipping Co (2001), unreported, the charterers sought to persuade the court that a demonstration of unsafety amounts ipso facto to a demonstration of prevention of performance. Tomlinson J. held that: “In my judgment, the question which the charterers seek to raise is not in fact a question of law at all. It is a question of fact, no doubt, in every case whether the unsafety which has been demonstrated can amount to a prevention from performance, or a prevention of performance. As I pointed out during the course of the argument, safety is a relative concept. All maritime adventures, indeed, I suppose all commercial adventures, are subject to some degree of risk. It seems to me that the arbitrator here directed himself entirely properly in concluding that the question which he had to resolve was whether the charterers had been prevented from fulfilling their obligations. That was an inquiry of fact. The arbitrator’s conclusion on that is final and cannot properly be made the subject of an appeal.”

[67] [2005] EWHC 1398 (Comm) at [36].

[68] [2004] 2 S.L.R. 494.

[69] (2005) 102 Con L.R. 1.

[70] [1992] Lloyd’s Rep. 323.

[71] [2005] EWHC 2356.

[72] fn.51 above, at [6].

[73] [2003] B.L.R. 155 at 160.

[74] [2002] 2 Lloyd’s Rep. 681.

[75] See also Foley’s Ltd v City and East London Family and Community Services [1998] A.D.R.L.J. 401.

[76] At [23] of his judgment.

[77] fn.11 above, at para.291.

[78] [2004] EWHC 3051 at [24].

[79] See also Walsall Metropolitan Borough Council v Beechdale Community Housing Association Ltd [2005] EWHC 2715.

[80] fn.63 above, at [22].

[81] ibid., at[42].

[82] “In the determination of his civil rights … everyone is entitled to a fair and public hearing“. There is no specific reference to anything about reasons.

[83] In a lecture given in October 1987, “Reasons and Reasons for Reasons: Differences between a Court Judgment and an Arbitration Award” (1988) 4 Arb. Int. 141.

[84] [2002] 1 W.L.R. 395 at 404.

[85] See Tuckey L.J.’s judgment in the North Range Shipping case, fn.80 above, at [20], and the cases of Hiro Balani v Spain (1995) 19 E.H.R.R. 566 at [27] and Garcia Ruiz v Spain (1993) 31 E.H.R.R. 589.

[86] fn.80 above, at [27] and [28] of his judgment.

[87] [2001] Q.B. 388.

[88] 52.10: “(1) In relation to an appeal the appeal court has all the powers of the lower court. (Rule 52.1(4) provides that this Part is subject to any enactment that sets out special provisions with regard to any particular category of appeal—where such an enactment gives a statutory power to a tribunal, person or other body it may be the case that the appeal court may not exercise that power on an appeal)

(2) The appeal court has power to—affirm, set aside or vary any order or judgment made or given by the lower court; refer any claim or issue for determination by the lower court; order a new trial or hearing; make orders for the payment of interest; make a costs order.”

[89] See Tuckey L.J.’s judgment in the North Range Shipping case, fn.80 above, at [14].