Litigation in the technology and construction court

Adam Constable KC; Lucy Garrett and Calum Lamont

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CHAPTER 11 The TCC and arbitration

11.1 Arbitration is seen more as a rival to litigation as a means of dispute resolution than complementary to it, as might mediation, ENE and the like be considered. The comparative advantages and disadvantages are explained in . Although effectively competing for work, there are aspects in which the TCC retains a role in the supervision and regulation of arbitration, and appeals from arbitration. Much like in its approach to other ADR, the policy which drives the TCC approach is one of supporting the arbitral process if that is how parties have decided to resolve their disputes. This chapter explains some of the key aspects in which the TCC supports the arbitral process, and the involvement of the TCC in appealing the decision of an arbitrator. 11.2 Arbitration claims are applications made to the Court under the Arbitration Act 1996. Where the underlying arbitration relates to matters of construction or engineering, or themselves the sort of claim which would be, if litigated, heard in the TCC, then the related claim should be commenced in the TCC. Applications under section 9 of the Arbitration Act 1996 to stay proceedings to arbitration should be started by application notice in the TCC, following the general CPR procedure for applications.1 All other arbitration-related business in the TCC should be commenced as an ‘Arbitration Claim’ under CPR 62.2(1).

Stay of proceedings

11.3 Unlike the position in relation to other forms of ADR, where the Court can exercise an equitable discretion to stay litigation for a period so as to enforce a contractual requirement to participate in ADR, there is a statutory obligation to do in the context of arbitration. Section 9 of the Arbitration Act 1996 provides that, where a party to an arbitration agreement against whom legal proceedings are brought applies to have those proceedings stayed, the Court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed. 11.4 Generally, arguments raised on such applications therefore involve questions as to whether there is a binding and operative arbitration agreement2 or whether there is a basis upon which it is not possible to operate the clause as required by the contract.3 The other

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category of arguments relates to whether a party has taken a step in the proceedings, with the effect that it is no longer open to a party to apply under section 9 for a stay.4 11.5 In terms of the requirements for a valid arbitration agreement, a clause must be incorporated into the agreement: this may cause particular difficulties where obligations are said to be stepped down from a main contract to a sub-contract.5 It is also necessary that the attributes of ‘arbitration’ are present in the procedure envisaged by the parties. The Court of Appeal6 has approved the list of attributes which must be present, and others which may be relevant, as set out in Mustill & Boyd: Commercial Arbitration (2nd edn, 2001). Those which must be present are as follows:

The agreement pursuant to which the process is, or is to be, carried on (‘the procedural agreement’) must contemplate that the tribunal which carries on the process will make a decision which is binding on the parties to the procedural agreement.
The procedural agreement must contemplate that the process will be carried on between those persons whose substantive rights are determined by the tribunal.
The jurisdiction of the tribunal to carry on the process and to decide the rights of the parties must derive either from the consent of the parties or from an order of the court or from a statute the terms of which make it clear that the process is to be an arbitration.
The tribunal must be chosen, either by the parties, or by a method to which they have consented.
The procedural agreement must contemplate that the tribunal will determine the rights of the parties in an impartial manner, with the tribunal owning an equal obligation of fairness towards both sides.
The agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law.
The procedural agreement must contemplate a process whereby the tribunal will make a decision upon a dispute which has already formulated at the time when the tribunal is appointed.

Those which may be relevant are as follows:

Whether the procedural agreement contemplates that the tribunal will receive evidence and contentions, or at least give the parties the opportunity to put them forward;
Whether the wording of the agreement is consistent or inconsistent with the view that the process was intended to be an arbitration;
Whether the identity of the chosen tribunal, or the method prescribed for choosing the tribunal, shows that the process was intended to be an arbitration;
Whether the procedural agreement requires the tribunal to decide the dispute according to law.

11.6 An arbitration agreement, properly incorporated, may nevertheless be unenforceable in a consumer context (for example, which would include many of the types of low-value domestic construction projects dealt with by the TCC) by reference to the Unfair Terms in Consumer Contracts Regulations 1999.7 A clause will be unenforceable if, by the requirement to refer to arbitration, there is significant imbalance in the parties’ rights, to the consumer’s detriment.

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11.7 A party can (and indeed must) take the proper procedural step to acknowledge legal proceedings, an application under Section 9 cannot be made after the party has taken any step in the proceedings to answer the claim itself.

Jurisdiction of the arbitrator

11.8 The Arbitration Act 19968 provides that unless otherwise agreed by the parties, the Arbitral Tribunal may rule on its own substantive jurisdiction, that is, as to whether there is a valid arbitration agreement, whether the Tribunal is properly constituted and what matters have been submitted to arbitration in accordance with the arbitration agreement. Prior to the Arbitration Act 1996, questions of jurisdiction would be dealt with routinely by the Courts, but the question must now be determined in the first instance by the Tribunal in the arbitration itself, unless certain criteria are satisfied. The TCC will only determine any question as to the jurisdiction in the first instance if the parties agree or where the arbitrator(s) agree and the TCC is satisfied that the determination of the question is likely to produce substantial savings in costs, that the application was made without delay and that there is good reason why the matter should be decided by the TCC.9 11.9 If the party disputing jurisdiction is unable to bring itself with section 32, it remains open to it to appeal the decision of the arbitrator(s) on the question of jurisdiction to the TCC under section 67 of the Arbitration Act 1996.10 Such an appeal should be brought as an Arbitration Claim, and would involve a re-hearing, rather than review, of the jurisdiction argument, but the grounds of objection must be the same as those raised in front of the Tribunal.11 It is essential that a party objecting to substantive jurisdiction does so in good time, or it will otherwise lose its right to object. This relates both to objection prior to the arbitrator’s determination and to any appeal under section 67.12 Any appeal from an arbitral award relating to jurisdiction must be brought within 28 days of the date of the award or, if there has been any arbitral process of appeal or review, of the date when the applicant or appellant was notified of the result of that process.13

Extension of time limits for the referral of disputes

11.10 Applications to the TCC can be made to extend time in circumstances where an arbitration agreement to refer future disputes to arbitration provides that a claim shall be barred or extinguished unless a particular step is taken within a particular time. The Court can only intervene in this way if it is satisfied that the circumstances are such as were outside the reasonable contemplation of the parties when they agreed the provision in

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question, and that it would be just to extend time, or that the conduct of one party makes it unjust to hold the other party to the strict terms of the provision.14 11.11 In Harbour & General v Environment Agency,15 Waller LJ provided an explanation of the purpose and extent of this provision. It was made clear that, in contrast to section 27 of the Arbitration Act 1950, section 12 was intended to reflect the underlying philosophy of the Act of party autonomy, which meant, among other things, that any power given to the Court to override the bargain that the parties have made must be fully justified. The idea that the Court has some general supervisory jurisdiction over arbitration has, since 1996, been abandoned. This explanation was elaborated by Toulson J in Korbetis v Transgrain,16 who confirmed that it should be restricted to circumstances which were not only beyond the reasonable contemplation of the parties, but were also such that if the parties had contemplated them, they would also have contemplated that the time bar might not apply in such circumstances. 11.12 In William McIlroy Swindon Ltd v Quinn Insurance Ltd,17 the TCC did not consider the substantive application of the section to the facts, finding instead that because the insurance policy was governed by Irish law, the Court did not have jurisdiction to extend time under the Act. An example of circumstances which did not justify an extension was the failure to have sent an acceptance fax to the correct number or follow up a response.

Powers of the TCC in relation to procedural aspects of arbitration

11.13 The TCC has the power, in limited circumstances, to involve itself in the appointment of arbitrators. Under section 17 of the Arbitration Act 1996, in circumstances where both parties were required to appoint an arbitrator and one party does not do so, the non-defaulting party can upon notice appoint an arbitrator, and that arbitrator can be the sole arbitrator. However, under section 17(3), the defaulting party can then apply to the Court to set aside the appointment. 11.14 If there is no agreement as to what should happen on failure of the procedure for the appointment of the Arbitral Tribunal, then any party to the arbitration agreement may on notice to the other parties apply to the TCC to exercise its powers pursuant to section 18 of the Arbitration Act 1996: to give directions as to the making of any necessary appointments; to direct that the Tribunal shall be constituted by such appointments (or any one or more of them) as have been made; to revoke any appointments already made; and to make any necessary appointments itself. In deciding whether to exercise its powers, the TCC is required to have regard to any agreement between the parties as to the qualifications required of the parties.18 11.15 Section 24 of the Arbitration Act 1996 gives the parties the right (upon notice to the other parties and the arbitrator(s)) to apply to the TCC to remove an arbitrator on various grounds: justifiable doubts about impartiality; lack of qualifications required by the

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arbitration agreement; physical or mental incapacity; and a failure to have conducted the proceedings properly or use reasonable dispatch in relation to the proceedings or award, such that substantial injustice has been or will be caused. If there is an institution vested with the power to remove an arbitrator, the TCC will not intervene until all relevant avenues under the institution have been exhausted. On removing an arbitrator, the question of fees or expenses (whether due or to be repaid) is a matter the TCC can deal with. 11.16 In demonstrating justifiable doubts about impartiality for the purposes of section 24, it is not necessary to show actual bias. It is necessary only to demonstrate that a fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the Tribunal was biased. In Cofely Ltd v Bingham & Knowles Ltd,19 there was evidence that the arbitrator had received 18 per cent of his appointments and 25 per cent of his income from cases involving Knowles, and that it had been accepted in Eurocom Ltd v Siemens Plc 20 that Knowles steered the appointment process towards its desired appointees, as a matter of general practice. Cofely had reasonably sought to obtain further information about the relationship between the first and second defendants, but the first defendant’s response involved avoiding addressing the requests and instead gave the appearance of seeking to foreclose further enquiry by demonstrating their irrelevance and doing so in an aggressive manner. Considered together, the evidence supported the grounds relied upon by Cofely and raised the real possibility of apparent bias, establishing a valid ground for removal of an arbitrator. If the arbitrator would not resign, an order for his removal would be made. 11.17 Analogy can be made to cases regularly determined in the TCC relating to the conduct of adjudications. So, for example, lengthy telephone calls between the Tribunal and one of the parties is likely to give rise to claim of apparent bias.21 The involvement of the adjudicator in simultaneous adjudications involving one of the parties without disclosing the fact to the other party was held to be a material breach of the rules of natural justice. This behaviour would, if replicated in the context of an arbitration, be likely to give rise to justifiable doubts about impartiality for the purposes of section 24 of the Arbitration Act 1996. 11.18 Other powers include the provision of relief in relation to fees and expenses, and any liability if an arbitrator resigns their appointment;22 the adjustment of the arbitrators fees;23 making an order requiring a party to comply with a peremptory order made by the Tribunal;24 and whether the parties, or the arbitrator, agree, using the same Court procedures as are available in relation to legal proceedings to secure the attendance of a witness to give oral testimony or to produce documents or other evidence.25 However, it is clear from section 44 of the Arbitration Act 1996 that wider powers to influence or control the procedure of the arbitration is extremely limited. In urgent cases, where necessary to preserve

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evidence, the Court has the same powers it would have in legal proceedings with regard to taking of evidence, preserving it, allowing inspection, the sale of goods and the granting of injunctions. However, if the case is not one of urgency, applications to Court can only be made with the permission of the Tribunal or agreement of the parties. If an (urgent) order is made, it ceases to have effect when the matter is considered by the relevant Tribunal. 11.19 There is a power to extend time limits agreed by the parties (save where section 12 applies) in relation to any matter relating to the arbitral proceedings or specified in any provision of the Arbitration Act 1996 having effect in default of such agreement in circumstances where any available recourse to the arbitrator or institution has been exhausted. This could, therefore, include, for example, the time limits relating to the appointment of an arbitrator or an appeal from an award. The TCC would have to be persuaded that a substantial injustice would be done otherwise.

Appeal

11.20 Appeals against arbitration awards are considered by the TCC pursuant to section 67 (dealing with jurisdiction, considered above), section 68 (serious irregularity) or section 69 (points of law). The list of serious irregularities is set out in section 68(2), and must be one which has caused or will cause substantial injustice to the application:

failure by the Tribunal to comply with section 33 (general duty of Tribunal);
the Tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction: see section 67);
failure by the Tribunal to conduct the p]roceedings in accordance with the procedure agreed by the parties;
failure by the Tribunal to deal with all the issues that were put to it;
any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award exceeding its powers;
uncertainty or ambiguity as to the effect of the award;
the award being obtained by fraud or the way in which it was procured being contrary to public policy;
failure to comply with the requirements as to the form of the award; or
any irregularity in the conduct of the proceedings or in the award which is admitted by the Tribunal or by any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award.

11.21 It is only in the clearest of cases that the Court will determine that there has been a serious irregularity which has or will cause substantial injustice. By far the more common approach of the TCC on appeal is to uphold the arbitration award. 11.22 Similarly, leave to appeal on a point of law is granted extremely sparingly. It must be demonstrated that: the determination of the question will substantially affect the rights of one or more of the parties; the question is one which the Tribunal was asked to determine; on the basis of the findings of fact in the award:

the decision of the Tribunal on the question is obviously wrong; or
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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.26

11.23 Of central importance to the limitation on the right of appeal are the words, ‘on the basis of the findings of fact in the award’. Unlike appeals from the High Court to the Court of Appeal where there is a (limited) right to appeal factual questions, appeals to the TCC in respect of arbitration awards must take all factual findings as they stand: the TCC is astute to the strategy of dressing up factual questions as questions of law or mixed fact and law, and will not entertain such an approach.27 11.24 The party applying for permission to appeal must follow PD62, supplementing CPR Part 62, paragraph 12.1 onwards. The arbitration Claim Form must identify the question of law, and state the grounds (but not the argument) on which the party challenges the award. It must be accompanied by a skeleton argument no longer than 15 pages and printed in 12-point font and 1.5 line spacing. It should indicate how long it is likely to deal with the application on the papers and, generally, the Court will determine an application for permission to appeal without a hearing unless it appears that a hearing is required. 11.25 In reality, the TCC determines the same question on leave to appeal as it does on the substantive appeal. Generally, therefore, the TCC will either dispose of the matter on paper (generally by dismissing the application), or if the Judge considers that the appeal has sufficient merit to warrant a hearing for leave to appeal, then – unless there are good reasons not to – the substantive appeal can be heard at the same time as the oral hearing for permission to appeal.28