Hackwood v. Areen Design Services

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Hackwood Ltd v Areen Design Services Ltd
English High Court: Technology & Construction Court; Mr Justice Field; [2005] EWHC 2322 (TCC); 31 October 2005
Mr Michael Bowsher (instructed by Simmons & Simmons) for the Claimant, Hackwood
Mr Andrew Goddard QC (instructed by Lane & Partners) for the Defendant, Areen Design

This case concerned an application by Hackwood under s.72 Arbitration Act 1996 (see text below for wording) for declarations that (i) it was not party to any arbitration agreement with Areen Design ("ADS") and (ii) arbitration proceedings started by ADS were therefore a nullity. There was also a cross-application by ADS for a declaration that Hackwood, having applied under s.72, was debarred from participating in those arbitration proceedings should the court find that Hackwood was indeed party to an arbitration agreement with ADS. In its judgment, the court held that Hackwood was party to the arbitration agreement but that the failure of its application under s.72 did not debar it from taking part in the arbitration proceedings subsequently

DMC Category Rating: Developed – the s.72 point has not been addressed directly before

This case note has been prepared by Hew Dundas, International Arbitrator, Mediator and Expert Determiner, who is a Contributor to this website

Hackwood owned Hackwood House, a Grade II listed property situated in Hampshire. In 2001-03 ADS carried out extensive refurbishment works on the house. Prior to the start of the works, it had been agreed by way of a letter of intent dated 25 July 2000 that ADS would proceed, pending execution of a formal contract based upon the JCT Standard Form Contract With Contractor's Design 1998 Edition ("the JCT Contract"). On 4 June 2001, Hackwood proposed that ADS should begin the refurbishment works on the terms of another letter of intent, also referring to the JCT Contract. The parties contemplated they would execute a formal JCT Contract once certain outstanding matters had been agreed but no such contract was ever executed; the works were accordingly done under the terms of the 4 June letter.

A certificate of practical completion was issued on 9 September 2003 but disputes arose concerning extensions of time ("EoTs") and, in January 2004, ADS commenced an adjudication in respect thereof. ADS's principal case was that the terms of the JCT Contract had been incorporated into the contract under which the works had been done (Hackwood accepted this) and that pursuant to those terms and on the facts of the case they were entitled to EoTs, which Hackwood resisted. On 5 March 2004 an adjudicator held that ADS was not entitled to any further EoTs.

On 21 January 2005, ADS gave notice of arbitration to Hackwood, and applied to the Chartered Institute of Arbitrators ("CIArb") for the appointment of an arbitrator. On 4 March 2005, one was duly appointed. In its Points of Claim, ADS pleaded that the contract incorporated the terms of the JCT Contract and claimed entitlement to EoTs and to just over £4 million. Hackwood contended that these arbitration proceedings were a nullity and, in contrast to the position it took in the adjudication now contended that the contract did not incorporate the JCT Contract. The latter includes an arbitration agreement.

As in all such cases of "what was the contract?", this one turned on its own facts and a detailed analysis is not relevant to this case note. Suffice it to say that Field J. held that the effect of the 4 June letter was to incorporate terms of the JCT Contract into the interim contract, save to the extent that those terms were inconsistent with the terms of the letter. Consequently, Hackwood was party to an arbitration agreement with ADS. What were the consequences of this, in particular regard to the s.72 contentions?

  1.    Had the arbitral proceedings been properly constituted?
  2.    Was Hackwood debarred from participating in the

Issue 1
Hackwood contended that the Arbitrator had not been validly appointed and that the notice of arbitration had not properly identified the relevant dispute. The Judge rejected these contentions since the alternative appointment mechanisms provided in the JCT contract had not been taken up so, as a simple matter of contract, the appointor was to be the President or a Vice-President of the CIArb which is what had happened.

ADS’ notice of arbitration had stated: "Disputes and or differences including but not limited to claims of extensions of time due to ADS under the Contract and consequential loss and expense payments owed to ADS therefor, claims by ADS for prolongation and disruption costs, claims by ADS for reimbursement for works additional to the agreed scope of Works, and monies owed to ADS under its Final Account have arisen between the parties." The Judge considered this a perfectly adequate notice for the purposes of the arbitration agreement in the JCT contract.

Hackwood also contended that insufficient notice of the arbitration had been given because it had been sent to its previous registered office and not to its new one. The Judge held that since the notice had been the subject of communications between the parties' respective solicitors, this contention was groundless.

Consequently, the arbitration begun by ADS had been properly constituted.

Issue 2
S.72 provides that: 
"(1) A person alleged to be a party to arbitral proceedings but who takes no part in the proceedings may question -
    (a) whether there is a valid arbitration agreement,
    (b) whether the tribunal is properly constituted, or
    (c) what matters have been submitted to arbitration in
         accordance with the arbitration agreement,
by proceedings in the court for a declaration or injunction or other appropriate relief."
(2) He also has the same right as a party to the arbitral proceedings to challenge an award-
(a) by an application under section 67 on the ground of lack of substantive jurisdiction in relation to him, or
(b) by an application under section 68on the ground of serious irregularity (within the meaning of that section) affecting him:
and section 70(2) (duty to exhaust arbitral procedures) does not apply in his case."

To ensure that it fell within this provision, Hackwood had taken no part in the arbitration.  On 13 July 2005, the Arbitrator had issued a procedural order the effect of which was that, if Hackwood failed to serve Points of Defence as directed by an earlier order or "boycotts the Full Procedure or fails to submit to the jurisdiction of the Arbitration in any other way," the previous timetable laid down by the Arbitrator was not to apply and ADS was to serve its Statements of Witnesses of Fact by 19 September 2005.  By letter dated 31 August 2005, however, the Arbitrator stated that he would receive evidence from Hackwood if its s.72 application failed.  ADS consequently contended that Hackwood, having applied under s.72, was legally debarred from participating in the arbitration if (as the Judge had held) its application failed.
Counsel for ADS argued that the right to apply under s.72 conferred a special privilege when that right was compared with the rights of challenge conferred by ss.30 and 32 of the Act. Under s.30 the challenge has to be made within the arbitration and the right to have a jurisdictional question decided by the court under s.32 is conditional on the written agreement of all parties, the permission of the arbitral tribunal and the court being satisfied that there was a good reason why the matter should be decided by the court. Moreover, the rights of challenge conferred by ss.30 and 32 were capable of being lost if the requirements of s.73 were not met. It followed that it would be contrary to the policy of the Act if an unsuccessful s.72 applicant were to be allowed to participate in the arbitration. The words "who takes no part in the proceedings" in s.72(1) ought therefore to be construed as meaning ‘takes no part at any stage whether before or after a s.72 challenge’. ADS also argued that if a party made a s.72 application, it was to be taken to have made a binding election that debarred it from any subsequent participation in the arbitration.

The Judge rejected these arguments since it was clear that s.72 required no more than that an applicant should not take part in the arbitral proceedings prior to the determination of his application. If it had been Parliament’s intention to debar an unsuccessful s.72 applicant from subsequent participation in the proceedings, the Act would have to have provided for this in express terms, since that applicant would be being denied a contractual right. It was accordingly for the tribunal to decide whether it was appropriate for an unsuccessful s.72 applicant to be allowed to participate in the arbitration. ADS’ contention that Hackwood was debarred from participating in the arbitration by reason of its election was, held the Judge, misconceived. It was clear that, having opted to proceed by way of a s.72 application, Hackwood could not thereafter seek to have the same issues determined under ss.30 or 32 - but this was the limit of the consequences of its election to apply under s.72.

The Judge concluded by dismissing both Hackwood's application and ADS's cross-application. Hackwood was party to the arbitration agreement contained in the JCT contract and was not debarred from participating in the ensuing arbitration proceedings.

I sometimes refer to cases as 0-0 draws where neither party wins but here both effectively lost! The judgment makes no reference to costs but it is to be presumed that costs lay where they fell. Levity apart, there can be no doubt that this decision is correct and, although ADS’ approach to s.72 appears novel, other comparable cases have made it clear that a party can indeed "sit it out" under s.72 until an award is rendered and then commence proceedings under s.72(2). This is well-known to be a high-risk strategy since the various options available within the arbitral process pre-award are thereby discarded.

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