Surefire Systems v. Guardian ECL

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Surefire Systems Limited v. Guardian ECL Limited
English High Court, Queen's Bench Division, Technology and Construction Court; Mr Justice Jackson; [2005] EWHC 1860 (TCC); Case No: HT-05-183; 18 August 2005
Mr Simon Brown QC (instructed by Gullands, Kent) for the Claimant
Mr Adam Constable (instructed by Hawkswell Kilvington, West Yorkshire) for the Defendant
Arbitration: construction: disputes over final account
: Arbitration Act 1996: leave to appeal ("LTA"): section 69: questions of law: whether requirements of section met: extensions of time: section 70(3): section 80(5)
Guardian ("G") was a sub-contractor to Surefire ("S") for certain work on a building, for which the latter was a main contractor. The parties could not agree G’s Final Account and the dispute was referred to arbitration, G claiming some £650,000. The Arbitrator awarded G approx. £103,000 and S applied under s.69 for leave to appeal (LTA) on three grounds purporting to be questions of law. All three grounds were trenchantly rejected by the Judge as "hopeless" or "fatally flawed"; he set out some general principles governing such applications. He also confirmed the factors to be considered in relation to applications for extensions of time

DMC Category Rating; Confirmed

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

In 1996, the owner (Shirayama) of the former County Hall building in London, had engaged S as a trade contractor to design and install a fire and voice alarm system. The latter engaged G as subcontractor to install cables. The subcontract incorporated the conditions of the Shirayama/S contract and also included an arbitration agreement. S and G were unable to agree the latter’s Final Account, so G commenced arbitration claiming (a) £268,628 in respect of extra and varied work and (b) £372,243 in respect of loss and expense resulting from delay and disruption. A well-known English construction arbitrator was appointed and he made three awards [(not including any on costs);] The third award, dated 19th April 2005 and resolving most matters, was preceded by an 8-day hearing and both parties made extensive post-hearing submissions. In total, the Arbitrator awarded £103,000 to G but dismissed its claim for loss and expense. On 2 May 2005, he issued a clarification of his award in the light of correspondence sent to him. On 23 May 2005 S applied for LTA under s.69 of the Arbitration Act 1996 and also applied for an extension of time if one was required.

S's application comprised a witness statement by its Solicitor which included not only detailed arguments about each component of the Arbitrator’s decision but also much other factual evidence. G’s response comprised two witness statements by its Solicitor, attached to which were various documents relating to the subcontract works and to the arbitration. G’s Solicitor also dealt in some detail with each of the disputed decisions of the Arbitrator.

As stated in S’s claim form, the grounds of appeal were that the Arbitrator had failed to take into account

(1) S's subcontract condition that variation applications should be accompanied by daywork sheets, leading to the Arbitrator’s decisions being based on pure speculation in the total absence of any evidence as to the number of hours actually employed;

(2) the evidence provided at the hearing as to what had been involved in the variations for which G had claimed, and had therefore wrongly determined questions (i) either in the absence of any evidence at all or (ii) on the basis of what the parties discussed and did;

(3) Clause 10 of the S/G subcontract relating to payments on account, the Arbitrator having wrongfully concluded that the terms relating to payments on account were governed by Clause 12 of the Shirayama/S contract.

Counsel for S (who had not appeared in the arbitration) departed from the claim form, advancing amended grounds of appeal, namely: (1) the Arbitrator had failed to pay regard to the burden of proof which lay on G, awarding sums thereto in respect of which (as could be seen from the award) there was no supporting evidence;. (2) he had disregarded Clause 10 of the subcontract in awarding G sums to which it was not entitled, since it had failed to comply with the mechanism contained in that clause.

Counsel for G, (who acted in both the arbitration and in Court) submitted that LTA should not be granted since S had not identified any question of law which the Arbitrator had been asked to determine, or in respect of which he had even arguably fallen into error.

(1) Leave to appeal under s.69:

S.69 of the Arbitration Act 1996 provides inter alia:

"(1) 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 on a question of law arising out of an award made in the proceedings….

(2) An appeal shall not be brought under this section except … (b) with the leave of the court. The right to appeal is also subject to the restrictions in section 70(2) and (3).

(3) Leave to appeal shall be given only if the court is satisfied

(a) that the determination of the question will substantially affect the rights of one or more of the parties;

(b) that the question is one which the tribunal was asked to determine;

(c) that on the basis of the findings of fact in the award -

(i) the decision of the tribunal on the question is obviously wrong or

(ii) the question is one of general public importance and the decision of the tribunal is at least open to serious doubt, and

(d) that 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.

(4) An application for leave to appeal under this section shall identify the question of law to be determined and state the grounds on which it is alleged that leave to appeal should be granted."

[Note: that the reference to "general public importance" does not relate to the newsworthiness of the case or to its effect on the taxpayer (that is. where one party to the arbitration is a publicly-funded entity) but instead to the importance to the commercial community of deciding the question of law in a Court, for example, where a standard-form contract is in widespread use, as is the case in the construction, maritime and commodity sectors. HD]

In Demco Investments & Commercial SA & Ors v SE Banken Forsakring Holding Aktiebolag [2005] EWHC 1398 (Comm), Cooke J had stated (at §36) that the legislative intent of s.69(3) was to prevent parties seeking to dress up questions of fact as questions of law; Jackson J agreed. Any party applying for LTA under s.69 must take, as its starting point, the tribunal’s findings of fact and must then must identify the question(s) of law arising from those facts upon which the tribunal had fallen into error. The applicant must next demonstrate that the question of law was one which the tribunal had been asked to determine. The prospective appellant must also surmount one or other of the two high hurdles which s.69(3)(c) has erected.

It therefore followed that the evidence which was admissible in an LTA application was strictly limited, generally comprising (i) the award itself and (ii) any evidence relevant to the issue as to whether the identified question of law was of general public importance. In some cases, it might also be necessary to consider the written submissions in the arbitration in order to ascertain what had been the questions which the tribunal had been asked to determine. 

The first ground of appeal was directed at those variations which were not supported by day work sheets. S's order to G stated "Please note that payment for any additional works will only be made when accompanied with an instruction and daywork sheets authorised by our site manager" [emphasis added] and the Arbitrator had dealt with this matter as follows: "On a few occasions, G did submit daywork sheets but not time sheets. Where it did, the daywork sheets were signed by S 'for record purposes only'. I accept G's evidence that S did not generally ask for daywork sheets and did not use their non-provision as a specific reason for disputing the value of variations." The Judge considered it clear that if the effect of S’s note had been raised as an issue in the arbitration (it had not), then the Arbitrator would have held that compliance with this note had been waived. Consequently, the Judge held that this first ground was "quite hopeless", not only failing to identify any question of law upon which the Arbitrator had even arguably fallen into error but also failing to satisfy any of s.69(1), s.69(3)(b), s.69(3)(c), s.69(3)(d), or s.69(4).

As regards the second ground, the Arbitrator had directed himself correctly concerning the burden of proof, stating in his award: "I accept that G bears the burden of proof in establishing first, that a variation under the contract has occurred and second, what is its entitlement to extra payment.". However, S argued that the Arbitrator had not proceeded thereafter in accordance therewith; S relied upon the decision of the House of Lords in Rhesa Shipping Co SA v Edmunds [1985] 1 WLR 948 to the effect that where there was no satisfactory evidence on a particular point, the party bearing the burden of proof should fail in respect of that point. The Judge accepted (as he had to) this proposition but did not accept that it applied in the present case since, in respect of those issues where there was a paucity of evidence, the Arbitrator had identified some evidence, in particular having had the benefit of both contemporaneous documents and oral evidence of key individuals. It was not the function of the Court to review an arbitrator's assessment of the factual evidence. As an aside, the Judge saw "nothing remotely surprising" in the Arbitrator's assessment of the evidence. Accordingly, the second proposed ground of appeal had to be rejected.

The third ground was fatally flawed since at the hearing no submissions had been made by either party as to the meaning or effect of Clause 10 of the S/G subcontract; on the contrary, both parties had proceeded on the basis that the relevant contractual provisions were those contained in Clause 12 of the Shirayama/S contract and, unsurprisingly, the Arbitrator had made no reference whatsoever to Clause 10. It therefore followed that (i) this third proposed ground of appeal did not involve "a question of law arising out of the award" (ii) the question raised by this ground was not one which the Arbitrator had been asked to determine. In addition, there was no admissible evidence before the Court as to what Clause 10 actually provided. The third proposed ground of appeal must be rejected, because it failed to satisfy the requirements of any of s.69(1), s.69(3)(b), s.69(3)(c), s.69(3)(d) or s.69(4).

S therefore failed in its LTA application.

However, the Judge had dealt with this case at much greater length than usual, in part because it illustrated three propositions, which needed to be emphasised and which needed to be understood, both by the construction industry and by the [legal] profession. These are [emphasis added]:

(1) Where the parties enter into an arbitration agreement, their rights thereafter to challenge the arbitrator's award are strictly limited by the Act.

(2) No application for leave to appeal will be granted unless the prospective appellant can surmount the substantial hurdles set up by s.69.

(3) Where an LTA application 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.

The philosophy underlying the Act has been expounded many times and there are good commercial 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 Technology and Construction Court.

Jackson J "[made] these remarks because, at least in some quarters, there [seemed] to be a widespread misunderstanding about the role of the Court in relation to construction arbitrations. I hope that this judgment will help to alleviate that misunderstanding."

(2) Application for Extension of Time:

In Aoot Kalmneft v Glencore International AG, Commercial Court (27 July 2001), Colman J had considered the proper approach of the court to applications for extension of the 28-day time limit imposed by s.70(3)1 and had noted that the Court had a discretionary power to extend time under s.80(5) of the 1996 Act and under CPR (Civil Procedure Rules) 3.1(2). He then said this:

"(50) In determining the relative weight that should be attached to the discretionary criteria, the starting point must be to take into account the fact that the 1996 Act is founded on a philosophy which differs in important respects from that of the CPR.

(51) Thus, the twin principles of party autonomy and finality of awards, which pervade the Act, tend to restrict the supervisory role of the court and to minimise the occasion for the court's intervention in the conduct of arbitrations…"

Colman J had then listed seven relevant considerations in relation to applications for extension of time. These were (1) the length of the delay; (2) whether, in permitting the time limit to expire and the subsequent delay to occur, the applicant had acted reasonably in all the circumstances; (3) whether the respondent to the application or the tribunal had caused or contributed to the delay; (4) whether the respondent to the application would, by reason of the delay, suffer irremediable prejudice in addition to the mere loss of time if the application were permitted to proceed; (5) whether the arbitration had continued during the period of delay and, if so, what impact on the progress of the arbitration or the costs incurred ... the determination of the application by the court might now have ; (6) the strength of the application; (7) whether, in the broadest sense, it would be unfair to the applicant for him to be denied the opportunity of having the application determined. Jackson J accepted this analysis.

The Arbitrator's clarification issued on 2 May 2005 had constituted "an arbitral process of… review" for the purposes of s.70(3); accordingly, no extension of time was necessary. Had it been so, the Judge stated (by the way) that he would not have been prepared to grant it. S’s Solicitor’s witness statement contained no explanation for the (assumed) delay, the LTA application was weak and, following Colman J, this was not a case in which it was appropriate to grant any extension of time.

This case strongly endorses recent jurisprudence which has taken a very strict line with s.67 (jurisdiction) or s,.68 (serious irregularity) applications disguised as s.69 ones or being attempts to reopen the merits or the facts.

The present TCC (Technology & Construction Court), of which Jackson J is head, is a cold and unwelcoming place for arbitration applicants seeking to reopen the facts or merits of an arbitration. In particular, confirming the trend of recent jurisprudence, s.69 will be applied narrowly. Parties need to consider their positions very carefully before commencing applications such as this one, where descriptors such as "hopeless", "weak" and fatally flawed abound. Finally, Jackson J's strictures on the content of s.69 applications confirm earlier comment by HHJ Thornton QC and others and mirrors recent "guidance" given by the Court of Appeal in respect of litigation in general.

1 S.70(3) reads:
"Any application or appeal must be brought within 28 days of the date of he 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."

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