| Date | 9 February 2005 |
|
|
| Judgment | Collins (Contractors) Ltd v Baltic Quay Management (1994) Ltd, Court of Appeal 7 December 2004 |
|
|
| The Issue | Whether the failure to serve a withholding notice may lead to the conclusion that there is no dispute capable of being referred to arbitration or adjudication. |
|
|
| Implication |
Where an employer fails to issue a Section 111 withholding notice there is nevertheless a dispute which must be referred to arbitration, or alternatively adjudication, where there is a valid arbitration agreement. |
printThe 1996 Arbitration Act provides a framework in which arbitration is conducted and enforced in the UK. Section 9 of the Act is a provision which compels parties to arbitrate by ensuring that legal proceedings will be brought to a halt at the request of the defendant in situations where there is an effective arbitration agreement. Section 9(4) of the Arbitration Act states: "On an application under this section, the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed". In the recent case of Collins (Contractors) v Baltic Quay Management (1994), Collins, the contractor, considered that it had an indisputable case for the payment of additional money. Accordingly it decided that there was no need to arbitrate, but it instead should go directly to the court for an order that Baltic pay the amounts due. That strategy failed. Baltic successfully applied to the court for the legal proceedings to be set aside, relying upon Section 9(4) of the Arbitration Act and taking into account the arbitration agreement existing between the parties. Collins had entered into contract with Baltic in September 2002 to carry out repairs and other works to premises at Baltic Quay in Sweden Gate, London. A dispute arose concerning payment against the penultimate certificate issued by the contract administrator and subsequently in respect of the draft final account submitted by Collins. Baltic had not issued a withholding notice in accordance of the requirements of Section 111 of the Construction Act. That led Collins to contend that, at least in respect of the amounts due under the penultimate payment certificate, there was no defence to their entitlement to payment. Collins therefore issued a claim form in the Technology and Construction Court including the assertion that Section 111 applied to the claim. "A party to a construction contract may not withhold payment after the final date for payment of a sum due under the contract unless he has given an effective notice of intention to withhold payment". Baltic responded to that claim by applying to the court for a stay of proceedings, arguing that there was plainly a dispute or difference between the parties and that it was entitled to have the matter dealt with in arbitration. The judge agreed that there was a dispute or difference between the parties and that he was compelled to grant a stay of proceedings applying Section 9 of the Arbitration Act following the 1998 decision of the Court of Appeal in Halki Shipping Corporation v Sopex Oils. At this point Collins might have decided that it would be quicker to refer the matter to arbitration and to seek an interim award in respect of that part of their claim where, in the absence of a withholding notice, Baltic arguably had no proper defence. Alternatively, and more obviously, Collins might have chosen to refer the matter to an adjudicator. Assuming the adjudicator agreed that the absence of a withholding notice was fatal to any defence, a favourable decision would quickly follow that would be readily enforced in the court. Instead however, Collins continued in the view that it should be entitled to summary judgment on the claim itself and that arbitration or adjudication were unnecessary delaying steps. Accordingly, it took the matter to the Court of Appeal. The argument put before the Court of Appeal was quite simple. Broadly Collins accepted that Section 9 of the Arbitration Act gave no discretion to the court and that it must order a stay of court proceedings whenever there was a dispute or difference capable of being referred to arbitration. Crucially however, according to Collins, Section 111 of the HGCRA altered the position. In the absence of a Section 111 withholding notice there could be no dispute that the certified monies were due. That being the case, there was no dispute capable of being referred to arbitration and it was therefore right and proper that the court should deal with the matter on an application for summary judgment. Lord Justice Brooke in the Court of Appeal disagreed. There was nothing in Section 111 to deprive Baltic of its right to a stay of legal proceedings in circumstances where there was a valid arbitration agreement. If Collins were correct that there could be no dispute in situations where a sum of money had been certified and no withholding notice issued, then that dispute could not be submitted to adjudication or to arbitration. In either case a party can only refer a claim if there is a dispute. Lord Justice Brooke considered that it was illogical to conclude that the failure to give a withholding notice would have the effect that the contractor would be unable to present its case to an arbitrator or an adjudicator. This was all the more obvious when part of the contractor's case concerned claims for monies which plainly were in dispute. Lord Justice Brooke envisaged a situation where contractors, particularly international companies, might prefer an arbitral award rather than to obtain a judgment in an English court. He was perfectly satisfied that an arbitrator could make an interim award for monies which were plainly due in circumstances where there was no withholding notice. In his view this would not lead to any greater delay than an application for summary judgment in the courts. In conclusion, even though Baltic might have no meritorious defence to a claim for payment in circumstances where it had failed to serve a withholding notice, there still remained a dispute. For that reason it was correct that legal proceedings should be brought to a halt in the face of a valid arbitration agreement. The matter would therefore require to be referred to arbitration or adjudication.
CJ-0505
|
|||
|
© Brewer Consulting |
|||
 |
|||