| Date | 6 April 2005 |
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| Judgment | Scrabster Harbour Trust v Mowlem plc, Outer House, Court of Session 23 March 2005 |
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| The Issue | Whether an arbitration notice issued under an ICE contract has to comply strictly with the arbitration code described at clause 67(2) of the conditions. |
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| Implication |
A valid notice of arbitration does not require to comply slavishly with the provisions of the arbitration code referenced within the ICE contract. |
printIt is good commercial practice when administering construction contracts to ensure that, when a notice has to be given under the terms of the contract, any requirements as to the form or content of the notice set out in the contract have been strictly observed. If the notice fails to meet any of the contract requirements in form or content, it may be rendered invalid. An example of this approach is found in is the case of Muir Construction v Hamley in 1990 where the JCT 80 form of building contract provided for any notice of termination of the contract to be given by registered post or by recorded delivery. The contractor had served a warning notice on the employer seeking payment under an interim certificate and, incensed that no payment had been made, delivered by hand to the employer a notice of determination. The employer argued that a hand delivered notice was invalid. The court agreed. Lord Prosser commented that he saw the required formality as intentional, binding and useful to both parties. In Mannai Investment Co v Eagle Star Life Assurance in 1997, this guidance was taken one step further when Lord Hoffman pronounced a dictum in the context of the case involving the giving of a notice under a lease. He said; "If the clause had said that the notice had to be on blue paper, it would have been no good serving a notice on pink paper, however clear it might have been that the tenant wanted to terminate the lease". A similar question as to whether or not an arbitration notice had to follow slavishly the requirements of the arbitration rules contained within the contract was examined in the recent case of Scrabster Harbour Trust v Mowlem plc. In 2001 Mowlem had entered into a contract under the 5th Edition of the ICE conditions of contract with Scrabster to construct a new breakwater quay and associated works as part of a new ferry terminal development at Scrabster in the north of Scotland. In November 2003, Mowlem referred certain decisions of the engineer to adjudication, including a question as to whether the employer was entitled to deduct liquidated damages under the contract. The adjudication process was complex and lengthy and resulted in a decision which largely rejected Mowlem's claims. Clause 66(9) of the contract required that a notice of arbitration must be served within three months of the adjudicator's decision, otherwise that decision would become final and binding. Accordingly, shortly before the expiry of the three month period, Mowlem served a notice of arbitration on Scrabster. The arbitration notice indicated that a dispute had arisen in respect of matters which had been included within the adjudicator's decision. Scrabster contended however that the notice was invalid. Clause 67(2) of the contract provided that "any reference to arbitration under the conditions of contract shall be conducted in accordance with the Scottish Arbitration Code". That Code sets out provisions for the commencement of an arbitration by the giving of a notice of arbitration, including the content of the notice and the appointment of the arbitrator. Scrabster contended that the notice provided by Mowlem had failed to comply with these provisions. In particular, there was no statement of Mowlem's claim detailing the nature of the claim and the sums claimed, neither was there a statement of the relief or remedy sought nor a proposal by Mowlem as to the identity of an arbitrator. Clearly, if these deficiencies rendered the notice invalid as contended by Scrabster, it would put it in an extremely advantageous position since the adjudicator's decision, which was largely favourable to Scrabster, would become binding upon both parties. Proceedings were commenced in the Outer House of the Court of Session in Scotland to decide whether Scrabster had a valid complaint. Scrabster argued that there had to be absolute and strict compliance with the provisions of the Scottish Arbitration Code if the arbitration notice was to be valid. The Muir Construction and Mannai cases were examples which supported Scrabster's argument. Mowlem countered this by saying that clause 67(2) provided that any arbitration should be conducted in accordance with the Scottish Arbitration Code. This referred only to the conduct of an arbitration once initiated and this did not apply to the style or format of a notice of arbitration. Mowlem referred to the case of Christiani and Nielsen v Birmingham City Council where, under similar ICE provisions, the court had held that the failure to comply with the specific requirements of the arbitration procedure was not fatal to the effective commencement of the arbitration. In reviewing the contentions of both parties, Lord Clarke concluded that the notice of arbitration satisfied the requirements of the contract. Scrabster had been unable to suggest what prejudice it had suffered because of the absence of the precise requirements of the arbitration Code. Clause 67(2) was to be construed as referring to the conduct of the arbitration rather than to any prescribed procedure as to how the arbitration should be commenced, despite that the clause incorporated the Scottish Code which plainly covered both the commencement and conduct of any arbitration. Scrabster's request for a declaration that the arbitration notice was invalid was refused and the arbitration would be allowed to proceed in accordance with the notice submitted by Mowlem.
CJ-0513
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