| Date | 8 March 2006 |
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| Judgment | Scrabster Harbour Trust v Mowlem plc, Inner House Court of Session, 22 February 2006 |
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| The Issue | Whether an arbitration notice issued under an ICE contract has to comply strictly with the arbitration code incorporated within the contract. |
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| Implication |
A valid notice of arbitration does not require to comply slavishly with the provisions of the arbitration code referred to within the ICE contract. |
printIn April 2005, I reported the case of Scrabster Harbour Trust v Mowlem plc which examined whether an arbitration notice issued under an ICE contract must comply strictly with the arbitration code described at clause 67(2) of the contract. In 2001, Mowlem had entered into a contract with Scrabster under the 5th Edition of the ICE standard form of contract to construct a new breakwater, quay and associated works as part of a new ferry terminal 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 delay 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. Scrabster immediately contended 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 1999”. Scrabster argued that Mowlem’s notice failed to comply with that Code. In particular there was no statement from Mowlem detailing the nature of its 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 arbitration notice invalid it would put Scrabster in an extremely advantageous position, since the adjudicator's decision, in which Mowlem’s claims had been largely rejected, 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. Lord Clark concluded that they did not. The contract stated that any reference to arbitration “shall be conducted” in accordance with the arbitration code. He held that this wording referred to the carrying on of the arbitration rather than to any prescribed procedure for its commencement. In view of this conclusion, it was not necessary to consider whether compliance with all the provisions of the arbitration code should be regarded as mandatory. That decision was appealed to the Inner House of the Court of Session and a decision handed down on 22 February this year. The submissions of the parties to the appeal court were very similar to those that had been put before Lord Clark. Scrabster argued that it was incorrect to hold that the arbitration code governed only the conduct of the arbitration. The code had been incorporated into the contract in its entirety and it plainly included provisions relating to the instigation of the arbitration. Indeed the contract itself referred expressly to articles of the code that dealt with matters which preceded the conduct of the arbitration, such as the procedures for the appointment of the arbitrator. Scrabster argued that any requirement as to the form or content of the arbitration notice set out in the contract should be strictly observed. Reference was made to the 1990 case of Muir Construction v Hambly in which the contractor had delivered by hand a notice of determination to the employer. The contract required such notices to be given by registered post or by recorded delivery. The employer argued that a hand delivered notice was invalid. The court agreed, commenting that the required formality was intentional, binding and useful to both parties. Also cited was the case of Mannai Investments v Eagle Star Life Assurance. This 1997 House of Lords case concerned the giving of a notice to terminate a lease. Lord Hoffman had commented that the traditional view was one of strict compliance. “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”. However, the majority view in the Mannai case was that such an approach was outdated and that the matter had to be approached objectively. The question was how a reasonable recipient would have understood the notice, bearing in mind its context. In the present case, the appeal court noted that the arbitration code included articles which related to the appointment of the arbitrator. On this footing Lord Clark had been incorrect to hold that the code related only to the carrying on of the arbitration rather than to any prescribed procedures as to how it should be commenced. Nevertheless, in line with the Mannai case, the courts should interpret and apply such commercial instruments in a common sense or business way, setting aside linguistic and legalistic niceties. Moreover, this was not a contract in which it could be said that precise words were being used in a carefully structured provision. The sample notice of arbitration included within the ICE conditions did not itself comply with the requirements of the arbitration code. Elsewhere the contract simply stated that the “arbitral tribunal shall be appointed by agreement of the parties” without reference to the arbitration code. The appeal court concluded that the parties could not be held to have intended a strict compliance with the provisions of the arbitration code in order to validly refer a dispute to arbitration. In conclusion the appeal was rejected and Mowlem’s notice held to be valid.
CJ-0609
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