| Date | 1 October 1997 |
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| Judgment | Halki Shipping Corporation -v- Sopex Oils Limited, Admiralty Court, 7 July 1997. 1997 CILL1278 |
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| The Issue | Obtaining judgment in cases of refusal to pay an undisputed debt. |
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| Implication |
Summary court proceedings for the enforcement of a debt may be denied to parties to contracts containing arbitration agreements. Similar implication for enforcement of adjudicator's decisions. |
printWhen is a dispute not a dispute? This deceptively simple question has caused the best legal brains in the land to hesitate, and recent legislation has made the question even more important. Suppose a sub-contractor makes a claim for payment of an additional £50,000 from a main contractor. The main contractor does not dispute that the money is due, but nevertheless refuses to pay. In the ordinary use of language there is no "dispute". For the purpose of arbitration, the agreement between the parties will be worded to the effect that "any dispute between the parties ……. shall be referred to ……. arbitration". The main contractor can therefore say with some force that since there is no dispute there can be no arbitration. Our legal system has been rather slow in dealing with this type of problem. At the extreme end of the argument it is perfectly possible that our main contractor, who has no defence to the claim, might well sit back and do nothing while the sub-contractor obtained an arbitrator's award. The main contractor could then resist enforcement proceedings on the basis that the arbitrator had no jurisdiction whatsoever to make such an award. To compound matters the sub-contractor might, by this stage, be out of time to bring court proceedings as the limitation period may have expired. In the past, faced with such arguments, lawyers acting for the sub-contractor will have advised that since there is no dispute they are not constrained to use the arbitration process under the terms of their agreement with the main contractor. Accordingly, they would proceed to court to obtain summary judgment under Order 14 of the Rules of the Supreme Court. Assuming that the "dispute" (that is the failure to pay the sum) has been properly communicated, the issue might boil down to whether the main contractor has a bona fide defence, or whether infact he has no defence at all. In the former case the main contractor may put together a defence which is no more than a smoke screen of no real merit. The courts have been reluctant to examine or question such defences in any great detail under summary judgment proceedings. Accordingly, they have commonly refused to give judgment in favour of the sub-contractor, instead referring the matter to arbitration. Where however the case is one where no defence has been put forward, or indeed where no defence is capable of being put forward (in other words, the case is not 'disputable'), summary judgment is likely to have been granted. Now all of this might be the subject of considerable upset as a consequence of section 9 of the Arbitration Act 1996. This provides that where a party to an arbitration agreement brings court proceedings, the court shall grant a stay (a suspension) of those proceedings upon the application of the other party, unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed. These provisions have been examined for the first time in the very recent case of Halki Shipping Corporation-v-Sopex Oils Ltd which appears to be one of the first decisions under the new Arbitration Act. Here the judge refused to grant summary judgment in respect of matters for which there appeared to be no defence, and applying the letter of the new Arbitration Act threw the matter back into the hands of the parties to be dealt with in arbitration. It made no difference according to the judge whether the matter was the subject of a bona fide dispute, or whether infact it was not 'disputable'. His reasoning appeared to be that an arbitrator should be able to make an interim award as fast as a court can give summary judgment. This might be the case in the context of shipping but self evidently it is not the case in construction, particularly where many arbitration clauses may not be brought into play until completion of the works. The practical affect of all of this is that a party who owes money and who has no grounds upon which the debt may be disputed, may be exempted from summary judgment in the court, merely because the contract contains an arbitration clause. It is to be hoped, and there are indications already to this effect, that the official referees courts will take a different view. One final issue is causing lawyers to scratch their heads. This concerns adjudication under the 1996 Construction Act. For adjudication to be of any practical benefit to the industry at all, adjudicator's decisions will require to be capable of speedy enforcement through the courts. Currently it appears that Section 9 of the 1996 Arbitration Act will stand in the way. Following the logic of this case, a court faced with summary judgment proceedings to enforce an adjudicator's decision would have no alternative but to refer the dispute back to an arbitrator to be appointed under the building contract. The adjudicator may try his or her best, but enforcement through the vehicle of an arbitrator may prove to be an extremely long-winded process.
CJ-9736
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