| Date | 28 January 2008 |
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| Judgment | Matthew Hall Ortech Ltd -v- Tarmac Roadstone Ltd. ORB 16th December 1997 |
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| The Issue | Halki Shipping Corporation -v- Sopex Oils Limited CA 19th December 1997 |
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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. |
printIn October 1997 I reported the case of Halki Shipping Corporation -v- Sopex Oils Ltd, which examined Section 9 of the 1996 Arbitration Act. On the 19th December 1997, judgment on this case was handed down in the Court of Appeal confirming the earlier decision. The existence of an appeal decision on this matter may cause severe headaches for those trying to resolve construction disputes simply and cost effectively, and therefore it is worth reviewing this decision particularly now that the adjudication provisions of the 1996 Construction Act are almost certain to come into force in the Spring of this year. How then do all these things come together? Section 9 of the 1996 Arbitration Act concerns the powers of the courts to stay (effectively suspend) court actions until the disputed matters are decided by an arbitrator. Section 9(1) of the 1996 Arbitration Act provides that "a party to an arbitration agreement against whom legal proceedings are brought may apply to the Court to stay the proceedings." Paragraph 9(4) provides "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." The critical distinction between these provisions and the earlier equivalent legislation is the omission of words contained under Section 1 of the 1975 Act that the Court had the power to stay proceedings "unless satisfied that…there is not in fact any dispute between the parties with regard to the matter agreed to be referred." Thus, under the previous regime, where the court considered that there was "not in fact any dispute between the parties," it would refuse to grant the stay and would instead deal with the matter itself. Some background explanation may be appropriate. Faced with the refusal to pay a claim upon which there appeared to be no arguable defence, a contractor or sub-contractor would in the past have proceeded directly to Court in an attempt to obtain summary judgment. Where no defence had been put forward or indeed where no defence was capable of being put forward, it was likely that summary judgment would have been granted. The procedure was occasionally emasculated by defendants putting forward spurious but complex arguments of defence often designed to be no more than a smoke screen. Unfortunately the summary judgment procedure was often unable, in the time allotted, to examine the merits of such defences, and accordingly judgment would often be refused. Nevertheless the procedures of summary judgment were powerful weapons in the armoury of the construction lawyer. Now, faced with a similar application for summary judgment on a contract containing an arbitration agreement, the defendant is likely to apply for a stay of those proceedings under the new Section 9 of the 1996 Arbitration Act. Upon this new wording, the Court has now no discretion but to grant the stay, even in cases where it is satisfied that there is not in fact any "dispute" between the parties. The practical effect of all of this is that a party who owes money and 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. The Court of Appeal in Halki said that the words in the 1975 Act, which gave a discretion to the Court not to apply a stay where it was satisfied that there was no dispute between the parties, had been in effect source of the Court's jurisdiction to grant summary judgment. It concluded that the intention in omitting those words from Section 9 of the 1996 Act had been to exclude the summary judgment jurisdiction. What then of adjudication under the "Construction Act"? The essence of adjudication is that an adjudicator's decision will be enforceable by summary procedures, otherwise it is likely that non-payers will treat the adjudicator with contempt. Following the logic of this case it will be a simple matter, when faced with an application to the Court to enforce an adverse adjudicator's decision, to counter with an application to stay the enforcement proceedings in favour of arbitration. The Court will have no choice but to grant the stay requested even though the adjudicator's decision ought properly to be treated as something to be enforced. The fear of course is that once the matter is referred back to the deliberations of an arbitrator, the non-paying party may then delay and confuse the matter endlessly, whilst of course holding on to the money in question.
CJ-9804
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