Kershaw Mechanical Services Ltd v Kendrick Construction Ltd

This Judgment is in seven parts, namely Part One - Introduction; Part Two - The facts; Part Three - The Present Proceedings; Part Four - What is the correct approach of the court to an appeal under section 69(2)(a) of the 1996 Act? Part Five - Which, if any, of the four questions formulated by Kershaw are questions of law arising out of the award? Part Six - What are the answers to those questions which have survived scrutiny? Part Seven - Conclusion.

This is an appeal under section 69 of the Arbitration Act 1996 against an arbitrator’s partial award determining what sums are due to a sub-contractor on its final account.

Kershaw Mechanical Services Limited is the sub-contractor. I shall refer to this company as “Kershaw”. Kershaw was claimant in the arbitration; Kershaw is also claimant in these proceedings.

Kendrick Construction Limited is the main contractor. I shall refer to this company as “Kendrick”. Kendrick was respondent in the arbitration and is defendant in these proceedings.

The employer, under the main contract, is Birmingham Heartlands and Solihull NHS Trust. I shall refer to this body as “the Trust”. Two firms of engineers will feature in the story. They are White, Young and Green, to whom I shall refer as “WYG”, and R W Gregory, to whom I shall refer as “RWG”.

The sub-contract in this case incorporated, with modifications, the standard form of sub-contract published by the JCT, known as “DOM\2”, 1981 Edition.

In this judgment I shall refer to the Arbitration Act 1966 as “the 1996 Act”. Section 1 of the 1996 Act provides:

“General principles.

The provisions of this Part are founded on the following principles, and shall be construed accordingly-

(a)

the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense;

(b)

the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest;

(c)

in matters governed by this Part, the court should not intervene except as provided by this Part”.

Section 69 of the 1996 Act provides:

“(1)

Unless otherwise agreed by the parties, a party to arbitral proceedings may (upon notice to the other parties and to the tribunal) appeal to the court on a question of law arising out of an award made in the proceedings. An agreement to dispense with reasons for the tribunal’s award shall be considered an agreement to exclude the court’s jurisdiction under this section.

(2)

An appeal shall not be brought under this section except-

(a)

with the agreement of all the other parties to the the proceedings, or

(b)

with the leave of the court………

(7)

On an appeal under this section, the court may by order-

(a)

confirm the award,

(b)

vary the award,

(c)

remit the award to the tribunal, in whole or in part, for reconsideration in the light of the court’s determination or

(d)

set aside the award in whole or in part.

The court shall not exercise its power to set aside an award, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.”

Having dealt with these preliminary matters, I must now turn to the facts.

In the late 1990’s the Trust decided to extend the Heartlands Hospital in Birmingham by constructing two new blocks of wards. The Trust’s requirements for the new buildings were set out in a series of specifications, appendices, drawings and related documents. This amalgam of documents is referred to compendiously as “the employer’s requirements”.

In late 1999 and early 2000, Kendrick was preparing a tender for the design and construction of the new hospital buildings. Kendrick assembled a team of consultants and sub-contractors whom Kendrick intended to engage for the project in the event that the Trust accepted Kendrick’s tender. Kendrick appointed WYG to design the mechanical and electrical services. Kendrick chose Kershaw as the prospective sub-contractor to supply and install the mechanical services and a different firm as prospective sub-contractor to supply and install the electrical services.

On the 8^th of March 2000 Kershaw submitted its tender for the supply and installation of mechanical services in the sum of £1,838,697.00. This figure comprised thirteen components, one of which was the sum of £59,503.00 attributed to above ground drainage.

Kershaw’s tender letter included the following passage, “8. The following items are not included within our tender. A. Full conceptual design responsibility…… 13. At this stage we have made no allowance for design works. However, we have allowed to work alongside White, Young and Green, to develop the design. 14. We have allowed, within our tender, to develop sketches and schematics produced by White, Young and Green into fully co-ordinated and working drawings”.

Following the receipt of tenders from Kershaw and other prospective sub-contractors, Kendrick submitted its own tender to the Trust for the overall design and construction of the two new hospital buildings. Happily Kendrick’s tender was accepted and work commenced on the project.

In October 2000 Kendrick sent a letter of intent to Kershaw on the basis of which Kershaw commenced work in relation to mechanical services. In February 2001 Kendrick dispensed with the services of WYG and, instead, appointed RWG to design the mechanical and electrical services.

On 19^th April 2001 Kendrick sent a memo to Kershaw listing (a) The documents which comprised the employer’s requirements in relation to mechanical services and (b) other documents upon which Kershaw’s tender had been based. These other documents included “all pre-tender correspondence from White, Young and Green”. This somewhat elliptical phrase was understood by all parties to cover not only letters but also drawings, sizing schedules and similar documents provided by WYG. Kendrick’s memo of 19^th April also recorded certain additions to and omissions from the mechanical services, which had been agreed since the date of Kershaw’s tender. The overall agreed effect of these additions and omissions was to reduce Kershaw’s tender figure to £1,785,444.39.

On the 30^th of April 2001 Kendrick sent a draft order to Kershaw, requesting Kershaw to carry out the supply and installation of all mechanical works for the sum of £1,785,444.39 in accordance with the documents which were attached. These attachments included Kendrick’s memo dated 19^th April and the DOM\2 Articles of Agreement with certain manuscript amendments. Those manuscript amendments included deletion of the design requirement set out in the first recital. In the DOM\2 appendix, under the heading “Part 15” Kendrick wrote: “As covered by all items referred to in our facsimile transmission dated 19^th April 2001 (four pages)”.

On the 9^th of May 2001 Kershaw responded as follows: “Thank you for your faxed draft of the order and DOM\2 agreement. Comments as follows … 8. Part 15. Since your fax is a numbered document I do not see the need to incorporate what you say here. However, I am still unhappy that the document properly reports the basis of our pricing. I understood what you are saying as an objection to us incorporating our schedule of information we received from White, Young Green for tender purposes in that you currently do not have access to their files to check it is comprehensive. Although I can assure you that we are not deliberately concealing anything. Accordingly, for the avoidance of doubt I would like this statement incorporated here. “Certain information was provided on behalf of the contractor to the sub-contractor by White, Young Green as noted in the contractor’s facts of 19/04/01. It is agreed that where and to the extent that the final design information, supplied by the contractor or his consultant, differs from that information previously supplied, as noted above, then the sub-contract sum will be adjusted”. … Regards Jack Kirk.”

The statement comprising two sentences, which Kershaw required to be incorporated, has been referred to by all parties as “the Qualification” and I shall adopt that term.

In July 2001 a formal sub-contract was concluded between Kendrick and Kershaw. The documents comprising the sub-contract included Kershaw’s tender dated 8^th March 2000, Kendrick’s draft order dated 30^th April 2001 plus attachments and Kershaw’s letter to Kendrick dated 9^th May 2001. It can thus be seen that the sub-contract in this case was a modified version of the DOM\2 sub-contract supplemented by correspondence between the parties. This correspondence included the Qualification.

Clause 1.3 of the Standard Conditions of the DOM\2 sub-contract provides:

Clause 16 of the Standard Conditions sets out rules for valuing variations. Both Article 4 and clause 38B of the Standard Conditions provide for disputes between the parties to be referred to arbitration. Clause 38B.5 provides:

“The parties hereby agree and consent, pursuant to Sections 45(2)(a)and 69(2)(a)of the Arbitration Act 1996, that either party may (upon notice to the other party and to the Arbitrator):

.1 apply to the courts to determine any question of law arising in the course of the reference; and

.2 apply to the courts on any question of law arising out of an award made in an arbitration under this Arbitration Agreement.”

After concluding the sub-contract, Kershaw proceeded with the execution of their works. Kershaw achieved practical completion on 2^nd October 2002. Thereafter Kershaw submitted its final account to Kendrick. Unfortunately, the parties were unable to agree about numerous items in the final account. These disagreements were referred to arbitration in accordance with Article 4 and Clause 38B of the Sub-Contract. The parties reached agreement upon the choice of arbitrator, namely Mr Don Smith, who is an experienced quantity surveyor practising in the West Midlands.

The hearing of the arbitration took place at a hotel in Coventry, over a period of three weeks in June and July 2005. The arbitrator sat for 10 days during that period. The arbitrator received factual and expert evidence called on behalf of both parties. The hearing bundle comprised extensive correspondence and contemporaneous records relating to the matters in dispute. Mr Robert Clay of counsel represented Kershaw and Mr Simon Henderson of counsel represented Kendrick. Both counsel made detailed oral and written submissions for which the arbitrator expressed his appreciation.

After the end of the hearing the arbitrator considered matters for some four months. On the 24^th of November 2005 the arbitrator delivered his partial award, dealing with all matters in issue, save costs. For convenience, I shall refer to this partial award as “the award”.

The arbitrator’s award is lengthy and thorough. In the early pages the arbitrator sets out the factual background and the parties’ rival contentions as to the effect of the Qualification. The arbitrator then summarises pertinent parts of the expert and factual evidence. After that the arbitrator turns to the issues of principle. The arbitrator considers the question of priority as between sub-contract documents; he concludes that all the documents listed in Kershaw’s memo of 19^th April 2001 carried equal weight. The arbitrator notes that under the Sub-Contract Kershaw did not have design responsibility.

The arbitrator then describes the process whereby Kershaw prepared its tender as follows:

“62.1

The evidence of Kendrick is that there was no partnering agreement but that Kershaw and Kendrick worked hand in hand as a team, to prepare the tender. This is borne out by the evidence of Mr O’Connor, who attended several meetings with the design team, made requests for information and eventually arrived at a situation where Kershaw had sufficient information to submit a compliant tender. Had the parties not been working as a team Kershaw’s only obligation would have been to price the information which was provided, specifically exclude all other information and submit a non-compliant tender, with appropriate exclusions.

62.2

I am therefore of the view that in the preparation of the tender, Kendrick and Kershaw worked as a team, together with WYG, the designer.

63.

I set out below my findings in relation to the arrangements between the parties pre-tender.

63.1

The design was done by WYG. In order to prepare a design WYG took the ER’s, the Specification, the Room Data Sheets, the Architect’s Drawings, the Mechanical Drawings, extrapolated the necessary information and produced schematic drawings, sketches and component lists to enable the works to be priced by Kershaw. The above facts are not disputed by the parties.

63.2

Kershaw used such information to prepare its tender sum. Prior to submission of the tender, Kershaw attended meetings with the design team at which it requested further information to enable it to provide a compliant tender. At the date of the tender, Kershaw was satisfied that it had been provided with sufficient information to provide a compliant tender. The above facts are supported by the evidence of Mr O’Connor.

63.3

The information provided by WYG did not contain details of every pipe run, valve, union, volume control damper or access door. Indeed, not every floor of the building was designed. Where such information was not shown on a drawing or in a schedule, Kershaw used its initiative as an experienced mechanical installations Sub-Contractor to include for such ancillary equipment, which was not shown on the schematic drawings, sketches or schedules, but which was an essential part of a complete system, without which the system would not operate. The above facts are substantiated by the factual evidence of Mr Kirk and Mr O’Connor and the expert evidence of Mr Standley. While the evidence of Mr King does not support the above facts, I prefer the factual evidence of Mr Kirk and Mr O’Connor in this regard.

63.4

In addition to the drawn and scheduled information, Kershaw was to have regard to the ER’s, the specification and the Room Data Sheets in order to provide a compliant installation. For example the above ground drainage was not drawn but it was described and due allowance was made in Kershaw’s tender. Another example was a requirement for the diversion of existing services which was not shown on a WYG drawing, but was shown on a CPW drawing, which formed part of the ER’s and due allowance was made for this in Kershaw’s tender. The above facts are supported by the factual evidence of Mr Kirk and Mr O’Connor and the expert evidence of Mr Stanley.

63.5

Kershaw submitted a compliant tender.”

It should be noted that Mr Kirk and Mr O’Connor, who are referred to in that passage, are both employees of Kershaw. Mr King, who is also referred to in that passage, is or at least was Kershaw’s expert witness.

In paragraphs 66 to 70 of his award, the arbitrator sets out what his approach will be to the disputed variation items. He states:

“66.

The above however, must be considered in the context that while not all the detail was shown on the information provided by WYG, Kershaw had an obligation to include the components which were an essential part of the drawn or described installation in order to make it compliant. Therefore in the event that RWG in the final design drew or described a component which was an essential part of the WYG design, but which had not been drawn or described by WYG, this clearly cannot be a variation under the Qualification which warrants an adjustment to the Sub-Contract sum, as allowance should have been made in Kershaw’s compliant tender, for such components or equipment.

67.

In my view there is no hard and fast rule which can be applied across the board in order to ascertain whether or not a variation is under the terms of the Qualification. Each variation must be considered on its merits based upon my paragraphs 65 and 66 of this Decision.

68.

I will therefore, when deciding Kershaw’s entitlement to additional payment under the Qualification, carry out an analysis in order to firstly ascertain whether or not the information necessary to include the item in the tender was available from the information provided by WYG at the time of tender. In the event that I find that the claimed item was not contained within the information provided by WYG, I will then ascertain whether the information was available from any other source at the time of tender and whether Kershaw as an experienced mechanical services Sub-Contractor should have included the claimed item on the grounds that although it was not drawn or described, it was an essential component which was necessary to provide a compliant installation.

69.

In the event I find that the claimed item was not shown on the WYG information, or was not shown on other information, or could not reasonably have been implied as necessary to provide a compliant system, or has increased in size or capacity from that shown on or implied from the WYG information, I will find that the claimed item is a variation under the Qualification and arrive at a fair and reasonable adjustment to the sub-Contract sum.

70.

On the other hand in the event I find that the claimed item was not shown on the WYG information but could have been obtained from other available information or was necessary to provide a compliant installation, I will find that the claimed item is not a variation under the Qualification and make no adjustment to the Sub-Contract sum.”

Having dealt with these general questions of principle and approach, the arbitrator then turns to the specific and detailed items, which he is required to decide. The arbitrator deals individually with 44 disputed items in Kershaw’s final account and 5 disputed contra-charges put forward by Kendrick. The arbitrator also records the financial effect of 70 further items in Kershaw’s final account, which were agreed either before or during the hearing. Finally there is a summary, at the end of the award, which shows (after correction of certain clerical errors) that £1,993.238.17 is due to Kershaw on its final account.

Kershaw was aggrieved by the arbitrator’s decision. Kershaw took the view that, on a proper application of the Qualification to the variation claims, the sum due on the final account was well in excess of £2 million. Accordingly, in order to challenge the arbitrator’s decision, Kershaw commenced the present proceedings.

By a claim form issued in the Technology and Construction Court on the 21^st of December 2005, Kershaw appealed against the arbitrator’s award, pursuant to section 69 of the 1996 Act. By reason of Clause 38B.5 of the Standard Conditions of Sub-Contract and section 69(2)(a) of the 1996 Act, this is an appeal which the claimant is entitled to pursue without any need for the leave of the court.

The essential argument advanced in the claim form is that the arbitrator has erred in his interpretation of the Qualification. As a result the arbitrator has erroneously rejected the following eight variation items:

Further, it is alleged that the arbitrator has erroneously awarded too small a sum in respect of the following eight variation items:

The questions of law upon which the appeal is based, as set out in the claim form (after amendment during the course of the present hearing) read as follows:

“1.

On the true construction of the Qualification is the Qualification intended to permit an adjustment where the final design information differs from the information supplied by White Young Green?

2.

Does the Qualification permit adjustments for items which would have been allowed for in the tender if Kershaw had been tendering on a design and build basis?

3.

Does the fact that Kershaw did not expressly qualify its tender or raise areas of uncertainty in March 2000 preclude Kershaw from recovering an adjustment under the Qualification for items omitted by WYG?

4.

Is the Qualification in fact more restrictive than the ordinary variation clause or less restrictive?”

Although a number of remedies are claimed in the claim form, the principal relief sought is that the award be remitted to the arbitrator for reconsideration in the light of the court’s decision on the four questions of law posed.

The evidence, which has been lodged in respect of this appeal, comprises the following: 1. The Arbitrator’s award. 2. A witness statement made by the defendant’s solicitor exhibiting the contractual documents and also Kendrick’s closing written submissions in the arbitration. 3. A witness statement made by the claimant’s solicitor exhibiting certain further pre-contract correspondence and also extracts from Kershaw’s opening and closing written submissions in the arbitration.

The hearing of this appeal commenced on Monday of this week (27^th February). Mr Robert Clay represents Kershaw, as he did before the arbitrator, and Mr Simon Henderson represents Kendrick, as he did before the arbitrator. Counsel’s submissions occupied the whole of Monday and Tuesday. All issues relevant to the appeal have been explored and counsel have kindly carried out further research, at my request, in order to ensure that all authorities bearing upon the correct approach to an appeal under section 69(2)(a) of the 1996 Act are before the court. I am grateful to both counsel for their industry in this regard.

The issues debated at the hearing may be grouped under the following three headings: 1. What is the correct approach of the court to an appeal under section 69(2)(a) of the 1996 Act? 2. Which, if any, of the four questions formulated by Kershaw are questions of law arising out of the award? 3. What are the answers to those questions which have survived scrutiny? I shall now deal with matters in that order.

Four topics have been debated at the hearing under this rubric. They are: 1. What evidence can the court receive in an appeal under section 69(2)? 2. Is there a philosophy of non-intervention, which should influence the court hearing an appeal under section 69(2)(a)? 3. What degree of deference should be shown to the arbitrator’s decisions on questions of law? 4. How should the court identify any questions of law arising out of the award?

The first and third of these topics are of general application to appeals under section 69. The second and fourth of these topics are limited to appeals under section 69(2)(a). I shall deal with the four topics in that order.

Two authorities have been cited on this question. In Foleys Ltd –v- East London Family and Community Services [1997] ADRLJ 401, Mr Justice Coleman refused an application for leave to appeal under section 1 of the Arbitration Act 1979. He viewed with displeasure a bundle of pleadings, evidence and submissions from the arbitration, which had been placed before the court. Mr Justice Coleman said that such evidence may be admissible on an application to remit the award under section 22 of the Arbitration Act 1950 or to set the award aside for misconduct. However, such evidence was inadmissible on an application for leave to appeal on a point of law. On such an application only the arbitrator’s award should be put before the court, supplemented possibly by brief evidence in respect of The “Nema” guidelines.

In Hok Sport Limited v Aintree Racecourse Company Limited, [2003] BLR 155, His Honour Judge Thornton Q.C. stated that the practice of the Technology and Construction Court was the same as the practice of the Commercial Court in this regard. At paragraph 18 of his Judgment Judge Thornton said this:

“Whatever may have been the misconception of practitioners as to the applicable practice in the Official Referees Court before Foleys case was decided in March 1997, it should now be clear to experienced practitioners in the TCC that extraneous materials are not to be referred to in arbitration appeal leave applications. It is also important to stress that such materials are not admissible in the hearing of appeals on questions of law arising out of awards, particularly since many construction arbitration appeals are brought without the applicant first having had to obtain the leave of the court. This is because many construction contracts contain an arbitration clause that provides the parties’ joint consent to an appeal being brought without the need to first obtain the leave of the court.”

Paragraph 10.4.1. of the second edition of the TCC Guide faithfully reflects the guidance given in Foleys Ltd and Hok Sport.

The present case, however, reveals that this approach may be too restrictive. Kershaw’s appeal turns upon the true construction of the Qualification. The Qualification is set out verbatim by the arbitrator in paragraph 19 of his award. The Qualification forms part of a series of correspondence, which became incorporated into the sub-contract. The arbitrator helpfully identifies the relevant correspondence and documents in his award although, for obvious reasons, he does not recite them from beginning to end. Nevertheless, for the purposes of this appeal, the court needs to look at the contractual correspondence and documents, which the arbitrator has identified. The court cannot construe the Qualification in isolation; the court must read the Qualification in the context of the series of documents of which it forms part. See, for example, Investors Compensation Scheme Limited –v- West Bromwich Building Society [1998] 1 WLR 896 at pages 912 to 913 and BCCI v Ali [2001] UK HL 8; [2002] AC 251 at paragraph 39. See also Scheldebouw BV –v- St. James Homes [2006] EWHC 89 (TCC) at paragraph 39. Sheldebouw is a case where the principles stated by the House of Lords in Investors Compensation Scheme and BCCI were applied to the interpretation of a construction contract.

In my view the guidance given in Hok Sport should be modified to this extent. The principal document which should be considered in any appeal under section 69 of the 1996 Act is the arbitral award itself. In addition to that, however, the court should also receive any document referred to in the award, which the court needs to read in order to determine a question of law arising out of the award.

It is for these reasons that during the present appeal I have looked not only at the arbitrator’s award but also at the correspondence and documents referred to in the award as comprising the sub-contract. I have not found it either necessary or helpful to examine the other documents put in evidence, such as written submissions made to the arbitrator.

The summary of the facts set out in part two of this judgment is drawn exclusively from (a) the arbitrator’s award and (b) the correspondence and documents identified by the arbitrator as comprising the sub-contract.

In his skeleton argument Mr Henderson contends that the general philosophy of non-intervention by judges (which pervades the 1996 Act) should discourage the court from allowing an appeal brought under section 69(2)(a). He cites Lesotho Highlands Development Authority v Impregilo Spa [2005] 3 WLR 129. Mr Henderson relies in particular upon that section of Lord Steyn’s speech in Lesotho Highlands which is headed “The ethos of the 1996 Act”.

Mr Clay, on the other hand, submits that Lesotho Highlands is irrelevant. That case was concerned with a challenge under section 68 of the 1996 Act, since an appeal under section 69 was barred by the ICC rules. Mr Clay further points out that in the present case the parties have expressly agreed that there should be an appeal on questions of law to the court. Therefore the court should simply decide the questions of law, which have been posed. The court should not be deterred by any philosophy or ethos of the 1996 Act.

On this issue, I accept the submissions of Mr Clay. The court must decide any questions of law raised by the appeal, however difficult or finely balanced they may be. There is no philosophy or ethos of the 1996 Act which should deter the court from answering those questions correctly, in the event that the arbitrator has erred. I reach this conclusion for five reasons:

The next issue which arises concerns the degree of deference which this court should show to an arbitrator’s decision when determining what are the correct answers to any questions of law arising out of the award. This issue has nothing to do with any philosophy or ethos of the 1996 Act. It involves reviewing a line of authority, which stretches back over 25 years.

In The “Chrysalis” [1983] 1 Lloyd’s Rep. 503 Mr Justice Mustill dismissed an appeal against an arbitrator’s decision concerning the contractual consequences of a conflict between Iran and Iraq, whereby vessels were trapped at Basrah. The appeal was brought pursuant to section 1(3)(a) of the Arbitration Act 1979, by reason of an agreement between the parties that each should have the right of appeal on any question of law. At pages 512 to 513 Mr Justice Mustill said this:

“First it is pointed out by the charterers that the arbitrator is not a commercial man, but is instead a lawyer of long experience. Hence, so it is said, the Court should be more ready than in many cases to substitute its own view of the correct solution, than if he had, for example, been a ship broker. I recognize that in the context of some types of dispute there might be force in such a submission. For example, if the issue concerned a matter of judgment in a field where long practical experience was of the essence, a judge might feel that he was just as well or ill equipped to establish the correct “bracket” as would be a legally trained arbitrator: whereas he would be much more cautious if the arbitrator himself possessed the necessary experience.”

Zermalt Holdings SA v Nu-Life Upholstery Repairs LTD [1985] 2 EGLR 14 was a case concerning an application by a landlord to set aside the award made by an arbitrator in a rent review arbitration. At the start of his judgment Mr Justice Bingham said this:

“As a matter of general approach, the courts strive to uphold arbitration awards. They do not approach them with a meticulous legal eye, endeavouring to pick holes, inconsistencies and faults in awards, and with the objective of upsetting or frustrating the process of arbitration. Far from it. The approach is to read an arbitration award in a reasonable and commercial way, expecting, as is usually the case, that there will be no substantial fault that can be found with it.”

In Gill & Duffus S.A. v Societe Pour L’exportation Des Sucres S.A. [1968] 1 Lloyd’s Rep. 322 both Mr Justice Leggatt, in the Commercial Court, and the Court of Appeal allowed an appeal against an arbitral decision of the Council of the Refined Sugar Association. Sir John Donaldson MR, giving the judgment of the Court of Appeal, said this at page 325:

“For my part, like the learned Judge, I am most reluctant to reverse or differ from a trade tribunal. Nevertheless, the issue is one of construction and thus of law. The arbitrator’s finding of fact is part of the contractual matrix and a very important part, but it is no more than that. There is no suggestion that the process of shipment under an f.o.b contract for sugar or indeed contracts for the sale of sugar generally are in any relevant respect different from contracts for the sale of some other soft commodity. All that is said is that those engaged in the sugar trade find strict punctuality difficult, which may well be true of other trades not to mention other individuals, and that in practice they adopt a more relaxed attitude. This seems to me to be quite insufficient to displace the construction which would usually be placed upon a term involving inter-dependent obligations in relation to the time for loading, reinforced, as it is in the present case, by the use of the imperative words, “at latest”.”

In Andre et Cie v Cook Industries Inc. [1986] 2 Lloyd’s Rep. 200 Mr Justice Bingham was dealing with an award of the Board of Appeal of the Grain and Feed Trade Association stated in the form of a special case. One of the issues which arose concerned the interpretation of some exchanges by telex. At page 2004 Mr Justice Bingham said this:

“I should be very slow to differ from a trade tribunal on the meaning reasonably to be given to telex exchanges of the sort in issue here. Ultimately, of course, the construction of any written instrument is a question of law on which the Court is entitled and bound to rule, but the significance of a meaning attributed by the reasonable non-lawyer varies widely from instrument to instrument and according to the circumstances of the case. Here, one is dealing with communications by trader to trader, in the context of an unexpected and fast moving situation. A trade tribunal brings to the task of interpretation certain insights denied (to a greater or lesser extent) to the Court: an informed appreciation of the commercial situation as it unfolded, seen through the eyes of a trader; an understanding of the hopes and fears and pressures which moved traders at the time; an awareness of the extent to which, at the time, the future course of events appeared obscure and unpredictable; a knowledge of the language which one trader habitually uses to another. So, in a case such as this the court’s task is not one of pure construction and I should be reluctant to differ from the board unless it appeared that the board’s construction was fairly and plainly untenable.”

In Fidelity Management SA v Myriad International Holdings BV [2005] EWHC 1193 (Comm); [2005] 2 Lloyd’s Rep. 508 Mr Justice Morison cited and followed the dictum of Mr Justice Bingham in Zermalt Holdings, which has been quoted above. Fidelity Management concerned a challenge under section 68 of the 1996 Act and so the details of Mr Justice Morison’s reasoning are not directly in point for present purposes.

From this line of authority I derive two principles, which I shall apply in this appeal.

The final matter to consider is how the court should identify any questions of law arising out of the award. In appeals brought under section 1(3)(a) of the Arbitration Act 1979 or section 69(2)(a) of the 1996 Act, there is no opportunity for the proposed questions of law to be refined or limited at the leave stage. See Hallamshire Construction plc v South Holland District Council [2003] EWHC 8 (TCC) at paragraph 11.

In relation to this matter, Mr Justice Mustill gave helpful guidance in The “Chrysalis” [1983] 1 Lloyd’s Rep. 503. At page 507 he said:

“Starting therefore with the proposition that the Court is concerned to decide, on the hearing of the appeal, whether the award can be shown to be wrong in law, how is this question to be tackled? In a case such as at present, the answer is to be found by dividing the arbitrator’s process of reasoning into three stages.

(1)The arbitrator ascertains the facts. This process includes the making of findings on any facts which are in dispute.

(2)

The arbitrator ascertains the law. This process comprises not only the identification of all the material rules of Statute and Common Law, but also the identification and interpretation of the relevant parts of the contract, and the identification of those facts which must be taken into account when the decision is reached.

3.

In the light of the facts and the law so ascertained, the arbitrator reaches his decision.

In some cases the third stage will be purely mechanical. Once the law is correctly ascertained, the decision follows inevitably from the application of it to the facts found. In other instances, however, the third stage involves an element of judgment on the part of the arbitrator. There is no uniquely “right” answer to be derived from marrying the facts and the law, merely a choice of answers, none of which can be described as wrong.

The second stage of the process is the proper subject matter of an appeal under the 1979 Act. In some cases an error of law can be demonstrated by studying the way in which the arbitrator has stated the law in his reasons. It is, however, also possible to infer an error of law in those cases where a correct application of the law to the facts found would lead inevitably to one answer whereas the arbitrator has arrived at another: and this can be so even if the arbitrator has stated the law in his reasons in a manner which appears to be correct - for the Court is then driven to assume that he did not properly understand the principles, which he had stated.

Whether the third stage can ever be the proper subject of an appeal, in those cases where the making of a decision does not follow automatically from the ascertainment of the facts and the law, is not a matter upon which it is necessary to express a view in the present case.”

These observations were made in relation to an appeal under section (1)(3)(a) of the Arbitration Act 1979. They are, however, equally applicable to an appeal under section 69(2)(a) of the 1996 Act. It should be noted that the passage, which I have just quoted, was cited by Mr Justice Langley in Covington Marine Corp. –v- Xiamen Shipbuilding Industry Co. LTD [2005] EWHC 2912 (COM).

In The “Baleares” [1993] 1 Lloyd’s Rep. 215 the Court of Appeal reversed the decision of the Commercial Court and restored the decision of three arbitrators concerning issues arising under a charterparty. At pages 227 to 228 Lord Justice Steyn said this:

“This is an appeal under s.1 of the Arbitration Act, 1979 on “a question of law arising from an arbitration award”.

For those concerned in this case that is a statement of the obvious. But it matters. It defines the limits of the jurisdiction of the Court hearing an appeal under the 1979 Act. The arbitrators are the masters of the facts. On an appeal the court must decide any question of law arising from an award on the basis of a full and unqualified acceptance of the findings of fact of the arbitrators. It is irrelevant whether the Court considers those findings of fact to be right or wrong. It also does not matter how obvious a mistake by the arbitrators on issues of fact might be, or what the scale of the financial consequences of the mistake of fact might be. That is, of course, an unsurprising position. After all, the very reason why parties conclude an arbitration agreement is because they do not wish to litigate in the Courts. Parties who submit their disputes to arbitration bind themselves by agreement, to honour the arbitrator’s award on the facts. The principle of party autonomy decrees that a Court ought never to question the arbitrators’ findings of fact.

In my view, the comments made by Lord Justice Steyn in that passage are now applicable to appeals brought under section 69 of the 1996 Act.

I shall not attempt either to paraphrase or to synthesise the guidance given in The “Chrysalis” and The “Baleares”. I regard that guidance as both relevant and helpful when the court is confronted with an arbitration appeal, which has not passed through the filter of an application for leave. I shall follow that guidance in the present case.

I shall address Kershaw’s four questions in the order set claim form.

Question one concerns the true construction of the Qualification. It is undoubtedly a question of law arising out of the award. The problem with question one is that it is academic. In his opening speech Mr Clay asserted that the correct answer to question one is “Yes”. He then went on to concede that the Arbitrator’s answer to that question was “Yes”.

This court readily pays tribute to the excellent service which Arbitrators provide to the construction industry. But there is really no point in the court hearing argument or delivering judgment on matters where everybody agrees that the arbitrator was right.

On the second day of the hearing Mr Clay revised his submissions on question one. He submitted that the arbitrator’s answer to question one was “Generally yes, but no in respect of the seven matters listed in paragraph seven of the Particulars of Claim”. The seven matters listed in paragraph seven of the Particulars of Claim are

“Differences which:

(1)

would have been allowed for in the tender if Kershaw had been tendering on a design and build basis, or

(2)

would have been allowed for in a tender if Kershaw was responsible for identifying all components necessary to achieve a compliant installation, or

(3)

could have been identified as an essential component from other information not supplied by White, Young Green, or

(4)

Could have been the subject of an express specific qualification of Kershaw’s March 2000 tender, or

(5)

were the subject of an express specific qualification between March 2000 and the conclusion of the Sub-Contract in July 2001, but not one prior to March 2000, or

(6)

were introduced because the final design information implemented a requirement of the Employer’s Requirements which WYG had omitted from its drawings, or

(7)

would have been included by Kershaw if Kershaw had ignored the WYG drawings and simply carried out its own design appraisal exactly as if Kershaw stood in the shoes of Kendrick and was employing WYG to tender for the main contract.”

With all due respect to counsel I do not agree. Mr Clay’s concession on day one was correct. His revised submission on day two involves attributing to the arbitrator an extremely convoluted answer, which cannot be gleaned from the award. Question one is a perfectly simple question. It admits of a yes or no answer. It can be seen from the award that there are many occasions when the arbitrator has adjusted the contract sum pursuant to the qualification and in favour of Kershaw, precisely because the final design information differed from the information supplied by WYG.

Nevertheless, I am loath to jettison question one, merely because of the way it has been formulated. There is a serious issue of law between the parties, which has been debated during the appeal, but currently is not captured by question one. The issue is whether the arbitrator’s interpretation of the Qualification is correct. It seems to me that question one could be converted into a question, which is relevant to this appeal if the word “where” is changed to “whenever”. Question one will then read as follows, “On the true construction of the Qualification, is the Qualification intended to permit an adjustment whenever the final design information differs from the information supplied by White, Young Green?”.

Mr Clay may or may not be content with my revised version of question one. However, I shall address that revised version in part six of the judgment because it will at least enable me to decide the issues which have been fully argued by counsel on both sides.

I turn now to question two. The present sub-contract was not a design and build sub-contract. The arbitrator acknowledges this in paragraphs 33, 34 and 61 of his award. At no point in the award does the arbitrator discuss the hypothetical question whether the Qualification permits adjustments, which would have been allowed for in the tender, if Kershaw had been tendering on a design and build basis. What the arbitrator discusses, in great detail and on an item by item basis, is what adjustments are permitted or required by the Qualification. Whether or not those same adjustments would have been allowed if Kershaw had tendered on a design and build basis is not addressed in the award and there is no reason why it should be.

Mr Clay submits that the correct answer to question two is “Yes” but the arbitrator’s answer is “No”. This incorrect answer of the arbitrator is to be inferred, says Mr Clay, from paragraphs 65 to 70 of the award, in particular the latter part of paragraph 68. The arbitrator’s incorrect answer is also to be inferred from the manner in which he deals with item V01.09 (above ground drainage), item MO1.13 (street heating) and item MO1.44 (fire and smoke dampers).

I do not agree with this analysis. The arbitrator does not address question two, either expressly or implicitly in those passages of his award. Mr Clay’s criticisms of the arbitrator’s reasoning at paragraphs 65 to 70 can all be addressed under the revised version of question one. The hypothetical question two is not necessary for this purpose. Furthermore, question two certainly does not arise out of the arbitrator’s decisions on the three specific items cited by Mr Clay. The use of question two as an attack upon those three individual decisions may be an attempt to present an appeal on the facts as though it were an appeal on the law. Any such attempt must be firmly discouraged. See The “Baleares” at page 228.

For all these reasons, I conclude that question two is not a question of law arising out of the award and I decline to consider it.

I turn now to question three. Mr Clay contends that this question arises from the arbitrator’s decision in respect of street heating. I do not agree. On a fair and reasonable reading of the award (which is the correct approach as set out in part four above) the arbitrator’s reasoning in respect of street heating is perfectly clear. It may be summarised as follows: 1. Street heating is not shown on the WYG drawings. However, it was included in the employer’s requirements and this should have been apparent to Kershaw at tender stage. 2. Kershaw failed either to revise its tender or to qualify its tender in respect of street heating when the omission was noted. 3. The Qualification, as interpreted by the arbitrator in paragraphs 65 to 70 of his award, does not permit the contract sum to be adjusted in respect of street heating.

Mr Clay, in his submissions, latches onto paragraphs 102.5.4 and 102.5.5 of the award. These paragraphs read as follows:

“102.5.4.

While the information was not drawn by WYG, there is a clear reference to the heating in the ER’s and Kershaw, as an experienced Mechanical Installation Sub-Contractor should have realised, even if it did not see the relevant part of the ER’s, that heating would be required, and ask the question, prior to submitting its bid.

102.5.5.

Having found that Kershaw had an obligation to have regard to the requirements of the ER’s as well as the drawn information, I must find that the relevant information was available at tender stage and therefore, an allowance should have been included.”

It is plainly the case that Kershaw could have qualified its tender, in respect of street heating, at any time between March 2000 and July 2001, although in fact it failed to do so. The arbitrator is not saying otherwise in paragraphs 102.5.4 and 102.5.5. Those paragraphs must be read in a fair and reasonable way in the context of the award as a whole. They must not be taken in isolation and subjected to minute textual analysis. See part four above.

I have come to the conclusion that question three is not a question of law, which arises out of the arbitrator’s decision on street heating, or out of any other part of the award. Accordingly, I decline to answer question three.

I come next to question four. The phrase, “the ordinary variation clause” is vague and would cover a wide range of contractual provisions. However, Mr Clay has explained that “the ordinary variation clause” is intended to be a reference to clause 1.3 of the Standard Conditions in this case. I shall therefore proceed on the basis that question four invites a comparison between the Qualification on the one hand and clause 1.3 on the other hand. The examinee is required to state which clause is more restrictive.

This question is, I suppose, a question of law in that it requires two contractual provisions to be interpreted. However, it most certainly does not arise out of the award. The arbitrator never posed this question or attempted to answer it. Furthermore, the exercise serves no useful purpose. The sub-contractor in this case had the benefit of both the Qualification and clause 1.3. It can be seen from the award that Kershaw recovered substantial sums under both heads. In a number of instances, Kershaw succeeded in a claim under the Qualification where it did not and could not succeed under clause 1.3. See, for example, the arbitrator’s decision in respect of radiant panels, discussed on pages 94 to 95 of the award.

The real purpose of this appeal is to ascertain the meaning and effect of the Qualification, not to carry out an arid comparison between that provision and another contractual term, the meaning of which is not in doubt. I therefore hold that question four is not a question of law arising out of the award.

In the result therefore, of the four questions posed by Kershaw, only question one has survived scrutiny. Even that question requires amendment if it is to serve any useful purpose. I must now endeavour to answer that question.

The correct answer to question one, as formulated, is “Yes”. It is clear that the Arbitrator’s answer is “yes”. This can be seen both from paragraphs 65 to 70 of his award, which state general principles, and from the later paragraphs, where he applies those principles and awards substantial sums pursuant to the Qualification. Mr Clay, for Kershaw, submits that the correct answer to question one is “Yes”. Mr Henderson, for Kendrick, agrees that the answer is “Yes”. Whilst I am pleased to record this state of unanimity, it is clearly not a ground for allowing the appeal.

Let me now turn to the modified version of question one. This reads as follows, “On the true construction of the Qualification, is the Qualification intended to permit an adjustment whenever the final design information differs from the information supplied by White, Young Green?” The arbitrator’s answer to this question is “No”. In paragraphs 65 to 70 of the award the arbitrator interprets the Qualification in a manner which restricts its effect to some situations (but not all situations) where the final design information differs from the information supplied by WYG.

Mr Clay has no serious quarrel with paragraph 66 of the award. His strongest criticisms are focussed upon paragraphs 68 to 70. I would summarise Mr Clay’s principal arguments as follows:

I should make it plain that Mr Clay’s written submissions span many pages and his oral submissions, of which I took a careful note, occupied several hours. I bear in mind the full amplitude of those submissions. The nine propositions set out above represent my attempt to distil, from counsel’s written and oral submissions, what appear to be the most important points and to set them out in a convenient order.

In addressing these arguments, I must apply the general principles set out in part four above. In particular, this is a case in which the arbitrator’s specialist experience of the construction industry assists him in interpreting a series of exchanges between the main contractor and the sub-contractor between March 2000 and May 2001. Accordingly, I must accord a measure of deference to the arbitrator’s interpretation of the Qualification. I will only reverse his decision if I am satisfied that the arbitrator, despite the benefit of his relevant experience, has come to the wrong answer.

I am not so satisfied. On the contrary, I consider that the arbitrator came to the right conclusion and I agree with his interpretation of the Qualification. I reach this conclusion for five principal reasons:

Now let me turn to the three items, which Mr Clay contends reveal more starkly and more clearly the arbitrator’s legal error in interpreting the Qualification. I have read and re-read the arbitrator’s reasoning and decisions in respect of above ground drainage, street heating and the dampers. It seems to me that in those passages, the arbitrator is faithfully applying his interpretation of the Qualification (as set out in paragraphs 65 to 70) to the facts, which he finds in respect of those three items. At this point, the analysis of Mr Justice Mustill in The “Chrysalis” becomes pertinent. The arbitrator has made findings of fact about those three items. These findings of fact constitute stage one in Mr Justice Mustill’s analysis. The arbitrator has reached conclusions about the meaning and effect of the Qualification at paragraphs 65 to 70 of his award. This constitutes stage two. Finally, the arbitrator has applied his interpretation of the Qualification to the particular facts surrounding above ground drainage, street heating and the dampers. This constitutes stage three in Mr Justice Mustill’s analysis. The process of application does not reveal any further conclusions of law. The specific decisions in respect of above ground drainage, street heating and the dampers cannot be made the subject of an appeal to this court.

Accordingly, it would not be right for me to delve into the arbitrator’s detailed decisions on those three items and I decline to do so.

Let me now draw the threads together. Question one, as formulated in the Particulars of Claim, has correctly been answered “yes” by the arbitrator. Question one, as reformulated by me, has correctly been answered “no” by the arbitrator. I am conscious that either party, or possibly both parties, may dislike my reformulation of question one. I therefore turn from the semantics of the question to the real issue between the parties. The real issue between the parties is whether the arbitrator has construed the Qualification correctly or whether he ought to have interpreted it more widely. On this issue, I am satisfied that the arbitrator construed the Qualification correctly and that the arbitrator made no error of law.

I am grateful to the solicitors and counsel on both sides for the considerable assistance, which they have given to the court. For the reasons set out in parts four, five and six above, this appeal is dismissed. Pursuant to section 69(7)(a) of the 1996 Act, I make an order confirming the arbitrator’s partial award.