Man Enterprise Sal v Al-Waddan Hotel Ltd

This is an application for the appointment of an arbitrator pursuant to section 18 of the Arbitration Act 1996.

The claimant in this arbitration claim ("MAN") entered into an agreement with Al-Waddan Hotel Limited, the defendant ("Al-Waddan") dated 1 April 2007 (“the Contract”). The Contract, which is set out and exhibited to the witness statement of Peter Richard Lampitt, dated 20 March 2013, was subject to the FIDIC conditions, fourth edition 1987, reprinted 1992 with editorial amendments. There were particular conditions and a number of bespoke amendments.

So far as these proceedings are concerned, I have been referred to clause 1.1 of the FIDIC conditions, which defines the Engineer in clause 1.1(a)(iv) to mean:

“the person appointed by the Employer to act as Engineer for the purposes of the Contract and named as such in Part II of these Conditions.”

In the particular conditions there was a definition in clause 1 that “Engineer” was to mean Dar Al Handash “Shair and Partners” with an address in Giza in Egypt.

The second provision to which I have been referred is the well-known provision in clause 67 of these FIDIC conditions. That provides in section 67.1 for the Engineer to give a decision within a period and for the consequences if a decision is given or if the Engineer fails to give a decision. There is then provision under clause 67.2 for amicable settlement leading to arbitration, with arbitration being dealt with by clause 67.3. In this case the particular conditions left clauses 67.1 and 67.2 unamended but deleted the standard clause 67.3 and substituted the following:

“Any dispute in respect of which amicable settlement has not been reached within 60 days after the date on which notice of intention to commence arbitration was given, shall be finally settled according to the applicable arbitration laws of England. Location of arbitration shall be England.”

It can be seen that that dispute firmly places the arbitration with a seat in England and firmly places the applicable procedural law as being English law. There is also within the particular conditions, at clause 5.1(b), a provision which states that the law is that in force in England. It is therefore clear that this is a case where the provisions of the Arbitration Act 1996 apply. It is therefore sought to have an appointment made in this case under the provisions of the Act.

The project involved the refurbishment and fitting out of the Al-Waddan Hotel in Tripoli, Libya.

A dispute arose between the parties at a fairly late stage of the project. There had up to that point been applications for payment which had been made and paid. However, by the time matters had reached certificate 18, for the period of time up to 18 November 2008, there had started to be financial problems between the parties and MAN contends that there was a failure by Al-Waddan to make payment.

As a result, on 10 June 2012, MAN gave notice to the Engineer at an address in Beirut referring a dispute under clause 67.1 of the contract dated 1 April 2007. That dispute referred to non-payment of interim certificate 18, non-payment of retention monies both on the taking-over certificate and at the end of the defects liability period, and non-payment of additional labour costs. The claim amounted in total to some US $4 million.

In response to that reference to the Engineer, a letter of 19 June 2012 was received from the Engineer in an office in Bahrain which said:

“We are in receipt of your letter … dated 10^th of June 2012 and advise you that our services contract with our Client on this project has effectively expired on 31/12/2010, and hence we no more have capacity to assume any duties in relation and have already ceased to be the Engineer under the construction contract.

Please be advised that accordingly we will not act on your aforementioned letter and draw your attention not to address us on this issue anymore.”

Following that response, MAN sent a letter dated 1 August 2012 to Al-Waddan in which MAN referred to their letter of 10 June 2012 and the response from the Engineer and asked Al –Waddan to admit the sums claimed by MAN or confirm that they had re-engaged the Engineer or appointed a new Engineer. They then added:

“Alternatively, please treat this letter as a notice of intention to commence Arbitration as to such dispute (so as to trigger clause 67.2 of the General Conditions of the Contract).”

On 16 November 2012 solicitors instructed on behalf of MAN, CMS CameronMcKenna LLP, wrote to Herbert Smith Freehills LLP. In an earlier letter written on 4 February 2010, Herbert Smith LLP had responded to various matters raised with Al-Waddan by MAN, through their solicitors. In the letter of 16 November 2012, CMS CameronMcKenna said that MAN intended to commence arbitration against Al-Waddan under clause 67 of the contract and enclosed by way of service a notice for the appointment of an arbitrator, saying that absent agreement between the parties there should be a sole arbitrator under s.15(3) of the Arbitration Act 1996 and proposing the names of arbitrators with a request for agreement to one of them. Alternatively MAN requested Al-Waddan to agree to the London Court of International Arbitration (LCIA) appointing a sole arbitrator to determine the dispute.

That led to a letter from Herbert Smith Freehills LLP in which they confirmed that they acted for Al-Waddan, although they had no instructions to accept service. In that letter they referred to what they said was a replacement contract which had been entered into between MAN and a joint stock company, Al-Waddan Tourism Investment JSC. They referred to potential changes in the status of Al-Waddan and referred to the terms of the replacement contract, which in particular, in the copy which they attached, referred to the Libyan courts having jurisdiction in relation to disputes.

CMS CameronMcKenna LLP responded to that letter on 1 February 2012 and annexed to it a document dated 6 August 2007, which is said to be a side letter to the document referred to as the replacement contract. That document signed by MAN and Al Waddan for Tourism and Investment certifies that the governing and valid Contract for the Al Waddan reconstruction and rehabilitation works is the signed Contract between Al-Waddan and MAN, signed on 1 April 2007.

That led to a response from Herbert Smith Freehills LLP in which they acknowledged that considerable reliance was placed by MAN on the side agreement. They made various comments about that, but in relation to an invitation to agree the appointment of an arbitrator, they said:

“At this stage, our clients are not minded to agree to the appointment of any of the individuals set out at paragraph 13 of your clients' undated Notice enclosed with your letter of 16 November 2012, but are considering whether to propose alternatives. We anticipate writing to you further on that subject within the next week or so.”

The position as of today is reflected in a letter which was written by Herbert Smith Freehills LLP on 14 May 2013 in response to correspondence from CMS CameronMcKenna LLP in which they say:

“We note that you appear to have served the proceedings on [Al-Waddan], and confirm that the position remains that we have no instructions in relation to these proceedings. We are, accordingly, unable to respond further.”

That letter was written after these proceedings had been commenced by a claim form dated 22 March 2013, supported by Mr Lampitt’s witness statement. This led to an order from the court, sealed on 22 March 2013, which gave permission to serve the claim form together with the application on Al-Waddan, out of the jurisdiction in the British Virgin Islands. It gave a period for the filing of an acknowledgement of service, a period for the defendant to file any evidence in response to the claim form and then for the matters to come before the court to fix a hearing date.

There is an affidavit of Greg Leacock received by the court on 24 April 2013 but sworn on 12 April 2013. He is a process server in the British Virgin Islands and he gives evidence of the proper service of proceedings on Al-Waddan in the British Virgin Islands in accordance with the order sealed on 22 March 2013.

As a result proceedings have been commenced against Al-Waddan. They have not acknowledged service, they have not filed any evidence and are not represented. As set out in the letter of 14 May 2013 they have given no instructions to Herbert Smith Freehills LLP in relation to the proceedings. I therefore proceed with this hearing in the absence of Al-Waddan.

I now turn to consider whether I should make an order for the appointment of an arbitrator in this case. In doing so I will take into account matters raised by Al-Waddan which might affect that issue.

The matters raised, first of all, include the fact that there was the replacement contract. It can be seen from the witness statement of Mr Lampett that when Herbert Smith LLP were involved in these proceedings in February 2010 on behalf of Al-Waddan their position, as expressed in their letter written to the solicitors previously acting on behalf of MAN was, as follows:

“We agree with you that the relevant agreement between the parties is the agreement entered into between the parties, dated 01 April 2007.”

In that letter they also said that there was no entitlement to give notice of arbitration because the provisions of clause 67 had not been complied with. They said there was no justification to the invoices and indicated a counterclaim.

That position, as I have indicated, changed in the letter from Herbert Smith Freehills LLP on 14 December 2012 when they made reference to the replacement contract. However when the document of 6 August 2007 was sent by CMS CameronMcKenna LLP with their letter of 1 February 2013, it is fair to say that the response from Herbert Smith Freehills LLP on 18 February 2013 was less bold in putting forward the terms of the replacement contract. Instead of asserting that the Libyan courts had jurisdiction, that letter indicates that it may be appropriate to appoint an arbitrator.

On an application to appoint an arbitrator the court is not concerned to resolve any of the underlying arguments which might be made in the arbitration such as issues relating to the existence of contracts or whether contracts have been terminated or other similar matters. Those are matters which must be dealt with, if at all, by the arbitrators properly appointed under the terms of any arbitration agreement.

The approach of the courts on an application such as this has been dealt with in particular by Burton J in the decision in Noble Denton Middle East v Noble Denton International Limited [2011] 1 Lloyd's Rep 387. In that case the defendant claimed that the relevant contractual relations relating to work done in Dubai was based upon an agreement between different parties which they said were binding as to the relevant transactions. There was therefore an issue relating to the existence of the arbitration agreement. After referring to both Mustill and Boyd on Commercial Arbitration (2nd Edition), Merkin on Arbitration Law and the Departmental Advisory Committee on Arbitration Law Report, together with the decision of Thomas J (as he then was) in Vale Do Rio v Shanghai Bao Steel [2000] 2 Lloyd's Rep 1 and the decision of Moore-Bick J (as he then was) in The Lapad [2002] 2 Lloyd's Rep 109, Burton J came to this conclusion, at paragraph 10, that the test on an application under section 18 is only one of whether there is an arguable case that there is a valid arbitration agreement.

In this case, on the arguments which are put forward, there is, in my view, a good arguable case that the parties were bound by the agreement of 1 April 2007 which contained the arbitration clause set out above.

It is clear that there was in existence an agreement dated 1 April 2007 and the only issue is whether it survived the terms of the so-called replacement contract. In relation to this there is the document of 6 August 2007 which would suggest the continued existence of the agreement of 1 April 2007. Initially at least Herbert Smith LLP accepted that the agreement of 1 April 2007 was the relevant agreement. I also note that the replacement contract is an agreement between MAN and a different party, Waddan Tourism Investment. In addition when CMS CameronMcKenna LLP enclosed the document of 6 August 2007, this seems to have led to a change Herbert Smith Freehills LLP’s letter of 18 February 2013. Without going further, I can say that on the basis of the documents before me there is a good arguable case that there is an arbitration clause in the form of clause 67.3 of the Contract entered into on 1 April 2007, with England as the place of arbitration and subject to English arbitration law.

A second matter which then arises and was raised by Herbert Smith LLP initially, was the need to go through the process of obtaining an Engineer’s decision under clause 67 before notice of arbitration could be given. In many cases under the FIDIC conditions, there are arguments based upon the date of seeking a decision from the Engineer, whether the Engineer then gives or does not give a timely decision, the time which then has passed before notice to commence arbitration is given and what steps are taken after that to commence arbitration. On the documents it is not evident that any such arguments would arise here and no point taken in the documents as to those matters and the latest letter from Herbert Smith Freehills LLP appears to accept, at least in principle, that there should be an arbitration where arbitrators might be appointed.

On the material before me this is a case where there is a good arguable case that the provisions of clause 67 have been complied with. There is a good arguable case that the letter from the Engineer is in fact to be treated as a notice of decision. If that is wrong, there is a good arguable case on the construction of the Contract that clause 67 does not apply if, as is indicated by the Engineer’s letter of 19 June, there is no Engineer. Alternatively in circumstances where the Engineer is not acting, it is arguable that the absence of an Engineer’s decision is not a point which could be relied upon by the party who employed the Engineer. I have been referred to the two articles written by Mr Christopher Seppälä in [1986] ICLR 315 at 324, which clearly supports arguments along those lines where there has been, as appears may have occurred in this case, some form of termination of an Engineer's appointment.

For all those reasons, I consider that there is a good arguable case that any necessary process under clause 67 has been complied with. There is a good arguable case, as I have indicated, that there is an arbitration clause under the agreement of 1 April 2007 and that this agreement is still an operative agreement for the purpose of the current disputes.

In those circumstances, I now turn to consider the provisions of the Arbitration Act 1996. First, this is a case where the arbitral tribunal has not been identified in number and section 15(3) of the Arbitration Act 1996 provides that if there is no agreement as to the number of arbitrators, the tribunal shall consist of a sole arbitrator.

These then leads to section 16(3) which provides:

“If the tribunal is to consist of a sole arbitrator, the parties shall jointly appoint the arbitrator not later than 28 days after service of a request in writing by either party to do so.”

If there is a failure of the appointment procedure then section 18(1) provides that “The parties are free to agree what is to happen in the event of a failure of the procedure for the appointment of the arbitral tribunal.” Section 18(2) then states that:

“If or to the extent that there is no such agreement any party to the arbitration agreement may (upon notice to the other parties) apply to the court to exercise its powers under this section.”

Those powers are set out in section 18(3) and include “to give directions as to the making of any necessary appointments” and “to make any necessary appointments itself.”

In this case it is necessary to appoint a sole arbitrator using the powers under section 18(3). In this particular case the appropriate order under that provision, in my judgment, is that an appointment should be made by the President or a Vice-President of the London Court of International Arbitration (LCIA), that being an appropriate body in London dealing with international arbitration and having experience in appointing arbitrators for disputes such as this.

Therefore there shall be a direction that the arbitrator in the dispute between MAN and Al-Waddan shall be a sole arbitrator to be appointed by the President or a Vice-President for the time being of the LCIA.