Secretary of State for Defence v Turner Estate Solutions Ltd

In this Arbitration claim the Claimant seeks relief under s.68 of the Arbitration Act 1996 (“the Act”) in relation to a second part award dated 29 July 2013 made by the arbitral tribunal (“the Tribunal”). The arbitration arises under a contract dated 31 March 2003 (“the Contract”) under which the Claimant engaged the Defendant to carry out, amongst other things, the design and construction of a substantial regeneration project involving Core Works. The Contract was a bespoke contract based on a Maximum Price Target Cost (“MPTC”).

The Contract contained provisions at Clause 10 dealing with the MPTC pricing provisions. At Clauses 10.12 and 10.13 the Contract included provisions for the assessment of the Final Price Payable to the Defendant for the provision of Core Works. Clause 11 of the Contract dealt with the Defendant’s entitlement to and with the procedure for interim payments.

Changes were dealt with under Clause 13 which included a process by which the Claimant or the Defendant could propose Changes on a Change Proposal Form. The Defendant made a number of Change Proposals (“CPs”) which were not approved by the Claimant. In addition under Clause 8 there was provision for the Defendant to give delay notices when the Defendant considered that certain matters, including a Change under Clause 13, had occurred which entitled it to an extension of time or additional cost. Clauses 8 and 13 allowed for the adjustment of the MPTC pricing provisions to deal with CPs and the consequences of Delay Notices.

It is common ground between the parties that when the Final Price Payable is determined under Clauses 10.12 and 10.13 that price cannot exceed the finally adjusted Maximum Price. However a dispute arose between the parties as to whether, in relation to interim payments, the Contract also provided that these payments should not exceed the adjusted Maximum Price.

Under the disputes resolution procedure there was a Dispute Review Board (“DRB”). The procedure provided for the DRB to decide on which of three options should be implemented to resolve the dispute if other means failed. Those options included Mediation, Expert Determination or Arbitration. There was also provision for an adjudication procedure in the event that one of the parties invoked its right to adjudicate pursuant to the Housing Grants, Construction and Regeneration Act 1996.

In the event of arbitration the dispute was to be finally settled by arbitration “administered by the DRB” under which the DRB should be the Tribunal.

Disputes arose between the parties when, in July 2008, the aggregate of the interim payments was about to breach the Maximum Price as revised at that date. The Claimant took the view that the Maximum Price acted as a “cap” on interim payments but the Defendant disagreed.

On 30 April 2009 the Defendant commenced adjudication proceedings seeking payment in respect of nine unpaid interim payment requests relating to work undertaken by the Defendant in the period of July 2008 to February 2009.

On 2 June 2009 the adjudicator awarded the Defendant a substantial sum on the basis that the Maximum Price did not act as a cap on the interim payments.

On 21 June 2009 the Claimant issued the Defendant with a letter pursuant to step 1 of the disputes resolution procedure in order to seek to recover the moneys awarded to the Defendant by the adjudicator. In a document setting out Details of Dispute, as required by the disputes resolution procedure, the Claimant sought repayment of the sums overpaid and in the alternative claimed:

“…repayment of all costs not properly verified or incurred; costs which do not relate to the Core Works or to valid/approved and substantiated Changes or which exceed the sums due for such Changes; and the costs of alleged Changes or claims which have not been made in compliance with the provisions of the Contract.”

In advance of a preliminary meeting on 1 February 2010 the Defendant wrote to the DRB concerning the scope of the dispute and said that it would wish to include in the scope, in addition to the matters raised by the Claimant, two further matters being a counterclaim for further sums by way of interim payment and also:

“our alternative defence that, should the MPTC mechanism be relevant to the calculation of interim payments (which is denied) then that mechanism ought to be adjusted to reflect the various matters notified throughout the course of the works, and the level of interim payments due determined accordingly.”

In further elaboration the Defendant said that the MPTC ought to be increased to reflect the value of delays, additional costs and Changes and then said :

“The CP register alone currently extends to some 480 change proposals, each of which will require to be considered by the DRB in order to conclude a view on the full MPTC adjustment arising as a consequence of them.”

On 1 February 2010 discussions took place between the parties leading to agreed draft directions which were formalised in directions from the Tribunal made on 10 March 2010. In order to prevent further adjudications taking place the Defendant undertook that, pending determination or earlier agreement of the issues in the Claimant’s Details of Dispute and in the Defendant’s letters of 28 January 2010, the Defendant would not seek to adjudicate claims for interim payments or “Change Proposals, extensions of time and/or increases in the Maximum Price Target Cost (MPTC).”

On 23 February 2010 the Claimant served Points of Claim stating that the arbitration concerned the Defendant’s entitlement to interim payments pursuant to the Contract and raised the issue as to whether or not interim payments were limited by the MPTC provisions in the Contract and therefore could not exceed the Maximum Price.

The Claimant also pleaded a further or alternative case that the Defendant was not entitled to payment of all its costs as part of the interim payment procedure and, in so far as actual costs were relevant, it contended that they must be properly chargeable as Core Works or approved Changes. In paragraphs 37 to 41 the Claimant referred to CPs which had been accepted and those which had not been approved. At paragraph 41 the Claimant said it had not approved the remaining CPs and did not accept that the Defendant had an entitlement to increase the MPTC in relation to them.

In paragraph 42 to 44 of the Points of Claim the Claimant dealt with costs “properly incurred, reasonable and accurately verifiable” and said that in the light of the matters set out in paragraphs 37 to 41 it was the Claimant’s case that:

“…the costs claimed by [the Defendant], which include the above CPs, have not been properly incurred and/or are not reasonable and that [the Defendant] is not entitled to any adjustment to the MPTC (except where expressly admitted above). In the circumstances, [the Defendant] is not entitled to interim payments which include the cost of such CPs.”

In the relief claimed the Claimant sought a “decision and declaration that [the Defendant’s] entitlement to interim payments is limited by the MPTC pricing provisions and cannot exceed the Maximum Price”. It also sought reimbursement of money paid pursuant to the adjudication decision and further money overpaid as a result of “costs which do not relate to the Core Works or to valid/approved and substantiated Changes or which exceed the sums due for such Changes; and the costs of alleged Changes or claims which have not been made in compliance with the provisions of the Contract….”

The Defendant served a Defence and Counterclaim on 16 July 2010. In paragraph 5(1) it pleaded that the Contract did not provide that interim payments could not exceed the Maximum Price. In paragraph 13 the Defendant pleaded that pursuant to Clauses 8 and/or 13 of the Contract, the Maximum Price should have been increased by a further sum as set out in Schedules 1, 3 and 7 to that document. In paragraph 14 it said that, if contrary to its primary case, “the interim payments are to be capped at the Maximum Price, then [the Defendant] avers that the Maximum Price, properly adjusted should be increased as set out at paragraph 13 above. On that basis the interim payments should be continuing and are not in excess of the Maximum Price if properly adjusted.”

In paragraph 47 the Defendant pleaded that the Maximum Price should have been increased as particularised at schedules 1, 3 and 7 to that pleading and that the relevant figure included the proper valuation of Changes carried out at the Claimant’s request, even if not formally approved. Finally it was pleaded that, in breach of Clause 13, the Claimant had failed to agree an adjustment to the Maximum Price. In paragraph 49(3) it was pleaded that the Defendants sought the following relief: “A decision and declaration that the Target Price and Maximum Price are adjusted to” the figure pleaded in paragraph 13 and Schedules 1, 3 and 7 of the Defence and Counterclaim.

On 23 December 2010 the Claimant served a Reply and Defence to Counterclaim.

On 31 January 2011, following directions at a procedural hearing on 24 January 2011, the Defendant made an application for preliminary issues to be heard in advance of the main trial. In paragraph 11 of that application the Defendant put its case on entitlement to payment on two alternative grounds. First, it said that it was entitled to payment of the totality of its actual costs by way of interim payments and that interim payments were not limited by the cap of Maximum Price. It referred to this ground as “the Interim Position”. Alternatively it said that if the Maximum Price cap did apply to interim payments as alleged by the Claimant, it claimed “an adjustment of the MPTC mechanism to reflect the delays and Change Proposals issued during the course of the works.” It referred to this ground as “the Final Outcome”.

In paragraph 16 to 19 of those submissions the Defendant set out its position in relation to the Interim Position and the Final Outcome as follows:

“16.

Further and in any event, [the Defendant’s] first ground of entitlement (the Interim Position) is of somewhat academic interest now that the ambit of the arbitration has been widened to take into account [the Defendant’s] final entitlement in that the Core Works are complete save that approximately £1.178m of interest will turn on the outcome of this argument. …

17.

It is [the Defendant’s] second ground of entitlement (adjustment of the MPTC: the Final Outcome) to which the vast bulk of the main hearing will be devoted. This is because in order to determine an appropriate adjustment to the MPTC the Tribunal must determine [the Defendant’s] entitlement in respect of delay and each of the 231 Change Proposals. This is a highly fact intensive inquiry and will, in practical terms (if not technically) represent the final accounting position between the parties.

18.

The fact is that the Interim Position is less important (and of infinitely less value) than the Final Outcome. …

19.

As set out further below, the preliminary issues proposed by [the Defendant] potentially resolve a very significant part of the dispute in relation to [the Defendant’s] second ground of entitlement (the Final Outcome) and, however decided, will reduce both the scope and cost of the main hearing.”

The application for preliminary issues was refused by the Tribunal in a procedural decision dated 11 February 2011.

On 3 March 2011 there was a procedural hearing at which the Defendant applied for an order that the scope of the hearing to commence in May 2011 should be confined to determination of the Defendant’s primary case, referred to as the “Interim Position”, together with the Defendant’s claim for adjustment of the MPTC in respect of the top 26 CPs by value. The Claimant resisted that application, wishing all matters to be dealt with. In the event the Tribunal adjourned the hearing fixed for 9 May 2011 and directed that the trial should be heard in two tranches of three weeks, commencing on 21 November 2011 and 16 January 2012.

On 16 September 2011 the Defendant served a Re-Amended Defence and Counterclaim in which it altered the prayer at paragraph 49(3), now paragraph 49(7), to make the relief “AIn the alternative, a decision and declaration that the Target Price and Maximum Price” were adjusted to particular figures. In doing so it made the adjustment of the Maximum Price an alternative to the decision that it was entitled to initial payments without a cap of the Maximum Price.

The first tranche of the hearing took place between 21 November and 9 December 2011 when witnesses were examined and cross examined on CPs.

On 28 December 2011 the Tribunal directed that a hearing should take place on 6 January 2012 to consider a list of seven issues which had been prepared by the Tribunal. Issue 6 was as follows:

“Can the parties clarify how the disputes in Change Proposals, defects and disallowable costs fit in with their primary claims and defences and the extent to which, if at all, it would be unnecessary or inappropriate for the Tribunal to deal with such matters in its Award if the primary cases can properly be decided without reference to such matters.”

At that hearing on 6 January 2012 the Tribunal considered the Claimant’s application to put in a supplemental expert report of Mr Halford which dealt, in part, with the value of CPs. At that hearing the Defendant “reserved its position” in relation to Issue 6 on the Tribunal’s list of issues.

On 16 January 2012 tranche 2 of the hearing commenced.

On 19 January 2012 the Claimant served the draft supplemental report from Mr Halford which had been the subject of the application on 6 January 2012.

On 20 January 2012 a discussion took place during the course of the hearing as to how quantum evidence should be dealt with. Ms Hannaford QC submitted that quantum could be dealt with at a hearing in March 2012 which had originally been fixed for closing submissions. Mr Keen QC in his submissions said that 12 March 2012 was not feasible but a date of 26 to 29 March 2012 seemed more realistic for the hearing of evidence on quantum. He said that the Defendant would not object to the supplemental report providing that the hearing on quantum evidence was deferred until 26 March 2012.

The Tribunal then indicated that in all probability the quantum hearing would have to be pushed out until July 2012. On this basis the Chairman of the Tribunal indicated the following approach:

“…rather than delaying all matters in the arbitration, we would issue a part award on certain points of principle which would be dealt with following the conclusion of the hearing of evidence in this part of the arbitration in January, and obviously following submission from the parties.”

He indicated he would hear oral submissions on whether this was a sensible course of action on Monday 23 January 2012.

The Chairman then continued and said as follows:

“… I know, Ms Hannaford, you have expressed the view on a number of occasions that you were keen to ensure that all the matters in dispute were dealt with for reasons of costs, and I should say that from the Tribunal’s perspective, the possibility, if it were, for example, to accept Mr Keen’s what I might call the primary argument, which is the most extreme end of that particular spectrum, and if we were to accept Mr Keen’s submission that it was not then necessary to deal with the CPs and other matters, and I am not for any moment suggesting that is a likely outcome, or unlikely, it would be a considerable waste of time and effort and massive expense on behalf of all the parties to have spent the amount of time and money which has been spent on dealing with matters such as the defects and the CPs without getting a view from the Tribunal. And that would be a very unpalatable outcome, and that would clearly be a factor in any decision which the Tribunal took ultimately on the parties respective primary cases.

So I would also invite Mr Keen in particular to see if it would be possible to take instructions upon the point upon which he has reserved previously about whether, if there was a part award of some description, or if we were to sustain the primary case, or actually regardless of any decision that we should take, that award would also deal with the issues of the CPs and the other matters, because that seems highly desirable, given the cost of this arbitration to the parties. So that’s another matter which I think would be helpful if it could be addressed on Monday morning.”

As envisaged, on Monday 23 January 2012 a discussion on procedural matters then took place. The Chairman of the Tribunal asked Mr Keen QC about his previously reserved position about CPs. Mr Keen QC then suggested that evidence of fact could be taken on 12 March 2012 and that quantum could be deferred to July 2012. He also proposed that submissions could take place on the preliminary issues on 26 to 29 March 2012. He then dealt with the question of CPs and said:

“As regards CPs and delay, I will depart from my reservation and say that at the end of the day the Tribunal should make declarators on these matters if everything is going to be deferred to July in light of the amendment and the supplementary quantum, report. I don’t see how one or two of them can be picked off in March and I don’t see the advantage of doing that, because we are trying to narrow and focus what it is the tribunal has to deal with.

So I would not take exception, if the amendment and supplementary report are allowed, to the Tribunal in July addressing declarators on CPs and delay, even though that may no impact directly upon the determination of interim payment. And then it’s done as it were.”

The Chairman of the Tribunal then sought clarification from Mr Keen QC in the following exchange :

“Just two points of clarification, if I may, Mr Keen on the position.

I think Ms Hannaford was suggesting that it would be appropriate to deal with some of the CPs at the end of March. I appreciate that that is not your position, but if we were minded to take that course: you have previously reserved your position in connection with the CPs and you have departed from that reservation; what would be your position if we were to say, “Well, we think we ought to deal with some of the CPs in March”, in light of the reservation you have previously made?”

Mr Keen QC then replied:

“Then we have to obey the Tribunal, I think is my only answer.

At the end of the day, the Tribunal will determine the matter. My concern is that in March we have a self-contained operation that the Tribunal can cope with and we can cope with, and if we list the major CPs - for example 237 - I don’t see that process working.

…

In addition, I think we have to remember that we have quantum to deal with anyway, and that might more appropriately be pulled in with the issue of the CPs and, indeed, delay.”

The Chairman then asked Ms Hannaford QC whether she had any points to make on what Mr Keen QC had said. The following exchange then took place:

“MS HANNAFORD: Yes. One point of clarification, which I think I understood, is Mr Keen saying that if you were to determine everything in May and on this assumption didn’t do any CPs or defects, he would nonetheless - whatever happens - accept determination of CPs and defects at a later stage? I see nodding.

THE CHAIRMAN: I think Mr Keen was prepared to accept the views of the Tribunal on that matter.

MS HANNAFORD: Yes

MR KEEN: That was my position, but the Tribunal’s position may be radically different.

MS HANNAFORD: That’s extremely helpful. I just wanted to make sure I hadn’t misunderstood.

What we do submit would be helpful would be not to confine any partial award that the Tribunal decides is appropriate to issues of principle. There has been a vast amount of evidence, and we are not at the end of it yet, in relation to CPs and defects. It would in my submission, be a tragedy to leave until July and after July the determination of that evidence, at which stage the Tribunal would have heard the evidence many, many months earlier. In my submission, it would be extremely useful for any part award to include an award on liability in relation to defects and CPs.

…

Some of the other larger CPs that I’ve mentioned - 84, 235 and 396 - don’t raise the same difficulties in terms of volume of evidence. Yes, there is an amount of evidence, but it’s not insurmountable, and in my submission, again could helpfully be done. As Mr Keen says we are obviously very much in the hands of the Tribunal.”

On 2 February 2012 the Tribunal then gave directions leading to a hearing of closing submissions on matters to be included in a Part Award between 26 and 30 March 2012, with the remaining witnesses in relation to the quantum of the parties’ claims being heard between 16 and 20 July 2012.

On 22 February 2012 the Tribunal indicated the issues upon which it would wish to hear submissions. Those included the issue of whether the Defendant’s entitlement to interim payment was limited to the MPTC pricing provisions and could not exceed the Maximum Price (Issue 4.3) and whether the Claimant had any liability to make payment to the Defendant in relation to CP58 and CP84 and also issue of delay relating to CP237/337 (Issues 4.13, 4.14 and 4.15).

The Tribunal then heard those submissions and by the First Part Award dated 31 May 2012 the Tribunal held that the Defendant was not disentitled to be paid an amount in excess of the Maximum Price at the interim payment stage. It also held that the Defendant had, in principle, a valid claim under CP58 and 84 which had to be valued.

On 18 June 2012 the Tribunal fixed a hearing for 2 July 2012 and indicated that the agenda was likely to include the following matter “Which CPs remain to be resolved”.

In a letter dated 22 June 2012 the Defendant’s solicitors responded to that issue in the following terms:

“1.31

In light of its decision that the Maximum Price is not a cap on interim payments, and because this arbitration is concerned with interim payment and not the Final Price Payable, the Tribunal could form the view that there is no need for it to go on to make findings in relation to the respondent’s alternative defence for adjustment of the MPTC to reflect the value of all unapproved Changes.

….

1.33

We accept that the following is a matter entirely for the Tribunal, however, if the Tribunal finds it necessary to consider all the CPs then the respondent’s position is that the Tribunal will, in due course, need to determine liability for all of the remaining disputed CPs, namely:…”

At a pre-trial review on 2 July 2012 the Tribunal gave directions for the hearing to take place from 16 to 20 July 2012. At the end of the hearing on 20 July 2012 there was a discussion about how matters should then proceed and the Tribunal gave directions for submissions on this to be served by 7 September 2012.

Those submissions were served and there was then a stay of the Arbitration from 14 September 2012 to 5 April 2013 when it was hoped that the parties might be able to resolve or narrow issues.

Those hopes were not fulfilled and on 5 April 2013 the Tribunal sought proposals on the issues which the parties still required to be resolved in the arbitration, together with proposals for further procedure.

On 20 May 2013 the Tribunal indicated it would address four issues in a second part award. One of those issues was whether the Tribunal should proceed to determine liability and/or the value of the CPs on the list annexed to those directions.

A hearing took place on 18 and 19 June 2013 to deal with those issues raised by the Tribunal. Each party served submissions in advance of the hearing. On 18 June 2013, during the course of argument Ms Hannaford QC submitted on behalf of the Claimant that it was sensible, fair and practical for the tribunal to determine CPs given that they had been fully pleaded, that all the evidence had been heard and that the parties and the Tribunal had operated on the basis that CPs were important. She said that, if necessary, she would seek permission to amend the Particulars of Claim to claim declarations in relation to the liability and quantum of CPs. She indicated that she had not made an application to amend but would take instructions and might be instructed to make an application the following day. No such application was made.

One of the issues she raised was the fact that the parties had agreed at the hearing on 23 January 2012 to the Tribunal issuing declarations on liability for and value of CPs as claimed in the Defendant’s Counterclaim. It was submitted on behalf of the Claimant that:

“…the parties have made an agreement to submit the question of liability for CPs and the consequential adjustment of the MPTC (if any) to the Tribunal for a final and binding decision. Insofar as necessary, [the Claimant] submits that the parties have given the Tribunal ad hoc jurisdiction to determine this issue, and the Tribunal is therefore bound to determine it.

Alternatively, the parties have agreed the procedure for the future conduct of the arbitration, which includes the determination of the question of liability for CPs and the consequential adjustment of the MPTC (if any), whether or not CPs were relevant to the issue of interim payment. The Tribunal is bound by this agreement. [The Defendant’s] attempt to ignore the agreement amounts to an invitation to the Tribunal to conduct the proceedings otherwise than in accordance with the procedure agreed by the parties, which could amount to serious irregularity pursuant to section 68 of the Arbitration Act 1996.”

The Tribunal issued the Second Part Award dated 29 July 2013 in which it determined the question of whether the Tribunal should proceed to determine liability for and/or the value of the CPs in the list annexed to the directions of 20 May 2013.

The Tribunal dealt with the question of whether there was an agreement made on Day 17 (23 January 2012) as follows at paragraphs 4.14 to 4.22 of the Second Part Award. As it is central to the issues I have to determine I set it out in full:

“4.14

On day 17 of the hearing Mr Keen confirmed that:

"I will depart from my reservation and say that at the end of the day the Tribunal should make declarators on these matters if everything is going to be deferred to July in light of the amendment and the supplementary quantum report."

"In addition, I think we have to remember that we have quantum to deal with anyway, and that might more appropriately be pulled in with the issue of the CPs and, indeed, delay.”

4.15

In the Tribunal's view the words used require to be given their plain and ordinary meaning against the factual background at the time they were made. Having considered the detailed submissions of both parties, the Tribunal has formed the view that in January 2012 the parties agreed that the Tribunal ought to deal with the matter of CPs in this arbitration. This is the clear effect of the comments made by Mr Keen on day 17 of the hearing. However, the question which then arises is what is the extent of that agreement and does it constrain the ability of the Tribunal to determine the issues in dispute.

4.16

It should be remembered that at that point the Tribunal was considering the procedure which ought to be followed in the arbitration in the circumstances where it was necessary to re-organise the timetable which had previously been set. At the urging of the Tribunal, the parties were being asked to consider how best to use the time available to resolve as many of the issues which had been the subject of evidence as possible. This included the CPs. In withdrawing its reservation [the Defendant] clearly had in mind these factors. This is evident from the statement that the Tribunal should proceed to make declarations in relation to the CPs "if everything is going to be deferred to July."

4.17

However, as matters have turned out the procedure has taken a very different direction to that envisaged by the Tribunal in January 2012. The First Part Award has not served to narrow the issues in dispute. It would appear that the parties have been unable to agree anything that has not been formally decided by the Tribunal and indeed each party has sought to interpret the First Part Award so as to advance its respective position. The arbitration has been stayed for over seven months and there is no longer any agreement between the parties as to how the CPs should be dealt with. It is now over a year since the hearing on quantum was concluded (other than the evidence of Ms Wishart).

4.18

The question is, therefore, whether the Tribunal is bound to follow the agreement reached between the parties at a particular stage of the procedure when there has been a change of circumstance. [The Claimant] submits that the Tribunal has no discretion in this regard and that a failure to proceed to determine liability and quantum in respect of each CP would constitute serious irregularity pursuant to section 68 of the 1996 Act. The Tribunal does not accept this. It is for the Tribunal to determine the procedure which ought to be followed in light of its duties under the 1996 Act. The Tribunal has an obligation to assess what the correct procedure ought to be at any particular point in time. The Tribunal requires to determine the issues which have been referred to it but those issues are defined, as [the Claimant] has submitted, by reference to the pleadings framed by the parties. If the CPs are not required to resolve the issues in dispute (as defined by the parties' pleadings) the Tribunal requires to consider very carefully whether it ought to proceed in accordance with the agreement reached in January 2012.

4.19

The Tribunal notes that [the Defendant] has raised a substantive point with regard to the consequences of any finding with regard to the CPs in this arbitration. In short, what has been termed the "unapproved Change Proposals" argument has been pled by [the Defendant] in the defence and counterclaim. In agreeing that the Tribunal ought to deal with the CPs Mr Keen did not waive [the Defendant’s] right to advance arguments which are pled by it as part of [the Defendant’s] defence. It would be an extreme step for the Tribunal to hold that an agreement which fundamentally related to the procedure to be followed in the arbitration had the effect of preventing [the Defendant] from advancing part of its defence.

4.20

The point which then arises is whether the Tribunal ought to proceed to determine liability and quantum in respect of each of the CPs without considering as a preliminary step whether this is necessary to resolve the matters in dispute. The Tribunal has expressed repeated concerns about the wasted costs which might arise if it did not determine the CPs. Those concerns remain but up until June 2012 they were based upon an understanding that it would be necessary at some point for the parties either to agree the level of the CPs or for the Tribunal to determine them (whether in this arbitration or in some other procedure). [The Defendant] now submits that this is not the case. If [the Defendant] is correct in its submission then spending more time on the issue will not save time and expense. It will simply increase the amount of wasted cost. Further, the agreement reached in January 2012 does not address the question of who should bear the cost of the time spent in dealing with CPs. Presumably this would require to be determined by the Tribunal at a later stage but this may not be a straightforward matter if the Tribunal were to hold that although the parties agreed to deal with the CPs they were irrelevant to the eventual outcome of this arbitration.

4.21

In the present case it is only [the Claimant] which argues that determination of CPs is necessary to dispose of the various claims and counter-claims. [The Defendant] argues strongly to the opposite effect. In doing so [the Defendant] makes the point that it no longer places any reliance on the determination of CPs and that [the Claimant], in the context of this interim payment arbitration, only does so by asserting that CPs have relevance to interim payments. [The Defendant] contends that this relevancy matter, which is hotly contested, should be decided before any Tribunal decision on necessity is made.”

On 23 August 2013 the Claimant issued the Arbitration Claim and Particulars of Claim in these proceedings. The Application was supported by the Witness Statement of Mr Andrew Bickley. On 23 October 2013 the Defendant put in its Defence supported by the Witness Statement of Mr Craig Macphee and on 8 November 2013 the Claimant served a Reply with a supplemental witness statement from Mr Bickley. The Court gave directions on 8 November 2013 leading to a hearing on 17 December 2013, with skeleton arguments being served by the parties.

Ms Sarah Hannaford QC, who appeared with Ms Rachael O’Hagan and Ms Rose Grogan on behalf of the Claimant, submits as a result of what was said at the hearing on 23 January 2012 and as found by the Tribunal in paragraph 4.15 of the Second Part Award, “the parties agreed that the Tribunal ought to deal with the matter of CPs in this arbitration”. She submits that this is a finding of fact and law by the Tribunal which has not and could not be appealed and is therefore binding on the parties. She says that the parties having made that agreement, the Tribunal cannot now ignore the terms of the parties’ agreement.

She submits that the parties’ agreement was that the Tribunal should adopt a procedure so as to deal with the issues of liability and quantum of the CPs, independently of the question whether determination of CPs was necessary to deal with the Defendant’s claims in respect of interim payments. On this basis, the Tribunal’s ruling in the Second Part Award that it should not proceed to determine the value and/or liability of the CPs until it had made a decision on the “relevancy of the Change Proposals to interim payment” was contrary to the terms of the procedural agreement between the parties and therefore under s.68(2)(c) of the Act there was the “procedure agreed by the parties”.

In the alternative, Ms Hannaford QC says that prior to the Second Part Award a very considerable amount of time and cost had been spent by the parties dealing with the CP claims. She refers to the evidence of Mr Bickley that the Claimant has spent about £2.4m dealing with CPs. She says that additional time has been spent on preparation, hearing and argument leading to the First Part Award and if the Tribunal now finds that CPs are not relevant to interim payments, substantial parts of the First Part Award would be rendered otiose. Further she says that, on the basis of the Second Part Award, it will be necessary to spend further time and money seeking a further decision or Award on whether CPs are relevant to interim payments.

On this basis she submits that under s.68(2)(a) of the Act there has been a “failure by the tribunal to comply with section 33 (general duty of tribunal)”. She refers to s.33(1)(b) of the Act which requires the Tribunal to “adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.” She submits that by its decision in the Second Part Award and in the light of the time and cost already expended in dealing with CPs, the Tribunal has failed to adopt procedures which avoid unnecessary delay and expense.

In the further alternative, Ms Hannaford QC says that the effect of the parties’ agreement was that one of the issues which the Tribunal should deal with was liability and quantum of CPs as a stand-alone issue which was not dependent on whether they were relevant to interim payment. In the Second Part Award the Tribunal has determined that it will only deal with CPs if they are relevant to interim payment. As a result, she submits that under s.68(2)(d) of the Act there has been a “failure by the tribunal to deal with all the issues that were put to it.”

Ms Hannaford QC submits that there has therefore been a serious irregularity. She says that, as a result, the Claimant has lost the unlimited right to have the issue of liability and quantum of CPs determined by the Tribunal in this arbitration because the Tribunal will only determine CPs if they are relevant to interim payment. She relies on the loss of the right to have CPs determined in the manner agreed by the parties and to the time and expense which the parties have already spent in this arbitration in dealing with CPs, including the issues determined in the First Part Award. On this basis she submits that the serious irregularity has caused or will cause serious injustice to the Claimant.

As a result, Ms Hannaford QC submits that the Second Part Award should be remitted to the Tribunal and/or set aside insofar as it relates to the Tribunal’s finding that it should not proceed to determine CPs until it has made a decision on the relevance of the CPs to interim payments.

Mr Richard Keen QC who appeared with Mr Garry Borland and Mr Martin Richardson on behalf of the Defendant, submits that in the Second Part Award the Tribunal has not decided not to determine CPs but has merely held that before deciding the matter it would first consider whether the CPs were relevant to interim payment. He submits that there is nothing to preclude the Tribunal from determining CPs and it is still open to the Tribunal to do so. On that basis he submits that there is no award which can be complained about under s.68 and no decision which has caused or will cause substantial injustice.

In relation to the agreement made on 23 January 2012 he submits that the application under s.68 is, in effect, seeking to reverse the Tribunal’s view of the discussions which took place on 23 January 2012. He submits that there was no withdrawal of reservation nor any agreement that “come what may” liability and quantum of all the CPs were required to be determined by the Tribunal. He says that by withdrawing the reservation, the Defendant was leaving the question of whether to determine the CPs in the hands of the Tribunal. He also says that, as the Tribunal held in the Second Part Award, what was said on behalf of the Defendant on 23 January 2012 was said on a conditional basis and that the relevant condition was never fulfilled so that the supposed agreement came to nothing. He also says that the agreement contended for by the Claimant is insufficiently specific to be binding because nothing was said about whether all CPs were to be determined or whether only liability or both liability and quantum were to be dealt with.

In any event he submits that the Tribunal retains an unfettered right to decide procedural issues and that under paragraph 5.22 of the disputes resolution procedure in Schedule 1 to the Contract it is provided that the Tribunal “will have the power to decide all procedural and evidential matters” and that power unlike, for instance, the provision as to costs in paragraph 5.28, is not made subject to the agreement of the parties. Accordingly, he submits that even if the Claimant established an unconditional agreement, the Tribunal is not bound to give effect to it and the issue of the appropriate procedure remains a matter entirely for the Tribunal.

In response to those submissions Ms Hannaford QC submits that the Tribunal has made a decision in the Second Part Award which precludes it from dealing with the CPs in accordance with the parties’ agreement and has fettered its ability to deal with CPs.

She says that the Tribunal has found that there was an agreement “that the Tribunal ought to deal with the matter of CPs in this arbitration” and that is binding on the Defendant. It is therefore not open to the Defendant to say that the agreement was insufficiently specific to be binding or left the question of whether to determine the CPs in the hands of the Tribunal. The agreement was that the Tribunal would decide CPs irrespective of the Tribunal’s findings on the parties’ primary and secondary cases. She also says that the agreement was not conditional on the evidence and final submissions having been concluded by July 2012.

She also relies on a passage in the First Part Award at paragraph 1.7 where she says that Tribunal accepted the right of the parties to be able to agree procedure. The relevant passage is as follows:

“The Tribunal in seeking to minimise the impact of the amendments on the timetabling and costs of the arbitration, has maintained constant dialogue with the parties on procedural matters whilst remaining mindful that the parties should be free to agree how their disputes should be resolved.”

She says that this expressly accepts that“the parties should be free to agree how their disputes should be resolved” and come to agreement as to what the Tribunal should do. On that basis the Tribunal should adopt a procedure which complies with the parties’ agreement.

Essentially the submissions of the parties raised two issues. First, as to what was the nature and effect of the agreement made by the Defendant’s Counsel on day 17 (23 January 2012). Secondly, in the light of that agreement, whether the approach taken by the Tribunal in the Second Part Award amounted to a serious irregularity under ss. 68(2)(a), (c) and/or (d), with the consequence that the Second Part Award should be remitted to the Tribunal and/or set aside. Before dealing with those issues, it is necessary to consider the principles to be applied to an application under s.68.

The policy of the 1996 Act is to minimise the extent to which the courts would interfere with the process of arbitration chosen by the parties. As stated at s.1(c) of the Act the Court should not intervene except as provided for in the Act and the limited power to intervene even under s.23 of the Arbitration Act 1950 in cases of “misconduct” was emphasised by Bingham J, as he then was, in Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd[1985] 2 EGLR 14 in a passage at 14 frequently cited in relation to the 1996 Act where he said:

“... 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 Petroships Pte Ltd of Singapore v Petec Trading and Investment Corporation of Vietnam (The Petro Ranger)[2001] 2 Lloyd’s Rep 348 at p 351 Cresswell J referred to the report on the Arbitration Bill by the Department Advisory Committee on Arbitration (“the DAC Report”) at paragraphs 278 to 283 and set out the following explanation of s.68:

“2.

Section 68 reflects the internationally accepted view that the court should be able to correct serious failure to comply with the due process‖ of arbitral proceedings: cf Article 34 of the Model Law.

3.

A serious irregularity has to pass the test of causing substantial injustice‖ before the court can act (s.68(2)).

4.

The test of substantial injustice is intended to be applied by way of support for the arbitral process, not by way of interference with that process. Thus it is only in those cases where it can be said that what has happened is so far removed from what could reasonably be expected of the arbitral process, that the court will take action.

5.

The test is not what would have happened had the matter been litigated. To apply such a test would be to ignore the fact that the parties have agreed to arbitrate not litigate.

6.

Having chosen arbitration, the parties cannot complain of substantial injustice, unless what has happened cannot on any view be defended as an acceptable consequence of that choice.

7.

Section 68 is designed as a longstop, only available in extreme cases, where the tribunal has gone so wrong in its conduct of the arbitration in one of the respects listed in s.68, that justice calls out for it to be corrected.”

The DAC Report and the principles to be applied in relation to serious irregularity under s.68 of the Act were also considered in Lesotho Highlands Development Authority v Impreglio SpA[2006] 1 AC 221 where Lord Steyn stated at [27] to [29]:

“27 The legislative technique adopted to achieve this purpose was spelled out explicitly in the Report on the Arbitration Bill and in particular in discussion of clause 68, which became section 68 of the 1996 Act. The DAC observed about clause 68 that it "is really designed as a long stop, onlyavailable in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected": p 58, para 280. On the other hand, the DAC recommended adoption of "the internationally accepted view that the court should be able to correct serious failure to comply with the 'due process' of arbitral proceedings: cf article 34 of the Model Law:" p 59, para 282. The ethos of the DAC report was that parties are entitled to a fair hearing leading to an impartial adjudication. But the idea that section 68 contemplated an adjudication which arrives at the "right" conclusion would have been wholly out of place in these recommendations. The DAC report was the matrix of the Parliamentary debates.

28.

It is now necessary to examine section 68 in its textual setting…. This is a mandatory provision. The policy in favour of party autonomy does not permit derogation from the provisions of section 68 . A number of preliminary observations about section 68 are pertinent. First, unlike the position under the old law, intervention under section 68 is only permissible after an award has been made. Secondly, the requirement is a serious irregularity. It is a new concept in English arbitration law. Plainly a highthreshold must be satisfied. Thirdly, it must be established that the irregularity caused or will cause substantial injustice to the applicant. This is designed to eliminate technical and unmeritorious challenges. It is also a new requirement in English arbitration law. Fourthly, the irregularity must fall within the closed list of categories set out in paragraphs (a) to (i).

29.

It will be observed that the list of irregularities under section 68 may be divided into those which affect the arbitral procedure, and those which affect the award. But nowhere in section 68 is there any hint that a failure by the tribunal to arrive at the "correct decision" could afford a ground for challenge under section 68.”

The question of substantial injustice was considered in Vee Networks Ltd v Econet Wireless International Ltd[2005] 1 LLR 192 by Colman J at [90] where he stated that:

“It is unnecessary and in the circumstances undesirable for me to express a view as to whether the arbitrator came to the right conclusion, even if by the wrong route, or whether, had he ignored the 2003 amendments, he should have reached the same or a different conclusion. The element of serious injustice in the context of section 68 does not in such a case depend on the arbitrator having come to the wrong conclusion as a matter of law or fact but whether he was caused by adopting inappropriate means to reach one conclusion whereas had he adopted appropriate means he might well have reached another conclusion favourable to the applicant. Thus, where there has been an irregularity of procedure, it is enough if it is shown that it caused the arbitrator to reach a conclusion unfavourable to the applicant which, but for the irregularity, he might well never have reached, provided always that the opposite conclusion is at least reasonably arguable. Above all it is not normally appropriate for the court to try the material issue in order to ascertain whether substantial injustice has been caused. To do so would be an entirely inappropriate inroad into the autonomy of the arbitral process.”

As stated in paragraph 1.3 of the Second Part Award, the matters addressed in that award arose from a dispute between the parties as to the further procedure which ought to be followed as a consequence of the First Part Award. One of those matters was the extent to which the Tribunal should address “each party’s liability in respect of the Change Proposals (CPs) in the context of this arbitration.” At paragraph 2.20 the Tribunal further identified two issues to be dealt with in the Second Part Award, the second being “whether the parties have agreed that the Tribunal should determine the liability and quantum of CPs”.

The Tribunal observed at paragraph 2.1 that the matters were inherently procedural in nature but given the considerable practical importance to the parties, the Tribunal had decided to deal with the issues by way of an award rather than directions. At paragraph 2.2 the Tribunal said that “Much of the procedure has been fixed by the agreement of the parties but a great deal has required to be determined by the Tribunal because the parties were unable to reach agreement.”

The parties therefore sought and in the Second Part Award obtained a final and binding decision by the Tribunal on the issue of whether the parties had agreed that the Tribunal should determine the liability and quantum of CPs. As Ms Hannaford QC states and I accept, the parties are bound by that decision and it is not open to the parties to challenge the Tribunal’s findings on that issue.

Usually in arbitration the issues which the Tribunal should determine are derived from the parties’ pleadings. In the present case the parties’ currently pleaded cases do not seek a determination, in any event, of the issue of liability and quantum of CPs. The relief claimed by the Claimant in the Amended Points of Claim does not, in terms, seek a determination of liability and quantum in respect of CPs. It does however raise, amongst other matters, contentions that interim payments are capped to the Maximum Price (paragraph 32), that costs must be referable to the Core Works and approved Changes (paragraph 37) and that interim payments cannot include the costs of CPs as such costs would not have been properly incurred and/or were not reasonable (paragraph 43). The Defendant’s Re-Amended Defence and Counterclaim would only require a determination of CPs on the Defendant’s alternative claim in the event that interim payments were capped at the Maximum Price: see paragraphs 26.2 and 49(7). The Reply and Defence to Counterclaim does not seek any determination of CPs. Therefore on the pleaded case the only requirement would be for the Tribunal to determine liability and quantum of CPs if relevant to interim payments.

I consider that, where a case is pleaded in the alternative, then a Tribunal generally has a discretion as to whether it determines that alternative case if it finds that the primary case is established. It may merely conclude that the primary case is made out and it is unnecessary to determine the alternative basis. Sometimes, on the basis that the issue has been fully argued, that it might assist the parties to settle or might assist if the Tribunal’s finding on the primary case is reversed on appeal, the Tribunal might also make a determination of the alternative case. That however is a matter for the Tribunal’s discretion and whether or not it makes that determination cannot, in my judgment, give rise to any justifiable complaint by the parties.

In the current case the Tribunal initially set a procedure under which it would hear evidence and submissions on all issues and make an award. It was therefore necessary for the parties to prepare evidence on the basis of both primary and alternative cases. This could have led to an Award where, if the primary case failed there would have been a determination of the CPs but if the primary case succeeded whether there was a determination of the CPs would depend on the discretion of the Tribunal.

The first tranche of the hearing was held in November and December 2011 and evidence was heard on the basis that all issues would be dealt with in accordance with that procedure. This included evidence from witnesses who were examined and cross examined on CPs. It was then on 28 December 2011 that the Tribunal raised the question of whether CPs needed to be determined if the parties’ primary cases succeeded. The Defendant reserved its position on that issue and it was then dealt with on 23 January 2012. Subsequently the second issue in the Second Part Award was whether on 23 January 2012 the parties had agreed that the Tribunal should determine CPs.

The Tribunal made a finding on that issue in the award and that finding of fact and law is binding on the parties. The Tribunal expressed the agreement in the following terms: “the parties agreed that the Tribunal ought to deal with the matter of CPs in this arbitration”. However the Tribunal then considered the effect of that agreement further and went on to consider“the extent of that agreement”and whether the effect of that agreement was to “constrain the ability of the Tribunal to determine the issues in dispute”. Those further issues necessarily arose for determination by the Tribunal.

The Tribunal then went on to deal with the effect of the agreement. After setting out the circumstances in January 2012 and the circumstances in July 2013 the Tribunal said that the question was “whether the Tribunal is bound to follow the agreement reached between the parties at a particular stage of the procedure when there has been a change of circumstance”. The Tribunal said that it was required to determine the issues defined by reference to the pleadings and if the CPs were not required to resolve those issues then “the Tribunal requires to consider very carefully whether it ought to proceed in accordance with the agreement reached in January 2012”. The Tribunal then held that it could not decide upon “the necessity of proceeding to determine CPs…until the relevancy of the CPs to interim payments had been decided”.

In my judgment the Tribunal came to the conclusion that the agreement did not bind the Tribunal when there had been a change in circumstances and that the agreement did not override the Tribunal’s discretion to decide matters of procedure, taking account of its duties under the Act. In doing so the Tribunal was determining the effect of the parties’ agreement “that the Tribunal ought to deal with the matter of CPs in this arbitration” which was a matter which was within the scope of the issues which the Tribunal had to consider in the Second Part Award. On that basis, subject to any right to challenge that finding in the award, the Claimant cannot in these proceedings challenge the findings of fact and law by the Tribunal. This is not a case where this court can make its own independent finding as to the agreement or the effect of that agreement. The parties have expressly referred those issues of fact and law to the Tribunal who have determined them. As Ms Hannaford QC submits, the Tribunal has made a finding that there was an agreement and that finding has not been appealed or challenged. I consider that the same applies to the findings of the Tribunal on the effect of the agreement, being that the agreement did not bind the Tribunal when there had been a change in circumstances and did not override the Tribunal’s discretion to decide matters of procedure, taking account of its duties under the Act.

On that basis, the Tribunal raised the issue with the parties, heard submissions and have made an award. There is no appeal on fact, there has been no appeal on law and there is no serious irregularity in the procedure by which the Tribunal came to that conclusion.

If, contrary to that view, the Tribunal were not entitled to or did not in fact make binding findings as to the effect of the agreement, then I would have to consider the effect of the agreement as found by the Tribunal. That agreement was that “the Tribunal ought to deal with the matter of CPs in this arbitration.” As I expressed at the hearing, whilst this has generally been referred to as a “procedural agreement”, I have concerns whether this agreement can properly be described as a such and I note that in the Claimant’s submissions for the hearing on 18 and 19 June 2013, it referred to the agreement being one to give the Tribunal ad hoc jurisdiction to determine the issue of CPs, with an alternative that it was a procedural agreement.

The procedure in an arbitration is generally aimed at setting out a process to define the issues to be determined and then establishing the process by which those issues are to be determined. An agreement as to what issues the Tribunal ought to determine is not, in my judgment, properly described as a procedural agreement. It defines the issues over which the Tribunal has jurisdiction. If the Tribunal deals with issues outside its jurisdiction then it exceeds its jurisdiction and if it fails to deal with issues within its jurisdiction then it has failed properly to deal with all the matters in its jurisdiction.

In this arbitration the process by which the issues were defined was by way of pleadings. This was made clear by the Chairman of the Tribunal during the hearing where he said that in the absence of an application to amend the pleadings “we should still determine the issues of dispute between the parties today and tomorrow on the basis of the existing pleadings.” It was also dealt with at paragraph 4.18 of the Second Part Award. If the parties wished to change the issues the usual way to do so would be by amending the pleadings. It is to be noted that the Claimant expressly decided not to amend so as to seek the determination of CPs in any event. If it was intended to give the Tribunal jurisdiction to determine CPs in any event then it was for the Claimant (or the Defendant) to make the necessary amendment which whether or not agreed by the parties would then be a matter for the Tribunal to approve. If the Tribunal permitted the amendment, it would be bound to deal with that issue as part of the issues within its jurisdiction. However this was not how matters proceeded.

The parties’ agreement was that the Tribunal “ought to” deal with the matter of CPs. In my judgment the parties were agreeing that the Tribunal ought to exercise its discretion and make a determination of the alternative case on the value of CPs even if the primary case succeeded. As I stated above, when a case is pleaded in the alternative it would generally be a matter for the discretion of the Tribunal whether or not it made a determination of the alternative case if it found that the primary case was made out.

I consider that by that agreement the parties, in the light of the circumstances in January 2012, were agreeing the way in which they considered the Tribunal should exercise its discretion. However I do not consider that such an agreement between the parties binds the Tribunal in such matters. To the extent that it is matter for the court, I note that this is consistent with the approach taken by Mr Keen QC on 23 January 2012 where he said “but the Tribunal’s position might be radically different” a comment that I consider was made in the context of the agreement. I do not consider that the parties were agreeing to remove that discretion from the Tribunal so that it had in all circumstances to determine the value of CPs. The Tribunal was entitled to consider whether it ought to proceed in accordance with the agreement reached in January 2012. It would equally have a discretion to decide whether to permit an amendment, even if the parties agreed to that amendment. If it determined that in the light of a change in circumstances since January 2012 it was no longer appropriate to proceed in accordance with that agreement then I consider that it retained a discretion as to how it should deal with the alternative case if it determined that the primary case succeeded.

It follows that I consider that the Defendant was correct in its submission that the effect of the agreement was that the question of whether to determine CPs was being left in the hands of the Tribunal. However I do not consider though that the Defendant was correct to say that the agreement was “conditional” on the arbitration taking a particular course such as the evidence and final submissions being concluded by July 2012. The parties agreed that CPs ought to be determined but this did not bind the Tribunal and, if the Tribunal held that in the light of a change in circumstances or for some other reason that it was no longer appropriate to determine CPs then it retained the discretion not to do so.

It follows that, in any event, I do not think that the approach of the Tribunal can be criticised. They retained the discretion as to whether to deal with the alternative case and will be able to adjudicate on the defences to the interim payments based on the unapproved CPs relied on by the Claimant. Therefore, in relation to s.68(2)(d) of the Act, I do not consider in any event that there was a failure by the Tribunal to deal with all the issues put to it.

As I have said I do not consider that the agreement reached between the parties, as found by the Tribunal, was one which was properly characterised as a procedural agreement. Whilst it obviously affected how the arbitration would proceed and therefore was relevant to procedure, it was an agreement as to the issues which the parties wished the Tribunal to determine, not an agreement as to the procedure by which the Tribunal would determine those issues. It follows that I do not consider that ss.68(2)(a) or (c) were engaged.

However, if it could properly be characterised as a procedural agreement then I would have to consider whether by the Second Part Award there was a failure to follow the agreed procedure or comply with s.33 of the Act.

Again, the agreement which was found by the Tribunal was that “the Tribunal ought to deal with the matter of CPs in this arbitration” and in the award the Tribunal made a final and binding determination of the effect of that agreement. I consider that this falls short of an agreement that the Tribunal must deal with CPs in this arbitration “come what may”. So far as it is open to me to consider the effect of the agreement, it is consistent with what I have said above. It left the matter in the hands of the Tribunal to decide whether it would determine CPs.

If however there had been an agreed procedure to determine CPs, the question would be whether the Tribunal was bound to accept that procedure or was entitled to take a different procedural route. Section 34 of the Act provides that “It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter” but it is not a mandatory provision under s.4 of the Act and only applies in the absence of an agreement by the parties.

In the present case the parties agreed in paragraph 5.22 of the disputes resolution procedure that the Tribunal would have the power to decide all procedural and evidential matters. It was not stated to be subject to the right of the parties to agree any matter. I therefore consider that, as Mr Keen QC submits, unlike s.34 of the Act, the parties agreed that the Tribunal’s decision took precedence over the parties’ agreement.

As Ms Hannaford QC correctly points out the Tribunal expressed themselves in paragraph 1.7 of the First Part Award as being “mindful that the parties should be free to agree how their disputes should be resolved” and at paragraph 2.2 of the Second Part Award stated that “Much of the procedure has been fixed by the agreement of the parties.” I do not consider that the Tribunal were there seeking to go against the matters agreed in the disputes resolution procedure in the Contract but were rather taking the pragmatic view that the parties should be allowed to decide on procedure and if they did agree matters the Tribunal would generally adopt those. However if the parties agreed some procedure which the Tribunal did not wish to follow then paragraph 5.22 of the disputes resolution procedure would mean that the Tribunal’s views would prevail. It follows that even if the parties made a procedural agreement then the Tribunal was free not to follow that agreement and there would be no failure under s.68(2)(c) of the Act.

Ms Hannaford QC also submits that there was a failure to comply with the duty in s.33 of the Act relating to adopting procedures. She submits that the parties have spent a very large amount of money and time in this arbitration on submissions, evidence and hearings dealing with CPs and that for the Tribunal now to decide that it would first consider the relevance the CPs to interim payments before determining the value of and/or liability for CPs is contrary to the duty to adopt procedures suitable to the circumstances of the case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined. It seems to me that the Tribunal by first deciding whether the CPs are “matters falling to be determined” in this arbitration would appear to be seeing whether the further time and cost can be justified. It is clear that the Tribunal has well in mind the time and costs already expended and in coming to their decision in the Second Part Award evidently considered its duty under s.33 of the Act in terms of the time and cost of determining CPs against the benefit of doing so in paragraphs 4.20 and 4.23. I therefore do not consider that the Tribunal can be criticised under s.33 for the view it took. It follows that there was no failure under s.68(2)(a) of the Act.

Accordingly I find that there was no serious irregularity affecting the proceedings or the award within the meaning of ss.68(2)(a), (c) or (d).

If, contrary to that view, I had held that there was a serious irregularity under one of those sub-sections then it would have been necessary for me to consider whether in this case that irregularity had caused or would cause substantial injustice to the Claimant.

I have considered the applicability of the test in Vee to the circumstances of this case. In Vee Colman J held that the arbitrator had failed to give each party a reasonable opportunity of putting its case. In such cases he held that

“it is enough if it is shown that it caused the arbitrator to reach a conclusion unfavourable to the applicant which, but for the irregularity, he might well never have reached, provided always that the opposite conclusion is at least reasonably arguable. Above all it is not normally appropriate for the court to try the material issue in order to ascertain whether substantial injustice has been caused.”

The facts here are different but I consider the test in Vee to be helpful. This is a case where, on the premise that the Claimant was entitled under a procedural agreement or a s.33 compliant procedure or as a matter of jurisdictional agreement to have the value of and/or liability for CPs determined without limitation, the Tribunal has imposed a limitation unfavourable to the Claimant. If that had been caused by a serious irregularity, I consider that the fact that a limitation is placed on what would otherwise be an unfettered right for the Claimant to have the value of and/or liability for CPs determined would meet the test for substantial injustice.

Whilst it was argued by Mr Keen QC that the decision of the Tribunal did not rule out the Tribunal dealing with CPs, I consider that it imposed a sufficient limitation to amount to substantial injustice in this arbitration where considerable time and cost had already been expended in dealing with CPs.

For the reasons set out above the Claimant’s application under s.68 seeking to challenge the Second Part Award fails.