Although the supporters of arbitration proudly sing its praises, claiming it knocks spots off litigation, there are many circumstances in which a potential claimant is probably better served by litigation than he is by arbitration. One such situation may be where the claimant wants money quickly and would be advised by his lawyers to make an application to the High Court for summary judgement (Order 14) or for an interim payment (Order 29). In the past, an arbitration clause in the contract did not cause problems, even if the defendant to an application for summary judgement issued an application under section 4 of the Arbitration Act 1950 to stay (transfer) the court proceedings to arbitration. In Ellis Mechanical Services Ltd-v-Wates Construction Ltd (1976) 2 BLR 57, the Court of Appeal decided the claimant’s application for money should be dealt with first. If the plaintiff could show there was no arguable defence to his claim there was clearly no case to refer to arbitration. On occasions, the contractor might succeed on part of his claim with his right to disputed balances transferred to arbitration: RM Douglas Construction Ltd. - v- Bass Leisure Ltd (1990) 53 BLR 124. Everyone was reasonably happy.

The Arbitration Act 1996 is supposed to have simplified arbitration law and practice and to be a model of clarity. Time will tell if this correct when and if the amount of case law decided under the new Act begins to mount. One part of the Act which may adversely affect a claimant is section 9. This deals with transferring proceedings from litigation to arbitration. Many features of the old law established under the Arbitration Act 1950 and earlier legislation remain valid. A party seeking to rely upon the arbitration clause must not take a step in the proceedings (section9(3)) and thereby show an intention to waive the arbitration clause. Therefore a defendant under a contract containing an arbitration clause would only enter a defence if he was happy that the case remain in litigation rather than go to arbitration. Clearly to avoid judgement in default being entered against him it is necessary to acknowledge service of any writ but then immediately seek a transfer of the proceedings to arbitration on summons and affidavit. A major change in the Arbitration Act 1996 from earlier legislation is that the obligation to acknowledge service of the writ is expressly referred to in section 9(3) of the Act.
Under section 9(4) of the 1996 Act if a claimant starts proceedings under a contract containing an arbitration clause the defendant can say as in the past "Hang on a minute: We’ve agreed that we will resolve our disputes by arbitration." In the old days, the court could, as previously stated, under the 1950 Act, look at the pros and cons, including assessing whether or not an on account payment should be made. All that has now changed. Under section 9(4) of the 1996 Act the court shall transfer the proceedings to arbitration unless the arbitration clause is null and void, inoperative, or incapable of being performed. Section 9(4) states:

"On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed." How to interpret section 9 arose in a OBD decision, Halki Shipping Corporation-v-Sopex Oils Ltd [1997] 3 AER 833, a decision of Clark J. The shipowners chartered the vessel to the charterers on a tanker voyage charter party with an arbitration clause. After discharge of the cargo, the owners claimed demurrage as a result of the charterer’s failure to load and discharge the vessel within the laytime. The charterers did not admit the claim and the owners brought a claim in demurrage. The charterers sought a stay of those proceedings to arbitration under section 9 of 1996 Act while the owners applied for a summary judgement payment under Order 14 on the grounds there was no arguable defence to the claim. The judge held that except in very limited circumstances, as prescribed by the 1996 Act, he had very little discretion. The disputes fell within the arbitration clause and had to be so referred even if there was no arguable defence. He was not permitted to carry out any sort of investigation into the merits of defence and claim. This important decision meant that claims to which there was no obvious defence in either fact or law cold no longer be litigated if the defendant decided to assert the presence of the arbitration clause in the contract. The decision was upheld with some reluctance by the Court of Appeal, dividing 2:1, in January 1998 and is reported at [1998] 2AER 23.

These legal developments appear bad news for contractors chasing money for whom cashflow is their lifeblood. There are summary remedies under the Arbitration Act 1996, such as interim payments under section 39 of the Arbitration Act 1996. The quality of such remedies will depend on the robustness of arbitrators and here the jury remains presently out.
A future edition of Trett Digest will consider the 1996 Act remedies. Further, arbitration may play a less significant role in the resolution of construction industry disputes. The latest JCT amendments, Amendment 18 to JCT80 and Amendment 12 to JCT81 and Amendment 12 to IFC 84, recognise the status of litigation as an option to resolve disputes if the parties so choose. Until recently arbitration has enjoyed a protected status in the construction industry following the decision in Northern Regional Health authority-v-Derek Crouch Construction Company Ltd [1984]2 WLR 676. In that case the Court of appeal held that in general the courts had, unlike arbitrators, no powers ‘to open up’ review and revise any certificate, opinion, decision, requirement or notice’ of the architect. On occasions the courts did side-step Derek Crouch but there were often problems when the arbitration clause was deleted. In J.F.Finnegan Ltd-v-Sheffield City Council (1988) 43 BLR 124 the Official Referee decided contractual mechanisms had so broken down as to give him jurisdiction. University of Reading-v-Miller Construction Ltd and David Sharp (1994) 75 BLR 1 established courts could find works had been delayed in circumstances where the contractor was not entitled to extensions of time. In John Barker Construction Ltd-v-London Portman Hotel Ltd (1996) 12 Const. L.J. 277, the judge intervened where it was alleged the architect had dealt with extension of time requests and related matters inadequately. It became the employer’s own breach if the architect’s performance was inadequate. The Derek Crouch argument was recently laid to rest by the House of Lords in an appeal from Northern Ireland, Beaufort Developments (NI) Ltd.-v-Gilbert-Ash NI Ltd [1998] 2 WLR 860. According to the House of Lords an arbitrator’s powers were derived from the contract and as such had to be set out in detail. Those of the courts were unlimited. In the words of Lord Lloyd of Berwick at page 863:

"Then can it be said that the jurisdiction of the courts to open and revise interim certificates is impliedly excluded by the terms of the arbitration clause? I do not pause to consider whether such an ouster of the court’s powers would be effective in law; on any view it would require the clearest of language…"

In the death of Derick Crouch we wave goodbye to what was a familiar seminar topic.

Paul Newman, Barrister, is with Edwards Geldard, Solicitors in Cardiff Tel: 01222 238239