COSTAIN LTD v TARMAC HOLDINGS LTD

COSTAIN LTD v TARMAC HOLDINGS LTD

The sub-contract arbitration agreement was not a nullity within the meaning of section 9(4) of the Arbitration 1996 Act due to the adjudicator's decision not to proceed with the adjudication itself being a nullity
 

COSTAIN LTD v TARMAC HOLDINGS LTD

The sub-contract arbitration agreement was not a nullity within the meaning of section 9(4) of the Arbitration 1996 Act due to the adjudicator's decision not to proceed with the adjudication itself being a nullity

 

Clause 93 of the sub-contract for the supply of concrete contained an adjudication provision with a restricted timetable and a time bar and a second stage arbitration provision. It was common ground that the concrete was defective but there was a dispute as to the scope of the appropriate remedial work. The sub-contractor referred that dispute to adjudication and the adjudicator decided that the contractor was out of time to pursue the claim. The contractor issued court proceedings to recover damages for breach of contract. The sub-contractor applied to stay the proceedings to arbitration pursuant to section 9(1) of the Arbitration Act 1996 in reliance on the arbitration provision. Clause 93.4 provided that a party could refer a dispute to arbitration if a party was dissatisfied with the adjudicator's decision or the adjudicator did not notify a decision within the time allowed and a new adjudicator had not been chosen.

 

The contractor contended that its claim against the sub-contractor could not be referred to arbitration on the ground that the sub-contract arbitration agreement was a nullity within the meaning of section 9(4) of the Arbitration 1996 Act because (i) The adjudicator's decision not to proceed with the adjudication on the ground that the contractor’s reference of that claim was time-barred under clause 93.3 of the sub-contract was itself a nullity due to the adjudicator having acted in excess of jurisdiction and (ii) There was therefore nothing to trigger the second stage arbitration agreement in the absence of a valid adjudication decision.

 

Coulson J rejected the contractor’s contention on the basis that there could be an arbitration. He stated that it is trite law that an adjudicator's decision is a nullity if the decision is reached in excess of his or her jurisdiction or was not sent to the parties within the mandatory time limit. Clause 93.4 expressly allowed for the possibility that the adjudicator's decision might be a nullity and either party to go to arbitration even if the adjudicator's decision was a nullity because the adjudicator failed to "notify a decision within the time allowed". Thus, as a matter of common sense (i) A decision which was a nullity for a different reason (eg because of an excess of jurisdiction) must similarly trigger the right to arbitrate under clause 93 and (ii) The right to arbitrate cannot depend on the reason for the adjudicator's decision being a nullity. Any other result would require the contract to differentiate between the different reasons as to how and why a decision might be a nullity and provide different remedies for each and offend against common sense.

 

THE FULL TEXT OF THE JUDGMENT OF COULSON J

 

  1. INTRODUCTION

 

  1. This is an application by the defendant to stay these proceedings pursuant to section 9(1) of the Arbitration Act 1996 ("the 1996 Act"). However, that bland description does not accurately convey the plethora of issues and sub-issues which have arisen between the parties arising out of and connected with the stay application. I should at the outset therefore express my gratitude to leading counsel for their considerable assistance, and the excellence of their written and oral submissions.

 

  1. Pursuant to a sub-contract agreement dated 7 February 2014, the claimant engaged the defendant to supply concrete for the new safety barrier between junctions 28-31 on the M1 motorway. The sub-contract incorporated, amongst other things, the NEC3 Supply Short Contract conditions which, at clause 93.3, contained an adjudication provision with a restricted timetable and a time bar, and a second stage arbitration provision. It is common ground that the concrete was defective but there is a dispute between the parties as to the scope of the appropriate remedial work.

 

  1. It is the defendant's case that, by December 2015, the claimant had failed to comply with the provisions of clause 93.3, such that the claimant was barred from making a claim for the difference between the cost of the remedial works which the defendant accepted, and the cost of the (more extensive) remedial works proposed by the claimant. The defendant referred that dispute to adjudication. By a decision dated 5 February 2016, the adjudicator agreed with the defendant and decided that the claimant was out of time to pursue the claim. Subsequently, the claimant issued these proceedings in the TCC, seeking to recover just under £6 million by way of damages for breach of contract. In reliance on clause 93, the defendant seeks to stay those proceedings for arbitration pursuant to s.9(1).

 

  1. The claimant resists the application to stay on the grounds that the sub-contract agreement included another clause which allowed for adjudication "at any time" and made no reference to arbitration. The claimant also points to clauses in the sub-contract agreement which refer to the jurisdiction of the English courts. The claimant maintains that, as a matter of contract construction, clause 93 does not apply to this claim.

 

  1. If the claimant is wrong about the construction issue, it maintains that, because of the course of dealing between the parties and their solicitors from March to December 2015, the arbitration agreement is "inoperative" in accordance with s.9(4) of the 1996 Act, so the court should not grant a stay in any event. This argument is put by reference to issues of abandonment, repudiation and estoppel (either by representation or by convention). That case is disputed by the defendant. Still further, the claimant argues, also by reference to s.9(4), that the arbitration agreement is "null and void", because the adjudicator exceeded his jurisdiction in reaching the decision he did and, without a valid adjudication decision, there is nothing to trigger the second stage arbitration agreement.

 

  1. The disputes therefore range from issues of contract construction, to issues of fact concerning the parties' conduct during 2015, and on to detailed arguments about the excess of jurisdiction of the adjudicator. Although, during the course of the parties' submissions, some of these issues appeared to overlap, I shall deal with the issues one by one, in what I hope is a logical sequence. Accordingly, this Judgment is structured as follows. The first part of the Judgment (Sections 2, 3 and 4) address the fundamental issue of contract construction: Section 2 sets out the factual background to the sub-contract agreement; Section 3 sets out the relevant terms of the sub-contract; and Section 4 addresses the issue of whether or not there was a binding arbitration agreement. Section 5 of the Judgment deals with the related, but separate, issue under s.9(1) as to whether the claim is "in respect of a matter which under the agreement is to be referred to arbitration". Thereafter, in Sections 6, 7 and 8, I deal with the arguments arising under s.9(4). Thus Section 6 sets out the dealings between the parties in 2015; Section 7 addresses the issue as to whether, as a result of those dealings, the arbitration agreement is inoperative; and Section 8 deals with the separate question as to whether the arbitration agreement is null and void as a result of the adjudicator's alleged want of jurisdiction. There is a short summary of my conclusions in Section 9.

 

  1. THE FACTUAL BACKGROUND TO THE SUB-CONTRACT

 

  1. It is of course important to construe the sub-contract by reference to its factual background. Although this did not seem a particularly controversial topic during the hearing, following Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, it is as well for any judge construing a contract to identify, at least in brief terms, the factual background to that contract.

 

  1. On 16 February 2010, Serco, the claimant and the Secretary of State for Transport ("SST") entered into a Framework Contract which was subsequently novated to the claimant in 2013. That Framework Contract allowed SST to contract with the claimant for particular transport infrastructure projects. It appears that that Framework Contract incorporated a version of the NEC3 Framework Contract conditions.

 

  1. In March 2012, SST, acting through the Highways Agency, entered into a similar Framework Contract with the defendant in respect of the supply of concrete. Again, that Framework Contract also incorporated a version of the NEC3 Framework Contract conditions.

 

  1. On 19 September 2013, pursuant to its Framework Contract with the claimant, SST engaged the claimant to carry out major infrastructure works to the M1 between the junctions 28 and 31.

 

  1. Part of this main contract work included the construction of a concrete safety barrier. This had to comply with what was known as the Britpave specification and had to achieve compliance certificates ("CE"). The construction of the barrier was sub-contracted to specialist sub-contractors, Extrudakerb.

 

  1. The claimant had to procure the necessary concrete from a supplier who had already entered into a Framework Contract with SST, unless it could demonstrate that savings could be made by procuring from a non-framework supplier. The defendant was of course an approved supplier who had entered into the necessary Framework Contract with SST (paragraph 9 above). To that extent, at least, the terms of any sub-contract agreement between the claimant and the defendant in respect of the supply of concrete were regulated by their (separate) Framework Contracts with SST.

 

  1. THE TERMS OF THE SUB-CONTRACT

 

  1. The one page sub-contract agreement provided as follows:

 

"NOW IT IS AGREED THAT

 

  1. The conditions of contract are the clauses of the NEC3 Framework Contract (2005) as amended by the Framework Contract "Z" clauses set out in the "Category Management: Pavement & Concrete Framework, Volume 1, Framework Contract Data Part One"

 

And

 

The NEC3 Supply (Short) Contract terms and conditions, as amended by the "Z" clauses in the "Category Management: Pavement & Concrete Framework, Volume 1, Supply Package Order Contract Data Part One Annex B [sic]" ("Data Applicable to All Supply Package Orders")."

 

  1. The Supplier will provide the Goods in accordance with the conditions of contract
  2. The Purchaser will pay the Supplier the amount due in accordance with the conditions of contract

 

  1. The documents forming part of this agreement are:

 

  1. Volume 2 Additional Contract Data Part 1 and Part 2

 

  1. Volume 3 Additional Goods Information

 

  1. J28-21 Phase 1 Lot C Price Schedule"

 

It is convenient to set out the relevant terms by reference to the three main areas of documentation identified in the sub-contract agreement, namely: a) the Framework Contract conditions; b) the Supply Contract conditions; and c) the documents (such as the Additional Goods Information) referred to at paragraph 3 of the sub-contract agreement.

 

(a) The Framework Contract

 

  1. The NEC3 Framework Contract referred to in the first part of paragraph 1 of the sub-contract agreement was in two parts: the core clauses and the amending Z clauses. It is important to note when considering these clauses that, for the purposes of these terms, the Contract Data document made clear that 'the Employer' was SST and 'the Supplier' was the defendant. The claimant had only a limited involvement as 'the Contracting Body'.

 

  1. As amended by the Z clauses, the Framework Contract included the following terms:

 

"10.1 The Employer and the Supplier shall act as stated in this contract and in the spirit of mutual trust and co-operation.

 

11.1 In these conditions of contract, terms identified in the Contract Data are in italics and defined terms have capital letters.

 

11.2(1) The Parties are the Employer and the Supplier.

 

(2) Framework Information is information which specifies how the Parties work together and is in the document which the Contract Data states it is in.

 

(3) A Work Package is work which is to be carried out under this contract.

 

(4) Package Order is a Supply Package Order or a Term Service Package Order as the context requires.

 

(8) Contracting Body is the entity that instructs Supplier to submit a quotation for a proposed Work Package in accordance with the quotation procedure.

 

(9) Supply Package Order is an instruction issued by a Contracting Body to carry out a Work Package in accordance with the conditions of contract for a Supply Package Order."

 

  1. Clause 20 (which was not amended) stated as follows:

 

"The Parties' Obligations

 

20.1 When the Employer requires work to be carried out within the scope, he selects a supplier using the selection procedure.

 

20.2 The Supplier obeys an instruction which is in accordance with this contract and is given to him by the Employer.

 

20.3 The Supplier attends meetings with the Employer and others as stated in the Framework Information."

 

  1. Under the heading 'Package Order' the core clauses had been amended by the Z clauses. As amended they read as follows:

 

"Z3.1 After the Employer selects the Supplier, the Contracting Body instructs him to submit a quotation for a proposed Work Package and provides the additional Contract Data specific to the Work Package.

 

Z3.2 The Supplier submits a quotation in accordance with the quotation procedure. The assessment is made using the quotation information. The Supplier submits details of his assessment with the quotation. The Contracting Body replies to the quotation within the period stated by the Contracting Body at the time he requests the Supplier to submit a quotation for a proposed Work Package.

 

Z3.3 If a quotation is to be revised, the Contracting Body advises the Supplier of the reasons for not accepting the quotation and the Supplier submits a revised quotation within the period stated by the Contracting Body."

 

  1. Clause Z6 was entitled 'Interpretation and the Law'. Clause Z6.4 read as follows:

 

"This Framework Contract is governed by the law of England and Wales and subject to the jurisdiction of the courts of England and Wales. If the Contracting Body is governed by the law of Scotland then the Package Order is governed by the law of Scotland and subject to the jurisdiction of the courts of Scotland."

 

  1. Clause Z8 was entitled 'Responsibility for Awards'. That provided:

 

"The Supplier acknowledges that the Employer is not responsible for and shall have no liability whatsoever in relation to the performance or non-performance of any Package Order entered into under this Framework Contract between the Supplier and Contracting Body other than the Employer."

 

  1. It is unnecessary to set out clauses Z9-Z19; they related to matters such as corrupt practices, non discrimination, records, confidentiality and the like, and they all concerned the relationship between the Employer (SST) and the Supplier (the defendant). Clause Z20, which dealt with Complaints Handling, required the Supplier to notify the Employer in writing of any complaint made by any Contracting Body.

 

  1. Clause Z21 is entitled 'Appointment of Adjudicator'. It read as follows:

 

"Appointment of Adjudicator

 

Z21.1 Any dispute arising under or in connection with this Framework Contract can be referred to and decided upon by an Adjudicator nominated by the Institution of Civil Engineers. A party may refer a dispute to the Adjudicator at any time.

 

Z21.2 The parties appoint the Adjudicator under the NEC3 Adjudicator's Contract (June 2005) including the following additional condition of contract:

 

'Any information concerning the Contract obtained either by the Adjudicator or any person advising or aiding him is confidential, and is not used or disclosed by the Adjudicator or any such person except for the purposes of this Agreement. The Adjudicator complies, and takes all reasonable steps to ensure that any persons advising or aiding him comply, with the Official Secrets Act 1911 to 1989. Any information concerning the Contract obtained either by the Adjudicator or any person advising or aiding him is confidential, and may not be used or disclosed by the Adjudicator or any such person except for the purposes of this Agreement.'"

 

(b) The Supply Contract

 

  1. In addition to the NEC3 Framework Contract, as amended, the parties also agreed that the sub-contract included the NEC3 Supply Short Contract, again as amended. The relevant clauses were as follows:

 

"10.1 The Purchaser and the Supplier shall act as stated in this contract and in a spirit of mutual trust and co-operation…

 

11.2(5) Goods Information is information which

 

Specifies and describes the goods and

 

States any constraints on how the Supplier Provides the Goods and is in

 

The document called 'Goods Information' or

 

An instruction given in accordance with this contract…

 

20.1 The Supplier Provides the Goods in accordance with the Goods Information."

 

  1. The key clause for the purposes of the s.9(1) application is clause 93 of the NEC3 Short Supply Contract, entitled 'Dispute Resolution'. It provided as follows:

 

"93 Dispute resolution

 

93.1 A dispute arising under or in connection with this contract is referred to and decided by the Adjudicator.

 

The Adjudicator

 

93.2(1) The Parties appoint the Adjudicator under the NEC Adjudicator's Contract current at the starting date. The Adjudicator acts impartially and decides the dispute as an independent adjudicator and not as an arbitrator.

 

(2) If the Adjudicator is not identified in the Contract Data or if the Adjudicator resigns or is unable to act, the Parties choose a new adjudicator jointly. If the Parties have not chosen an adjudicator, either Party may ask the Adjudicator nominating body to choose one. The Adjudicator nominating body chooses an adjudicator within four days of the request. The chosen adjudicator becomes the Adjudicator.

 

(3) The Adjudicator, his employees and agents are not liable to the Parties for any action or failure to take action in an adjudication unless the action or failure to take action was in bad faith.

 

The adjudication

 

93.3(1) A Party may refer a dispute to the Adjudicator if:

 

the Party notified the other Party of the dispute within four weeks of becoming aware of it and

 

between two and four further weeks have passed since the notification.

 

If a disputed matter is not notified and referred within the times set out in this contract, neither Party may subsequently refer it to the Adjudicator or the tribunal.

 

(2) The Party referring the dispute to the Adjudicator includes with his referral information to be considered by the Adjudicator. Any more information is provided within two weeks of the referral. This period may be extended if the Adjudicator and the Parties agree.

 

(3) The Adjudicator may take the initiative in ascertaining the facts and the law related to the dispute. He may instruct a Party to take any other action which he considers necessary to reach his decision and to do so within a stated time.

 

(4) A communication between a Party and the Adjudicator is communicated to the other Party at the same time.

 

(5) If the Adjudicator's decision includes assessment of additional cost or delay caused to the Supplier, he makes his assessment in the same way as a compensation event is assessed.

 

(6) The Adjudicator decides the dispute and notifies the Parties of his decision and his reasons within four weeks of the referral. This period may be extended by up to two weeks with the consent of the referring Party, or by any period agreed by the Parties.

 

If the Adjudicator does not notify his decision within the time allowed, either Party may act as if the Adjudicator has resigned.

 

(7) Unless and until the Adjudicator has notified the Parties of his decision, the Parties proceed as if the matter disputed was not disputed.

 

(8) The Adjudicator's decision is binding on the Parties unless and until revised by the tribunal and is enforceable as a matter of contractual obligation between the Parties and not as an arbitral award. The Adjudicator's decision is final and binding if neither Party has notified the other within the times required by this contract that he intends to refer the matter to the tribunal.

 

Review by the tribunal

 

93.4 A Party may refer a dispute to the tribunal if

 

the Party is dissatisfied with the Adjudicator's decision or

 

the Adjudicator did not notify a decision within the time allowed and a new adjudicator has not been chosen,

 

except that neither Party may refer a dispute to the tribunal unless they have notified the other Party of their intention to do so not more than four weeks after the end of the time allowed for the Adjudicator's decision."

 

  1. The Contract Data form, at Annex A, had been completed by the parties. It expressly stated that:

 

(a) The payment period was 30 days;

 

(b) The adjudicator was "such person as is nominated by the adjudicator nominating body";

 

(c) The adjudicator nominating body was "the Institution of Civil Engineers";

 

(d) The tribunal was "Arbitration";

 

(e) If the tribunal was arbitration, the arbitration procedure was "Institution of Civil Engineers Arbitration Procedure 2006".

 

The parties also agreed in this same Contract Data sheet that "the Supplier's liability to the Purchaser for indirect or consequential loss, including loss of profit, revenue and good will, is limited to [nil]".

 

(c) Other Documents

 

  1. The third relevant part of the sub-contract agreement (paragraph 13 above) was paragraph 3, which identified other documents forming part of the agreement. The Additional Contract Data did not appear to add very much to the dispute before me. The Additional Goods Information contained the detailed specification for the work, including the references to the Britpave specification and the compliance certificate regime. The third and final document was the Price Schedule which was the quotation provided by the defendant and accepted by the claimant.

 

  1. WAS THERE AN ARBITRATION AGREEMENT?

 

  1. Overview

 

  1. Section 9(1) of the 1996 Act provides:

 

"A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter".

 

  1. Thus the first question for the court to ask is whether or not there was an arbitration agreement. The burden is on the defendant to demonstrate the existence of such an agreement. In the present case, whether or not there was such an agreement turns on the proper interpretation of the sub-contract. It is therefore necessary to consider first the applicable principles of contract construction. I identify those in Section 4.2, dealing first with general principles and then with the principles which apply where there are different clauses dealing with the same subject-matter. Thereafter, in Section 4.3, I set out my analysis of the parties' competing submissions in relation to the construction of this sub-contract agreement.

 

  1. Principles of Construction

 

4.2.1 General

 

  1. The modern starting point is the judgment of Lord Clarke in Rainy Sky SA v Kookmin Bank [2011] UKSC 50:

 

"21. The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other."

 

  1. More recently, in Arnold v Britton [2015] UKSC 36, Lord Neuberger summarised the relevant principles in clear terms:

 

"15. When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean", to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, para 14. And it does so by focusing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions. In this connection, see Prenn at pp 1384-1386 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as HE Hansen-Tangen) [1976] 1 WLR 989, 995-997 per Lord Wilberforce, Bank of Credit and Commerce International SA (in liquidation) v Ali [2002] 1 AC 251, para 8, per Lord Bingham, and the survey of more recent authorities in Rainy Sky, per Lord Clarke at paras 21-30…

 

  1. First, the reliance placed in some cases on commercial common sense and surrounding circumstances (e.g. in Chartbrook, paras 16-26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision.

 

  1. Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning. If there is a specific error in the drafting, it may often have no relevance to the issue of interpretation which the court has to resolve.

 

  1. The third point I should mention is that commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made. Judicial observations such as those of Lord Reid in Wickman Machine Tools Sales Ltd v L Schuler AG [1974] AC 235, 251 and Lord Diplock in Antaios Cia Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191, 201, quoted by Lord Carnwath at para 110, have to be read and applied bearing that important point in mind.

 

  1. Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill-advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party."

 

4.2.2 Different Clauses Dealing With A Similar Topic

 

  1. One of the potential difficulties in this case is that there are two separate clauses dealing with the topic of dispute resolution. Contracts with different clauses on the same topic are a not uncommon problem. It arose in the Court of Appeal case of RWE NPower Renewables Limited v J N Bentley Limited [2014] EWCA Civ 150. Moore-Bick LJ said in that case:

 

"15. I start, as did the judge, from the position that the contract documents should as far as possible be read as complementing each other and therefore as expressing the parties' intentions in a consistent and coherent manner. I also note, as he did, that Option X5 is worded in more general terms than clause 6.2, which identifies in rather greater detail the work comprised in each section. That is reflected in clause 1 of Part 1 of the Contract Data, which expressly recognises that the works "are more comprehensively set out in Part 2, Works Information." Despite differences in detail, however, one would expect the two provisions to complement each other and that only in the case of a clear and irreconcilable discrepancy would it be necessary to resort to the contractual order of precedence to resolve it.

  1. However, if I am wrong about that and there is a genuine discrepancy between Option X5 and clause 6.2, the provision for precedence among the contract documents comes into play and one is left with the task of construing the language of the Options without regard to clause 6.2. The judge approached the question of construction on the basis that it was intended to resolve discrepancies relating to individual obligations rather than forcing on the reader a choice between one entire clause and another. In principle I think he was right to do so. A contract is a bundle of related obligations, each of which can be separately identified. I see no reason why in this case the parties should have intended to adopt the rather undiscriminating approach suggested by Miss Smith, which involves abandoning the whole of any complex provision if it can be shown to be inconsistent in any respect with another. Only to the extent that different provisions on their true construction impose different obligations in relation to the same subject matter is it necessary to decide which takes precedence." (My emphasis)

 

  1. My attention was also drawn to the Court of Appeal decision by Beatson LJ in Trust Risk Group SpA v Amtrust Europe Limited [2015] EWCA Civ 437. That was a case which involved a framework agreement and a (separate) terms of business agreement. Each contained different express law and jurisdiction clauses. It was acknowledged that there may be a presumption that the parties intended a 'one-stop' jurisdiction: see Fiona Trust and Holding Corporation v Privalov [2008] 1 Lloyd's Rep 254. But Beatson LJ said in Trust Risk Group that, although that presumption remained a useful starting point, it was not decisive. He explained why not:

 

"46. Where the overall contractual arrangements contain two or more differently expressed choices of jurisdiction and/or law in respect of different agreements, however, the position differs in that one does not approach the construction of those arrangements with a presumption. So, the 14th edition of Dicey, Morris and Collins on the Conflict of Laws stated:

 

'The decision in Fiona Trust has limited application to the questions which arise where parties are bound by several contracts which contain jurisdiction agreements for different countries. There is no presumption that a jurisdiction (or arbitration) agreement in contract A, even if expressed in wide language, was intended to capture disputes in contract B; the question is entirely one of construction…' (§12–094)

 

That reflects inter alia the statement of Rix J in Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd [1999] 1 Lloyd's Rep 767 at 777 that:

 

'where different agreements are entered into for different aspects of an overall relationship, and those different agreements contain different terms as to jurisdiction, it would seem to be applying too broad and indiscriminate a brush simply to ignore the parties' careful selection of palette'…

 

  1. The current (16th) edition of Dicey, Morris and Collins states (at §12–110) that:

 

'Where a complex financial or other commercial transaction is put in place by means of a number of interlinked contracts, and each has its own provision for the resolution of disputes, the point of departure will be that it is improbable that a jurisdiction clause in one contract, even expressed in ample terms, was intended to capture disputes more naturally seen as arising under a related contract. …Even if the effect is that there will be a risk of fragmentation of the overall process for the resolution of disputes, this is not by itself sufficient to override the construction, and consequent giving of effect to, the complex agreements for the resolution of disputes which the parties have made.'

 

In short, what is required is a careful and commercially-minded construction of the agreements providing for the resolution of disputes. This may include enquiring under which of a number of inter-related contractual agreements a dispute actually arises, and seeking to do so by locating its centre of gravity and thus which jurisdiction clause is "closer to the claim". In determining the intention of the parties and construing the agreement, some weight may also be given to the fact that the terms are standard forms plainly drafted by one of the parties.

 

  1. There may be a difference between a complex series of agreements about a single transaction or enabling particular types of transactions, and the situation in which there is a single contract creating a relationship which is followed by a later contract embodying a subsequent agreement about the relationship. The agreements in the UBS case about the issues of securities under a collateralised debt obligation transaction which were "all connected and part of one package", and those in the Sebastian Holdings case enabling over the counter derivative contracts and trading in foreign exchange and equities are examples of the former. The agreements in this case, separated in time by just under six months, are an example of the latter. Where the contracts are not "part of one package", it may be easier to conclude that the parties chose to have different jurisdictions to deal with different aspects of the relationship…

 

  1. In the Yien Yieh case, the question was whether one clause in a contract between a bailor and the bailee warehousing company was inconsistent with another clause. Lord Goff, giving the judgment of the majority, stated that "to reject one clause in a contract as inconsistent with another involves a rewriting of the contract which can only be justified in circumstances where the two clauses are in truth irreconcilable". He stated that this was likely to occur only where there had been some defect of draftsmanship, and that the usual case was "where a standard form is taken and then adapted for a special need, as is frequently done in, for example, standard forms of charterparty adapted by brokers for particular contract". The problem arises when it is discovered that the typed additions cannot live with part of the printed form, "in which event the typed addition will be held to prevail as more likely to represent the intentions of the parties". He continued that:

 

'Where the document has been drafted as a coherent whole, repugnancy is extremely unlikely to occur. The contract has, after all, to be read as a whole; and the overwhelming probability is that, on examination, an apparent inconsistency will be resolved by the ordinary processes of construction.'…

 

69…I consider that there is no inconsistency with different clauses covering similar or the same ground in respect of different parts of the relationship dealt with in different agreements."

 

  1. Analysis

 

  1. In the present case there was one sub-contract agreement, although it was made up of two separate sets of (amended) contract conditions. The Framework Contract conditions contained a dispute resolution provision that permitted adjudication "at any time", a reference to the jurisdiction of the courts of England and Wales, and no reference at all to arbitration. The dispute resolution provision in the Supply Contract (clause 93) contained a restricted right to adjudicate and, if one or other party was dissatisfied with the adjudicator's decision, a right to arbitrate. On the face of it, that provision would not permit either party to go to court, because any court proceedings would be faced – as these are – with an application to stay under s.9(1) of the 1996 Act.

 

  1. In their primary submissions, neither party suggested that the court should do any violence to the language of the sub-contract. Neither party submitted that one or more parts of the sub-contract agreement should be ignored or should take precedence over another. Both parties contended that the dispute resolution clauses could be operated side by side. However, the effect of their respective submissions could not have been more different.

 

  1. The claimant contended that, when read together, the provisions allowed the parties either to adjudicate, or to arbitrate, or to litigate, depending on which forum was thought to be the most suitable for the particular dispute which had arisen. Mr Wilken QC said that, because of the "mutual trust" provision at clause 10.1 of both the Framework Contract and the Supply Contract, it was envisaged that, when a dispute arose, the parties would liaise between themselves and agree which of the three possible dispute resolution routes should be adopted for that particular dispute.

 

  1. Mr Turner QC maintained that, although there was only one overall sub-contract here, the existence of two separate sets of contract conditions, relating to the two separate aspects of the relationship between the parties, meant that Trust Risk Group was directly in point. He said that a dispute between the parties under the Framework Contract (which would relate to the seeking of the quotation and the provision of the quotation) would be governed by clause Z6, whereas any dispute as to the supply of the concrete itself would be governed by the specific adjudication/arbitration clause 93 of the Supply Contract. He said that this gave proper meaning and effect to the sub-contract agreement that the parties had reached and meant that no part of the sub-contract was rendered redundant or otiose.

 

  1. I have reached the firm conclusion that the defendant's interpretation of the contract is the correct one, and in accordance with the principles explained in Arnold v Britton, whilst the claimant's construction is impractical, uncertain and commercially unworkable. My reasons for those conclusions are set out below.

 

  1. First, although there was one overall sub-contract agreement between the parties, that agreement itself expressly made plain that it incorporated two separate sets of contract terms and conditions. That was not a mistake or a piece of sloppy drafting; it was a deliberate decision. It reflected the fact that the claimant's decision to seek a quotation from the defendant was itself governed by the pre-existing Framework Contracts with the SST to which both parties were subject. Thus the NEC3 Framework Contract conditions covered the circumstances of the offer and the acceptance, whilst the NEC3 Supply Contract conditions covered the actual supply of the concrete in accordance with the specification.

 

  1. Thus, the fact that there were two separate sets of NEC3 conditions was a deliberate decision which reflected the two elements of the relationship between the parties. In those circumstances, the fact that the parties had agreed that those two separate aspects of their relationship required two different dispute resolution provisions is unexceptionable. The conclusion that, in this case, there were two separate dispute resolution procedures which did not overlap but complemented each other, because they related to two separate elements of the relationship between the parties, is in accordance with the approach in RWE Npower.

 

  1. Secondly, I consider that this conclusion is not only in accordance with the language that the parties used, but it is also in accordance with the commercial commonsense. The parties would have known that, if the dispute arose under the Framework Contract conditions, then the broader dispute resolution provision applied. If, on the other hand, the dispute arose in respect of the supply of the concrete itself, a different and more restricted dispute resolution provision applied.

 

  1. This also results from the application of the 'centre of gravity' test set out in Trust Risk Group. Like Beatson LJ there, I can see no inconsistency with different clauses covering similar ground in respect of different parts of the relationship. The fact that there was one overall agreement in the present case (albeit with two separate sets of conditions), rather than two separate contracts, seems to me to make the position even stronger. It is certainly not a good ground for distinguishing Trust Risk Group altogether, as Mr Wilken urged me to do.

 

  1. By contrast, I consider that the claimant's interpretation is unworkable in practice. If all three potential dispute resolution avenues (adjudication, arbitration and litigation) were always theoretically open, then when a dispute arose, it would be entirely uncertain which the appropriate forum might be. Mr Wilken said that the appropriate forum would be agreed between the parties, but what if it was not? What if one party wanted to adjudicate and the other wanted to litigate? How would that be resolved? Would there be two parallel disputes in two different tribunals? It would be a recipe for uncertainty and confusion. Even if clause 10.1 meant that the parties had to co-operate before commencing proceedings, that would in no way lessen the uncertainty, or the scope for disagreement.

 

  1. Dispute resolution provisions require certainty. The parties need to know from the outset what to do and where to go if a dispute arises. On the claimant's construction, there would be no such certainty; everything would depend on the attitudes the parties adopted in discussions, once the dispute had arisen.

 

  1. Thirdly, I consider that the real difficulty with Mr Wilken's submissions is that, on analysis, they render part of the sub-contract agreement redundant. Under Z6.4 of the Framework Contract terms, there was a right to adjudicate at any time. Under the Supply Contract conditions there was not, because the right to adjudicate carried with it a clear time bar. On the claimant's interpretation, if everything was a matter of choice once the dispute had arisen, then the party who wished to adjudicate would naturally seek to avoid the time bar restrictions in clause 93, just in case it failed to comply with them. Even a party who otherwise wanted to comply with them, if faced with an argument that it might not have done, would inevitably argue that it did not matter, and that it still had the right to adjudicate "at any time". In this way, the particular provisions of clause 93.3, which are at the heart of this dispute, would be rendered nugatory.

 

  1. Thus, the logical consequence of the claimant's position was that the effect of clause 93 was nullified. Although the claimant argued that, pursuant to its construction, all options were open (and therefore no part of the contract was redundant), the consequence of their submission was to the opposite effect, namely that the right to adjudicate "at any time" trumped the time bar in clause 93. So contrary to Mr Wilken's submissions, I conclude that the claimant's interpretation had the effect of putting a red line through clause 93. In my view that is an inappropriate approach to the construction of the sub-contract and is contrary to the principles noted in Section 4.2 above.

 

  1. Only if there is an irreconcilable discrepancy is it necessary to resort to some sort of order of precedence in order to make sense of the contract (see Moore-Bick LJ in RWE Npower). Here on my construction of the sub-contract agreement there was no such irreconcilable difficulty, so there is no need to adopt that approach.

 

  1. A final difficulty with the claimant's construction was that, on any view, it placed undue reliance upon Z21 of the Framework Contract ("may refer a dispute to the Adjudicator at any time"). Yet the claimant was not directly a party to the Framework Contract at all. The principal parties were the defendant and SST, whilst the claimant's only role was the very limited one of 'Contracting Body'. Even the Framework Contract itself had to acknowledge the centrality of the Supply Contract terms: the definition of a Supply Package Order in the Framework Contract was "an instruction…to carry out a Work Package in accordance with the conditions of contract for a Supply Package Order".

 

  1. In my judgment, it would be contrary to commercial common sense if a dispute resolution provision that was part of a set of contract conditions to which the claimant was not directly a party (the Framework Contract) somehow took precedence over clause 93, which was the dispute resolution provision in the set of contract conditions (the Supply Contract) that only involved the claimant and the defendant.

 

  1. The claimant also suggested that, by the time of the sub-contract agreement on 7 February 2014, the only provisions in the Framework Contract that were still operative were the mutual trust provision at 10.1 and the dispute resolution provisions at Z6 and Z21. It was said that everything else was redundant because, by 7 February the quotation had been sought by the claimant and provided by the defendant.

 

  1. I do not accept that analysis: all of the Framework Contract conditions were incorporated because that is what the sub-contract agreement provided for. It is not appropriate for a court to construe a contract by picking through its terms, working out what might still be applicable at the date of the contract and what might relate to obligations which had been performed.

 

  1. But in any event, I consider that this is a point against the claimant. The Framework Contract was not required to provide clause 10.1, because that was also in the Supply Contract. And the general dispute resolution provisions at Z6 and Z21 were not necessary either, because of the specific provisions of clause 93 in the Supply Contract. In other words, if this approach by the claimant was right in principle (which I do not accept) then it only confirms the defendant's interpretation of the sub-contract, set out above.

 

  1. I should add this. Some of Mr Wilken's eloquent submissions were aimed at the time bar in clause 93 itself, suggesting that it would be monstrous if "you lose your rights if you don't use clause 93". I have some sympathy with that view; the clause 93 time bar is clearly contrary to the statutory scheme, referred to below, which made adjudication mandatory for construction contracts. But that is what clause 93 said, in plain terms: "if a disputed matter is not notified and referred within the times in this contract, neither party may subsequently refer it…". So that time bar is what these parties agreed.

 

  1. For all these reasons, I have concluded that the defendant's construction of the sub-contract agreement is the right one. It preserves the sub-contract agreement as a whole. It involves no artificial order of precedence or deletion of terms. And because of the different sets of contract conditions governing the two different aspects of the relationship between the claimant and the defendant, it produces a commercially sensible and workable result.

 

  1. In those circumstances, it is unnecessary for me to go on to deal with the various other alternative submissions that were made. I have addressed the parties' principal submissions and reached a clear conclusion that the defendant's submissions are to be preferred. I therefore do not address some of the more speculative submissions that arose as part of the parties' alternative cases.

 

  1. It follows from my analysis above that the part of the sub-contract agreement between the parties dealing with the supply of concrete contained, at clause 93, an arbitration clause. It provided a commonplace regime whereby a claim would be first the subject of adjudication and then, if one or other party was dissatisfied with the adjudicator's decision, would be referred to arbitration.

 

  1. IS THE CLAIM "A MATTER WHICH UNDER THE AGREEMENT IS TO BE REFERRED TO ARBITRATION"?

 

  1. The next issue for me is whether the claim in these proceedings is "a matter which under the Agreement is to be referred to arbitration" (s.9(1)).

 

  1. The claim in these proceedings is a claim for damages in the sum of £5,870,575.59. The Particulars of Claim alleges that the concrete supplied by the defendant was contaminated, which meant that extensive and costly remedial works had to be carried out, including large scale replacement of the barrier. The damages claim is linked to the cost of those remedial works.

 

  1. That is a claim which arises out of the supply by the defendant to the claimant of the allegedly defective concrete. It is quintessentially a dispute about the materials supplied, and is therefore directly covered by the conditions of the Supply Contract. A dispute about the quality of the concrete fell to be resolved under clause 93 of the Supply Contract. That claim has been referred to adjudication, al