A cautionary tale about what happens if you assume that a dispute does not exist (and therefore you can bypass arbitration) and are, as it turns out, wrong

Collins (Contractors) is probably feeling a little sore about lawyers and courts and the like. It had what seemed a straightforward case against Baltic Quay Management (1994), but it all went wrong.

Collins had issued a certificate for payment of £28,331 in June 2003. There was no notice of intention to withhold, so Collins expected to receive payment by mid-July. It didn’t come. Collins determined the contract and put in a final account. The total that it thought it was due, including the unpaid certificate, was £53,777. Baltic Wharf still didn’t pay but didn’t say why it was not paying.

In December 2003, Collins issued court proceedings. Baltic applied to stop them on the grounds that there was an arbitration clause, and all disputes had to be resolved in arbitration, unless either party wanted to go to adjudication.

Both parties accepted that if there was an arbitration clause in the contract disputes could not be resolved in court. But Collins argued that there was no dispute: Baltic had not served a notice of withholding and therefore could not argue that the certified money was not payable. Arbitrations and adjudications were all a waste of time when there was no dispute.

That argument didn’t work in the first court, so Collins went on to the Court of Appeal and did no better there. Lord Justice Clarke was not impressed with the arguments raised by Baltic but just because they were likely to fail did not mean that there was no dispute. The case should have gone to arbitration or adjudication.

We hear a great deal about the need to establish that there is a dispute before an adjudication can be started. If one party says it is owed money and the other says it isn’t, there is clearly a dispute. The problem arises when one party says that it is owed money and the other ums and ahs but doesn’t say it agrees or disagrees. If there is no dispute, there is nothing to take to adjudication or arbitration, so what can you do? The answer, as Lord Justice Clarke explained, is that while the mere making of a claim does not amount to a dispute, a dispute will exist once it can reasonably be inferred that a claim is not admitted.

When can that be “reasonably inferred”? It all depends on the sort of claim. If it is a complex submission for an extension of time, with several volumes of supporting documents and a sophisticated analysis of the critical path, it may take several weeks to work out what is being claimed, never mind whether it can be agreed. But a simple claim for a sum of money based on a certificate should only take a few days.

Collins’ claim for payment was straightforward. Even the claim for the final account was for a relatively small sum, and if it was not paid within the 28 days allowed under the contract, it would have been reasonably safe to assume that there was dispute. A letter before action had been sent in July 2003. By the end of that month it must have been clear that a dispute had arisen.

The problem arises when one party says it is owed cash and the other ums and ahs but doesn’t agree or disagree

Collins could then have done one of two things.

It could have started an adjudication, which would have produced a decision by September. If matters were as simple as it (and Lord Justice Clarke) thought, the court would have enforced the decision quickly, and the money would have been paid by October 2003.

Alternatively, Collins might have started an arbitration, which can move as quickly as adjudication. The “no withholding notice” point could have been dealt with in a few weeks, and arbitration has the advantage that the successful party can recover costs. Collins would probably have been paid by the end of the year.

As it was, Collins wasted a year in litigation. It spent many thousands of pounds to no effect and still didn’t have the money.

Moral: if you can’t find a dispute, have another look. You will find one somewhere.

John Redmond is head of construction at solicitor Osborne Clarke in Bristol