English law contains no provision for compulsory third-party proceedings in arbitrations, nor is this remedied by section 35 of the Arbitration Act 1996, which provides that the parties may agree to the consolidation of disputes or to confer on the arbitrator the power to order a consolidation, or “joinder”.
Some contracts, however, contain provisions that enable proceedings between parties to be heard together as a tripartite arbitration. One such provision is clause 18 of the CECA blue form of subcontract, used in conjunction with the ICE main conditions of contract. Several decisions have recently been reported that depend on the meaning and operation of clause 18 and, more broadly, the problems inherent in attempting to combine employer/contractor and contractor/ subcontractor disputes.
In Redland Aggregates Limited vs Shepherd Hill Civil Engineering Limited, the contractor wanted to join the subcontract and main contract disputes under clause 18, but having served the appropriate notice on the subcontractor, it continued to negotiate with the employer for another two years while the subcontract disputes were held in abeyance.1 The court took a practical approach to the difficulties that would arise for subcontractors in this position, and decided that if the progress of any tripartite arbitration depends on the contractor, it should proceed with it speedily.
Consequently, the court implied a term into the contract that if the contractor is unable or unwilling to bring about a tripartite arbitration within the time contemplated by the relevant clause, the subcontractor is free to proceed with the subcontract arbitration.
A similar approach was taken regarding the employer’s consent: if the employer will not give its consent to a tripartite arbitration, the subcontractor is no longer bound by the provisions of the clause and is able to commence its arbitration with the contractor.
Clearly, contractors that wish to negotiate with the employer while retaining the ability to require a subcontractor to take part in a tripartite arbitration will need to tread very carefully. I understand that Redland is to be appealed to the House of Lords, so we may not have heard the last of it. Nevertheless, this case highlights the difficulties of reconciling what may be three very different agendas.
The issue of the operation and purpose of clause 18 also arose in The Dredging and Construction Company Limited vs Delta Civil Engineering Company Limited and DT Simmonds.2 In this case, the subcontractor (Delta) served a notice of dispute on the contractor (Dredging) accompanied by notices to refer and to concur in the appointment of an arbitrator pursuant to clause 18. Four days later, Dredging served a notice of dispute on the employer under clause 66 of the ICE main contract. On the same date, Dredging served Delta with a notice under clause 18 of the subcontract, requiring the subcontract disputes to be resolved with the main contract disputes.
Issues then arose relating to the arbitrator’s jurisdiction in the light of the fact that at the date of the notice from Dredging to Delta, the main contract disputes between Dredging and the employer had not been referred to conciliation or arbitration. Was it possible for a move of this sort to be contemplated when the main contract arbitration had not commenced? The court decided that the contractor did not have to wait before it issued the notice under the subcontract. The notices could be issued simultaneously. Although this decision is consistent with the purpose of clause 18, from the subcontractor’s point of view, it seems inevitable that the resolution of its disputes with the main contractor will be delayed. However, in the light of the decision in Redland, subcontractors at least have the comfort of knowing that the main contractor should proceed expeditiously in setting up any tripartite arbitration, failing which the subcontractor can commence arbitration itself.
Further, in another recent decision in Harbour & General Works Limited vs The Environment Agency, the Court of Appeal reiterated the importance of the main contract reference being commenced within the time limit imposed by the ICE conditions.3 In the Harbour & General decision, the court confirmed that the circumstances in which a party can claim an extension of time, in which to start arbitration proceedings, are more restrictive under section 12 of the Arbitration Act 1996 than they were under section 27 of the Arbitration Act 1950. The concept of a party suffering undue hardship as a result of failing to observe the time limits would not constitute sufficient reason to extend time under section 12 of the 1996 act.
What conclusions should we draw from these decisions? If you are a subcontractor, you should remember that the main contractor can serve notices of dispute and joinder on the employer and on you at the same time. So, some delay may be inevitable while the tripartite arbitration is progressed. But you should take comfort from the fact that the contractor must proceed expeditiously. If the employer’s consent to the tripartite arbitration is not forthcoming, you are also at liberty to proceed separately; if the contractor fails to observe the time limits in clause 66 of the ICE main conditions, the court is likely to be unsympathetic to requests for time extensions.
Tripartite arbitration for beginnersOne weakness of arbitration is that doesn’t lend itself to settling more than one dispute at a time caused by the same set of problems. There is a provision in some contracts for holding an arbitration between three parties. However, subcontractors depend on a steady cash flow, and if another party doesn’t push the arbitration, they could find themselves stuck in a dispute for years. Recent cases have shown that, in this situation, they can take matters in their own hands and commence their own arbitration with the contractor.
Simon Lewis is a partner at solicitor Dickinson Dees in Newcastle upon Tyne.