The original intention may have been for any differences between the parties to be resolved by an arbitrator. But if they failed to make a contract, there will be no binding arbitration clause to give an arbitrator jurisdiction. Considerable time and money may be spent on trying to sort out whether or not a contract was made and therefore whether the proper tribunal is court or arbitration. This might be endlessly fascinating for lawyers. For their clients, it is likely to be an expensive distraction.
Two recent Court of Appeal cases – Birse Construction vs St David (5 November 1999, unreported) and Ahmad Al-Naimi vs Islamic Press Agency Incorporated (28 January 2000, unreported) – demonstrate the tangles that can arise.
In both cases, a contractor was claiming money from an employer and the claim had been brought in court. In both, the employer contended that there was a binding contract with an arbitration clause covering the disputed claim. Accordingly, the employer in each case was seeking a stay under section 9 of the Arbitration Act 1996. The evidence before the court as to whether or not there were concluded contracts consisted solely of affidavits.
Faced with such applications, the course that the court should follow was not obvious. Before the introduction of the act, the court had to resolve whether or not there was a contract and a binding arbitration clause. If there was not, the claims would have to be determined in court proceedings. However, by section 30 of the act, an arbitrator has the power to rule on whether there is a valid arbitration agreement. So one of the possible courses for the court was not to decide the contract/no contract dispute but to send it off to an arbitrator to sort out.
In the Birse case, Judge Humphrey Lloyd had analysed the possible options open to the court, an analysis that was praised by the Court of Appeal in Ahmad. They were:
Make sure your contract is clear in the first place. Otherwise you could waste time and money working out whether there is a contract and where the dispute should be tried
- To determine, on the affidavit evidence, whether or not there was a contract; if there was, to stay the action under section 9, and if there was not, to dismiss the application
- To stay the action so that the arbitrator could determine whether there was a contract under section 30 of the act
- To order a full trial of the issue of whether there was a contract.
Each of these courses has its disadvantages. The first would involve the court determining the contract/no contract point with no oral evidence and cross-examination; this could be difficult. The second could result in the parties returning to court on a later occasion, on an appeal against the arbitrator's determination of the issue; more time and expense. The third would also entail delay and extra cost with the parties having a full action on the contract/no contract issue when they would be better employed sorting out their substantive disputes. In short, the parties had got into a legal muddle that could only benefit their lawyers.
In Ahmad at least, the court was able to reach a relatively quick answer. First, it was clear that there was no obligation to refer the contract/no contract point to an arbitrator. Clause 30 is permissive not mandatory. Second, the court felt able to decide there and then on the affidavit evidence that there was a contract.
Tim Elliott QC is a barrister specialising in construction at Keating Chambers.