Collins v Baltic Quay [2004] EWCA Civ 1757

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Where a party has wrongfully withheld monies under a construction contract by failing to issue a valid notice of withholding, and the parties have entered into an arbitration agreement, any application by the claimant to the court for payment of those monies will be stayed under s9(4) of the Arbitration Act 1996 (unless the arbitration agreement is null and void, inoperative, or incapable of being performed); there is nothing in s111 of the Housing Grants Construction and Regeneration Act that requires such claims to be dealt with by the court. Even if a withholding notice is not served, the claim for payment still constitutes a "dispute or difference" that needs to be determined. The question of whether a "dispute or difference" has arisen for the purposes of arbitration or adjudication depends on the circumstances of each particular case. Nonetheless, while the mere making of a claim does not amount to a dispute, a dispute will be held to exist once it can be reasonably inferred that a claim is not admitted.

The Court of Appeal

7 December 2004

Collins entered into a JCT Minor Works form of contract (with amendments) (the "Contract") with Baltic Quay to carry out repairs and other works at Baltic Quay's premises in London. Practical Completion was certified on 28 March 2003. Collins submitted their fifth Interim Certificate on 25 June 2003, but Baltic Quay neither paid the amount certified nor issued a withholding notice in respect of the same.   

Collins wrote to Baltic Quay demanding payment of the amount certified in Interim Certificate 5 within 7 days, failing which they would determine the Contract (as provided for under clause 7.3.1 of the Contract). Baltic Quay did not respond to that 7-day notice, nor indeed pay the sums certified and, accordingly, on 18 July 2003 Collins terminated the Contract and submitted their final account. Clause 7.7.3 of the Contract provided that "the Employer shall pay the full amount properly due in respect of [the final] account within 28 days of its submission by the Contractor". The parties engaged solicitors and much correspondence took place between them during July to December 2003, but at no time did Baltic Quay admit liability in respect of either Interim Certificate 5 or the final account.

On 22 December 2003, Collins issued proceedings in the TCC for the value of Interim Certificate 5 and the value of the final account. However, Article 4 of the Contract contained a dispute resolution provision that provided that "any dispute or difference" could be referred to adjudication (as an option) or arbitration (mandatory) (although the enforcement of any adjudicator's decision was excluded from the arbitration provisions). It was common ground that the dispute resolution procedure satisfied the requirements of Section 108 of the Housing Grants Construction and Regeneration Act ("the Housing Grants Act"). Baltic Quay sought a stay of the TCC proceedings under Section 9(1) of the Arbitration Act 1996 on the basis that there was  "dispute or difference" between the parties in connection with the Contract and that it was therefore entitled to a stay under Section 9(4) of the Arbitration Act 1996 (the "Arbitration Act"). The Judge granted the stay on the basis that there was a dispute or difference between the parties within the meaning of Article 4 and followed the Court of Appeal decision in Halki Shipping Corporation v Sopex Oils Limited (1998); Collins appealed. 

Collins' appeal was based on the following: the decision and reasoning in Halki did not lead to the conclusion reached by the Judge and therefore his decision was wrong; as no notice of intention to withhold payment was issued, the effect of Section 111 of the Housing Grants Act is that the employer is not entitled to withhold payment and the contractor is therefore entitled to judgment in the amount wrongfully withheld; accordingly, if a withholding notice is not served, there is no defence to an application for payment, it is indisputable, and therefore there cannot be a "dispute" within the definition of Halki.

With regard to the question of the application of Halki to this case, the Court of Appeal agreed with Baltic Quay's submissions: in Halki the Court held that there was a crucial distinction between Section 1(1) of the Arbitration Act 1975 and Section 9(4) of the Arbitration Act 1996, namely the omission from the later Act of the provision that the Court was required to grant a stay unless "there is not in fact any dispute between the parties with regard to the matter to be agreed to be referred". When those words were included in the 1975 Act, they established the principle that a stay would be refused if a defendant did not have a case that would otherwise be sufficient to deny an application for summary judgment under what is now CPR 24.2, the fact that they were omitted from the 1996 Act means that a stay will be granted whenever there was a "dispute" – regardless of whether or not the defendant had an arguable defence to the claim. Accordingly, it follows from Halki that an application for a stay under section 9(1) of the Arbitration Act will not be dismissed on the grounds that the defendant has no arguable defence to the claim.

Baltic Quay further submitted that the arbitration clause, Article 4.2, was drafted in very wide terms, allowing the parties to refer "any dispute or difference as to any matter or thing of whatsoever nature arising under this agreement or connection therewith" and it therefore followed that the claim in question, which included a claim for the final account which was not admitted and which Baltic Quay was refusing to pay, was a "dispute or difference" that could be referred to arbitration within the meaning of Section 9(1) of the Arbitration Act. Further, as there is no suggestion that the arbitration agreement is "null and void, inoperative, or incapable of being performed" (the grounds upon which the court could refuse to grant a stay under Section 9(4) of the Arbitration Act) the Court must grant a stay under Section 9(4). Finally, Baltic Quay submitted that Section 111 of the Housing Grants Act was only concerned with the substantive rights of the parties and did not consider which forum a claim for wrongfully withheld monies should be dealt with.   

The Court of Appeal agreed with these submissions. It found that the grant of a stay in a situation such as this would not, as claimed by Collins, "deal a fatal blow" to Section 111 of the Housing Grants Act.  Indeed, if Collins was correct in its submission that the claim is indisputable because Baltic Quay failed to serve a Section 111 Notice, that would then mean that a Contractor could not invite an Adjudicator or Arbitrator to make an award in its favour, which would be illogical. Further, the Court of Appeal held that there is nothing in Section 111 to suggest that a dispute arising out of an Employer's refusal to pay a sum wrongfully withheld could not, as a matter of law, be referred to arbitration, and there is nothing in the Housing Grants Act to limit the application of Section 9 of the Arbitration Act. The Court of Appeal also considered that Collin's submission would result in a contractor being deprived of its right to obtain an arbitration award in circumstances where it might prefer an award enforceable under the New York Convention rather than to obtain a judgment of the English Court.

The Court of Appeal then considered the question of whether there was a "dispute or difference" which the parties had agreed to refer to arbitration. It reviewed a number of cases dealing with how a "dispute or difference" should be defined and concluded that the question all depends on the circumstances of the particular case. It endorsed the general approach that, while the mere making of a claim does not amount to a dispute, a dispute will be held to exist once it can reasonably be inferred that a claim is not admitted. It concluded the debate by upholding Jackson J's recent judgment in AMEC Civil Engineering Limited v The Secretary of State for Transport (2004) that: the word "dispute", which occurs in many arbitration clauses and also in Section 108 of the Housing Grants Act, should be given its normal meaning; the judicial decisions regarding the meaning of the word "dispute" have produced helpful guidance without setting any legal rules as to whether a dispute has arisen or not; the mere fact that a party notifies the other of a claim does not automatically give rise to a dispute; the dispute does not arise unless and until it emerges that the claim is not admitted, this can either be in the form of an express rejection, silence, or any other conduct that gives the inference that the claim is not admitted; the period of time for which a respondent may remain silent before a dispute can be inferred depends on heavily of the facts of the case and contractual structure, but nonetheless, even if a deadline is set for a response, it does not detract from the principle that the respondent should have a reasonable time in which to respond to the claim; and, finally, if the claim that is presented is such a nebulous and ill-defined way that the respondent cannot sensibly respond to it, neither silence nor an express non-admission will give rise to a dispute for the purposes of arbitration or adjudication. The judges agreed with Jackson J's disapproval of the line of cases that suggested that a dispute may not arise until negotiation or discussion have been concluded (e.g. Sindall Ltd v Solland & Ors)

Applying those principles, the Court of Appeal found on the facts of the case that Baltic Quay did not admit Collins' claim long before proceedings were started in Court. Accordingly, Baltic Quay was entitled to have those proceedings stayed under Section 9 of the Arbitration Act.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

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