RELEVANT CONTRACT PROVISIONS
The material clauses of the EPC Contract
20.2.2. (a) …any dispute or difference between the Parties to this Agreement arising out of or in connection with this Agreement shall be referred to arbitration.
- (b) Any reference to arbitration shall be to a single arbitrator…and conducted in accordance with the Construction Industry Model Arbitration Rules February 1998 Edition, subject to this Clause (Arbitration Procedure)…
- (c) This arbitration agreement is subject to English Law and the seat of the arbitration shall be Glasgow, Scotland. Any such reference to arbitration shall be deemed to be a reference to arbitration within the meaning of the Arbitration Act 1996 or any statutory re-enactment.”
The “CIMAR Rules” provided as follows:
Appendix 1 contains definitions of terms. Section numbers given in these Rules are references to the Act.
1.2 The objective of the Rules is to provide for the fair, impartial, speedy, cost-effective and binding resolution of construction disputes, with each party having a reasonable opportunity to put his case and deal with that of his opponent. The parties and the arbitrator are to do all things necessary to achieve this objective: see Sections 1 (General Principles), 33 (General duty of the tribunal) and 40 (General duty of parties).
1.4 The arbitrator has all the powers and is subject to all the duties under the Act except where expressly modified by the Rules.
1.5 Sections of the Act which need to be read with the Rules are printed in the text.
Other Sections referred to in the text are printed in Appendix II.
1.6 These rules apply where:
- (a) a single arbitrator is to be appointed, and
- (b) the seat of the arbitration is in England and Wales or Northern Ireland.
1.7 These rules do not exclude the powers of the Court in respect of arbitral proceedings, nor any agreement between the parties concerning those powers.
4.1 The arbitrator has the power set out in Section 30
4.2 The arbitrator has the powers set out in Section 37…
4.3 The arbitrator has the powers set out in Section 38(4) to (6)…”
In Appendix I the “Act” was defined to mean the Arbitration Act 1996.
Sections of the Arbitration Act 1996
1. General principles.
The provisions of this Part are founded on the following principles, and shall be construed accordingly—
- (a) the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense;
- (b) the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest;
- (c) in matters governed by this Part the court should not intervene except as provided by this PartGeneral duty of the tribunal.
3. The seat of the arbitration.
In this Part “the seat of the arbitration” means the juridical seat of the arbitration designated—
(a) by the parties to the arbitration agreement, or
(b) by any arbitral or other institution or person vested by the parties with powers in that regard, or
33. General duty of the tribunal
The tribunal shall—
-
- (a) act fairly and impartially as between the parties, giving each party a reasonableopportunity of putting his case and dealing with that of his opponent, and(b) adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.
The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it.
4. Mandatory and non-mandatory provisions.
- (5) The choice of a law other than the law of England and Wales or Northern Ireland as the applicable law in respect of a matter provided for by a non-mandatory provision of this Part is equivalent to an agreement making provision about that matter.
For this purpose an applicable law determined in accordance with the parties’ agreement, or which is objectively determined in the absence of any express or implied choice, shall be treated as chosen by the parties.
40. General duty of parties.
(1) The parties shall do all things necessary for the proper and expeditious conduct of the arbitral proceedings.
(2) This includes—
(a) complying without delay with any determination of the tribunal as to procedural or evidential matters, or with any order or directions of the tribunal, and
(b) where appropriate, taking without delay any necessary steps to obtain a decision of the court on a preliminary question of jurisdiction or law (see sections 32 and 45).
69. Appeal on point of law.
1. Unless otherwise agreed by the parties, a party to arbitral proceedings may (upon notice to the other parties and to the tribunal) appeal to the court on a question of law arising out of an award made in the proceedings.
- An agreement to dispense with reasons for the tribunal’s award shall be considered an agreement to exclude the court’s jurisdiction under this section.
- An appeal shall not be brought under this section except—
(a) with the agreement of all the other parties to the proceedings, or (b) with the leave of the court.The right to appeal is also subject to the restrictions in section 70(2) and 3. Leave to appeal shall be given only if the court is satisfied
(a) that the determination of the question will substantially affect the rights of one or more of the parties,
(b) that the question is one which the tribunal was asked to determine
(c) that, on the basis of the findings of fact in the award—
-
- (i) the decision of the tribunal on the question is obviously wrong, or(ii) the question is one of general public importance and the decision of the tribunal is at least open to serious doubt, and(d) that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the court to determine the question.
- An application for leave to appeal under this section shall identify the question of law to be determined and state the grounds on which it is alleged that leave to appeal should be granted.
- The court shall determine an application for leave to appeal under this section without a hearing unless it appears to the court that a hearing is required.
- The leave of the court is required for any appeal from a decision of the court under this section to grant or refuse leave to appeal
- On an appeal under this section the court may by order— (a) confirm the award(b) vary the award,
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- (c) remit the award to the tribunal, in whole or in part, for reconsideration in the light of the court’s determination, or(d) set aside the award in whole or in part.The court shall not exercise its power to set aside an award, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration
8. The decision of the court on an appeal under this section shall be treated as a judgment of the court for the purposes of a further appeal.
- But no such appeal lies without the leave of the court which shall not be given unless the court considers that the question is one of general importance or is one which for some other special reason should be considered by the Court of Appeal.
- (c) remit the award to the tribunal, in whole or in part, for reconsideration in the light of the court’s determination, or(d) set aside the award in whole or in part.The court shall not exercise its power to set aside an award, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration
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CASE SUMMARY
Neutral Citation Number: [2008] EWHC 426 (TCC) Case No: HT 08 07 – IN THE HIGH COURT OF JUSTICE QUEEN’S BENCH DIVISION
ECHNOLOGY AND CONSTRUCTION COURT Date: 13th March 2008
Before : MR JUSTICE AKENHEAD
BRAES OF DOUNE WIND FARM (SCOTLAND) LIMITED Claimant VS ALFRED MCALPINE BUSINESS SERVICES LIMITED Defendant
Cases quoted as a reference:
- Naviera Amazonica Peruana SA v Compania Internacionale De Seguros Del Peru [1988]:
- Where the parties have failed to choose the law governing the arbitration proceedings, those proceedings must be considered, at any rate prima facie, as being governed by the law of the country in which the arbitration is held, on the ground that it is the country most closely connected with the proceedings…
- Whitworth Street Estates v James Miller
- Black Clawson case
- C v D [2007] EWHC 1541
- Dunlop Pneumatic Tyre Co. v New Garage and Motor Co [1915]
Background:
The Defendant and the Claimant entered into a contract on 4th November 2005 whereby the Contractor undertook to carry out the civil Works and the electrical Works connecting the WTGs to the switch room. Another Contractor (Vestas-Celtic) was contracted to design, supply, construct and install the 36 WTGs.
A dispute arose between the parties, as the Claimant considered to be entiteld to Liquidated Damages. An arbitrator has been appointed, in accordance with the FIDIC EPC contract (Silver book) provisions.
Claims:
1. The Claimant applies for leave to appeal against the award of the Arbitrator upon a question of law.
2. The Defendant seeks a declaration that the Court has no jurisdiction to entertain such a claim and for leave to enforce the award.
Issues:
- Juridiction: Do English courts have jurisdiction to entertain an application for leave to appeal?
- Leave to appeal: Can an appeal be granted to the Claimant?
1. Jurisdiction
The CIMAR rules, which are to be read consistently with the Arbitration Act indicate that the arbitrator has all the powers and is subject to all the duties, and these rules apply where the seat of arbitration is England abd Wales or Nothern Ireland.
The EPC contract stipulates that the Arbritration agreement is subject to English Law and the seat of arbitration shall be Glasgow, Scotland.
Even though the parties agreed that the “seat” of the arbitration was Glasgow, the parties also agreed that essentially the English (and Welsh) courts have “exclusive jurisdiction” to settle disputes according to Clause. 1.4.1. It is a jurisdiction over disputes and not simply a court in which a foreign award may be enforced. The word “jurisdiction” suggests some form of control.
The Clauses 1.4.1. and 20.2.2 are consistent and confirm that the arbitration agreement is subject to English Law. Therefore the seat of arbitration expressed by the parties, which was to be Glasgow, Scotland relates to the place in which the hearing should take place. By all the other references, however, the parties were agreeing that the law ahoch governed the arbitral proceedimgs was that of England and Wales. Hence the place where the arbiration is to be heard will not dictate what the governing or controlling law will be.
The CIMAR rules are also consistent with this view considering their constant references to the 1996 Act suggesting the law of England and Wales governed the arbitration.
2. The application for leave to appeal
For a Liquidated Damages clause to be found unforceable, the damages must amout to a penalty (Dunlop Pneumatic Tyre Co. v New Garage and Motor Co [1915]).
Pursuant to Clause 8.7.2. of the contract, the amount of delay damages shall be £642 per MW which is unavailable and for each day, from the Time for Completion (“unavailable Capacity) or £385 per MW per day depending on the period of the year.
The issue addressed during the hearing held in Edinburg was whether “.. the Employer is entitled to withhold liquidated or other delau damages against sums due to the Contractor under the EPC contract; and whether in consquence the Contractor is entitled to an award in respect of the liquidated dmages so withheld.”
The Arbitrator concluded that the provisions of the Clause 7.2 can’t generate with certainty liquidated damages flowing from an identified breach by the Contractor, hence there was no entitelemt for the Employer to withhold the correponsding sum.
As per Section 69.3 of the Arbitration Act 1996, the court can only grant leave to appeal an award if the some conditions are met, namely that the decision of the tribunal was obviouly wrong.
Despite some disagreements with the Arbitrator’s reasoning, J. Akenhead formed the view that the Arbitrator’s decision was NOT obviously wrong.
The most convincing argument was that the liquidated damages clause could well impose a liquidated damages liability on the Contractor in respect of delays caused by the Wind Turbine Contractor:
– The extension of time clause (Clause 8.4) did allow the Contractor extensions to the extent that overall or critical delay was caused by the Wind Turbine Contractor.
– There was no provision in the contract for sectional completion
– The Contractor could end up paying liquidated damages for delays caused by the Wind Turbine Contractor’s defaults even though the parties had agreed that for critical or overall delay the Contractor was not responsible
– In those circumstances, there is in law a penalty which English Law will not enforce.
Decision:
The Claimant’s application is dismissed and the Defendant must have leave to enforce the Award pursuant to Section 66(1).
LESSONS LEARNED:
1. Juridical provisions Consistency: Choice of applicable procedural law and Arbitration Seat:
– The contract data and the provisions of the contract must be consistent: in this case the contract provisions and the reference document (CIMAR Rules and Arbiration Act 1996) are conflicting and so generate ambiguity. The contract specifies a Seat of Arbitration in Scotland, while all the reference documents apply for a Seat of arbitration being located in England and Wales.
– Although the agreed disputes resolution is Arbitration, the courts (in this case the English Courts) will still have jurisdiction as the law of England and Wales are specified in the contract
2. Technical and juridical Consistency: Liquidated damages and penalty clauses
Juridical aspect:
The laws of England and Wales do not permit the enforcement of a contractual provision which imposes a penalty on a party in default. The law does however permit the recovery of liquidated damages. The parties may fix the amount which is to be paid by way of damages in the event of breach. Whether such sum is recoverable from the party in breach depends on whether the amount specified in the agreement constitutes liquidated damages (which may be recoverable) or a penalty (in which case it will not be recoverable).
Cf Dunlop Pneumatic Tyre Co. v. New Garage Motor Co., where a series of rules were outlined to help ascertain whether a stipulated sum amounted to liquidated damages or a penalty.
Technical aspect:
From the reading of this judgement, it can be understood that the agreement was not technicaly consistant: the clause relating to Liquidated Damages did not reflect the reality of the works carried out by the Contractor,
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