Case comment: Bond v Mackay [2018] EWHC 2475 (TCC)

Introduction: In a decision of 25 September 2018, Jonathan Acton Davis QC (sitting as a High Court judge) partially set aside an arbitral award under section 67 Arbitration Act 1996. Unlike applications to annul awards under section 68 – which are very rarely successful – arbitral awards in England and Wales are more frequently varied or set aside by the High Court on the jurisdictional grounds contained within section 67. However, as will be seen below, this type of challenge is often avoidable.

Facts: The claimants owned land. In 1993, they entered into a deed with British Gas. The deed permitted British Gas to lay gas pipelines under the claimants’ land. In 2011, the claimants obtained planning permission to extract ball clay (a scarce mineral), sand, and gravel from their land. The 1993 deed provided that the claimants were entitled to compensation from British Gas (or its successor) if the pipelines became an obstruction and were not moved. This is because if the pipelines remained, the land would have to be sterilised prior to the extraction of the valuable minerals.

In 1994, the claimants also granted a lease to BP (now Perenco) in like terms. It permitted Perenco to lay oil pipelines under the same land, with the same proviso as to compensation.

Both deeds provided that any dispute about the amount of compensation payable to the claimants (triggered by clause 2(i)) would be referred to arbitration by a single arbitrator to be agreed or appointed by the Royal Institute of Chartered Surveyors (RICS) (clause 3). The deeds also contained various other clauses. These provided that in the event of a dispute regarding those other covenants, a single arbitrator would be agreed between the parties, and in default of agreement the matter would be determined in the Lands Tribunal (clauses 5 & 6 respectively). The deeds effectively contained multiple arbitration agreements within the space of only a few paragraphs. The judgment does not provide any comment on this oddity.

There was an impasse between the parties. The claimants wanted to begin extraction works but the defendants were concerned about the impact on their pipelines. The defendants sought an undertaking (prior to seeking an injunction) to prevent further works by the claimants. The claimants then commenced arbitration.

The defendants, Perenco and Southern Gas Networks (the successors in title of British Gas), initially denied that RICS had jurisdiction to appoint an arbitrator. This was on the basis that the deeds provided for disputes to be resolved by proceedings in the tribunal. That was correct in respect of clauses 5 & 6. The claimants (seemingly acting in person at the time) had not pleaded in their request for arbitration that the defendants were in breach of clause 2(i). However, the defendants fully participated in the arbitration proceedings. All the while, the claimants failed to refer to the key clause which triggered the right to compensation (clause 2(i)) and instead expressly relied upon clauses 5 & 6.

The claimants subsequently sought to place reliance on clause 2(i) and bring it into the arbitration by reference, or by consolidation to the existing arbitration claim. The arbitrator dismissed these requests and indeed he dismissed claimants’ claims under clauses 5 & 6. The claimants applied to set aside the award.

Issue: Was the issue of compensation under clause 2(i) properly before the arbitrator, or was the arbitration pursuant to clauses 5 & 6 only?

Decision: The award was varied and the costs order set aside. The matter relating to clause 2(i) was before the arbitrator. The claimants’ statement of case did not expressly refer to clause 2(i), but it was plain that this was what the arbitration was all about [60].

The Court must take a broad view of the factual matrix when deciding whether or not a dispute or issue is before an arbitrator. In this case, it was. There were no “terms of reference” but the issue of compensation under clause 2(i) was on the table. The whole case was about compensation payable to the claimants on account of the defendants failing to move the pipelines. It was irrelevant that clause 2(i) had not been expressly pleaded. The arbitrator should have dealt with it.

Conclusion: There are three points which can be derived from this case. First, this decision should reinforce best practice: define the list of issues carefully, even where there is no formal “terms of reference” procedure. This ensures that the issues in dispute are clearly flagged at an early stage.

Second, it is essential to ensure that, if you wish to challenge jurisdiction, you raise your objection at an early stage and maintain it. If you delay, you may lose the right to challenge (section 73 Arbitration Act 1996).

Third, be prepared. An application under section 67 is treated as a re-hearing. Therefore, a judge is far likelier to engage with the evidence that was before the arbitrator. The arbitrator’s reasoning or even the parties’ arguments during the arbitration are (or can be) immaterial. In this case, the judge focussed on the particular facts and investigated the correspondence between the parties to establish how the parties had framed their dispute.

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