Professional Documents
Culture Documents
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PART 5
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COMMENTARY
This case is of interest for two reasons: first, the
point concerning the seat of the arbitration, and
secondly, the learned judges comments concerning
section 69(3)(d) of the Act.
So far as the seat of the arbitration is concerned,
at first sight one part of the contract was tolerably
clear about that, as it expressly stated in clause
20.2.2(c) that the seat of the arbitration shall be
Glasgow, Scotland. However, the difficulty arose
because the arbitration agreement was also
expressly stated to be subject to English law and
also required the arbitration to be conducted in
accordance with the CIMAR rules, which themselves are said to apply (rule 1.6) where the seat of
the arbitration is to be England and Wales, and
which also are to be read consistently with the
Arbitration Act itself.
This circle therefore required to be squared.
Either the parties intended the juridical seat (adopting the language of section 3 of the Act) of the
arbitration to be in Scotland, or to be in the jurisdiction of England and Wales. If the former, then the
court would not have any jurisdiction, but if the
latter then jurisdiction would not be an issue, even
though the arbitration in fact physically took place
in Scotland.
The decision of the learned judge on this matter
followed a rational course in that the parties, when
expressing themselves concerning the seat of the
arbitration in clause 20.2.2(c) of the EPC contract,
in fact did not mean the juridical seat, but rather
the physical location of the hearings. This result
was consistent with the other parts of the contract
terms. The judge also considered that it was inherently unlikely that the parties would have consciously agreed that no court should have the right
of intervention in the situation, for example, of a
material serious irregularity, short of criminal
behaviour.
It is fair to say that the editors experience of the
term seat of the arbitration is that this can often
mean different things to different people. To a layman, it may simply identify where the arbitration
itself is to take place. To a jurist, it may (or should)
include the system of law that is to govern the
reference itself. Perhaps, in future, if parties in fact
intend to agree that a particular system of law is to
govern the reference, it would be best to avoid use
of the phrase seat of the arbitration if the topic is
intended solely to mean physical place. Another
solution would be to expressly clarify the juridical
seat, although this may be expecting too much
precision in language and meaning, and also
smacks of wisdom after the event.
The second point of interest is the end part of the
judgment concerning the circumstances in which
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[AKENHEAD J
JUDGMENT
Mr Justice AKENHEAD:
Introduction
1. There are two applications before the court
relating to the First Award of an arbitrator, Mr John
Uff CBE QC. This award relates to an EPC (Engineering, Procurement and Construction) Contract
dated 4 November 2005 (the EPC Contract)
between the claimant (the Employer) and the
defendant (the Contractor) whereby the Contractor undertook to carry out works in connection with
the provision of 36 wind turbine generators (the
WTGs) at a site some 18 km from Stirling in
Scotland. This award deals with the enforceability
of the clauses of the EPC Contract which provided
for liquidated damages for delay.
2. The claimant applies for leave to appeal
against this award upon a question of law whilst the
defendant seeks in effect a declaration that this
court has no jurisdiction to entertain such an application and for leave to enforce the award.
3. I will deal first with the issue of jurisdiction.
Jurisdiction
4. The issue here arises out of the application of
section 2 of the Arbitration Act 1996:
(1) The provisions of this part apply where the
seat of the arbitration is in England and Wales or
Northern Ireland.
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trator in this first award, as to whether the Contractor was entitled to extensions of time which
would reduce or eliminate any culpable delay.
22. A one-day hearing was held on 5 December
2007 in Edinburgh. The issue to be addressed was
whether:
. . . absent any extension of time under the EPC
Contract, the [Employer] is entitled to withhold
liquidated or other delay damages against sums
otherwise due to the [Contractor] under the EPC
Contract; and whether in consequence the [Contractor] is entitled to an award in respect of the
liquidated damages so withheld. (Para 1.14 of the
award.)
23. The arbitrator analysed the EPC Contract
against the parties contentions and concluded that
for various reasons:
. . . the provisions of Clause 8.7 are not capable
of generating with certainty liquidated damages
flowing from an identified breach by the [Contractor]. Accordingly, in accordance with established authority, Clause 8.7 should not be
enforced.
He then decided that there was no entitlement to
withhold or set off against sums otherwise due to
the Contractor and issued his award in a money
sum, 2,836,840.30 plus VAT and interest.
24. Having seen the papers lodged by the
Employer and initially spent some four hours reading the papers, I formed the view that a short
hearing would be helpful because: (a) I suspected
that there could be a jurisdictional challenge
although I did not anticipate precisely that which
was taken; (b) it was unusual for liquidated damages clauses freely agreed to by the parties to be
regarded as unenforceable; and (c) it was at the
least arguable that the arbitrator, eminent though he
is, was obviously wrong.
25. I am mindful of the requirements of section
69(3) of the Arbitration Act 1996. The court can
only grant leave to appeal an arbitrators award if
the following conditions are met:
(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
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leave. However, any judge of any competence, having come to the view that it is wrong, will often
form the view that the decision is obviously wrong.
It is not necessarily so, however, as a judge may
recognise that his or her view is one reached just on
balance and one with which respectable intellects
might well disagree; in those circumstances, the
decision is wrong but not necessarily obviously
so.
30. I have formed the view, perhaps contrary to
my initial impressions, that the arbitrator was not
obviously wrong. Although my own analysis would
have been different and I might disagree with part
of the arbitrators reasoning, I consider that his
decision was ultimately right. The most convincing
argument advanced by Mr Bartlett QC for the Contractor was that the liquidated damages clause could
well impose a liquidated damages liability on the
Contractor in respect of delays to individual wind
turbines caused by the Wind Turbine Contractor:
A. 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.
B. There was no provision in the contract for
sectional completion of the Works. Thus, until all
36 WTGs were complete and fully connected
into the (Contractors) Works, the Works could
not be completed.
C. However, if overall or critical delay was
caused by the Contractor but individual WTGs
were delayed by the default of the Wind Turbine
Contractor, there was no provision to alleviate
the imposition of liquidated damages on the
Contractor.
D. As each WTG accounted for 2 MW and
each MW accounted for 642 or 385 (depending upon the time of year) by way of liquidated
damages per day of unavailability, the Contractor
could end up paying liquidated damages for
delays caused by the Wind Turbine Contractors
defaults in completing their work on the turbines
even though the parties had agreed that for critical or overall delay the Contractor was not
responsible.
E. Because it was clearly intended that the
Contractor was not as such to be responsible for
the defaults of the Wind Turbine Contractor or at
least those which good coordination by the Contractor would have avoided, the parties nonetheless agreed a liquidated damages clause which
would impose such damages upon the Contractor
in certain foreseeable circumstances.
F. In those circumstances, there is in law a
penalty which English law will not enforce.
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