England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		13 January 2009

Mr Justice Akenhead:

Introduction

1. The Claimants, the Trustees of the Edmond Stern Settlement ("The Stern Trustees"), seek permission to appeal under Section 69 of the Arbitration Act 1996 against an Arbitrator's Award dated 13 October 2008 and to challenge that Award on the basis of alleged serious irregularities under Section 68 of that Act. This is the second time that the Stern Trustees have brought the decisions of the Arbitrator before the Court; HHJ Coulson QC as he then was dismissed applications under Sections 68 and 69 brought by the Stern Trustees in relation to an earlier Award.

The Background

2. The Stern Trustees own 3, West Heath Avenue, London NW11 ("The Property") at which Mr William Stern resides. Mr Stern is the sole trustee and beneficiary of the Trust. In the autumn of 2003, he planned to carry out substantial works of extension and alteration at the Property. He retained a number of professionals, including a Mr Sage (of David Sage Interiors Ltd) and a Mr Rosenfelder, an architect. In October 2003 Mr Sage introduced to Mr Stern Mr Simon Levy (of Simon Levy Associates) a building surveyor and the Defendant to these proceedings. The Stern Trustees engaged Mr Levy's firm to provide various professional services for the proposed works; it was common ground that the contract was contained or evidenced by two letters dated 3 and 5 November 2003 from Mr Levy to Mr Sage.
3. The letter dated 3 November 2003 addressed the question of fees. The "Terms of Business" were to be as defined in the Conditions of Engagement for Building Surveying Services issued by the Royal Institution of Chartered Surveyors. Fees were identified as falling into various categories. Category One was for surveying and reporting services for which either lump sums were due or payment was covered by the percentage fee. Category Two was for "project and contract administration services" which were to "relate to building work to be carried out and are inclusive of preliminary planning, specification, tendering, monitoring of work on site, certification and other contract administration services through to final account and practical completion". "The percentage fee to be charged" was "11% and is to be based on the total value of works that this firm certifies". Stage payments were set out and for Category Two services 65% of the percentage fee was payable before building work started and the balance, 35%, was to be "payable in equal monthly tranches for duration of contracted period". Hourly charges were identified for additional services.
4. Mr Levy embarked upon the provision of services including the preparation of a lengthy Specification of Building Works. By early 2004 it was emerging that there were likely to be at least two contracts for the works, one for the replacement of the windows and the remainder for the other building work. So far as the latter was concerned, a company called Bush Hill Construction ("BHC") was selected as the lowest tenderer. In March 2004, the Stern Trustees retained a Mr Martin Cohen, a quantity surveyor, for cost control purposes. The BHC contract price was £224,149 whilst that for the windows (with a company called "Window Works") was £111,195.54.
5. Over the next few months, the relationship between the Stern Trustees and Mr Levy deteriorated to the point when on the evening of 12 October 2004 during a fractious meeting Mr Stern dispensed with his services. A major part of the issues between the parties related to the level of fees charged. The contract with BHC was taking much longer than had been agreed and Mr Levy sought to charge upon the basis of what he believed was his contractual entitlement, namely for "equal monthly tranches for the duration of the contracted period". Mr Stern took the view, perhaps surprisingly, that charging on this basis was fraudulent.
6. Various invoices were issued by Mr Levy and a claim was put forward for loss of profit by him in relation to the profit lost on the outstanding part of the commission. No agreement having been reached, Mr Levy invoked the arbitration clause in the agreement. Mr James Leckie, a former President of the Chartered Institute of Arbitrators, was appointed as the Arbitrator.
7. Following the exchange of pleadings, Mr Levy's claim was crystallised at some £22,733.97 (including VAT as set out in his invoices dated 7 and 22 October 2004) and £8,563.94 for general damages for wrongful termination. The defences were, broadly, that the termination was lawful, no fees were due for certain items, no or limited fees were due for "PC" items for which it was said that there was little or no work product at termination and no fees were due on items of work which had been postponed to later phases. There were counterclaims.
8. Surprisingly for disputes involving such relatively small sums of money, there was a nine or ten day hearing in April and May 2005. After some delay, the Arbitrator produced his Award No. 1 on 19 February 2007. He rejected the Stern Trustees' counterclaims. He decided that the meaning of the expression "equal monthly tranches for duration of contracted period" related in context to the 22 weeks period agreed with BHC starting on 30 April 2004: "the fees were to be paid in equal monthly tranches over that period" (Paragraph 22). He went on to say:

"If one of the consequences of that might, in the event, mean that all the fees were paid long before the work was completed, then so be it".

He rejected the charge of fraudulent invoicing made by the Stern Trustees. It followed that he found that Mr Stern's termination of Mr Levy's contract was wrongful.

9. So far as quantum was concerned, he deferred consideration of Mr Levy's claim for general damages (Paragraph 23). He accepted that provisional sums in relation to expenditure for work or fittings which were intended to be part of the project should be taken into account in calculating interim fees (Paragraph 24(3)) as should work apparently postponed to Phases 2 or 3, at least in part (Paragraph 24(4)). He made various other findings on quantum but he declined to reach any overall findings on quantum, hoping, vainly as it turned out, that commonsense might prevail and agreement be reached.
10. It was this Award which the Stern Trustees sought to challenge unsuccessfully before the TCC. In May 2007, HHJ Coulson QC held that the Arbitrator was not obviously wrong in deciding what the words "equal monthly tranches for duration of contracted period" meant.
11. Meanwhile, back in February 2006 BHC, having finished their work, apparently presented a draft final account ('the 2006 Final Account'). Whether it was agreed or not is not clear given that any final sum due to BHC pursuant to it was not paid if at all until December 2008 (as I was told by Counsel for the Stern Trustees). Although there may well have been some "coming and going" on the topic, it seems clear that during the hearing in 2005 and up to the time of Award No 1 both parties proceeded upon the basis that fee entitlement was to be based on what was known at the time of the termination of Mr Levy's firm's contract, not on the 2006 Final Account. Certainly there was no pleaded case on either side that the 2006 Final Account should be used in any way as the basis for any calculation of any fee entitlement.
12. Following the disposal by HHJ Coulson QC of the challenge to Award No.1, the Arbitrator ordered on 26 September 2007 as follows:

"1. The [Stern Trustees are] to identify any issues as to quantum by 12^th October 2007.

2. [Mr Levy] is to respond to the Respondent's case on quantum by 26^th October 2007.

3. The Arbitrator is to decide any dispute on a documents-only basis (unless otherwise ordered) with a view to issuing an Award on quantum by 14^th December 2007…"

13. On 11 October 2007, although the Court was not provided with a copy of it, the Stern Trustees' Solicitor served a document headed "Respondent's Assessment of Final fees due to Claimant". It was prepared by Mr Cohen and was based upon the so-called BHC final account and it is clear that it was materially different from the Stern Trustees' pleaded case. It showed a balance due to Mr Levy of £5,762.28 which I was again told by Counsel was not paid until a few days before the hearing in this matter in December 2008. The Stern Trustee's assessment was attached to Mr Cohen's later statement.
14. There then followed an extensive and doubtless expensive exchange of submissions as to the admissibility of this "Assessment" with Mr Levy's legal team taking the point that it was not pleaded and indeed was contrary to what had been pleaded; the new basis was not accepted. The Stern Trustees argued in legal submissions (which due to cut and pasting are repetitive) that during the first hearing Mr Levy and his legal team had accepted in evidence or argument that the final account could or should be looked at for quantum purposes; they argued that it was right and proper that quantum was based upon the final account; reliance was placed on various authorities to which I will return later.
15. The Arbitrator's response to this was what he called Award No.2 on 21 March 2008 in respect of which there is no challenge. He found that the Assessment "amounted to a departure from the respondent's pleaded case in this arbitration" (Paragraph 4) and he refused at that stage to accept the submissions of the Stern Trustees "that the assessment of quantum should be based on this so-called Draft Final Account (Paragraph 5); he found that the Assessment was not a "proper compliance with my directions dated 26^th September 2007, and are not admissible". He left it open to the Stern Trustees to apply for an amendment of their pleadings albeit he indicated a great reluctance to grant such leave.
16. The Stern Trustees were not diverted by this reluctance from applying on 2 May 2008 for leave to amend the Defence (albeit no draft pleading was served), to serve further evidence in respect of the Final Account and for permission to extend time for service of further submissions on quantum. Over the next four months written submissions and indeed witness statements were exchanged with Mr Levy's legal team making the point that "it can only be the estimated final account at the time for determination and not the actual final account concluded without reference to the surveyor at some unidentifiable time in the future long after the surveyor has left site" (Paragraph 30 Claimant's Submissions 9 July 2008); it was highly critical of Mr Cohen's exercise as omitting work which was omitted after Mr Levy was sacked but not allowing increases in the value of work occurring thereafter (Paragraph 11). It was argued in response by the Stern Trustees' team that given the way that the arbitration had been conducted and the "expectation that the Final Account was to be used in the quantum process" its application should be granted.

The Award of 13 October 2008

17. The Arbitrator issued what was his third Award (confusingly also called Award No. 2) on 13 October 2008 ("Third Award"). At Paragraph 1 he made it clear that this Third Award should be read in conjunction with his Awards Nos. 1 and 2. After describing in Paragraphs 2 and 3 what had happened procedurally since the Stern Trustees made their application to amend their Defence, he said at Paragraphs 4 and 5:

"4. The submissions filed on both sides are voluminous and detailed, and refer me to a number of cases, but in the end both sides admitted that there is no case law directly in point, and I must, therefore, apply simple logic to the issues involved. What I must remember here is that in October 2004 the contract between Mr Levy and Mr Stern was, as I have already decided, wrongly terminated by Mr Stern. That gave rise immediately to the right for Mr Levy to claim damages for breach of contract, and that right of action accrued at that point. That claim for damages consisted of two elements, the first being a claim in respect of outstanding fees for work already done under the Contract, and the second being a claim for general damages in respect of the breach of contract, and at all material times the claim was pleaded and conducted on that basis. In my view both of those parts of the claim crystallised at the point of breach, and events, such as the agreeing of a later final account with the builder, could not affect the quantification of those rights. It is true that had the Contract continued to full term, and there had been a final account to which Mr Levy was a party, then under the terms of the Contract there might have been an adjustment of some sort to Mr Levy's final entitlement. But, in the nature of the events which happened, that end result could never take effect, and Mr Levy ceased to be a party to the transaction at the point when his Contract was terminated. I am therefore firmly of the view that the quantification of damages in respect of outstanding fees can only be based on the evidence which was adduced at the original hearing as interpreted by me in my Award No. 1. It follows, therefore, that the outstanding quantum in respect of unpaid fees must be based on the Scott Schedule as amended during the course of the hearing and subject to my deletions of the claim in respect of the cobbles.

5. It should be possible now for the parties to agree those figures without further guidance from me, but, if necessary, I will consider any applications. That then leaves the question of general damages. The Claimant, in Paragraph 10 of the letter of 28 August, 2008, submits that the only evidence which I have heard on this question was the evidence presented at the hearing by Mr Jonathan Russell, a forensic accountant, and the Respondent called no evidence to contradict that evidence, so that, in default of agreement, I ought to base my assessment of quantum on that evidence. If the parties are not able to agree a figure within 28 days of the delivery of this Award, then I will permit the Respondent to make further submissions on the issue of quantum within 28 days thereafter, but, subject to further applications, I am not minded to have an oral hearing on the point."

18. He concluded by saying:

"I therefore award, declare and direct as follows:-

1. Leave for the Respondent to adduce further evidence on quantum is refused.

2. Leave to amend the Defence is refused.

3. Liberty to apply.

4. Costs are reserved."

Applicable Principles

19. Section 69 of the Arbitration Act 1996 makes it clear that there must be a question of law and that other than with the agreement of all the parties an appeal can only be brought on a question of law with the leave of the court. Section 69(3) states as follows:

"(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."

20. I adopt HHJ Coulson QC's summary of the four "ingredients required for a successful application under Section 69" set out in Paragraph 9 of his judgment in the earlier arbitration claim in June 2007:

"(a) The identification of a true question of law, as opposed to complaint about the Arbitrator's findings of fact masquerading as a point of law;

(b) that the Arbitrator was obviously wrong on the relevant point of law or, if it is a point of general or public importance, that the Arbitrator's decision was at least open to serious doubt;

(c) that the point of law substantially affects the rights of the parties in the arbitration (see The Northern Pioneer [2003] 1 Lloyd's Rep 212);

(d) that it is just and proper for the court to determine the point of law (see Kershaw Mechanical Services Ltd v Kendrick Construction Ltd [2006] EWHC 727 (TCC))."

21. So far as the Section 68 challenge is concerned, the relevant parts of Section 68 are as follows:

"(1) A party to arbitral proceedings may … apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award. …

(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant –

(a) failure by the tribunal to comply with section 33 (general duty of tribunal) …"

22. Section 33 of the 1996 Arbitration Act so far as is material requires the Arbitrator to:

"(a) act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent …"

23. It is therefore necessary for any successful application under Section 68 to establish that there was a failure by the Arbitrator to act fairly and to give each party an opportunity to present its case and that there was and has been substantial injustice as a result of any such failure. The case of Egmatra AG v Marco Trading Corporation [1991] 1 Lloyd's Rep 862 supports the proposition that in relative terms an extreme case must be established that "the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected".

The Section 69 Application

24. The first issue to consider is whether or not there is a question of law at all. In effect, the Stern Trustees through its Counsel asserted that the question of law decided by the Arbitrator in the Third Award is that summarised in paragraph 4 thereof:

"Both of those parts of the claim crystallised at the point of breach, and events, such as the agreeing of a later final account with the builder, could not affect the quantification of those rights."

Mr Levy's Counsel argued that there was no question of law decided. In effect all that the Arbitrator was doing was ruling upon a late application to amend which he refused. It was a procedural and discretionary decision which does not as such, she argued, give rise to a question of law.

25. In my judgment, there clearly was a question of law decided by the Arbitrator. The reason (it is wholly clear) upon which the Arbitrator based his decision refusing the Stern Trustees' applications to adduce further evidence on quantum and to amend the Defence was that as a matter of law the agreeing of the later final account with the builder "could not affect the quantification" of Mr Levy's twin claims for outstanding fees and his claim for general damages in respect of the wrongful repudiation of his Contract. This was in effect the Arbitrator's justification for the refusal of the Stern Trustees' application. It was the case that over the preceding four months the parties had amongst other things been exchanging written submissions as to whether or not as a matter of law it was necessary or desirable for the parties to refer to the later final account. The fact that the decision is contained in an Award as opposed to a procedural direction suggests that the Arbitrator intended it to have decisive effect.
26. In the ordinary course of events an application for permission to appeal on a question of law would be dealt with summarily and in writing with only brief reasons given as to why permission to appeal was being refused (or even allowed). I am satisfied that permission to appeal on this question of law should not be given. I am not satisfied that the Arbitrator was obviously wrong on this question of law. Mr Levy's right to payment or cause or right of action for outstanding fees and indeed for damages for wrongful repudiation necessarily crystallised as at the date of termination in October 2004; at that point he could issue proceedings in respect of such claims. So far as outstanding fees are concerned there is a strong case that that was to be determined as at the date of termination. Thus the Arbitrator's view that one could not and should not have regard to the events which happened involving different consultants (other than Mr Levy) over the next two years is eminently supportable. Put another way, if Mr Levy had issued proceedings on the day of the wrongful termination and a decision was reached in 2004 it would necessarily have had to have been based on the information then available. It would not have been open to the Stern Trustees to argue that in some way the entitlement should await the conclusion of the final account negotiation some months or years later. The claim for damages for repudiation, that is the loss of profit on the outstanding value of services yet to be performed, again would or could well fall to be determined by reference simply to the sum calculable as at that stage for the services outstanding at that stage.
27. The Stern Trustees argue however that the point is one of general or public importance so that it is not necessary for them to establish that the Arbitrator was obviously wrong but, merely, that his decision was "at least open to serious doubt". I do not consider that this is a point of general or public importance. This was a one off contract albeit incorporating various RICS conditions: the Contract was contained in the November 2003 letters referred to above with specific wording agreed which is not in itself particularly standard. Although various authorities have been referred to, Alexander Corfield v David Grant (1992) 59 BLR 102 and Edwin Hill and Partners v Leakcliffe Properties Ltd and Another (1994) 29 BLR 47, those authorities, on their face are simply decisions on their own facts. The issue of whether or not a percentage fee payable on repudiation to a professional is to be based on the contract value as estimated at the time of termination or on the basis of the final account as it ultimately turns out to be will depend upon its own facts and the relevant contract in question.
28. Even if it was a point of general or public importance, I do not consider, for the reasons indicated above, that the Arbitrator's decision was open to serious doubt.
29. Furthermore, I remain wholly unconvinced that it is just and proper for this Court to determine this point of law. Mr Levy has clearly incurred about £200,000 in pursuing this arbitration already. The Stern Trustees seem hell bent on taking almost every point and to avail themselves of every procedure to challenge Mr Levy's claims and the decisions of the Arbitrator, irrespective of cost and resources. Given the weakness of the challenge before this Court and the waste of time, cost and resource in pursuing the point in the context of an overall arbitration claim of very modest proportions, I am satisfied that it is not just and proper for the Court to determine this question of law in any event.

Serious irregularity

30. If, as I have found, there can be no appeal on the question of law decided by the Arbitrator, it is difficult to see that the Arbitrator has been guilty of any irregularity in determining that the Stern Trustees should not have leave to amend their existing pleadings so as to plead a case by reference to the eventual final account or to adduce evidence to support an unpleaded defence. The Arbitrator has decided that as a matter of law Mr Levy's financial entitlement is to be determined by reference to the existing pleadings and by reference in effect to the information available at the time of termination. The Arbitrator has decided in Paragraph 4 of the Third Award that:

"… the quantification of damages in respect of outstanding fees can only be based on the evidence which was adduced at the original hearing as interpreted by me in my Award No. 1."

31. If the Arbitrator is right on the question of law, it would not be admissible or relevant for the Stern Trustees to put forward a case on quantum which has not been and cannot be pleaded as a matter of law or to adduce evidence to support a case which has not been so pleaded. I am not satisfied furthermore that there has been any substantial injustice in this sense, that, if this arbitration had proceeded with the expedition which might reasonably have been expected in relation to a modest claim of about £30,000, the whole arbitration would have been resolved well before the final account. The main cause of this delay has been that the Stern Trustees have taken a substantial number of points both before the Arbitrator and before this Court which have failed. Furthermore the pleaded case of the Stern Trustees was and indeed remains one which was based on the estimated as opposed to what is said to be the actual eventual final account.
32. There has simply not been made out on the evidence put before this Court that both parties and the Arbitrator were at all material times proceeding upon the basis that regard would be had to the eventual final account. The basis now proposed is contrary to what was said on behalf of the Stern Trustees and indeed Mr Levy's legal team in the period leading up to Award No. 1 and indeed thereafter. There was no mutual expectation that the final account would be considered. Given that that draft final account was produced in February 2006 by Mr Cohen but was not produced to Mr Levy and his team until October 2007 and given that until that time the Stern Trustees were proceeding upon the basis of their pleaded case which was based on an estimated final account as opposed to the actual final account there is no substance in this point.

Decision

33. The applications by the Stern Trustees under Sections 69 and 68 of the Arbitration Act 1996 are dismissed. I made it clear at the hearing that the Stern Trustees should pay Mr Levy's costs of and occasioned by this Claim which I summarily assessed at £9,265.00. This represented the full amount claimed by Mr Levy as the rates and the number of hours claimed seemed eminently reasonable as did counsel's fees. The Stern Trustees should pay those costs within 14 days.