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
		10th December 2010

 


Mr Justice Akenhead:

Introduction

1. These claims raise interesting issues about the point or stage at which an arbitrator becomes functus officio or ceases to have jurisdiction and the extent, ambit or scope of a settlement of an arbitration.

The Background

2. Treasure and Son Ltd ("Treasure") was a main contractor engaged by Martin Dawes to carry out extensive construction works at Mr Dawes' country estate, Dinmore Manor, Hereford pursuant to a building contract made in 2000 which incorporated the JCT Standard Form of Prime Cost Contract (1998 Edition with Amendments 1 and 2). A Mr Bertram was the named Architect. Being a Prime Cost contract, Treasure was entitled to payment on a cost plus percentage mark up basis. There seems to be little doubt that the original contract was expanded to cover other works on the estate and, I was told in an earlier adjudication enforcement case [2007] EWHC 2420 (TCC), that over £15 million was claimed by Treasure against an original estimated Prime Cost of some £3.5 million.
3. There came a time, although it is unclear to me why, that the parties fell out with each other and, so it was, Treasure secured an initial adjudication decision in its favour in August 2007 to the effect that Mr Dawes was to pay to Treasure £1,018,821.12 plus VAT. That decision was not honoured with the consequence that Treasure successfully secured from the Court enforcement of that decision, as above, with the Court giving judgement on 25 October 2007. There followed what Mr Justice Coulson characterised as "an extremely unusual dispute", which related to whether payment in relation to the judgement had been made in circumstances in which the money was paid by Mr Dawes' daughter; the judgement was reported at [2008] EWHC 2181 (TCC).
4. Before the first set of court proceedings, Treasure served on 6 July 2007 a Notice to Refer to Arbitration under the arbitration clause in the building contract. Mr Ian Salisbury was appointed as arbitrator. The dispute was expressed to arise from Mr Dawes' alleged failures to pay sums due under the building contract as well as for Mr Dawes' alleged breaches of contract. At this stage, the dispute relating to the repayment of the sum which was to be the subject matter of the adjudicator's decision had not been referred to arbitration and obviously had not been paid; indeed it was not paid out until after the enforcement in court, in November 2007.

The Course of the Arbitration up to the Settlement

5. A Statement of Case and Defence were served. The original Defence is headed "Defence and Cross Claim", dated 17 December 2007 and settled by Counsel. By this stage, the adjudication sum had been paid by or on behalf of Mr Dawes. The Defence referred to the assertion that "the quality of Treasure's work is part of Mr Dawes' Defence and Cross Claim in these proceedings"; the Cross Claim claimed the sums paid to Treasure in the earlier adjudication.
6. On 11 June 2008, the arbitrator ordered Treasure to serve an amended Statement of Claim by 18 June 2008 and Mr Dawes to re-serve an "amended statement of defence and amended counterclaim by…25 June 2008, with any alleged defects particularised." The Amended Statement of Case runs to 69 pages and 304 paragraphs. Paragraph 31 referred to various Certificates of Making Good Defects issued by the Architect. Paragraph 297 identified claims for the following sums:

	Item	Value
1	The £75,000.00 in respect of the Electrical Installation for the Main House	£75,000.00
2	The £18,748.12 in respect of the Site Services	£18,748.12
3	Retention on the Site Services and the Music School	£191,321.20
4	Prime cost not yet claimed	£145,085.05
5	Overheads	£634,360.74
6	Cost of the claim	£58,455.00
7	Management costs including the management costs in relation to VAT	£60,195.60
8	Insurance fee in respect of the Main House	£949.20
9	Garden antiques fee in respect of the Landscaping	£1,883.32
10	Estate services fee	£5,239.88
11	Contract fee on all items apart from item 3	£99,991.69
	Total	£1,291,229.80

7. The total amounts claimed were set out in Paragraph 303:

Item	Amount	Alternative amount
Claimed items from above	£1,291,229.80	£1,291,229.80
Alternative case - addition of profits		£162,256.90
Interest	£148,400.00	£167,348.41
VAT	£238,810.22	£270,521.14
GRAND TOTALS	£1,678,440.02	£1,891,356.25

8. Mr Dawes served his Amended Defence and Amended Cross Claim on 25 June 2008. Relevant paragraphs are as follows:

"2. By way of brief overview Mr Dawes contends that the Adjudicator's Award was wrong and has overcompensated Treasure by up to £869,195 which sum Mr Dawes seeks to be paid back to him by Treasure by way of Defence and/or Cross Claim in these proceedings together with the interest on the sums Mr Dawes is repaid and appropriate cost award [sic].

3. In addition Mr Dawes does not accept that the works are complete and/or had been properly constructed by Treasure. The quality of Treasure's work is part of Mr Dawes' Defence and Cross Claim in these proceedings [this of course is subject to discussion and further information].

16…the certificates of making good defects should not have been issued by the Architect since the day they were issued defects existed in the works carried out by Treasure. Mr Dawes does not know why certificates of making good defects were issued by the Architect but would invite the Arbitrator to rule in due course that the certificates were improperly and invalidly issued. Annexed hereto are Schedules of the defects which still exist in Treasure's work. These Schedules are served pursuant to the Arbitrator's directions order…

21…Treasure is put to strict proof that the work instructed by the Architect is apparently to be valued as an architect's instruction because it is Mr Dawes' case that the work instructed by the Architect post practical completion is work of remedying defects in Treasure's work or competing Treasure's incomplete works…Insofar as the Arbitrator finds that works instructed by the Architect are works of remedying Treasure's defective work or completing Treasure's incomplete work then Mr Dawes invites the Arbitrator to declare that those works are not to be the subject of any further payments by Mr Dawes…the agreement contended for by Treasure…does not allow Treasure to be paid for remedying their own defects or completing their own incomplete work.

42… neither the certificates of practical completion nor the certificate of making good defects should have been issued by the Architect. In the premises therefore no retention is due to Treasure and the entire sum of £191,321.20 is not due to Treasure from Mr Dawes and in so far as it has already been paid to Treasure it falls to be repaid. In particular the reason and basis for the issue of the certificate of making good defects is wholly unknown to Mr Dawes not least because as at the date of issue of the same numerous defects remained at the premises and were being attended to by Treasure, as particularised in the Schedules annexed hereto…

AMENDED CROSS CLAIM

68 The contents of the Amended Defence hereinabove are repeated.

69 Mr Dawes reclaims the sums paid to Treasure in the Adjudication, namely:

the Prime Costs Not Yet Claimed sum of £127,612.57

overheads in the sum of £634,360.74

management costs in the sum of £12,695.60

contract fee of 76,197.33

any VAT overpaid

the interests of £78,327.92

Total £869,195 plus VAT

In the alternative the Learned Arbitrator is invited to decide the amount over-awarded to Treasure by the Adjudicator and to award the same by way of repayment to Mr Dawes, and/or to determine the sums properly due to Treasure in this arbitration and to so declare."

9. Two Schedules were attached one of which listed 41 "Faults" and the second with 18 "Defects" listed. The first schedule had six columns, the first with numbers and the others headed "Description of Seen Fault", "Location", "Appraisal", "Remedy" and "Response". All bar the final column (which was blank) contains more or less detailed descriptions. The second schedule contained columns headed "Description of Defects", "Reason for Appraisal as defect", "Location of Defect", "Effect of Defects and Works Required to Rectify" and "Contractors Liability". Again all bar the last column (also left blank) contain often detailed pleadings. No sums were actually identified as being cross-claimed. An example is a complaint in the latter schedule that there was an "inability to generate hot water in summer without running the "commercial" boilerhouse and incurring the large standing losses and subsequent running costs"; the design was said to "encourage legionella build-up, excessive running and maintenance costs" and the fourth column identified a solution being "to provide a dedicated hot water system sized to provide adequate hot water for the two people who live in the property, to the areas used by them on a daily basis."
10. Then there was a site visit in July 2008 upon which the arbitrator was taken round the property by Mr Dawes and a large number of the defects were brought to the attention of the arbitrator and discussed at length.
11. Perhaps unsurprisingly, Treasure on a "without prejudice save as to costs" basis sought to settle the case. On the 25 July 2008, its consultants wrote to Mr Dawes's then solicitors as follows:

"…For the avoidance of doubt, all offers previously made are now withdrawn.

The present Arbitration divides into 2 parts. The first part is the claims made by Treasure in the amended Statement of Case and the Respondent's claim for defects. The second part is the Respondent's reclaim for money. An offer in relation to the first part is set out below. No offer is made in relation to the second part, but Treasure accept that an overall account will need to be taken when the position in relation to previous payments by Hayley Dawes is taken into account…

The offer in relation to the claims made in the amended Statement of Case and the defects is set out below:

1. The amount claimed in the amended Statement of Case was £1,678,444.02 with am alternate amount claimed of £1,891,256.25. Treasure will deduct the £800,000 which Mr Dawes is seeking from the lower of these two figures and waive the £162,256.90 extra from the additional claim. The net amount to go forward for the overall reckoning is, therefore, £878,444.02. From this figure nothing is to be deducted in relation to defects but the Respondent's claim to defects is settled at the same time…"

12. That offer was ignored and certainly not accepted by Mr Dawes. Treasure's consultants wrote a further letter on 15 October 2008:

"It is very disappointing that you have not even acknowledged the letters we have written to you in relation to offers. Our client is keen to settle the dispute…The offers made by our client have not been met with any reciprocal offers from your client or any productive way forward.

To demonstrate our client's genuine attempt to resolve all the issues, our client is prepared to make a further and final offer which is time-limited. This offer does not reflect, in any way whatsoever, the underlying merits of our client's position-it just reflects a desire to move forward.

This offer is a Calderbank offer and is to be read by analogy with a Claimant's Part 36 offer under the CPR and to have the same consequences.

The Claimant will settle all of the claims and counter claims in the Arbitration for the sum of £400,000 plus VAT. A payment has been made for and on behalf of the Respondent in the sum of £1,018,000, net of VAT and net of the Adjudicator's fees (which the Court ordered to be borne by your client in any event). If this offer is accepted, it will involve a payment by the Claimant to the Respondent of £618,000 together with such VAT as is applicable.

1. The proper amount of VAT shall be determined by HMRC…

2. The sum in paragraph 1 includes all claims for interest to a date which is 28 days from the date of this offer.

3. To avoid any arguments about the meaning of this offer, both liability for and quantum of costs up to date which is 28 days from the date of this offer, shall be determined by the Arbitrator. Similarly, the Arbitrator shall determine the liability for his fees and expenses up to date which is 28 days from the date of this offer.

4. This offer is open for a period of 28 days from date of this offer on the terms in this letter provided it has not previously been rejected, superseded or replaced. Thereafter it may not be accepted…"

13. There was a short reply from Mr Dawes' solicitors and 28 days later on 12 November 2008:

"We refer to your offer dated 15^th October 2008.

We confirm that it is accepted.

We would suggest that a consent order to be prepared by you confirming the terms of the settlement.

We would suggest that the order confirms the payment of £618,000 in 14 days as we see no reason for the payment of that principal sum to be delayed while the consideration on VAT and costs are on going."

14. There is no dispute between the parties that there has been a binding settlement agreement between the parties.

Events after the Settlement

15. Neither the parties nor the arbitrator drew up any order or award reflecting the terms of the settlement. On 5 December 2008 Treasure applied for its costs; the response was a cross application on 23 December 2008 by Mr Dawes for his costs to which Treasure responded on 8 January 2009. The Arbitrator issued his Award ("1^st Costs Award") on 13 February 2009 and in effect dealt with who should pay the costs. He decided that in effect Treasure was the successful party and declared that Mr Dawes should pay 80% of Treasure's costs and all of his fees and expenses. Mr Dawes sought to challenge that award in Court but his appeal was dismissed by HHJ Davies in Manchester on 22 June 2009.
16. On 17 June 2009, Mr Dawes issued his own Notice of Arbitration. He proposed as arbitrator the respected former TCC judge His Honour David Gilliland QC. The dispute was said to relate to Treasure's "failure to carry out its work under the contract in accordance with [its] contractual obligations, properly and/or at all, so that substantial remedial works are required to the same at substantial expense to Mr Dawes…" This led to an exchange of correspondence which resulted in Mr Salisbury writing to the parties on 14 August 2009 about "current business", which related to the outstanding costs issues, and the "other dispute", which was Mr Dawes' claim for defects:

"Concerning current business, I think there is nothing for me to do until I return to the office later this month. Concerning "the other dispute", I have expressed my willingness to continue as appointed, also assuring the parties that I would be prepared to resign if the parties agreed to it. But the effect of the arbitration agreement between the parties is clear: until such time as I am invited to take steps in this matter I may do nothing; but I am the appointed arbitrator and shall remain so unless my authority is revoked, or I am removed by the court, or I resign, or I die".

17. Earlier on 6 July 2009 Mr Salisbury had issued a 2^nd Costs Award which decided that Mr Dawes was to pay Treasure's costs in connection with the earlier costs hearing. The parties then settled costs as between themselves for £47,091.06. On 17 September 2009, the Arbitrator issued his 3^rd Costs Award saying that his fees should be paid by Mr Dawes. On 9 March 2010 he issued his 4^th Costs Award which ordered Mr Dawes to pay his fees as set out in two fee notes. His 5^th Costs Award was issued ordering Mr Dawes to pay a further sum of £3440.84 costs to Treasure.
18. On 17 February 2010, Mr Dawes' new solicitors responded to the arbitrator's letter of 14 August 2009, stating that he had not been appointed "exclusively to any and all disputes emanating from the contract". He responded on 1 March 2010 suggesting that he continued to have jurisdiction, at least partly by operation of the arbitration rules adopted by the parties (the CIMAR Rules), and implied at least that a further notice of arbitration might need to be served.
19. On 2 March 2010, Treasure served a document entitled "Notice of Arbitration No 2" which referred to Mr Salisbury a dispute in relation to Mr Dawes' "ongoing allegations in relation to the Defects and Treasure's assertion that the Defects pleaded previously in this Arbitration had been compromised by the Settlement between the parties." Following the exchange of submissions as to whether Mr Salisbury had jurisdiction with regard to these matters, Mr Salisbury issued on 21 May 2010 his "Ruling under Section 30" of the Arbitration Act 1996 in which he ruled that he did have jurisdiction and that he was not functus officio in relation to this dispute.
20. On 9 June 2010, Mr Dawes issued his first Claim in this Court challenging this Ruling. Following the issue by Mr Salisbury of his "Award on the Terms of the Settlement" on 30 September 2010 (by which he decided that the settlement covered all defects raised in the arbitration), Mr Dawes issued his second Claim appealing against it.

The Contract and the CIMAR Rules

21. Article 9A of the building contract states:

"…if any dispute or difference as to any matter or thing of whatsoever nature arising under this Contract or in connection therewith…it shall be referred to arbitration in accordance with clause 9B and the JCT 1998 edition of the Construction Industry Model Arbitration Rules (CIMAR)"

22. Clause 9B in the Conditions of Contract materially states:

"9B.1 .1 Where pursuant to article 9A either Party requires a dispute or difference to be referred to arbitration then that Party shall serve on the other Party a notice of arbitration to such effect in accordance with [CIMAR] Rule 2.3… and an arbitrator shall be an individual agreed by the parties or appointed by the person named in the Appendix in accordance with Rule 2.3…

.3 After an arbitrator has been appointed either Party may give a further notice of arbitration to the other Party and to the Arbitrator referring any other dispute which falls under article 9A to be decided in the arbitral proceedings and Rule 3.3 shall apply thereto."

23. The CIMAR Rules are by Rule 1.1 "to be read consistently with the Arbitration Act 1996". Relevant rules are:

"3.3 After an arbitrator has been appointed, either party may give a further notice of arbitration to the other and to the arbitrator referring any other dispute which falls under the same arbitration agreement to those arbitral proceedings. If the other party does not consent to the other dispute being so referred, the arbitrator may, as he considers appropriate, order either:

(i) that the other dispute should be referred to and consolidated with the same arbitral proceedings, or

(ii) that the other dispute should not be so referred…

3.5 In relation to a notice of arbitration in respect of any other dispute under Rules 3.2 or 3.3, the arbitrator is empowered to:

(i) decide any matter which may be a condition precedent to bringing the other dispute before the arbitrator;

(ii) abrogate any condition precedent to the bringing of arbitral proceedings in respect of the other dispute…

3.11 Where an arbitrator has ordered concurrent hearings or consolidation under the foregoing rules he may at any time revoke any orders so made and may give further orders or directions as are appropriate to have a separate hearing and determination of the matters in issue…

14.4 The parties shall promptly inform the arbitrator of any settlement. Section 51 (Settlement) then applies."

24. Section 51 of the Arbitration Act referred to in Rule 14.4 states:

"(1) If during arbitral proceedings the parties settle a dispute, the following provisions apply unless otherwise agreed by the parties.

(2) The tribunal shall terminate the substantive proceedings and, if so requested by the parties and not objected to by the tribunal, shall record the settlement in the form of an agreed award…

(5) Unless the parties have also settled the matter of the payment of the costs of the arbitration, the provisions of this Part relating to costs (sections 59 to 65) continue to apply."

The Issues

25. The issues between the parties can be summarised as follows:

(a) Did Mr Salisbury become functus officio, apart from issues relating to costs, either immediately upon or shortly after the settlement between the parties or at least after the 1^st Costs Award?

(b) If he retained jurisdiction, was he right to find that the settlement effectively compromised amongst other things all claims for defects raised in the arbitration proceedings?

The Law

26. The efforts of experienced Counsel have failed to locate much of relevance by way of authority as to when and how an arbitrator becomes functus officio. This may not be altogether surprising because arbitrations and arbitration appointments vary and in almost every case, once the arbitration is over, the parties are usually delighted not to have to revert back to the arbitrator for any reason. Merkin's Arbitration Law (2009) at Paragraph 11.7 provides some general light on the topic:

"Once a valid appointment has been made, it continues until such time as a final award on all issues, including costs is made, at which point the arbitrators cease to have any jurisdiction. The mere fact that the parties settle their dispute before the award has been made does not of itself discharge the appointment of the arbitrators. Thus, if one of the parties breaks the settlement agreement, the other party may request the arbitrators to proceed to an award without seeking their reappointment [Itex shipping Pte Ltd v China Ocean Shipping Co, The Jing Hong Hai [1989] 2 LL Rep 522 is quoted]. It has long been the practice for any settlement reached by the parties to be incorporated into a consent award to avoid problems of this type, and that practice has been given statutory recognition by s 51 of the Arbitration Act 1996."

27. The expression "functus officio" is not a term of art but in the context of arbitration it describes or implies the point at which an arbitrator has exhausted or concluded all that he or she had jurisdiction to deal with. The Arbitration Act 1996 does not provide much assistance in determining the point at which the arbitrator ceases to have any jurisdiction. Obviously, the final and last award in any given arbitration will usually signal the point when it occurs, although it can be revived if an award is remitted to the arbitrator. Even Section 51 talks about termination of the substantive proceedings by the arbitrator or, if requested by the parties, the production of a consent award but the Section envisages that the arbitrator retained jurisdiction at the very least to deal with costs. Of course, the publication of a final consent award would usually bring to an end the jurisdiction of the arbitrator.
28. There are some helpful comments in two further books:

(a) Paragraph 6-024 of Russell on Arbitration (23rd Edition) says:

"Power to make an agreed award. Many cases settle before reaching the stage of the final award. Where the parties settle their dispute in the course of the arbitration, s.51 of the Arbitration Act 1996 enables the tribunal to issue an award recording the terms agreed. Section 51 is an "opt out" provision so it applies unless the parties have agreed that it should not. The section apparently does not apply where the parties settle part only of their dispute…"

(b) Foskett's The Law and Practice of Compromise (7th edition) states at Paragraph 32-04 in dealing with settlement in arbitration:

"It has been suggested [in Russell] that s.51 does not apply where the parties do not settle the whole of the dispute. Notwithstanding that suggestion, a tribunal may embody a settlement of part only of a reference in an award relating to that part under s.47 of the 1996 Act."

29. The following conclusions can be drawn from the law and practice relating to arbitrations in relation to the point at which an arbitrator may become functus officio:

(a) Primarily, as arbitration is, usually, a consensual process, one must look to the contract between the parties pursuant to which the arbitrator has been appointed to determine what the parties have agreed, expressly or by implication, about when an arbitrator's jurisdiction becomes exhausted.

(b) The settlement of a dispute after it has been referred to arbitration but before any final award does not generally, and certainly does not necessarily, bring to an end to the jurisdiction. Section 51 suggests that even if the dispute is settled there remains a jurisdiction to terminate the substantive proceedings and to resolve issues of costs or indeed any other matters remaining in dispute at that time. That jurisdiction is not expressed to be statutorily limited.

Discussion on Jurisdiction

30. Properly, there is no issue that there was a binding settlement agreement between the parties contained in or evidenced by the letters of 15 October and 12 November 2008; even though the scope of that settlement agreement is in issue, it is accepted that the parties had not agreed questions of costs which they wished to leave to the arbitrator to resolve. It is equally clear that the parties did not ask the arbitrator to "terminate the substantive proceedings" or to record the settlement in a consent award.
31. The argument therefore revolves around whether Mr Salisbury retained any jurisdiction other than in relation to costs. This argument therefore assumes that he was functus officio in relation to all issues of liability and quantum and could only deal with costs.
32. I have formed the view, for the following reasons, that Mr Salisbury had and retained unqualified jurisdiction after the settlement:

(a) Mr Salisbury would undoubtedly still have retained jurisdiction if there had been an issue between the parties as to whether there was any settlement at all. He would still have been the arbitrator to resolve the underlying disputes which would include ruling upon a defence that the claim had been settled.

(b) Unless and to the extent that the terms of the settlement itself or of the building contract (in this case) were such as to preclude or limit his jurisdiction, there should be no limitation on his jurisdiction.

(c) Section 51(2) of the Arbitration Act primarily envisages a final settlement of the whole dispute. That is why it talks about the arbitrator terminating the substantive proceedings or the production of a consent award. There is no room for an implication, at the very least in this case, that the arbitrator's jurisdiction ceases save simply and only to deal with costs. Obviously, to the extent that the parties' dispute has in fact and in law been settled, the arbitrator can not go behind that.

(d) The parties did not proceed as if the arbitrator had no jurisdiction after the settlement. Of course, it is true that the parties accepted that he still only had costs to deal with but clearly they proceeded on the basis that he had jurisdiction at the very least to do that. They did not think it necessary to agree a consent award or to invite the arbitrator to do anything formal to "terminate the substantive proceedings". In my view, he retained a full jurisdiction and will continue to do so until he produces his final award on costs or until his final award (of whatever sort) is issued.

(e) In this case, the CIMAR Rules, agreed by the parties, expressly give a party a right "after an arbitrator has been appointed" to refer another dispute to the same arbitrator and he has the right in effect to consolidate it with the existing arbitral proceedings. That is what in practice the arbitrator did in relation to the issue as to whether Mr Dawes's defects claim was effectively encompassed by the settlement. Treasure's Notice of Arbitration No 2, issued on 2 March 2010, successfully sought to do that.

(f) By incorporating the CIMAR Rules and by having regard to Clause 9B.1.3 of the Conditions of Contract, the parties were not expressly or by implication limiting the arbitrator from dealing with or preventing a party from referring another dispute. There is no time related restriction or term in those Rules which would prevent the arbitrator from dealing with such further dispute within jurisdiction. The only conceivable restriction would be if all facets of the dispute including costs and interest had been resolved then it would be the case that the arbitrator would have ceased to have jurisdiction. That is not the present case because he retained the jurisdictional obligation at least on dealing with costs.

(g) It is suggested that, by issuing the 1^st Costs Award, the arbitrator put himself in a position whereby he accepted in effect that he had terminated the substantive proceedings because he had moved on to deal with, as it is argued, the only remaining issue which was costs. That is a fallacious point, in my judgement, because the jurisdiction, which he retained, was complete and full save and in so far as it had been circumscribed or effectively removed by the settlement agreement.

33. I therefore conclude that Mr Salisbury had jurisdiction to consider and decide whether or not the settlement encompassed the defects claim which Mr Dawes wishes to pursue.

Discussion on the Settlement Agreement

34. Superficially, the issue is or should be a simple one, involving the construction and interpretation of the two letters which contain the settlement agreement. It is complicated, somewhat, however, by the pleadings between the parties in the arbitration. Mr Dawes, through Mr Marrin QC, argues that, because he was not at that stage specifically counter-claiming for damages for defects and because he was only setting up the defects as a defence, albeit a significant defence, to the claims being made against him by Treasure, the settlement can not have encompassed his entitlement to pursue a damages claim for the cost of and occasioned by putting right the defects which he says are the contractual fault of Treasure. He refers to proceedings issued against him by Mr Bertram, the Architect, in which he has raised as a counterclaim a claim for defects, many but not all of which were those raised in the arbitration with Treasure; his complaints against Mr Bertram include allegations of careless supervision of Treasure. His solicitor, Ms Kraja, exhibits the 55 page Scott Schedule in those proceedings. She, candidly, reveals that at the time of the settlement his experts were finalising their views on the defects and had not yet quantified the cost of remedying the same; she confirms that, at least as far as mechanical and electrical works were concerned, the Schedules in the arbitration reflected the views of his then expert.
35. I have formed a very clear view that the parties settled not only the money claims but also the claims for defects. My reasons are as follows:

(a) The settlement is contained in the letters of 15 October and 12 November 2008. The factual matrix is to be found mainly within the pleadings which had been exchanged in the arbitration in the period leading up to the settlement.

(b) A useful place to start is to consider what the jurisdiction of the arbitrator was at the time of the settlement in relation to defects. It would have been impossible, jurisdictionally, for him to have refused an amendment to the Cross Claim to add the extra over costs to be claimed for the defects specifically pleaded in Mr Dawes's Schedules.

(c) In any event, Mr Salisbury was clearly required to decide if and the extent to which the matters pleaded in these Schedules were culpable defects on the part of Treasure. That would have involved a finding that the defects involved or did not involve breaches of contract on the part of Treasure and what work was required to put them right. Those are key elements of Mr Dawes' Cross Claim and indeed his Defence. The arbitrator would also have been required to determine what remedial works were required to put right any defects which were the fault or responsibility of Treasure.

(d) Although the numerous defects put forward by Mr Dawes were deployed to support various defences to Treasure's claims, they were undoubtedly also expressly deployed as "Cross Claims" to secure a repayment of sums said to have been overpaid as a result of the adjudicator's decision. He expressly pleaded in Paragraph 3 of the Defence that the "quality of Treasure's work is part of Mr Dawes' Defence and Cross Claim", he annexed Schedules of "the defects which still exist in Treasure's work" (Paragraph 16 of the Defence), and by Paragraph 68 of the Amended Cross Claim expressly repeated the contents of the Amended Defence.

(e) Mr Dawes was therefore in any event making claims in respect of the defects. He was undoubtedly seeking some financial recompense by reason of the fact that there remained, as he alleged, culpable defects in Treasure's work. He was seeking to cover himself fully in his pleading. The alternative claims in Paragraph 69 ("In the alternative the Learned Arbitrator is invited to decide the amount over-awarded to Treasure by the Adjudicator and to award the same by way of repayment to Mr Dawes, and/or to determine the sums properly due to Treasure in this arbitration and to so declare") clearly invite the arbitrator in effect, possibly amongst other things, to find that defects existed and take them into account in deciding or determining what sum was due to Treasure.

(f) Much of the Defence in so far as it raises defects does not refer to the defects as such in the Schedules because the Schedules are said to relate to defects which remained as at the date of the Amended Defence and Cross Claim. Much of the defence seeks to challenge various claims upon the basis that Treasure should not be paid for various works which involved putting right defects. An example is Paragraph 21 set out above. It is true that at least one defence, relating to retention not being due because defects were not put right, did relate to the scheduled defects. However the Schedules were not, and certainly not obviously, only deployed for defensive purposes.

(g) I put to Mr Marrin QC in argument the proposition that, if Mr Dawes had expressly raised a specific defence of abatement by reason of defects, he would not be enabled later in separate proceedings, arbitration or court, to pursue a separate claim for damages for such defects. He was, properly, minded to accept that proposition, albeit that he argued that that was not this case. I do not accept that in practice that there is much difference. The reality is that the only real reason that there were no remedial works costings against the defects was, as is now clear, that Mr Dawes's expert had not completed the exercise.

(h) It is argued that, apart from the absence of costings, a number of the "Faults" or "Defects" do not contain explanations as to why, it was alleged, Treasure was at fault. However, they were all (in Paragraph 16 of the Defence) said to be defects "in Treasure's work". Many generic complaints were in any event made, for instance Defect No. 12 ("Door magnets out of alignment") or Fault No. 13 ("Defective render panel to north side entry porch…"). The fact that on their face a number of the defects appear, at least superficially, to be design complaints, which would not obviously or necessarily be the responsibility of a contractor which did not undertake the design obligation is immaterial because Mr Dawes, rightly or wrongly was seeking to attribute blame for them against Treasure.

(i) Mr Hughes QC argued that his client's consultants' earlier offer letter of 25 July 2008 (not accepted by Mr Dawes) provided some material factual background because it demonstrated that Treasure regarded the pleaded position of Mr Dawes as involving a "claim for defects" and the offer expressly was amongst other things to settle his "claim for defects". It is difficult to see how this could be relevant factual background in that specific way because the offer was not accepted. In the light of my findings, it is not material in any event.

(j) The essential part of the offer to settle in Treasure's consultants' letter dated 15 October 2008 is: "The Claimant will settle all of the claims and counterclaims in the Arbitration…" In context, an important part of the counterclaim was a Cross Claim for defects. The Claimant was offering to settle on a basis that involved settlement of the claim for and in respect of the defects. Put another way, if the offer was accepted, Mr Dawes could not properly deploy those defects in another way in later proceedings against Treasure.

(k) The offer was accepted unconditionally and therefore Mr Dawes has settled his claims for those defects as against Treasure.

36. The parties had agreed that appeals on questions of law could be dealt with in the Court and, accordingly, it is not necessary to go through the steps laid down in Section 69 of the Arbitration Act. I have not reviewed in detail Mr Salisbury's Award on the Terms of a Settlement although much of what this judgement contains is reflected in that Award.

Decision

37. Mr Dawes' two Claims against Treasure are dismissed. Mr Salisbury did have jurisdiction to consider and decide whether the settlement agreement between the parties covered all claims for the defects specifically pleaded in the Amended Defence and Cross Claim; he was not functus officio when he did consider and decide this issue. His Award on the issue was right for the reasons set out above.Costs
38. The parties have exchanged written submissions about costs. Treasure's Statement Costs reveal a total bill of £33,130.20 which apart from some specific expenses is comprised of £13,618 for work done by Contract and Construction Consultant (Southern) Ltd ("CCC") and £18,600 for Counsel. CTC are claims consultants who, although not solicitors, have provided substantial assistance to Treasure in preparing its defence to these Claims. Mr Hughes QC was in effect directly instructed by Treasure, albeit through the agency of CCC. I am satisfied that CCC's fees are broadly recoverable, connected as they are with the preparation for and contesting of these proceedings. I should however bear in mind that costs allowable with regard to CCC's fees must be proportionate and reasonable and should not exceed what the solicitors would have cost to do the same job.
39. It is clear from the Statement of Costs that Mr Hughes played a major part in the preparatory work for the hearing. £13,600 of his total bill relates to the period before the hearing. The CTC charges relate to over 60 hours of work done by Mr McArtney at a rate of £220 per hour, said to be equivalent to Grade A (partner level of charging). Objections are made about the number of hours, the rate and the size of Counsel's fees. I have formed a view that a reasonable allowance for the Defendant's costs, which are assessable on a standard basis, should be £21,000 on the following basis:

(a) Whilst I am prepared to allow Counsel's fee in full for the hearing (both parties had Leading Counsel), there must be a substantial overlap between Counsel's pre-hearing fees and Mr McArtney's time.

(b) It is of note that Mr McCartney does not indicate that his firm actually charges his time at £220 per hour but merely that this is a "Grade A equivalent" rate. I would be surprised if rates at that level were actually charged.

(c) For a case of this sort, particularly when CCC had been heavily involved in the adjudication and the arbitration, a charge involving no more than 40 hours was reasonable.

(d) Some time and cost was wasted in my view in providing a whole lever arch file of arbitration witness statements which was wholly unnecessary; all that was needed was one line in a witness statement saying that the witness statements dealt in detail with each of the defects put forward by Mr Dawes.

(e) Thus allowing 40 hours at £150 per hour for Mr McCartney's time and £15,000 for Counsel's fees and some limited expenses, one comes to £21,000.

This should be payable within 14 days.