Jersey Unreported Judgments

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Cite as: [1998] UR 9

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COURT OF APPEAL

Judgment reserved: 24 September 1997

Reserved Judgment handed down: 14 January 1998

Between:Mark Amy Limited

The Viscount of the Royal Court of Jersey Claimants/Respondents

And:Olcott Investments Limited Respondent/Appellant

Advocate A D Robinson for the Respondent/Appellant

Advocate J C Gollop for the Claimants/Respondents

JUDGMENT

GLOSTER, JA: This is an appeal from the judgment of the Royal Court (Samedi Division) (the Deputy Bailiff sitting with Jurats P G Blampied, OBE and A Vibert) given on 4 November 1996, in which the Court dismissed the Representation of Olcott Investments Limited ("Olcott") dated 20 June 1996. In its Representation Olcott seeks an order that the Court quash an order as to costs made by the arbitrator in an award dated 10 January 1996, which was given in arbitration proceedings between Mark Amy Limited (which was declared en désastre on 2 July 1993) ("Amy") and the Viscount, as claimants, and Olcott as respondent. Olcott also seeks an order that the Royal Court "should remit the matter to the arbitrator with a direction that he reconsider it and reach a decision in accordance with the findings of the Court."

The facts, very briefly, are that the claimant, Amy, was main contractor under a written contract dated 2 August 1989, by which Amy had agreed to construct 24 flats in three four-storey blocks at St Helier for Olcott. The named sub-contractor under the contract was Flaherty and Company Limited ("Flaherty"). Disputes arose as to amounts payable to Amy, and the matter was referred to arbitration, pursuant to an arbitration clause in the contract. Mr Ian William Menzies, an experienced arbitrator in construction disputes, was appointed by agreement between the parties on 15 July 1992.

Amy made two claims in the arbitration: first, it claimed a capital sum of £166,670 for measured works; second, it claimed a capital sum of £315,107 for loss and expense.

By a Calderbank letter, dated 20 March 1995, Olcott offered to pay Amy £100,000, together with interest and costs. This offer was open for acceptance for 21 days. By a second Calderbank letter, dated 24 April 1995, Olcott put forward an alternative offer, the original offer having lapsed. The alternative offer was for £100,000 and costs, but no interest. It, too, remained open for acceptance for 21 days. The second offer was not accepted by Amy either, and accordingly it also lapsed.

On 7 September 1995 the arbitrator made his first interim award. This followed a hearing in London, lasting some 11 days between 5 and 21 June 1995, at which both sides were represented by English counsel and solicitors. This first award dealt with the issue of liability and quantum. The arbitrator awarded Amy the sum of £40,224 for measured work performed by Flaherty as named sub-contractor (later corrected, in the final award, to £34,044), plus 5% of that sum, or £2,011 (later corrected to £1,702.20) by way of profit thereon. He made no award in respect of Amy’s claim for a capital sum of £315,107 for loss and expense. By consent he reserved his decision on interest and costs.

On 10 January 1996 the arbitrator published his second interim award ("the Award"), which was final save as to taxation, and which followed lengthy written submissions from Amy and Olcott, and respective replies to the others submissions. With certain minor exceptions, the arbitrator ordered Olcott to pay the entirety of Amy’s reasonable costs reasonably incurred in the arbitration.

In its judgment the Royal Court concluded that it could not see any way that the arbitrator had misdirected himself in law. It said that the arbitrator had "every argument (on costs]before him" and that although "he may have made an unusual order … he was perfectly entitled to ignore offers made and then withdrawn in considering how to exercise his discretion on costs". Accordingly the Royal Court dismissed Olcotts Representation.

It is common ground between the parties in this Court, that, as a matter of Jersey Law, the Court only has the right to interfere with the arbitrator’s exercise of his discretion in relation to costs, if that decision:

but that in such circumstances the Court does indeed have jurisdiction, notwithstanding that the arbitration agreement, as here, provides that the award "shall be final and binding between the parties" and contains no provision for an appeal. In the light of this common approach, which appears to be based on Jersey cases cited in the Royal Courts judgment, but which had not been the subject matter of argument before this Court, this Court proceeds on the assumption that in Jersey there is indeed a jurisdiction to interfere with the exercise of an arbitrators discretion as to costs, notwithstanding that the arbitration agreement purports to provide that any award is to be final and binding on the parties.

Olcott claims that the arbitrators decision on costs was indeed so unreasonable as to render it impeachable and, or alternatively, wrong in law.

Mr Robinson, who appeared on behalf of Olcott, put forward two principal reasons to support Olcotts contention that the arbitrator did not exercise his discretion judicially and, or alternatively, was wrong as a matter of law.

First, he submitted that the arbitrator failed to address or take into account Olcotts submission that:

He contended that, although the arbitrator identified the submission at paragraph 8.2 of the Award, he did not in fact address the submission at any point thereafter, and accordingly, as a matter of law, misdirected himself as to the questions which he should ask himself when exercising his discretion as to who should pay the costs. He asserted (and this fact is accepted by Mr Gollop for Amy and the Viscount) that very little time, no more than perhaps half a day, was spent on the issues relating to the measured work, and that substantially the whole of the Arbitration and the costs thereof, had been concerned with the issue of contractual responsibility for ground conditions at the relevant building site at Mount Tay, which was, in the event, determined in favour of Olcott. Accordingly, Mr Robinson submitted, the Arbitrator should have considered the principles set out by the Court of Appeal in Re Elgindata Ltd. (No 2) [1992] 1 WLR 1207 (CA), at page 1213H-1214D, and whether the normal rule, i.e. that costs should follow the event, should be displaced. He further relied, by way of analogy, on the decision in Argolis Shipping Co SA -v- Midwest Steel and Alloy Corporation (The "Angeliki") [1982] 2 Lloyd’s Rep. 594. In that case the arbitrators had ordered the respondents to pay the whole of the costs of an arbitration, in circumstances where the central issues had been withdrawn from consideration by the arbitrators on the second day of the arbitration. Lloyd J held that the order for costs made by the arbitrators did not reflect the result of the arbitration, and that the arbitrators had gone obviously wrong, because there was no material on which they could have exercised their discretion in the way that they did. He accordingly remitted the award to the arbitrators for further consideration as to what order they ought to make in relation to costs.

Accordingly before this Court Mr Robinson submitted that, on this ground alone, the case should be remitted to the arbitrator with a direction to reconsider whether there should be no order as to costs in relation to the ground condition issues, or alternatively whether Amy should pay Olcotts costs relating to those issues.

In response to Mr Robinsons first ground of attack on the arbitrators decision, Mr Gollop for Amy submitted that the award of costs fell squarely within the principles set out in Elgindata by the Court of Appeal; Amy had had to go to arbitration to recover any sum and there was no suggestion of any impropriety on Amy’s part.

He relied on the statement of principle set out in Elgindata by Nourse LJ, at 1213H as follows:

Mr Gollop submitted that the arbitrator had properly set out the basic premise that costs follow the event, that there was no requirement upon the latter to give reasons for his award of costs, and that since the arbitrator had simply applied the normal rule (i.e. that costs follow the event) there was no justification for looking behind the Award. In support of this submission he relied upon various dicta in The "IOS I" [1987] 1 Lloyds Rep. 321, Matheson & Co Ltd -v- A Tabah & Sons [1963] 2 Lloyds Rep. 270, and Demolition & Construction Co Ltd -v- Kent River Board [1962] 2 Lloyds Rep. 7. In particular, Mr Gollop relied upon the proposition stated by McNair J in the last case as follows:

Mr Robinsons second principal submission was that, as a matter of law, the arbitrator had failed to direct himself properly as to what was the correct principle to apply when exercising his discretion as to costs, in circumstances where offers of settlement had been made by Olcott before the arbitration hearing, which were greater than the amount actually recovered by Amy under the Award, but which had not been accepted by Amy within the time stipulated by Olcott as a condition of the offer.

Mr Robinson submitted that in such circumstances the correct principle was that the arbitrator (or judge as the case might be) could, in the exercise of his discretion, take into consideration the effect of the offer, notwithstanding that it had lapsed, and indeed should go on to consider the question whether the subsequent proceedings had flowed from the claimant’s refusal of the offer. He submitted that, although the matter was one for the discretion of the arbitrator, and thus the mere existence of the lapsed offer did not predicate an award of costs in the respondent’s favour, the lapsed offer was a factor that an arbitrator must at least consider in the proper exercise of his discretion, even if he were ultimately to decide that the fact of the offer being made offered no protection to the offeror in respect of costs. Mr Robinsons criticism of the arbitrator’s decision in this respect was that the latter had wrongly interpreted the decision of the English Court of Appeal in The "Toni" [1974] 1 Lloyd’s Rep. 147 as deciding, in effect, that in no circumstances can a lapsed offer be taken into account, and that, accordingly, he had wrongly, and in disregard of principle, failed even to consider the effect of the offer, when exercising his discretion as to costs. In support of his submission that the effect of a lapsed offer was a factor that an arbitrator should take into consideration in the exercise of his discretion, Mr Robinson relied upon Huron Liberian Co -v- Rheinoel GmbH, The "Concordia C" (Note) [1985] 2 Lloyd’s Rep. 58, (Staughton J, as he then was), Padmanor Investments Ltd -v- Soundcraft Electronics Ltd [1995] 4 All ER 683 (Judge Humphrey Lloyd QC), and Bristol and West Building Society -v- Evans Bullock & Co (unreported English Court of Appeal, 5^th February, 1996). The last of these cases was not cited to the arbitrator.

Mr Robinson went on to submit that, if the arbitrator had properly directed himself, the only decision that a reasonable arbitrator could have reached was to have awarded Olcott its costs from the date of the offer.

Mr Gollop, on behalf of Amy, submitted that Olcotts offer had lapsed, and that Olcott should have done much more to justify the offer being taken into account on the issue of costs. Mr Gollop submitted that, for example, viable alternatives open to Olcott would have been to make a sealed offer that remained open for acceptance, or to make a direct payment coupled with a notice to admit the limited quantum of the claim. In the circumstances, Mr Gollop submitted, the arbitrator’s decision not to pay any regard to the lapsed offer could not be faulted as an exercise of discretion, since the authorities did not require him, simply because of the existence of the offer, to award costs in Olcotts favour.

In my judgment, it is apparent from the face of the Award that the arbitrator in this case did indeed exercise his discretion under a misapprehension as to the correct principles of law to apply to the exercise of such discretion, and also that he exercised his discretion manifestly wrongly.

I deal first with Mr Robinsons first ground for challenging the Award. My reasons for concluding that the case should be remitted to the arbitrator for reconsideration on this ground alone, may be stated as follows:

(1)From the face of the Award, and the reasons which he did give for the exercise of his discretion, it would appear that the arbitrator did not at any time address Olcott’s submission that, because approximately ten and a half days of an eleven day arbitration were taken up with the issue of contractual responsibility for the ground conditions, that itself was a reason why the normal order for costs should be departed from. In my judgment and as a matter of law, that was a wrong approach to the exercise of his discretion. The arbitrator should, in accordance with the principles set out in Elgindata, and, in particular, principle (iii), have asked himself the question whether there was, in the circumstances, (and even leaving aside the question of the lapsed offer) grounds for depriving Amy of its costs, because the issues relating to the ground conditions, in relation to which Amys claim had wholly failed, had not only taken up almost the entirely of the hearing but, in addition, were entirely separate from the issues relating to the measured works upon which Amy had succeeded in the limited sum of £35,746.

(2) In my judgment, the award made by the arbitrator that Olcott should pay the entirety of Amys costs of the arbitration insofar as they were reasonably incurred, did not reflect the result of the arbitration, and the allocation of time spent at the hearing in reaching that result. In concluding, as he did, that Amy should recover the entirety of its costs, the arbitrator has gone obviously wrong. The situation is analogous to that in the Angeliki.

(3)A reasonable arbitrator, acting in accordance with principle, must in my judgment have considered, on the material before him, that there were grounds for depriving Amy, at the least, of a substantial amount of its costs because of its unsuccessful and lengthy pursuit of the claim for loss and expense relating to the ground conditions.

Accordingly, on Olcotts first ground of challenge to the Award, I would remit the Award to the arbitrator for further consideration as to what order he should make in relation to costs, and, in particular, as to what amount it would be appropriate to deprive Amy, given its failure on the loss and expenses claim.

But the matter does not end there. Olcotts second ground of challenge to the Award, which criticises the arbitrators decision in relation to the effect of the offer, leads to the submission that not only should the arbitrator have deprived Amy of a substantial proportion of its costs, but also that the arbitrator should have ordered Amy to pay Olcotts costs from the date of the offer.

In my judgement the arbitrators approach to the relevance of the offers made by Olcott, in the context of his consideration of the issue of costs, was wrong as a matter of law. Mr Robinsons criticisms in this respect are, in my view, well-founded. The arbitrator, based upon his analysis of The Toni, appears to have concluded, as a matter of law, that in all circumstances "an offer which has lapsed prior to the start of the hearing provides no protection to the offeror with regard to costs" (see paragraph 8.7 of the Award). Thus although the arbitrator correctly stated the ratio of The Toni at paragraph 8.5 of the Award, as follows:

(emphasis added)

by the time he came to make his decision later in the Award, it is clear that he was not approaching the question as a discretionary matter - ie whether in the particular circumstances of the case before him it was appropriate to have regard to, or disregard the lapsed offer. On the contrary, his approach, as I have said, appears to have been that the views expressed by the English Court of Appeal predicted that a lapsed offer should be disregarded in all circumstances.

In my judgment, the arbitrator was wrong in his analysis of the ratio in The Toni. In that case the English Court of Appeal had to consider whether the trial judge was manifestly wrong in the relevant factual circumstances in holding that he should disregard the fact that an offer had been made by the Plaintiffs and withdrawn by 21 March 1972, and that at trial the defendant had not reached a better result than that which had been offered. Having stated the question of principle involved in the following terms at p494:

Edmund Davies LJ went on to say the following at pp.494-495:

At pp.496-497, Megaw LJ said:

Finally at p498, Cairns LJ stated as follows:

In my judgment, the correct ratio of the case, as reflected in particular in the judgments of Edmund Davies and Cairns LJ goes no further than to state that a judge is entitled, in the exercise of his discretion, to disregard a lapsed offer. Although certain passages in the judgment of Megaw LJ might appear to suggest that he was laying down a principle that, save in exceptional circumstances, the only proper exercise of the discretion would be to disregard such an offer, there is no support for the formulation of such a rigid principle in the other two judgments. In my judgment, Cairns LJ correctly stated the position when he said that no rigid rule can be laid down as to how a judge’s discretion as to costs should be exercised when an offer to accept a certain proportion of the responsibility has been made and later withdrawn.

The other, more recent, cases relied upon by Mr Robinson support this approach. Thus in The "Concordia C", a case where the issue was whether there had been a compromise of issues submitted to arbitration, Staughton J (in analysing the status of sealed offers) cited with approval certain passages from the judgment of Donaldson J (as he then was) in Tramontana Armadora SA -v- Atlantic Shipping Co SA [1979] 1 Lloyd’s Rep. 391, describing the practice relating to sealed offers:

The learned Judge went on to suggest a remedy for that difficulty, and also to consider the question of interest. He then continued at p397:

At p398:

Staughton LJ went on, at p61, to state as follows:

These cited passages make it perfectly clear that both Donaldson J and Staughton J highly experienced judges of the commercial court, considered that in appropriate cases an arbitrator might well be justified in exercising his discretion in favour of the respondent where the latter had made an offer that, although lapsed, had exceeded the amount recovered by the offeree in the proceedings, but whether the arbitrator did so or not was a matter for his discretion. It is true that The Toni was not cited in either of these cases, but in my view it would have made no difference even if it had been.

The reasoning in Padmanor Investments Ltd -v- Soundcraft Electronics Ltd [1995] 4 All ER 683 (Judge Humphrey Lloyd QC), and Bristol & West Building Society -v- Evans Bullock & Co (unreported, English Court of Appeal, 5 February 1996), also support the modern approach that it may well be appropriate for a lapsed offer to be taken into account when the Court considers what order should be made as to costs. In Bristol & West Building Society a Calderbank offer had been refused (or at any rate not accepted - the evidence was somewhat unclear on the point) and subsequently expressly withdrawn. The Court of Appeal interfered with the exercise of the judge’s discretion as to costs in circumstances where the judge took no account of the lapsed offer.

At pp.12-13 Neil LJ said:

Likewise at pp.13-14 Ward LJ said as follows:

Accordingly, in my judgment, by analogy, the arbitrator in the present case should, in the exercise of his discretion, have taken into account the offers made by Olcott, notwithstanding that they had lapsed through non-acceptance approximately a month before the arbitration hearing began on 3 June 1995.

It was perfectly clear from the terms of the offer letters themselves, that Olcott proposed to rely on the offers on any argument that might subsequently arise as to costs. Amy therefore must have been aware that, if it refused the offers and recovered less at the hearing, it ran the risk of having to pay costs.

Amy submitted that there was some ambiguity in the terms of the offers that were made. In my judgment there is no substance in this criticism. The first offer was adequately clarified in Olcotts solicitors letter dated 5 April 1995. In the circumstances I find it difficult to see how a reasonable arbitrator could have paid no regard to the existence of the offer as a factor affecting his discretion as to costs. The arbitration hearing, and all costs incurred from the expiry of the 21 day period during which the first offer was open for acceptance, appear to have flowed from Amy’s refusal to accept one or other of the offers.

Accordingly, in my judgment the Award insofar as it relates to costs should be quashed and the matter should be remitted to the arbitrator with the direction that he should reconsider the question of costs in the light of this judgment, and, in particular, in the light of the facts that (i) the greater part of the arbitration hearing was spent on the claims in relation to which Amy failed, and (ii) that the costs incurred after the expiry of the period for acceptance of the first offer appear to have flowed from Amy’s refusal to accept one or other of the offers. Further Olcott is entitled to have its costs of and incidental to this appeal and of the hearing in the Royal Court.

CARLISLE, JA: I agree and have nothing to add

BELOFF, JA.: I agree and have nothing to add

Authorities

Matheson & Co. -v- Tabah & Sons [1963] 2 Ll. R. 270

The Erich Schroeder [1974] 1 Ll. R. 192

Leif Hoegh & Co A/S -v- Maritime Carriers Ltd [1982] 1 Ll. R. 68

The IOSI [1987] 1 Ll. R. 321

Argolis Shipping Co SA -v- Midwest Steel and Alloy Corporation, The Angeliki [1982] 2 Ll. R. 594

Tramountana Armadora -v- Atlantic Shipping Co [1979] 1 Ll. R. 391

The Toni [1974] 1 Ll. R. 147

Bristol & West Building Society -v- Evans Bullock & Co (5 February 1996) Unreported Judgment of the Court of Appeal of England

Michael O’Reilly: "Costs in arbitration proceedings" (1995 Ed’n): pp.28-44; 97-115

Le Gros -v- Housing Committee (1974) 1 JJ 77

Charles Le Quesne Ltd -v- TSB Channel Islands (4 September 1986) Jersey Unreported

L.C. Pallot (Tarmac) Ltd -v- Gechena Ltd (11 July 1996) Jersey Unreported

Demolition and Construction Co Ltd -v- Kent River Board [1962] 2 Ll. R. 7

The Nema [1982] AC 724

The Antaios [1985] AC 191

President of India -v- Jadramska Slobodna Plovidba [1992] 2 Ll. R. 274

Mafracht -v- Parnes Shipping Co [1986] 2 Ll. Rp. 405

In re Elgindata Ltd (No. 2) [1992] 1 WLR 1207

Everglade Maritime Inc. -v- Schiffahrtsgesellshaft Detelf von Appen GmbH (The Maria) [1992] 3 All ER 851

State of New South Wales -v- Dueeasy Pty Ltd (Supreme Court, NSW 28 February 1992)

Huron Liberian Co -v- Rheinoel GmbH, The Concordia C (Note) (1985) 2 Ll. R. 58

Padmanor Investments Ltd -v- Soundcraft Electronics Ltd (1995) 4 All ER 683