FIRST DIVISION, INNER HOUSE, COURT OF SESSION |
|
Lord PresidentLady CosgroveSir David Edward, Q.C. |
[2006] CSIH 12A225/05; A226/05 OPINION OF THE COURT delivered by TEMPORARY JUDGE SIR
DAVID EDWARD, Q.C. in RECLAIMING MOTIONS by SCRABSTER HARBOUR TRUST Pursuers and Reclaimers; against MOWLEM plc, trading as
MOWLEM MARINE Defenders and Respondents: and MOWLEM plc, trading as
MOWLEM MARINE Pursuers and Respondents; against SCRABSTER HARBOUR TRUST Defenders and Reclaimers: _______ |
Alt: Davidson, Q.C.; MacRoberts
(for Scrabster)
Introduction
[2] The actions
arise out a contract between the parties which was subject to the ICE
Conditions of Contract (5th Edition) as amended by ICE/5th
Edition/HGCR/March 1998 and ICE/ScotArb/April 2001.
[3] The issue in
both cases is the same - namely, whether a letter dated
[4] Scrabster
contend that the letter of 15 September 2004 was invalid as a notice requiring
arbitration because it did not comply in a number of respects with the
requirements of Article 1:3 of the Scottish Arbitration Code ("the Code"). In particular, it did not comply with the
requirements of Article 1:3(g) of the Code in that it did not propose the name
of an arbiter. (The Code uses the term
'arbitrator' rather than 'arbiter', presumably because it is intended for use
outside as well as within
[5] Scrabster
contend that compliance with the Code, including Article 1:3, was made a
condition of the contract by Clause 67(2)(a) of the ICE Conditions as amended,
and that the consequence of non-compliance was to deprive them of the
opportunity to put into motion the subsequent provisions of the Code in
relation to the appointment of an arbiter.
[6] Mowlem
contend, first, that Clause 67(2)(a) did not have the effect of incorporating
Article 1:3 into the contract, but second, esto
it was so incorporated, compliance with all the requirements of Article 1:3 was
not mandatory, so that non-compliance was not such as to render the letter of
15 September 2004 invalid as a notice requiring arbitration.
[7] The Lord
Ordinary dismissed the action at the instance of Scrabster and granted decree
of declarator as sought in the action at the instance of Mowlem. The Lord Ordinary's Opinion is reported at
2005 SLT 499.
[8] Scrabster
moved us to recall the Lord Ordinary's interlocutor, to grant them the
declarator they seek and to dismiss the action at the instance of Mowlem.
[9] The terms of
Mowlem's letter of
The Contract between
the Parties
[10] The contract
between the parties provided, so far as material, as follows:-
"The Conditions of Contract referred
to in the Tender shall be the Conditions of Contract (Fifth Edition) prepared
by the Institution of Civil Engineers ... dated June 1973 (Revised January 1979)
... including ... ICE/5th Edition/HGCR/March 1998; ... ICE/ScotArb/April
2001, ... with addendum's(sic), alterations and special conditions as shown in Part 2 below
and these conditions shall be deemed to form and shall be read and construed as
part of this Contract".
[11] The only
relevant "addendum, alteration or special condition" provided as follows:-
"Clause 67 APPLICATION TO
Sub-Clause (1) is deleted and
substituted by the following:-
If the Works are situated in Scotland
the Contract shall in all respects be construed and operate as a Scottish
contract and shall be interpreted in accordance with Scots law and where any
dispute in connection with the Contract is to be determined by a Court that
Court shall be either the Court of Sessions (sic), Edinburgh or a Sheriff Court in Scotland".
[12] The relevant
conditions of contract so incorporated can be set out in consolidated fashion
as follows:-
"Clause 66(9)
Arbitration
(a) All
disputes arising under or in connection with the Contract or the
carrying out of the Works other than failure
to give effect to a decision of an adjudicator shall be finally determined by
reference to arbitration. The party
seeking arbitration shall serve on the other party a notice in writing (called
a Notice of Arbitration) to refer the dispute to arbitration.
(b) Where
an adjudicator has given a decision under Clause 66(6) in
respect of the particular dispute the Notice
of Arbitration must be served within three months of the giving of the decision
otherwise it shall be final as well as binding.
Clause 66(10)
Appointment of arbitrator
(a) The arbitral tribunal
shall be appointed by agreement of the parties.
President or Vice- President to act
(b) Failing agreement of the parties as
aforesaid at sub-clause (a) above
the following shall apply.
(i) Reference at Articles 3.5 3.6 3.7 3.8
and 6.2 of the Code to the
Chairman of the
(ii) 'President' means the President for the
time being of the
Institution of Civil
Engineers or any Vice President acting on his behalf or such other person as
may have been nominated in the arbitration agreement to appoint the arbitrator
in default of agreement between the parties.
Clause 66(11)
Arbitration -
procedure and powers
(a) Neither party shall be limited in the arbitration to the evidence or
arguments
put to the Engineer or to any adjudicator pursuant to Clause 66 (2) or 66(6)
respectively.
(b) Unless the parties
otherwise agree in writing any reference to
arbitration may proceed notwithstanding that the
Works are not then complete or alleged to be complete.
Clause 67
(1) If
the Works are situated in Scotland the Contract shall in all respects be
construed and operate as a Scottish contract and shall be interpreted in
accordance with Scots law and where any dispute in connection with the Contract
is to be determined by a Court that Court shall be either the Court of Sessions
(sic), Edinburgh or a Sheriff Court
in Scotland.
(2) In the application of these Conditions
and in particular Clause 66 thereof
(a) any reference
to arbitration under these Conditions shall be conducted
in accordance with the
law of Scotland "The Scottish Arbitration Code 1999" prepared by the Scottish
Council for International Arbitration the Chartered Institute of Arbitrators
(Scottish Branch) and the Scottish Building Contract Committee together with
the ICE Appendix (2001) thereto or any amendment to or modification of the
Appendix being in force at the time of appointment of the arbitrator. Such
arbitrator shall have full power to open up review and revise any decision
opinion instruction direction certificate or valuation of the Engineer or an
adjudicator.
(b)-(d)
[Effect has been given to these sub-clauses above]
(e) notwithstanding
any of the other provisions of these Conditions or of
the Code (including in particular Articles 22.7 and 22.8) nothing
therein shall exclude or be construed as excluding recourse to the Court of
Session under Section 3 of the Administration of Justice of (
(f) [not relevant here]
(g) [not relevant here]
(h) The application of Articles 1.6 1.8 1.9
and 1.10 of the Scottish
Arbitration Code 1999
shall be subject to the provisions of Clause 66(2) of the Contract unless the
Arbitrator otherwise directs. [Note: the effect of this provision is that disputes giving rise to
counterclaims must first have been submitted for decision by the Engineer.]".
The Scottish Arbitration Code
[13] Article 1 of
the Code provides,
so far as material, as follows:-
"Commencement of Arbitration
1:1 The party commencing
arbitration (the Claimant) shall give to the other party (the Respondent) a
Notice of Arbitration.
1:2 Arbitral proceedings shall be deemed to commence
on the date on which the Notice of Arbitration is received by the Respondent.
1:3 The Notice of Arbitration shall include the
following:
(a) The full names and
addresses of the parties (including
telephone, facsimile, telex numbers and e-mail
addresses if known).
(b) A reference to the
arbitration clause or the separate arbitration
agreement that is involved.
(c) A short statement of the
Claimant's claim, including the nature
of the claim, the sum or sums claimed, and the
Respondent's defence if known to the Claimant.
(d) The relief or remedy
sought.
(e) A demand that the matter
be referred to arbitration.
(f) If the arbitration
agreement calls for each party to appoint an
Arbitrator, the name and address (and telephone,
facsimile, telex number and e-mail address if known) of the Arbitrator
nominated by the Claimant.
(g) If the arbitration
agreement does not call for each party to
appoint an Arbitrator, a proposal by the Claimant of the
name of an Arbitrator with his full name and address (and his telephone,
facsimile, telex number and e-mail address if known).
(h) Within thirty days after
receipt of the Notice of Arbitration the
Respondent shall deliver to the Claimant a Notice of Defence.
Failure to deliver a Notice of Defence shall not delay the arbitration. If
there is such a failure all claims set forth in the Notice of Arbitration shall
be deemed to be denied.
1:4 The Notice of Defence
shall include:-
(a) Any comment on article 1:3(a)
(b) or (e) that the Respondent considers
appropriate.
(b) A short statement of the
Respondent's defence.
(c) If the arbitration
agreement calls for each party to appoint an Arbitrator
the name and address (and telephone, facsimile,
telex and e-mail address if known) of the Arbitrator nominated by the
Respondent.
(d) If the arbitration
agreement does not call for each party to appoint an
Arbitrator, then the Respondent shall intimate whether he accepts
the Arbitrator nominated by the Claimant and, if he does not accept him, the
names and addresses of the candidates whom the Respondent proposes.
[NOTE: There is no Article 1:5]
1:6 The Respondent may include in the
Notice of Defence any counterclaim within the scope of the arbitration clause.
If so, the counterclaim in the Notice of Defence shall include those matters in
Article 1:3 (b)(c)(d) and (e).
1:7 If a counterclaim is
asserted in the Notice of Defence, within 30 days after its receipt, the
Claimant shall deliver to the Respondent a reply to the counterclaim which
shall include the same matters as provided for in the Notice of Defence in
Article 1:5.
1:8 Failure by the Respondent to
include a counterclaim in the Notice of Defence shall not preclude the
Respondent from making a counterclaim at a later stage of the proceedings, if
the arbitral tribunal in its absolute discretion is prepared to permit it. Any
such counterclaim shall include those matters in Article 1:3. (b)(c)(d) and (e).
1:9 If any party has been
served with a Notice of Arbitration he may, at any time before the arbitral
tribunal has been appointed, give Notice of Arbitration in respect of any other
disputes which fall under the same arbitration agreement. All disputes
identified in such Notice of Arbitration shall be consolidated within the same
arbitral proceedings.
further Notice of Arbitration to the other, and to the arbitral
tribunal, referring any additional dispute which falls under the same
arbitration agreement to the arbitral tribunal proceedings and, whether or not
the other party consents to that other dispute being referred to the
proceedings, the arbitral tribunal may in its absolute discretion order that
the additional dispute should be referred to and consolidated within those same
proceedings or that it should not be so referred and consolidated."
[14] Article 3 of the Code provides, so far as material, as
follows:-
"Constitution of the Arbitral Tribunal, Number of
Arbitrators and Procedure for Appointment
3:1 The expression "the Arbitral
Tribunal" in this Code includes a sole Arbitrator or all Arbitrators where more
than one. All references to an Arbitrator shall include the masculine and the
feminine, and Arbitrator shall include Arbiter.
3:2 The parties are free to
agree on the number of Arbitrators. If they have not agreed, a single
Arbitrator shall be appointed.
3:3 If the parties have agreed that there shall be
more than one Arbitrator and the Claimant has nominated an Arbitrator in
accordance with Article 1:3(f) but the Respondent fails within thirty days of
receipt of the Notice of Arbitration either to deliver a Notice of Defence at
all, or to include in the Notice of Defence the name and address of another Arbitrator,
the parties shall be deemed to have agreed on a single Arbitrator and the
Arbitrator nominated by the Claimant shall be appointed as the sole Arbitrator.
3:4 If the parties have agreed
that there shall be a single Arbitrator and the Claimant has proposed an
Arbitrator under Article 1:3(g), and the Respondent does not intimate
non-acceptance of that Arbitrator within thirty days of the Notice of
Arbitration, then the Arbitrator proposed by the Claimant shall be appointed as
the sole Arbitrator.
3:5 Where the parties have agreed
a single Arbitrator be appointed and each has nominated an Arbitrator, they
shall endeavour to agree on the single Arbitrator within thirty days of
delivery of the Notice of Defence. If they cannot agree within that period either
party may apply, in the case of a domestic dispute to the Chairman of the
Chartered Institute of Arbitrators (Scottish Branch), and in the case of an
international dispute to the Chairman of the Scottish Council for International
Arbitration, to appoint the Arbitrator.
3:6 Where parties have agreed on an arbitral tribunal
of three and each has appointed an Arbitrator then unless the parties have
agreed on another method of appointment the party-appointed Arbitrators shall
endeavour within thirty days of the delivery of the Notice of Defence to agree
upon a third Arbitrator who shall be the chairman of the arbitral tribunal, or
if the parties have so agreed shall act as oversman. If the party-appointed
Arbitrators do not reach agreement within that time either party may apply in
the case of a domestic dispute to the Chairman of the Chartered Institute of
Arbitrators (Scottish Branch) and in the case of an international dispute to
the Chairman of the Scottish Council for International Arbitration, to appoint
that third Arbitrator or oversman.
3:7 Where application has been
made to the Chairman of the appropriate body to appoint an Arbitrator and that
Chairman refuses or fails to make an appointment within thirty days of the
application, either party may apply to the Court of Session,
3:8 Where the Chairman of the appropriate body is
unavailable or unable to act, a Vice-Chairman may act in his place.
3:9 For the purposes of this
Article the parties prorogate the exclusive jurisdiction of the Court of
Session,
[15] Other
provisions of the Code are referred to in ICE/ScotArb/April 2001 - namely
Article 6:2, relating to the replacement of an Arbitrator, and Articles 22:7
and 22:8, relating to recourse to the Courts.
The ICE Appendix (2001) to the
Scottish Arbitration Code
[16] The ICE
Appendix (2001) to the Code, Section 1.1 provides:
"Commencement of Arbitration
If a contract does not define when a
dispute or difference shall arise, then a dispute or difference shall be deemed
to arise when a claim or assertion made by one Party is rejected by the other
Party and that rejection is not accepted or no response to the claim is
received within a period of 28 days.
Subject only to the due observance of any condition precedent in the
Contract or the Arbitration Agreement either Party may then invoke arbitration
by serving a Notice of Arbitration on the other Party."
Annexed to the Appendix is a 'Sample' Notice of Arbitration
in the following form:
"To (Name of Respondent)
(Address
of Respondent)
Date
NOTICE
OF ARBITRATION
(Contact name)
We consider the following dispute(s)
or difference(s) have arisen between us:
We now give notice that we require the(se) dispute(s) or difference(s) to be referred to
arbitration.
Yours faithfully
For
and on behalf of
(Claimant's name)".
The Lord Ordinary's
Decision
[17] The Lord
Ordinary's decision turns on an interpretation of Clause 67(2)(a)
and, in particular, of the words "any reference to arbitration under these
Conditions shall be conducted in
accordance with ...[the Code]".
[18] Following
Judge John Hicks, QC, sitting as an Official Referee in Christiani & Nielsen Ltd v Birmingham City Council (1994) 52
ConLR 56, the Lord Ordinary held that this wording should be construed as
referring to the carrying on of the arbitration, rather than to any prescribed
procedure as to how it should be
commenced (2005 SLT at page 507 F-G). He
reached this conclusion on the basis that the wording is, save for the
reference to the Code, "identical to the wording in condition 66(5)(a) of the
contractual conditions considered by the court in Christiani" (page 507F), and consequently that "had the compilers
of the standard conditions not wished the wording in the Scottish version of
the conditions, as amended, to have the restricted effect placed on the
equivalent phrase by the court in Christiani
then ... they should have made that clear" (page 507J).
[19] The Lord
Ordinary felt supported in this conclusion by the fact that the 'sample' Notice
of Arbitration in ICE Appendix (2001) (see paragraph 15 above) does not itself
comply with Article 1:3 of the Code.
[20] In view of
this conclusion, the Lord Ordinary did not consider it necessary to reach a
conclusion on Mowlem's esto case, but
said that there might be a real question as to whether or not the provisions of
art 1:3 of the Code should be regarded as mandatory in every case, as opposed
to being directory in their effect (page 508E).
Submissions of the
Parties in the Inner House
[21] The
submissions of the parties in the Inner House were very substantially the same
as those advanced before the Lord Ordinary and fully summarised in his Opinion
(paragraphs 7 to 20, 2005 SLT at pages 501H to 506L).
[22] Scrabster
argued that the Lord Ordinary was wrong to base his judgment on the decision in
Christiani. That case was wrongly decided and was in any
event distinguishable. It had made only
a fleeting appearance in the textbooks on building contracts.
[23] Christiani should be distinguished
since, in the present case, the contract refers expressly to Articles of the
Code that deal with matters anterior to the 'conduct' of the arbitration
(notably Clauses 66(10)(b)(i) and 67(2)(h)). The Code had been incorporated in the
Conditions of Contract in its entirety, including the provisions of Article 1:3
prescribing the form of any Notice of Arbitration.
[24] Counsel for
Scrabster again founded on dicta in
the English cases cited to the Lord Ordinary (Mannai Investment Co Ltd v
Eagle Star Life Assurance Co Ltd [1997] AC 749, Burman v Mount Cook Land Ltd
[2002] Ch 256, and Fernandez v McDonald [2004] 1 WLR 1027) and the
judgment of Lord Prosser in Muir
Construction v Hambly 1990 SLT
830. These cases supported the
proposition that, where the contract required a notice to comply with certain
conditions or criteria, a notice that did not so comply was invalid. Counsel founded, in particular, on the dictum of Lord Hoffmann in Mannai:
"If the clause had said that the
notice had to be on blue paper, it would have been no good serving a notice on
pink paper, however clear it might have been that the tenant wanted to
terminate the lease." ([1997] AC at page 776 A-B)
[26] Counsel for
Scrabster submitted that it did not matter whether one viewed the issue as one
of "strict" compliance, or of "adequate" compliance, since in at least one
respect (Article 1:3(g)) it was indisputable that Mowlem had failed to comply
with the provisions of the Code.
[27] Mowlem, for
their part, argued that Christiani
was correctly decided and the Lord Ordinary was right to follow it.
[28] But even if
that were not so, and Article 1:3 of the Code had been fully incorporated in
the Conditions of Contract, strict compliance with the provisions of Article
1:3 was not essential to a valid Notice of Arbitration. It would be absurd, for example, to hold that
a Notice of Arbitration was invalid because it failed to mention a telephone,
fax or telex number or email address that could be shown to have been known to
the Claimant (see Articles 1:3 (a) and (f)).
Moreover, Article 1:3(h), although falling under the general
prescription "The Notice of Arbitration shall include...", related to matters
subsequent to service of the Notice of Arbitration and could not therefore be
included in it.
[29] The sample
notice annexed to ICE Appendix (2201), which did not comply with the provisions
of Article 1:3, showed that it was not intended that
strict compliance with those provisions was mandatory.
[30] In the present
case, the notice served by Mowlem complied with the requirements of Clause 66(9)(a) and was valid.
[31] Counsel for
Mowlem did not seek to analyse the English decisions cited by counsel for
Scrabster (see paragraph 24 above).
Decision
Was Article 1:3 of the Code
incorporated in the Conditions of Contract?
[32] The
contractual conditions at issue here are not a masterpiece of the draughtsman's
art, and textual support can be found in them for the positions of both
parties. In our opinion, however, the
approach of the Lord Ordinary was unsound in that he proceeded on the view that
the wording of Clause 67(2)(a) is, save for the
reference to the Code, identical to the wording in the contractual condition
considered by the court in Christiani
and, consequently, that Clause 67(2)(a) must be given the same restricted
effect.
[33] It is true
that some of the words in Clause 67(2)(a) of the present contract are identical
to those considered by Judge John Hicks in Christiani,
but the interpretation of particular contractual terms depends on their
context.
[34] In the context
in which the words in question appear here, we find it impossible to hold, as
the Lord Ordinary did, that they relate only to the "carrying on of the
arbitration, rather than any prescribed procedure as to how it should be commenced".
In our opinion, Scrabster were well-founded in submitting that, since
Clauses 66(10)(b)(i) and 67(2)(h) refer to Articles of the Code which relate to
the appointment of the arbitrator, Clause 67(2)(a) cannot be given such a
limited meaning. That being so, it is
unnecessary to consider whether Christiani
was correctly decided and we express no opinion on that question.
[35] In our
opinion, the intention of the parties here was to incorporate the Code in its
entirety, except as expressly provided otherwise, as a component of the
Conditions of Contract. It does not
follow, however, that the contract must be read as providing that a Notice of
Arbitration must, in order to be valid, comply with all the provisions of
Article 1:3 of the Code. The Code is
only one component of the Conditions of Contract and must itself be interpreted
in the context of the Conditions as a whole.
The cases relied on by Scrabster
[36] In
interpreting the Code, counsel for Scrabster relied strongly on three English
cases (Mannai, Burman and Fernandez - cited at paragraph 24 above)
and it is convenient to consider them at this stage. All three cases concerned the English law of
landlord and tenant. Given the wide
differences between English and Scots law in this field, we approach the task
of interpreting these cases with diffidence.
[37] The issue
ultimately before the House of Lords in Mannai
was whether long-standing precedents relating to the service of notices
between landlord and tenant (Cadby v Martinez (1840) 11 A&E 720 and Hankey v Clavering [1942] 2 KB 326) should be overruled. The effect of those precedents was that an
error as to date, however obvious, in a notice under a break clause in a lease
was fatal to the validity of the notice.
In Mannai, the tenant had
served a notice specifying 12 January rather than 13 January.
[38] Lord Goff of
Chieveley, with whom Lord Jauncey of Tulliechettle agreed, said that the
question was whether "a more relaxed approached [should] be adopted
to the construction of notices of this kind" ([1997] AC at page 760H). His conclusion was that
"At present, the applicable law is
clear and well settled, and [counsel for the landlord] informed your Lordships
that disputes were rare. In these
circumstances, the change in the law now proposed would not, in my opinion, be
justified." (page 761G).
[39] The majority,
however, held that Cadby and Hankey should be overruled and that (as
summarised in the headnote) the construction of the notices had to be
approached objectively, and the question was how a reasonable recipient would
have understood them, bearing in mind their context. Each of their Lordships gave his own reasons
for overruling Cadby and Hankey.
"There is no justification for
placing notices under a break clause in leases in a unique category. Making due allowance for contextual
differences, such notices belong to the general class of unilateral notices
served under contractual rights reserved, e.g. notices to quit, notices to
determine licences and notices to complete ... To these examples may be added
notices under charter parties, contracts of affreightment, and so forth. Even if such notices under contractual rights
reserved contain errors they may be valid if they are 'sufficiently clear and
unambiguous to leave a reasonable recipient in no reasonable doubt as to how
and when they are intended to operate'." (page 768
E-G).
(We were not referred to any Scottish authority, and we have
found none, in which special significance or treatment has been accorded to
notices served under "contractual rights reserved".)
[41] Dealing with Hankey, Lord Steyn said:
"Hankey
v Clavering was decided more than
half a century ago. Since then there has
been a shift from strict construction of commercial instruments to what is
sometimes called purposive construction of such documents. Lord Diplock deprecated the use of that
phrase in regard to the construction of private contracts as opposed to the
construction of statutes. ... That is understandable. There are obvious differences between the
processes of interpretation in regard to private contracts and public statutes.
... It is better to speak of a shift towards commercial interpretation. ...
In determining the
meaning of the language of a commercial contract, and unilateral contractual
notices, the law therefore generally favours a commercially sensible
construction. The reason for this
approach is that a commercial construction is more likely to give effect to the
intention of the parties. Words are
therefore interpreted in the way in which a reasonable commercial person would
construe them. And the standard of the reasonable commercial person is hostile
to technical interpretations and undue emphasis on niceties of language. In contradistinction to this modern approach
Lord Greene MR's judgment in Hankey ...
is rigid and formalistic. Nowadays one expects
a notice to determine under a commercial lease to be interpreted not as a
'technical document' but in accordance with business common sense ... After all,
there is no reason whatever why such a document must be drafted by a lawyer. Qualitatively, the notices are of the same
type as notices under charter parties and contracts of affreightment. Such notices, even if they entail the
exercise of important options, are habitually drafted by commercial men rather
than lawyers. It would be a disservice
to commercial practice to classify such notices as technical documents and to
require them to be interpreted as such.
Nowadays one must substitute for the rigid rule in Hankey ... the standard of a commercial construction." (pages 770E to 771 D)
[42] Lord Hoffmann
took the decision in Hankey as his
starting point, saying that
"Common sense cannot produce such a
result: it must be the result of some
rule of law. If so, what is that rule
and is it correct?" (page 774C)
Having analysed the reasons for the decision, he concluded
that the rule of law in question was "an old rule about the admissibility of
extrinsic evidence to construe legal documents". He went on to characterise this rule as
"extraordinary" and "not merely capricious but also, for reasons which I need
not develop at length, incoherent" (pages 776G, 777E and 778C).
[43] Lord
Hoffmann's grounds for overruling Cadby
and Hankey were that:
"In the case of commercial contracts,
the restriction on the use of background has been quietly dropped. There are certain special kinds of evidence,
such as previous negotiations and express declarations of intent, which for
practical reasons which it is unnecessary to analyse, are inadmissible in aid
of construction. ... But apart from these exceptions, commercial contracts are
construed in the light of all the background which could reasonably have been
expected to have been available to the parties in order to ascertain what would
objectively have been understood to be their intention. ... Why, therefore should
the rule for construction of notices be different from those for construction
of contracts? There seems to me no
answer to this question." (page 779 F-H)
[44] It was in the
context of his preliminary analysis of Hankey
that Lord Hoffmann made the observation about notices on blue paper and pink
paper on which counsel for Scrabster relied (see paragraph 24 above). That observation must be read in its
context. Seeking to find an explanation
for the decision in Hankey, Lord
Hoffmann said:
"I pass on to a second explanation
which also seems to me inadequate. Lord
Greene MR said ... that because such notices have unilateral operation, the
conditions under which they may be served must be strictly complied with. I have already said that this principle is
accepted on both sides. But, as an
explanation of the method of construction used in Hankey ..., it begs the question.
If the clause had said that the notice had to be on blue paper, it would
have been no good serving a notice on pink paper, however clear it might have
been that the tenant wanted to terminate the lease. But the condition in clause
7(13) related solely to the meaning which the notice had to communicate to the
landlord. If compliance had to be
judged by applying the ordinary techniques for interpreting communications,
there was strict compliance. The notice
clearly and unambiguously communicated the required message. To say that compliance must be strict does
not explain why some other technique of interpretation is being used or what
that is."( page 776 A-C)
[45] Lord Hoffmann
thus drew a distinction between
(i) a condition that is clear and unambiguous as it stands,
requires no
'interpretation'
and, because it involves the unilateral exercise of a right to bring the
contract to an end, calls for strict compliance according to its terms, and
(ii) a condition that leaves scope for interpretation and
application "in the
light of all the background which could
reasonably have been expected to have been available to the parties in order to
ascertain what would objectively have been understood to be their intention".
We take leave to doubt whether a Scottish court would feel
bound to declare a notice invalid on the ground that it was written on pink
paper rather than blue paper, but the point being made is clear enough and is
confirmed by the way in which Lord Clyde dealt with the matter.
[46] Lord Clyde
focussed the question at issue in this way:
"[T]he question in this appeal is
whether the two letters dated 24 June 1994 and sent by the appellant tenant to
the respondent landlord qualify as effective notices to determine the leases to
which each letter respectively referred.
Their validity as notices has to be tested against the terms of the power under which they were served. (page 780H, emphasis added)
He answered that question thus:
"The standard of reference is that of
the reasonable man exercising his common sense in the context and in the
circumstances of the particular case. It
is not an absolute clarity or an absolute absence of any possible ambiguity
which is desiderated. To demand a
perfect precision in matters which are
not within the formal requirements of the relevant power would in my view
impose an unduly high standard in the framing of notices such as those in issue
here. While careless drafting is
certainly to be discouraged the evident intention of a notice should not in
matters of this kind be rejected in preference for a technical precision." (page 782 C-D, emphasis
added)
[47] Our conclusion
from an analysis of the speeches in Mannai,
so far as relevant for present purposes, is that the courts should interpret
and apply commercial instruments in a common sense 'commercial' or 'business'
way, eschewing linguistic and legalistic niceties. Where a contract gives one party the right
unilaterally to bring the contractual relationship to an end, or to alter it in
some other way, then that party must, if he chooses to exercise that right,
comply with the agreed conditions for its exercise. If strict compliance with a particular
condition is called for, then strict compliance will be enforced.
[48] These
propositions do not appear to us to be at variance with the law of
[49] The other two
English cases cited, Burman and Fernandez, can
readily be distinguished both from Mannai
and from the present case. The conditions
in question in those cases were not contractual but statutory.
[50] Lord Prosser's
decision in Muir Construction Ltd v Hambly Ltd (supra) appears to us to be precisely in line with the conclusions
we have drawn from Mannai. In that case, the contractors served a
warning notice on the employers seeking payment under an interim certificate
and thereafter, no payment having been made, purported to terminate the
contract by service of a notice of determination. It was averred that service of the notice had
been by hand delivery to an employee of the employers. The contract provided that the contractor may
"by registered post or recorded delivery
to the Employer or Architect forthwith determine the employment of the
Contractor under this Contract ..." (emphasis added). The employers argued that the notice alleged
to have been served by hand was invalid.
[51] Having
analysed the contract and the purpose of the requirement for service by
registered post or recorded delivery, Lord Prosser concluded that "the required
formality [was] intentional, binding and useful to both parties" (1990 SLT at
page 834H). "Precise words in a
carefully structured provision are intended by the parties to have a precise
effect in a carefully structured procedure" (page 833J). Consequently, the notice averred to have been
served by hand was invalid.
[52] We observe in
passing that the clause under consideration in Muir Construction, requiring service by registered post or recorded
delivery, seems to be a better illustration of the point Lord Hoffmann was
making in Mannai than his example of
a clause requiring a notice on blue paper.
[53] In the light
of the foregoing analysis of the cases, the question that remains to be
resolved in the present case can be formulated as being whether, looking at the
Conditions of Contract as a whole (including the Code and in particular Article
1:3) the parties intended that compliance with Article 1:3 of the Code should
be a formal requirement for exercise of the power under Clause 69(9)(a) to require that a dispute between them be referred to
arbitration.
[54] For present
purposes any distinction between "strict" and "adequate" compliance is
unimportant since it is not in dispute that Mowlem's notice of 15 September
2004 omitted altogether a number of the constituents of Article 1:3 of the Code
and, in particular, Article 1:3(g).
Was compliance with Article 1:3 of
the Code a formal requirement for exercise of the power under Clause 69(9)(a) to require that a dispute between the parties be referred
to arbitration?
[55] The power
under the Conditions of Contract to require that a dispute be referred to
arbitration, although unilateral in one sense, was a power reserved to both
parties. It was, indeed, a power that
might be exercised by both parties in respect of the same decision of the
adjudicator if both were dissatisfied with it.
Moreover, it was not a power to bring the contractual relationship to an
end or otherwise to alter or modify it.
The power was therefore quite different in character from a unilateral
power to determine a lease (as in Mannai)
or to terminate a contract for non-payment (as in Muir Construction).
[56] It is true, as
Scrabster submitted, that the scheme of procedure
envisaged by the Code assumes that the Notice of Arbitration will contain a
proposal of the name of an arbiter, followed by acceptance of that proposal or
a counter-proposal in the Notice of Defence.
It is also true that Article 1:3 of the Code provides that the Notice of
Arbitration "shall include" the matters
listed.
[57] The Code is
not, however, designed specially for use as a component of more extensive
Conditions of Contract, such as the ICE Conditions. It is designed to be used in any circumstance
and in any place where one party to a dispute desires that a dispute be
referred to arbitration. It is, in our
opinion, open to question whether it was ever intended that each and every
provision of the Code which includes the word 'shall' must be regarded as
mandatory in every case where the Code is adopted.
[58] In the
specific context of the ICE Conditions, the 'sample' Notice of Arbitration in
ICE Appendix (2001) - which is an Appendix
to the Code (not to the ICE Conditions) - does not comply with the
requirements of Article 1:3 of the Code.
This, to put it no higher, is an indication that, for the purposes of applying the ICE Conditions, the provisions of
Article 1:3 are not to be regarded as mandatory.
[59] Clause 66(9)(a) of the Conditions of Contract applicable to this
contract requires only that "The party seeking arbitration shall serve on the
other party a notice in writing (called
a Notice of Arbitration) to refer the dispute to arbitration". Had it been the intention that the notice, to
be valid, must be a Notice of Arbitration complying with the provisions of
Article 1:3 of the Code, it would have been easy to say so.
[60] Clause 66(10)(a) says simply that "The arbitral tribunal shall be
appointed by agreement of the parties".
[61] It can hardly
be said, therefore, that we are in presence of "precise words in a carefully
structured provision".
[62] Further
considerations emerge from consideration of Article 1:3 of the Code itself.
[63] In the first
place, as Mowlem argued, it would seem absurd to contend that a Notice of
Arbitration must automatically be invalid if it does not expressly mention all
the telephone, facsimile, telex numbers and e-mail addresses of the parties
[Article 1:3(a)], where these can be shown already to be known to the Claimant.
[64] In the second
place, and more cogently, a Notice of Arbitration could not possibly 'include'
the matters mentioned in Article 1:3(h).
It appears probable that something has gone wrong with the
word-processing of this part of the Code since the numbering passes from 1:4 to
1:6 without 1:5. What appears as Article
1:3(h) should probably be Article 1:4, and Article 1:4
should be Article 1:5.
[65] Whatever be
the explanation, it cannot be asserted that Article 1:3(g) is mandatory while
Article 1:3(h) is not, since both come under the general heading "The Notice of
Arbitration shall include the
following ...".
[66] Scrabster
contended that the scheme of the Code requires that Article 1:3(g) be mandatory
in order that the Notice of Defence can include the Respondent's reaction to
the Claimant's proposal of an arbitrator.
This might be persuasive but for the second sentence of Article 1:3(h)
which provides that "Failure to deliver a Notice of Defence shall not delay the
arbitration." The Code is silent as to
how the 'scheme' for appointment of the arbitrator is, in that event, to
operate.
[67] Looking at
Article 1:3 of the Code both by itself and in the context of the Conditions of
Contract as a whole, we conclude that the parties cannot be held to have
intended that compliance with Article 1:3, in particular Article 1:3(g), should
be a formal requirement for the exercise by either party of the power to
require that a dispute between them be referred to arbitration, rendering
invalid any notice that did not so comply.
[68] Mowlem's
letter of
[69] We reach this
conclusion with some relief since it would be unfortunate if a Code designed to
promote recourse to alternative dispute resolution were to become a quarry for
litigation over legal niceties. We also
hope that the Sponsoring Bodies of the ICE Conditions of Contract will look
again at the terms of ICE/ScotArb/2001 in order to remove the uncertainties
canvassed in argument before us.