This was an appeal brought by the claimant contractor (“Sisk”) seeking variation or remission of an arbitrator’s award that the defendant subcontractor (“Carmel”) was due £975,965.48 plus interest on termination. The appeal was made by way of a Part 8 claim seeking declarations that the arbitrator had made three errors of law.

The award arose out of arbitral proceedings between Sisk and Carmel in relation to a mechanical and electrical services sub-contract under which Carmel was to carry out the supply and installation of those services to 40 new apartment buildings. The subcontract incorporated both Sisk conditions and the JCT Conditions of Sub-Contract SBCSub/C2005 Rev 1 2007, but in the event of conflict between the JCT Conditions and the Sisk Conditions, the latter were to prevail.

Sisk contended that the arbitrator made errors of law in relation to the following three questions:

  1. The burden of proof in relation to Carmel's claim under Clause 7.7.4 of the JCT Conditions incorporated into the Sub-Contract ("Issue 1");
  2. Whether or not Sisk's primary claim to set-off under Clause 7.7.4 was a global claim and thus irrecoverable ("Issue 2");
  3. The rate of interest to be applied to sums awarded to Carmel ("Issue 3").

The approach on appeal

The applicable principles when granting an appeal from the award of an arbitrator were those identified in MRI Trading AG v Erdenet Mining Corp LLC [1] and subsequently upheld in the Court of Appeal. Carr J provided a general summary of those principles which would be applied to Sisk’s appeal:

“As a matter of general approach, the courts strive to uphold arbitration awards; the approach is to read an arbitration award in a reasonable and commercial way, expecting as is usually the case, that there will be no substantial fault that can be found with it; not only will the court not be astute to look for defects, but in cases of uncertainty it will so far as possible construe the award in such a way as to make it valid rather than invalid.”

Issue 1: Burden of Proof

The first issue concerned the burden of proof applied by the arbitrator when considering the amounts owed to Carmel on termination. Sisk contended that the burden of proof would rest solely on Carmel to substantiate its claim for monies owed, and so the arbitrator had erred when he applied part of the burden on Sisk:

“However, since, three weeks prior to termination, the Respondent produced a valuation of the Claimant's work which was significantly higher than the valuation for which it now contends, the evidential burden falls on the Respondent to show, as it has endeavoured to do, why that earlier valuation was erroneously high.”

Carr J was unconvinced by this argument. In her view, the arbitrator was merely saying that, in practical terms, Sisk would have an evidential hurdle to overcome, and so the arbitrator had not misapplied the correct burden of proof: 

“It was the elephant in Sisk's room. It was an obvious point of substance of which Sisk was fully aware, and one which, as the Arbitrator recorded, Sisk sought to overcome, albeit unsuccessfully.”

Accordingly, the first limb of Sisk’s claim failed.

Issue 2: Global Claim

The second issue concerned the arbitrator’s purported misunderstanding and misapplication of Akenhead J’s decision in Walter Lilly v Mackay [2] concerning global claims. In essence, Sisk contended that the arbitrator had erred in finding:

  1. that there was a difference between global claims and total cost claims; 
  2. that Sisk’s counterclaim constituted a total cost claim; and 
  3. that the burden of proof on Sisk included the burden to establish the financial validity of the hypothetical comparative cost.  

Carr J was unconvinced that the arbitrator had asserted there was a difference between global cost claims and total cost claims, or that the arbitrator had found Sisk’s counterclaim constituted a total cost claim. This was an unfair reading of the award, and the fact that he had addressed global claims was merely an instance of the arbitrator fully addressing the legal submissions of the parties. Carr J also considered that the arbitrator’s comments regarding the burden of proof on Sisk were a reflection of the comments of Akenhead J in Walter Lilyand would not therefore constitute an error of law.

Accordingly, the second limb of Sisk’s claim failed.

Issue 3: Interest

The third issue concerned the application of the Late Payment of Commercial Debts (Interest) Act 1998 to the contract between the parties. Complications arose because the contract between Sisk and Carmel had incorporated both the Sisk conditions and the JCT conditions with the Sisk conditions overriding those of JCT in the event of any conflict, but left uncertain what would happen where a Sisk condition overrode a JCT condition in circumstances where it was also made void by operation of the Debts Act.

Clause 15.9 of the Sisk conditions provided that:

"If Sisk fails to pay in full any sum properly due hereunder by the final date for payment, Sisk may (but shall not be obliged to) pay interest thereon from the final date for payment until payment of such sum is made." 

Under the terms of the contract between the parties, this provision overrode clause 4.10.5 of the JCT conditions which provided:

“If the Contractor fails properly to pay the amount, or any part of it, due to the Sub-Contractor under these Conditions by the final date for its payment, the Contractor shall pay to the Sub-Contractor in addition to the amount not properly paid simple interest thereon at the Interest Rate for the period until such payment is made. Payment of such interest shall be treated as a debt due to the Sub-Contractor by the Contractor…” 

The arbitrator determined that clause 15.9 was not a substantial remedy for the late payment of commercial debts and so it was declared void under section 8(4) of the Debts Act. This was not disputed by the parties. What was in dispute was whether the effect of clause 15.9 being made void under the Debts Act was to incorporate the provisions of the Debts Act, or whether it would instead reactivate clause 4.10.5 of the JCT conditions to fill in the void. 

The arbitrator determined that the provisions of the Debts Act would be incorporated on the following basis:

“The flaw arises as a result of timing. Clause 15.9 cannot be declared to be void until after it has become a term of the Sub-contract. Thus, before Clause 15.9 had been declared void, it had been incorporated into the Sub-contract in place of Clause 4.10.5, which was thereby deleted. Clause 15.9 was then declared void.”

Although Carr J accepted that the reasoning of the arbitrator was “difficult to follow” and “an odd way of looking at it”, she reached the same conclusions on a different basis. Construed properly, clause 4.10.5 of the JCT conditions only related to interest in respect of interim payments and so the provisions of the Debts Act would apply in respect of final payments regardless of whether 4.10.5 had been incorporated.

Accordingly, Carr J dismissed all three limbs of the claim. 

For more information, please refer to the judgment.