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New claims may be added relatively late in a proceeding if they are within scope of reference to arbitration

Arbitration specialists in solicitors’ firms are familiar with the evening phone call from transactional colleagues: “Can you look at our arbitration clause? We need to sign the contract tonight”. Frustrating as such entreaties can be, it is preferable to be asked in advance than to encounter a problematic clause for the first time after a dispute has arisen.

It is not known whether that happened in a case that recently made its way to the Technology and Construction Court. What is apparent from the judgment in Bond v Mackay and others is that the contract’s dispute resolution clauses (plural) may have contributed to unnecessary expenditure of time and money.

Another instructive point from the judgment is that a claimant may preserve its ability to bring new claims into an arbitration, even at a fairly late date, if it draws its notice of arbitration in wide and general terms.

The case arose from a dispute between a land owner, Bond, and the owner of a gas pipeline running under his property, Southern Gas Networks plc. A deed between Bond and Southern Gas’s predecessor provided that Bond would not do anything on the land that would damage the pipeline. Bond leased to a third party the right to extract clay from the site. No clay could be extracted from the area adjacent to the pipeline because of Bond’s undertakings in the deed with Southern Gas. He claimed compensation for the partial sterilization of his mineral rights.

The problem arose from the question of which particular provision of the deed Bond intended to rely on. There were three possibilities. Two were found in Clauses 5 and 6 of the deed. Each contained its own arbitration provision, similar in effect: arbitration before a sole arbitrator to be appointed by the Lands Tribunal (now the Upper Tribunal) if the parties could not agree. The other possibility was Clause 2, which was subject to a third arbitration provision, this time with the appointment to be made by the Royal Institution of Chartered Surveyors (RICS) if the parties did not agree.

In most of the pre-arbitration correspondence referred to in the judgment, Bond’s solicitors claimed compensation under Clauses 5 and 6 and, it appears, never directly referred to Clause 2. When they referred the dispute to arbitration, however, they applied to RICS. The arbitrator referred to terms of reference under which, as he understood it, the dispute concerned “the compensation payable to [Bond] in respect of the sterilization” of clay. Bond’s statement of case referred to Clauses 5 and 6, but not to Clause 2. After his Clause 5 and 6 claims failed, he sought to introduce a claim under Clause 2. The arbitrator found he had no jurisdiction over that claim. Bond applied under section 67 of the Arbitration Act 1996 to set aside that determination.

If it is surprising that the application succeeded, that is because I have omitted one key fact. In their application to RICS, Bond’s solicitors requested appointment of an arbitrator in respect of “a dispute as to valuation and compensation”. The Deputy High Court Judge (Jonathan Acton Davis QC) held that he must “take a broad view of the factual matrix as shown by the correspondence leading up to the appointment of the Arbitrator” and concluded that the claim under Clause 2 was for “compensation” within the scope of the reference to arbitration.

Three observations may be in order:

  • It may have made sense to those who drafted the deed that a chartered surveyor would be an appropriate arbitrator for a dispute under Clause 2, so RICS should make the appointment, while Clauses 5 and 6 differed in a manner that made the Lands Tribunal appropriate. But they may not have considered that a dispute could arise under all three clauses. Notably, the deed provided that if the same subject matter gave rise to disputes under the deed and between Bond and the owner of an oil pipeline running alongside the gas pipeline, the disputes would be resolved in a single arbitration. This showed foresight an arbitration practitioner would admire.
  • The broad wording of the reference to arbitration gave the arbitrator jurisdiction over the Clause 2 claim, but it is not clear from the judgment whether he could still decline on discretionary grounds to permit the late amendment of Bond’s statement of case. Nonetheless, by phrasing the reference in general terms, Bond’s solicitors preserved their ability at least to attempt to introduce the Clause 2 claim.
  • Matters might have been different had this been an institutional arbitration. The judge noted that the terms of reference to which the arbitrator referred were not those “required in a number of the Rules which govern international arbitrations”, an apparent reference to the ICC Rules. Article 22(4) of those rules precludes a party from introducing claims outside the scope of the terms of reference without the tribunal’s authorisation. Similarly, Article 22 of the UNCITRAL Rules permits amendment of a party’s pleading to add a new claim unless the tribunal considers it “inappropriate”. Both explicitly direct the tribunal to consider “the stage of the arbitration” (ICC) or “delay in making” the new claim (UNCITRAL) in deciding whether to exclude the claim, even though the claim is within the tribunal’s jurisdiction.

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