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Braes of Doune Wind Farm (Scotland) Ltd v Alfred McaLpine Business Services Ltd
Factual and Procedural Background
There are two applications before the Court concerning the First Award of an arbitrator in relation to an Engineering, Procurement and Construction (EPC) Contract dated 4 November 2005 between the Employer and the Contractor. The Contractor was engaged to carry out works for the installation of 36 wind turbine generators at a site near The City in Scotland. The dispute concerns the enforceability of liquidated damages clauses for delay under the EPC Contract. The Employer seeks leave to appeal the arbitrator's award on a question of law, while the Contractor seeks a declaration that the Court lacks jurisdiction to entertain the appeal and requests leave to enforce the award.
Legal Issues Presented
- Whether the Court has jurisdiction to entertain an application for leave to appeal the arbitrator's award given the seat of arbitration was designated as Glasgow, Scotland, but the contract provides for English law and courts' jurisdiction.
- Whether the liquidated damages clause in the EPC Contract is enforceable or amounts to an unenforceable penalty under English law.
- Whether the arbitrator's decision was obviously wrong so as to justify leave to appeal under Section 69 of the Arbitration Act 1996.
Arguments of the Parties
Employer's Arguments
- The parties agreed that English law governs the arbitration agreement and that the English courts have exclusive jurisdiction over disputes arising from the contract.
- The reference to the Arbitration Act 1996 in the contract implies that English law applies to the arbitration proceedings, despite the seat being Glasgow.
- The Contractor is estopped from denying jurisdiction of the English courts because both parties orally accepted at the arbitration hearing that English law governed the dispute.
- The liquidated damages clause should be enforceable unless it constitutes a penalty under established English law principles.
Contractor's Arguments
- The seat of arbitration is Glasgow, Scotland, and therefore the English courts lack jurisdiction to entertain the appeal.
- The liquidated damages clause imposes liability on the Contractor for delays caused by the Wind Turbine Contractor, which may be a penalty and thus unenforceable.
- The question on appeal is not a question of law but one of contractual construction which an arbitrator could reasonably decide.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Naviera Amazonica Peruana SA v Compania Internacionale De Seguros Del Peru [1988] 1 Lloyds Rep 116 | Clarification that every arbitration must have a juridical seat subject to municipal law; the seat determines the curial law and competent courts. | The Court applied this principle to interpret the seat of arbitration and the applicable curial law, concluding that the parties agreed English law would govern the arbitration despite the seat being in Scotland. |
| Bank Mellat v Helleniki Techniki SA [1984] QB 291 | Reinforces that arbitration must have a seat connected to a municipal legal system. | Supported the Court’s view that the arbitration must be subject to a curial law, here English law, despite the physical seat. |
| C v D [2007] EWHC 1541 | The seat of arbitration and procedural law usually coincide, except where parties choose otherwise under s.4(5) of the Arbitration Act 1996. | Used to support the proposition that the parties can choose a different procedural law from the physical seat of arbitration. |
| Dunlop Pneumatic Tyre Co. v New Garage and Motor Co [1915] AC 79 | Established the principle that liquidated damages clauses that constitute penalties are unenforceable. | Applied to assess whether the liquidated damages clause in the EPC Contract was enforceable or a penalty. |
| Bramall & Ogden Ltd v Sheffield City Council (1983) 29 BLR 76 | Development of penalty doctrine in construction contracts. | Referenced to contextualise the penalty analysis of the liquidated damages clause. |
| CGM SA v Beteiligungs-Kommanditgesellschaft MS Norther Pioneer [2003] 1 Lloyds Rep 212 | Guidance on the standard for obviousness in deciding leave to appeal under Section 69 of the Arbitration Act 1996. | The Court applied this standard in assessing whether the arbitrator’s decision was obviously wrong. |
| Keydon Estates Ltd v Western Power Distribution (South Wales) Ltd [2004] EWHC 996 (Ch) | Consideration of the experience of the arbitrator as a factor in the exercise of discretion under Section 69(3)(d). | Supported the Court’s conclusion that due respect should be given to the arbitrator’s expertise in refusing leave to appeal. |
Court's Reasoning and Analysis
The Court first addressed jurisdiction under Section 2 of the Arbitration Act 1996, which applies only if the seat of arbitration is in England, Wales, or Northern Ireland. Although the contract specified Glasgow, Scotland as the seat, the Court examined the substantive contractual provisions and concluded that the parties intended English law to govern the arbitration proceedings and that the English courts retained jurisdiction.
The Court reasoned that the term "seat" connotes the juridical seat, implying the country responsible for administering justice in the arbitration. Clause 1.4.1 granted exclusive jurisdiction to English courts over disputes, and Clause 20.2.2(c) subjected the arbitration agreement to English law and the Arbitration Act 1996, suggesting an intention for English curial law to apply.
The Court acknowledged the possibility of physical hearings in Scotland but held that the governing procedural law was English, consistent with authorities permitting parties to agree on a different procedural law from the physical location of arbitration.
Regarding the liquidated damages clause, the Court noted established English law that unenforceable penalty clauses cannot be upheld. The arbitrator found the clause unenforceable because it could impose liability on the Contractor for delays caused by the Wind Turbine Contractor, which the parties did not intend, thus constituting a penalty.
In considering leave to appeal under Section 69 of the Arbitration Act 1996, the Court applied the statutory criteria. It found that although the issue was a question of law affecting the parties' rights and was properly before the tribunal, the arbitrator’s decision was not "obviously wrong." The Court emphasized that the arbitrator was a highly experienced construction law QC and that the decision was ultimately correct in law and fact. The Court also noted that the question did not raise a matter of general public importance.
Holding and Implications
The Court DISMISSED the Employer's application for leave to appeal the arbitrator's award and granted the Contractor leave to enforce the award pursuant to Section 66(1) of the Arbitration Act 1996.
The decision confirms that where parties designate a seat of arbitration in one jurisdiction but agree that the arbitration is governed by the law of another jurisdiction, the courts of the latter may have jurisdiction to entertain applications under the Arbitration Act 1996. The ruling also underscores the high threshold for overturning an arbitrator's decision on a question of law, especially when the arbitrator is experienced and the decision is not obviously wrong. No new precedent was established beyond the application of existing principles to the contract’s facts.
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