Collins (Contractors) Ltd. v Baltic Quay Management (1994) Ltd

Factual and Procedural Background

This appeal concerns an order dated 22nd April 2004, as varied on 16th June 2004, in which His Honour Judge Knight QC stayed the appellant's claim under section 9(4) of the Arbitration Act 1996 and ordered the appellant to pay the respondent's costs. The appeal was brought with the judge's permission.

The appellant, a builder referred to as the contractor, entered into a written contract dated 10th September 2002 with the respondent, the employer, to carry out repairs and other works at premises in London. The contract price was £139,045, with commencement and termination dates of 9th September 2002 and 27th January 2003 respectively.

The contract included provisions for payment by certified progress payments issued by the contract administrator, Sturges Associates (SMS), at intervals of not less than four weeks, with a 5% retention. SMS issued five certificates between October 2002 and June 2003, with the employer paying the first four certificates but withholding payment of the fifth certificate.

The contractor purported to determine the contract on 18th July 2003 due to the employer's failure to pay the amount certified in Certificate No 5. The contractor then submitted a final account and commenced legal proceedings claiming the unpaid sum plus interest and costs.

The employer sought a stay of the legal proceedings on the basis that a dispute existed which was subject to arbitration under the contract's arbitration clause. The judge granted the stay, and the contractor appealed.

Legal Issues Presented

1. Whether the court should grant a stay of legal proceedings under section 9(4) of the Arbitration Act 1996, given the existence of an arbitration agreement covering the dispute.
2. Whether section 111 of the Housing Grants, Construction and Regeneration Act 1996 precludes the employer from withholding payment without notice and thus prevents the dispute from being subject to arbitration.
3. The proper interpretation of the term "dispute" in the context of arbitration clauses and the Housing Grants Act.
4. Whether the absence of an effective notice of intention to withhold payment affects the jurisdiction of arbitration or adjudication to resolve the claim.

Arguments of the Parties

Appellant's Arguments

• The contractor argued that section 111 of the Housing Grants Act prevents the employer from withholding payment without serving a notice of intention to withhold payment, entitling the contractor to judgment for the amount wrongfully withheld.
• The claim under Certificate No 5 is analogous to a bill of exchange and thus should not be subject to arbitration if no notice was served.
• The Halki Shipping decision does not apply to claims under section 111 and should not lead to a stay of proceedings.
• Reliance on Rupert Morgan Building Services v Jervis, where summary judgment was granted due to the employer's failure to serve a withholding notice.
• The employer has no arguable defence to the claim under Certificate No 5, and thus no real dispute exists to warrant a stay.
• Delays caused by arbitration or adjudication would frustrate the purpose of section 111, which aims to avoid payment delays.

Respondent's Arguments

• The employer contended that the arbitration clause is broad, covering any dispute or difference arising under the contract, thus mandating arbitration and a stay of court proceedings.
• Reliance on the Halki Shipping decision, which held that the court must grant a stay if a dispute exists regardless of the strength of the defence.
• Section 111 of the Housing Grants Act does not affect the right to arbitration or adjudication and is concerned only with substantive payment rights.
• There is a genuine dispute as to liability for the sum claimed, as the employer has not admitted the claim.
• Arbitration and adjudication provide effective and timely mechanisms to resolve disputes, including those under section 111.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by considering the decision in Halki Shipping, which clarified that under section 9(4) of the Arbitration Act 1996, the court must grant a stay of proceedings if there is a dispute covered by the arbitration agreement, regardless of whether the defendant has an arguable defence.

The appellant's argument that section 111 of the Housing Grants Act precludes arbitration in cases where no withholding notice has been served was rejected. The court held that section 111 addresses substantive payment rights but does not affect the jurisdictional question of whether disputes are subject to arbitration.

The court reasoned that if the appellant's argument were accepted, it would undermine the ability to refer claims to adjudication or arbitration, as a claim with no dispute would not exist for such referral. This was inconsistent with established authority, including the Halki decision and others cited.

The court also addressed concerns regarding delay in arbitration or adjudication, noting that arbitration can proceed swiftly, with interim awards possible, and that the parties had agreed to arbitration as an efficient dispute resolution mechanism.

The court reviewed numerous authorities on the meaning of "dispute," including the comprehensive analysis by Jackson J in AMEC Civil Engineering Ltd v The Secretary of State for Transport. It accepted the propositions that a dispute arises when a claim is not admitted, and that silence or prevarication by the respondent can give rise to an inference of dispute.

Applying these principles to the facts, the court concluded that a dispute existed before the commencement of proceedings, given the employer's failure to admit the claim and refusal to pay the amount certified in Certificate No 5.

Accordingly, the court found that the employer was entitled to a stay of the proceedings under section 9 of the Arbitration Act 1996 in respect of the entire claim, including both the certified amount and the final account.

Holding and Implications

The court DISMISSED the appellant's appeal, affirming the order granting a stay of proceedings under section 9(4) of the Arbitration Act 1996.

The direct effect of this decision is that the dispute between the contractor and employer must be resolved through arbitration as stipulated in the contract, rather than by court proceedings. The ruling reinforces the principle that arbitration agreements are to be strictly enforced and that the existence of a dispute for arbitration purposes does not depend on the strength of the defence.

No new precedent was established beyond the application and confirmation of existing principles, particularly those in Halki Shipping and related case law. The decision underscores the autonomy of arbitration as a dispute resolution mechanism in construction contracts governed by the Housing Grants Act and Arbitration Act.