Newfield Construction Ltd v Tomlinson
| Jurisdiction | England & Wales |
| Judge | HIS HONOUR JUDGE PETER COULSON QC,His Honour Judge Peter Coulson QC |
| Judgment Date | 10 November 2004 |
| Neutral Citation | [2004] EWHC 3051 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 10 November 2004 |
| Docket Number | HT No: 04–220 |
[2004] EWHC 3051 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
His Honour Judge Peter Coulson QC
HT No: 04–220
In the Matter of the Arbitration Act 1996
And
In the Matter of an Arbitration
Mr Alexander Nissen (instructed by Shadbolt & Co) for the claimant
Mr TO Trotman (instructed by Anthony J Dewhurst) for the defendants
Hearing date: 15 October 2004
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this
judgment and that copies of this version as handed down may be treated as authentic.
Introduction
Pursuant to a written agreement ("the agreement) dated 7 May 2002, Mr and Mrs John Tomlinson ("the Tomlinsons") agreed to sell their house at 255 Inner Promenade, Fairhaven, Lytham St Annes, to Newfield Construction Ltd, ("Newfield") for £820,000 together with a possible share in a part of the profits of the wider development scheme to be carried out by Newfield at the Inner Promenade, known as Ribble Point. Before the development had been completed, the parties fell out as to the precise mechanism by which those shared profits would be calculated and, in November 2003, pursuant to clause 22 of the agreement, the Tomlinsons commenced arbitration proceedings, seeking a declaration as to the true construction of the relevant terms of the agreement.
Mr Paul Jensen, the well-known construction arbitrator and adjudicator, was appointed as the arbitrator. Following a preliminary meeting on 14 January 2004 and a dispute as to his jurisdiction, the Tomlinsons served an amended statement of case on 12 March 2004 in accordance with the arbitrator's ruling and order for directions of 27 April 2004. Newfield's defence was drafted by Mr Derek Pye, an arbitrator and construction claims consultant, and was served on 6 April 2004. The reply was served on 26 April 2004. There was a hearing before the arbitrator on 7 May 2004, at which the Tomlinsons were represented by Mr TO Trotman of counsel, who also appeared on their behalf in this court. Newfield was represented at that hearing by Mr Pye.
On 26 May 2004, the arbitrator produced his first partial award, in which he declared the true meaning and effect of the relevant clauses of the agreement. He also decided—without giving reasons—that the Tomlinsons had substantially succeeded in the arbitration and, subject to one exception which is irrelevant for present purposes, he awarded them their costs on the basis that, as he correctly put it, "costs should follow the event". Newfield took grave exception to this conclusion, arguing that it was the company which was the successful party in the arbitration, and it was therefore the company which should have been awarded its costs. There followed various exchanges of correspondence with the arbitrator, in which he explained his decision on costs, concluding with his review dated 21 June 2004. This confirmed his conclusion that, on his understanding of the dispute before him, the Tomlinsons had substantially succeeded in the arbitration and were entitled to their costs.
On 14 July 2004 Newfield made two applications to this court, namely: an application under section 68 of the Arbitration Act 1996 for an order setting aside the award and/or the review on the grounds of serious irregularity; and an application under section 69 of the Arbitration Act 1996 for leave to appeal and, if leave was granted, for an order awarding them the costs of the arbitration. These applications were prepared by Shadbolt & Co and Mr Alexander Nissen of counsel, neither of whom had any involvement in the arbitration. Mr Nissen appeared on behalf of Newfield in this court.
There was a dispute between the parties as to the correct procedure to be adopted for these applications. Whilst an application for leave under section 69 of the Arbitration Act ought to be a paper-only application, (section 69(5)) an application under section 68 for setting aside due to a serious irregularity will usually be heard orally. Having received in writing a note of the parties' respective arguments as to procedure, I resolved that dispute on 27 September 2004 by deciding to follow the approach of Colman J in Bulfracht (Cyprus) Ltd v Boneset Shipping Co Ltd [2002] EWHC 2292 (Comm) where he had this to say about multiple applications of this kind:
"Although applications for leave to appeal under section 69 are normally on paper without an oral hearing, the course adopted in the present case of hearing oral argument on the application for leave at the same hearing as for the section 68 application, is a sensible and more cost efficient approach, particularly having regard to the fact that the underlying facts and legal submissions relevant to both applications are so closely related."
Accordingly, at the hearing before me on 15 October 2004, whilst I invited the parties to make short oral submissions on the section 69 application, the bulk of the hearing was concerned with the application under section 68. It was also agreed by both parties that, if I was of the view that leave should be given under section 69, I should also deal with the substantive appeal, since the arguments that arose on the appeal itself were precisely the same. Whilst I have no doubt that this was the correct course to adopt in the present case, and both counsel made effective and succinct oral submissions in accordance with this procedure, I am aware that, in other cases, applicants can be tempted to use the cover of a section 68 application in order to argue the detail of their section 69 application orally. Such a course is contrary to the Arbitration Act and the CPR and will not be permitted.
Before ruling on the detail of the applications under section 68 and 69, it is necessary that I set out the relevant terms of the agreement, and summarise the dispute, in the arbitration before Mr Jensen.
The agreement
Clause 1.8 of the agreement provided a definition of "the appraisal" as:
"A detailed development appraisal of the Combined Site inclusive of a 25 per cent gross developer's margin."
Clause 20 explained how the appraisal would then be used to calculate the profit-sharing element of the price:
"… Prior to applying for Planning Permission the Buyer [Newfield] shall provide the Seller [the Tomlinsons] with the appraisal and the Buyer and Seller or their nominated Quantity Surveyors shall agree the appraisal. Once this is agreed, it shall form the basis of the calculation of the anticipated profitability of the development of the Combined Site. In the event that the Buyer sells the units comprising the Combined Site for a value in excess of that set out in the appraisal, then that excess value shall be divided equally between the Buyer and the Seller within 14 days of the sale of the last unit in the Combined Site. The Buyer undertakes to proceed in good faith and to perform its best endeavours to ensure that it completes the construction and sale of all of the units in the Combined Site at the best price reasonably obtainable and as expeditiously as possible …"
It should be noted that the appraisal is to be provided before any building work has actually started, let alone been completed. This is because its purpose it to provide a benchmark or baseline, against which the actual sales values, can later be compared. It is only if the actual sales values are higher than the figure in the appraisal, in other words only if there is an excess, that there is any "profit" to be shared between the parties.
The arbitration
Following the production by Newfield of a "commencement appraisal" in September 2003, the Tomlinsons took issue with the way in which the appraisal had been calculated. They commenced arbitration proceedings promptly on 14 November 2003, when their solicitor wrote to the RICS Dispute Resolution Service seeking the appointment of an arbitrator. That letter defined the dispute between the parties in these terms:
"A dispute has arisen with regard to the interpretation of clauses 1.8 and 20 of the contract, which provide for an appraisal to determine the minimum development value and the division of any additional profit stemming from the eventual sale of the development.
The nature of the dispute is limited to the way in which the minimum development value is calculated in the appraisal and, in particular, the calculation of the Buyer's profit therein."
Following the appointment of Mr Jensen as arbitrator and his order of 27 February 2004, the amended statement of claim defined the dispute in detail at paragraphs 6.1–6.3:
"6.1 Under clause 20 it is necessary to establish a figure (say, 'Y') as the 'basis of calculation' in order to proceed to the division of excess value as set out therein.
6.2 If, upon the appraisal as set out in paragraphs 3.1 and 3.2 above, the total development costs equal 'X', the claimants contend that on a proper construction of the parties' agreement,
Y = X+25 per cent X
This can also be expressed as Y = 1.25 X. This will be referred to as the 'direct approach'.
6.3 If, upon the appraisal as. set out in paragraphs 3.1 and 3.2 above, the total development costs equal 'X', the respondents contend that on a proper construction of the parties' agreement
Y—25 per cent Y = X
This can also be expressed as Y = 1.333X.
The respondent's approach is artificial and requires, as an intermediate stage, for a figure to be devised which, less 25 per cent amounts to X. For this reason, it will be referred to as the 'hypothetical approach'."
The defence of 6 April 2004 contained two sections: a lengthy...
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Gabriele Volpi v Delanson Services Ltd
...be astute to abide by the procedure adopted by the parties. 104 A rare example is provided by Newfield Construction Ltd. v Tomlinson [2004] EWHC 3051, where the arbitrator failed to deal with costs in accordance with the procedure agreed by the parties, but instead decided the issue by refe......