The Bay Hotel and Resort Ltd and anor v Cavalier Construction Company Ltd and anor
| Jurisdiction | UK Non-devolved |
| Judge | Lord Cooke of Thorndon |
| Judgment Date | 16 July 2001 |
| Neutral Citation | [2001] UKPC 34 |
| Court | Privy Council |
| Docket Number | Appeal No. 32 of 2000 |
| Date | 16 July 2001 |
[2001] UKPC 34
Privy Council
Present at the hearing:-
Lord Nicholls of Birkenhead
Lord Cooke of Thorndon
Lord Clyde
Lord Hutton
Lord Millett
[Delivered by Lord Cooke of Thorndon]
This case from the Turks and Caicos Islands concerns a building contract for the completion of a hotel there. The contract was in a standard form of the American Institute of Architects (AIA) and expressly provided that the law of the contract was the place of the project. An arbitration clause provided for arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association (AAA). An arbitration took place in Miami, Florida, being the location requested by both sides, before a panel of three American arbitrators selected from a list supplied by the AAA. The ultimate award was in favour of the contractor. The owner sought unsuccessfully in the courts of the Turks and Caicos Islands to have the award set aside. By leave granted by the Court of Appeal, the owner now appeals to Her Majesty in Council, while the contractor cross-appeals on a point about interest.
The principal issue on the appeal is whether, in the context of this AAA arbitration, the award was a "reasoned" one, the trial judge having accepted the evidence of an American expert witness that it did answer that description. Another issue is whether the arbitrators were entitled, as they did, to add an additional party to the arbitration on the request of the contractor and against the opposition of the owner; and to make an award to the additional party jointly with the contractor. This issue is linked with a contention on the part of the owner that the contractor itself has suffered no loss and therefore cannot recover damages.
The foregoing are the basic facts and issues. Before returning directly to them their Lordships will state in more detail, in paragraphs 4 to 32 of this judgment, the history and circumstances of the case, and the manner in which it has been dealt with in the courts below.
Background
The Crown Bay Resort Hotel, Providenciales, had been partly constructed. A bondsman, Zurich Indemnity Company of Canada (Zurich), having been called upon under its bond, elected to complete the work, expecting that the cost of doing so would be less than the full amount of the bond. Zurich formed a company in the Turks and Caicos Islands, The Bay Hotel and Resort Limited (The Bay), to be the employer of the contractor chosen to complete the hotel, an established construction company registered in The Bahamas called Cavalier Construction Company Limited (Cavalier Bahamas). The Bay as owner and Cavalier Bahamas as contractor entered into an elaborate construction contract dated 18th August 1993. On the same date Zurich, in writing, guaranteed payment to Cavalier Bahamas of sums due to the contractor under that contract. The guarantee was limited to US$17 million.
The contract, in which an address in Ontario is given as the address of The Bay, was in the form (with amendments) of the 1987 edition of AIA document A111, Standard Form of Agreement between Owner and Contractor. There was a maximum price of US$15,625,000.00; it has not been argued that this limits recoverable damages. By article 13.1.1 the contract is to be governed by the law of the place where the project is located. Article 4.9.1 provides, so far as relevant -
"Any controversy or Claim arising out of or related to the Contract, or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, and a judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof, …"
Similarly a contractual document following the instruction sheet includes "Is arbitration the desired method of dispute resolution? Is arbitration recognised as a valid method of dispute resolution by the laws of the Turks and Caicos Islands? Disputes shall be resolved according to the laws of Turks and Caicos Islands". The last words "Turks and Caicos Islands" were added in writing. (The reference is A1A 201 CMa-1992; entry opposite G paragraph 4.6.)
The applicable rules are the Construction Industry Arbitration Rules of the AAA, revised and in effect on 1st April 1996. The AAA offers "Dispute Resolution Services Worldwide". The rules include provisions for "Large, Complex Case Track" procedures which apply to this case. As to the form of the award, rule 42, which is part of the regular track rules but is not excluded by the special procedures, reads as follows –
"R. 42. FORM OF AWARD
The award shall be in writing and shall be signed by a majority of the arbitrators. It shall be executed in the manner required by law. The arbitrator shall provide a concise, written breakdown of the award. If requested in writing by all parties prior to the appointment of the arbitrator, or if the arbitrator believes it is appropriate to do so, the arbitrator shall provide a written explanation of the award."
Under R.41 the award is to be made, unless otherwise agreed, within 30 days of the closing of the hearing.
By R.11 the parties may mutually agree on the locale where the arbitration is to be held. If one party objects to the locale requested by the other, the AAA has power to determine the locale. As for procedure and the lex arbitri generally, the rules contain some provisions recognising that there may be an applicable law (e.g. R.42 above, and R.25 whereunder the arbitrator shall maintain the privacy of the hearings "unless the law provides to the contrary") but are silent as to what system of law may govern the conduct of the arbitration. Their scheme is, rather, that they constitute a self-contained code on which a national law may impinge or operate as an aid.
The concept of a self-contained code is also apparent from R.53 –
"R.53. INTERPRETATION AND APPLICATION OF RULES
The arbitrator shall interpret and apply these rules insofar as they relate to the arbitrator's powers and duties. When there is more than one arbitrator and a difference arises among them concerning the meaning or application of these rules, it shall be decided by a majority vote. If that is not possible, either an arbitrator or a party may refer the question to the AAA for final decision. All other rules shall be interpreted and applied by the AAA."
The contractor's work under the contract was in fact carried out by a company formed by Cavalier Bahamas in the Turks and Caicos Islands. It bears the same name, Cavalier Construction Company Limited, as Cavalier Bahamas and is conveniently referred to as Cavalier TCI. According to The Bay, the existence of Cavalier TCI and the fact that it had done the work were not known to The Bay until discovery of documents in the arbitration shortly before the hearing commenced. As to the relationship between the two Cavalier companies the trial judge, Ground CJ, made the following important findings –
"Mr. Wilson, the Managing Director of Cavalier Bahamas, explained in his evidence in chief that, although the Construction Contract was with Cavalier Bahamas, a separate company was set up to perform the work. This was Cavalier TCI. He explained that this approach was dictated by currency and other considerations of operating in what was, for him, a foreign jurisdiction. He said that Cavalier TCI was entirely funded by the parent company, who also provided plant, equipment and management. All net profits of Cavalier TCI company were to be remitted to the Bahamas (although it is not said to the Bahamian parent) as were all dividends. Mr. Wilson asserts that Cavalier TCI was never considered to be any more than an extension of the parent, who financed it in its entirety. None of that is seriously challenged on the evidence before me, and find it to be true."
The Chief Justice went on to comment –
"Against that background, it was part of the Bay's case at the arbitration that as all the work on the project had been performed, and all the financial liabilities incurred by Cavalier TCI, there was no evidence of loss on the part of Cavalier Bahamas. It was therefore argued that the claimants' case in the arbitration must necessarily fail. Whatever the legal force of that argument, it sat ill in the mouth of a party who was counterclaiming against Cavalier Bahamas for delay and defects in the performance of the construction contract, and was not likely to be one to appeal to a panel of construction arbitrators."
Mr Wilson and the Nassau attorney who had been involved in obtaining permission from The Bahamas Central Bank to form Cavalier TCI had apparently given similar evidence to the arbitrators.
Work under the contract was late. There were also disputes about the quality of the work. In May 1996 Cavalier Bahamas demanded arbitration under the AAA Rules, claiming US$5,632,311.00 and naming The Bay as respondent. The Bay lodged with the AAA an answering statement, noting that Cavalier Bahamas was claiming both for work under the contract and for delay damages; denying liability; and counterclaiming for rectification expenditure and delay damages US$6,819,303.00.
A preliminary hearing took place before the arbitrators in Miami on 14th August 1996. At that stage counsel for Cavalier Bahamas were Bahamian lawyers; counsel for The Bay were Canadian lawyers. The latter continued to represent The Bay throughout the arbitration; at the substantive hearing of the arbitration a Washington DC attorney, Mr. McManus, appeared as leading counsel...
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