While the TCC is still open over the summer holidays, it isn’t operating at full bore. The consequential slow down in published cases has given me an opportunity to catch up with some of this year’s non-adjudication cases, and one in particular that caught my eye was Mi-Space v Lend Lease Construction.
Mi-Space v Lend Lease Construction
Mi-Space applied for pre-action disclosure. Lend Lease argued that because the parties’ bespoke contract contained an arbitration agreement, the court did not have the power to order pre-action disclosure. Akenhead J agreed with Lend Lease and therefore dismissed Mi-Space’s application. However, it is not the outcome I want to talk about; rather I think the interesting part of the case is the contract’s “dispute procedure” and Akenhead J’s comments on that procedure.
The contract’s dispute procedure
The contract’s dispute procedure contained five steps:
- Defining the dispute.
- Dispute Review Board (DRB) initial meeting.
- Consensual resolution (mediation).
- Non-consensual resolution.
As part of step three, the DRB would “use its best endeavours to assist the parties to settle and resolve disputes”. If a settlement could not be achieved then the DRB would recommend either mediation (with the consent of both parties) or arbitration. While the dispute procedure envisaged the appointment of a separate mediator, the DRB members would act as the three-person arbitral tribunal.
DRB members acting as arbitrators
Akenhead J made the point that it is somewhat unusual for dispute board members to be arbitrators as well, but went on to say that:
“…there is no reason in principle or, so far as I am aware in policy, why they could not be arbitrators in relation to the same project. In one practical sense at least there is an advantage, which is that the members of the DRB might well have acquired a good working and practical knowledge of the project and all the disputed problems which have arisen as the project has proceeded.”
In the context of this particular dispute procedure, Akenhead J’s points appear to make a great deal of sense. Prior to an arbitration, the DRB members are not required to decide the dispute; rather they are simply required to use their “best endeavours” to resolve it. If settlement does not result, they are to recommend either mediation or arbitration.
So why not take advantage of the DRB’s knowledge of the project and dispute(s) and appoint them as arbitrators?
Some might argue that there are disadvantages. The DRB members having knowledge of the project is all well and good, but surely an arbitration should be decided on the parties’ submissions and evidence in the arbitration, and not what the DRB members have learnt over the course of the project? What if one or both parties doesn’t want to rely on certain information or events that the arbitrators might consider relevant to the dispute. Will the arbitrators realistically be able to put it out of their minds?
In more traditional dispute board arrangements where the dispute board has given decisions or recommendations, there seems to be little point in having the same people acting as dispute board members and arbitrators; surely they are likely to reach the same conclusion?
Certainly FIDIC takes the view that, unless the parties and all dispute board members agree, no member of a dispute board shall act as arbitrator under the contract (clause 5 of the General Conditions of Dispute Board Agreement). In their book on dispute boards, Gwyn Owen and the late Brian Totterdill state that:
“This is a logical restriction. The DB has given its decision and the information on which the decision was based is already known to both parties, who can submit any relevant information to the arbitration tribunal.”
What appears to be more certain is that the same person should not act mediator and arbitrator (Gao Haiyan v Keeneye Holdings Ltd HCCT 41/2010) or adjudicator (Glencot Development & Design v Ben Barrett & Son) due to the risk of a finding of apparent bias. Perhaps that’s why “med-arb” has never really taken off in the UK.
What lessons can be learnt?
Another point that is clear from Akenhead J’s judgment is that the parties never appointed the DRB. I have previously blogged about the benefits of dispute boards and, while the DRB would have been an extra cost to Mi-Space and Lend Lease, I can’t help feeling that if they had been in place the dispute may have been avoided and/or limited, and the parties would have saved in the long run.
However, I doubt the parties need me to tell them that. Indeed, they would probably adopt the immortal words of Bail Fawlty by suggesting I went on Mastermind: “Specialist subject – the bleeding obvious”.