Be careful what you draft A tale of caution!

Turville Heath Inc v Chartis Insurance UK Ltd [2012] EWHC 3019 (TCC)

Under English law parties to a contract are free to agree how disputes that arise out of or in connection with the contract are to be resolved.


Typically parties choose either litigation or arbitration as a means of resolving disputes but sometimes parties decide to incorporate a mediation or other ad-hoc alternative dispute resolution ("ADR") clause in their contract. The courts will do their best to give effect to what the parties have agreed even if the result may appear unusual.


In this case a dispute arose not only over the cost of repairing a fire-damaged building but also as to whether the wording of the dispute resolution provision set out in the contract of insurance was binding upon the parties.


The operative provision called for disputes to be resolved by an arbitrator after receiving submissions from appraisers acting for each party. Crucially, the award of the arbitrator was said to be binding only if one of the appraisers agreed with the award. This left open the possibility of the arbitrator producing a decision that was not binding on the parties.


Turville Heath issued court proceedings to recover the disputed building repair costs and Chartis brought an application before the court to stay the litigation commenced by Turville Heath, either to allow an arbitration to proceed (1) or, as an alternative, for the ad-hoc ADR procedure set out in the parties' contract (2) to run its course.


In a judgement by Mr Justice Edwards-Stewart on the application, it was decided that the parties’ contract did not contain a valid arbitration clause under the Arbitration Act 1996 and on those grounds he was not prepared to order a stay. However, as the parties had agreed on a procedure for resolving disputes, he "saw no reason why the process should not be allowed to continue". A stay was therefore ordered by the court to allow the procedure to continue.

 

This case provides three important reminders:


1) Unless an agreement to arbitrate sets out that the decision of the arbitrator is to be binding on the parties, the provision will not constitute an agreement to arbitrate under the 1996 Act.


2) The courts have wide jurisdiction to intervene throughout a dispute resolution process and will order ADR where it considers it to be appropriate.


3) The courts will do their best to give effect to what the parties agree and lawyers drafting ADR provisions will do well to keep this thought at the forefront of their minds when putting pen to paper.

 

Peter Vinden is a practising adjudicator, arbitrator, expert and mediator. He is Managing Director of Vinden and he be contacted by email at pvinden@vinden.co.uk.
 

Peter Vinden

Peter is an experienced professional in the construction industry with particular expertise in quantity surveying and the commercial management of contracting organisations. 

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