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

Where proceedings concern a matter covered by a valid arbitration agreement, the court must grant a stay under section 9(4) of the Arbitration Act 1996. The apparent weakness or indisputability of the defence does not prevent the existence of a dispute.

Section 111 of the Housing Grants, Construction and Regeneration Act 1996 regulates substantive payment rights. It does not remove a dispute about withheld payment from an agreed arbitration clause.

A dispute arises once it can reasonably be inferred that a claim is not admitted. Express rejection is unnecessary. Silence, prevarication and negotiations may establish non-admission, depending on the claim, the contractual structure and the time reasonably required for a response.

A building contractor claimed £53,777.40 under a minor works contract. The sum included the amount stated in a certificate and the balance claimed in an account prepared after the contractor purported to determine its employment. The employer had served no notice of intention to withhold payment under section 111 of the Housing Grants, Construction and Regeneration Act 1996.

The contract contained a wide arbitration agreement covering disputes or differences arising under or in connection with the agreement. His Honour Judge Knight QC stayed the claim under section 9(4) of the Arbitration Act 1996. The contractor appealed, contending that the absence of a withholding notice made the certified claim indisputable and entitled it to judgment rather than a stay.

The central questions were whether section 111 displaced the parties’ agreement to arbitrate and whether a dispute existed when the proceedings began.

1. Appeal dismissed. The employer was entitled to a stay of the whole claim under section 9 of the Arbitration Act 1996. Clarke LJ gave the principal judgment. Neuberger LJ and Brooke LJ agreed.

2. The majority decision in Halki Shipping Corporation v Sopex Oils Ltd [1998] 1 WLR 726 established that the removal from section 9(4) of the words permitting an inquiry whether there was “in fact” a dispute changed the former law. If a dispute otherwise exists, the court cannot refuse a stay merely because the defendant has no arguable defence or the claimant would be entitled to summary judgment.

3. Section 111 of the Housing Grants, Construction and Regeneration Act 1996 concerns the parties’ substantive payment rights. It is silent about whether a payment claim must be determined by a court or an arbitrator. Nothing in that Act limits section 9 of the Arbitration Act 1996 or prevents parties from referring a claim for wrongfully withheld money to arbitration.

4. The absence of an effective withholding notice may leave an employer with no defence to a certified payment claim. That does not remove the arbitrator’s jurisdiction. An arbitral tribunal can determine an apparently indisputable claim promptly, including through an interim award. Under Rupert Morgan Building Services (LLC) v Jervis [2003] EWCA Civ 1563, underlying merits which could not defeat the immediate certified claim could still be raised in later adjudication, litigation or arbitration.

5. A dispute does not arise automatically when a claim is notified. It arises once it can reasonably be inferred that the claim is not admitted. Non-admission may appear from express rejection, discussions, prevarication or silence. The necessary period of silence depends upon the facts, the contractual structure, the familiarity and controversial nature of the claim, and whether the claim is sufficiently clear to permit a sensible response. Negotiation and discussion are generally consistent with an existing but unresolved dispute. Courts should readily infer a dispute once non-admission is objectively apparent.

6. Long before proceedings began, the employer had declined to admit the contractor’s claim. The dispute fell within the wide arbitration clause. The stay therefore covered both the certified sum and the remainder of the final account. Costs were to be assessed unless agreed.

1. Court of Appeal (Civil Division): The appeal was dismissed. The stay of the whole claim under section 9 of the Arbitration Act 1996 was upheld.
2. Central London County Court: His Honour Judge Knight QC stayed the contractor’s claim under section 9(4) of the Arbitration Act 1996 and ordered it to pay the employer’s costs. The order was dated 22 April 2004 and varied on 16 June 2004.