Newfield Construction Ltd. v Tomlinson & Anor

On an appeal under Arbitration Act 1996, an arbitrator’s costs decision may raise a question of law where the arbitrator fails to identify the dispute by reference to the parties’ pleadings, takes account of irrelevant material, or fails to take account of material required by law. An arbitrator’s misunderstanding of the dispute may also constitute a serious irregularity, but intervention under section 68 remains exceptional and requires substantial injustice. Where the correct costs order is clear, the court may vary the award directly rather than remit the issue to the arbitrator.

The parties agreed the sale of a house and a profit-sharing mechanism based on a development appraisal. The Tomlinsons commenced arbitration concerning whether the contractual 25 per cent developer’s margin was to be calculated by reference to costs or sales value.

The arbitrator held that the appraisal figure was equivalent to costs plus 33.33 per cent, which was Newfield’s pleaded position, but awarded the Tomlinsons the arbitration costs. Newfield applied under sections 68 and 69 of the Arbitration Act 1996. The central issue was whether the arbitrator had misunderstood the dispute and therefore wrongly identified the event for the purposes of costs.

1. Section 69 appeal. Leave to appeal was granted and the appeal was allowed. The statutory requirements were satisfied: the issue was a question of law, substantially affected the parties’ rights, had been submitted to the arbitrator, was obviously wrong, and it was just and proper for the court to determine it.

2. A complaint about an arbitration costs award must be capable of formulation as a clear question of law. An error in appreciating or understanding evidential material may amount to a serious irregularity, but does not ordinarily constitute a question of law. A question of law arises where the arbitrator takes account of matters which should be excluded, fails to consider matters which must be considered, or reaches a conclusion which a properly directed tribunal could not reasonably reach.

3. The arbitrator was required to identify the dispute by reference to the pleadings. Those pleadings made clear that the dispute concerned only whether the appraisal figure should be calculated as costs plus 25 per cent or costs plus 33.33 per cent. Actual future sales values were relevant only to the later calculation of shared profit. By relying on a superseded document and a contradictory footnote, while ignoring the pleadings, the arbitrator misdirected himself as to the dispute and the relevant event.

4. The arbitrator’s construction of the agreement adopted Newfield’s case and rejected the Tomlinsons’ case. Newfield had therefore succeeded in the arbitration. The arbitrator’s contrary costs conclusion was obviously wrong.

5. The same failure constituted a serious irregularity under section 68. It involved a failure to conduct the proceedings in accordance with the agreed and ordered procedure, namely the use of pleadings defining the parties’ cases. The irregularity caused substantial injustice because the arbitrator accepted that the proper costs order would otherwise have been reversed.

6. Although section 69(7) conferred a wide discretion as to relief, remission was unnecessary. The award was varied so that the Tomlinsons were ordered to pay Newfield’s recoverable arbitration costs.

• Arbitration. The arbitrator issued a First Partial Award on 26 May 2004 and a subsequent Review concerning costs.
• High Court (Technology and Construction Court). Newfield obtained leave under section 69 of the Arbitration Act 1996; the appeal was allowed and the award was varied. The court also found serious irregularity and substantial injustice under section 68.