Kershaw Mechanical Services Ltd v Kendrick Construction Ltd

On an agreed appeal under section 69(2)(a) of the Arbitration Act 1996, the court must decide genuine questions of law correctly; the Act’s policy of non-intervention does not deter that task. The court should primarily read the award, but may consider contractual documents identified in it and needed to resolve the legal question. An award is read fairly and commercially, with some deference to an arbitrator’s industry expertise. Findings of fact and the application of correctly identified law to those facts are generally outside the appeal. A qualification allowing adjustment where final design information differs from tender information does not operate for every difference. Items disclosed by other tender material or reasonably necessary for a compliant installation remain within the sub-contractor’s pricing risk. The appeal was dismissed and the partial award confirmed.

Kershaw, a mechanical-services sub-contractor, appealed under section 69(2)(a) of the Arbitration Act 1996 from an arbitrator’s partial award on its final account against Kendrick, the main contractor. The sub-contract included a Qualification providing for adjustment where final design information supplied by the contractor or its consultant differed from information previously supplied by White, Young and Green.

Kershaw challenged the treatment of sixteen variation items and formulated four questions of law concerning the scope of the Qualification, design-and-build pricing, failure to qualify its tender, and comparison with the ordinary variation clause. The central issues were which questions arose from the award and whether the arbitrator’s construction of the Qualification was legally wrong.

Disposition. The appeal was dismissed. The arbitrator’s partial award was confirmed under section 69(7)(a) of the Arbitration Act 1996.

1. Evidence and intervention. On an appeal under section 69, the award is the principal document. The court may also consider documents referred to in the award where they are needed to determine the legal question, including contractual correspondence forming part of the sub-contract. The restrictive approach reflected in Foleys Ltd v East London Family and Community Services [1997] ADRLJ 401 and stated in Hok Sport Limited v Aintree Racecourse Company Limited [2003] BLR 155 required modification to that extent.
2. Non-intervention and deference. Party autonomy under section 1(b) and the express exception to non-intervention in section 1(c) meant that the court had to decide the agreed legal appeal. Lesotho Highlands Development Authority v Impregilo Spa [2005] 3 WLR 129 was distinguished because it concerned section 68 proceedings. The court adopted a fair and commercially reasonable reading of the award and accorded some deference to the arbitrator’s construction of industry documents, following the guidance in The “Chrysalis” [1983] 1 Lloyd's Rep. 503, Zermalt Holdings SA v Nu-Life Upholstery Repairs LTD [1985] 2 EGLR 14, Gill & Duffus S.A. v Societe Pour L’exportation Des Sucres S.A. [1968] 1 Lloyd's Rep. 322 and Andre et Cie v Cook Industries Inc. [1986] 2 Lloyd's Rep. 200.
3. Questions of law. The court applied the three-stage analysis explained in The “Chrysalis” and the factual-limit guidance in The “Baleares” [1993] 1 Lloyd's Rep. 215. The arbitrator found the facts, ascertained the contractual law, and applied that law to the facts. Only the second stage was properly appealable. Questions 2, 3 and 4 did not arise from the award. Challenges to individual item decisions were attempts to recast factual or evaluative conclusions as questions of law.
4. Construction of the Qualification. The Qualification did not provide an automatic adjustment whenever final design information differed from WYG’s information. Items available from the employer’s requirements or other tender material, and essential components which an experienced sub-contractor should reasonably have allowed for to produce a compliant installation, remained within Kershaw’s pricing risk. The Qualification did protect against later design changes, including changes following the replacement of the engineering consultant. The arbitrator’s interpretation was therefore correct and disclosed no error of law.

This was an appeal from an arbitrator’s partial award dated 24 November 2005. The judgment identifies no prior court decision. The appeal was dismissed and the award confirmed.