Holloway & Anor v Chancery Mead Ltd

An arbitration agreement is not defeated by an ineffective or inapplicable contractual precondition. Where the specified dispute-resolution process cannot operate between the parties or does not concern the dispute in question, it does not prevent arbitration from commencing. A court may resolve the resulting procedural deadlock and give directions for appointing an arbitrator under the Arbitration Act 1996, despite the statutory principle of limited court intervention. A multi-stage alternative dispute resolution clause may be enforceable where the process, administrative arrangements and essential procedure are sufficiently certain.

The claimants bought a property from the defendant developer under a contract containing an arbitration clause. The contract referred disputes within the scope of an NHBC dispute-resolution process to that process and stated that an NHBC determination was a condition precedent to arbitration. The NHBC documentation, however, concerned remedies between the buyer and the builder, while the claimants’ proposed arbitration was a damages claim against the seller.

The defendant refused to participate in the proposed appointment of an arbitrator, relying on the alleged condition precedent. The claimants sought declarations that they could proceed immediately, that their notice to refer was valid, and directions for appointment under section 18 of the Arbitration Act 1996. The central issues were the construction and enforceability of clauses 24.1 and 24.6 and the court’s power to resolve the impasse.

1. Jurisdiction of the court and appointment. The principle in section 1(c) of the Arbitration Act 1996 did not prevent the court from determining the contractual precondition and giving directions to unlock the deadlock. An arbitrator could rule on jurisdiction under section 30 only after appointment. There had been a failure of the appointment procedure, so the claimants were entitled to invoke section 18.
2. Construction of clause 24.1. The reference to NHBC conciliation was sufficiently certain to identify the NHBC Resolution Service. But that service operated in relation to defects or damage and obligations of the builder under the Buildmark documentation. It provided no enforceable process for a damages dispute between the seller and buyer. Clause 24.1 therefore imposed no precondition on the claims advanced.
3. Construction of clause 24.6. The reference to an NHBC investigator’s determination meant the report produced through the NHBC Resolution Service. Clause 24.6 was a condition precedent only where the dispute was of the kind falling within that service. It did not require an NHBC determination for contractual damages claims between the seller and buyer. Requiring an NHBC investigation where the service could not address the dispute would produce an unworkable and uncommercial result.
4. Effect of clause 24.2. The claims fell outside the scope of the NHBC service. They were therefore referred to arbitration under clause 24.2 without any requirement to obtain an NHBC report. Clauses 24.3 and 24.4 did not alter that conclusion, although the contractual objective of one arbitrator dealing with all disputes was desirable and achievable.
5. Alternative conclusion on certainty. Although unnecessary to the decision, the court held that the NHBC process would have been sufficiently certain to be enforceable if it had applied. The process, administrative arrangements and essential procedure were defined adequately.
6. The declarations were granted: the claimants could immediately refer their disputes to arbitration and their notice to refer dated 30 April 2007 was valid. The section 18 application was adjourned with liberty to apply, on the basis that the parties had agreed that the President of the Chartered Institute of Arbitrators should appoint the sole arbitrator.