Hodsoll & Anor v Hon Louisa-Jane Hanbury

Permission to appeal from an arbitration award under section 69 of the Arbitration Act 1996 should be refused where the arbitrator applied the correct legal test and was not obviously wrong in applying it to case-specific documents. The Mannai test is of general application when determining whether communications constitute a valid demand. A surety may also be liable as a principal obligor under the contractual wording, without any demand, where the agreement independently imposes that liability. A demand requirement in a separate clause does not necessarily displace that primary obligation.

The claimants were described as the surety in a licence to assign a lease. The licence made the lessee and surety jointly and severally liable for performance of the lease covenants, and separately required the surety to pay losses caused by breach on demand.

Following an arbitration concerning breaches of repairing and decorating covenants, the arbitrator held that a valid demand had been made and awarded damages exceeding £188,000. The claimants applied under section 69(2)(b) of the Arbitration Act 1996 for permission to appeal, contending that the arbitrator had applied the wrong test and that no valid demand had been served.

1. Permission refused. The court applied the guidance in North Range Shipping Ltd v Seatrans Shipping Corpn [2002] 1 WLR and gave brief reasons.
2. The arbitrator was plainly right to apply the Mannai test to determine whether the relevant correspondence and proceedings amounted to a demand. The test is one of general application and had been used in a similar context in Maridive & Oil Services v CNA Insurance Co [2002] 2 Lloyd’s Rep 9. Once the correct test had been applied, the issue turned on particular documents which were not in wide or general use. It was therefore not a question of general public importance. The applicable permission threshold was whether the arbitrator was obviously wrong, and he was not.
3. In any event, the court considered that no demand was required. Clause 2 made the surety liable as a principal obligor. Clause 3’s reference to payment on demand did not detract from that conclusion. The court relied on MS Fashions Ltd v Bank of Credit and Commerce International SA [1993] Ch 425 and TS & S Global Ltd v Fithian-Franks [2008] 1 BCLC 277.
4. The court noted that the result might also have been justified by the demand served on 4 October 2007 and a possible amendment to the arbitration pleadings, but did not base its conclusion on that point because no amendment had been sought. A waiver argument was not considered further because it had apparently not been advanced before the arbitrator.

First-instance application under section 69(2)(b) of the Arbitration Act 1996 for permission to appeal from the arbitrator’s award. Permission to appeal was refused.