Mayhaven Healthcare Ltd v Bothma & Anor (t/a DAB Builders)

An appeal under section 69 of the Arbitration Act 1996 lies for an error in ascertaining or applying the law, but not for findings of fact or an ordinary application of law to facts. A wrongful suspension of construction works is not automatically repudiatory. The question depends on the contract, the breach and all the circumstances. Loss of profits must be analysed by kind of loss under Hadley v Baxendale; identifying loss of profits generally does not make every resulting profit recoverable. A contractor’s liability for defective work is not removed by an implied approval arising from the contract administrator’s failure to require rectification. The award was remitted on that issue and its consequential effects.

Mayhaven appealed under section 69 of the Arbitration Act 1996 against an arbitrator’s award arising from a building contract for works at a nursing home. The appeal raised five alleged questions of law concerning: wrongful suspension and repudiation; loss of profits associated with elderly and young physically disabled occupants; delay to a proposed second phase; liability for defective foundations; and the appropriate measure of the cost of demolition and rebuilding or remedial works.

The central issue was whether the arbitrator had made errors of law, rather than impermissibly challenged findings of fact or the application of legal principles to the evidence.

1. Questions 1, 2(a), 2(b) and 3. The appeal was dismissed on these questions. An appeal under section 69 of the Arbitration Act 1996 lies where the arbitrator has misunderstood or incorrectly ascertained the law, including by an application of law which reveals such a misunderstanding. It does not lie merely because the arbitrator made findings of fact or applied the law to those findings.
2. A wrongful suspension which causes a failure to proceed regularly and diligently is not automatically repudiatory. Whether it goes to the root of the contract depends on the terms of the contract, the breach and all the facts and circumstances. A genuine mistake as to a contractual right to suspend is relevant, as is the objective impact of the conduct. The arbitrator was entitled to consider DAB’s stated willingness to return and complete the works.
3. Loss of profits is not a single kind of loss for the purposes of Hadley v Baxendale. The arbitrator was entitled to find that profits based on young physically disabled occupants were not recoverable under either limb: the loss was not sufficiently within ordinary contemplation and DAB lacked the necessary knowledge of the proposed change in business plan. The proposed Phase 2 loss was also unproved because Mayhaven had not established when the phase would commence or its construction period.
4. Question 4. The appeal was allowed. The arbitrator’s reasoning proceeded on the basis that DAB had failed to construct the foundations in accordance with the relevant structural drawing but was relieved from liability by implied approval. A contract administrator’s failure to identify or require correction of defective work does not, without clear contractual words or an effective express approval, excuse the contractor from contractual compliance.
5. Question 5 and disposal. No separate error of law was established. The award was remitted to the arbitrator to decide whether DAB was liable for the foundations and any consequential effect on the remaining findings, applying the stated legal principle.

• Arbitration: An arbitrator issued an award dated 30 April 2009.
• High Court (Technology and Construction Court): The appeal under section 69 of the Arbitration Act 1996 was dismissed on questions 1, 2(a), 2(b) and 3, allowed on question 4, and remitted on the foundation-liability issue and consequential matters. No separate error of law was found on question 5.