AMEC Group Ltd v Secretary of State for Defence

Permission to appeal an arbitral award on a question of law under Arbitration Act 1996, section 69, requires satisfaction of the statutory conditions and, ordinarily, an error which is apparent without extensive argument. A question concerning a one-off contractual provision is unlikely to be one of general public importance merely because it arises in an important commercial context. In construing a complex pricing regime, the contract must be read as a whole. Where the contract consistently uses defined concepts of actual and properly incurred costs, a catastrophe or liability-cap provision will not ordinarily be construed as making unreasonable, improper or breach-related costs recoverable without clear words.

The claimant designed and constructed a nuclear submarine facility for the respondent under a maximum price target cost contract. The contract made the claimant liable for costs above the Maximum Price, subject to a cap of £50 million, after which liability passed back to the respondent.

An adjudicator and then the Disputes Review Board concluded that the respondent became liable once the cap was reached, but that it had to reimburse only actual costs reasonably and properly incurred. The claimant sought permission under section 69 of the Arbitration Act 1996, arguing that all costs should be recoverable. The central issues were whether the majority decision was obviously wrong or open to serious doubt, and whether the question was one of general public importance.

1. Permission refused. The statutory preconditions concerning substantial effect on the parties’ rights and a question determined by the tribunal were satisfied. The remaining requirements were not.
2. The dispute concerned the construction of an unusual, one-off contract. The fact that incentive-based contracts may have wider commercial importance did not make this particular construction issue one of general public importance. The appropriate primary test was therefore whether the majority decision was obviously wrong, although the court also considered whether it was open to serious doubt.
3. The majority’s construction was plainly right. Condition 9.2.7 had to be read with the contract’s pricing and payment provisions, which repeatedly used actual costs, defined by reference to costs properly incurred. Reading the provision as permitting recovery of all costs would render substantial contractual provisions superfluous and produce commercially and legally unusual results.
4. On the claimant’s construction, the respondent could become liable for costs caused by the claimant’s own breaches, defective work and unreasonable or improper expenditure. Clear contractual language would be required for that result, and none existed. The lower-case reference to actual costs in the JEOIPS proviso did not alter the defined contractual concept.
5. The dissenting view was not seriously arguable. Its reliance on the supposed purpose of a catastrophe clause was speculative and could not displace the express contractual language requiring demonstration of actual costs. The claimant’s application for permission to appeal was refused.

First-instance application for permission to appeal an award of the Disputes Review Board under section 69 of the Arbitration Act 1996. Permission had previously been refused orally; detailed reasons were given in this judgment.