Al-Waddan Hotel Ltd v Man Enterprise SAL (Offshore)

A contractual procedure requiring an engineer’s decision before arbitration may operate as a condition precedent to arbitral jurisdiction. The condition cannot, however, be relied upon by an employer that has caused the appointed engineer to cease acting and has neither reappointed that engineer nor appointed a replacement. A refusal by the engineer to perform the contractual decision-making function must be clear and absolute before the parties may proceed without compliance with the condition. Where the engineer has clearly and finally refused to give the required decision, and the employer has hindered or prevented performance of the condition, the dispute may proceed to arbitration.

Al-Waddan Hotel Ltd applied under s 67 of the Arbitration Act 1996 to challenge an arbitrator’s award on substantive jurisdiction. The underlying arbitration concerned MAN Enterprise SAL’s claims under a FIDIC construction contract. Clause 67.1 required a dispute first to be referred to the engineer, who was to give a decision within 84 days, before arbitration could be commenced.

The named engineer had ceased acting before MAN’s referral and expressly stated that it would not undertake the function. MAN notified Al-Waddan and requested reappointment or replacement of the engineer, but no effective step was taken. The central issues were whether the engineer’s letter was a contractual decision, whether the condition precedent remained enforceable, and whether the arbitrator had jurisdiction.

1. An application under s 67 of the Arbitration Act 1996 is a new hearing rather than a review of the arbitrator’s decision.
2. The clause 67 procedure was a condition precedent to arbitration and therefore to the arbitrator’s jurisdiction. The engineer’s letter was not a notice of decision because it did not purport to be a clause 67 decision or determine the claims referred.
3. The engineer’s express statement that it would not act amounted to a clear and absolute refusal to perform its contractual function. The parties could therefore proceed without the condition precedent.
4. Under the prevention and cooperation principles, Al-Waddan could not rely on the condition after allowing the engineer’s appointment to end and failing to re-engage it or appoint a replacement.
5. The arbitrator had jurisdiction. The award was confirmed under s 67(3)(a) of the Arbitration Act 1996.

The judgment records an earlier application concerning appointment of an arbitrator, reported at [2013] EWCA 2356 and [2014] 1 Lloyd’s Rep 217. The present application was a fresh hearing under s 67 of the Arbitration Act 1996.