braes of doune wind farm blr

QUEENS BENCH DIVISION(TECHNOLOGY AND CONSTRUCTION

COURT)13 February, 13 March 2008

BRAES OF DOUNE WIND FARM(SCOTLAND) LTD

vALFRED MCALPINE BUSINESS SERVICES

LTD

[2008] EWHC 426 (TCC)

Before Mr Justice AKENHEAD

Arbitration Seat of arbitration Contractualterms Exclusive jurisdiction Contract stat-ing seat of arbitration to be in Scotland Jurisdic-tion of court Whether court had jurisdiction tohear application under section 69 Arbitration Act1996.

Arbitration Section 69(3) Arbitration Act 1996 Whether award obviously wrong Whetherinvolved question of public importance Whetherleave to appeal should be given.

Braes of Doune Wind Farm (Scotland) Ltd, theclaimant, was the Employer in an Engineering,Procurement and Construction Contract (EPCContract) dated 4 November 2005, in whichAlfred McAlpine Business Services Ltd, thedefendant, was the Contractor. The subject mat-ter of the contract was the work in connectionwith the provision of 36 wind turbine generators(the WTGs) near Stirling in Scotland. Therewas a further company involved in the EPC Con-tract, namely Vestas-Celtic Wind TechnologyLtd, the Wind Turbine Contractor; however, thatelement of the contractual regime was notdirectly relevant to this case.

The EPC Contract contained the followingmaterial clauses. By clause 1.4.1, it stated thatthe Contract was to be governed and construed inaccordance with the laws of England and Wales,and that subject to clause 20.2 (which dealt withdispute resolution) the courts of England andWales had exclusive jurisdiction to settle anydispute arising out of the Contract. Clause 20.2included clause 20.2.2(a) which required any dis-pute or difference to be referred to arbitration,and by clause 20.2.2(b) any reference to arbitra-tion was to be to a single arbitrator, and con-ducted in accordance with the ConstructionIndustry Model Arbitration Rules, February 1998Edition. The relevant text of those clauses is setout in para 6 of the judgment of Akenhead Jbelow.

By clause 20.2.2(c) of the EPC Contract, thearbitration agreement was stated as being sub-ject to English law and the seat of the arbitrationshall be Glasgow, Scotland. The same clausealso stated that any such reference to arbitrationshall be deemed to be a reference to arbitrationwithin the meaning of the Arbitration Act 1996or any statutory re-enactment.

A dispute arose between the parties concern-ing the enforceability of certain clauses of theEPC Contract which provided for liquidateddamages for delay. That dispute was referred toarbitration, the arbitrator being Mr John Uff CBEQC. He issued an award, deciding that the liqui-dated damages provision was not enforceable,and the claimant applied for leave to appealagainst that award upon a question of law undersection 69 of the Arbitration Act 1996.

The defendant opposed the application, andalso sought a declaration that the court had nojurisdiction to consider the application, and alsofor leave to enforce the award. The grounds ofthe jurisdictional challenge were that section 2 ofthe Arbitration Act 1996 only applied where theseat of the arbitration is in England and Wales orNorthern Ireland, and that the seat of the arbi-tration in the instant case was in Glasgow inScotland.Held, by the QB (TCC) (AKENHEADJ), dismissing the claimants application and giv-ing leave to enforce the arbitrators award:

(1) There were a number of different laws thatcould potentially relate to an arbitration, thosebeing:

(i) the substantive or proper law of thecontract;

(ii) the law to which the parties have agreedthe arbitration agreement is to be subject;

(iii) the curial law relating to the place inwhich the arbitration is to be held; and

(iv) the law governing the reference to arbi-tration itself.(2) Although English law recognises that an

arbitration can be physically conducted in onecountry but subject to the procedural control ofthe laws of another country, the English courtsare reluctant to accept that the parties can agreeto an enforceable arbitration taking place in aprocedural limbo.

(3) Given the terms of the parties agreementin the EPC contract, the Scottish courts power ofcontrol or intervention would be seriously cir-cumscribed and may even be limited only toextreme cases such as the dishonest procurementof an award.

321BUILDING LAW REPORTS[2008]PART 5Braes of Doune Wind Farm v Alfred McAlpineQBD (TCC)]

(4) Section 3 of the Arbitration Act 1996defines the seat of the arbitration as the juri-dical seat. That phrase means and connotes theadministration of justice so far as the arbitrationis concerned, and implies that there must be asystem governing the administration or controlover an arbitration.

(5) Taking into account the terms of clause1.4.1, and clause 20.2.2(c) of the EPC Contract,the parties express agreement that the seat ofthe arbitration was to be Glasgow, Scotlandmust relate to the physical place in which thehearing were to take place, but in the context ofan agreement by the parties that the law govern-ing the arbitral proceedings was to be that ofEngland and Wales. Accordingly, the court didhave jurisdiction to entertain an applicationunder section 69 of the Arbitration Act 1996.

(6) However, the decision of the arbitratorconcerning the enforceability of the liquidateddamages provisions in the EPC contract was notobviously wrong, nor was the question one ofgeneral public importance as the liquidated dam-ages clause in the EPC Contract was a one-offclause. Accordingly, the requirements of section69(3)(c) of the Arbitration Act were not satisfied,and leave to appeal would not therefore be given.It followed that the defendant was entitled toenforce the award.

The following cases were referred to in thejudgment:Bramall & Ogden Ltd v Sheffield City Council

(1983) 29 BLR 76;C v D [2007] EWHC 1541 (Comm);CMA CGM SA v Beteiligungs-Kommanditgesell-

schaft MS Northern Pioneer [2003] 1 LloydsRep 212;

Keydon Estates Ltd v Western Power Distribution(South Wales) Ltd [2004] EWHC 996 (Ch);

Naviera Amazonica Peruana SA v Compania Inter-nacional De Seguros Del Peru [1988] 1 LloydsRep 116.

David Sears QC and Serena Cheng, instructed byShepherd & Wedderburn, for the claimant; AndrewBartlett QC, instructed by Dundas & Wilson LLP,for the defendant.

Thursday, 13 March 2008

COMMENTARYThis case is of interest for two reasons: first, the

point concerning the seat of the arbitration, andsecondly, the learned judges comments concerningsection 69(3)(d) of the Act.

So far as the seat of the arbitration is concerned,at first sight one part of the contract was tolerablyclear about that, as it expressly stated in clause20.2.2(c) that the seat of the arbitration shall beGlasgow, Scotland. However, the difficulty arosebecause the arbitration agreement was alsoexpressly stated to be subject to English law andalso required the arbitration to be conducted inaccordance with the CIMAR rules, which them-selves are said to apply (rule 1.6) where the seat ofthe arbitration is to be England and Wales, andwhich also are to be read consistently with theArbitration Act itself.

This circle therefore required to be squared.Either the parties intended the juridical seat (adopt-ing the language of section 3 of the Act) of thearbitration to be in Scotland, or to be in the jurisdic-tion of England and Wales. If the former, then thecourt would not have any jurisdiction, but if thelatter then jurisdiction would not be an issue, eventhough the arbitration in fact physically took placein Scotland.

The decision of the learned judge on this matterfollowed a rational course in that the parties, whenexpressing themselves concerning the seat of thearbitration in clause 20.2.2(c) of the EPC contract,in fact did not mean the juridical seat, but ratherthe physical location of the hearings. This resultwas consistent with the other parts of the contractterms. The judge also considered that it was inher-ently unlikely that the parties would have con-sciously agreed that no court should have the rightof intervention in the situation, for example, of amaterial serious irregularity, short of criminalbehaviour.

It is fair to say that the editors experience of theterm seat of the arbitration is that this can oftenmean different things to different people. To a lay-man, it may simply identify where the arbitrationitself is to take place. To a jurist, it may (or should)include the system of law that is to govern thereference itself. Perhaps, in future, if parties in factintend to agree that a particular system of law is togovern the reference, it would be best to avoid useof the phrase seat of the arbitration if the topic isintended solely to mean physical place. Anothersolution would be to expressly clarify the juridicalseat, although this may be expecting too muchprecision in language and meaning, and alsosmacks of wisdom after the event.

The second point of interest is the end part of thejudgment concerning the circumstances in which

322 BUILDING LAW REPORTS [2008]Braes of Doune Wind Farm v Alfred McAlpine [QBD (TCC)

the court will grant leave to appeal on a point oflaw, and the circumstances referred to in para 31 ofthe judgment and the provisions of subsection69(3)(d) of the Act.

Section 69(3) of the Act governs when leave toappeal should be given. The subsection states:

69.(3) Leave to appeal shall be given only ifthe court is satisfied:

(a) that the determination of the questionwill substantially affect the rights of one ormore of the parties,

(b) that the question is one which the tribu-nal was asked to determine,

(c) that, on the basis of the findings of factin the award

(i) the decision of the tribunal on thequestion is obviously wrong, or

(ii) the question is one of general publicimportance . . .(d) that, despite the agreement of the parties

to resolve the matter by arbitration, it is justand proper in all the circumstances for thecourt to determine the question.

The matter of subsection (d) has attracted someattention from, if not sometimes puzzled, commen-tators. In Essex County Council v Premier Recy-cling Ltd [2007] BLR 233, a decision of Mr JusticeRamsey, the learned judge in paras 27 and 28 con-sidered different factors and the general view of thecommentators that the provision of the subsectionwas a further additional requirement before leave toappeal on a question of law would be granted. Inthat case, the fact that the parties had attempted toutilise a fast-track procedure, and had alsoexpressed that as being final and binding, werepowerful factors against an appeal being allowedunder subsection (d). However, in that case thelearned judge also decided that the decision was notobviously wrong.

As the editors noted in the commentary to EssexCC v Premier Recycling, the test is whether justicerequires an appeal, despite the fact that the agree-ment was to arbitrate. This accords with the view inMustill and Boyds Commercial Arbitration, whichuses the expression in the companion volume to the2nd Edition that some further reason for inter-vention must be present in addition to satisfyingthe other requirements in subsections (a) to (c). Italso is in accord with the report of the DepartmentalAdvisory Committee when the Arbitration Act wasat bill stage, which stated that subsection (d) was tobe a further test to the other requirements forleave.

In the instant case, the learned judge stated that itwould often, but not invariably, be unjust for anobviously wrong decision on an important question

of law not to be put right by the court. However,given that he decided that the decision of the arbi-trator was not obviously wrong, the matter did notarise. This might be seen as having a slightly differ-ent emphasis than the way that Mr Justice Ramsayexpressed it in Essex County Council v PremierRecycling Ltd, although it may be a distinctionwithout a difference in the final analysis.

Essentially, there has to be a reason that justicerequires the matter to proceed to an appeal. Thecourt adopts a non-interventionist approach gen-erally to the arbitral process under the 1996 Act. Itis obviously not wise for any court to attempt tolimit or define the categories in advance in whichleave to appeal would, or would not, be given as aresult of considering subsection (d). The statute isworded carefully and the provisions of the sub-section in question grant the court a wide degree oflassitude to decide the question of whether leave toappeal should be given, but only if the requirementsof subsections (a) to (c) are also first satisfied.

JUDGMENT

Mr Justice AKENHEAD:

Introduction1. There are two applications before the court

relating to the First Award of an arbitrator, Mr JohnUff CBE QC. This award relates to an EPC (Engi-neering, Procurement and Construction) Contractdated 4 November 2005 (the EPC Contract)between the claimant (the Employer) and thedefendant (the Contractor) whereby the Contrac-tor undertook to carry out works in connection withthe provision of 36 wind turbine generators (theWTGs) at a site some 18 km from Stirling inScotland. This award deals with the enforceabilityof the clauses of the EPC Contract which providedfor liquidated damages for delay.

2. The claimant applies for leave to appealagainst this award upon a question of law whilst thedefendant seeks in effect a declaration that thiscourt has no jurisdiction to entertain such an appli-cation and for leave to enforce the award.

3. I will deal first with the issue of jurisdiction.

Jurisdiction4. The issue here arises out of the application of

section 2 of the Arbitration Act 1996:(1) The provisions of this part apply where the

seat of the arbitration is in England and Wales orNorthern Ireland.

323BUILDING LAW REPORTS[2008][AKENHEAD JBraes of Doune Wind Farm v Alfred McAlpineQBD (TCC)]

The seat of the arbitration is identified in section3 as being the juridical seat of the arbitrationdesignated by the parties to the arbitration agree-ment. If the juridical seat of the arbitration was inScotland, the English courts have no jurisdiction toentertain an application for leave to appeal. TheContractor argues that the seat of the arbitrationwas Scotland whilst the Employer argues that it wasEngland.

5. There were to be two contractors involvedwith the project. Whilst Vestas-Celtic Wind Tech-nology Ltd was to design, supply, construct andinstall the 36 WTGs themselves, the Contractor wasto design and carry out the bulk of the remainingworks such as the foundations for the WTGs, othercivil and building works, electrical works connect-ing the WTGs to the switch room and other connec-tion works. There was an Interface Agreementbetween the Contractor, the Employer and the WindTurbine Contractor.

6. The material clauses of the EPC Contractwere:

1.4.1. The Contract shall be governed by andconstrued in accordance with the laws of Eng-land and Wales and, subject to Clause 20.2 [Dis-pute Resolution], the Parties agree that the courtsof England and Wales have exclusive jurisdictionto settle any dispute arising out of or in connec-tion with the Contract.

20.2.2. (a) . . . any dispute or differencebetween the Parties to this Agreement arising outof or in connection with this Agreement shall bereferred to arbitration.

(b) Any reference to arbitration shall be to asingle arbitrator . . . and conducted in accordancewith the Construction Industry Model ArbitrationRules February 1998 Edition, subject to thisClause (Arbitration Procedure) . . .

(c) This arbitration agreement is subject toEnglish Law and the seat of the arbitration shallbe Glasgow, Scotland. Any such reference toarbitration shall be deemed to be a reference toarbitration within the meaning of the ArbitrationAct 1996 or any statutory re-enactment.7. The Arbitration Rules, known colloquially as

the CIMAR Rules, provided as follows:1.1 These Rules are to be read consistently

with the Arbitration Act 1996 (the Act), withcommon expressions having the same meaning.Appendix 1 contains definitions of terms. Sectionnumbers given in these Rules are references tothe Act.

1.2 The objective of the Rules is to provide forthe fair, impartial, speedy, cost-effective andbinding resolution of construction disputes, witheach party having a reasonable opportunity to puthis case and deal with that of his opponent. The

parties and the arbitrator are to do all thingsnecessary to achieve this objective: see Sections1 (General Principles), 33 (General duty of thetribunal) and 40 (General duty of parties).

1.4 The arbitrator has all the powers and issubject to all the duties under the Act exceptwhere expressly modified by the Rules.

1.5 Sections of the Act which need to be readwith the Rules are printed in the text. Othersections referred to in the text are printed inAppendix II.

1.6 These rules apply where:(a) a single arbitrator is to be appointed,

and(b) the seat of the arbitration is in England

and Wales or Northern Ireland.1.7 These rules do not exclude the powers of

the court in respect of arbitral proceedings, norany agreement between the parties concerningthose powers.

4.1 The arbitrator has the power set out inSection 30

4.2 The arbitrator has the powers set out inSection 37 . . .

4.3 The arbitrator has the powers set out inSection 38(4) to (6) . . .In Appendix I the Act was defined to mean the

Arbitration Act 1996.8. One must seek to construe the EPC Contract

having regard to all its material terms. It is only ifthere is some irreconcilable ambiguity that one willhave to have regard to other principles.

9. I do bear in mind that, in the absence of clearwording, the parties are unlikely to have wished toexclude this or the Scottish courts powers of con-trol and intervention. I was told by the parties inargument that the Scottish courts powers of controland intervention would be, at the very least, seri-ously circumscribed by the parties agreement interms as set out in para 6 above. Mr Bartlett QCindicated to me that the Scottish courts powers ofintervention might well be limited to cases involv-ing such extreme circumstances as the dishonestprocurement of an award.

10. It is of course always possible for parties to awholly English arbitration to exclude the right ofappeal from an arbitrators award on questions oflaw. There are, however, mandatory provisions ofpart 1 of the Arbitration Act (set out in schedule 1to the Act) which one can not exclude such aschallenges to an award on the grounds of lack ofjurisdiction and serious irregularity (sections 67 and68). It would be odd, at least, if the parties hadconsciously agreed that no court should have theright of intervention if for instance there was a

324 BUILDING LAW REPORTS [2008]AKENHEAD J] Braes of Doune Wind Farm v Alfred McAlpine [QBD (TCC)

material serious irregularity, falling short of anycriminal behaviour.

11. There are a number of different laws whichcan at least potentially relate to an arbitration:

(a) There is the substantive or proper law ofthe contract which governs the law by which theparties substantive rights are to be determined.

(b) There is the law to which the parties haveagreed that the arbitration agreement is to besubject.

(c) The curial law relates to the place in whichthe arbitration is held.

(d) There may be a yet further law whichcovers the reference to arbitration itself.Of course, all these applicable laws may be the

same as or different to each other.12. Lord Justice Kerr in Naviera Amazonica Per-

uana SA v Compania Internacional De Seguros DelPeru [1988] 1 Lloyds Rep 116 said this at page119:

B. English law does not recognise the conceptof a delocalised arbitration . . . or of arbitralprocedures in the transnational firmament uncon-nected with any municipal system of law (BankMellat v Helleniki Techniki SA [1984] QB 291 atpage 301 (Court of Appeal)). Accordingly, everyarbitration must have a seat or locus arbitri orforum which subjects its procedural rules to themunicipal law there in force . . .

C. . . . Where the parties have failed to choosethe law governing the arbitration proceedings,those proceedings must be considered, at any rateprima facie, as being governed by the law of thecountry in which the arbitration is held, on theground that it is the country most closely con-nected with the proceedings . . .

See Dicey & Morris . . . and the references tothe approval of this classic statement by theHouse of Lords in Whitworth Street Estates vJames Miller . . . Or, to quote the words of MrJustice Mustill in the Black Clawson case . . . atpage 453 where he characterised law (3) as thelaw of the place where the reference is con-ducted: the lex fori. Although Mr Milligan con-tested this, I cannot see any reason for doubtingthat the converse is equally true. Prima facie, iein the absence of some express and clear provi-sion to the contrary, it must follow that an agree-ment that the curial or procedural law of anarbitration is to be the law of X has the con-sequence that X is also to be the seat of thearbitration. The lex fori is then the law of X, andaccordingly X is the agreed forum of the arbitra-tion. A further consequence is then that thecourts which are competent to control or assist

the arbitration are the courts exercising jurisdic-tion at X . . .

E. There is equally no reason in theory whichprecludes parties to agree that an arbitration shallbe held at a place or in country X but subject tothe procedural laws of Y . . .

F. Finally . . . it seems clear that the submis-sions advanced below confused the legal seatetc of an arbitration with the geographically con-venient place or places for holdinghearings . . .13. It is not uncommon at least in this current

century and some considerable time before for theparties to agree that arbitrations can be physicallyconducted in one country but be subject to theprocedural control of the laws of another country.However, cases such as in Naviera Amazonicareveal the English courts reluctance to accept thatthe parties can agree to a binding or enforceablearbitration taking place in a procedural limbo andnot subject to some curial law. But the court didinvestigate whether the parties had agreed to arbi-trate in Lima subject to the curial law of England.

14. Various other authorities have been providedbut do not take the matter further. Mr Justice Cookein C v D [2007] EWHC 1541 noted at para 26 of hisjudgment that:

. . . the seat of the arbitration and the choice ofprocedural law will almost invariably coincide,apart from the possibility, provided for in section4(5) [of the 1996 Act] of the parties choosinganother procedural law in relation to the matterscovered by the non-mandatory provisions of part1, which will take effect . . .15. I must determine what the parties agreed was

the seat of the arbitration for the purposes ofsection 2 of the Arbitration Act 1996. This meansby section 3 what the parties agreed was the juridi-cal seat. The word juridical is not an irrelevantword or a word to be ignored in ascertaining whatthe seat is. It means and connotes the administra-tion of justice so far as the arbitration is concerned.It implies that there must be a country whose job itis to administer, control or decide what controlthere is to be over an arbitration.

16. Mr Bartlett QC submitted that the meaning ofclause 20.2.2(c) was plain and unambiguous: theparties had obviously and expressly agreed that theseat was to be Glasgow, Scotland, and theymust be taken by various references to have appre-ciated that the Arbitration Act 1996 was applicablein some limited respects and to have known whatwas meant and implied by using the word seat.Mr Sears QC and Ms Cheng argue that one needs tolook at what the parties agreed in substance inrelation to the applicable curial law.


17. I have formed the view that this court doeshave jurisdiction to entertain an application byeither party to this contract under section 69 of theArbitration Act 1996. My reasons are as follows:

(a) One needs to consider what, in substance,the parties agreed was the law of the countrywhich would juridically control the arbitration.

(b) I attach particular importance to clause1.4.1. The parties agreed that essentially the Eng-lish (and Welsh) courts have exclusive jurisdic-tion to settle disputes. Although this is subjectto arbitration, it must and does mean somethingother than being mere verbiage. It is a jurisdic-tion over disputes and not simply a court inwhich a foreign award may be enforced. If it is inarbitration alone that disputes are to be settledand the English courts have no residual involve-ment in that process, this part of clause 1.4.1 ismeaningless in practice. The use of the wordjurisdiction suggests some form of control.

(c) The second part of clause 1.4.1 has somereal meaning if the parties were agreeing by itthat, although the agreed disputes resolutionprocess is arbitration, the parties agree that theEnglish court retains such jurisdiction to addressthose disputes as the law of England and Walespermits. The Arbitration Act 1996 permits andrequires the court to entertain applications undersection 69 for leave to appeal against awardswhich address disputes which have been referredto arbitration. By allowing such applications andthen addressing the relevant questions of law, thecourt will settle such disputes; even if the appli-cation is refused, the court will be applying itsjurisdiction under the 1996 Act and providingresolution in relation to such disputes.

(d) This reading of clause 1.4.1 is consistentwith clause 20.2.2 (c) which confirms that thearbitration agreement is subject to English lawand that the reference is deemed to be areference to arbitration within the meaning of theArbitration Act 1996. This latter expression isextremely odd unless the parties were agreeingthat any reference to arbitration was to be treatedas a reference to which the Arbitration Act 1996was to apply. There is no definition in the Arbi-tration Act of a reference to arbitration, whichis not a statutory term of art. The parties pre-sumably meant something in using the expres-sion and the most obvious meaning is that theparties were agreeing that the Arbitration Act1996 should apply to the reference withoutqualification.

(e) Looked at in this light, the parties expressagreement that the seat of arbitration was to beGlasgow, Scotland must relate to the place inwhich the parties agreed that the hearings should

take place. However, by all the other referencesthe parties were agreeing that the curial law orlaw which governed the arbitral proceedings wasthat of England and Wales. Although authoritiesestablish that, prima facie and in the absence ofagreement otherwise, the selection of a place orseat for an arbitration will determine what thecurial law or lex fori or lex arbitri will be, Iconsider that, where in substance the partiesagree that the laws of one country will governand control a given arbitration, the place wherethe arbitration is to be heard will not dictate whatthe governing or controlling law will be.

(f) In the context of this particular case, thefact that, as both parties seemed to accept in frontof me, the Scottish courts would have no realcontrol or interest in the arbitral proceedingsother than in a criminal context, suggests thatthey can not have intended that the arbitral pro-ceedings were to be conducted as an effectivelydelocalised arbitration or in a transnationalfirmament, to borrow Lord Justice Kerrs wordsin the Naviera Amazonica case.

(g) The CIMAR Rules are not inconsistentwith my view. Their constant references to the1996 Act suggest that the parties at least envis-aged the possibility that the courts of Englandand Wales might play some part in policing anyarbitration. For instance, rule 11.5 envisagessomething called the court becoming involvedin securing compliance with a peremptory orderof the arbitrator. That would have to be the Eng-lish court, in practice.18. The Employer also relied upon an estoppel

argument whereby in effect the Contractor is estop-ped from asserting that this court does not havejurisdiction. Although I do not have to decide thepoint, I would have been against the Employer onthis argument:

(a) It was predicated upon the fact (supportedby witness statement evidence) that both partiesorally accepted at the arbitration hearing thatEnglish law governed the dispute and did notassert that Scottish law governed the procedure.

(b) The fact that the parties representativesdid not assert that Scottish law governed theprocedure does not give rise to any estoppel; it isvery rare for silence to give rise to any form ofestoppel and the circumstances when it does (forinstance, a fiduciary relationship) do not applyhere.

(c) Even if both parties lawyers did orallyaccept at the arbitration hearing that English lawgoverned the dispute, that acceptance does notamount to some unequivocal or any materialestoppel. The acceptance is as much, and in con-text more, applicable to an acceptance that the


substantive law was English, rather than that theEnglish courts had jurisdiction to control thearbitration. Something much clearer would berequired to support the type of estoppel reliedupon by the Employer.

The application for leave to appeal19. It is certainly unusual for liquidated damages

clauses to be found to be unenforceable. There is,however, established authority in English law, thesubstantive law in this case, that, if such damagesamount to a penalty, the clause will be unenforce-able (Dunlop Pneumatic Tyre Co v New Garageand Motor Co [1915] AC 79). Various variants onthat have been developed in construction cases suchas Bramall & Ogden Ltd v Sheffield City Council(1983) 29 BLR 76.

20. Clause 8.7 materially says as follows:8.7.1 Subject to the limitations contained in

this Clause 8.7, if the requirements of Clause 8.2[Time for Completion] are not complied with, theContractor shall . . . pay delay damages to theEmployer for this default at the rate set out inClause 8.7.2 below. These delay damages shallbe paid for every day which shall elapse betweenthe relevant Time for Completion up to andincluding the date of issue of the Taking-OverCertificate. For the avoidance of doubt, the Con-tractor will be entitled to an extension of timepursuant to Clause 8.4.1(c) to the extent that itsuffers any delay, impediment or preventioncaused by or attributable to other contractors onthe Site (including for the avoidance of doubt theWind Turbine Contractor) subject to complianceby the Contractor of his applicable and relevantobligations under this Contract and under theInterface Agreement.

8.7.2 The amount of delay damages shall be642 . . . for each MW of the total installedcapacity for the Plant which is unavailable(Unavailable Capacity) for each day of suchunavailability for the period from 1 October to 31March and 385 . . . for each MW of Unavaila-ble Capacity for each day of such unavailabilityfor the period from 1 April to 30 September,provided that the Contractors maximum totalliability to pay delay damages under this Clause8.7 shall not exceed 50 per cent . . . of the Con-tract Price . . .21. The arbitrator, who is well known and

extremely experienced in construction law fields,was required to address disputes between the par-ties which related to the Employers entitlement toliquidated damages under clause 8.7 for allegedlyculpable delay on the part of the Contractor. Issuesarise, although not addressed in detail by the arbi-

trator in this first award, as to whether the Con-tractor was entitled to extensions of time whichwould reduce or eliminate any culpable delay.

22. A one-day hearing was held on 5 December2007 in Edinburgh. The issue to be addressed waswhether:

. . . absent any extension of time under the EPCContract, the [Employer] is entitled to withholdliquidated or other delay damages against sumsotherwise due to the [Contractor] under the EPCContract; and whether in consequence the [Con-tractor] is entitled to an award in respect of theliquidated damages so withheld. (Para 1.14 of theaward.)23. The arbitrator analysed the EPC Contract

against the parties contentions and concluded thatfor various reasons:

. . . the provisions of Clause 8.7 are not capableof generating with certainty liquidated damagesflowing from an identified breach by the [Con-tractor]. Accordingly, in accordance with estab-lished authority, Clause 8.7 should not beenforced.He then decided that there was no entitlement to

withhold or set off against sums otherwise due tothe Contractor and issued his award in a moneysum, 2,836,840.30 plus VAT and interest.

24. Having seen the papers lodged by theEmployer and initially spent some four hours read-ing the papers, I formed the view that a shorthearing would be helpful because: (a) I suspectedthat there could be a jurisdictional challengealthough I did not anticipate precisely that whichwas taken; (b) it was unusual for liquidated dam-ages clauses freely agreed to by the parties to beregarded as unenforceable; and (c) it was at theleast arguable that the arbitrator, eminent though heis, was obviously wrong.

25. I am mindful of the requirements of section69(3) of the Arbitration Act 1996. The court canonly grant leave to appeal an arbitrators award ifthe following conditions are met:

(a) that the determination of the question willsubstantially affect the rights of one or more ofthe parties;

(b) that the question is one which the tribunalwas asked to determine;

(c) that, on the basis of the findings of fact inthe award

(i) the decision of the tribunal on the ques-tion is obviously wrong; or

(ii) the question is one of general publicimportance, and the decision of the tribunal isat least open to serious doubt; and(d) that, despite the agreement of the parties to

resolve the matter by arbitration, it is just and


proper in all the circumstances for the court todetermine the question.It is accepted, and properly so, that the first two

requirements have been met.26. Mr Bartlett QC reserves an argument for

another court that the issue on this application wasnot a question of law because it involved a one-offpoint of contractual construction, which even ifwrong was one which an arbitrator could reason-ably have adopted. That can not be right. Questionsof contractual construction do involve questions oflaw: the parties have legally made the law govern-ing their particular relationship by agreeing the con-tract in question. Rules of interpretation apply as amatter of substantive law. Clearly, on that basis, theissue resolved by the arbitrator was a question oflaw, namely whether the liquidated damages provi-sions for culpable delay are enforceable. If it isobviously wrong, the 1996 Act requires the court,subject to other criteria being established, to giveleave to appeal.

27. I do not consider that the question of law,however, involved a question of general importancealthough, of course, it was of particular importanceto the parties. Although the form of contract wasadapted from the FIDIC Silver Book used forEPC contracts, the liquidated damages clause isvery much a one-off. It is not unheard of, parti-cularly on turnkey power station contracts, forliquidated damages to be related to the loss ofelectricity which could have been generated duringa period of culpable delay. However, what is verymuch a one-off liquidated damages arrangement,and I have never heard of one before, lies in thepractical juxtaposition of the work of the Contractorand the Wind Turbine Contractor.

28. Therefore, I must approach the question ofleave to appeal on the basis of considering whetherthe arbitrator was obviously wrong in reaching hisdecision. It is not enough that a part of his or herreasoning is wrong or that conceivably another tri-bunal might respectably have reached the oppositedecision. I consider, however, that the test of obvi-ousness is not only passed if the Award is obviouslywrong to the judge considering leave after half anhours reading of the papers by the judge consider-ing leave. The reference in CMA CGM SA v Beteili-gungs-Kommanditgesellschaft MS NorthernPioneer [2003] 1 Lloyds Rep 212 at para 23 thatthe judge should be able to digest the written sub-missions in 30 minutes does not impose such arestriction. If it takes four hours for the judge tounderstand the submissions and he or she thenforms the view that the section 69 criteria are estab-lished, those criteria are established.

29. To be obviously wrong, the decision mustfirst be wrong at least in the eyes of the judge giving

leave. However, any judge of any competence, hav-ing come to the view that it is wrong, will oftenform the view that the decision is obviously wrong.It is not necessarily so, however, as a judge mayrecognise that his or her view is one reached just onbalance and one with which respectable intellectsmight well disagree; in those circumstances, thedecision is wrong but not necessarily obviouslyso.

30. I have formed the view, perhaps contrary tomy initial impressions, that the arbitrator was notobviously wrong. Although my own analysis wouldhave been different and I might disagree with partof the arbitrators reasoning, I consider that hisdecision was ultimately right. The most convincingargument advanced by Mr Bartlett QC for the Con-tractor was that the liquidated damages clause couldwell impose a liquidated damages liability on theContractor in respect of delays to individual windturbines caused by the Wind Turbine Contractor:

A. The extension of time clause (clause 8.4)did allow the Contractor extensions to the extentthat overall or critical delay was caused by theWind Turbine Contractor.

B. There was no provision in the contract forsectional completion of the Works. Thus, until all36 WTGs were complete and fully connectedinto the (Contractors) Works, the Works couldnot be completed.

C. However, if overall or critical delay wascaused by the Contractor but individual WTGswere delayed by the default of the Wind TurbineContractor, there was no provision to alleviatethe imposition of liquidated damages on theContractor.

D. As each WTG accounted for 2 MW andeach MW accounted for 642 or 385 (depend-ing upon the time of year) by way of liquidateddamages per day of unavailability, the Contractorcould end up paying liquidated damages fordelays caused by the Wind Turbine Contractorsdefaults in completing their work on the turbineseven though the parties had agreed that for crit-ical or overall delay the Contractor was notresponsible.

E. Because it was clearly intended that theContractor was not as such to be responsible forthe defaults of the Wind Turbine Contractor or atleast those which good coordination by the Con-tractor would have avoided, the parties nonethe-less agreed a liquidated damages clause whichwould impose such damages upon the Contractorin certain foreseeable circumstances.

F. In those circumstances, there is in law apenalty which English law will not enforce.


31. It is unnecessary to determine whether thesection 69(3)(d) criterion was made out by the Con-tractor. Although this is a separate criterion, it cannot necessarily be considered in isolation from theother criteria. I accept that the fact that the arbi-trator was here a highly experienced and well-known construction law QC is a relevant factor totake into account under section 69(3)(d) (see Key-don Estates Ltd v Western Power Distribution(South Wales) Ltd [2004] EWHC 996 (Ch)). Itseems to me that this subsection is an overallcatch-all provision, albeit an important one.However, it could properly be said that, if all theother criteria were established, it would often, but

not invariably, be unjust for an obviously wrongdecision on an important question of law not to beput right by the court. That could be thought to beeven more so if the chosen highly respected arbi-trator has simply had a major intellectualaberration.

32. I hasten to say that, in this case, the fact thatMr Uff QC is a very experienced construction lawsilk, coupled with the fact that his decision is notobviously wrong leads me to the inevitable conclu-sion that the claimants application be dismissedand the defendant must have leave to enforce theAward pursuant to section 66(1).


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