During the course of a recent case, the Court looked at the enforceability of an arbitration award that was awarded in less-than-formal circumstances including;
- The arbitration agreement was described as ‘home-made’.
- There was ambiguity over the parties to the arbitration agreement.
- The alleged award was in the form of a spreadsheet with a covering email and did not include an order for one party to pay the other by way of damages or otherwise.
The Courts generally do their best to uphold arbitration agreements between the parties, and recognise the autonomy of the arbitration process to give final and binding decisions.
How far will the Court stretch to uphold an arbitration agreement and award? In this article we look at how the High Court handled an alleged arbitration award that contained certain elements of ambiguity, in the case of Donnellan v Ward & Ors [2024] EWHC 2304 (Ch).
The relative informality of the arbitration agreement
Ms Howard was one of the characters in the primary claim in this matter, which was for a declaration as to the existence of a partnership between Mr Donnellan and Mr Ward.
For the purposes of this article, Ms Howard acted as the arbitrator in a dispute between Mr Ward and Mr Keane. The two men disagreed about how much was owed to Mr Keane in respect of the development of a property in Manor Road (the Manor Road Development). Ms Howard drew up an arbitration agreement and offered to “go through [the] numbers”, giving each party time to challenge the figures, and present additional information, before giving her final findings.
While the agreement was described as a “home-made, short-form written agreement to arbitration,” it was common ground that it satisfied the requirements of section 5 of the Arbitration Act 1996.
The effect of ambiguity
Mr Keane’s claim was to enforce what he alleged to be the valid arbitration award against Mr Ward, alternatively against Chelsea Bridge Apartments Limited (CBA). The identity of the other party to the arbitration agreement was not necessarily clear.
Mr Ward and CBA sought a declaration that the award was of no effect insofar as it purported to determine that Mr Ward or CBA owed money to Mr Keane. One of their reasons was that the effect of the award was uncertain and ambiguous, given that there was no order.
Discerning the parties to the agreement
Mr Keane was one party to the agreement. The other party was not clear. Even though Mr Ward signed the agreement, he said that he had signed the agreement as an agent of CBA.
The ambiguity arose from the wording of the agreement which purported to settle disputes arising out of another agreement dated 1 April 2014 between Mr Keane, Mr Ward and ‘the company’.
This wording made the arbitration agreement “at least equivocal” as to whether Mr Ward signed as agent of ‘the company’ or on his own behalf.
The Court turned to consider the spreadsheet that Ms Howard prepared to calculate the appropriate proportionate division of profits between the investors in the Manor Road Development.
According to Ms Howard’s spreadsheet, there were two investors; Mr Keane and CBA. As CBA is a company, and was represented by Mr Ward, the judge concluded that the correct construction of the arbitration agreement was that Mr Ward was signing as agent for CBA.
For that reason, Mr Keane’s claim on the arbitration award against Mr Ward failed and was dismissed. But the claim against CBA remained.
A declaratory or executory award?
The next problem was the ambiguity of the effect of the award.
Mr Keane alleged that the award was a declaratory one. It declared the legal relationship between the parties, but does not contain any order which can be enforced against the defendant.
The Court recognised that there was no order in the award that either party should do anything or pay any money. Instead there was a declaration setting out (in the form of a spreadsheet account) the proportionate division of the profits of the Manor Road Development and the sum the arbitrator calculated as due to Mr Keane as a result. The Judge agreed that Ms Howard made a declaratory, rather than executory, award.
The Judge found that the award was effective to declare the sum due to Mr Keane from CBA, as set out in Ms Howard’s spreadsheet, and including compound interest.
Enforcing a declaratory award
The declaratory award itself was not what Mr Keane was looking for. He brought an action to enforce the award.
Often this is done by way of a mechanism provided by section 66 of the Arbitration Act 1996. In this case, that route was not available because there was a pre-existing order that directed that Mr Keane, Mr Ward and CBA continue the action on the arbitration award by way of proceedings under CPR Part 7.
By contrast to the position under the section 66 mechanism, Mr Keane had to show that:
- the submission to arbitration was valid, and
- the arbitrator had substantive jurisdiction over the dispute put to her.
The effect of a declaratory award is then to give rise to a res judicata which the defendant cannot go behind. In other words, the declaratory award is final and binding.
In this case however, Mr Keane did not need to prove these elements explicitly, as the defendants were not permitted to challenge the validity of the arbitration award because they were out of time.
Section 73 of Arbitration Act 1996 prevents a defendant from raising objections late. The defendants’ challenges were out of time because they were advanced nearly three years after the award was published, and their applications for extension of time were dismissed.
Comment
This case shows that the Courts are keen to uphold agreements between parties to arbitrate, and to enforce the awards of those arbitrations. Regardless of whether to process was more informal than an arbitration under institutional rules, the Arbitration Act 1996 is sufficiently wide to accommodate a process which for all intents and purposes is an arbitration between the parties.
