OPINION

LEGAL COMMENT - WHAT LAW? Peter Horne

Unless amended by agreement under s.46 of the 1996 Act, an arbitrator has to make his decisions in accordance with the Law. How then can we find out what ‘the Law’ is. One of the (few) things which I can remember from studying jurisprudence is a definition of law which I believe to be correct: The law on any matter is (only) a prediction of the next finding of a court of competent jurisdiction. This definition makes it clear that previous decisions are only relevant in deciding what the next decision will be.

Of course, it is only a 20th century phenomenon that arbitrators should decide in accordance with the law.

The courts are subject to the doctrine of binding judicial precedent (stare decisis). However, the binding nature only covers the ratio decidendi which is the reason for the decision on a matter of law. Only certain courts are bound, generally by decisions of a ‘higher’ court. As we are only really interested in courts of first instance, county courts are bound by decisions of the High Court and above but not by other county court decisions (which would be difficult as they are mainly unreported). The High Court is bound by decisions of the Divisional Court of the High Court, the Court of Appeal and the House of Lords but not by its own decisions (which are nevertheless persuasive and usually followed). If there are relevant differences with the case being examined then the current case may be distinguishable on its facts and the findings of the previous case may not be binding. Tribunals, such as arbitration, are not part of the doctrine.

Now we come to how to determine by what law the arbitrator is bound, I suggest that the relevant factor is to examine how the court to which an appeal would be lodged would decide the matter.

My first interest in this subject was following Morgan Grenfell (Local Authority) Finance Ltd v Seven Seas Dredging Ltd 51 BLR 85 in 1990, when Judge John Newey decided that the Contractor was entitled to interest, compounded monthly, on sums determined by the Engineer but which were later found to be lower than that payable under the terms of the contract. This was based on a contract clause providing for payment of interest on ‘undercertification’. I thought that the decision was extremely good but, as with so many of Lord Denning’s judgments, only wrong in law (from the judgment, it was clear that Judge Newey was also unsure). It was therefore probable that, if the matter arose again, it would be decided differently. The same matter did arise again, some three years later following an arbitration, and was subject to examination by the High Court in Secretary of State for Transport v Birse-Farr Joint Venture when the finding was opposite to Judge Newey. Given the facts outlined, if the arbitrator thought that Judge Newey was wrong, should he nevertheless have found in accordance with Judge Newey’s decision or should he have ignored it as though it had never existed. He cannot avoid criticism for taking either route but I think that he should follow his own (properly informed) judgment and not take the easy way out.

The reason for raising this matter now is that the situation is constantly appearing in judgments arising out of adjudication and a number of situations can easily be identified.

Out of some 76 cases on my records, 12 are Scottish. Scottish cases have no binding effect on English courts and, due to the different system and non-specialist judges, they are not necessarily persuasive. Of the remaining cases, four are county court judgments, which have no binding effect on any court and do not carry much persuasive weight. Only one case has gone to the Court of Appeal. Of the remainder, the majority are for summary judgment under CPR rule 24 (the old RSC order 14). The general rule is that the hearing for summary judgment takes place before a Master or district judge (however, most construction cases will be heard by a TCC judge) again with no binding and low persuasive weight. Summary judgment is based on whether or not the defendant has a real prospect of successfully defending the claim (in old terms, whether there is a triable issue). Any ratio decidendi from the judgment is therefore restricted.

The adjudication cases have resulted in many conflicting decisions and decisions which will probably not be followed.

It is for the arbitrator to examine relevant cases (whether proffered by the parties or on his own initiative, after telling the parties and asking for comment/ submission) and firstly to determine whether a court which would hear any appeal on the award would be compelled to reach a particular decision. If there is no clear-cut result, whether by reason of a non-binding judgment or by distinguishing, then the arbitrator should make his own decision. It is essential to study the entire judgment in all relevant cases and follow the judge’s reasoning, including those previous cases to which he refers and comments which he made on them. Having decided on his interpretation of the law, he should then consider what, if anything, may compel a particular decision from the relevant court of appeal.

Peter Horne

Note: At the time of going to press, the Statutory Instrument giving effect to the first amendment to the Scheme for Construction Contracts had not been approved. The approval and date of effect can be checked on the HMSO web site athttp://www.legislation.hmso.gov.uk/stat.htm