Omnibridge Consulting Ltd v Clearsprings (Management) Ltd [2004] EWHC 2276 (Comm)

Claim Nos: 2004 Folio 285

2004 Folio 304

[2004] EWHC 2276 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN’S BENCH DIVISION

COMMERCIAL COURT

Venue Royal Courts of Justice, Strand, London WC2A 2LL

Date 12 October 2004

Before

MR RICHARD SIBERRY QC

(sitting as a DEPUTY HIGH COURT JUDGE)

Between

OMNIBRIDGE CONSULTING LIMITEDClaimant

CLEARSPRINGS (MANAGEMENT) LIMITEDDefendant

CLEARSPRINGS (MANAGEMENT) LIMITEDClaimant

OMNIBRIDGE CONSULTING LIMITEDDefendant

Mr Simon Davenport (instructed by Birkett Long) for Omnibridge Consulting

Limited

Mr Dermott Woolgar (instructed by Tolhurst Fisher) for Clearsprings

(Management) Limited

Hearing Hearing dates: 12–13 July 2004

Judgment

Introduction

[1]There are two arbitration applications before the court. Both arise out of an interim award made in arbitration proceedings between Omnibridge Consulting Ltd. (“OCL”) as claimant and Clearsprings (Management) Ltd. (“CML”) as defendant. The arbitration proceedings were brought under an agreement between the parties dated 4 September 2000 (“the agreement”). The interim award (“the award”) was made by the sole arbitrator, Mr Michael Paul Reynolds (“the arbitrator”), who had been appointed as such by the President of the Law Society in accordance with the applicable arbitration clause, clause 17 of the agreement. The award is dated 8 March 2004, but was apparently notified to the parties by letter from the arbitrator dated 11 March 2004.

[2]It was OCL who launched the first arbitration application, by an arbitration claim form issued on 7 April 2004, in which OCL seeks relief under section 68 of the Arbitration Act 1996 (“the Act”), on the ground of serious irregularity within the meaning of that section. OCL’s arbitration claim form also seeks leave to appeal under section 69 of the Act. I shall describe the grounds on which these applications were made, and the relief sought, in more detail below.

[3]By an arbitration claim form issued on 14 April 2004, CML launched its own arbitration application, also seeking relief under section 68 of the Act on the ground of serious irregularity, and applying for an extension of the applicable 28-day time limit so far as necessary. I shall likewise describe the grounds of and relief sought in these applications in more detail below.

[4]Thus, it is a feature of these proceedings that both parties have sought to challenge the award on the grounds of serious irregularity – and as will appear below, there is some common ground as to the irregularities alleged to affect the award.

The agreement

[5]The agreement under which the arbitration proceedings were brought was one under which OCL (described therein as “the Consultant”) agreed to act as strategic, procedural, structural, training, recruitment and operational consultant for CML (described therein as “the Client”), in connection with the provision by CML of certain services under a contract dated 16 March 2000 between CML and the Secretary of State for the Home Department, acting through the Immigration and Nationality Directorate (“IND”). The services to be provided by CML under that contract, which I was told was to run for five years from 3 April 2000, included the provision of accommodation for asylum seekers. The agreement replaced and superseded an earlier agreement dated 15 March 2000 between CML and OCL, which terminated on 31 August 2000.

[6]The agreement contained the following material terms:

“4. PRICES 4.3 The Consultant will invoice at the commencement of each four-week period commencing from 4 September 2000; and the Client will pay, the lump sum of £5000.00 in respect of the 50 hours to be worked in aggregate in each four week period by Mr M Rios-Hall and/or Mr W Kitchman in the proper performance of the duties in respect of that scope of work described within Schedule I hereto as ‘Contractual’ and ‘Strategic’. The lump sum of £5,000.00 is exclusive of Value Added Tax, which shall be applied to the lump sum invoiced by the Consultant at the rate current at the time of invoicing. 4.11 The Consultant will invoice and the Client will pay a bonus sum calculated as being 7.50% (seven and one half per cent) of the gross margin achieved by the Client in each of its financial years (1 February through 31 January) over and above the level of gross margin which the Client could have secured through the calculation evidenced by receipt of 70 Service Users per week and which Service Users were invoiced to the Directorate at the unit rate of £109.97 per Service User per week. For the avoidance of doubt the period during which the foregoing calculation shall apply in relation to the period to 31 January 2001 shall be from 3 April 2000 until 31 January 2001. In the event that the Client shall modify upwards the ratio of direct expenditure to income over and above that level indicated within the determination of the gross margin achievable as prepared by the Consultant and based upon the originally perceived ratios prepared by the Consultant and agreed by the Client at the time of the making of the Contract, then such upward modification of the ratios shall be discounted down to the originally agreed levels for the purposes of calculation of the bonus sum. For the avoidance of doubt this bonus sum shall be calculated against the gross margin base level of 30.73% and shall be calculable against the gross margin achieved by the Client in respect solely of the agreement signed as to between the Immigration and Nationality Directorate and the Client dated 16 March 2000. 4.12 The bonus sum calculated as aforesaid shall be capped at a level of £500,000 in the aggregate. 4.13 The bonus sum so calculated shall be exclusive of Value Added Tax, which shall be applied to the sum invoiced by the Consultant at the rate current at the time of invoicing. 5. PAYMENT 5.1 Payment of all invoices raised by the Consultant in respect of the performance of the services hereunder shall be made as follows: (i) … (ii) … (iii) In respect of the provisions of Clause 4.3, the Consultant shall raise an invoice at the first date of each four week period commencing at 4 September 2000 in a sum of £5,000.00 plus Value Added Tax. Each invoice so raised shall be payable by the Client upon presentation. (iv) … (v) … (vi) … (vii) In respect of the provisions of Clause 4.11; 4.12; and 4.13, the Consultant shall raise an invoice in the sum so calculated plus Value Added Tax. Each such invoice shall be raised at the date seven days following the date of agreement of the audited accounts in each of the Client’s financial years. Each such invoice shall be payable by the Client upon presentation. … 7. TERM Subject to the provisions for termination hereunder, this agreement shall continue in full force and effect from the fourth day of September 2000 until the third day of September 2001 or until such time as the bonus sum to be calculated pursuant to the provisions of Clause 4.11; 4.12 and 4.13 hereof shall have been paid in the event that such payment falls beyond the date of 3 September 2001. 11. ENTIRE AGREEMENT AND VARIATIONS 11.1 This agreement constitutes the entire agreement and understanding of the parties. There are no promises, terms, conditions or obligations whether oral or written expressed or implied other than those contained or referred to herein. 11.2 This agreement supersedes any prior agreement or understanding between the parties and any such prior agreement or understanding shall cease to have any effect as from the date of this agreement.”

[7]Before proceeding further I should briefly explain who the two gentlemen referred to in clause 4.3 of the agreement are. Mr Michael Rios-Hall has at all material times been the Managing Director of OCL. Mr William Kitchman used to be a director of OCL, and as such he was responsible for drafting the agreement. However, in the summer of 2001 he left OCL and joined CML.

The arbitration proceedings

[8]The arbitration proceedings were of a relatively formal nature. The arbitrator issued orders for directions providing, among other things, for the service by the parties of their respective statements of case, to be verified by statements of truth, for disclosure of documents by list, for exchange of witness statements, and for the provision of written opening submissions.

[9]At the arbitration hearing, which took place over five days, from 26 to 30 January 2004, the parties were represented by solicitors and counsel: Mr Simon Davenport, instructed by Birkett Long, appeared on behalf of OCL; Mr Dermott Woolgar, instructed by Tolhurst Fisher, appeared on behalf of CML. The same solicitors and counsel represented the parties on the hearing of the arbitration applications.

[10]In the arbitration proceedings OCL claimed that it was entitled to bonus payments under clauses 4.11–4.13 of the agreement, capped at the sum of £500,000 mentioned in clause 4.12, plus VAT. It had invoiced CML for bonus, but had not been paid any. It also claimed that, by virtue of clauses 4.3 and 7, CML was obliged to continue to pay the fee of £5,000 plus VAT mentioned in clause 4.3, for each four-week period up to the time when its bonus entitlement was paid in full, and therefore that this fee was continuing to accrue due because the bonus had not been paid.

[11]CML for its part denied that OCL had any bonus entitlement. It also contended that OCL was only entitled to payment under clause 4.3 if and to the extent that consultancy services were in fact performed, that since 1 July 2001 no such services had been performed, and that the agreement had expired by effluxion of time on 3 September 200l, the date mentioned in clause 7.

[12]CML’s case as to the effect of clause 7 was clearly set out in paragraph 3.1 of its statement of defence in the arbitration, as follows:

“The effect of clause 7 of the agreement, properly construed, is merely to preserve the obligations contained in clauses 4.11, 4.12 and 4.13 beyond 3 September 2001, until those obligations have been discharged. Clause 4.7 does not make the duration of the claimant’s appointment under the agreement dependent upon when the defendant happens to pay such sum if any as may be payable under clause 4.11 ...”

[13]Four specific defences were advanced by CML in answer to OCL’s claim for bonus. The first was that clause 4.11 was subject to a condition precedent contained in an oral collateral contract, to the effect that clause 4.11 would only operate in the event that the Secretary of State paid compensation to CML in respect of IND’s failure to nominate more than 70 “Service Users”, ie asylum seekers, per week for the provision of accommodation by CML under its contract with the Secretary of State. The second was that clause 4.11 itself contained an unfulfilled condition precedent: that on its proper construction, it “only gives rise to a potential liability to pay a bonus sum if the Secretary of State nominates and thus the defendant receives during the course of one financial year more than 70 “Service Users” per week, and if the price chargeable by the defendant to the Secretary of State for those “Service Users” is not less than the amount stipulated in the contract with the Secretary of State dated 16 March 2000, namely £109.97 per Service User per week”, and that this had never happened. The third was that CML had not attained a gross profit in any of the financial years greater than the gross profit stipulated in clause 4.11: CML contended that on the true construction of clause 4.11 there could be no bonus entitlement unless the gross profit actually attained by CML from its contract with the Secretary of State in any given financial year was greater than the gross profit that the defendant could have attained during that period had the Secretary of State nominated and had the defendant received 70 “Service Users” per week, each “Service User” being charged at the rate of £109.97 per Service User per week and that it never was. The fourth, which was abandoned in the course of the hearing before the arbitrator, was that clause 4.11 was void for uncertainty.

[14]CML also advanced a counterclaim for sums allegedly overpaid to OCL, by oversight, in respect of invoices rendered by OCL since 1July 2001, purportedly pursuant to clause 4.3. Its pleaded counterclaim was for £80,000 plus VAT, but in the course of the arbitration hearing CML put forward and gave particulars of a revised claim for £85,450plus VAT (although its counterclaim was never formally amended to reflect this increased sum).

[15]Although, as indicated above, OCL’s claims for bonus entitlement and remuneration under clause 4.3 were both hotly contested by CML, who contended that OCL had in fact been overpaid to the tune of £85,450 plus VAT, one thing was common ground throughout the arbitration proceedings, namely that OCL could, at least potentially, have earned bonuses under clause 4.11 in respect of each of CML’s financial years up to that ending on 31 January 2006 – the end of the financial year during which the five-year term of CML’s contract with the Secretary of State will expire.

[16]Thus OCL’s pleaded bonus claim for the capped amount of £500,000 plus VAT, which was based on turnover figures given by CML, was broken down as to £18,113.67 for CML’s financial year to 31 January 2001, £308,965.00 for CML’s financial year to 31 January 2002, and the balance, up to the capped amount, in respect of CML’s financial year to 31 January 2003.

[17]I have already referred to the fact that CML’s defence to the bonus claim included the plea that it had “not attained a gross profit in any of its financial years greater than the gross profit stipulated in clause 4.11” (paragraph 8.3 of the defence – my emphasis). However, in stark contrast to the arbitrator’s conclusions, to which I shall shortly turn, it was no part of CML’s case in the arbitration that the period in respect of which OCL might be entitled to earn bonus was linked to and limited by the date, 3 September 2001, mentioned in clause 7 of the agreement. On the contrary, CML made its position crystal clear in paragraph 3.1 of its written closing submissions in the arbitration, where it is stated that:

“under clause 4.11, D may have to pay up to 6 bonus sums – one for each financial year in which D’s contract with the Secretary of State continues to subsist.”

In a footnote CML explained:

“The contract with the Secretary of State subsists from 16/3/00 to the fifth anniversary of the ‘Start Date’ (see clause 4.1 …), that is, 3/4/05. This means that a bonus could be payable in respect of the period from 3/4/00 to 31/1/01, the year to 31/1/02, the year to 31/1/03, the year to 31/1/04, the year to 31/1/05, and the year to 31/1/06.”

The award

[18]By the award, the arbitrator rejected the contention of OCL that the agreement subsisted, and that accordingly £5,000 plus VAT continued to be payable every four weeks, until OCL’s bonus entitlement was paid in full. On the contrary, he held that the agreement terminated by effluxion of time on 3 September 2001 (see paragraphs 95 and 113 of the accompanying Reasons). He held that OCL was only entitled to payment in respect of work actually carried out by OCL for CML after 1 July 2001 (including some work carried out after the expiry of the agreement on 3 September 2001, which he held was to be compensated on a quantum meruit basis – paragraph 116 of the reasons). In the light of these findings, he concluded that CML was entitled to repayment in respect of four-weekly invoices rendered by OCL and paid by CML in the total sum of £51,670 plus VAT (paragraph 116). I shall revert below to how this sum was calculated.

[19]As to OCL’s bonus claim, the arbitrator rejected all four defences put forward on behalf of CML. However, he held that OCL was entitled to be paid the sum of only £18,114 under clause 4.11. He reached this conclusion by holding that on the true construction of the agreement, OCL was only entitled to bonus for the period 3 April 2000 to 31 January 2001 – this being the period specifically mentioned in the second sentence of clause 4.11. The sum he awarded in respect of bonus was the amount claimed by OCL in respect of that period, being 7.5 per cent of CML’s gross profit in excess of the “gross margin base level of 30.73 per cent”, as referred to in the final sentence of clause 4.11.

[20]The arbitrator’s decision as to OCL’s bonus entitlement is recorded in paragraph 1 of the award, by which he awarded:

“That the Claimant be paid the sum of £18,114 in respect of its bonus payments due under Clause 4.11 of the agreement.”

His reasons for this decision, such as they are, are to be found principally in paragraphs 104–05 of the accompanying reasons, which begin a section headed “Approach to Interpretation of the Contract”, and which were not only the particular focus of OCL’s challenges, but were also heavily criticised by CML. I need not quote all of paragraph 104, since the first part was uncontroversial. I begin about two-thirds of the way through:

“104 ... I am also conscious that our judiciary takes serious notice of the particular words used by the parties and only in exceptional cases would the courts intervene to depart from the natural and ordinary meaning of the words used. The exception being as expressed by Lord Hoffmann where one would nevertheless conclude from the background that something must have gone wrong with the language. As Lord Hoffmann said: “... the law does not require Judges to attribute to the parties an intention which they plainly could not have had”

Investors Compensation Scheme Limited v West Bromwich Building Society

[1988] 1 WLR 896

at 913.In this case I have to exercise my judicial discretion in that respect in the context of clauses 4.11 and 7 in order to make them yield to commercial business sense. 105. Just as the courts are slow to rewrite contracts I am of the view that arbitrators in commercial cases such as this should exercise considerable caution. The question to my mind is whether the agreement was commercially sensible and accorded with tests laid down by Lord Hoffmann and subsequent of interpretation of his ruling in BCCI v Ali (No 1)

[2001] UKHL 8

[2002] 1 AC 251

.I therefore consider it unwise to go beyond the meaning which it seems to me the parties intended by the words used in their ordinary plain meaning save with respect to make business sense of the agreement. So far as the interpretation of the contract is this case is concerned on the basis of an alleged oral agreement, as to which on Mr Kitchman’s own admission to me there was no corroborative written evidence direct or indirect as to its existence, I construe clause 4.11 according to its wording. That wording does not admit of any reference to the alleged oral or collateral agreement. I believe in this case relevancy must be properly construed and consequently it is appropriate for me to look at the relevant aspects of the factual matrix referred by me earlier in (paragraphs 25–103) hereof. What one has to consider here is the sense of the business purposes of the agreement. Both CML and OCL were truly taking financial risks. In my judgment OCL were taking a greater risk because they were putting all the effort into OCL [sic] they were its largest creditor. Because of that risk they would enter a new agreement if a bonus was paid as well as having other rights to payment. Without having had the benefit of the bonus they might have had little incentive and one can see some sense in having a bonus in addition to all the other entitlements to payment. It seems to me however that in the drafting of clause 7, Mr Kitchman did not produce a reasonable satisfactory or business-like formula for compensating OCL. What one would normally expect in such a clause would be an incentive to ensure prompt payment and this might be possible by a provision for interest payable if the bonus were not paid. I would expect therefore possibly a provision for compound interest after say 30 days or some such provision with regard to interest being charged if the bonus were not paid on time. I would not ordinarily expect an indefinite extension of the contract until such time as the bonus was paid. I would therefore not normally expect a consultancy agreement of this nature to contain a bonus clause which would continue from year to year ad infinitum. What I consider is appropriate here is to review clause 7 and determine that it was inappropriate for the draftsman to refer to the bonus payment in clause 7 which was a term clause not a payment provision, it being clear from clause 4.11 that the bonus was payable in the year 2000/2001 as expressly provided by Clause 4.11 for the period 3 April 2000 to 31 January 2001. I FIND AND HOLD that such a period is the effective period and I must give effect to the business sense of the contract as a whole and that that period is the period in respect of which the bonus is payable. In that respect I FIND AND HOLD the bonus payable is £18,114.”

Exchanges prior to the arbitration applications

[21]Before describing the parties’ respective arbitration applications, it is material to note that, before launching its application, OCL through its counsel Mr Davenport wrote to the arbitrator on 15 March 2004, inviting him to correct what was described as his serious error, in paragraph 105 of the reasons, in concluding that “the effective period of the agreement (or at least the bonus payment under clause 4.11 of the agreement) is a nine-month period from 3 April 2000 to 31 January 2001”. Following a request from the arbitrator for clarification, Mr Davenport explained that the invitation was for the arbitrator to exercise his power under section 57(3) of the Act, which provides as follows:

“The tribunal may on its own initiative or on the application of a party— (a) correct an award so as to remove any clerical mistake or error arising from an accidental slip or omission or clarify or remove any ambiguity in the award, or (b) make an additional award in respect of any claim (including a claim for interest or costs) which was presented to the tribunal but was not dealt with in the award. These powers shall not be exercised without first affording the other parties a reasonable opportunity to make representations to the tribunal.”

Mr Davenport also invoked section 67(2), which empowers a tribunal to continue arbitration proceedings and make a further award while a challenge to substantive jurisdiction is pending. Mr Woolgar on behalf of CML responded by writing to the arbitrator inviting him to reject Mr Davenport’s application as misconceived.

[22]The upshot of this attempt to persuade the arbitrator to alter the award was that on 19 March 2004, the arbitrator wrote stating that there was no cause for him to exercise any power under section 57(3), and that it would be inappropriate for him to make a further award under section 67(2) or to comment on the allegation of serious irregularity. In my judgment, both section 57(3) and section 67(2) were plainly inapplicable to OCL’s challenge, and the arbitrator was right to respond as he did.

[23]Mr Woolgar also wrote opposing a suggestion from Mr Davenport that the outstanding issues of interest and costs be left in abeyance pending an anticipated challenged to the award by OCL. The arbitrator responded by e-mail, still on 19 March 2004:

“I do not think that in this particular case it [sic] appropriate for me to deal with any further application in the arbitration pending the judgment of the Commercial Court.”

OCL’s arbitration application

[24]In its arbitration claim form issued on 7 April 2004, OCL sought, first, an order pursuant to section 68 of the Act, remitting the award to the arbitrator for reconsideration, or setting it aside, or declaring it to be of no effect and, secondly, an order pursuant to section 69(2)(b) of the Act, granting leave to appeal from the award, on an unspecified question of law. The claim form was accompanied by Points of Challenge, from which it was clear that both limbs of OCL’s challenge to the award were directed solely at the arbitrator’s decision as to OCL’s bonus entitlement and the supporting reasoning. It was contended that in concluding that the bonus clause, clause 4.11, was limited to the period 3 April 2000 to 31 January 2001, the arbitrator was guilty of serious irregularity within the meaning of section 68 of the Act.

[25]Section 68 provides, so far as material, as follows:

“68 (1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award. A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3). (2) Serious irregularity means an irregularity of one of more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant— (a) failure by the tribunal to comply with section 33 (general duty of tribunal); …… (3) If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may— (a) remit the award to the tribunal, in whole or in part, for reconsideration, (b) set the award aside in whole or in part, or (c) declare the award to be of no effect, in whole or in part. The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.”

The general duty of the tribunal, as set out in section 33(1), is to:

“(a) act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and (b) adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.”

Section 33(2) provides that:

“The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decision on matters of procedure and evidence and in the exercise of all other powers conferred on it.”

A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3). (2) Serious irregularity means an irregularity of one of more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant— (a) failure by the tribunal to comply with section 33 (general duty of tribunal); …… (3) If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may— (a) remit the award to the tribunal, in whole or in part, for reconsideration, (b) set the award aside in whole or in part, or (c) declare the award to be of no effect, in whole or in part. The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.”

[26]OCL’s case, as developed in its skeleton argument and in oral submissions, was that there had never been an issue between the parties as to the period in respect of which its bonus entitlement could potentially accrue (“the bonus period”) – on the contrary, it had been common ground, throughout the arbitration, that the bonus period continued until the expiry of the five-year term of the contract between CML and the Secretary of State, or more precisely until 31 January 2006, the end of the CML financial year during which that contract term will expire. Thus, it had never been suggested by CML that the bonus period ended on 31 January 2001, as the arbitrator held – or for that matter on 3 September 2001, the date mentioned in clause 7, on which the arbitrator concluded that the agreement had expired by effluxion of time. The arbitrator reached his decision that the bonus period expired on 31 January 2001 without having raised this as a possibility with either party, and without giving either party an opportunity, before, during, or after the arbitration hearing, of dealing with the point (despite having had ample opportunity to do so). On the contrary, it was pointed out that after the hearing the arbitrator had written to the parties on 25 February 2004, asking for OCL’s confirmation as to the true figures on which bonus was calculated from September 2000 up to and including February 2004, and by how much above the gross margin base level of 30.73 per cent the gross margin had been exceeded between those months: this question gave no hint that the arbitrator was contemplating holding that the bonus period expired on 31 January 2001.

[27]It was submitted that the arbitrator was thereby guilty of serious irregularity, namely a failure to comply with his general duty under section 33, which had caused substantial injustice to OCL, in that not only had it been deprived of the opportunity of addressing the point, but also, in the light of the arbitrator’s other findings on clause 4.11, which were in favour of OCL, it had effectively been deprived of an award in respect of bonus in the sum claimed, £500,000 plus VAT.

[28]In support of this submission Mr Davenport relied on the decision of the Court of Appeal in The Vimeira

[1984] 2 Lloyd’s Rep 66

,a pre-Act case in which an award was remitted on the ground that it had been made on the basis of a point never raised as an issue or argued before the arbitrators, who had failed to give the applicant charterers an opportunity of dealing with the point, and that this constituted technical misconduct which had resulted in unfairness to the charterers; and on the decision of Colman J in Pacol Ltd v Joint Stock Co Rossakhar

[2000] 1 Lloyds Rep 109

,in which an award on documents alone in a case in which liability was not in issue, was set aside under section 68 because the arbitrators had, without any warning to the parties, reopened the question of liability, and decided that no breach had been committed.

[29]With regard to its challenge under section 69 of the Act, OCL contended that the arbitrator had erred in law in his approach, in paragraphs 104–05 of his reasons, to the construction of clauses 4.11 and 7 of the agreement, in particular, in apparently holding that he had a discretion to exercise in construing those clauses, and that he had to make them “yield to commercial business sense”; and that he failed to take any or proper account of the provisions of clause 4.11 such as the reference in the first sentence to “each of its [scCML’s] financial years”, which it was suggested made clear the parties’ intention that bonus was potentially payable for periods after the period specifically mentioned in the second sentence. It was also submitted that each of the preconditions set out in section 69(3) of the Act for the grant of leave to appeal, namely: “(a) that the determination of the question will substantially affect the rights of one or more of the parties, (b) that the question is one which the tribunal was asked to determine, (c) that, on the basis of the findings of fact in the award.(i) the decision of the tribunal on the question is obviously wrong, or

(ii) the question is one of general public importance and the decision of the tribunal is at 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 to determine the question” were satisfied. However, nowhere in either the arbitration claim form or the Points of Challenge was the question of law on which leave to appeal was sought identified, contrary to section 69(4) of the Act, which provides that: “An application for leave to appeal under this section shall identify the question of law to be determined …” (i) the decision of the tribunal on the question is obviously wrong, or (ii) the question is one of general public importance and the decision of the tribunal is at least open to serious doubt, and

[30]It was made clear in the course of oral submissions that OCL did not seek remission of the entire award, still less that it should be set aside in its entirety. On the contrary, OCL resisted CML’ s challenge to those parts of the award in which the arbitrator had rejected CML’s defences to the bonus claim (see further below), and had to that extent upheld OCL’s construction of clause 4.11. OCL’s challenge was confined to the arbitrator’s decision that bonus was only payable in respect of the period 3 April 2000 to 31 January 2001, and to those parts of the reasons in which that decision was articulated, explained or referred to. It was submitted that on any view the relevant paragraphs should be remitted to the arbitrator for his reconsideration.

[31]However, it became clear in the course of the hearing of the arbitration applications that OCL’s primary claim was for relief under section 69. At my prompting Mr Davenport formulated a question of law, which, with modifications suggested by Mr Woolgar, can be stated as follows:

“Whether on the facts found the period during which the entitlement to a bonus sum would accrue to OCL was between 3/4/00 and 3/4/05.”

Mr Davenport boldly submitted that I should grant leave to appeal, answer that question of law in the affirmative, and (pursuant to section 69(7)(b) of the Act) vary the award by substituting, for paragraph 1 thereof, an award in OCL’s favour of £500,000 plus VAT in respect of bonus payable under clause 4.11 – ie an amount equal to the bonus cap under clause 4.12. He submitted that on the evidence as to CML’ s turnover and profit figures for its financial years ending 31 January 2001, 2002, and 2003, it was clear that that sum was payable in respect of bonus – and that the fact that the arbitrator had made no fact findings as to these matters was not an obstacle to my substituting such an award.

[32]In response to OCL’s section 68 challenge, CML accepted that there had been an irregularity, in that the arbitrator had failed to comply with his section 33 duty in that (1) (and here I quote from CML’ s skeleton argument):

“The arbitrator failed to give notice to the parties that he was minded to hold that a bonus was payable only in respect of the period from 3/4/00 to 31/1/01; he ought to have given such notice, because to so hold was contrary to the common position of the parties, which was that a bonus might be payable in respect of that period, and in respect of subsequent years ending on 31/1, up to and including, potentially, the year ending 3 1/1/06,” and that (2) in so determining, he departed from the parties’ contentions concerning the construction of clause 4.11 in a number of respects, adopting an idiosyncratic approach to construction, and misunderstanding the principles of construction in thinking he had a judicial discretion to exercise (reasons, paragraph 104), which led him to the view that clause 4.11 was effective only for the period from 3 April 2000 to 31 January 2001, and in failing (again I quote from CML’s skeleton argument): “to consider and ... to give any meaning to those words in clause 4.11 which, it was common ground, expressly contemplated that a bonus might be payable in relation to periods later than that from 3/4/00 to 31/1/01 ...”

[33]However, it was CML’s submission that OCL had failed to prove substantial injustice. It was submitted that it could not be assumed that the arbitrator would have accepted OCL’s case that a substantial bonus was payable in respect of the years ending 31 January 2002 and 31 January 2003, because he might not have accepted that 30.73 per cent (the “gross margin base level” mentioned in the last sentence of 4.11) was the right percentage to use for such or any subsequent years; indeed he might have been unable to identify the appropriate figure; and he might have accepted CML’s contention that no bonus was payable for the year ending 31 January 2003 because CML’s accounts for that year had not been signed off.

[34]A further argument was advanced for the first time at the hearing of the arbitration applications: it was suggested by Mr Woolgar that if the arbitrator had, prior to making his award, put forward and invited submissions on the proposition that no bonus could be payable in respect of any period after the term of the agreement had expired, viz (as he found) 3 September 2001 (or indeed in respect of the period from 1 February 2001 until 3 September 2001 because there was no express provision giving a bonus entitlement for that shorter period), he, Mr Woolgar would have adopted that argument on behalf of CML – notwithstanding the clear position that CML had adopted in its written submissions (as set out in paragraph 17 above); and that OCL could not demonstrate that it would have overcome the point.

CML’s arbitration application

[35]For reasons that will appear below, it is material to note that no application was made by CML to the arbitrator under section 57 of the Act, whether within the prescribed period of 28 days of the date of the award (see section 57(4)), or at all.

[36]I have already mentioned that CML’s arbitration claim form, issued on 14 April 2004 (on the face of it, more than 28 days from the date of the award) included an application for any necessary extension of the 28-day time limit for such challenges contained in section 70(3) of the Act. CML’s primary position was that the application was issued in time, on the grounds that the parties through their solicitors had reached an agreement, as contemplated in section 54(1), that the date on which the award was made should be taken to be 15 March 2004, and that, by reason of the closure of the Court Offices over the Easter holidays, the 28-day period did not expire until 14 April 2004. At all events, OCL announced in the course of the hearing that it did not pursue the point made in its skeleton argument that the application was late, so I need say no more about that, other than that I am prepared to grant an extension so far as necessary.

[37]The primary heads of relief sought by CML were orders pursuant to section 68 of the Act:(1) remitting the part of the award by which the arbitrator determined that OCL should repay CML only the sum of £51,670 plus VAT, for his reconsideration;

(2) setting aside that part of the award by which it was determined that CML should pay OCL the sum of £18,114 in respect of bonus.

[38]The grounds on which CML sought remission of the award in CML’s favour of only £51,670 plus VAT, as clarified and amplified in CML’s skeleton argument and Mr Woolgar’s oral submissions, were that the arbitrator had made, in essence, three errors, all of which were said to have involved a failure on the part of the arbitrator to comply with his general duty under section 33 to act fairly between the parties. First, he had proceeded on the basis that CML’ s counterclaim, from which fell to be deducted any ‘credits’ due to OCL in respect of remuneration for services rendered either pre-or post- 3 September 2001, was for £80,000 plus VAT (see award paragraph 3), whereas (as recorded in CML’s statement of reply to defence to counterclaim) it was in fact for £85,450 plus VAT; secondly, he deducted £20,000 plus VAT on the grounds that this was the amount payable under five OCL invoices which were not disputed by CML (see Reasons, paragraph 111), whereas, although it was true that these invoices were not disputed, their value had never been included in CML’s counterclaim so the deduction was inappropriate; and thirdly, he deducted £8,330 plus VAT in respect of 83.3 hours OCL worked for CML after 3 September 2001, calculated at £100 per hour (reasons, paragraph 115), whereas CML was not seeking repayment or restitution of that sum, which had not been included in its counterclaim. In relation to the third error, it was also contended that the arbitrator had justified the deduction on grounds of which he had given no prior notice to CML, namely that the corresponding payments to OCL were made voluntarily by CML, who had assumed the risk that they might not be due (reasons paragraph 114), and that CML had been guilty of an unspecified lack of openness and frankness, such that it would not be fair just or reasonable to grant restitution (paragraph 115).

[39]OCL’s short answer to this challenge was that CML should have applied for correction of the award under section 57(3)(a) of the Act (set out in paragraph 21 above), and that having failed to do so, it was precluded from pursuing a section 68 challenge.

[40]CML’s section 68 challenge to the award of £18,114 bonus to OCL was made on the ground that the arbitrator had fallen seriously into error in discharging his task of construing clause 4.11 of the agreement. The paragraphs in the arbitrator’s Reasons to which this challenge was directed included, in addition to paragraphs 104–05, paragraphs 37, 39, 48, 51–55, 110, 119–22, 132 and 133. The alleged errors particularised in CML’s arbitration claim form and amplified in written and oral submissions on behalf of CML included rejection of the (unchallenged) accuracy of documents said to have formed part of the factual matrix, impermissibly taking account of post contractual documents and excluding other documents from the factual matrix, overlooking or misunderstanding evidence, overlooking or failing to understand CML’s primary case on the construction of clause 4.11, stating his conclusions about the construction of clause 4.11 before considering CML’s counterclaim, and putting a gloss on the clause instead of considering its individual words. The cumulative effect of these errors was said to have been that the arbitrator failed to construe clause 4.11 in accordance with his general duties under section 33: it was said that the corollary of the section 33 duty to give each party a reasonable opportunity of putting his case is to give appropriate consideration to the case, which it was alleged the arbitrator did not do. It was said that, but for the alleged irregularities, there was at least a real possibility that CML would not have been ordered to pay any bonus to OCL, and that the alleged irregularity had thereby caused substantial injustice to CML, and so was a serious irregularity within the meaning of section 68.

[41]In relation to this challenge, it was not suggested by OCL that there was any available process of appeal or review that CML should first have exhausted.

[42]CML made clear in its arbitration claim form that:

“Were it not for the challenge or appeal that OCL has stated it will be making to part of the interim award, CML would take a commercial view of the interim award, notwithstanding its deficiencies, and in the light of the overall outcome it would accept the interim award; in short, it wishes to challenge the interim award only in response to OCL’s challenge to it.”

Conclusions on OCL’s arbitration application

[43]I deal first with OCL’s section 68 challenge. As I have already pointed out, it was common ground that the arbitrator had been guilty of an irregularity in reaching a conclusion on the duration of the bonus period which was contrary to the common position the parties had adopted in the arbitration, and in failing to give the parties notice that he was minded so to hold and an opportunity to address him on the point.

[44]I agree with the parties that this was indeed a failure on the part of the arbitrator to comply with his general duties under section 33 of the Act, and therefore an irregularity within the meaning of section 68(2)(a) – see Pacol Ltd v Joint Stock Co Rossakhar (referred to in paragraph 28 above). In giving judgment in that case, Colman J quoted from The Vimeira (see also paragraph 28 above), and concluded that the arbitrator’s failure to give the parties any notice that they were going to reopen the question of liability, such that the claimants had no opportunity of addressing the point, was a serious irregularity within the meaning of section 68. He added (at p 115):

“It is particularly important in arbitrations which are conducted on documents alone that arbitrators should be alive to the dangers of introducing into their awards matters which have never been, or have ceased to be, matters in issue between the parties. This case is a particularly glaring example of the arbitrators simply ignoring the definition of issues which had been arrived at prior to the time when they had to determine the issues then referred to them.”

This warning against introducing into awards matters which have never been, or have ceased to be, matters in issue between the parties is no less apposite to arbitrations such as the present one involving formal statements of case, an oral hearing, and extensive written submissions. The present case is another glaring example of a tribunal wrongly deciding a point contrary to the agreed position of the parties, without even giving any warning that it was considering doing so.

[45]CML was of course right to emphasise that, to justify relief under section 68, it must be demonstrated that the irregularity in question has caused or will cause substantial injustice to the applicant – see the definition of “serious irregularity” in section 68(2). Mr Woolgar also drew my attention to the unreported decision of Moore Bick J in Icon Navigation Corp v Sinochem International Petroleum (Bahamas) Co Ltd (Case 2002 Folio 270), in which the defendant charterers resisted an application for leave to appeal against an arbitration award on the grounds (among others) that the issue of construction on which leave was sought was one the arbitrators should never have allowed to be raised, because the charterers had not had the opportunity of dealing with it in evidence, and in which the learned

Judge stated, at paragraph 34 of his judgment:

“It would not be enough for them to say that they would have wished to explore the matter with witnesses; they would have to show that they could have put before the tribunal relevant evidence which, if accepted, would be likely to have affected its decision.” and held that as the charterers had failed to identify what evidence could have been given or by whom “… there is no basis for thinking that the tribunal’s decision to allow the issue to be raised is likely to have caused injustice to the charterers, whatever the outcome of the appeal.”

[46]The Icon case, is however, very far removed from the present case, in which, had the arbitrator raised the point, it would doubtless have been forcefully pointed out to him that it was common ground that bonus was potentially payable for each financial year during which CML’s contract with the Secretary of State continued to subsist, and therefore in respect of CML’s financial years up to and including that ending on 31 January 2006 (see paragraph 3.1 of CML’s closing submissions, quoted in paragraph 17 above), and that he should proceed on that agreed basis, If he had queried the point, it would doubtless also have been pointed out to him that the first sentence of clause 4.11 itself expressly contemplates that bonus may be payable in respect of more than one of CML’s financial years (see the reference therein to the gross margin achieved by CML “in each of its financial years ...”); and if he had questioned how that was consistent with the termination provisions of clause 7, attention could have been drawn to CML’s case as to the effect of that clause, as clearly set out in paragraph 3.1 of its statement of defence (quoted in paragraph 12 above). Further, in the light of the arbitrator’s rejection of CML’s four defences to the bonus claim, and his other conclusions as to the construction and effect of clause 4.11, there is at least a serious possibility that he would have accepted that bonus was payable for subsequent years on the basis and in the amounts contended for by OCL, and that he would therefore have awarded OCL the sum claimed in respect of bonus, namely £500,000 plus VAT. The existence of that serious possibility is enough to meet the first of CML’s specific points on whether substantial injustice had been demonstrated, namely that it is not clear that the arbitrator would have accepted that a gross margin base level of 30.73% was the appropriate figure for subsequent years (or would have been able to identify any figure – see further paragraph 64 below). The second point only applies to the year ended 31 January 2003, and even if valid (as to which I make no comment) does not address OCL’s case that it was deprived, by the arbitrator’s conduct, of an award in respect of bonus allegedly earned for the year ended 31 January 2002.

[47]The opportunistic point raised by Mr Woolgar for the first time in the course of oral submissions before me, as mentioned in paragraph 33 above, was, as he frankly accepted, contrary to the position adopted by CML in the arbitration proceedings, and thus contrary to the common ground between the parties. if the point had been raised, OCL would have had an opportunity of dealing with it, and would doubtless have pointed out how much it contradicted CML’s case as advanced in pleadings and written submissions.

[48]In all the circumstances, I have no hesitation in concluding that the arbitrator’s failure to comply with his section 33 duties in relation to his conclusions about the duration of the bonus period has caused substantial injustice to OCL, and therefore amounts to a serious irregularity within the meaning of section 68.

[49]As indicated above, Mr Davenport on behalf of OCL urged that, instead of simply remitting the offending parts of the award to the arbitrator for his reconsideration, I should grant OCL’s application for leave to appeal, decide the question of law which he formulated in OCL’s favour, and substitute an award for £500,000 plus VAT in respect of bonus.

[50]In response, CML raised a preliminary objection to the application for leave, namely that the question of law was “not one which the tribunal was asked to determine”, so that one of the essential preconditions for the grant of leave was not satisfied (see section 69(3)(b) of the Act). CML’s submission was to the effect that a question of law which (like the instant one) was not in issue between the parties at the arbitration, was ex hypothesi not a question which the tribunal was asked to determine. CML also contended that the other conditions for the grant of leave were not satisfied.

[51]In my judgment, the appropriate order in the present case is to remit the offending parts of the award to the arbitrator for his reconsideration, in the light of the common ground between the parties as described above. Where, as here, remission under section 68 is an available remedy, the court should not proceed under section 69. Accordingly it is unnecessary for me to rule on CML’s preliminary objection to OCL’s application for leave to appeal, though I am bound to say that if correct, it could obviously result in injustice if section 68 relief was not available. Nor do I have to decide whether the other section 69(3) conditions have been satisfied.

[52]In remitting the award, I would observe that the criticisms made by both parties as to the approach adopted by the arbitrator to the issue of construction of clauses 4.11 and 7, as recorded in paragraphs 104 and 105 of his reasons, have considerable force. The principles of construction of contracts are authoritatively stated in the well-known passage in the speech of Lord Hoffmann in Investors Corporation Scheme Ltd v West Bromwich Building Society

[1998] 1 WLR 896

, at 912F–913F. The arbitrator quoted from Lord Hoffmann’s fifth principle, where Lord Hoffmann declared that:

“… one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had …” and went on to cite the following well-known passage in the speech of Lord Diplock in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, at 201: “If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.”

But, as Lord Hoffmann’ s principles make clear, a tribunal’s task in construing a contract is to ascertain the intention of the parties from the contractual language they have used, construed in its textual context and against the background, or factual matrix, in which the contract was concluded. The tribunal does not have a “judicial discretion” to decide on a commercially sensible solution, as the arbitrator appears to suggest in paragraph 104, nor does it have the right to rewrite a contractual provision, as CML suggested the arbitrator was doing in paragraph 105, so that it accords with what the tribunal thinks the parties ought to have agreed, irrespective of their intentions as deduced from the terms of the contract, properly construed.

[53]It occurred to me that the arbitrator’s conclusion that a right to bonus could only accrue in respect of the period 3rd April 2000 to 31 January 2001 may have resulted from a confusion of two separate questions, which he conflated towards the end of paragraph 105 of his reasons, namely:(1) for what period or periods was bonus potentially payable; and

(2) did the agreement, and with it the payment provisions of clause 4(3), continue in full force and effect until OCL’s bonus entitlement was paid in full. The arbitrator clearly rejected the latter proposition as commercially absurd, and concluded that on the true construction of clauses 4(3) and 7, the term of the agreement expired, and with it payment provisions of clause 4(3) ceased to have effect, on 3 September 2001, the date specified in clause 7 (see reasons, paragraphs 111 and 131). There is no challenge to this part of the award. But it by no means follows that no bonus could be earned in respect of any period after 3 September 2001, or that the right to bonus was dependent on the continued provision of services under the agreement. That was never suggested by CML, who, on the contrary, offered what seems to me to be a commercially sensible explanation as to the effect of clause 7, in a passage in its defence (paragraph 3.1) which I have already quoted but which bears repeating, as follows:

“The effect of clause 7 of the agreement, properly construed, is merely to preserve the obligations contained in clauses 4.11, 4.12 and 4.13 beyond 3 September 2001, until those obligations have been discharged. Clause 4.7 does not make the duration of the claimant’s appointment under the agreement dependent upon when the defendant happens to pay such sum if any as may be payable under clause 4.11 ...”

[54]Having said that, I think it must now be left to the arbitrator to reconsider his decision that bonus was only payable in respect of the period 3 April 2000 to 31January 2001, and those parts of the Reasons in which that decision was articulated, explained or referred to, in the light of the fact that it was common ground between the parties that bonus was and is potentially payable in respect of CML’s financial years up to and including that ending on 31 January 2006.

Conclusions on CML’s challenge to bonus award

[55]It is convenient to turn next to CML’s section 68 challenge to the award of £18,114 bonus to OCL. Although the irregularity alleged in both parties’ section 68 challenges was a failure to comply with the general duties of the tribunal under section 33 of the Act, the nature of CML’s challenge was on closer examination fundamentally different from that of OCL’ s challenge. It was essentially a complaint or rather a series of complaints about his analysis and treatment of the evidence, and about the methodology he adopted with regard both to the issues of construction of clause 4.11, and (relatedly) to his consideration of the various arguments raised by CML in defence of OCL’s bonus claim. Some of the complaints were to the effect that he had rejected the accuracy of contemporaneous documents whose accuracy OCL had not challenged, without giving notice of his intention to do so, but such complaints are of a different order to OCL’s complaint, endorsed by CML, that the arbitrator adopted a position on the fundamental question of the duration of the bonus period which was at odds with the common position of the parties. As to CML’s complaints about the arbitrator’s approach to and conclusions on the construction of clause 4.11, it is notable that CML did not seek to challenge these conclusions under section 69.

[56]I was referred to various authorities which have stressed that section 68 is not to be used as a means of mounting an indirect attack on an arbitrator’s findings of fact or conclusions on points of law. The intention behind section 68(2) is clearly set out in paragraph 58 of the report of the Departmental Advisory Committee (DAC), where they stated:

“The court does not have a general supervisory jurisdiction over arbitrations. We have listed the specific cases where a challenge can be made under this Clause. The test of “substantial injustice” is intended to be applied by way of support for the arbitral process, not by way of interference with that process. Thus it is only in those cases where it can be said that what has happened is so far removed from what could reasonably be expected of the arbitral process that we would expect the court to take action. The test is not what would have happened had the matter been litigated. To apply such a test would be to ignore the fact that the parties have agreed to arbitrate, not litigate. Having chosen arbitration, the parties cannot validly complain of substantial injustice unless what has happened simply cannot on any view be defended as an acceptable consequence of that choice.”

[57]The scope of section 68 has been considered in a number of cases since the passing of the Act. These include Conder Structures v Kvaerner Construction Ltd [1999] ADRLJ 305, in which Mr

Justice Dyson (as he then was) observed as follows:

“It is not sufficient to show that the irregularity has demonstrated incompetence on the part of the arbitrator and has undermined the confidence of the applicant in the ability of the arbitrator. Loss of confidence is neither a sufficient nor a necessary condition of substantial injustice. It is simply not the test.”

In Weldon Plant Ltd v The Commission for the New Towns [2001] 1 All ER (Comm) 264,Judge Humphrey Lloyd QC stated as follows, at paragraph 28 of his judgment:

“I do not accept the proposition that simply because the award contains an error which is unfair to a party there must have been a failure to comply with s 33 of the 1996 Act on the part of the tribunal and thus a serious irregularity for the purposes of s 68(2)(a). First, there is nothing in the 1996 Act to suggest that it is intended to allow the court to intervene to put right mistakes of fact or law which could not have been put right under earlier legislation. The 1996 Act was intended to ‘restate and improve the law relating to arbitration’ and in view of the well-established policy of the courts to intervene only in cases where there had been some unfair treatment or result which warranted intervention, the grounds must remain limited. Secondly, such a proposition, if correct, would enable a dissatisfied party to challenge an award on the grounds for an error of fact or of law under s 68(2), and thereby to open up the whole course of the arbitral proceedings so as to invite the court to conclude that there was some unfairness, whereas it is in my view plain from the 1996 Act that the only method of appealing against a decision, as such, is provided by s 69 of the 1996 Act (appeal on point of law). Whilst there will be occasions when there is an overlap between an appeal under s 69 and a challenge under s 68 of that Act the latter should not be used as an indirect method of appealing against a decision of fact, other than in an exceptional case.”

He added the following, at paragraph 29, in relation to section 68(2)(d) (“failure by the tribunal to deal with all the issues that were put to it”):

“Similarly s 68(2)(d) of the 1996 Act is not to be used as a means of launching a detailed inquiry into the manner in which the tribunal considered the various issues. It is concerned with a failure, that is to say where the arbitral tribunal has not dealt at all with the case of a party so that substantial injustice has resulted, eg where a claim has been overlooked, or where the decision cannot be justified as a particular key issue has not been decided which is crucial to the result. It is not concerned with a failure on the part of a tribunal to arrive at the right answer to an issue. In the former instance the tribunal has not done what it was asked to do, namely to give the parties a decision on all the issues necessary to resolve the dispute or disputes (which does not of course mean decisions on all the issues that were ventilated but only those required for the award). In the latter instance the tribunal will have done what it was asked to do (or will have purported to do so) but its decision or reasoning may be wrong or flawed. The arbitral tribunal may therefore have failed to deal properly with the issues but it will not have failed to deal with them.”

[58]In the light of these and other authorities, it is clear to me that CML’s complaints with respect to its challenge to the arbitrator’s decision on OCL’s bonus claim, and in particular in respect of his rejection of all of the defences raised by CML, fall far short of demonstrating any serious irregularity within the meaning of section 68 of the Act. They are in substance indirect attacks on the arbitrator’s analysis of the evidence, and his fact findings consequent thereon, and on his reasoning and conclusions on issues of law as to the proper interpretation of clause 4.11 of the agreement. The arbitrator has dealt with all those issues, and whatever criticism could be levelled at his approach to those issues is not such as to warrant the court’s interference under section 68.

Conclusions on CML’s challenge to the award of only £51,670 plus VAT on its counterclaim

[59]Finally, I turn to CML’s challenge to the award of only £51,670 plus VAT on CML’s Counterclaim. I can deal with this challenge quite briefly. Section 70(2) of the Act, which applies to any application or appeal under section 67, 68 or 69, provides that:

“An application or appeal may not be brought if the applicant or appellant has not first exhausted– (a) any available arbitral process of appeal or review, and (b) any available recourse under section 57 (correction of award or additional award).”

It seems clear that each of the three errors was an “error arising from an accidental slip or omission” on the part of the arbitrator, within the meaning of section 57(3)(a). As to the first, that he had proceeded on the basis that CML’s counterclaim was for £80,000 plus VAT, whereas (as recorded in CML’s statement of reply to defence to counterclaim) it was in fact for £85,450 plus VAT, there is no reason to suppose that the arbitrator deliberately adopted the lower figure because of CML’s failure to amend its pleaded Counterclaim to change the amount claimed from £80,000 plus VAT to £85,475 plus VAT. OCL had not contended that, unless and until the counterclaim was amended, the arbitrator should ignore the higher figure. The obvious inference is that he simply overlooked the higher figure (and the breakdown also provided by CML) when he came to prepare his award. As to the second error, that he deducted £20,000 plus VAT on the grounds that this was the amount payable under five OCL invoices which were not disputed by CML, whereas their value had never been included in CML’s counterclaim so the deduction was inappropriate, the arbitrator obviously mistakenly thought the value of the five invoices was included in the counterclaim, when it was not, There is no reason to suppose that his deduction of the value thereof (which he mistakenly put at £20,000, not £25,000, plus VAT) was anything other than accidental. The same goes for the third error, his deduction of £8,330 plus VAT in respect of 83.3 hours OCL worked for CML after 3 September 2001, notwithstanding that CML was not seeking repayment or restitution of that sum, which had not been included in its counterclaim.

[60]Accordingly, it was open to CML, by latest 14 April 2004 (see paragraph 35 above) to apply to the arbitrator to correct his award so as to rectify those mistakes. There is no reason to suppose that, had CML done so, the arbitrator would not have duly obliged. The additional points made by CML in relation to the third error, to the effect that the arbitrator had justified the deduction on grounds of which he had given no prior notice to CML, would have had no bearing on the correction of that error: if the sum in question was not included in the Counterclaim, it should not have been deducted, whatever the position would have been had it been so included.

[61]The suggestion, made somewhat half-heartedly on behalf of CML, that it had no available recourse under section 57 after the arbitrator’s e-mail of 19 March 2004 stating that he would not “deal with any further applications in the arbitration pending the judgment of the Commercial Court”, is misplaced. That email was in response to CML’s suggestion that the arbitrator should proceed to deal with interest and costs. He was never asked by CML to address his mind to whether he had made an accidental error or omission in computing his award on CML’s counterclaim.

[62]CML thus failed to exhaust its available recourse under section 57. Section 70(2) therefore presents an insurmountable bar to its section 68 application in relation to the award of only £51,670 plus VAT on CML’s counterclaim. That application must therefore be dismissed. Consequential orders

[63]Accordingly, the award will be remitted to the arbitrator in part, under section 68 of the Act, for reconsideration of his decision, in paragraph 1 of the award, that bonus was only payable in respect of the period 3 April 2000 to 31 January 2001, and of those paragraphs of the reasons in which that decision was articulated, explained or referred to, in the light of this judgment and of the fact that it was common ground between the parties in the arbitration that bonus was and is potentially payable in respect of CML’s financial years up to and including that ending on 31 January 2006. The relevant paragraphs (or parts thereof) appear to me to be paragraphs 103 (last two sentences), 104–06, 110 (last sentence), 121 (second sentence), 129 (last sentence), and paragraph 2 on page 47.

[64]The arbitrator concluded, in paragraph 119 of his reasons, that “The bonus entitlement arises where the base level gross margin of 30.73 per cent is exceeded” (see also paragraphs 110 and 121). I have already mentioned that, in response to OCL’s section 68 application, CML submitted, among other things, that the arbitrator might not have accepted that 30.73 per cent was the right percentage to use for any years subsequent to 31 January 2001, and that he might have been unable to identify the appropriate figure. There is nothing in the Reasons to indicate that the arbitrator’s conclusion as to the applicable percentage would or might have been different in respect of years subsequent to 31 January 2001. However, in view of the fact that he concluded, as a matter of construction, that no bonus was payable in respect of any such years – the conclusion which is to be the subject of the remission – it cannot be assumed that his paragraph 119 conclusion as to the applicable percentage was intended to be applicable to every year in respect of which bonus was potentially payable. If it was not, then nothing in this judgment or in the consequential order is intended to preclude the arbitrator from considering what is the applicable percentage for any subsequent years in respect of which, on remission, he may conclude that bonus is potentially payable. In that event, the paragraph 119 conclusion as to the applicable rate (and other related passages in the reasons) would fall within the scope of the remission.

[65]I will hear argument as to the precise form that the order for remission should take in the light of this judgment.

[66]I will also hear counsel on the appropriate order to make in respect of OCL’s section 69 application, in the light of this judgment.

[67]CML’s section 68 application will be dismissed.