X Ltd v Y Ltd [2005] EWHC 769 (TCC)

[2005] EWHC 769 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Date Tuesday, 22nd March 2005
St. Dunstan's House
Before
MR. JUSTICE JACKSON
Between
X LIMITEDClaimantY LIMITEDDefendant
B E T W E E N:
Transcribed by BEVERLEY F. NUNNERY & COOfficial Shorthand Writers and Tape TranscribersQuality House, Quality Court, Chancery Lane, London WC2A 1HPTel: 020 7831 5627 Fax: 020 7831 7737
MR. T. ELLIOTT QC (instructed by CMS Cameron McKenna) appeared for Claimant.MR. M. SMITH (instructed by Eversheds LLP) appeared for Defendant.
JUDGMENT
[1]This judgment is in five parts, namely: Part 1 introduction; Part 2 the facts; Part 3, the present proceedings; Part 4 the law; Part 5 does Claim 1 fall within the scope of the arbitration clause in the Implementation Contract?

PART 1 – INTRODUCTION

[2]This case involves a challenge to the decision of an arbitral tribunal that the tribunal does not have jurisdiction to deal with one of the heads of claim which are being advanced in an arbitration. The Claimant in the arbitration and the applicant in the present proceedings is a joint venture company called X Limited ("X"). The Respondent in the arbitration and the defendant in these proceedings is Y Limited ("Y").[3]The only statutory provision which is relevant to the present proceedings is section 67 of the Arbitration Act 1996. Section 67, so far as material, provides:
"(1) a party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court - (a) Challenging any award of the arbitral tribunal as to its substantive jurisdiction... (3) On an application under this section challenging an award of the arbitral tribunal as to its substantive jurisdiction, the court may by order (a) confirm the award, (b) vary the award or (c) set aside the award in whole or in part."
[4]It is common ground between counsel and it is now established law that the procedure under section 67 of the Arbitration Act 1996 is by way of re-hearing, not review.[5]That concludes my introductory remarks. It is now time to outline the facts.

PART 2 - THE FACTS

[6]Between 1985 and 1987 a specialised plant was installed in a building at the premises of Z (the "Plant"). During commissioning in 1991, corrosion was discovered in the Plant. A instigated a project to resolve this problem. In due course three companies (including Y) were invited to tender for the work of producing a proposal to repair/modify the Plant.[7]The basis for the tenders was a document known as Specification A. This document is at pp.203 to 262 of bundle 3 and I shall refer to it as "Specification A". Y's tender was successful. On 24th August 1992, Y entered into a contract with A; the "PDS Contract". In Part 1 of the PDS Contract, Y agreed that for the price of £767,599 it would carry out three tasks which I would summarise as follows:(1) carry out a Project Definition Study defined at section 2 of Specification A, resulting in a proposal to repair/modify the existing Plant, to provide a facility meeting the requirements of section 3 of Specification A;(2) plan and cost the provision of the repaired/modified Plant;(3) provide an incentive price proposal for the implementation of the repairs/modifications to the existing Plant to meet the requirements of Specification A. Clause 1.1 of Part 2 of the PDS Contract incorporated certain Standard Conditions. Clause 30 of these conditions provided for arbitration.[8]Pursuant to the PDS Contract, Y produced an interim report in November 1992 and a final report in February 1993, which I shall refer to as "the Final Report". In the Final Report, Y put forward a number of options for the repair/modification of the Plant. The recommended option was option 3. Y also produced its priced proposal for carrying out the work which comprised option 3.[9]In early 1993 X became involved in running Z. By a contract dated 5th March 1993 with A, X undertook the operation and maintenance of Z’s facilities ("the Term Contract"). This contract expired in 2000. By Clause 7 of the Term Contract provision was made for X to enter into project contracts with the A for specific work relating to Z. One such project contract was a project contract dated 1st April 1993. I shall refer to this project contract as "Project Contract S".[10]During the spring and summer of 1993 there were meetings between representatives of X and Y. X contend that during these meetings Y made statements of fact and opinion which induced X to take on the role of prime contractor for the work required to the Plant. There may be an issue as to whether X needs to amend its Points of Claim in the arbitration in order to rely upon these meetings, but that is not an issue which I am required to consider.[11]On 22nd September 1993, A produced a revised version of Specification A. The revised version was designated J. Accordingly, I shall refer to this as "Specification J". In this revised version some parts of the original specification were retained, some parts were changed, and some parts were expanded.[12]On 12th October 1993 A and Y entered into a contract, which is known as the "Implementation Contract". By Part 1 of the Implementation Contract, Y agreed to carry out six items of work which I would summarise as follows:(1) provision of a repaired/modified Plant to meet the requirements of section 3 of Specification J, price £15,469,685;(2) upgrade of DCS, price £371,820;(3) provision of additional tanker unloading facilities, price £24,845;(4) provision of donor traceability system for infeeds, price £131,270;(5) provision of corrosion monitoring system in accordance with Annex K to Specification Issue J, price £229,575;(6) provision of support services, price to be at rates quoted in Appendix E.[13]Clause 1.1 of Part 2 of the Implementation Contract incorporated Standard Conditions. Clause 30 of those conditions (which applied both to the PDS Contract and to the Implementation Contract) provided as follows:
"Arbitration (English law),…[A]ll disputes, differences or questions between the parties to the Contract with respect to any matter or thing arising out of or relating to the Contract…shall be referred to the arbitration of two persons, one to be appointed by [A] and one by the Contractor, or their Umpire in accordance with the provisions of the Arbitration Act 1950 or any statutory modification or re-enactment thereof."
Clause 23.1 of Part 2 of the Implementation Contract provided as follows:
"[G] has contractorised [Z]. As a result [A] may wish to transfer its responsibilities for this contract to the contractor (hereinafter known as the Operator) appointed to manage [Z] and if this is the case [A] will notify you of this transfer. You hereby undertake that in the event of [A] and the Operator agreeing that the Operator shall, as from a given date, take over all the rights and obligations of [A] under this contract arising thereafter (a) the contract shall so transfer and take effect from that date in all respects as if any reference in the contract to [A] was reference to the Operator; (b) as from that date of transfer [A] shall be relieved from any further performance under the contract but without prejudice to any accrued right or liabilities; (c) you shall, if and when required by [A], agree with the Operator to give full effect to the provisions of this clause and the effect of the said agreement between [A] and the Operator..."
[14]On the same day, 12th October 1993, Project Contract S between A and X was amended. The effect of this amendment was that, as between A and X, X assumed responsibility for the repair/modification work to the Plant.[15]The final event on 12th October 1993 was that A wrote to Y invoking Clause 23 of Part 2 of the Implementation Contract. The effect of this letter was that a transfer of contractual obligations occurred. X became substituted for A as, in effect, the employer under the Implementation Contract.[16]X proceeded to perform its obligations under the Implementation Contract. In order to meet the requirements of section 3 of Specification J, Y implemented certain recommendations which it had made in the Final Report.[17]On 9th June 1997 Y handed over the Plant to X. From then on X carried on the day-to-day operation of the Plant.[18]In January 1999, corrosion was again discovered in the Plant. A served a notice on X rejecting the work which had been done. X served a similar notice on Y. In due course, A made a financial claim against X for breach of Project Contract S and for breach of a later contract which replaced Project Contract S ("Project Contract T"). X settled that claim for(a) £13.665 million plus(b) substantial additional sums if recovered from Y.[19]In order to recoup its losses, in particular the sum paid to A in settlement, X commenced an arbitration against Y. The arbitral tribunal comprises Mr. Nicholas Dennys Q.C., Mr. Alan Redfern and Mr. Philip Naughton Q.C. X's claims against Y in the arbitration may be summarised as follows:(1) Y committed breaches of the PDS Contract and acted negligently in carrying out the PDS Contract. As a result Y would, if sued, be liable to A. Accordingly, X, which is liable to A for the same loss by reason of X's breach of Project Contract S, is entitled to recover a contribution from Y pursuant to section 1 of the Civil Liability (Contribution) Act 1978.(2) Y committed breaches of the Implementation Contract and acted negligently in carrying out the Implementation Contract, thereby causing loss and damage to X.(3) Y made misrepresentations and negligent misstatements to X during 1993, which caused X to become prime contractor for the remedial work to the Plant and to become substituted as employer in the Implementation Contract. X thereby suffered loss and damage.[20]I shall refer to these claims as "Claim 1", "Claim 2" and "Claim 3". Claim 1 is pleaded in paragraph31.1 of the points of claim. This subparagraph must be read in conjunction with paragraph 32, paragraph 41 and Appendix 3 to the points of Claim. Claim 2 is pleaded in paragraph31.2 of the points of claim. This subparagraph must be read in conjunction with paragraphs 35 to 38 of the points of claim. Claim 3 is pleaded in paragraph31.3 of the points of claim. This subparagraph must be read in conjunction with paragraphs 33, 34, 39, Appendix 2 and Appendix 4 to the points of claim.[21]It emerged during argument yesterday that X's Points of Claim has been the subject of some misunderstanding. Both Y's advisers and the arbitral tribunal thought that X was making further direct claims for breach of the PDS Contract and of the concurrent duty of care arising out of the PDS Contract. In order to dispel this misunderstanding, Mr. Timothy Elliott Q.C. (counsel for X) said that he would amend X's Points of Claim by deleting paragraph 9 and by inserting in paragraph 31.1 the words "which give rise to a claim for contribution". Mr. Marcus Smith (counsel for Y) said that Y would consent to those amendments. Mr. Elliott makes it plain that he regards X's existing pleadings as perfectly clear and that he regards any misunderstandings which have arisen as unreasonable. Nevertheless, he is prepared to make the amendments in order to avoid any possible future argument about non-existent claims.[22]Let me now return to the narrative of events. At an early stage of the arbitration Y took a jurisdiction point. Y contended that the arbitral tribunal had no jurisdiction to deal with Claim 1 and Claim 3. By an interim award made on 30th November 2004 (the "Interim Award") the arbitral tribunal held that it did not have jurisdiction to deal with Claim 1, but it did have jurisdiction to deal with Claim 3. Thus both sides were partially successful on the jurisdiction issue. Y is content with the decision of the arbitral tribunal. Y now accepts that its challenge to the jurisdiction of the arbitral tribunal in relation to Claim 3 has failed. X, however, does not accept the tribunal’s decision. X asserts that the arbitral tribunal was right to accept jurisdiction in respect of Claim 3, but wrong to hold that it had no jurisdiction in respect of Claim 1. In order to challenge the arbitral tribunal's decision in respect of Claim 1, X commenced the present proceedings. PART 3 - THE PRESENT PROCEEDINGS[23]By a claim form issued in the Commercial Court on 23rd December 2004 X, pursuant to section 67 of the Arbitration Act 1996, challenged the decision of the arbitral tribunal that it did not have jurisdiction to deal with Claim 1. The claim form was issued pursuant to Part 8 of the Civil Procedure Rules. In support of these proceedings, Mr. Guy Pendell of CMS Cameron McKenna, X's solicitors, made a witness statement outlining the background facts and exhibiting the relevant documents.[24]In January 2005 the Commercial Court made an order transferring these proceedings to the Technology and Construction Court. Since these proceedings concern a construction contract and since the Technology and Construction Court is the specialist court for the construction industry, this court is clearly the proper forum.[25]On 27th January 2005 Mr. Richard Little of Eversheds, Y's solicitors, made a witness statement in opposition to X's application under section 67 of the Arbitration Act 1996. In this witness statement Mr. Little gave his own resume of the relevant facts.[26]The service of Mr. Little's witness statement completed the evidence in this case. The witness statements from each party are both helpful and concise. These proceedings came on for substantive hearing yesterday. Counsel's submissions, which were thorough and detailed, occupied the whole of the day. I express my thanks to counsel and solicitors on both sides for the considerable assistance which they have given to me in resolving the issues in this case. PART 4 - THE LAW[27]Authorities on the meaning of words or phrases in the context of other arbitration clauses or other contracts must be viewed with caution essentially for the reasons explained by May L.J. in Ashville Investments Ltd. v. Elmer Contractors Ltd [1989] Q.B. 488, 494-495. Nevertheless, an earlier decision on the meaning of a particular form of words is persuasive. The strength of the persuasive force depends upon the extent of the similarity between the contract and the surrounding circumstances in(a) the earlier decision and(b) the instant case.[28]The authorities cited by counsel in the present case are Faghirzadeh v. Rudolph Wolff (S.A.) (Pty.) Ltd. [1977] 1 Lloyd's Rep. 630;a. A. andb. B. v.c. C. andd. D. [1982] 1 Lloyd's Rep. 166; Ashville Investments Ltd. v. Elmer Contractors Ltd. [1989] Q.B. 488; Wealands v. CLC Contractors Ltd. [1999] 2 Lloyd's Rep. 739; El Nasharty v. J. Sainsbury plc [2003] EWHC 2195 (Comm). I have gained assistance from all of the authorities cited. Let me therefore briefly review those authorities.[29]Faghirzadeh v. Rudolph Wolff (S.A.) (Pty.) Ltd. [1977] 1 Lloyd's Rep. 630 concerned a sale of goods contract dated 10th May 1973 which contained an arbitration clause in the following terms:
"All disputes arising out of or in relation to contracts subject to the rules and regulations of the London Metal Exchange shall be referred to arbitrators..."
The original sale of goods contract was arguably varied or replaced by another contract made in Teheran during June 1973. Mocatta J. held that the arbitration clause in the original contract applied to the later contract. He noted that the words of the arbitration clause were wide, namely "all disputes arising out of or in relation to". Mocatta J. also applied in effect a business efficacy test. At p.643, column 2 he said:
"Nevertheless, as already indicated, the negotiations in Teheran and the agreement there reached, particularly the latter, are unintelligible without referring back to the contract of May 10. In one sense the agreement made in Teheran was a new agreement but in another sense it varied, though very radically, the contract of May 10. I see no reason for concluding that the agreement made in Teheran jettisoned the arbitration provisions contained in the contract of May 10. Indeed, if this had been suggested at any time during the negotiations by an officious bystander who understood Farsi, I have no doubt that both Mr. Shamoon and the claimant would indignantly have denied such a suggestion."
[30]Ina. A. andb. B. v.c. C. andd. D. [1982] 1 Lloyd's Rep. 166 there were two agreements which contained an arbitration clause in these terms:
"Any dispute which may arise in connection with this agreement shall be finally settled by the arbitration in Paris France under the rules of the conciliation and arbitration of the International Chamber of Commerce..."
It was debatable whether a third agreement was made subsequently between the parties. In the event that there was such an agreement, however, Mustill J. made the following finding at p.172:
"Even if there were a third agreement, I consider that a claim relating to a breach of it would, in the particular circumstances of this case, be connected with both the previous agreements. The services relating to the investigation and repair work done under the first agreement were governed by exactly the same terms regarding liability as applied to both agreements."
[31]In Ashville Investments Ltd. v. Elmer Contractors Ltd. [1989] Q.B. 488, a building contract contained an arbitration clause in the following terms:
"In case of any dispute or difference... as to the construction of this contract or as to any matter or thing of whatsoever nature arising thereunder or in connection therewith... such dispute or difference shall be and is hereby referred to the arbitration and final decision of..."
The contractors claimed (a) rectification of the contract on grounds of mistake and (b) damages for misrepresentation or negligent misstatement. The Court of Appeal held that the contractor's claims fell within the ambit of the arbitration clause because they were "in connection with" the contract. At pp.503-504, in a passage on which Mr Elliott places reliance, Balcombe L.J. said this:
"On the other hand, simply as a matter of the words used which are of the widest import, I can see no reason why both these disputes, viz as to mistake leading to rectification and as to misrepresentation or misstatement leading to damages, should not in each case be a dispute as to 'any matter or thing of whatsoever nature arising... in connection therewith' the contract. As on any question of construction, the issue is incapable of much elaboration. It is a matter of how the words strike the reader. However, I find that the meaning which I give the words as a matter of first impression is supported by the approach to the arbitration clause which Mr. Lloyd submits (correctly, in my view) that we should adopt. That approach is summarised in the following propositions: (1) it may be presumed that the parties intended to refer all the disputes arising out of this particular transaction to arbitration; (2) it may also be presumed that the parties intended that all disputes should be determined finally by the same tribunal; (3) as a result of the decision in Northern Regional Health Authority v. Derek Crouch Construction Co. Ltd. [1984] Q.B. 644, it is clear that an arbitrator may have powers which are not available to the court. Therefore he should at least have those powers which are available to the court. There is one further principle of construction that, in my judgment, supports the meaning which I attribute to this clause, viz that all the words used should, so far as possible, be given a meaning. Disputes as to the construction of the contract or as to the matters arising under the contract are covered by the open words of the clause, so disputes as to matters arising in connection with the contract must be taken to refer to disputes other than about questions of construction or as to matters arising under the contract. Asked to suggest a dispute that arose in connection with the contract which was neither a matter of construction nor arose under the contract, Mr. Gray was only able to suggest a question whether the contract had been frustrated by some supervening event. I can see no reason why the words should be limited only to matters that arose after the making of the contract and should not include matters which happened before the making of the contract provided that they are connected with the contract."
[32]It should be noted that what Balcombe L.J. said in that passage about Northern Region Health Authority v. Derek Crouch Construction Co. Ltd has now been overtaken by events, because that decision has subsequently been overruled by the House of Lords. Mr. Elliott very fairly made this point when citing that passage to the court.[33]At p.506 of the report, in a passage upon which both counsel place reliance, Bingham L.J. said this:
"A non-statutory arbitrator derives his jurisdiction from the agreement of the parties at whose instance he is appointed. He has such jurisdiction as they agree to give him and none that they do not. The only inherent limitation is that he cannot make a binding award as to the initial existence of the agreement from which his jurisdiction is said to derive. When a question arises, as it does here, whether a certain dispute falls within the arbitrator's jurisdiction, the court's task is in principle a simple one. It is to consider the dispute in question, to elicit from the arbitration agreement the parties' intentions concerning the jurisdiction to be conferred on the arbitrator and to decide whether the parties did or did not intend a dispute of the kind in question to be resolved by the arbitrator. As Viscount Simon L.C. succinctly put it in Heyman v. Darwins Ltd. [1942] AC 356, 360: The answer to the question whether a dispute falls within an arbitration clause in a contract must depend on (a) what is the dispute and (b) what disputes the arbitration clause covers'."
[34]In Wealands v. CLC Contractors Ltd. [1999] 2 Lloyd's Rep. 739, a man who was painting Hammersmith Bridge fell to his death from scaffolding. His widow sued his employer, the main contractor. The main contractor claimed a contribution from the scaffolding subcontractor. The Court of Appeal held that this contribution claim fell within the arbitration clause of the subcontract. At p.747 Mance L.J. rejected the proposition that the power to award contribution under the Civil Liability (Contribution) Act 1978 was vested only in the court.[35]In El Nasharty v. J. Sainsbury plc [2003] EWHC 2195 (Comm.) the claimants made agreements in 1999 to sell shares in a company to the defendant. These agreements contained the following arbitration clause:
"The parties agree that any proceedings in relation to this agreement shall be subject to arbitration."
An issue arose as to whether valid agreements had subsequently been made in 2001 varying the terms of the original agreements. Mr. Julian Flaux Q.C., sitting as a deputy judge, held that this issue fell within the arbitration clause. At paragraphs 17 to 18 of his judgment, Mr. Flaux said this:
"17. I accept the submission made by counsel for the claimants that the question whether the present proceedings are within the arbitration clause in the 1999 share sale agreements is essentially one of construction of that arbitration clause and that other cases, even those decided by the Court of Appeal on other arbitration clauses not in identical terms to the clause in the present case, are not binding upon me. However, although neither Wolff nor the Ashville Investments case are therefore binding because the clauses were in different terms, I do find the reasoning of those courts as to the width of expressions such as 'in relation to' and 'in connection with' of considerable assistance in construing the present clause. Clearly the use of the phrase 'in relation to' connotes a wider scope of arbitration clause than one which is limited to disputes arising under a contract, such as whether there has been a breach of contractor not. 'In relation to' includes disputes which, whilst not arising under the contract, are related to or connected with it. In my judgment, a dispute concerning an alleged variation to a contract is a dispute which is 'in relation to' that contract. I would have reached that conclusion unassisted by authority but am reinforced in that conclusion by the fact that Mocatta J. so decided in the Wolff case. “18. Furthermore, it does not seem to me that, either as a matter of logic or as a matter of objective contractual construction, it can make any difference to that conclusion what the nature of the dispute is as to the variation of the contract. Thus, whether the dispute is as to the construction or effect of an admitted variation or as to what the terms of the variation were or as to whether there was a variation at all, such disputes are all in relation to the contract which has allegedly been varied. It seems to me that this conclusion is supported implicitly by the decision in the Wolff case. I reject the claimant's contrary argument as to the construction of the present arbitration clause. Thus, in principle, to the extent that the dispute in the present proceedings concerns whether or not the 1999 share sale agreements were varied (to extend the warranty deadline and/or to preclude the deferred consideration rights) the proceedings are in relation to those agreements."
[36]From this review of the authorities, I derive four propositions:(1) The question whether a dispute falls within the arbitrator's jurisdiction turns upon the construction of the relevant arbitration clause. This is an objective exercise of contractual interpretation (see Bingham L.J. in Ashville at p.506).(2) Previous decisions about the proper interpretation of different arbitration clauses may be persuasive but they do not constitute binding precedents (see May L.J. in Ashville at pp.494-495).(3) There have been cases where courts have held that a dispute concerning one contract falls within the ambit of the arbitration clause of another earlier contract. Each of these decisions turns upon its own particular facts (see Faghirzadeh,a. A. andb. B. and El Nasharty).(4) If an arbitration clause is drafted in appropriate terms, it may encompass a claim for contribution under the Civil Liability (Contribution) Act 1978 (see Wealands).[37]After this review of the authorities I can now turn to the crucial issue in the present case. PART 5 - DOES CLAIM 1 FALL WITHIN THE SCOPE OF THE ARBITRATION CLAUSE IN THE IMPLEMENTATION CONTRACT?[38]Mr. Elliott submits that the answer to this question is "yes". He points to the wide terms of the arbitration clause. He points to the anomaly which would arise if some disputes between the parties fall within the arbitration clause whereas others have to be litigated. It is, he submits, a fair presumption that the parties intended to refer all disputes arising out of this transaction to the same tribunal. Mr. Elliott points to many respects in which the PDS Contract and the Implementation Contract were linked. The object of both contracts was to prevent corrosion in the Plant. Mr. Elliott argues that X's claims for breaches of the PDS Contract give rise to disputes "relating to" the Implementation Contract. Indeed, Y's breaches of the Implementation Contract arise directly from Y's earlier breaches of the PDS Contract. X's claim for contribution is sound in law. Clearly this disputed claim "relates to" the Implementation Contract even though the claim is founded upon breaches of the PDS Contract. Furthermore, Mr. Elliott submits that his case passes the "officious bystander" test with flying colours.[39]Although these arguments were put most attractively and developed with considerable skill, I have come to the conclusion that they are unsound. In my judgment, Claim 1 falls outside the scope of the arbitration clause in the Implementation Contract for 10 reasons:(1) It is common ground that Claim 1 is not a dispute, difference or question "arising out of" the Implementation Contract (see paragraph 25 of Mr. Elliott's skeleton argument).(2) The PDS Contract and the Implementation Contract are two entirely separate contracts each with its own arbitration clause. Under the PDS Contract, Y contracted to prepare proposals for rectifying the Plant. The principal product of the PDS Contract was the Final Report dated February 1993. The Implementation Contract was made in October 1993. Under this contract Y undertook to carry out the necessary works of rectification.(3) The links between the PDS Contract and the Implementation Contract seem to me to be far more tenuous than the links between the earlier and the later contracts in Faghirzadeh,a. A. andb. B. and El Nasharty. Furthermore, in this case (unlike Faghirzadeh and El Nasharty) the later contract was not an agreement to vary the earlier contract.(4) When I look at the PDS Contract and the Implementation Contract side by side, the natural interpretation seems to be that a claim for breach of the PDS Contract falls under the arbitration clause of the PDS Contract, and a claim for breach of the Implementation Contract falls under the arbitration clause of the Implementation Contract. It is both bizarre and unnecessary to treat claims for breach of the first contract as "relating to" the second contract and therefore falling within the scope of both arbitration clauses.(5) At a later point in time, on 12th October 1993, a transfer of contractual obligations occurred. X replaced A as employer under the Implementation Contract. This post-contractual event cannot have the effect of changing or expanding the meaning of the arbitration clause.(6) It is quite true, as Mr. Elliott points out, that the possibility of A transferring the contract was specifically provided for by Clause 23 of Part 2 of the Implementation Contract. However, it was not inevitable that this clause would be invoked. A similar clause was included in the PDS Contract, but that was never invoked. Mr. Smith said yesterday that he could not make any admission as to the extent of Y's knowledge on 12th October 1993.(7) If my analysis in subparagraphs (5) and (6) is wrong, then X encounters a different difficulty. The PDS Contract and the Implementation Contract were, by the end of 12th October 1993, separate contracts between different parties. The fact that A was a party to the first contract but not the second and the fact that X was a party to the second contract but not the first makes it difficult to argue that a claim under the first contract somehow relates to the second contract.(8) The interpretation of the arbitration clause which I favour accords with the principle of construction stated by Balcombe L.J. in Ashville at p.503 G-H, viz that all the words used should, so far as possible, be given a meaning. The phrase "arising out of... the contract" embraces claims for breach of contract. The phrase "relating to the contract" embraces parallel claims in tort and claims for misrepresentation or negligent misstatement, which cause a party to enter into the contract.(9) The liabilities to A which X assumed on 12th October 1993 under the Project Contract S were parallel to Y's obligations under the Implementation Contract, rather than Y's obligations under the PDS Contract. In those circumstances, it is understandable that X put itself in a position to enforce by arbitration Y's obligations under the Implementation Contract, but not Y's obligations under the PDS Contract.(10) In the circumstances of this case and on the ordinary use of language, it cannot be said that a claim for breach of the PDS Contract is a dispute "relating to" the Implementation Contract. In reaching this conclusion I am simply following the approach formulated by Bingham L.J. in Ashville at p.506[40]Let me now turn to two arguments of Mr. Elliott which I have not so far addressed. First there is the anomaly that, on Mr. Smith's case, two of X's claims fall within the arbitration clause whereas the other claim has to be litigated. It must be admitted that at first I found this to be a powerful point in X's favour and I taxed Mr. Smith with it in argument. However, I have come to the conclusion that there are three answers to the point:(1) This situation was deliberately created by the parties. A's rights under the Implementation Contract were expressly transferred to X. However, A's rights under the PDS Contract were not transferred to X, although they could have been (see Clause 22 of Part 2 of the PDS Contract). Thus, as a result of a conscious decision, X was given full rights under the Implementation Contract (including its arbitration clause) but no rights under the PDS Contract.(2) At the time of making the Implementation Contract the parties expressly dealt with Y's liabilities to A under the PDS Contract. See Clause 20.4 of Part 2 of the Implementation Contract. There are, of course, issues as to the correct construction of Clause 20.4. These are issues for the arbitral tribunal and I shall not trespass into that territory.(3) At the time of making the Implementation Contract, it must have been far from obvious that anyone would wish to arbitrate about breaches of the PDS Contract under the arbitration clause of the Implementation Contract. As Mr. Elliott has demonstrated in his able submissions, conduct which was a breach of the PDS Contract was also likely to give rise to breaches of the Implementation Contract. Thus, there would have seemed to be no need to rely upon the PDS Contract.[41]I turn now to the "officious bystander" test, which was invoked by Mocatta J. in Faghirzadeh and which is relied upon by Mr. Elliott in the present case. Suppose that an officious bystander had been present on 12th October 1993 when the various contracts were being signed and that he had the temerity to ask the following question:
"Excuse me, suppose that corrosion develops in the Plant and that A claims damages against X for breach of Project Contract S. In those circumstances, if X claims a contribution against Y under the Civil Liability (Contribution) Act 1978, on the basis of breaches by Y of the PDS Contract, will that claim for contribution fall within the scope of the arbitration clause in the Implementation Contract?"
How would the various participants have responded to such a question from the officious bystander? A number of possible answers spring to mind. These would include the following:
"I don't know", or: "
That sounds a bit far fetched", or:
"I am glad you asked that question, we had better think about it"
. This situation is far removed from that described by McKinnon L.J. (the author of the "officious bystander" test) in Shirlaw v. Southern Foundries Ltd. [1939] 2 KB 206, 227. The parties would certainly not have testily turned round to the officious bystander and said in unison: "Oh, of course". I therefore come to the conclusion that the "officious bystander" test which Mr. Elliott has invoked in argument tends to undermine his argument rather than to support it.[42]For all of these reasons, my answer to the question posed in Part 5 of this judgment is "no". Accordingly, it follows that the arbitral tribunal in its Interim Award reached the correct decision as to the extent of its jurisdiction. Pursuant to section 67(3)(a) of the Arbitration Act 1996, I make an order confirming the Interim Award. Apart from that order, X's claim in these proceedings must be dismissed.