A miss is as good as a mile

When contracts contain an arbitration clause for the resolution of disputes, they often also include a time limit within which an arbitration has to be started. Clause 66 of the ICE Conditions is a well known example. If disputes arise between contractor and employer, they are firstly referred to the engineer for his decision. If either party is dissatisfied with his decision, they have a fixed period within which to serve an arbitration notice so that the dispute can be determined by an arbitrator. If no notice is served within the specified time, the engineer’s decision may become final and binding.

Missing the time limit can be serious. Take a contractor that has large claims that are disputed by the employer. Suppose the engineer is asked for a decision under clause 66 and rejects the claims. The contractor fails to issue a notice of arbitration within the specified period. Are the claims then barred?

Under the old Arbitration Act 1950, an application could be made pursuant to section 27 for an extension of time within which to start the arbitration. If the court was of the opinion that “undue hardship” would be caused if the strict time limit was enforced, it could extend the time within which the arbitration had to commence. Over the years, the court had given the section a broad meaning and had exercised the power to extend in a fairly benevolent manner. It approached the concept of undue hardship by reference to factors such as the strength of the claim and whether the hardship was undeserved or not.

Now the Arbitration Act 1996 is in force, and applications for extensions of time are governed by section 12 of this act. The wording is quite different. The court can only grant an extension if satisfied “(a) that the circumstances are such as were outside the reasonable contemplation of the parties when they agreed the provision in question and that it would be just to extend time, or (b) that the conduct of one party makes it unjust to hold the other party to the strict terms of the provisions in question”.

• Missing the time limit for serving an arbitration notice can lead to claims being barred
• The courts are taking a firmer line on extending limits

Recently, the commercial court had to consider this section in Harbour and General Works Ltd vs Environment Agency (unreported). The contractor had submitted claims to the engineer for his decision under clause 66. He had rejected most of them. The contract provided for a process of conciliation if commenced within a month of the decision and for arbitration if commenced within three months. Otherwise, the engineer’s decision was final and binding. The contractor served a notice of conciliation late. Then it served a notice of arbitration about a week outside the mandatory three-month period. It made various applications for relief to the court, including one for an extension of time under section 12.

Before this decision, the reported cases on section 12 had not all followed the same path. In Vosnoc Ltd vs Transglobal Project Ltd (1998) 2 AELR 990, Judge Jack QC adopted a fairly liberal approach, allowing an extension where the applicant narrowly failed to start an arbitration in time. However, in Cathiship SA vs Allansons (1998) 3 AELR 714 and Grimaldi Compagnia di Navigazione SpA vs Sekihyo Line Ltd (1998) 3 AELR 943, a firmer line was taken.

In Harbour and General, Mr Justice Coleman preferred the firmer line. He pointed out that section 12 was entirely different from the old section 27 and its wording was intended to reflect the underlying philosophy of the Arbitration Act 1996, being that of party autonomy. The old idea that the court had some general supervisory jurisdiction over arbitrations had been abandoned. The court’s power to grant extensions was now confined to cases covered by section 12(3)(a) and (b).