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	England and Wales High Court (Technology and Construction Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> F Ltd. v M Ltd. [2009] EWHC 275 (TCC) (11 February 2009) URL: http://www.bailii.org/ew/cases/EWHC/TCC/2009/275.html Cite as: [2009] EWHC 275 (TCC), [2009] CILL 2681, [2009] 2 All ER (Comm) 519, [2009] 1 Lloyd's Rep 537

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		St. Dunstan's House 133-137 Fetter Lane London EC4A 1HD
		11th February 2009

MR. JUSTICE COULSON:

A. INTRODUCTION

1. The claimant is seeking the remission of parts of a Final Award dated 15^th October 2008 pursuant to section 68 of the Arbitration Act 1996. In accordance with CPR Part 62.10 I ruled that the hearing was to be in private. In addition, following the decision of the Court of Appeal in Moscow City Council v. Bankers Trust Company [2004] EWCA Civ 314, I ruled that this Judgment should be given in public although, in the light of the confidentiality of the underlying arbitration agreement, and at the request of the parties, I have anonymised the identities of the parties and the three arbitrators.

B. BACKGROUND

2. The claimant and the defendant were parties to a Consortium Agreement for the provision of a flue gas desulphurisation plant at a site in the UK. Under that Consortium Agreement the defendant was responsible for the process design and supply of equipment, and the claimant was to carry out the detailed design, procurement, construction and commissioning.
3. The terms of the Consortium Agreement relevant to this application were as follows:

"25. Liability - General Principles

25.1 Notwithstanding the joint and several nature of liabilities of the parties towards the customer in respect of the Project, each Party shall bear the several responsibilities and liabilities regarding its Part of Supply imposed by this Consortium Agreement.

25.2 Each Party shall be liable for carrying out its Part of Supply under the Contract and this Consortium Agreement as if each Party had signed a separate contract with the Customer for its Part of Supply. Except as otherwise provided herein, each Party shall assume all technical, commercial, financial, fiscal and legal risks including, but not limited to, the risk of destruction or deterioration as well as the risk of delayed payments or non-payment in relation to its Part of Supply. Furthermore, each Party shall be solely responsible for the compliance with the requirements of the applicable regulations in Denmark, in the United Kingdom, in Japan and in third countries connected with its Part of Supply.

26. Liability Among The Parties For Technical Information And Disruptions

26.1 If one Party has furnished technical information as a basis for the Part of Supply to be provided by the other Party, the former Party shall be liable for the extra cost incurred as a result of such information being incorrect or subsequently changed.

26.2 If one Party in situations not covered by clause 26.1 negligently causes disruptions in the performance of the work of the other Party, the former party shall be liable for extra cost incurred.

26.3 Such extra Cost as set forth in clause 26.2 shall, however, be paid only if and to the extent that the cost exceeds 0.5% of the other Party's Portion of Contract Value. The said threshold of 0.5% shall include the accumulated balance of cost for all disruptions arising between the Parties during the performance of the Project.

26.4 Each Party shall not through its supervision activities be liable in any way for any cost incurred as a consequence of the other Party not following instructions or specifications contained in documents prepared by the former Party.

27. Liability For Defects

27.1 Each Party shall, at its own cost, remedy defects in its Part of Supply.

27.2 If a defect cannot properly be referred to the Part of Supply of any of the Parties, the Cost to remedy the defect shall be paid by the Parties in proportion to their respective Shares of Supply.

27.3 If one Party is obliged to supply goods or services to remedy a defect for which the other Party is responsible, the latter Party shall reimburse the former Party for the Cost incurred.

27.4 The Parties shall to the extent possible apply the Quality System required by the Customer.

…

29. Delay

29.1 If the Consortium is liable towards the Customer for payment of liquidated damages, penalties or the like for delay and it is due to one of the Parties, such Party shall pay such damages, penalties or the like.

29.2 Claims for liquidated damages, penalties or the like for delay which cannot be properly referred to one of the Parties shall be paid by the Parties in proportion to their respective Shares of Supply. However, each Party shall have the right to prove that its Part of Supply has not contributed to the delay in question. A Party who can produce such evidence is relieved from payment of any liquidated damages, penalties or the like for delay.

30. Performance Guarantees

30.1 Each Party shall be liable to the Customer respectively for compliance with performance and other guarantees specified in the relevant enclosures to this Consortium Agreement.

30.2 If the Customer claims liquidated damages, penalties or the like for non-compliance with performance or other technical guarantees, the Party responsible for the Part of Supply which has caused the non-compliance shall pay such liquidated damages, penalties or the like except as provided in clause 32.

30.3 Claims for liquidated damages, penalties or the like which cannot be properly referred to the Part of Supply of any of the Parties shall be paid by the Parties in proportion to their respective Shares of Supply.

32. Limitation Of Liability

32.1 Except for instances provided in the Contract no claims for loss of profits or any other claim for indirect or consequential damages shall be allowed between the Parties.

32.2 Any limitation of liability provided for in the Consortium Agreement shall apply only to the liability of any one Party for damages caused by a third party executing any obligation under this Consortium Agreement for the former party.

32.3 [As Amended] …In the event that there is fault {by the defendant] in performance in its Part of Supply which will cause extra Cost for the remedial work to [the claimant] and/or payment of liquidated damages, penalties and the like for delay and/or non-compliance with performance or the other technical guarantees, [the defendant] shall be liable to [the claimant] for the Cost and/or payment to the Customer up to 5% of its Portion of Contract Value…

In addition, it is important to note that Cost was defined in clause 2.6 as

"… direct cost plus overhead incurred by any one Party exclusive of any profit. Cost shall not include any contribution to be paid by the Parties in proportion to their respective Shares of Supply."

4. There were problems with the plant which, amongst other things, led to two separate agreements with the ultimate client/customer. The first, which occurred during the works themselves, led to a reduction in the contract price of £2,153,000. That was to reflect what became known as the three pump solution. The second agreement, which was negotiated at the conclusion of the works, obliged the customer to pay the Consortium £7 million in full and final settlement of all claims and cross-claims. £5 million of this was paid to the claimant, and £2 million was paid to the defendant. Each party said that, by reference to their losses on the project, the payment of these sums still meant that they were significantly out of pocket.
5. The claimant commenced ICC arbitration proceedings against the defendant in September 2005. Amongst the claimant's claims were a claim that the defendant's default in connection with the design was responsible for the three pump solution and the loss caused thereby (Claim 3), and a separate claim in respect of losses flowing from the final settlement with the customer (Claim 4). There was a hearing of contractual preliminary issues in December 2006 and a Partial Award in relation to those matters was issued in May 2007. In October 2007 there was a substantive hearing leading to a Final Award in October 2008. The disposition within the Final Award was to the effect that the sums due to the claimant from the defendant were £1,856,597.90; the sums due to the defendant from the claimant were £1,101,871; and that therefore the claimant was entitled to a net sum of £754,726.93. In addition, the claimant recovered 40% of its costs. That percentage was arrived at because of the shortfall between the sum claimed by the claimant and the sum recovered.
6. In addition, and rather unusually, one of the three members of the Arbitral Tribunal, who were all experienced construction arbitrators, disagreed with the views of the majority on three points and, in consequence, delivered a detailed dissenting opinion. It is, of course, no coincidence that the claimant now seeks to remit the award back to the Tribunal based in large part on the three matters raised in that dissenting opinion.
7. I propose to deal with the issues in this way. In Section C below I set out the principles of law applicable to the proper exercise of the court's jurisdiction under section 68. In Sections D, E and F below I analyse each of the three grounds for the claimant's application by reference to those principles. There is a short summary of my conclusion at Section G below.

C. APPLICABLE PRINCIPLES UNDER SECTION 68

C1. Section 68 of the Arbitration Act 1996

8. Section 68 of the Arbitration Act 1996 provides as follows:

"(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 or 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);

(b) the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction: see section 67);

(c) failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties;

(d) failure by the tribunal to deal with all the issues that were put to it …

(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."

C2. Serious Irregularity/Unfairness

9. In the present case, the claimant's principal submission is that, in the Final Award, the Arbitral Tribunal decided various points against the claimant on grounds of its own devising, without giving the claimant the opportunity to make any submissions on these matters. The underlying complaint therefore is one of unfairness under section 68(2)(a).
10. In Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd. [1985] 2 EGLR 14, at page 15 K to M, Bingham J (as he then was) said:

"If an arbitrator is impressed by a point that has never been raised by either side, then it is his duty to put it to them so that they have an opportunity to comment. If he feels that the proper approach is one that has not been explored or advanced in evidence or submission, then again it is his duty to give the parties a chance to comment. If he is to any extent relying on his own personal experience in a specific way then that again is something that he should mention so that it can be explored. It is not right that his decision should be based on specific matters which the parties have never had the chance to deal with. Nor is it right that a party should first learn of adverse points in a decision against him. That is contrary both to the substance of justice and to its appearance."

11. In a more recent decision of this court, London Underground Limited v. Citylink Telecommunications Limited [2007] EWHC 1749 (TCC) Ramsey J said after reviewing the authorities:

"37 …

(1) The underlying principle is that of fairness or, as it is sometimes described, natural justice.

(2) There must be a sensible balance between the finality of an award and the residual power of a court to protect parties against the unfair conduct of an arbitration.

(3) It will generally be the duty of a tribunal to determine an arbitration on the basis of the cases which have been advanced by each party, and of which each has notice. To decide a case on the basis of a point which was not raised as an issue or argued, without giving the parties the opportunity to deal with it, will be a procedural irregularity."

C3. Serious Irregularity/Other Failures

12. The claimant also suggests, although rather more faintly, that there was a failure by the Arbitral Tribunal to deal with all the issues that were put to it (section 68(2)(d)) and/or that it exceeded its jurisdiction by deciding issues that were not pleaded (section 68(2)(b)). The proper approach of the court to section 68(2)(d) was described by His Honour Judge Humphrey Lloyd QC in Weldon Plant v. The Commission for New Towns [2001] 1 All ER (Comm) 264, [2000] BLR 496 in the following terms:

"… section 68(2)(d) 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, e.g. 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."

13. This passage has been approved in a number of subsequent judgments including Colman J in World Trade Corporation v. C Czarnikow Sugar Limited [2004] EWHC 2332 (Comm). As Ramsey J put it in Citylink, "section 68(2)(d) is confined in its application to essential issues, as distinct from the reasons for determining them".

C4. Substantial Injustice

14. It is necessary for the court to demonstrate that any serious irregularity has caused substantial injustice. In Vee Networks Limited v. Econet Wireless International Limited [2004] EWHC 2909 (Comm) Colman J said at paragraph 90:

"The element of serious injustice in the context of section 68 does not in such a case depend on the arbitrator having come to the wrong conclusion as a matter of law or fact but whether he was caused by adopting inappropriate means to reach one conclusion whereas had he adopted appropriate means he might well have reached another conclusion favourable to the applicant. Thus, where there has been an irregularity of procedure, it is enough if it is shown that it caused the arbitrator to reach a conclusion unfavourable to the applicant which, but for the irregularity, he might well never have reached, provided always that the opposite conclusion is at least reasonably arguable. Above all it is not normally appropriate for the court to try the material issue in order to ascertain whether substantial injustice has been caused. To do so would be an entirely inappropriate inroad into the autonomy of the arbitral process."

15. A more recent case on substantial injustice was drawn to my attention. That was Van Der Giessen-De-Noord Shipbuilding Division BV v. Imtech Marine and Offshore BV [2008] EWHC 2904 (Comm). There, Christopher Clarke J identified that the sum in question, about three-quarters of a million euros, was, but for the serious irregularity, an amount that might well not have had to have been paid out. He therefore concluded that that was sufficient to demonstrate a substantial injustice. Such a sum is not dissimilar to those at stake in relation to each of Points 1 and 2 in the present case.

C5. The Dissenting Opinion

16. Counsel were not able to identify any authority in which an application under section 68 was made against the background of a dissenting opinion from one member of the Arbitral Tribunal. However, applying the principles noted above, it seems to me that the following must apply:

(a) The existence of a dissenting opinion on a point of law or fact, arising in connection with an issue that has been pleaded or dealt with by the parties in argument, will be irrelevant to any application under section 68. The decision of the Arbitral Tribunal on such a point, albeit by a majority rather than unanimously, could not be challenged for serious irregularity in such circumstances.

(b) A comment or observation in a dissenting opinion, to the effect that an important point has been decided by the majority without reference to the parties, will be a factor to which the court will attach weight in dealing with an application under section 68. Depending on the circumstances, such an observation may have considerable weight, although it is unlikely that it could, on its own, prove determinative.

(c) In circumstances where an argument raised by the dissenting arbitrator has plainly been considered and rejected by the majority, even if it is an argument that the parties did not themselves raise, it may be difficult to say – even if there was a serious irregularity – that there was also a substantial injustice. Regardless of how it arose, the argument will have been considered and rejected by the majority.

C6. Summary

17. In Lesotho Highlands v. Impregilo SPA [2005] 3 WLR 129, Lord Steyn said that the requirement of serious irregularity imposed a high threshold and the additional requirement of substantial injustice was "designed to eliminate technical and unmeritorious challenges". With that in mind, I turn to consider each of the three grounds on which the claimant seeks to remit the award to the Arbitral Tribunal.

D. POINT 1: THE SUM DUE TO THE CLAIMANT ARISING OUT OF THE THREE PUMP SETTLEMENT (CLAIM 3)

D1. Overview of Complaint

18. The claimant claimed £2.153 million arising out of the three pump settlement. It appears that the application of the cap under clause 32 of the Consortium Agreement may reduce this to about £1.1 million (which was the figure identified by the dissenting arbitrator) and the defendant suggests that the value of the claim might be as low as £385,000. The claim was based on a number of detailed allegations to the effect that the design problems which led to the three pump settlement were the defendant's responsibility. The defendant denied liability for this claim in detail and there was both factual and expert evidence on the liability issues. The financial consequences of the claim, if liability were established, were the subject of a bare denial and a reference to the cap under clause 32 of the Consortium Agreement.
19. The Arbitral Tribunal decided that the defendant was responsible for the design problems, so that this claim was recoverable in principle. However, the Tribunal then went on to find that, as a matter of construction of the Consortium Agreement, no claim for this head of loss was made out under its express terms, or as damages for breach, or by way of an alleged admission. In arriving at these detailed conclusions in the Final Award, the claimant complains that the Tribunal went through a process of reasoning which had never been raised by the defendant and had therefore never been debated during the arbitration. On the face of it, that complaint was endorsed in the dissenting opinion.

D2. The Basis of the Pleadings

20. It was the claimant's case in the arbitration that the defendant's design was defective and it was this which led to the three pump settlement and the loss of £2.173 million. The defendant denied those allegations. The parties' respective pleadings on liability were voluminous. The Tribunal decided this issue of liability wholly in favour of the claimant.
21. As for the basis of recovery, the Arbitral Tribunal's terms of reference made plain that the claimant's claim was for "damages and/or recovery of additional costs incurred pursuant to the Consortium Agreement". The claimant's statement of case, however, made no mention of damages and put the recovery claim expressly by reference to clause 27.3 of the Consortium Agreement. The claim by reference to this provision was said to be for "the extra Cost incurred" by the claimant. That was how the claim was maintained in both the pre- and post-hearing submissions produced by the claimant.
22. The defendant denied that claim in terms which, as I have indicated, amounted to no more than a bare denial. The only positive averment by the defendant on this aspect of the case was that, if liability was found by the Tribunal, any sum due had to be calculated by reference to clause 32.3 and therefore the cap.

D3. The Award and the Dissenting Opinion

23. In the application before me, it was the defendant's case that the preliminary issues and the Partial Award of May 07 were of some significance in comprehending the arguments on Point 1. I am not entirely sure that I agree with that submission. The matters dealt with in the Partial Award included the operation of the clause 32 cap, but did not include any reference to clauses 27 or 30, the two provisions which, as we shall see, are relevant to this particular application. Neither did the Partial Award address expressly the question of the validity (or otherwise) of an alternative damages claim. It is right to say that, when I put that omission to Mr. Leaver QC, who appeared on behalf of the defendant on this application, he said that this was unsurprising since, by then, the claimant's claim was being put entirely by reference to clause 27 of the Consortium Agreement.
24. The relevant parts of the Final Award of 15^th October 2008 concerned with Claim 3 are as follows:

"3.9 Settlement with the client

177. This claim is for the recovery of the whole of the sum of £2.153 million allowed to the client as a reduction in the Contract Price as part of the package agreed with the client in return for a relaxation of the Contract. In its letter of 2^nd December 2004 the defendant had suggested to the claimant that the costs should be apportioned between them with the defendant bearing £1,127,944 (ie approximately £1,130,000). That proposal was based on the validity of the limitation in clause 32.3. The defendant's proposal was immediately rejected by the claimant which said that clause 32.3 was irrelevant. In the fax of 21^st January 2005 the claimant continued to maintain that the payment of £2.153 million 'according to the Consortium Agreement is the sole responsibility of the defendant and that therefore the defendant should pay £2.153 million. However we are aware that the defendant is of the opinion that the defendant is responsible for £1,127,944 whilst the claimant is responsible for £1,025,816'. The claimant said that it was 'unlikely that the defendant and the claimant could agree on the issue in due time' and suggested for the purposes only of agreement with the customer a pragmatic solution of a split evenly 'until the final settlement between the Consortium Partners had been agreed'. On 24^th January 2005 the defendant replied. There were further exchanges on 24^th January 2005 and subsequently which did not result in any agreement. The claimant thereafter held the defendant liable for the whole of the £2.153 million even though as a result of the settlement the claimant had only lost its Share of Supply, i.e. £1,769,981.

The tribunal then referred to its Partial Award in which it dealt with the proper meaning of clause 32.3. It then went on:

178…..Accordingly, clause 32.3, even if it were now invoked by the claimant for this claim, as it was for Claim 4, is irrelevant i.e. it does not provide it with the basis for holding the defendant liable. The purpose of clause 32.3 is to limit or cap the amount that might otherwise have been recovered. One has to look elsewhere in the Consortium Agreement to find the ground or grounds of liability for that amount. Clause 32.3 does not itself provide a ground of liability as was decided by the Partial Award. The defendant's liability to the claimant under Claim 3 arises under clause 27 since the defendant's absorbers were defective. That is the basis of the claimant's claim which is for costs incurred by it that are recoverable under clause 27 - see for example paragraphs 1.20, 3.209 and 4.21 of its statement of case. Clause 30 was not there relied on by it (and was only referred to in passing during the hearing and then by the defendant). The amount is not recoverable under clause 27.2 since not only does it not fall within the definition of 'cost' in clause 2.6: 'Cost shall not include any contribution to be paid by the Parties in proportion to their respective Shares of Supply' (which is what the claimant's claim represents) but it is also excluded in the same way by clause 26. Clause 27 provides the contractual code for the recovery of loss caused by a defect so as set out in the Partial Award in the discussion of clause 25, it is not possible for the claimant to recover the amount as damages for breach of the Consortium Agreement.

179. The claimant's case would fail even if the defendant's liability were viewed as potentially arising under clause 30 (guarantees). That clause makes a party liable for any liquidated damages, penalties or the like claimed by the customer. Leaving aside the point that, strictly, liability under clause 30 had not arisen, although it would have been only a matter of time before it would have arisen, the amount of £2.153 million was part only of the settlement with the customer, it was not an amount claimed by the customer which is a requirement of clause 30.2. It was not allowed as liquidated damages, penalties or 'the like'. On ordinary rules of interpretation 'the like' must be of the same kind or genus as the preceding terms. If anything, the amount of £2.153 million was in effect a reduction in the price offered because the Consortium was not going to comply with its obligations. The customer therefore agreed to vary the contract. The guarantees as varied were met. The amount of £2.153 million was not therefore claimed by the customer for non-compliance that falls within clause 30.2. In addition, clause 30 was expressly subject to clause 32.3 which reinforces the point that the latter only operates as a limit or cap and does not itself provide the basis of the claim. In addition, even if it did there was still no payment to the customer which could attract the operation of clause 32.3.

180. Furthermore, there was plainly no agreement or admission by the defendant (or the claimant) in December 2004 and January 2005 to pay £2.153 million (he assertion of such an admission in paragraph 3.209 of the claimant's statement of case was not pursued by the claimant which in paragraphs 6.81(ff) of its closing submissions accepted that there was no agreement about the money). The defendant was then maintaining that the claimant also bore some responsibility so it was not even admitting total liability. The claimant promptly rejected the defendant's proposal on the basis that liability did not arise under clause 32.3 which, as the Arbitral Tribunal has decided, was correct. The claimant had thus the opportunity of agreeing a settlement of its claim but it decided that it wanted the full amount irrespective of its earlier stance in December 2004 and January 2005. In its pleadings and submissions the defendant did not accept that the amount or any amount was recoverable by the claimant and, accordingly, put in issue whether the claimant was entitled to recover it under clause 27 (or any other provision of the contract). The Arbitral Tribunal therefore decides that the claimant is not entitled to any of it. These are the rights and obligations in the contract which the parties made and are their allocation of the risks as they saw them, all of which must be respected by the Arbitral Tribunal."

25. The relevant parts of the dissenting opinion were as follows:

"4. In the draft Final Award the Tribunal has found that the defendant was entirely responsible for the under-performance of the absorbers and has found in favour of six out of the nine heads of loss brought by the claimant under this item. But as appears from paragraph 177 of the draft Award, the majority has disallowed this head of loss in its entirety solely on the ground that it is not recoverable as a loss under the terms of the Consortium Agreement. I respectfully dissent from that view which turns entirely on the proper construction of some clauses of the Consortium Agreement.

5. The reasoning of the majority is that this claim is only recoverable under clause 27 in the Consortium Agreement but this particular head of loss is not recoverable since pursuant to clause 27.2 and clause 2.6, this head of claim does not fall within the definition of 'cost'.

6. Further, the majority considers that this head of claim is not recoverable under clause 32.3 which, so it asserts, does not provide an independent right of recovery and it refers back to a passage in the Partial Award to support this conclusion.

7. I respectfully dissent from this construction of the Consortium Agreement and I consider this head of claim is recoverable. My reasoning is as follows:

…

9. It is plain that clause 27 does indeed deal with liability for defects but only in respect of the actual cost of remedying defects. It does not deal with any other costs or losses which might flow from defects in one or other party's Part of Supply.

10. Clause 30.2 provides that where, as here, there is non-compliance with performance or other technical guarantees the Party responsible shall pay 'such liquidated damages, penalties or the like except as provided in clause 32'. This subclause plainly applies to this head of claim since the Tribunal has found the design of the absorbers provided by the defendant failed to comply with two Performance Guarantees….The Tribunal has also found that this was wholly the responsibility of the defendant.

11. Under clause 32.3 where one Party's default in performing its Part of Supply will cause extra cost and/or payment of liquidated damages, penalties or the like for delay and/or non-compliance with performance or other technical guarantees to the other Party, then the faulty Party is liable to compensate the non-faulty Party according to the formula set out in this subclause.

12. In my opinion the reduction in the Contract Price of £2.153 million demanded by the client must fall under the sweep-up phrase 'or the like' and thus fall with clauses 30.2 and 32.3. To hold otherwise would mean that the parties to this commercial agreement either overlooked or chose to ignore a potentially huge head of loss, namely, a negotiated reduction in the Contract Price. I can think of no sensible reason why this should be so and the sweep-up phrase used in the subclauses 'or the like' seems to me to cover the point.

13. The passage from the Partial Award cited in paragraph 177 of the Draft Award does not preclude this route to recovery either. That passage merely paraphrases subclause 32.3. It does not seek to decide the question under consideration, still less to decide the meaning of the phrase 'or the like'.

14. But the matter does not stop there since during the course of the Contract, when this claim was being debated between the parties the defendant plainly admitted in correspondence that it was responsible for the under-performance of the absorbers and even agreed to pay the sum of £1,127,944 (calculated under the formula in subclause 32.3) as its share of the three pump settlement with the Client. For example, in its letter dated 2^nd December 2004 referred to in 177 of the present draft, the defendant stated:

'According to the Consortium Agreement clause 32.3 amended on 8^th August 2002 2.15 million GBP should be shared as shown in the table below.'

(The table below shows that the defendant's responsibility amounted to some £1.13 million). Later in his letter dated 29^th January 2005 written on the same topic the defendant stated:

'We disagree to your proposal as a pragmatic solution. We remain in our opinion that the defendant is responsible for £1,127,944 and the claimant is responsible for £1,025,056 as per the Consortium Agreement clause 32.3.'

15. Finally, in its written submissions in this arbitration the defendant did not seek to argue that if the Tribunal were to find that it was responsible for the under-performance of the absorbers then this head of claim was not recoverable as a matter of the construction of the Consortium Agreement. In such circumstances, in my respectful opinion, it would be extraordinary for this meritorious head of claim to be dismissed by the Arbitral Tribunal when the defendant, both at the time and during the arbitration hearing, did not argue that it was not liable to compensate the claimant for this head of loss in the amount calculated under clause 32.3 once its liability for the under-performance was established."

26. In short, the majority found that the claimant was not entitled to recover pursuant to clause 27.3 as a result of a point of construction - the proper meaning of the word 'cost' under the Agreement - which had not been raised by the defendant. The majority then went on to reject other ways of putting the claim which had never been argued by the claimant. The dissenting arbitrator agreed at paragraph 9 that clause 27 did not provide a route of recovery but described the Tribunal's approach to the underlying issue of recovery as 'extraordinary'.
27. Has there been a serious irregularity leading to a substantial injustice as a result of the Arbitral Tribunal's approach to this issue? In order to answer that question, it is necessary to analyse each component part of the majority's decision that the sum of £2.173 million (or any lesser sum in accordance with the clause 32.3 cap) could not be recovered at all.

D4. The Claim under Clause 27

28. I find that, in the arbitration, the claimant's claim under this head was put fairly and squarely by reference to clause 27.3. The claim was denied, and it was therefore for the claimant to establish that the claim fell within the rubric of clause 27.3. The Arbitral Tribunal ruled unanimously that it did not do so, because the payment of money to the client/customer was not a cost as defined by clause 2.6 of the Consortium Agreement. For what it is worth, I respectfully agree with that conclusion.
29. On balance, I reject the suggestion that the Tribunal reached that conclusion as a result of a serious irregularity. It cannot be irregular for a Tribunal to consider the pleaded contractual basis of a claim and reject it as a matter of construction. True it is that the defendant did not expressly plead the construction point, but since the claimant was relying on clause 27.3, it always retained the responsibility to ensure that its claim did indeed arise under that clause.
30. At its highest, the claimant's criticism of the Arbitral Tribunal in respect of clause 27 could never be more than the suggestion that the Tribunal failed to provide it with an opportunity to argue that clause 27 did indeed provide a mechanism for recovery. Assuming that I am wrong about serious irregularity, and assuming that the Tribunal did indeed err in failing to provide the claimant with such an opportunity, I am entirely confident that this error has not led to any substantial injustice. That is because, in my judgment, it is plain that the clause 27.3 argument was doomed to fail. The clause allowed the recovery of defined costs, and any settlement with the client was not included within that definition. Furthermore, I cannot but note that the clause 27.3 claim is not supported by the dissenting arbitrator who, at paragraph 9 of his dissenting opinion, expressly agreed with the majority on this point. It is, of course, for that reason that the dissenting arbitrator explored other ways in which this claim might have been put.
31. Thus I reject the suggestion that a claimant, who relies on a particular clause of a contract to found his claim, is entitled to have the Award remitted for serious irregularity when the Tribunal decides that this clause, on its true construction, did not allow the claimed recovery. In any event, in the present case, no substantial injustice can have eventuated because all three arbitrators were unanimous that the clause in question did not permit the recovery of this particular head of claim.

D5. The Claim under Clause 30

32. The next complaint is that the claimant was deprived of the opportunity of maintaining this head of claim in the alternative, by reference to clause 30.2 of the Consortium Agreement. Although this possible route was raised by the dissenting arbitrator, and subsequently rejected by the majority, the claimant maintains that it should have been given the opportunity of making this alternative claim to the Arbitral Tribunal and that their failure to allow the claimant such an opportunity amounts to a serious irregularity.
33. There are, I think, a number of difficulties with that submission, the most important of which is the claimant's complete failure to plead any case under clause 30.2 in the first place. As noted above, the claimant put its pleaded case solely by reference to clause 27. Nowhere, as far as I have been able to find, in any of the lengthy documents generated by this arbitration, and at no time during the hearing, was it suggested that the claimant had a valid claim under clause 30. It is not, I think, for the Arbitral Tribunal to hunt through the contract and find other ways in which the claimant's claim might be put, and then offer the claimant a further opportunity to make submissions on any provision thereby identified. In an adversarial system, it is for the claimant to identify the ways in which it puts its case.
34. In addition, whilst the claimant never put its case by reference to clause 30, there can be no doubt that, because the issue was raised by the dissenting arbitrator, it has been considered and rejected by the majority. Paragraph 179 of the Final Award is a clear consideration of this argument and sets out the reasons for its rejection. It is impossible to say that there has been a substantial injustice in circumstances where an unpleaded alternative basis of claim (clause 30) has been expressly considered and rejected by the majority.
35. There is a further related point. The clause 30 issue is a short point of construction. It is not a complex issue; it is largely a matter of impression. The majority have concluded that the construction favourable to the claimant is not the correct construction of clause 30. No purpose would be served in remitting the issue back to the Tribunal only for the same result to eventuate. Realistically, whether argued by the claimant at the time or by the dissenting arbitrator subsequently, this point has now been considered and decided by the majority.
36. For those reasons it seems to me that the clause 30 argument does not trigger a legitimate application under section 68 of the 1996 Act.

D6. The Claim by way of an Admission

37. The third criticism is that the majority wrongly failed to give effect to the defendant's admission that some £1.1 million was due to the claimant as a result of this settlement, a point made by the dissenting arbitrator at paragraph 14 of his opinion.
38. This argument can be disposed of relatively quickly. The majority, at paragraphs 177 and 180 of the Final Award, expressly reject the suggestion that there was an agreement or an admission in any amount on the part of the defendant. There seems therefore to have been a difference of opinion on this issue between the majority and the dissenting arbitrator. Although the oral evidence, to which the majority do not refer, seems to suggest that the sum may have been admitted, it seems to me clear that the majority concluded on the facts that there was no such admission. That is a finding of fact. It is not therefore a matter on which the court can properly interfere at all. This criticism, therefore, must fail at the first hurdle.

D7. The Claim for Damages

39. The final criticism on Point 1 is that the Tribunal did not give the claimant the opportunity to address the claim for the £2 million-odd by way of damages for breach of contract. It is this aspect of the dispute on Point 1 which has given me the greatest pause for thought. There can be no doubt that at the outset this claim was put, at least in the alternative, as a claim for damages, and it is referred to as such in the Arbitral Tribunal's own terms of reference. However, the statement of claim does not refer to the claim as a claim for damages and the classification of this as a claim for damages does not appear to have been raised or been referred to in any subsequent document provided by the claimant.
40. I am not sure that I fully understand the Tribunal's approach to the damages claim. The only place in which it is addressed is the somewhat elliptical last sentence of paragraph 178, namely:

"Clause 27 provides the contractual code for the recovery of loss caused by defects so as set out in the Partial Award in the discussion of clause 25, it is not possible for the claimant to recover the amount as damages for breach of the Consortium Agreement."

The Partial Award deals with clause 25 in the context of a claim for interest and does not say in terms that, on a true construction of the Consortium Agreement, there was simply no room at all for a claim for damages in the alternative to a claim under the express terms of the Agreement.

41. On the other hand, I am bound to note that the damages route is not one that the dissenting arbitrator has referred to in his opinion. On that basis, it may well be that he agrees with the majority. Moreover, it seems plain that, whether or not they have expressed their reasoning with the utmost clarity, the majority have concluded that the provisions of the Consortium Agreement provide a complete code for all financial adjustments between the parties and that the effect of those contractual provisions cannot be avoided or somehow bypassed by the device of a claim for damages for breach. Thus, if the matter was remitted, it is clear what the Tribunal's answer (or at least what the majority's answer) would be to that question. Again, reality suggests that a remission would be a complete waste of time and money.
42. For those reasons I have concluded that the rejection of the damages claim does not amount to a serious irregularity and/or that if it did, there has been no substantial injustice because, even if it was remitted for the Tribunal's further consideration, their answer, which is expressed as a matter of construction of the Consortium Agreement, would be the same.

D8. Summary of Point 1

43. I have some sympathy with the claimant's position on Point 1. It is always unsatisfactory for a party to lose a claim on a point which it had not realised was in issue and had not addressed. I remain of the view, as expressed in argument, that it may have been desirable - and certainly more in keeping with the consensual nature of arbitration - for the Tribunal, having reached its preliminary conclusion on clause 27, and realising that this was a point which had not been expressly argued, to have notified the parties of the point prior to the finalisation of their Award.
44. But I am bound to conclude that, at root, the responsibility for this unsatisfactory state of affairs lies in the terms of the Consortium Agreement itself, and with the claimant itself. Whilst the emphasis in arbitration and litigation will always be on those particular matters on which the defendant has raised a positive case, a claimant always has the burden of ensuring that the A to Z of its pleaded case - liability, causation and recovery - is both workable and properly explained to the Tribunal. That responsibility cannot be shrugged off to the defendant or the Tribunal itself. Here it seems that the claimant failed to appreciate that, although it relied solely on clause 27, the clause did not actually provide an operable route to recovery.
45. Everything else on Point 1 flows from that. The claimant's criticisms are all based on the suggestion that someone else should have pointed out that its clause 27 claim was doomed to fail, so it could then explore other ways to put its case. I reject that approach for the reasons I have given. In those circumstances, whilst I do accept that the Tribunal could easily have acted in a different way, and that the defendant has ended up with a windfall which it cannot possibly have expected, I cannot say that there has been a serious irregularity or a substantial injustice of the kind and on the scale identified by Lord Steyn in Lesotho. Ultimately any unhappiness on the part of the claimant can, I think, be traced back to the particular terms of the Consortium Agreement to which it agreed, and the unidentified problems with its own clause 27 claim.
46. I should make one last observation on Point 1 of the application. Throughout his helpful submissions, Mr. Buckingham reiterated that the Tribunal was not entitled to decide matters which had not been pleaded or argued. That is in effect the argument under section 68(2)(b). On one view, the claimant's only pleaded claim for the cost of the three pump settlement was made pursuant to clause 27, which claim was unanimously and, I believe, correctly rejected. On Mr. Buckingham's own argument, therefore, the application for remission on Point 1 should fail, because it requires the Tribunal to consider alternative claims (such as the one by reference to clause 30 for example) which have never been pleaded.
47. For all those reasons, therefore, I refuse the application in respect of Point 1 under section 68 of the 1996 Act.

E. POINT 2: THE SETTLEMENT AGREEMENT (CLAIM 4)

E1. Overview of Complaint

48. The sum of £2,973,344 was said by the defendant to represent the amount by which it was out of pocket at the end of the works (ie the amount that it was owed by the client). The Settlement Agreement with the client led to payment to the defendant of £2 million. That left a balance of £973,344. That figure was identified in the claimant's calculation of its own Claim 4 as a credit to the defendant. However, the claimant maintains that this was solely for accounting purposes within the confines of Claim 4, and that the calculation assumed that the claimant, and not the defendant, was responsible for the defective design. Consistent with that, the £973,344 was claimed by the defendant against the claimant on the basis that it was the claimant who was responsible for the defective design and the delays caused thereby (and therefore the claimant who should reimburse this sum to the defendant which had not been paid by the client). Of course, the Arbitral Tribunal decided that it was the defendant who was responsible for the defective design, and this cross-claim therefore failed in its entirety. Accordingly, the claimant says that there was no basis on which the Tribunal could have legitimately deducted £973,344 from the sums otherwise due to the claimant.

E2. The Basis of the Pleadings

49. The £973,344 figure can be found in both sides' pleadings. In respect of Claim 4 the claimant had a table, Appendix J, which identified the figure of £2,973,344 as "remaining payment". It is the claimant's case that Appendix J was prepared on the basis that it assumed that the claimant was responsible for the defective design. The claimant points to an entry in the "comment" column in respect of the £2.127 million figure to which I have previously referred which said this:

"The reduction in contract price of £2,153,000 arising from the settlement with the customer concerning the 3 pump operation is included here on behalf of [the claimant]."

The figure of £973,344 does not appear to have been referred to in any other part of the claimant's pleadings.

50. The defendant's amended statement of case claimed that the £973,344 was due because of the claimant's alleged responsibility for the design deficiencies. The defendant's pre-trial brief claimed that the sum was due because of the claimant's responsibility for the delays which were caused by those design deficiencies. The defendant's post-hearing brief identified the £973,344 as a sum "to be taken into consideration" within the calculation of the sum due to the claimant under Claim 4. This last assertion was consistent with the defendant's claim that it was the claimant who was responsible for the defective design, and it did not suggest how or why the defendant might be entitled to be paid this sum if that cross-claim failed.

E3. The Award and the Dissenting Opinion

51. The Arbitral Tribunal dismissed the defendant's counterclaim based on the claimant's alleged responsibility for the design deficiencies and/or the delays thereby caused (see paragraph 257 of the Final Award). It found the defendant wholly responsible to the claimant for those deficiencies. But despite that, the Tribunal allowed a credit of £973,344 in the defendant's favour. The reasons for this curious turn of events are explained at paragraph 316 of the Award:

"316. In addition the defendant has not been paid £973,344. Mr. Nagayasu said that prior to the Settlement Agreement the defendant was owed £2.97 million. That was admitted by the claimant since in paragraph 4.5.1 of Section J of its statement of claim it recorded that £2,973,344 was due to the defendant as part of its share of the contract sum (see also paragraph 182(ff) above) and it made no claim for interest for it (see Appendix J to its statement of claim) as it had not been deprived of it. Oddly, therefore, Mr. Nagaysu was asked in cross-examination where he got his figure from and he confirmed that it was recorded in the defendant's books and accounts being unpaid balance and retention. It was not, however, suggested to him that the money was not due, nor did the claimant make any submissions to that effect in its closing submissions. Accordingly there was and is no issue between the parties about the amount being due to the defendant. It is not related to any other sum by the claimant or the defendant and the defendant's entitlement to it had been plainly and properly admitted by the claimant from the outset. The defendant received only £2 million from the Settlement so £973,344 must also be deducted. (The amount of £2,973,344 has in fact nothing to do with Claim 4.)"

52. In the disposition at the end of the Final Award at paragraph 2 the Tribunal, having dealt with the sum due to the claimant, said this:

"The total amount due to the respondent for all its claims made by counterclaim in this arbitration (other than for interest and costs) is £128,527 plus £973,344 for the balance of amounts due to it by the claimant, a total of £1,101,871 in all."

53. The relevant parts of the dissenting opinion are as follows:

"16. In paragraph 10 of the Final Award the majority gives a credit for the sum of £973,344 to the defendant against the sums which the Tribunal has found to be due from the defendant to the claimant. That sum represented the unpaid balance due from the client to the defendant as a result of the final settlement agreement dated 16.12.05 made between the client, the claimant and the defendant. That settlement agreement disposed of all the existing claims and cross-claims between the parties and constituted a final wrap up accounting of the financial aspects of the project. Under it the defendant received from the client the sum of £2 million in full and final settlement of its entitlement under the Head Contract with the client leaving it out of pocket to the extent of £973,344. The claimant made a similar but larger sacrifice.

17. It was thus clear that as a matter of fact this balance of £973,344 was never owed to the defendant by the claimant nor could it ever have been; it simply represented a loss incurred by the defendant as a result of the final settlement agreement made with the client. This was accepted by Mr. Nagayasu in paragraph 217 of his first witness statement where, having said that the defendant was owed an outstanding amount of £2.97 million under the Head Contract, 'I was content with the outcome of the Settlement Agreement under which the defendant received a payment of £2 million'.

18. In recognition of the fact that this sum was never due from the claimant to the defendant, in paragraph 107.3 of the defendant's written opening submissions in this matter, the defendant set out how it would be entitled to recover this sum from the claimant. Having expressly stated that it was owed this sum under the Head Contract the defendant went on:

'Any allocation of delay losses between the claimant and the defendant should take into account this sum. Indeed in the event that the Tribunal is persuaded that

(i) the Settlement Agreement can sustain claims as between the parties' contributions towards the plant owner's delay losses and

(ii) the claimant was responsible for the delays. The defendant claims the sum of £970,000 from the claimant accordingly.'

That is how the defendant put its case at the beginning of the arbitration hearing and that did not change throughout up to and including its closing submissions. The defendant did not suggest that it was entitled to a credit for this sum simply because it was owed it by the claimant [the client?].

19. However, neither of those tests postulated by the defendant was satisfied since the Arbitral Tribunal has now found that the Settlement Agreement can sustain claims as between the parties for contributions and in fact no argument to the contrary was presented by the defendant. Equally the Tribunal has not found that the claimant was responsible for the delays. Accordingly, on the defendant's own case it has failed to demonstrate any entitlement to recover this sum.

20. The majority decision on this point is, with respect, difficult to understand. It proceeds on the premise that this sum was somehow always due and owing from the claimant to the defendant. In this regard it refers to paragraph 451 of Section J of the claimant's statement of claim. However when regard is had to that document it is quite clear that it is dealing solely with what gains or losses each party has incurred under the Head Contract. It makes no statement whatever as to the sums owed between the parties. Similarly, in paragraph 7.28 and 7.29 of the claimant's written closing submissions it is made clear that the figure of £973,344 derives from the balance due to the defendant from the client under the Head Contract.

21. For these reasons, in my view, the majority decision, unfortunately, proceeds upon a clear mistake of fact to the effect that the claimant was accepting that somehow this sum of £973,344 was due from it to the defendant. In my view the claimant has never stated this and neither has the defendant ever relied upon any such admission. On the contrary, the defendant accepted that it had to prove the claimant's default to recover this sum which it failed to do. For my part I can see no legal, factual or other basis upon which this sum could ever have been owed to the defendant from claimant since it was always clearly the deduction from its entitlement under the Head Contract which the defendant was prepared to accept in order to reach the Final Settlement Agreement with the client. There is simply no legal or other basis upon which this sum could ever have been owed by the claimant to the defendant.

22. The only ground upon which the majority decide that this credit is due is, as already stated, that the claimant had admitted that this sum was due to the defendant from the claimant. This point is expressly averred in paragraph 2 of Section C of the Draft Award where it is said that this sum was 'for the balance of amounts due to the defendant by the claimant '.

23. It follows that this credit given to the defendant of a considerable sum of money is based upon a mistake of fact made by the majority which was never advanced by either party at the hearing or discussed in any way. This is such a fundamental point that I was not able to agree with the majority view.

54. In essence, the difference within the Tribunal was this: the majority found that the claimant had admitted that the sum of £973,344 was due to the defendant in any event, regardless of anything else or any other finding (and therefore regardless of the outcome of the defendant's claim in respect of design). The dissenting arbitrator said that there was no basis for such a finding and that the alleged unqualified admission was not a point which had been advanced at any time by either party.

E4. Analysis

55. From the documents that I have been shown, it seems clear to me that:

(a) Having regard to the dismissal of the defendant's claim in respect of design deficiencies and the delays caused thereby, and the other findings in the Final Award, each of the ways in which the defendant had claimed to be entitled to be paid the £973,344 by the claimant failed in its entirety. There was therefore no pleaded basis on which the Arbitral Tribunal could find that the claimant was liable to pay that sum to the defendant, or on which they could order that that sum should be deducted from the monies which they found otherwise due to the claimant.

(b) There was no pleaded or argued claim by the defendant that the sum of £973,344 was due from the claimant in any event, regardless of the outcome of the design allegations, as a result of an alleged agreement or admission. No such unqualified admission was made or referred to in the oral evidence, and none is identified by the Arbitral Tribunal in the Final Award. There was therefore no basis on which the Tribunal could rule that there had been any such agreement or admission.

(c) The sole basis for the Tribunal's finding of an alleged admission was said, in paragraph 316 of the Final Award, to be the claimant's pleadings in respect of Claim 4 (Section J and Appendix J), but the Tribunal then went on to say in the same paragraph that this sum was due, even though it had "nothing to do with" Claim 4. This contradiction is nowhere explained. It suggests plainly to me that the majority failed to understand the accounting exercise in Appendix J, and confused a sum due from the client with a sum due from the claimant.

56. On that analysis, therefore, I am bound to agree with paragraphs 16- 23 of the opinion of the dissenting arbitrator (paragraph 53 above). It appears that there has been an error by the majority, which arose because the Arbitral Tribunal did not raise this entirely new analysis with the parties, and did not ask for submissions on the novel line of reasoning - in particular the allegedly unqualified admission - that they adopted in paragraph 316. Whilst I at once accept that the majority may well have been led into this error by the muddled and prolix nature of both sides' pleadings, that cannot mean – in circumstances where a point has been decided against a party without it ever having been heard on that point - that a serious irregularity has not occurred.
57. For what it is worth, I also consider that the finding of an unqualified admission by the claimant was outside the Arbitral Tribunal's jurisdiction: section 68(2)(b) of the 1996 Act. As I have said, there was no claim by the defendant to be entitled to be paid £973,344 by the claimant regardless of any other finding and/or by reference to an unqualified admission to that effect. Therefore I consider that the Tribunal had no jurisdiction to reach any such conclusion.
58. Also in connection with Point 2, I should record that Mr. Leaver very fairly and properly accepted that paragraph 2 of the Tribunal's disposition at the end of the Final Award was, to use his careful word, "unfortunate", because it used the words "the total amount due to the defendant for all its claims made by counterclaim is…£973,344 for the balance of amounts due to it by the claimant". I consider that this highlights the serious irregularity that has arisen: on the basis of the information available to me, and the Tribunal's other findings in the Award, this sum was manifestly not due to the defendant from the claimant. It may have been due from the client: but on what possible basis, in the light of the failure of the counterclaim, could it have been payable by the claimant?
59. On Point 2, it seems to me that the risk of a substantial injustice is manifest. The error may well have reduced the claimant's claim by £973,344. Putting it another way, the claimant's net recovery may be more than doubled if it is right to contend that there was no unqualified admission of the sort found by the Tribunal. Of course, by reference to the sums in Van Der Giessen this potential loss can also be demonstrated to be a substantial injustice.
60. Finally, I ought to say a word about the effect of my overall decision, which is to reject the section 68 application on Point 1, but to allow it on Point 2. That might look inconsistent. In truth, I consider that, on analysis, it is entirely consistent. There are two reasons why I have arrived at that conclusion:

(a) I am troubled as to how the deduction from the sums otherwise due to the claimant was dealt with by the majority of the Arbitral Tribunal, in comparison with how they addressed Claim 3. The claimant's Claim 3 was subjected to a detailed and rigorous analysis, which some might even describe as harsh, and which has resulted in the claimant's success on liability but their failure to recover any compensation at all, by reference to a point never expressly taken by the defendant. On the other hand, the decision to deduct the £973,344 from sums otherwise due to the claimant is based on an unpleaded and unargued admission, and does not appear, at least on the face of it, to have been the product of an equally rigorous process of analysis.

(b) If it is right to pay particular attention to the way in which the claims were pleaded and argued then, as I have said, the claimant can ultimately have no complaint on Point 1, because it did not put its claim by reference to anything other than clause 27. By the same token, the defendant can have no grounds for complaint that I propose to remit the decision on the deduction of the £973,344 (Point 2) because, for the reasons that I have indicated, the defendant did not plead or argue, and would not appear to have, a case that it was entitled to that deduction regardless of the success or otherwise of its counterclaim and/or because there was an unqualified admission.

For those reasons, I believe that my approach on these two parts of the application is both consistent and in accordance with section 68.

61. It is therefore necessary for the issue of the deduction only, namely the £973,344, to be remitted to the Arbitral Tribunal so that the issue of whether or not there should be any such deduction in the light of the other findings of the Tribunal can be resolved and, if necessary, the figures adjusted accordingly. This is far from being a technical or unmeritorious point. There is a serious risk of substantial injustice if the issue of the deduction is not reconsidered.

F. POINT 3: THE COSTS OF THE ARBITRATION

62. The Arbitral Tribunal assessed that the claimant was entitled to 40% of its costs because of the shortfall between its claim and its actual recovery. If the claimant is right about the £973,344 then this will significantly increase its claim. That will warrant at least reconsideration by the Tribunal of the appropriate percentage of the costs recoverable by the claimant. For that reason alone the costs point should be remitted to the Tribunal. I stress that it is only on that point that the costs recovery should be reconsidered.

G. CONCLUSION

63. For the reasons set out in Section D above, I decline to remit the Award on any of the points arising out of the three pump settlement.
64. For the reasons set out in Section E above, I remit the Award on the sole issue of the deduction of the £973,344 from the sums otherwise due to the claimant. I decline the claimant's invitation to remit this point to the Tribunal on terms or to attach conditions.
65. Since the order on costs was parasitic upon the level of the claimant's recovery overall, as explained in Section F above, I also remit the costs question to the Tribunal for further consideration once they have considered the issue of the deduction of the £973,344.
66. There is a dispute about costs. The position is that the claimant sought to remit this matter on three grounds to the Tribunal. I have rejected the first, and accepted the second. The third was parasitic, in the sense that if the claimant was successful on either Points 1 or 2, then the Award would have been remitted on the third ground, which was the question of costs.
67. As for the sums involved, the sum said to be in issue on Point 1, on which the claimant was unsuccessful, has varied in the documents depending on the cap. It is perhaps wisest to use the figure in the dissenting arbitrator's opinion which indicated that Point 1 was worth about £1 million. On Point 2, on which the claimant has been successful, the sum involved is just under £1 million.
68. In those circumstances it seems to me that the claimant has been successful, albeit to the tune of about 50%. In those circumstances it is not, I think, appropriate for me to consider making a split order on costs. This was an application made by the claimant to remit the Award, defended across the board by the defendant, which defence has been unsuccessful, albeit not entirely. Therefore, absent any questions of offers, the order that I would have made would have been something along the lines of the defendant paying a percentage – 50%, 60%, 70%, something in that range – of the claimant's costs.
69. However, the matter does not end there, because there was an offer from the claimant to the defendant to settle the matter, dated 18^th December 2008. The terms of that offer were, effectively, seeking to get the defendant's agreement to the Award being remitted to the Arbitral Tribunal on Points 2 and 3: the arguments on which I have found in the claimant's favour. The offer proposed the abandonment of Point 1, on which I found against the claimant. It does therefore seem to me that the offer of 18^th December 2008 is entirely reflective of the decision that I have reached on the merits.
70. In those circumstances the claimant is entitled to say, "I have won entirely because, in accordance with CPR 36.14.(3) I have done as well as the offer that I made as long ago as 18^th December. In relation to the costs on that aspect of my application which I lost, well, that was the whole point of my writing the offer letter in the first place: to provide costs protection against the fact that this was the part of the application that I might lose."
71. As far as the terms of that offer are concerned, I understand that it did not generate any real correspondence and certainly no points were taken by the defendant as to its admissibility or its operability. It seems to me clear that it was designed to do exactly what Mr. Buckingham contends for; namely, it was designed to avoid this hearing, with a concession on the part of the claimant that Point 1 would be abandoned in exchange for an agreed remission on Points 2 and 3.
72. In those circumstances, it seems to me that CPR 36.14.(3) is triggered. Costs have been incurred on an aspect of this case which the claimant has lost, but in circumstances where the claimant offered a way in which both parties would not incur any costs in relation to that dispute. That offer was not accepted by the defendant. It therefore seems to me that the order that I would have made, namely that the claimant was entitled to a significant percentage but not all of its costs, is altered by the existence of the valid Part 36 offer.
73. For these reasons, I accept the proposition that the claimant having been successful on Points 2 and 3, and having also been 100% successful in accordance with r.36.14.3, is entitled to an order that it has its costs from 7^th January onwards on an indemnity basis. If the offer had been accepted, the costs from 7^th January would not have been incurred on either side.
74. The final issue is that of the summary assessment. Mr. Buckingham seeks an interim payment of £25,000 against a bill of £35,000 with the remainder going off to be assessed. It is not possible for me – on the basis of the information that I have – to work out precisely which costs should be awarded on an indemnity basis and which of these costs fall within the standard basis, i.e. the costs before 7^th January. I can, however, note that (so it seems to me) the bulk of these costs will have been incurred after 7^th January 2009.
75. In those circumstances I would conclude that an interim payment of £25,000 on account of costs is appropriate and, with some reluctance, I would also conclude that the remaining assessment will have to go off to a costs assessment if it cannot be agreed.
76. I should add that I consider the costs in the draft bill to be entirely reasonable. £35,000 is, I think, reasonable as an overall figure for the costs of this application and I think, if I may say so with respect, Mr. Leaver is right to refer to them as "modest costs". They are, on the basis of the documents, significantly less than the costs incurred by the defendant. In those circumstances it seems to me that an interim payment of £25,000 is justified with the remaining costs, if they cannot be agreed, to be dealt with by the assessing costs judge.
77. If it is of any help to the parties in seeking to agree those figures, I am bound to say that (so it seems to me) an agreement in the overall sum of £30,000 would reflect what I would consider to be a reasonable compromise. Indeed, £30,000 was the figure for the claimant's costs that I jotted down at the outset of the debate on costs.
78. The order will be an interim payment of £25,000 with the remaining costs to be assessed if they cannot be agreed.

(There followed discussion re permission to appeal, which was put on the ground that any error as to the £973,344 could not give rise to a substantial injustice.)

79. I have no doubt that, since the application is put on that narrow ground, it should be refused. It is not realistically arguable, in a case where the claimant recovered £750,000, because of a potentially wrongful deduction of almost £1 million, that the deduction is anything other than a substantial injustice.

MR. LEAVER: My Lord, I have made my submission.

MR. JUSTICE COULSON: You have but I am afraid, for that reason, I am nevertheless against you.