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Status: Judicial Consideration or Case History Available

Birse Construction Ltd v St David Ltd

QBENI 99/0584/A2
Court of Appeal (Civil Division)
5 November 1999

1999 WL 1019589
Before: Lord Justice Pill Lord Justice Aldous Lord Justice Ward
Friday, 5th November 1999
On Appeal from the Queens Bench Division Technology and Construction Court (His Honour Judge
Humphrey Lloyd)

Representation
• Mr P Darling QC (Instructed by Laytons, St Bartholomews, Lewins Mead, Bristol BS1 2NH)
appeared on behalf of the Appellant.
• Mr H Palmer (Instructed by Masons, 30 Aylesbury St. London EC1R OER) appeared on
behalf of the Respondent.

Judgment
Lord Justice Pill:
This is an appeal by Birse Construction Ltd (“the plaintiffs”), with the permission of Clarke LJ,
against a judgment of His Honour Judge Humphrey Lloyd QC given on 12th February 1999 in the
Technology and Construction Court. The circumstances are most unfortunate. The plaintiffs are
building contractors and St David Ltd (“the defendants”) are property developers and the owners
of land at Adventurer's Quay, Cardiff Bay, on which they propose to construct luxury apartment
buildings (“the development works”). In the present action, the plaintiffs claim the sum of
£114,089.56 upon a quantum meruit for works done on the development works in 1997 and
1998. The plaintiffs left the site on the 11th August 1998 in circumstances where they were
alleged by the defendants to be in default. There is no doubt that there were prolonged
negotiations between the parties with a view to making a contract.
The writ was issued on the 8th September 1999. Upon receipt of the quantum meruit claim, the
defendants sought an order that all further proceedings be stayed pursuant to section 9 of the
Arbitration Act 1996. They claimed that the parties,

“…having by an agreement in writing made and/or confirmed on 2nd July 1997,

alternatively by conduct of the plaintiffs after the 2nd July 1997, alternatively on 18th
July 1997 but in any event thereby having agreed to refer to arbitration any dispute or
difference as to the construction of the contract.”

The plaintiffs claim there had been no concluded contract. They do now accept that, if a contract
had been concluded, it included an arbitration clause.
When the application for a stay came before the learned judge, one of the issues was whether
the dispute as to whether or not an arbitration agreement existed should be referred to the
arbitrator. Mr Palmer QC, for the defendants, submitted to the judge that the effect of section 30
of the Arbitration Act 1996 was that,

“a court must always refer a dispute about whether or not an arbitration agreement
exists to the tribunal whose competence to do so is itself disputed.”
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The judge rejected that submission, stating that,

“in some cases it would be better for the court to act under RSC order 73, rule 6”,

that is to determine the question itself. In his written judgment, handed down a few days after the
oral hearing, the judge dealt with that issue in some detail. He stated:

“I accept that if it is clear on the evidence that a contract did or did not exist then the
court should so decide for it cannot be right either to direct an issue pursuant to order
73, rule 6(2) or to leave the ‘dispute’ to be determined by an arbitral tribunal.”

The judge then went on to state:

“I turn now to the facts before me as set out in the affidavits and the documents
exhibited to them.”

Having dealt with that preliminary point, the judge conducted a detailed analysis of the affidavit
evidence. Apart from one sentence near its end, his judgment reads, to me at any rate, as if the
parties by agreement had invited the judge to determine the issue whether or not a contract had
been concluded, upon the basis of the affidavit evidence. Having expressed his conclusions that
a contract had been concluded, the judge does state:

“Even if the facts were not as clear as I have found them, I would have acceded to the
application that an issue should be directed under RSC order 73, rule 6, since such an
issue could now be tried in this court in a matter of weeks so that the parties could know
where they stood at a time rather earlier than would be the case if there were now a
stay of these proceedings in favour of arbitration. In any event it is highly desirable that
an issue such as the formation of a contract incorporating an arbitration agreement
should be determined by the court before the arbitration commences and before time
and money is expended on an assumption which might turn out not to be valid, as I
indicated at the outset of this judgment.”

That paragraph I read as a reference back to, and a rejection of, the contention made on behalf
of the defendants that the question whether there was an arbitration agreement should be
determined by the arbitrator.
At the beginning of the hearing before this Court, it emerged that there had been no agreement
that the issue should be determined upon the affidavits. That much was common ground
between counsel, though they were not agreed as to the basis upon which the judge had been
invited to approach the issue. The plaintiffs' approach, which is not an altogether attractive one in
the event, appears from paragraph 8 of the notice of appeal. It is stated:

“On Birse's case the lack of agreement is manifest from the documents. Birse's primary
contention on this appeal is that the learned judge ought to have dismissed the
summons. If, however, the matter was not capable of summary resolution in Birse's
favour, the learned judge erred in not directing the trial of an issue.”

Mr Darling QC, for the plaintiffs, refers to the last paragraph of his skeleton argument before the
judge. Following submissions that the lack of the agreement was “manifest”, it concludes with the
words that “for these reasons the summons should be dismissed. Alternatively there should be
directions for the trial of an issue.”
Mr Palmer's skeleton argument before this Court begins with the statement that “The learned
judge determined, pursuant to RSC order 73, rule 6, that there was an arbitration agreement
concluded between the parties”. It was plainly not the judge's understanding that he had acted
under that rule. He contemplated, as a possible course open to him, its future use. Mr Palmer
agrees with Mr Darling that there was no agreement to decide the issue upon affidavits but
submits that, notwithstanding the absence of such agreement, the judge was granted a discretion
to decide the issue as he saw fit, the exercise of which should not readily be overturned,
especially when the judge was as experienced in dealing with building disputes as this learned
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judge undoubtedly is.

Mr Darling submits that the issue placed before the judge was whether there was a triable issue.
If there was a triable issue, there would then be a trial of that issue under order 73, rule 6(2). I
accept that the parties were seeking a quick and cheap resolution of the issue. Each was so
confident of its case that only brief oral submissions were made to the judge as to the effect of
the documents. That confidence was, in my judgment, misplaced on both sides.
It is unfortunate that the parties did not openly ventilate before the judge the differences which
were revealed only before this Court. It may be that they were distracted by their consideration of
the quite separate question whether the issue should be determined by the court or by the
arbitrator himself. Had the judge been alerted to the fact that he was asked to determine only
whether there was a triable issue, I am confident that, in his reasoning, he would have spelt out
why he rejected, as I think by implication he did, affidavit evidence served on behalf of the
plaintiffs, setting out his grounds for doing so. A party is ordinarily entitled to such explanation.
As it was, the defendants embarked upon the hearing in the belief that they were conferring upon
the judge a wide discretion as to how he should deal with the issue, even if disputed questions of
fact appeared from the affidavits. The judge's decision could be challenged only if, as counsel put
it, the judge made a “terrible gaff”. The plaintiffs were under the impression that, provided a
relevant triable issue was identified, there must be trial of an issue. They believed that the worst
they could reasonably expect was an order for the trial of an issue under order 73, rule 6. With
the desirable aim of achieving a quick and speedy solution, the parties failed to agree and to
express to the judge what he was being asked to do.
Whether a building contract has been concluded in circumstances such as the present, with
prolonged oral and written negotiations and an obvious intention to put an agreement into writing,
can be a complex question. If there is a speedy way of deciding it, so much the better, and
parties can often be expected to agree to have the question determined upon affidavits. It is
common ground that there was no such agreement in this case, both parties seeking a sighting
shot, but failing to make clear to the judge the powers they were seeking to confer. If it is
intended to confer a power to reach a decision on affidavits, and thereby to deprive a party of his
opportunity to cross-examine witnesses for the other side and of the opportunity to give oral
evidence, basic components of a conventional trial, that should be made clear. In the absence of
such clarity, the judge can in my view be held in this case to have had only the limited jurisdiction
of deciding whether there was a triable issue.
Had that been made clear to the judge, I am confident that his judgment would have taken a
different form, whether or not he came to the same conclusion. Moreover, I am confident that, at
the outset, the judge would have pointed out to the parties that, far from achieving a quick and
speedy solution, they were at risk of needing two hearings instead of one, a course he would
have wished to avoid. An immediate trial of the issue, with the parties first identifying and
particularising the issues of fact, would almost certainly have been preferable. As it is, this Court
has heard far more elaborate arguments upon the alleged effects of the affidavits and the
documents than were presented to the judge. The inappropriate use of the appeal procedure
arose from the parties' lack of clarity before and at the hearing before the judge.
There was in my judgment a triable issue on the affidavits as to whether a contract had been
concluded. I understand that Aldous LJ has reached the same conclusion so that the case will be
remitted to the Technology and Construction Court for determination of the issue. That being so,
a detailed consideration of the facts at this stage would not be appropriate. However, I bear in
mind: 1) that the parties intended and worked towards a contract in writing but one was never
made; 2) that questions arise as to what happened at the meeting of 17th July 1997, in the light
of antecedent negotiations, and whether an agreement was reached; and, further, 3) did the
“issue” of C1289 revision 6 amount to an acceptance of an offer?
I would, with reluctance, allow this appeal. I would, with diffidence, also express the hope that
parties allured by the possibility of achieving a quick solution of their disputes by the resolution of
preliminary points will be plain with each other and with the Court as to precisely what the Court
is being asked to do.
Lord Justice Aldous:
At the heart of this case is the question whether or not there was a concluded agreement
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between the parties. If there was it contained an arbitration clause and these proceedings should
be stayed.
The plaintiffs in the action, Birse Construction Ltd, claimed in their Statement of Claim monies
earned whilst they were carrying out building works for the defendants, St David Ltd, on the site
of the Adventurer's Quay, Cardiff Bay during the period June 1997 to August 1998. Birse's claim
was under a quantum meruit because the contract under negotiation had not been concluded. St
David sought a stay contending that a contract with an arbitration clause had indeed been
entered into. Birse resisted the stay. The parties filed affidavit evidence and the question of
whether there should be a stay came for hearing before His Honour Judge Humphrey Lloyd QC.
He concluded that there was a contract and stayed the action. Birse appealed.
Before the judge St David's case was that the affidavit evidence, when taken as a whole,
established the existence of a contract between the parties. They also submitted that the judge
need not decide whether that submission was correct as the appropriate procedure was to stay
the action, leaving the dispute to be resolved as a preliminary point by the arbitrator. Their
fall-back position was expressed in their skeleton in this way:

“23. Order 73, rule 6(2) provides:

‘Where a question arises as to whether an arbitration agreement has been concluded … the
court may determine that question or give directions for its determination, in which case it may
order the proceedings to be stayed pending the determination of that question.’

“24. It is submitted that the directions which may be given by the Court for the
determination of the question include directions as to determination by the arbitral
process as set out above.
“25. In the final alternative, if the Court cannot determine the issue now on affidavit
evidence, and decides that determination should be conducted by the Court, not by an
arbitrator, directions should be given for trial of a preliminary issue within the context of
the arbitration application with a stay of the main proceedings pending such
determination.”

Birse contended that it was not open to the Court to leave the question to the arbitrator and, in
any case, it was clear on the affidavit evidence that no contract had been entered into. Their
skeleton set out their view on Birse's fall-back position:

“Between the extreme positions of both sides, however, it appears that there are a
number of intermediate positions where issues of fact will be relevant and where
disputes will have to be decided. It therefore seems to the Plaintiff that if the Court takes
the view that any factual question is or could be relevant to the Court's decision then the
final alternative referred to in paragraphs 23 to 25 of the Defendant's skeleton -
directions for the determination of an issue by the Court - would be the correct course.”

It is clear that the parties did not agree to have the question of whether or not there was a contract
between them decided upon the affidavit evidence, if there was a genuine dispute of relevant fact.
The judge rejected St David's submission that the question of whether there was an agreement
should be left to be decided by an arbitrator. He went on to analyse and assess the evidence and
to conclude that an agreement had been reached. As it was agreed that if there had been an
agreement it contained an arbitration clause, he stayed the action. Before us, Birse sought to
suggest that the judge had wrongly analysed the evidence, but their main submission was that
the judge had resolved issues of fact, a course not open to him. He should have given directions
for trial of the question of whether there had been a concluded contract.
Order 73, rule 6(2) enables a court to determine the question of whether an arbitration agreement
had been concluded or to give directions for its determination. That gives to the court a
discretion, but determination of the question cannot be carried out if it would not be appropriate to
do so. In my view it cannot, without the consent of the parties, be a proper exercise of the
discretion given by the rule to determine a question of fact, or perhaps mixed fact and law, such
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as whether a contract had been entered into, upon affidavit evidence which shows a genuine
dispute of relevant fact.
In the present case it was open to the judge to conclude that there was no genuine dispute of
relevant fact and then decide that there was or was not a contract. If there was such a dispute
then the issue had to be resolved as a preliminary issue or at the trial. To conclude to the
contrary would in my view tend to obstruct the proper resolution of such cases. If disputes of this
type could be decided on affidavit evidence despite there being issues of fact which would
normally require cross-examination, the parties would need to go to considerable length to put
before the court by way of affidavit all the evidence that could possibly be relevant and to answer
every point raised in the other side's evidence. The result would often not be cost effective, as
the court would normally decide that it was unable to resolve the issue without
cross-examination, as to do so could lead to injustice.
In the present case St David submitted to the judge that he should not decide the question of
whether there was a contract with an arbitration clause as that question should be left to the
arbitrator. That could have been decided with minimal affidavit evidence. However the parties,
having seen the evidence that was filed, asserted on one side that there was a contract and on
the other that there was not. I have no doubt that counsel for both parties concentrated their
submissions on whether a contract had been entered into. That led the judge to decide which
submission was correct and to resolve an issue of relevant fact. In my view the correct approach
was first to decide whether there was a genuine issue of relevant fact. If there was, then the only
course open to the judge was to give directions for that issue to be tried.
I would have thought that it was clear at the outset that there was a real dispute between the
parties as to whether a contract had been entered into in the complex circumstances that arose,
and that it involved an issue of fact, or mixed fact and law, which would not be easy to resolve. It
followed that the affidavit evidence should, in my view, be read in that light. Approaching it in that
way, I believe that the evidence filed on behalf of Birse, when read as a whole, was consistent
with the submission put forward on their behalf. If there was an agreement, then it occurred at the
meeting of 17th July 1997. The minute of that meeting can be read as consistent with the
evidence of Mr Cooper. He expressed the view that the programme was “too tight”. Whether that
amounted to a reservation or just an observation can only be resolved upon analysis of all the
evidence after cross-examination. There was a genuine dispute of relevant fact which constituted
a triable issue which could not be resolved on affidavit evidence alone. I would therefore allow
the appeal and remit the case back to the Technology and Construction Court for directions as to
how the issues should be tried.
Lord Justice Ward:
I am in the unhappy position of taking a very different view of this case. The question before the
court was whether or not this claim should be stayed pursuant to section 9 of the Arbitration Act
1996. If the parties had entered into an arbitration agreement, the court was obliged to accede to
the request for a stay. This was the question predicated by RSC order 73, rule 6(2) and so this
rule governed the application. I need not read it again. It gives the court a discretion, namely, “the
court may determine that question or give directions for its determination, (emphasis added).”
The judge was well aware of that. He correctly identified that:

“… the following courses are open to me.

1. To determine, on the affidavit evidence that has been filed, that an arbitration
agreement was made between the parties, in which case the proceedings will be stayed
in accordance with section 9 of the 1996 Act since article 5 and clause 41 of the JCT
Conditions containing an arbitration agreement;
2. To stay the proceedings but on the basis that the arbitrator will decide the question of
whether or not there is an arbitration agreement since section 30 of the arbitration Act
1996 provides:

‘(1) Unless otherwise agreed by the parties, the arbitral tribunal may rule on its own
substantive jurisdiction, that is, as to —
(a) whether there is a valid arbitration agreement …
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(c) what matters have been submitted to arbitration in accordance with the arbitration
agreement.
(2) Any such ruling may be challenged by any available arbitral process of the appeal or
review or in accordance with the provisions of this Part.’

“Sub section (2) is a reference to provisions such as section 67 which states:

‘(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 or the arbitral tribunal to its substantive jurisdiction; …’

“3. Not to decide the question immediately but to order an issue to be tried. RSC Order
73 rule 6(2) provides”,

and he quotes it.

“4. To decide that there is no arbitration agreement and to dismiss the application to
stay.”

The judge said it was “common ground” that these four course were open to him, and it was,
because, to quote from paragraph 7 of the appellant's skeleton argument in the court below:

“Both sides appear to contend that it is clear that either there was (the defendant) or
there was not (the plaintiff) an arbitration agreement. It appears to be both sides'
primary position that their cases are so clear that evidence makes no difference.
Between the extreme positions of both sides, however, it appears that there are a
number of intermediate positions where questions of fact will be relevant and where
disputes will have to be decided. It therefore seems to the plaintiff that if the court takes
the view that any factual question is or could be relevant to the court's decision then …
directions for the determination of an issue by the court would be the correct course.”

In other words, both sides were contending for the first outcome identified by the judge, and both
left it to him to decide whether a triable issue arose, in which event both were agreed that the
conflict would then have to be tried as a preliminary issue, the defendant contending as its
preferred alternative that the issue be resolved by the arbitrator. If either party wished to contend
that there was such a plain conflict of material fact that the conflict had first to be resolved, it had
the opportunity to do so, but it failed to take this stand. Since both parties were not only content
to leave it to the judge to decide the case on the affidavits, but were also urging him to do so, I for
my part find it surprising that the judge should now be criticised for accepting that invitation. I
would not permit the point to be taken. The appellant should, in my judgment, be held to its
election.
If, contrary to my view, the appellant is entitled to reopen this question, then my approach to it
would be that, because the judge was exercising a discretion when deciding whether or not to
order a preliminary issue, this court should only interfere if he erred in principle or was plainly
wrong in the balance he struck.
That discretion is unfettered save that it has to be exercised judicially to serve the interests of
justice. Matters relevant to the exercise of that discretion include the following. The first task of
the judge is to analyse the affidavit evidence with a view to ascertaining whether or not there is
any conflict of fact thrown up by that evidence.
The second task for the judge is to assess the relevance and materiality of that dispute. If it is
crucial to his ultimate decision, then, of course, he will order a trial with the deponents of the
affidavits to attend for cross-examination to resolve the dispute; but if he considers that resolving
the dispute of fact will be of little weight or importance to the eventual outcome, he is entitled to
proceed without resolving it, or to do his best to resolve it on the affidavits. He is entitled to bear
in mind that independent, extraneous evidence, or the inherent improbabilities or the probabilities
arising from the contemporaneous records may enable him to resolve the conflict without the
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need for oral evidence to elaborate the difference of fact.

Thirdly, the judge will have well in mind that matters of court control and trial management are in
his province and questions of the cost and delay involved in adjourning to resolve an issue of fact
which he considers to be peripheral are properly to be taken into account.
I cannot accept that this experienced judge did not have these principles well in mind. I simply
cannot accept that he was not aware of his power, and of his duty, to order the trial of a
preliminary issue of fact if he had considered that the truth was sufficiently material to the
ultimate decision he had to take. He said, and in the light of the way the case was presented to
him, he was entitled to say:

“I return to the facts. As a preliminary I observe that the plaintiff's evidence did not
suggest that there was any further material evidence … It appears therefore that I have
all the evidence needed to decide whether or not there is or may be an arbitration
agreement.” (My emphasis is added.)

Insofar as the affidavits did throw up any conflict or issues, they were threefold. The first related
to the meeting held on the 9th June. The contractors did not dispute what was said, but asserted
that they did not intend that what they said should have contractual effect. Their case was that
this was part of an ongoing negotiation. The judge rightly held that their intentions and beliefs
were irrelevant because the test is an objective one. Oral evidence took the case no further.
The second issue was whether the contractor's employees had authority to bind the company.
The judge held they did. That finding was not challenged before us.
The third dispute related to the meeting of the 18th July. The conflict upon which attention has
focused in this appeal is the narrow issue of whether Mr Cooper said, when he produced
programme revision number 6, “In my view the programme is too tight.” I have added that
emphasis because the adverb is not reflected in the defendant's account of that meeting, nor
indeed in the minute which reads,

“Contract programme issued at meeting … CC thought programme tight but has

maintained access and watertight dates for fit out.”

The judge had to decide whether the difference in the language was capable of making a
material difference to the outcome, which it might on the appellant's contention, that Mr Cooper
was placing a reservation on the company's acceptance of contractual responsibility. Once again
the answer does not lie in what Mr Cooper believed or intended. Once again the test is objective.
The judge was clear about his conclusion. He held:

“Nonetheless I am quite satisfied that at the meeting on 17th July 1997 there was
agreement about the only matter left outstanding at the meetings in June 1997, namely
the contract programme. Clearly Mr Cooper had reservations about the feasibility of the
program, but following discussions with the precast supplier, the plaintiff put it forward
as the contract programme …”

In the light of that analysis, he was entitled to take the view and clearly did conclude that oral
evidence would take the case no further.
In all the circumstances of the case that was a perfectly proper exercise of discretion and this
court ought not to say that his view of the materiality of the conflict was plainly wrong. He was
invited to judge the matter on the affidavits and was entitled to do so. His assessment of the
materiality and weight of the disputes is implicit in the way he dealt with it. Whether Mr Cooper
said that the programme was tight or too tight it amounted, as he found, only to a reservation
about the feasibility of the programme, not a reservation by the plaintiff that the document was
not being put forward as the last piece in the contractual jigsaw. As I have said, it lies ill in the
appellant's mouth now to suggest that the judge made an error of principle or was plainly wrong.
The appellant viewed the matter as tilted in favour of summary disposal on the affidavits, or at
least to be so evenly balanced that either course was well within the generous ambit of the
judge's discretion.
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It to follows that I would not have allowed the appeal against the exercise of the judge's
discretion. The appellant is still entitled to contend that on the affidavit evidence the judge ought
to have reached the conclusion for which it contended in the court below, namely that there was
no binding agreement. The practical consequence is that we should be reviewing the decision of
the judge as one taken on a trial by him of the issue as to whether or not there was an
agreement. It was a trial of the issue where the evidence before the court was that which was
contained in the affidavits. It would still be open to the appellant to attack any findings of fact on
the basis that they were against the weight of the evidence, but with all the difficulties that face
such a challenge. Because the evidence is on affidavit and demeanour can have no part to play,
this court is more easily able to interfere with the judge's assessment of those facts; nevertheless
this court should always be slow to interfere with the finding of the judge, particularly one
exercising a specialist jurisdiction. His conclusions of law can, of course, be challenged in the
usual way.
However, in view of my Lords' conclusion that the matter must be remitted, it would be better for
me not to express any further opinion on the merits. As the matter is to be reheard, and because
the judge must feel free to take whatever course he or she thinks appropriate, unaffected by
anything I have already said or could add, I conclude that the best course open for me to take is
to close my eyes, swallow hard, and agree, despite all I have said, that there should be a trial of
the issue. I reluctantly agree to allow the appeal.
LORD JUSTICE PILL: The appeal is accordingly allowed.
Order: Appeal allowed. Costs below and in this court to be costs in the appeal.
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