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However, in certain circumstances, his loss of profit on the sub-sale may be recoverable.

These circumstances are akin to those mentioned under the ruling in Hadley v. Baxendale – namely, the seller must have either actual or imputed knowledge that the buyer was, or was likely to be, reselling the goods in question.

The leading case is Hall v. Pim (1928). Here an unascertained cargo of 7,000 tons of Australian wheat was purchased on c.i.f. terms, and the contract specifically recognised that the buyers might resell during the voyage. In the event, the buyers did resell at a higher price than the contract price. On the ship's arrival, the sellers failed to deliver. The market price had by then dropped. The buyers claimed the difference between the contract price, and the price at which they resold to their sub-buyer.

HELD (House of Lords):

That the terms of the contract contemplated that the cargo might be resold, and anyway it was the custom in the trade to resell cargoes on the high seas.

The liability of the seller would be limited to the loss of normal profits under a resale made on the terms usual in the trade.

However, he would also be liable for the damages incurred by the buyer in the event that due to his failure to deliver, the buyer was unable to make delivery to his sub-buyer.

(b)Damages for Delay in Delivery

Delay, as opposed to non-delivery, is not specifically mentioned in the 1979 Act. It is, of course, a breach of contract, and entitles the buyer to damages for loss suffered as a result. This must be dependent partially on whether the buyer is a trader, buying the goods for resale, or whether she is buying for her own use.

In the former event, the market price is relevant only to the extent that the buyer will have to purchase in the market goods to fulfil any contract she has with a sub-buyer. Alternatively, if she has not resold the goods prior to actual delivery, she will do so as soon as they are delivered. On the authority of Koufos v. Czarnikow (1969) it appears that in this event the measure of damages is the difference between the market price at the time the goods should have been delivered, and the price when they were in fact delivered. In general, however, as in the case of non-delivery, the effects of sub-sales are ignored unless the contract actually contemplates a sub-sale, and the erring seller has either actual or imputed knowledge of it. A controversial case on this subject was Wertheim v. Chicoutimi Pulp Co. Ltd (1911). Here the seller was late in delivering goods. The market price when the goods should have been delivered was 70 s (£3.50) a ton. When they were actually delivered it had dropped to 42 s 6 d (£2.13) a ton. However, the buyer was able to resell at 65 s (£3.25) a ton.

HELD (Privy Council): The buyer was entitled only to the difference between 70 s (£3.50) and 65 s (£3.25) a ton.

This decision has been criticised as it appears to go against the normal rule of ignoring sub-contracts. The defaulting seller benefited solely because the buyer chose not to buy alternative goods in the market immediately after the default.

If the goods are not bought for resale, but are profit-making articles, the buyer may recover damages for loss of use during the period of delayed delivery, but not loss of profits in respect of an unusual or exceptional use.

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Victoria Laundry (Windsor) Ltd v. Newman Industries Ltd (1949)

The buyers purchased a new boiler for their laundry business. Unbeknown to the sellers, they had secured a highly lucrative dyeing contract with the Ministry of Supply. The sellers were late in delivering the boiler.

HELD (Court of Appeal): The buyers were entitled to recover for the loss of business and profits from normal and foreseeable usage of the boiler, but not for loss of profit on the dyeing contract, which was not reasonably foreseeable.

(c)Damages for Defective Quality

Quality of goods may be either a condition or a warranty of the contract. If the seller is in the course of a business, the quality and fitness for the purpose are implied conditions (S.14). Hence the buyer has an option. He/she can reject defective goods, and sue for damages for breach of condition. The damages will then be equivalent to those where the seller has failed to deliver. Alternatively, he/she can treat (or be compelled to treat) the breach as merely a breach of warranty. In this event, S.53 provides:

"(1) The buyer may

(a)set up against the seller the breach of warranty in diminution or extinction of the price, or

(b)maintain an action against the seller for the breach of warranty.

(2)The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty."

This applies to all breaches of warranty by the seller. We have already discussed the effects of Sub-section (2). However, Sub-section (3) goes on to state:

"In the case of breach of warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer, and the value they would have had if they had fulfilled the warranty".

So the damages are assessed on the assumption that the defective goods have a value in that state, and amount to the difference between that value and the value of goods of the correct quality. If the buyer chooses to retain them (if possible), then the cost of so doing is irrelevant, unless they are such that there is no market value for them. In this event only, the measure of damages will be the cost of putting them into the contractual state.

Repayment or Diminution of the Price

For any breach of warranty, the buyer may claim repayment or diminution of the price (S.53(1)), and such action does not prevent him/her from claiming damages in addition if he/she has suffered further loss (S.53(4)).

Other Remedies

The principal additional remedy in the case only of specific or ascertained goods is an order for specific performance. This option is given by S.52(1) which, as for all equitable remedies, is granted only if the court thinks fit. However, the section authorises the court to order specific performance "without giving the defendant the option of retaining the goods on payment of damages".

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C. SUPPLY OF GOODS AND SERVICES ACT 1982

The Sale of Goods Act 1979 applies only to contracts of the sale of goods as defined. Other contracts under which the property in goods passes, but which do not fall into the definition, are not covered. The common law has for long applied many of the provisions of the Act by analogy to such other contracts.

So in 1982 this common law practice was given statutory authority, to an extent anyway, by the Supply of Goods and Services Act 1982. This Act applies to all contracts where goods are transferred and the property passes, other than contracts:

For the sale of goods;

For hire purchase;

Where property in goods passes in exchange for trading stamps;

For transfer under seal where there is no consideration;

Where transfer is by way of mortgage, pledge, charge or other security.

The Act implies into all relevant contracts effectively the same conditions or warranties as those of the Sale of Goods Act 1979, namely:

A right to transfer the property;

Freedom from charge or encumbrance;

Quiet possession;

Correspondence with sample and/or description;

Satisfactory quality and fitness for the purpose.

Similar provisions, with the necessary changes, are made in respect of goods which are hired (and in which, of course, the property does not pass).

Part II of the Act deals with the supply of services. In such contracts for services, whether or not the property in goods also passes, it is implied that:

The supplier will carry out the service with reasonable skill and care;

If the time for performance is not fixed, it will be carried out within a reasonable time;

Where the consideration is not fixed by the contract, or implied from a course of dealing, the charge made by the supplier will be reasonable.

Subject to the Unfair Contract Terms Act 1977, these implied warranties can be negatived or varied by agreement.

D. ROLE OF THE COMMERCIAL COURT

Mercantile Law

As early as 1895, it was appreciated that mercantile disputes were in a somewhat different category from ordinary private litigation. The disputes of merchants and traders were, therefore, assigned to a special "commercial list" at the High Court in London, and tried under a simplified and relatively speedy procedure.

This was, perhaps, not so great a departure from established legal practice as it might appear. In medieval times, the affairs of merchants were resolved in local Borough Courts and similar, which applied the law merchant (as distinct from the then infant common law of England). These local mercantile courts were gradually assimilated by the Royal Courts.

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However, even in the 19th century, special courts were not unheard of. The High Court of Admiralty was established in 1340, primarily to deal with piracy and prize questions, but it quickly assumed a civil jurisdiction. As a result of the Judicature Act 1875, it became a division of the High Court (linked, strangely enough, with Probate and Divorce).

Modern Courts and Procedure

The commercial lists of the High Court continued until 1970, when a Commercial Court was constituted as part of the Queen's Bench Division of the High Court. The judges of the Commercial Court are normal "puisne" judges of the High Court, nominated by the Lord Chancellor to the court, and they acquire a competence and expertise in commercial matters not normally associated with the High Court. The court primarily deals with those branches of law which stem from mercantile custom, rather than the common law (such as insurance, banking and mercantile agency), and with mercantile documents such as bills of lading, charter-parties and negotiable instruments. Ordinary disputes concerning contracts and tort between companies or individuals are not, usually, dealt with in the Commercial Court.

The Court sits in London, Liverpool and Manchester. Its procedure is simpler and more flexible than the normal procedure and greater use is made of documentary evidence. If both parties consent (as they usually do), the strict rules of evidence are relaxed.

Judges of the Commercial Court may (with the consent of the Lord Chancellor) accept appointment as sole arbitrators (or umpires) in disputes of a commercial nature under the terms of arbitration agreements.

E. RESOLUTION BY ARBITRATION

What is "Arbitration"?

What is generally meant by "arbitration" is a quite different matter from what we have described above. It is the private resolution of disputes outside the framework of the courts, and it must be by agreement between the parties to it.

It is a rule of public policy that people cannot, by agreement or otherwise, oust the jurisdiction of the court. It is the right of all citizens to have their disputes heard and adjudicated upon by the courts of the realm. However, subject to the overriding jurisdiction and control of the court, parties have, for a very long time, been encouraged by the state to settle their differences by private arbitration.

The practice of arbitration was well known in both ancient Greece and Rome. In international affairs in the UK, a treaty between England and France, in 1655, provided for arbitration in Hamburg for the calculation of damage suffered as a result of war between the two countries since 1640. Modern international arbitration probably dates from "Jays Treaty" between Britain and the USA in 1794, which provided for the resolution of certain legal issues by a mixed commission.

Domestic arbitration was first provided for in the Arbitration Act 1698, and there has been a succession of Arbitration Acts and provisions since then. Modern law is governed by the

Arbitration Act 1950, as amended by the Arbitration Act 1979.

As stated before, arbitration always arises by agreement between the parties. It is usual for such agreement to be contained in a clause of a written contract which will provide that any dispute arising out of the contract will be referred to arbitration. However, there is no reason why such agreement cannot be reached after a dispute has arisen in respect of a contract that does not specifically provide for arbitration.

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Distinction between Arbitration and Valuation

A valuation is made before a dispute has arisen, and this is, really, to avoid a difference arising. A third party is chosen to put a value upon something, and there is no judicial enquiry: nor have the courts any power to intervene and enforce the decision (known as the appraisement). In an arbitration there is always some dispute or difference which must involve a judicial enquiry, usually held in a judicial fashion, after hearing arguments and evidence. The courts have power to intervene and enforce the award.

Arbitration is, therefore, essentially judicial in nature while valuation is the result of technical skill; although the valuer is liable for negligence, the arbitrator cannot be so liable.

In Campbell v. Edwards (1976), Lord Denning said:

"The position of a valuer is very different from an arbitrator. If a valuer is negligent in making a valuation, he may be sued by the party – vendor or purchaser – who is injured by his wrong valuation. But an arbitrator is different. In my opinion he cannot be sued by either party to the dispute, even if he is negligent. The only remedy of the party is to set aside the award, and then only if it comes within the accepted grounds for setting it aside. If an arbitrator is guilty of misconduct, his award can be set aside. If he has gone wrong on a point of law, which appears on the face of it, it can be corrected by the court. But the arbitrator himself is not liable to be sued."

Why Go to Arbitration?

The reasons why people opt for arbitration are twofold. In the first place, the proceedings are private and, thus, no publicity need accompany them. The normal courts are, of course, always open to the public, except in special cases involving the security of the state and juvenile matters. The second reason is that the arbitrator appointed to resolve the issue can be a specialist in the subject-matter, and not a lawyer. Contrary to popular mythology, arbitration is generally neither cheaper nor speedier than court proceedings.

For these reasons, arbitration is more common in some forms of commercial activity than others. It is almost invariable in engineering and construction disputes, whereas in (say) contracts for the sale of goods it is less common.

Let us, then, first examine the provisions of statute relating to arbitration, and then look at its practical application.

Arbitration Acts 1950 and 1979 (as amended by the 1996 Act)

The principal Act is the 1950 one, which is a consolidation of the Arbitration Acts 1889 and 1934. The 1950 Act is amended in certain particulars by the 1979 Act. References to "the Act" are, therefore, to the 1950 Act. There is a further Arbitration Act 1975, which gives effect to the New York Convention on the recognition of and enforcement of foreign arbitral awards.

(a)Effect of Arbitration Agreements

S.1 of the Act provides for the authority of an arbitrator, as follows:

"The authority of an arbitrator or umpire appointed by virtue of an arbitration agreement shall, unless a contrary intention is expressed in the agreement, be irrevocable except by leave of the High Court or a judge thereof."

This clearly establishes that, once the parties have agreed to arbitrate, they cannot afterwards back out and litigate in the ordinary courts, unless they are given permission by the judge of the High Court. Such leave is not given lightly, and only for good legal reasons. However, on the principle of not ousting the jurisdiction, the court retains its ultimate control over the proceedings.

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S.4 expands on this by providing that, if any party to an arbitration agreement commences any legal proceedings in court contrary to the agreement, then the other party can apply to the court for a stay of the proceedings. This will be granted, unless there are good and sufficient reasons why the dispute should not be referred to arbitration. A "stay", when granted, effectively puts an end to the court proceedings. The court won't hear the case – so, if the claimant wishes to continue, he/she can do so only by means of the previously agreed arbitration procedure.

The stay will be granted in the following circumstances:

Where there has been a valid agreement to submit to arbitration;

Where the applicant has taken no step in the proceedings;

Where the applicant was, and is, ready and willing to do everything necessary for the proper conduct of the arbitration;

Where proceedings have been begun by a party to the agreement or by a third party claiming through or under him/her;

Where proceedings are in respect of a matter within the scope of the agreement. Stay may be refused:

Where fraud is charged, and the party so charged desires the charge to be heard in open court;

Where the only point in dispute is a question of law;

Where there is good reason to believe the arbitrator is not impartial;

Where time for submission to an arbitrator has expired.

In domestic arbitrations, by virtue of S.4, the court has discretion whether to grant a stay of proceedings brought in contravention of an agreement to arbitrate. However, by S.1 of the 1975 Act, it must grant a stay in the case of non-domestic or foreign arbitration proceedings.

(b)Arbitrators and Umpires

S.6 of the Act states:

"Unless a contrary intention is expressed therein, every arbitration agreement shall, if no other mode of reference is provided, be deemed to include a provision that the reference shall be to a single arbitrator".

So, a single arbitrator is the normal arrangement.

However, especially where there is an international element, it is by no means uncommon for an agreement to provide that each party will appoint its own arbitrator, and then the arbitrators so appointed will, themselves, appoint an umpire. This practice is enshrined in Ss.8 and 9 of the Act. English arbitration law does not forbid the appointment of an even number of arbitrators but (subject to contrary intention), if a third is appointed by the arbitrators, he/she is deemed to be an umpire. In other words, if the arbitrators disagree, the umpire adjudicates between them. Alternatively, if there is an even number of arbitrators who disagree, an umpire can be brought into the reference at that stage, to resolve the impasse.

If the parties do not agree on the appointment of an arbitrator, and there is no provision in the agreement for an outside body to appoint him/her, then the court has, by virtue of S.10, an inherent power to appoint the arbitrator. Likewise, if, once appointed, he/she dies or refuses, or is incapable of acting, then the court can appoint an alternative.

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To avoid problems of this nature, all well-drawn arbitration agreements provide that, in default of agreement on the appointment, the arbitrator will be appointed by an outside and independent person – e.g. the President of the Law Society, or the President of the Institute of Civil Engineers.

F. RULES FOR THE CONDUCT OF ARBITRATION

General Rules

In general, an arbitrator is free to conduct the proceedings in any manner he/she sees fit. The Act provides, in S.12, that, subject to any contrary intention in the agreement:

The parties shall be bound to submit to be examined on oath;

The witnesses may be examined on oath;

The arbitrator has power to administer oaths or take affirmations from parties and witnesses;

The arbitrator has power to sue for a writ of subpoena to compel witnesses to attend – but not that they should produce any documents that they could not be compelled to produce in a High Court action.

Provisions as to Awards

An arbitrator does not give a judgment, like a court; instead he/she gives an award. The award is the determination of the issue between the parties, and it usually includes an award of damages. The Act provides as follows:

Subject to agreement to the contrary, an arbitrator may make an award at any time, and it may be either an interim or a final award. An interim award is, usually, given in cases where the final determination of the issue is dependent on the outcome of a preliminary matter, whether of law or fact (that is, if the arbitrator decides the preliminary matter in one way, the arbitration will proceed, whereas if he/she decides another way, it will serve to conclude the matter). For example, the preliminary question might be: "Was A in breach of contract?" If the answer is "yes", then the arbitration can proceed to the question of damages; if "no", that concludes things. Plainly, in such circumstances, an interim award on the one question will save time and expense.

The High Court has power to remove an arbitrator who "fails to use all reasonable despatch" in undertaking the proceedings, or in giving his/her award.

Subject to contrary agreement, an arbitrator has power to award specific performance of a contract, other than one relating to land. This power is given by S.15. In principle, there is no reason why the arbitration agreement should not give the arbitrator power to award an injunction to restrain certain conduct. However, speed is the essence of effectiveness in restraining breaches of contract; hence, it is unlikely to be relevant in practice.

Likewise, subject to contrary intention, every arbitration award is deemed to be final and binding on the parties.

Costs and Fees

S.18 states that, unless a contrary intention is expressed, it is deemed that the arbitrator has power to award costs at his/her discretion. Such costs are taxable by the High Court (i.e. it can examine and assess them). In spite of this discretion, an arbitrator is required to exercise it judicially and in the same way as would the High Court.

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(d)For the first time, the 1979 Act allows the parties to agree to exclude any right of appeal, provided that they do so in writing. An exclusion agreement can take effect to oust the jurisdiction of the court to hear an appeal or to determine a preliminary point of law. In domestic proceedings, an exclusion agreement is valid only if entered into after the commencement of an arbitration, hence it cannot be included in the contractual arbitration clause. In non-domestic arbitration agreements, it is valid if entered into before or after commencement of arbitration.

(e)A further appeal to the Court of Appeal lies only if either the High Court or the Court of Appeal gives leave, and the High Court certifies that a point of law of general public importance is involved.

(f)The effect, therefore, of the provisions of the 1979 Act is to do away with an automatic right of review by the High Court, and make it subject only to the leave of the court, or the consent of all parties.

In the second place, it gives the parties a limited right to opt out of any appeal.

Miscellaneous

Where an arbitrator has misconducted himself, he can be removed by the High Court (1950 Act, S.23),or his award can be set aside.

If the arbitrator is not impartial or (subject to a valid exclusion agreement under the 1979 Act), if a question of fraud arises, the High Court can give relief by revoking the authority of the arbitrator or by refusing to order a stay of action in the High Court (S.24).

Arbitral awards may, by leave of the court, be enforced as if they were judgments of the High Court (S.26).

G. ARBITRATION PROCEEDINGS

Arbitration Agreement

There are, basically, two types of agreement to arbitrate. In the first place, there is an agreement to refer an existing dispute to arbitration. These are called "ad hoc" submissions, and they are comparatively rare. In the second place, there is an agreement to refer any future disputes to arbitration.

There is no special form of agreement necessary, provided the intention is clear – but, usually, agreement is contained in a special arbitration clause in a written contract.

Enforcement of Agreement

As we have mentioned, agreements to arbitrate are enforced by the very simple expedient of the court staying, or refusing to hear, any action brought in contravention of an arbitration agreement. So, if a party wants redress he/she must, under such an agreement, first arbitrate.

In fact, the court specifically recognises the validity of clauses in contracts which make it a condition precedent to the enforcement of any claim under the contract that the claimant has first obtained an arbitral award in his/her favour. These are known as "Scott v. Avery" clauses, from the case of that name in 1855.

Appointment of Arbitrator

As we have already said, the arbitrator is appointed by agreement between the parties, or by some outside and independent person, or by the court.

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An arbitrator is not, by law, required to have any formal qualifications, although the agreement often provides that she shall be qualified in law or in the relevant professional discipline. It is frequently desirable, if any dispute is likely to involve complex technical issues, that an arbitrator should be of a profession such that she can fully understand them. The only legal requirement is that she shall be impartial, and not closely associated with the parties.

H. RIGHTS AND DUTIES OF THE ARBITRATOR

By virtue of the agreement, the arbitrator (or arbitral tribunal, as the case may be) has a mandate from both parties to conduct the arbitration, and to make an award. The parties bind themselves to accept and be bound by that award, subject only to possible appeal on a point of law.

It is traditionally considered that an arbitrator is in a contractual relationship with the parties to the reference. Therefore, he/she has some obligations towards them, and they have others towards him/her.

Obligations of Arbitrator to the Parties

(a)Duty to Take Care

It is a truism to state that all professional men and women owe their clients a duty of care. However, in the case of arbitrators, the law is, unfortunately, unclear. Until recently, it accepted without question that arbitrators were in the same position as members of the judiciary; they were immune from suits for acts committed or omitted in the course of arbitral proceedings.

Two decisions of the House of Lords have cast doubt on this proposition in respect of arbitrators. In Sutcliffe v. Thackrah (1974), it was held that architects acting in a quasi-arbitral role in certifying payments due from the owner of a building under construction to the contractor were liable for negligent certification. This, in itself, did not radically alter the state of the law.

However, in Arenson v. Arenson (1976), the problem was examined in more detail, and the rationale of arbitral immunity was considered. The problem was to decide who is an arbitrator (and, so, entitled to immunity) and who is not – in other words, to draw the line between arbitrators proper and quasi-arbitrators. It was held that auditors determining the value of shares in a quasi-arbitral capacity are liable for negligence. However, the House went on to state that it is not necessarily the case that a formally appointed arbitrator is, in every case, immune from an action for negligence.

That is where the situation rests at present. It is plainly for the House of Lords to clarify the situation, and it seems likely that there are three possible solutions at which the House may arrive when opportunity arises, as set out below.

That there is no reason of public policy why arbitrators or valuers should be immune from suit.

That all arbitrators are immune, and so are some valuers, when performing a judicial function.

That it is a question of function, and not title. Persons acting judicially are immune

–that is, when they are deciding the merits of a dispute presented to them in an adversarial manner; whereas when they are acting in a purely arithmetical or analytical role (such as valuing), they are not immune.

Whatever is the correct position, parties have a limited right of redress if an arbitrator has been careless or negligent.

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