Contrat principal selon Conditions FIDIC, 2e édition / Sous-contrat selon Conditions ICE/FCEC / Litige opposant le Sous-contractant à l'Entrepreneur principal / Référence dans le sous-contrat aux « arbitre(s) devant le(s)quel(s) le litige relatif au contrat principal est porté » / Rejet par la Cour de la CCI de la demande de jonction de la procédure à l'affaire n° 5948 / Conditions pour que les litiges liés au sous-contrat soient soumis à l'arbitrage relatif au contrat principal non réunies / Compétence du tribunal arbitral pour connaître du litige relatif au sous-contrat, oui

Cette affaire intervient dans le même contexte factuel que l'affaire n° 5948 relative au litige résultant du contrat principal. Le présent litige oppose le Sous-contractant (demandeur) à l'Entrepreneur principal (défendeur dans cet arbitrage) et soulève, entre autres, les questions de la jonction et de la relation entre le contrat principal et le sous-contrat.

'Facts

On November 30, 1986, the Employer gave notice to the Defendant (the Contractor) that it considered that it was not performing the contract according to its terms as amended by the Memorandum of Agreement permitting the Defendant to recommence the works, and accordingly gave it 14 days notice of its second expulsion from the project. On December 11, 1986, the Defendant informed the Claimant (the Sub-Contractor) that it considered the expulsion not to be in accordance with the Contract.

Subsequently, on December 24, 1986, the Defendant's attorneys protested to the Minister of Public Works concerning the allegedly unjustified expulsion by the Engineer of the Defendant from the project and advised that it intended to "make demand for arbitration under Clause 67 of the Contract".

[...]

On February 24, 1987, the Defendant's attorneys advised the Engineer that the Defendant "makes claim to arbitrate certain disputes and differences, arising under the Contract and under the Memorandum of Agreement of June 28, 1986." Neither of these communications were addressed to the Claimant.

In the meantime, in response to the Defendant's letter to the Claimant requesting that the Claimant continue under the Sub-Contract and alleging that the Defendant had not legally been expelled from the project, the Claimant replied to the Defendant on December 20, 1986, advising that the Defendant's representative had left the site, and had turned the keys of the Defendant's building and site office over to the Employer. The Claimant advised that it considered itself free to enter into a new contract with the Employer for the completion of the hospital. The telex concluded, "we are awaiting yr. last decision about yr. demand for arbitration" (the Defendant did not thereafter advise the Claimant of any steps that it was taking with the Employer or of an intention to request arbitration with the Employer until after the Claimant had commenced arbitration against the Defendant some months thereafter).

1. Arbitral procedure

On March 17, 1987, the Claimant filed a Request for Arbitration against the Defendant. In that Request, the Claimant asked, in view of the size of the claims in arbitration, that the arbitration be heard by a panel of three arbitrators and nominated his arbitrator.

[...]

On April 10, 1987, the Defendant telexed the Claimant advising that the Defendant considered that a dispute had arisen in connection with the Main Contract, which the Defendant was of the opinion touched or concerned the Sub-Contract works. The Defendant stated that it would require that any dispute arising under the Sub-Contract should be referred to the arbitrators to whom the dispute under the Main Contract would be referred and claimed that, in accordance with Clause 18(2) of the Sub-Contract, the Claimant had no right to an arbitration pursuant to Clause 18(1) because there was no prima facie agreement to arbitrate under the circumstances.

[...]

On May 18, 1987, Counsel for the Defendant filed with the Secretariat of the ICC a Request for Arbitration against the Employer. This Request, subsequently registered as ICC arbitration n° 5948, contains the following claims against the Employer:

Claim 1: Relating to an initial delay of 247 days advance payment for itself and its Sub-Contractors submitted on June 28, 1984 and neither approved nor paid by the Employer to date;

Claim 2: Requested on December 9, 1985, relating to Employer caused delays following recommencement of work in February 1983 and having given rise to a request of an extension of time through March 31, 1986, which the Employer had granted only through October 31. 1985. The Employer had failed to process and pay this delay related claim.

Claim 3: Covering the period when the Employer expelled the Contractor for the first time from the site in April 1986, the execution of a memorandum of agreement dated June 28, 1986, and various interventions by the Employer leading to the definitive expulsion of the Contractor on November 30, 1986. In respect to this period of time, the Defendant specified "damages sustained from the Employer's breach of the Memorandum of Agreement".

In respect to the period of time following the Memorandum of Agreement, the Defendant alleged in its Request for Arbitration against the Employer that "there is substantial reason to believe that the Employer's expulsion of the Contractor in April, 1986 and the expulsion on November 30, 1986 resulted from a scheme on the part of the Employer to force the Contractor off the project and to employ the Claimant to complete the works. In implementing this scheme, the Employer interjected itself into the Contractor's management and supervision of Sub-Contractors and issued instructions directly to Sub-Contractors, principally the Claimant.'' The Defendant further alleged "as further evidence of this scheme and conspiracy, following the Contractor's final expulsion in January 1987, the Employer entered into a contract with the Claimant to complete the works at a cost at least four times the reasonable value of the remaining work to be done".

In its Request for Arbitration under the Main Contract, the Defendant nominated its arbitrator.

By letter of May 19, 1987, with respect to ICC arbitration no. 5898, counsel for the Defendant requested the Secretariat of the ICC Court of Arbitration to join that arbitration with the arbitration under the Main Contract commenced by the Defendant (ICC arbitration no. 5948) referring to a similar request made by it on May 18, 1987, in the latter arbitration. The letter of May 19 also conditionally nominated an arbitrator which has been previously nominated as arbitrator in arbitration no. 5948, as arbitrator in arbitration no. 5898.

By letter of May 29, 1987, to the Secretariat, counsel for the Defendant once again requested that arbitrations No. 5898 and 5948 be joined and heard by the tribunal to be appointed in arbitration no. 5948 under the Main Contract.

On June 4, 1987, the Secretariat of the ICC, acting in respect to ICC arbitration n° 5898, informed counsel to the Defendant and the Claimant that "the Court, duly informed of respondent's submissions, confirmed that the arbitration may proceed in accordance with Article 8(3) of the Rules. The conditions of Article 18 of the Internal Rules being not met, the Court decided not to join case n° 5948 with the present case".

On July 8, 1987, the Secretariat of the ICC informed the parties that the Court had appointed the Chairman of the arbitral tribunal.

Without prejudice to its defense that this arbitral tribunal does not have jurisdiction over the claims set forth in the Claimant's Request for Arbitration, the Defendant filed an Answer and Counterclaim on November 25, 1987.

2. Preliminary issue

As set forth in the Terms of Reference and arising out of the pleadings and correspondence, as further developed in hearing on the subject, there was raised as a preliminary issue: "Does the Arbitral Tribunal have jurisdiction over the dispute?"

3. Applicable contractual clause

The contractual provision in issue, and upon which the Defendant bases its claim for dismissal of the Request for Arbitration due to lack of jurisdiction of this arbitral tribunal, is found in Clause 18 of the Sub-Contract which provides as follows:

"(1) If any dispute arises between the Contractor and the Sub-Contractor in connection with this Sub-Contract, it shall, subject to the provisions of this clause, be referred to arbitration and shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules."

"(2) If any dispute arises in connection with the Main Contract and the Contractor is of the opinion that such dispute touches or concerns the Sub-Contract Works, then provided that an arbitrator/s has not already been agreed or appointed in pursuance of the preceding sub-clause, the Contractor may by notice in writing to the Sub-Contractor require that any dispute under this Sub-Contract shall be referred to the arbitrator/s to whom the dispute under the Main Contract is referred and if such arbitrator/s (hereinafter called the joint arbitrator/s) be willing so to act, such dispute under this Sub-Contract shall be so referred. In such event the joint arbitrator/s may, subject to the consent of the Employer, give such direction for the determination of the two said disputes either concurrently or consecutively as he may think just and convenient and provided that the Sub-Contractor is allowed to act as a party to the dispute between the Employer and the Contractor, the joint arbitrator/s may in determining the dispute under this Sub-Contract take account of all material facts proved before him in the dispute under the Main Contract."

"(3) If at any time before an arbitrator/s has been agreed or appointed in pursuance of subclause (1) of this clause any dispute arising in connection with the Main Contract is made the subject of proceedings in any court between the Employer and the Contractor and the Contractor is of the opinion that such dispute touches or concerns the Sub-Contract Works, he may by notice in writing to the Sub-contractor abrogate the provisions of sub-clause (1) of this clause and thereafter no dispute under this Sub-Contract shall be referable to arbitration without further submission by the Contractor and Sub-Contractor,"

4. Origins of Clause 18(2)

As both parties have pointed out, the arbitration clause found in the Claimant-Defendant Sub-Contract is an adaptation of the FCEC form of Sub-Contract which entered into effect as of March 1973 (and which was intended to be used with the ICE Conditions of Contract of June 1973). Under the ICE/FCEC conditions it is useful to note that what is provided for is arbitration by a sole arbitrator. Under the Main Contract governed by the ICE conditions the arbitration will be by "a person to be agreed upon between the parties" or if they fail to agree by "a person to be appointed on the application of either party by the President at the time being of the Institution of Civil Engineers." The same kind of sole arbitrator arbitration (with the president of the ICE as a reserved appointing authority) was provided under Clause 18(1) of the FCEC Sub-Contract form. Arbitration was to take place according to an ad hoc procedure and the arbitration was neither administered nor supervised.

The corresponding Clause 18(2) of the FCEC form of Sub-Contract provides that if the conditions are met the contractor may require that any dispute under the Sub-Contract "shall be referred to the arbitrator to whom the dispute under the main contract is referred." Hence, the mechanism for the appointment of the sole arbitrator assured that, while the sub-contractor might not have the right to participate in agreeing with the contractor who the sole arbitrator should be, nevertheless the sole arbitrator was to be a neutral and impartial arbitrator appointed either by the common agreement of the employer and the contractor, or, failing their agreement, by the President of the International Civil Engineers Association.

The Clause as originally conceived in the FCEC model clause is one that is made principally for the benefit of the Contractor. Where the conditions have been realized, the Contractor may, if he so desires, ensure that the Sub-Contract dispute will be determined by the same sole arbitrator which is to determine the merits of any dispute between the Contractor and the Employer.

Clause 18(2) of the FCEC form of subcontract also provides that the joint arbitrator shall have the right to "give such directions for the determination of the two said disputes either concurrently or consecutively as he may think just and convenient" which, under certain circumstances, to be discussed below, would permit the arbitrator to consolidate the Sub-Contract and Main Contract arbitrations and determine the rights of all the parties in a single procedure and hearings.

5. Purpose of Clause 18 of the Sub-Contract

In the instant Claimant-Defendant Contract Clause 18 thereof is modelled on the same 1973 FCEC form of Sub-Contract but the Main Contract is modelled upon the FIDIC form contract and not the ICE contract. Clause 67 of the FIDIC form, like Clause 67 of the general conditions of the Main Contract, calls for ICC arbitration. Accordingly, for there to be a concordance between the arbitration procedure in the Claimant Sub-Contract with the arbitration procedure in the Main Contract, it was necessary to provide for ICC arbitration in Clause 18(1) and to provide in Clause 18(2) that the arbitral tribunal to hear both Main Contract and Sub-Contract disputes would be referred to as the "joint arbitrator/s" indicating an ICC tribunal of one or three members as the case might be. As we will see this causes a number of problems which go beyond the technical level. Not the least of these is the fact that the mode of selecting ICC arbitrators for a three man tribunal is dramatically different from the method of appointing a sole arbitrator in the FCEC/ICE clauses.

Nevertheless, the purpose of Clause 18(2) of the Sub-Contract is the same as that described above. As restated in a recent ICC arbitration interpreting a nearly identical FCEC based clause:

"The purpose of Clause 18(2) of the sub-contract conditions is quite clear: the Contractor is given a unilateral right to require certain disputes between himself and the sub-contractor to be referred to the decision of the arbitral tribunal appointed under the main contract. Provided that the machinery of Clause 18(2) is operated properly the sub-contractor has agreed to submit those disputes to that tribunal." (ICC arbitration no. 5333 published in 4 International Construction Law Review 321, at p. 327 (1987)).

As noted above, Clause 18 however does far more than to promote the determination by the same arbitral tribunal of disputes under the Sub-Contract and the Main Contract. It favours joinder of the two arbitrations. The Sub-Contract provision gives specific power, consented by the parties to the Sub-Contract, to the joint arbitrator/s to "give such directions for the determination of the two said disputes either concurrently or consecutively as he may think just and convenient.'' This intention however may be effectuated only with the consent of a third party, the Employer, since Clause 18(2) provides that the powers of the joint arbitrator to give the above directions are "subject to the consent of the Employer." In any event, it is an established principle of law that, except if provided otherwise by statute, a multi-party arbitration may be held in consolidated proceedings only with the consent of all parties.

6. No Multi-Party arbitration without the consent of all parties

While both parties have submitted considerable materials regarding multi-party arbitrations, it cannot seriously be disputed that a multi-party arbitration in which all three parties (the Employer, the Contractor and the Sub-Contractor) will participate and present their cases before the same tribunal (in the nature of third party proceedings) is not possible without the specific consent of all parties concerned. It is clear that the Employer has not given any advance consent to joinder in Clause 67 of the Main Contract. Furthermore, Clause 18(2) of the Sub-Contract, which constitutes consent by the Contractor and the Sub-Contractor to the joint arbitrator/s power to give directions for the determination of the two disputes "either concurrently or consecutively" is expressly made "subject to the consent of the Employer." The Employer, in its response in the Main Contract arbitration, has refused any such consent.

[...]

It is apparent that on the facts of the present case, and based on express limitations in the arbitration clause as well as implied limitations based on elementary arbitral principles and persuasive authority, the issue of multi-party arbitration stricto sensu does not arise. Rather, the issue is whether the Claimant may be required to have its dispute with the Defendant determined by the same arbitral tribunal competent to determine the Employer-Contractor dispute and, if so, according to what rules and on what conditions. The starting point of this investigation is to determine the rights which the Claimant is accorded by Clause 18(1) of the Contract, and then to determine to what extent these rights may be modified by the application of Clause 18(2).

7. The Claimant's right to ICC arbitration

Clause 18(1) standing alone constitutes a broad ICC arbitration clause covering "any dispute" between the Contractor and the Sub-Contractor "in connection with this subcontract."

On its face, therefore, the Claimant can claim the right to have any dispute with the Defendant to be governed by an ICC arbitration procedure which provides a supervised and administered arbitration having many specific characteristics which assure arbitral due process, and which may be considered contractually bargained for protection. Included in the characteristics of ICC arbitration are the facts that remuneration of the arbitral tribunal and the administrative expenses of the arbitration are to be determined by the Court of Arbitration as provided by those Rules. The Claimant's right to ICC arbitration should be made clear not only by the fact that Clause 18(1) is the principal dispute resolution clause in the Sub-Contract but also because the dispute resolution mechanism governing the operation of the Main Contract arbitral tribunal to which reference is made in Article 18(2) is also the ICC Arbitration Rules. Hence reference of the Sub-Contract dispute to the "arbitrator/s to whom the dispute under the Main Contract is referred" logically implies reference to an ICC arbitral tribunal.

The Claimant's Clause 18(1) procedural rights were made "subject to the provisions of this clause," thus subject to the provisions of Clause 18(2). This Clause may deprive the Claimant of a specific right ordinarily guaranteed to a party to an ICC arbitration, to wit the right to nominate an arbitrator for appointment on a three man arbitral tribunal.

It does not deprive it of the right to an ICC arbitration procedure, in general. Accordingly, even if the application of Clause 18(2) should result in the reference of Sub-Contract disputes to the Main Contract arbitrators, there is nothing which would permit that arbitration to be anything other than an ICC arbitration.

8. Clause 18(2) as an exception: burden of proof

Examination of the text of Clauses 18(2) and 18(3) 1 indicates that while Clause 18(3) provides for abrogation of the ICC arbitral jurisdiction provided in Article 18(1), Article 18(2) does not do so. It merely provides that if the conditions contained in Clause 18(2) are realized, then any disputes under the subcontract shall be referred to other ICC arbitrators, that is "the arbitrator/s to whom the dispute under the Main Contract is referred".

Seeking to maintain this distinction between Clause 18(2) and Clause 18(3) and at the same time to find an effect for Clause 18(2) - and we are constrained to find that the parties did mean to give some effect to this Clause - we are led to conclude that the Contractor has a conditional right to determine the make-up of the tribunal which will adjudge a dispute under the Sub-Contract. In this regard, we can only agree with the holding of the ICC arbitral tribunal in ICC case 5333 (supra) that where the conditions are fulfilled the Contractor is given a unilateral right to require certain disputes between himself and the Sub-Contractor to be referred to the decision of the arbitral tribunal appointed under the Main Contract.2

Since Clause 18(2) is an exception to the generality of Clause 18(1) providing that the Sub-Contractor has the right to submit any dispute arising in connection with the Sub-Contract to ICC arbitration, the conditions pursuant to which Sub-Contractor may be deprived of these rights under Clause 18(2) must be construed narrowly. Another reason for construing narrowly the Clause 18(2) exception is that its exercise affects the Claimant's due process rights.

By agreeing to Clause 18(1) of the Agreement, both parties accepted as a general rule that the ICC arbitration regime would govern the resolution of disputes between them. This regime means, inter alia, that where a three man tribunal is called for, each party shall have the right to nominate an arbitrator. If the Defendant were to succeed in its plea that Clause 18(2) applies to the Claimant's claim against it, the effect would be that the Claimant would not have a right to nominate an arbitrator, but that the tribunal adjudging its dispute would be made up of an arbitrator nominated by the Contractor, an arbitrator nominated by the Employer, and a president of the tribunal, appointed by the ICC.3 There is no way that an accommodation can be found between the Defendant's contractual right to have the Sub-Contract dispute referred to the Main Contract arbitrators and the Claimant's ICC procedural right to nominate an arbitrator for a three man tribunal. As Humprey Lloyd has put it:4

"How therefore is the desire to have an arbitrator of one's own choice to be accommodated in a multi-party arbitration system? The answer is quite simply that it cannot be done. Either parties to a multi-party arbitration clause must agree to accept a sole arbitrator or they must agree that if a panel of three is appointed, all must be treated as having been selected independently even though, as must happen on occasions, one or more may have been an original nominee of one of the parties".

However, there is nothing which prevents a party from bargaining away a right to nominate an arbitrator, and indeed, the text of Clause 18(2) can only be interpreted to have such an effect. Nevertheless, because the effect would be to deprive one of the parties of a general right, its application will be construed restrictively. By this, we mean that since Clause 18(2) must be meant to constitute an exception to the general rule established by Clause 18(1), it is the burden of the party alleging the application of such an exception to prove the applicability of that exception. As we will see, Clause 18(2) only applies when a certain number of conditions have been fulfilled, and it is the Defendant's burden to prove the fulfilment of such conditions.

10. Conditions required for Sub-Contract disputes to be referred to Main Contract arbitrators

In view of the fact that Clause 18(2) must be considered a specific exception to the general arbitration regime under the Sub-Contract established by Clause 18(1), it is necessary to consider in detail the conditions precedent which must be fulfilled for the exceptional regime to apply. These exceptions are either found explicitly in the language of Clause 18(2) or must be implied for that clause to be applied in a reasonable manner. There are six of these conditions:

(i) A dispute must have arisen under the Main Contract (Clause 18(2), line 1) ;

(ii) The Contractor must be of the opinion that the Main Contract dispute touches or concerns the Sub-Contract works;

(iii) The Main Contract dispute must be one which is referred to arbitration;

(iv) The Contractor must have given written notice that any Sub-Contract dispute shall be referred to the arbitrator/s "to whom the dispute under the Main Contract is referred";

(v) The written notice must have been given to the Sub-Contractor before an arbitrator/s has been agreed or appointed in pursuance of Clause 18(1);

(vi) The Main Contract arbitrators/s is willing to act in the Sub-Contract dispute (in which case the arbitrator/s would act as "joint arbitrator/s");

We will take up, in order, whether these conditions have been fulfilled in the present case.

11. Dispute under the Main Contract

On April 10, 1987, the Defendant gave the Claimant notice that a dispute had arisen under the Main Contract. It is on the basis of this notice that the Defendant claims the right to have the Sub-Contract dispute referred to the Main Contract arbitrators. There must first be addressed the issue of whether in fact a Main Contract dispute existed when the notice was given because if not the notice would be unauthorized and the date upon which it was given could not serve as the cut-off date under Clause 18(2), preventing the Claimant from proceeding under Clause 18(1), as argued by the Defendant.

In determining whether as of April 10, 1987, a dispute had arisen under the Main Contract we must take into account that Clause 67, the arbitration clause in the Main Contract, is derived directly from the FIDIC Model Contract and that the issue of when a dispute arises under the FIDIC clause has been the subject of both arbitration awards and decisions by English courts since the clause is extensively used in international construction contracts where English parties are involved. We find that the decision of experienced English commercial courts, interpreting standard clauses drafted in the English language, have persuasive authority in many instances but do not bind this tribunal in any way, all the less so since the law governing the Sub-Contract and the Main Contract is the law of the Employer's State. While neither party has relied on any specific provision of that law relevant to the present issues we take note that that country has both a Civil and a Commercial Code, and that the directions given therein as to interpretation of contracts are not unfamiliar to arbitrators having a civil law background.

Clause 67 of the Main Contract, like FIDIC Clause 67, provides for a four step procedure before a dispute or difference may be submitted to arbitration under the Main Contract clause:

(i) In order to constitute a dispute, a claim must have been made which has been rejected;

(ii) The dispute of difference must be referred to the Engineer for decision;

(iii) The Engineer must have decided the dispute, or failed to take a decision, within 90 days of the submission;

(iv) Within 90 days of the Engineer's decision, or of the expiry of the 90 days period to act, the Main Contractor may require the dispute to be referred to ICC arbitration.

The Employer has taken the position in the Main Contract arbitration brought by the Defendant that there was either no dispute or difference between the parties or that no dispute had been referred to the Engineer for his decision.

In ICC arbitration n° 5333 (supra), a Sub-Contract arbitral tribunal composed of three arbitrators of British nationality, determined, contrary to the request of the Contractor, that a Sub-Contract dispute under an FCEC derived arbitration clause identical to Clause 18 in the present Sub-Contract should not be referred to arbitration by Main Contract arbitrators. The ICC tribunal reasoned that the condition precedent for the Main Contractor's notice under Article 18(2) of the Sub-Contract "if any dispute arises in connection with the Main Contract" required that each of the four steps listed above should have been accomplished. Otherwise, there would be no dispute in the sense of Article 67 of the FIDIC conditions.

As the tribunal stated:

"We therefore consider that the word "dispute" in the first line of Clause 18(2) of the Sub-Contract conditions must be read as referring not to a dispute which is in existence or has been referred to the architect for his decision but one in respect of which dissatisfaction has been expressed and which has been required to be referred to arbitration. Otherwise, the normal method of resolving disputes under the contract by means of Clause 18(1) could easily be blocked by reference to a supposed dispute or dispute in respect of which there was no need or intention to seek arbitration".

We do not wish prematurely to pronounce upon an issue which is primarily within the competence of the Main Contract arbitration tribunal, that is whether a "dispute" within the of the Main Contract exists between the employer and the Main Contractor and whether the necessary prerequisite conditions have been fulfilled by the Contractor so that it now presents to that tribunal an arbitrable dispute for adjudication.

However, it is certain that the word "dispute" or "difference" as used in the ICE/FIDIC Clause upon which the Main Contract Clause 67 is modelled have been interpreted to require something more than a dispute in the generic sense. It will be the burden of the Defendant in the Main Contract arbitration to prove that the procedural steps taken by it satisfy the contractual prerequisites for arbitral jurisdiction.

It is also the case that the Defendant has the burden of proof in the Sub-Contract arbitration to sustain that the notice given by it was effective to cut off the rights of the Claimant under Clause 18(1) to bring a separate ICC arbitration. That the burden should lie in the Defendant is just not only because Clause 18(2) is drafted as an exception to the ordinary ICC clause, but also because of the injury which may be caused to the Sub-Contractor if it is required to await the outcome of lengthy proceedings in the Main Contract arbitration on the issue of jurisdiction, the results of which are entirely conjectural, before it can even commence to present its own case on the merits against the Contractor, or be required to wait until the Defendant has commenced de novo proceedings before the Engineer to obtain a decision which it can attack in arbitration. In these circumstances, it is entirely correct that the Defendant must offer substantial proof that on April 10, 1987, when it gave its Clause 18(2) notice to the Claimant, there existed an arbitrable dispute between it and the Employer.

The record before us is doubtful. While there undoubtedly had existed for a long time a dispute, in generic terms, between the Defendant and the Employer, the evidence of compliance with the specific requirements of Clause 67 is slight. The letter of the attorney of the Defendant to the Employer on December 24, 1986, protests the Defendant's expulsion from the site in the most general terms and the communication of February 24, 1987, on behalf of the Defendant to the Engineer, contains no definite or quantified claim, nor specific decision by the Engineer, but only a list of grievances which the Defendant threatened to take to arbitration.

While the Defendant may prove in the Main Contract arbitration by these documents, supplemented by additional evidence, that it in fact has complied with the requirement of Clause 67 to present an arbitrable dispute, we must deal with the evidence before us. On the record we are unable to find that there is sufficient evidence that an arbitrable dispute existed at the time notice was given by the Defendant under Clause 18(2) to satisfy the conditions required to oust this tribunal of its Clause 18(1) jurisdiction.

Even if there were such an arbitrable dispute under the Main Contract, the conditions for the application of Clause 18(2) would not be fulfilled, because at the time notice hereof was given, it was not a dispute which "is referred" to arbitration as the clause further requires (see para. 13. infra).

12. Contractor's opinion that the Main Contract dispute touches or concerns the Sub-Contract works

This condition in fact may be divided into three sub-conditions:

- The Contractor must express the opinion that the dispute under the Main Contract touches or concerns the Sub-Contract works;

- This implies that the Contractor's opinion must be determined in good faith and that his exercise of the corresponding option under Clause 18(2) is not abusive;

- The Contractor's opinion, thus expressed in good faith, must be that the dispute under the Main Contract is not only related to the Sub-Contract but "touches or concerns the Sub-Contract works."

In other words, the dispute under the Main Contract must in some way touch or concern the manner in which the Sub-Contract works were to be performed and were actually performed. It is clear that, according to the terms of Clause 18(2), the Contractor's opinion is conclusive, irrespective of whether it is actually justified or not. It is no less clear, however, that this opinion has to be prima facie founded.

Clause 18(2) is expressly directed at situations in which a dispute has arisen under the Main Contract before a dispute under the Sub-Contract, if any, has arisen or at least before an arbitrator/s has been agreed or designated in respect of a dispute under the Sub-Contract in pursuance of Clause 18(1).

Its purpose and effect are to permit the Contractor, who has grounds to consider that the dispute under the Main Contract touches or concerns the performance of the Sub-Contract works, to have the whole case, thus embracing the Contract and the Sub-Contract, tried by a single arbitrator or arbitration panel in accordance with the ICC Rules. It is not to offer the Contractor a general option to tie up the two disputes, for instance in a case where the performance of the Sub-Contract works is not really at stake but rather the payment due by the Contractor to the Sub-Contractor in relation to the payments due by the Employer to the Contractor.

The existence of Clause 18(2) is not sufficient to destroy the direct right of action of the Sub-Contractor against the Contractor, nor does it create a privity of contract between the Employer and the Sub-Contractor. Where, for example, the Employer was not to deny liability but simply was unwilling or unable to pay (for instance in bankruptcy), the Contractor might be forced to take its payment dispute to arbitration to obtain an award subject to execution, but it would not be a dispute which touches or concerns the Sub-Contract works. When the Defendant first outlined the basis of its claim against the Employer by telex of February 24, 1987, the greatest number of those claims related to failure to make payments alleged to be due. Another claim related to an alleged contractual default caused by the Employer reletting the contract to the Claimant. Neither type of claim would necessarily involve the Sub-Contract works. It is interesting to note that no copy of this communication was sent to the Claimant. It was only on April 10, 1987, well after the Sub-Contract arbitration had been initiated that the Defendant gave notice of a Main Contract dispute which it opined "touches or concerns the Sub-Contract works".

In all the circumstances we have some doubts as to whether, and to what extent, the Main Contract disputes in fact touch or concern the Sub-Contract works. Nevertheless, in view of the provision of Clause 18(2) that the "opinion" of the Contractor is the determinative criterion, and the fact that the Sub-Contractor has acceded to contract language giving effect to such an opinion, we are not prepared to go behind that opinion when there is at least some evidence that part of the Main Contract dispute may touch or concern the Sub-Contract works. Accordingly, we are not willing to find that the second condition was not fulfilled.

13. The Main Contract dispute must be one which "is referred" to arbitration

The mere existence of a dispute under the Main Contract is not sufficient to give the Contractor the right to cut off the Sub-Contractor from his ordinary right to arbitration under Clause 18(1).

Since the notice will "require that any dispute under this Sub-Contract shall be referred to the arbitrator/s to whom the Main Contract is referred" it is implicit that there shall have been a referral of the Main Contract dispute to arbitration at the time the Clause 18(2) notice is given. This is clearly expressed by the use of the present tense ("is referred") in this connection in the Clause.

The Sub-Contractor may not be left in limbo, following the giving of a Clause 18(2) notice, while the Contractor debates what remedy it intends to pursue.

This was the opinion held in the ICC partial award rendered in the case n° 5333, to which reference has already been made above:

"Reading Clause 18 as a whole, the word "dispute" must for these reasons therefore mean a dispute which is not only capable of being referred to arbitration but which is being referred to arbitration.... In our judgement, no dispute or difference under the Main Contract had been referred or was in the course of being referred to arbitration at the time when any of the notices relied on by the Contractor under Clause 18(2) of the Sub-Contract conditions were given".

That requirement appears to be the key to a proper application of Clause 18(2). If it is respected, the clause works fairly, however hard it may be for the Sub-Contractor. The mechanics of the operation of the clause are quite simple under the FCEC contract form on which the present clause is modelled; they become more complicated when ICC arbitration is substituted for the arbitration procedures envisaged under the FCEC form.

Under the arbitration Clause of the FCEC model of Sub-Contract, from which Clause 18 of the Sub-Contract derives, if the Main Contract dispute's reference to arbitration under the FCEC arbitration Clause comes first which, as above-noted, is in fact the basic situation which is contemplated in Clause 18(2) - the Clause does not raise any problem. The Contractor may, as long as no arbitrator under the Sub-contract dispute has been designated, exercise his option under 18(2). If an arbitrator has already been designated under the Main Contract dispute when the Sub-Contractor gives the Contractor notice of his reference to arbitration, the Sub-Contractor has to bow to that "fait accompli."

If the Sub-Contract dispute's reference under Clause 18(1) comes first, the Contractor will immediately be advised since, precisely, the FCEC arbitration commences with an attempt of the two parties in dispute to designate the sole arbitrator. If the Main Contract dispute has already arisen, the Contractor may (a) refer that dispute to arbitration, starting with the required attempt to appoint the arbitrator by mutual consent with the Employer, and (b) then give the Sub-Contractor notice that the Sub-Contract dispute should be referred to the same arbitrator/s to whom the main dispute contract is referred, provided that no arbitrator has been agreed or appointed yet on the Sub-Contractor's request for arbitration.

Under an ICC arbitration procedure, as in the instant case, the situation is also clear and the operation of Clause 18(2) satisfactory, provided that the Main Contract dispute has been actually referred to arbitration when the Contractor gives notice to the Sub-Contractor in pursuance of Clause 18(2).

If the Sub-Contract dispute has been referred first, the Contractor is advised and may in turn bona fide refer the Main Contract case to arbitration and validly give notice to the Sub-Contractor under Clause 18(2). The Contractor should file a request to that effect with the ICC. This is not a matter of jurisdiction of the arbitrators but of operation of the Clause 18(2) as this is set-out below.

If the Main Contract dispute is the first to be referred to the ICC for arbitration, the position is absolutely limpid: there is no choice for the ICC Court of Arbitration than to conform with Clause 18(2), because the parties will be held to this special agreement for the nomination of the arbitrators. While the ICC Rules provide for each party to nominate an arbitrator, the parties may agree in advance to another mode of appointment. However, the conditions for the applicability of such an agreement must have entered into effect, and this must have been brought to the attention of the Court, prior to the exercise of appointing powers of the ICC Court.

Where the Main Contract dispute is not actually referred to arbitration at the time notice is given by the Contractor to the Sub-Contractor under Clause 18(2), and where the Sub-Contractor has already filed his Request for Arbitration under 18(1), the situation becomes confused and confusing. Indeed, the Court of Arbitration is then faced with only one Request for Arbitration which the Court, based on its prima facie right and duty of appraisal, cannot reasonably refrain from processing, notwithstanding any attempt by the Contractor to stop it.

This is actually what happened in the instant case. When the Court of Arbitration, on April 22, 1987 had to decide on the Defendant's plea, the Defendant's Request for Arbitration was still not filed.

The position was made still worse by the fact that, instead of just exercising its option under Clause 18(2) and requesting the Court of Arbitration to refer the Sub-Contract dispute to the "joint arbitrators," the Defendant, on the basis of that clause, elected to deny the Claimant its right to arbitration under 18(1) by challenging the prima facie existence of an agreement to arbitrate and alleging accordingly that the arbitration initiated by the Claimant could not proceed.

The Court therefore had to decide, by reference to Article 8.3 of the ICC Rules of Arbitration regarding challenges of jurisdiction and, on that basis, could hardly do otherwise than to find the prima facie existence of an agreement to arbitrate.

The consequence was that two separate arbitration panels were set up, one in respect of the Sub-Contract dispute and the other regarding the Main Contract dispute.

A review of the chronology and the documents indicates that the Claimant was not at fault in its pursuit of an ICC arbitration remedy, and that the Defendant has not timely acted to exercise the Clause 18 (2) option.

17 March 1987 Claimant request for Arbitration filed with ICC. Nomination by the Claimant of arbitrator.

10 April 1987 Telex sent by the Defendant to the Claimant:

"As we have previously advised you and as your Request for Arbitration makes it explicitly clear, a dispute has arisen in connection with the Main Contract. The Defendant is of the opinion that such dispute touches or concerns the Sub-Contract works and since arbitrator/s have not already been agreed or appointed pursuant to Clause 18 (1) of the subject Sub-Contract, the Defendant exercises its option to require that any dispute arising under the said Sub-Contract shall be referred to the arbitrator/s to whom the dispute under the Main Contract is referred."

29 April 1987 Defendant's attorneys letter to ICC:

"We note that Counsel for the Claimant has apparently misunderstood our last communication to the ICC and that of our client to the Claimant. We have not stated that litigation is pending. We did state that a dispute has arisen under the Main Contract which touches and concerns the Sub-Contract works and that such dispute is pending."

30 April 1987: Defendant files letter with ICC in Sub-Contract arbitration (ICC No. 5898) requesting consolidation with Main Contract arbitration.

30 April 1987: ICC Secretariat communicates Court's decision that ICC arbitration No. 5898 may proceed in accordance with Article 8.3 and confirms the Claimant-nominated arbitrator as arbitrator.

4 June 1987: ICC Secretariat communicates Court's decision confirming that arbitration may proceed under Article 8.3, denying consolidation, and confirming nomination of the Defendant-nominated arbitrator.

12 August 1988: Submission in arbitration on behalf of the Defendant of 12 August (p. 14):

"The Defendant understood that it had to notify the Claimant after an arbitration had begun under the Main Contract. The Defendant sent the April 10, 1987 notice to the Claimant while it was preparing its Request for Arbitration against the Employer. It thereafter followed up this notice with two additional notices under Clause 18 (2), including the May 19, 1987, notice which the Defendant sent after filing its Request for Arbitration against the Employer."

Thus, the Defendant admits that (a) the dispute under the Main Contract should have been referred to arbitration at the time notice was given under Clause 18(2) and (b) this requirement was not met by the notice of April 10, 1987. In that same submission of August 12, 1988, the Defendant submitted that its May 19, 1987 letter to the ICC copied to the Claimant, satisfied the requirement. But clearly, that "submission" was made without much conviction. Indeed, the letter of May 19, 1987, addressed to the Secretariat of the ICC Court of Arbitration was clearly not a notice in pursuance of Clause 18(2) but a submission to the ICC in support of the Defendant's plea that the Claimant's request for arbitration should not be further processed for lack of an agreement to arbitrate and that the two arbitrations should be consolidated, both of which requests were denied.

The same remark applies to the letter, also addressed to the ICC Court of Arbitration's Secretariat on April 29, 1987 on behalf of the Defendant. A notice under Clause 18(2) should, like the one of April 10, 1987, be addressed to the Claimant and be to the effect of exercising the option offered under that Clause.

It may be further noted that neither of the two Defendant's letters of April 29 and May 19, 1987 made any reference to, nor renewed, the April 10, 1987 notice to the Claimant. It is not surprising that in June 1987, the Court of Arbitration "duly informed of respondent's submission" confirmed that the arbitration initiated by the Claimant should proceed.

The text of Clause 18 (2) permits the Contractor by proper notice given to the Sub-Contractor to require that the Sub-Contract dispute be referred to the joint arbitrators to whom the "dispute under the Main Contract is referred." Without investigating here whether the appointment of each of the Main Contract arbitrators should have been completed in order to permit the giving of a valid Clause 18 (2) notice, it seems obvious that at the minimum there must have been a referral of the Main Contract dispute to arbitration. There must accordingly have been a commencement of the arbitration that is the result of the use of the present tense ("is referred") in Clause 18 (2), a grammatical interpretation which coincides with the practical needs of the situation -a Sub-Contractor may not be left in limbo while the Main Contractor decides at leisure the course of action it will take.

To be sure, the term "referral" to arbitration is not precise, and when used in respect to ad hoc arbitration, as in the FCEC form, may designate as early a referral as when a request has been made by one party to the other to agree to the appointment of an arbitrator, or as late as when an arbitrator has accepted his appointment. For ICC arbitration, the applicable date is made clear by the Rules. Article 3 provides:

"The date when the Request is received by the Court shall, for all purposes, be deemed to be the date of commencement of arbitral proceedings."

In the present case, the Main Contract arbitration was commenced only on May 18, 1987. The Defendant's notice of April 10, 1987, did not have the effect of preventing the Claimant from commencing arbitration pursuant to Clause 18 (1) nor from seeking the appointment by the ICC Court of Arbitration of arbitrator/s thereunder. The notice was not renewed nor did the Defendant take any effective or timely steps to assure the appointment of joint arbitrators in the Sub-Contract arbitration, which would have required timely assertion of a prior agreement among the parties to nominate in Arbitration No. 5898 those persons appointed as arbitrators in Arbitration No. 5948. As we will see, the Defendant's commencement of the Main Contract arbitration in fact took place only after the present arbitration proceeding was underway and at least one arbitrator had been nominated, and appointed by the Court of Arbitration.

14. Notice requiring referral of the Sub-Contract dispute to "the arbitrator/s to whom the dispute under the Main Contract is referred"

We have concluded above that the "is referred" requirement had not been satisfied by the Defendant. Accordingly, it is not essential for us to determine further at what point of time the appointment of the Main Contract tribunal must be completed in order to complete the exercise by the Contractor of its Clause 18 (2) right. To avoid any misunderstanding, however, we express the view that where the Main Contractor has taken the initial step of commencing an arbitration and nominating at least one arbitrator, that it is in a position to give notice under Clause 18 (2) or to give a new notice validating a prior Clause 18 (2) notice. As it was stated in the above-mentioned award in ICC Case No. 5333, Clause 18 (2) requires that "an arbitral tribunal has already been constituted or is in the process of being constituted to decide the dispute under the Main Contract" at the time notice is given to the Sub-Contractor under Clause 18 (2).

15. Clause 18(2) notice prior to the Sub-Contract arbitrators having been agreed or appointed

The option offered to the Contractor under Clause 18(2) must be exercised only "provided that an arbitrator/s has not already been agreed or appointed" in the Sub-Contract dispute.

Several interpretations of that condition are permitted:5

- The first interpretation, which is supported by the Defendant, is that the word "appointed" should be taken strictly to designate the actual appointment of the three arbitrators by the Court of Arbitration, that is the confirmation of the nomination of the first two arbitrators and the designation of the Chairman of the arbitral tribunal.

That interpretation is supported by the argument that, were it otherwise, the Sub-Contractor could at any time deprive the Contractor from his option under Clause 18(2) by filing with the ICC a request for arbitration which, under the ICC Rules, has to contain the nomination of an arbitrator by the plaintiff.

- The second interpretation, which is set forth by the Claimant, is that the date of such a nomination, which is also the date of the request for arbitration, should be retained.

That interpretation is supported by the argument, that were it otherwise, the Contractor could, at any time, deprive the Sub-Contractor of his right to arbitration under Clause 18(1) by himself filing a request for arbitration and exercising his option under Clause 18(2).

- A third interpretation which is set forth by none of the two parties is that the date to be retained is that of the confirmation by the Court of Arbitration of the arbitrator nominated by the Sub-Contractor.

That interpretation is supported by the argument that (a) the date retained is that of a designation, not of a nomination and, (b) the date corresponds to a decision of the Court of Arbitration, which, in the circumstances of this case, was made and confirmed upon full consideration of the Defendant's plea and, (c) the date was also that of the decision of the Court that the Claimant's arbitration should proceed, which decision triggered, without possibility of return, the pursuit of the process which was to lead to the full designation of the arbitral tribunal. Accordingly, for the purposes of Clause 18(2), the cut-off date should be found to be the date of that first full designation.

Since the decision of the Court of Arbitration to confirm the designation of the Claimant-nominated arbitrator and to order that the arbitration should proceed was made on April 22, 1987, while the Defendant's Request for Arbitration was not filed until May 18, 1987, the condition which is considered in this paragraph was not satisfied.

To be sure, the non fulfilment of that condition is redundant since the requirement of the existence of a dispute which is referred to arbitration was itself not met. It is nevertheless of interest to consider it, in view of the overall relationship between the parties.

16. Willingness of the Main Contract arbitrator/s to act in the Sub-Contract dispute

Clause 18 (2) provides that where the Contractor gives proper notice, it may require that the Sub-Contractor refer any Sub-Contract dispute to the arbitrators appointed under the Main Contract and "if such arbitrator/s... be willing so to act, such dispute under this Sub-Contract shall be so referred."

Under the FCEC clause upon which Clause 18 (2) is modelled, it can be argued that there is an obligation to make an ad hoc referral to the designated Main Contract arbitrators which obligation will be effaced by a condition subsequent if those arbitrators are not willing to serve. Under the FCEC procedure the question is moot because the contractor is necessarily contacted by the Sub-Contractor to agree arbitrators, and hence is in a position to block the referral to any other arbitrators, ab initio.

In the ICC procedure in which we find ourselves, the situation is somewhat different, and we must take a realistic view of where we stand. This tribunal has been appointed by the ICC Court of Arbitration, and undoubtedly has jurisdiction under Clause 18 (1) of the Sub-Contract. The issue is whether this tribunal should exercise that jurisdiction, and whether the Claimant's claim is "receivable", or whether its receivability has been cut-off, so as to require that it recommence ICC proceedings before a different tribunal. It cannot be avoided that this decision takes place approximately one year after arbitration has been commenced, with attendant costs of arbitration already incurred. Referral to another tribunal would require recommencement of another ICC proceeding, and referral of the dispute by the Court of Arbitration to joint arbitrators, based on a finding by this tribunal that that is what the parties intended and was required under the Sub-Contract. In the circumstances, this tribunal is permitted to look at the situation as it is now.

No evidence of the willingness of the Main Contract arbitrators (a three-man ICC tribunal) to act and to adjudicate the Sub-Contract dispute has been produced by the Defendant, which seeks to have this tribunal divest itself of the responsibility to make such determination. Yet the willingness of the tribunal to accept to adjudicate the dispute is surely a condition to any action by this tribunal to refrain from exercising the general arbitral jurisdiction which it has under Clause 18(1) of the Sub-Contract.6 It cannot be seriously argued that this tribunal should take any action which might result in the Claimant being left without any effective remedy at all. At the present stage of the proceedings we can only take notice that no evidence has been produced which would assure us that the application of the extraordinary procedure of Clause 18(2), which we have found to be an exception to the general arbitral remedy provided in Clause 18(1), would lead to an effective adjudication of the dispute presently before us. The failure of evidence on this point is particularly relevant since there are a number of considerations present in this case which might well lead the Main Contract arbitrators, in the exercise of their discretion, to refuse to accept to act "as joint arbitrator/s", as that term is used in Clause 18, since in the circumstances, few of the advantages usually associated with joint or consolidated arbitration could be obtained and at the same time the due process rights of the parties may be jeopardised. These considerations include the following:

(i) The ICC Court of Arbitration has refused to consolidate the two arbitrations;

(ii) Two of the three potential participants are entirely hostile to the Main Contract tribunal accepting the reference: both the Employer and the Sub-Contractor oppose that tribunal taking jurisdiction over the Sub-Contract dispute in any form;

(iii) The Employer has refused to give the consent required by Clause 18(2) to any consolidation or any admixture of the two proceedings;

(iv) Case law interpreting FCEC and similar clauses is persuasive authority that the arbitrators are disabled from dealing with the two disputes concurrently in the absence of express approval by the Employer;

(v) A proviso of Clause 18(2) appears to indicate that where, as here, the Sub-Contractor cannot act as a party in the Main Contract arbitration the joint arbitrators may not take into account in the Sub-Contract arbitration material fact proved in the Main Contract dispute;

(vi) Dealing with the disputes consecutively would delay consideration of the Sub-Contractor's claims, some of which are not related to the Contractor's claims against the Employer, for a very long period of time;

(vii) The Sub-Contractor objects strenuously to presenting its claim before a tribunal in which it has enjoyed no power of arbitrator nomination, while its adversary, the Defendant, has had such a right; while this situation may not contravene Clause 18(2), there is no reason for the Main Contract arbitrators to accept the situation, which one of the parties contests vigorously, if there is no corresponding advantage in respect to the speedy and equitable resolution of the disputes.

In these conditions, we can only take note that an essential condition for the full and effective operation of Clause 18(2) has not been fulfilled and must express doubt that it ever will be fulfilled.

Findings of the Tribunal

Based on the above ratio decidendi, the Arbitral Tribunal finds that the conditions required for application of Clause 18(2) of the Sub-Contract in the circumstances of the case were not satisfied by the Defendant and accordingly renders the following interim Award.

Award

1. The Arbitral Tribunal, on the basis of Clause 18(1) of the Sub-Contract between the Claimant and the Defendant, has jurisdiction on the merits of the dispute referred to arbitration by the Claimant under case No. 5898.

2. The Tribunal rejects any other issues, pleas or contentions raised by either of the two parties in relation to the challenge by the Defendant of the right of the Claimant to have case No. 5898 proceed on the merits and to be decided by this Arbitral Tribunal.

3. The matter of costs related to this Award is postponed to be settled in the final award to be rendered on the merits of the case.'

1
Under Clause 18(3), if a dispute between the Employer and the Contractor is made the subject of court proceedings, and the Contractor is of the opinion that the dispute touches or concerns the subcontract works, the Contractor may by notice "abrogate the provisions of subclause 18(1)" and thereafter the subcontractor shall have no right to arbitration.

2
However, in that case by limiting the scope of the word "dispute" under the main contract, the tribunal found that the conditions for the operation of Clause 18(2) had not been fulfilled and did not require the subcontract dispute to be submitted to the main contract arbitrators.

3
As Sigvard Jarvin says, commenting on this clause in a note under ICC Arbitration No. 5333, supra : "The way the clause is written, it does not give equal rights to all parties involved", 4 ICLR 321 at p. 331.

4
Humphrey LLoyd, Q.C., "Concurrent Arbitrations", Exhibit 2 to the Claimant Response of 30 September 1988 to Questions raised by the Tribunal.

5
Although lengthy grammatical explanations of the term arbitrator/s have been presented by both parties, we do not find them conclusive.

6
In a recent case interpreting a provision of the NFTBE subcontract form with an arbitration clause similar to the FCEC form an English court found that it was an implied term of the subcontract that "... the arbitrator appointed under the main contract would give his consent to acting also as arbitrator under the proviso within a reasonable time." MultiConstruction v. Stent Foundations, 21 April 1988, Queen's Bench Division, 41 BLR 98.