The applicant (Northbuild) was a building contractor and the respondent (Discovery) a developer. Northbuild and Discovery had entered into a contract to re-develop a resort. The contract contained a dispute resolution clause. A number of disputes later arose out of this agreement.

One such dispute related to a contractual clause which provided for:

Northbuild issued a Final Notice asserting that Final Completion had been reached, calling for the release of certain security, and asserting an entitlement to a final payment. This final payment comprised, among other things, amounts relating to breach of contract claims (some of which were later abandoned).

In response, Discovery delivered a Notice of Dispute by which it disputed that Final Completion had been reached, that Northbuild was entitled to the return of security as alleged, and that Northbuild was entitled to the amount claimed, alleging for its part that Northbuild owed Discovery.

This dispute was referred to arbitration under the dispute resolution clause in the contract.

Clause 11 of the contract obliged Northbuild to make all of its claims in a "final notice and final account". Failing that, Northbuild's "future or subsisting claims" would be "barred absolutely". The arbitrator directed that Northbuild deliver its points of claim. In the points of claim, Northbuild included numerous claims that had previously been referred to expert determination or arbitration. This created a problem about whether the claims already referred to other fora, including those referred to expert determination or previously to arbitration, ought to be determined in those fora or by the arbitrator in the Final Claim Arbitration.

The arbitrator resolved this by providing for an Interim Award in the Final Claim Arbitration which would determine in substance all of the claims which were not in other fora. Once those other claims had been resolved, the arbitrator would "roll in" all of the awards and make a final award without the need for another hearing. This solution was the subject of directions in the Final Claim Arbitration (Interim Award Direction). In the period between this direction being made and the commencement of the hearing, both of the parties and the arbitrator re-stated and affirmed the direction, both in the pleadings delivered in accordance with the Interim Award Direction and in correspondence from time to time.

The parties agreed which claims were referred to other fora and there was no suggestion that any of the breach of contract claims had been referred to another forum for determination at that time or as the parties approached the hearing. Rather, it was understood between the parties that Northbuild would be proceeding with the breach of contract claims at the arbitration. Indeed, Northbuild pleaded these claims and Northbuild's solicitors later made clear to Discovery and the arbitrator that it would be proceeding with this case as pleaded.

At the hearing, however, Northbuild failed to lead evidence or make submissions in respect of the breach of contract claims. Nevertheless, there was no suggestion at any point that Northbuild did not intend to proceed with the pleaded breach of contract claims or wanted to vary the Interim Award Direction with respect to the breach of contract claims. Ultimately, the arbitrator made an award described as the Final Claim Interim Award.

The arbitrator sought submissions as to the form of any further award. A dispute eventually arose as to the scope of the Interim Award. Northbuild contended that:

Therefore, Northbuild contended that it remained open to it to pursue the breach of contract claims.

Applegarth J held that Northbuild was estopped from further pursuing the breach of contract claims and made a declaration to this effect.

The judge found that the parties had proceeded with the hearing on the basis that the arbitrator's direction regarding the Interim Award stood with respect to the breach of contract claims and that Northbuild's claims for breach of contract would therefore be the subject of the Interim Award.

He said that something weighty would have been required to displace this notion. However, nothing was said or done during the hearing that amounted to a direction that varied or qualified the Interim Award Direction with respect to Northbuild's breach of contract claims, nor was anything said or done that would have been reasonably understood to amount to such a direction.

While Northbuild chose not to prosecute the breach of contract claims at the hearing, the failure to do so did not alter the legal consequences of not doing so. The breach of contract claims were therefore held to have been determined by the arbitrator by the making of the Final Claim Interim Award and Northbuild was estopped from further pursuing the breach of contract claims.

This decision demonstrates that the principle of res judicata is applicable to claims determined by interim arbitral awards.

It also demonstrates the need to take care in pleading and prosecuting one's case in an arbitration. Adequate evidence should be adduced in respect of all pleaded claims. If, however, one desires to remove pleaded claims from the scope of an arbitral award, this issue needs to be clearly raised with the arbitrator.