| Date | 6 September 2000 |
|
|
| Judgment | Lafarge Redlands Aggregates Limited -v- Shepherd Hill Civil Engineering Limited . House of Lords 27 July 2000 |
|
|
| The Issue | Joinder of arbitration in civil engineering contracts and sub-contracts. |
|
|
| Implication |
If the main contractor is unable or unwilling to bring about tripartite arbitration within a reasonable timespan the sub-contractor will be free to proceed in arbitration with the main contractor alone. |
printThe civil engineering forms of main contract and sub-contract contain complex provisions for the resolution of disputes. These provisions are further complicated when a disputed matter is common to all three parties; the Employer, Main Contractor and Sub-contractor. These matters were recently brought to the House of Lords in the case of Lafarge Redlands Aggregates Limited -v- Shepherd Hill Civil Engineering Limited. Shepherd Hill were main contractors to Essex County Council for road and bridge works. Lafarge were sub-contractors for surfacing. Disputes arose between the main contractor and the employer and the main contractor and sub-contractor. The sub-contractor, Lafarge, gave notice to Shepherd Hill of its intention to refer the disputes between them to arbitration under Clause 18(1) of the FCEC sub-contract. Shepherd Hill replied that it considered the appointment of an arbitrator to be premature, that in its view the normal negotiating channels had not yet been exhausted and that it did not wish to escalate the disputes under the main contract at that stage. Shepherd Hill then gave notice to Lafarge that it required the sub-contract disputes to be dealt with jointly with the disputes under the main contract under Clause 18(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 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 such dispute under the sub-contract shall be dealt with jointly with the dispute under the main contract in accordance with the provisions of clause 66 thereof. In connection with such joint dispute the sub-contractor shall be bound in like manner as the contractor by any decision of the engineer or any award by an arbitrator". Shepherd Hill did not immediately refer the disputed matters for an engineer's decision or arbitration under Clause 66 of the main contract. It took the view that it was entitled to pursue its own interests and should be left free to negotiate with its client. With its patience running out, Lafarge eventually commenced proceedings for a declaration from the Court that Shepherd Hill was not entitled to rely upon its clause 18(2) notice and that it should be allowed to proceed with the sub-contract arbitration in isolation. At first instance the Court refused the declaration sought, holding that the Clause 18(2) notice from Shepherd Hill was valid. This was overturned in the Court of Appeal, where it was held that by failing to progress the clause 66 main contract procedures to resolve the disputed matters with all deliberate speed, the main contractor was not entitled to rely on Clause 18(2) in the sub-contract. Thus the main contractor could not prevent a separate sub-contract arbitration from proceeding. These matters then came before the House of Lords. All five Law Lords were in agreement with the Court of Appeal. By failing to progress with reasonable speed with the procedure under Clause 66 of the main contract, the main contractor Shepherd Hill was no longer entitled to impede the progress of the sub-contract arbitration by invoking Clause 18(2). Whilst the main contractor was of course free to attempt settlement negotiations with its employer, such negotiations could not be used to delay proceeding with the processes outlined in Clause 66, if resolution by arbitration of the subcontract dispute was to remain joined to resolution of the main contract dispute. Whilst the appeal was rejected on the basis of the above reason alone, the House of Lords was particularly interested to consider the type of arbitration procedure envisaged by Clause 18(2). The five Law Lords were divided 3:2 on this point. Lord Hope and Lord Clyde considered that the procedure intended is a single arbitration under the main contract where the main contractor presents the sub-contractor's claims. The sub-contractor has no right to appear as a party. This is of course unworkable from the sub-contractor's perspective. Lord Hope sought to justify this position by suggesting that it is generally the case that the sub-contractor and main contractor's aims are almost always aligned. "The contractor's interest in disputes arising under the sub-contract will in many cases be confined to obtaining money from the employer which will enable it to settle such disputes and to retain for itself the appropriate percentage uplift". In reality such simplicity will be present in only the rarest of cases. The majority view, which seems far more commercially realistic, is that clause 18(2) envisages that there will be two separate arbitrations to be dealt with concurrently by the same arbitrator (in effect a tripartite arbitration). However this leaves the main contractor somewhat exposed. It cannot compel the employer to accede to a tripartite arbitration involving the sub-contractor, and for the most part it will of course be against the employer's interests to do so. If the main contractor cannot procure a tripartite arbitration, and for the most part this will be very difficult to achieve, then it will be unable to rely on Clause 18(2) of the sub-contract to prevent a sub-contract arbitration proceeding unhindered. Therefore, under the 'blue form' as currently drafted, main contractors may no longer be able to protect themselves against the risk of two arbitration proceedings in respect of the same subject matter with the inherent possibility of inconsistent findings.
CJ-0035
|
|||
|
© Brewer Consulting |
|||
 |
|||