| Date | 19 September 2001 |
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| Judgment | Belgravia Property Company Limited -v- S & R (London) Limited and Taylor Woodrow Management Limited, TCC 18 July 2001 |
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| The Issue | The mechanisms for works contractors' name-borrowing arbitrations with the employer under JCT Management Forms of Contract.< |
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| Implication |
Aggrieved works contractors may only proceed in an arbitration against the employer to recover disputed monies if they have first given such reasonable indemnity and security as may be requested by the management contractor. |
printThere have been a number of judgments in recent years that have explicitly recognised the very great difficulties in trying to fathom how, in practice, the arbitration "name-borrowing" provisions of the JCT contracts should work. The recent case of Belgravia Property Company Limited -v- S & R (London) Limited and Taylor Woodrow Management Limited examined these clauses in the context of the JCT Management form of contract. Taylor Woodrow was engaged as management contractor by Belgravia for the renovation of two properties in London. S & R were engaged as works contractor for plastering works. The management contract provides that the employer's architect is to issue interim certificates stating the amount due to the management contractor from the employer. The interim certificates allow for the payment to the management contractor of the prime cost of the project and the management contractor's fee. The prime cost payable to the management contractor includes the amounts due and payable under the respective works contracts. The works progressed and S & R became increasingly concerned that the amount certified by the architect did not allow proper consideration of the valuation of its work. After much to-ing and fro-ing it consulted its solicitors who read carefully the complex provisions for remedies available under the works and management contracts. In particular, attention was drawn to clause 4.17 of the works contract, which provides a key link to the payment provisions in the management contract. Clause 4.17 states that the management contractor shall ensure that the employer operates the contract provisions whereby the architect is required to direct the amount payable in respect of works contractors. Attention was also drawn to works contract clause 4.27; "if the works contractor shall feel aggrieved in regard to any amount certified by the architect...in respect of the works...then, subject to clause 1.11, the management contractor shall allow the works contractor to use the management contractor's name, and if necessary will join with the works contractor in arbitration proceedings or litigation at the instigation of the works contractor in respect of the said matters complained of by the works contractor". These provisions are not designed for easy application by busy construction people, nor is any clarity provided by the reference to clause 1.11. This provides that the management contractor will, at the request of the works contractor, obtain any rights or benefits under the provisions of the management contract applicable to the works. Clause 1.11 continues "any action taken by the management contractor in compliance with any aforesaid request shall be at the cost of the works contractor and may include the provision by the works contractor of such indemnity and security as the management contractor may reasonably require". In the event, S & R, through its solicitors, decided to invoke clause 4.27 of the works contract. It wrote to Taylor Woodrow's solicitors requesting confirmation that Taylor Woodrow would comply with its obligations under clause 4.27 to join in arbitration proceedings with S & R against the employer. Taylor Woodrow's solicitors replied that Taylor Woodrow would require such "indemnity and security as the management contractor may reasonably require", since, it argued, clause 4.27 was subject to clause 1.11 which contained those terms. Self evidently, in allowing S & R to "borrow" its name and proceed in an arbitration with the employer, Taylor Woodrow wished to avoid incurring itself any loss. S & R's solicitors disagreed that it was obliged to give the indemnity and security requested by Taylor Woodrow and proceeded to give notice to Belgravia under clause 4.27 that it was aggrieved with regard to the amount certified and that, in the name of Taylor Woodrow Management, it required Belgravia to concur in the appointment of an arbitrator to resolve the dispute. Belgravia replied that it did not accept that the letter was a valid notice of arbitration. The matter came before the court and His Honour Judge Humphrey Lloyd QC was asked to give a ruling upon whether S & R, relying solely upon clause 4.27 of the works contract, could use the name of the management contractor to commence an arbitration against the employer. Counsel for S & R argued that the real claimant in the name-borrowing arbitration under clause 4.27 would be the works contractor who is able to conduct the arbitration directly with the employer. Taylor Woodrow would be no more than a conduit pipe. Taylor Woodrow were not at risk in such an arbitration and the indemnity and security it was requesting was entirely inappropriate in such circumstances. Judge Lloyd concluded that this did not represent the whole picture. Before a works contractor could start proceedings via clause 4.27, in his opinion it must first observe clause 1.11 and tell the management contractor of its intentions. Once that is done, and once the works contractor has satisfied the management contractor's reasonable requirements as to indemnity and security, only then can the authority granted by clause 4.27 come into operation. Thus, providing S & R had first complied with the requirements of clause 1.11, it could then proceed in the name of Taylor Woodrow with arbitration proceedings against the employer without further consent. This procedure not having been followed, S & R were not entitled to proceed with the arbitration which it had attempted to commence.
CJ-0137
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