| Date | 5 April 2006 |
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| Judgment | Scheldebouw BV v St James Homes (Grosvenor Dock) Ltd, TCC 16 January 2006 |
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| The Issue | The requirement for impartiality and independence of the decision maker under construction contracts. |
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| Implication |
Architects, engineers and construction managers generally carry a dual function, both to act as agents of their employer and to act independently and fairly in a decision making capacity. Such functions are underpinning features of the construction contract. |
printIn many standard forms of construction contract, the named architect or engineer is required, either by the express words of the contract or by operation of the general law, to carry out a dual function. Firstly, he will be acting as an agent of the employer administering the contract on behalf of the employer and giving effect to the employer’s requirements. Secondly, he will be required to carry out the functions of “decision maker” under the contract. In this latter role he must act impartially and fairly between the employer and the contractor. The recent case of Scheldebouw v St James Homes provides a very useful review of the leading cases in which this dual function has been examined. St James was a developer undertaking a substantial residential development on the north bank of the River Thames in central London. The project was being constructed under a construction management arrangement, in which St James had engaged a construction manager to manage the design and construction of the project and had entered into a number of separate trade contracts with different contractors to complete the design and construction of the works. This included Scheldebouw, a Dutch company, who had been engaged to carry out cladding works to three of the buildings on the project. As the works were nearing completion, St James wrote to Scheldebouw informing them that they had terminated the appointment of their construction manager and would instead now undertake all the roles and responsibilities of the construction manager themselves. Scheldebouw objected to this replacement indicating that they had entered into the contract on the assumption that the construction manager’s duties would be carried out by an independent and impartial third party. This dispute could not be resolved and in due course proceedings were commenced in the Technology and Construction Court. Mr Justice Jackson examined the legal duties of the construction manager which he likened to the duties of an architect or engineer acting under a lump sum contract. He confirmed that the functions allocated to the construction manager had two separate and distinct aspects. The construction manager acted as an agent of St James and in that capacity he gave effect to St James’ wishes and carried out St James’ instructions. The construction manager’s second function was however quite different. He was required to reach decisions on matters where, at least potentially, the contractor and employer had opposing interests. For example, he had duties to ascertain and certify loss and expense payable by the employer by reason of delay and disruption to the works. Similarly, he certified adjustments to the contract sum and granted fair and reasonable extensions of time. The duty of the construction manager in all of these matters was not simply to implement the instructions of the employer, but rather to hold the balance fairly as between the employer and the contractor. Mr Justice Jackson commented that this concept of the dual function, which he characterised as the “agency function” and the “decision making function”, had been examined by the courts on numerous occasions in the past. In the 1969 case of Perini Corporation v Commonwealth of Australia the employer had appointed its own employee in the role of certifier under a construction contract. The court concluded that although the employee continued to be an employee, he became vested with duties which obliged him to act fairly and justly and with skill to both parties to the contract. Similarly, in the 1974 case of Sutcliffe v Thackrah, the House of Lords held that an architect issuing interim certificates under a building contract could be sued for negligence. The court held that in many matters the architect would be bound to act on his client’s instructions, whether he agreed with them or not, but in many other matters requiring professional skill, he was required to form and act on his own opinion. The building owner and the contractor made their contract on the understanding that in all such matters the architect would act in a fair and unbiased manner. Taking all of these points into account, Mr Justice Jackson concluded that St James was not entitled to appoint itself as its own construction manager. It was an unusual state of affairs for an employer to be the certifier and decision maker and this required to have been established by an express provision of the contract from the outset. The whole structure of the contract was built upon the premise that the employer and the construction manager were separate entities. It was on this basis that Scheldebouw had entered into the contract and upon which its price was based. Whilst it was plainly not correct to say that the employer was incapable of performing those tasks independently, in Mr Justice Jackson’s view it was more difficult for the employer to act in this way than it would be for a professional agent. Both the employer and the contractor would be expected to be driven by their own commercial interests. In every previous case before the courts in which the certifier was a direct employee of the employer, this had been known at the outset and the contractor had priced the works on that basis. This was not the case for Scheldebouw and they were therefore entitled to reject a situation in which St James unilaterally chose to act as its own construction manager.
CJ-0613
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