| Date | 30 May 1996 |
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| Judgment | Balfour Beatty Civil Engineering Ltd -v- Docklands Light Railway Ltd: Court of Appeal 3 April 1996 |
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| The Issue | The power of the court to revise engineer's or architects decisions. |
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| Implication |
Where a contract gives an engineer or employer's representative a duty to exercise judgment upon entitlement under the contract, the court cannot, without agreement, intervene upon this judgment unless a breach of duty is established. This case was overturned by the House of Lords in May 1998 as the case of Beaufort Developments -v- Gilbert Ash (NI) Ltd. |
printWhen I first heard the term "a modern contractual fiction" it struck a chord. It seemed to me that there must be numerous issues troubling the construction industry to which this term could be applied. The runaway promises concerning adjudication, pay-when-paid, and securing payments have led some to believe that commercial risk will soon be a thing of the past. Similarly, the endless stream of revised warranties, bonds, standard form amendments and new procurement systems all too often promise advantage which in the cold light of day they fail to deliver. The term, however, was used in an altogether quite different area by His Honour Judge Humphrey Lloyd QC in December 1994 in the case of University of Reading -v- Miller Construction. The issue that Judge Lloyd was referring to was whether an arbitrator's power under a JCT form of contract to open up, review and revise an architect's decision was a wider power than that held by the court. This view was given much prominence in the Court of Appeal decision in Northern Regional Health Authority -v- Derek Crouch in 1984 and is based upon the idea that an arbitrator may review opinions formed by an architect, whereas a court is unable to form discretionary opinions but is instead constrained to hold findings of fact or law. In a fairly robust judgment, Judge Lloyd described this as the "modern contractual fiction" and said that in reality a court would have no difficulty in forming discretionary opinions and would be assisted when appropriate by expert evidence just as an arbitrator might have to be given such assistance. This view has to an extent been contradicted, however, in the more recent Court of Appeal decision in Balfour Beatty Civil Engineering -v- Docklands Light Railway. The Appeal Court held that it did not have a general power to open up, review and revise decisions, opinions, instructions, directions, certificates or valuations of the employer, but that the powers of the court were limited to special circumstances where such decisions were proved to be not in accordance with the contract. The proceedings arose out of a contract for the Beckton extension of the Docklands Light Railway. The contract provided for the carrying out of extensive civil engineering works including the building of six bridges and three viaducts, improvement of the station at Poplar, work on the track of the railway and the installation of new signalling equipment. The contract between the parties was based upon the ICE 5th edition, June 1973, but there were two significant differences. Firstly, the employer's representative took the place of the engineer in the standard conditions. Secondly, clause 66 of the standard conditions, dealing with the settlement of disputes and making provision for recourse to arbitration, was omitted altogether. The contractor argued to the court that the decisions and judgments of the employer were necessary for the day-to-day administration of the contract, but they could not deprive the contractor of its basic right to be paid the correct contract price and to be granted the correct extensions of time. If the contractor did not accept the employer's certificates and judgments, there was nothing to deprive it of the ordinary right of any contracting party to invite the court to investigate the facts and rule on the extensions and monies which properly should have been granted under the contract. Any other construction would give the employer, as one of the parties to the contract, an almost unfettered right to rule on the extent of its own contractual obligations. The employer argued that the contractor was entitled to whatever the contract provided which depended upon the judgment of the employer. This did not mean that the employer had an unfettered discretion. The employer accepted that in all its judgments, decisions and certificates, it was obliged to act honestly, fairly and reasonably. Accordingly, if the contractor was able to satisfy the court that the employer had acted non-contractually, and so could impeach its decision (on the grounds for instance of legal misdirection, dishonesty, unfairness or unreasonableness), then the court could grant appropriate relief. But, argued the employer, the court did not enjoy a power to open up, review or revise decisions or certificates of the employer in the way that an arbitrator might be empowered to do under a standard form of arbitration clause. The difference between the parties' respective approaches to this problem was therefore quite wide. On the contractor's argument the court could decide the correct extension of time and the correct contract price on the basis of all the factual and expert evidence produced before it whether such evidence was available to the employer or not. On the employer's approach, the contractor must impeach the employer's decisions by demonstrating that they were not, for whatever reason, given in accordance with the contract. The Court of Appeal accepted the employer's argument. The contractor's entitlement was to depend upon the employer's judgment, which was to be exercised honestly, fairly and reasonably. If the contractor could not establish a breach of this duty, it would be entitled to no remedy. So in the final analysis, a fiction appears to have become fact. At least Dennis Potter would have been happy with that.
CJ-9620
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