| Date | 16 July 1997 |
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| Judgment | Copthorne Hotels -v- Arup Associates and Others ORB, 20th May 1997 (unreported) |
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| The Issue | Liability of the management contractors under the JCT Standard Form. |
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| Implication |
The management contractor is given extensive relief from liability in the event of breach by a works contractor providing it complies fully with the mechanisms of Clause 3.21 of the JCT form. |
printContractors thought that management contracting was a wonderful idea when it first came to prominence. They could foresee many of the advantages of main contracting, including control of the cash, with few of the risks. The concept relied on the key proposition that the management contractor would not be liable for the defaults of its works contractors. Since the management contractor entered into contract with its client and then in turn into contract with all the various works package contractors, some very deft legal drafting had to be introduced to bring about this restriction on the management contractor's liability. A clause had to be devised which would entitle the client to secure rights and obligations from the works contractor through the management contractor, without the management contractor itself carrying these obligations. Thus was born the "escape" clause. Such a clause was first tested in the Court in October 1991 in the case of Chester Grosvenor Hotel -v- Alfred McAlpine on a project which pre-dated the publication of the standard JCT Management form. The clause in question stated that the management contractor should take all practical steps to enforce the terms of the works contractor's contract in the client's name and at the client's expense. The clause went on to say that the client would not be entitled to recover from the management contractor any sums in excess of sums recovered and received from the works contractors. On examining these provisions the Court held that the clause offered no defence to an allegation that the management contractor was in breach of an obligation unrelated to performance by a works contractor. Where, however, the management contractor was in breach of an obligation which in turn was caused or contributed to by the default of a works contractor, then the clause did indeed afford a valid defence. The judgment also held that the clause did not fall foul of the Unfair Contract Terms Act and that it satisfied the statutory requirement of reasonableness. Until recently, this was considered to be the most helpful guidance which could be obtained with regard to the operation of management contracts and indeed the equivalent clause in the JCT Standard Form, Clause 3.21, had not similarly been examined. The case of Copthorne Hotels -v- Arup Associates has now re-examined these issues in the light of the JCT Forms. The issue before the Court was whether Bovis, as management contractor, could be liable under the contract for any defects which occurred as a consequence of a breach by a works contractor. Bovis sought to rely upon Clause 3.21 of the contract to exclude its liability. The difficulty concerned the overlapping obligations of the management contractor and works contractors, for example, in regard to the standards of workmanship and materials. Article 1.2 requires the management contractor to "secure the carrying out and completion of the work". Similarly Clause 1.5.3 requires it to "ensure that all items of work are carried out in accordance with the specification, drawings and works contracts using materials, goods and workmanship of the quality and standards therein specified. Clause 3.8 of the management contract requires that materials, goods and workmanship shall be of the specified kinds and standards, and thus also imposes direct obligations on the management contractor in those respects, equivalent to the corresponding obligations of the works contractors under the works contracts. How then should the escape clause, Clause 3.21, operate in the event of a breach of any of these provisions by both works and management contractor? In a careful analysis of these complex provisions the judge concluded that providing the management contractor had fully complied with Clause 3.21 itself, then the protection it afforded to the management contractor was quite extensive. As to damages which might be recoverable from a works contractor in consequence of its breach, the management contractor's liability would be limited to the amounts so recovered. Where the management contractor's obligation was to achieve a result, such as where the contract required it to "ensure" or "secure" fulfilment of the works contractor's obligations and thus both management and works contractor were in breach, the management contractor would still be protected from liability by the operation of Clause 3.21. As with the Chester Grosvenor Hotel case however, the judge confirmed that the management contractor would be liable to its client without limitation for any breach not within the protection of Clause 3.21.
CJ-9726
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