| Date | 3 June 1998 |
|
|
| Judgment | Beaufort Developments (NI) Ltd -v- Gilbert Ash NI Ltd, House of Lords 20 May 1998 |
|
|
| The Issue | Whether an arbitrator appointed to decide disputes arising under a construction contract has powers to review decisions and certificates of an architect or engineer, which are not available to the court. |
|
|
| Implication |
Unless expressly and clearly stated in the contract, all certificates, opinions, decisions, requirements or notices of an architect or engineer have provisional validity and thus do not limit the ordinary powers of the court to determine the parties' rights and obligations under the contract. |
printFrom time to time the courts make errors of judgment in the interpretation of the law in relation to construction contracts, with far reaching consequences. For example, in Dawnays Ltd -v- F G Minter Ltd the Court of Appeal held in 1971 that an employer was obliged to pay a sum certified by an architect, with no right to set-off or withhold monies which the employer had incurred as a consequence of the contractor's breach of contract. The justification for this decision was said to be that cash flow was the life blood of the building trade. Three years later this case was overruled by the House of Lords on the basis that the ordinary common law right of set-off, whereby a breach of warranty may be set up in diminution of the price, applied as much to building contracts as to contracts for the sale of goods. On 20 May 1998, the House of Lords gave its judgment in the case of Beaufort Developments (NI) Ltd -v- Gilbert Ash NI Ltd. Once again the House has corrected an error of the Court of Appeal which has caused a certain amount of injustice since the 1984 decision in Northern Regional Health Authority -v- Derek Crouch Construction Company Ltd. The case concerns clause 41.4 of JCT 80 which gives an arbitrator the power to "open up, review and revise any certificate" of the architect. In Crouch the Court of Appeal held that this special power was confined to the arbitrator on whom it had been conferred by the arbitration clause. It could not be exercised by the courts. This decision came as a surprise. Official Referees had been opening up and revising certificates as a matter of course for many years without any objection from the parties. Nevertheless, Lord Justice Brown-Wilkinson said in Crouch that in an action questioning the validity of an architect's certificate or opinion, the jurisdiction of the court would be limited to deciding whether or not the certificate or opinion was invalid for bad faith or excess of power. It could not revise the certificate on the ground that the court thought it was wrong. The arbitration clause gave the arbitrator "power not only to enforce the contractual obligations, but to modify them." Reviewing these propositions in the present case, Lord Hoffman considered that the idea of the architect or arbitrator having power to modify the contractual obligations of the parties was a strange one. The complexity of a building project was such that the architect might be called upon routinely to decide the objective standards to be met by the parties. This was to determine, but not to modify, the contractual obligations of the parties. In considering the jurisdiction of the court, Lord Hoffman held that the crucial question was whether the architect's certificates or decisions could be said to be binding upon the parties, such that they had a conclusive effect in litigation. This was a matter which had largely been ignored in Crouch. Lord Hoffman was quite clear that the contract contained express and elaborate terms providing for conclusiveness as to various matters for one certificate and one only, namely the final certificate. To make other certificates or opinions conclusive could easily cause injustice. The certificate may have been given when the knowledge of the architect about the state of the work or the effect of external causes was incomplete. The effect was to give a "provisional validity" to such certificates. On this approach, the court was able to exercise all its ordinary powers to decide the issues of fact and law which might be brought before it and to give effect to the rights and obligations of the parties in the usual way. Agreeing with this analysis, Lord Hope stated that it would not be necessary for the court to exercise the powers which the parties conferred upon the architect in order to provide the machinery for working out their contract. Nor, he considered, was it necessary for the court to exercise the power which clause 41.4 confers on the arbitrator to revise certificates. This is because the court did not need to make use of the machinery under the contract to provide the parties with the appropriate remedies. The ordinary powers of the court in regard to the examination of the facts and the awarding of sums found due to or by either party are all that is required. As with the Dawnays case in 1971, Crouch has spawned its fair share of wrong decisions in the 14 years it has taken to be overturned. As an example, in Balfour Beatty Civil Engineering Ltd -v- Docklands Light Railway Ltd, the contract provided that the Employer's Representative should carry out the functions of the engineer, and that there should be no arbitration clause. The Court of Appeal held in 1996 that despite there being no provision that the decisions of the engineer were to be binding or conclusive, the court nevertheless had no power to "open up, review or revise" them as an arbitrator might have. Accordingly, "the contractor's entitlement was to depend upon the employer's judgment". This latest judgment will be welcomed by construction lawyers even if the effects of Crouch have long been diluted. However, arguments over whether arbitration or litigation is to be preferred will still be commonplace.
CJ-9820
|
|||
|
© Brewer Consulting |
|||
 |
|||