| Date | 21 October 1998 |
|
|
| Judgment | Cegelec Projects Ltd --v- Pirelli Construction Company Ltd, ORB 21 May 1998 |
|
|
| The Issue | Passing down of dispute resolution procedures from main contract to sub-contract. |
|
|
| Implication |
The clearest words must be used to transfer complex dispute resolution mechanisms from main contract to sub-contract. |
printMany people were surprised when the Institution of Civil Engineers published their amendments to the ICE forms to meet the requirements of the Housing Grants Construction and Regeneration Act. The statutory right for either party to be permitted to refer a dispute or difference to an adjudicator at any time, might relegate the role of the Engineer who had traditionally been given the responsibility and the authority to decide such matters in the first instance. The response of the ICE drafting committee was therefore to retain the process for an Engineer's decision, upon the rather shaky footing that a 'dispute or difference' did not occur between the parties until the Engineer had made his decision. Until the Engineer's decision is given, the parties are deemed only to have a matter of "dissatisfaction" which may not be referred to adjudication. Whether or not such an approach can be said to have strained the intentions of the Act beyond allowable limits, only time can tell. The greatest area of difficulty however will lie in the procedures which seek to transfer these mechanisms down to sub-contractors. The recent case of Cegelec Projects -v-Pirelli Construction gives an idea of the difficulties that are likely to arise. Cegelec were main contractors to London Underground Ltd for the design, manufacture, installation and commissioning of the power cabling and conductor rail system for the Jubilee Line extension. Pirelli were engaged as sub-contractors for the design, supply and installation of cabling systems. Disputes arose and Pirelli first gave notice of arbitration in September 1997. Cegelec, however, contended that any such arbitration would be premature since it maintained that before notice of arbitration could be given under the sub-contract, disputes had first to be submitted in accordance with the dispute resolution procedure contained in the main contract with LUL. In something akin to the ICE forms of contract, the LUL standard E&M conditions contained at clause 94 a provision whereby a dispute of any kind between the employer and contractor must first be referred to and settled by the Engineer who must give his decision in writing. Such decisions were stated to be final and binding upon the contractor and employer unless and until the matter had passed into the hands of a conciliator, or the decision of the Engineer was revised by an arbitrator or an official referee. Whilst on occasion the Engineer's decision may work to great advantage resolving potential disputes, the process carries with it considerable potential for delay and frustration. Clause 94 continued that if the Engineer failed to give a decision within three months, or if either party was dissatisfied with any decision of the Engineer, then either party could elect within a further three months to refer the matter to conciliation. The "formal" process of dispute resolution might not be reached until at the very least a further three month period had elapsed for the conciliation process. These somewhat cumbersome rules were then to be transferred down to the sub-contract by clause 3 of the sub-contract which dictated that the main contract should be incorporated into the sub-contract agreement. This clause stated with confident simplicity that the main contract would apply as if the contractor were the employer, and the sub-contractor were the contractor. The sub-contract itself made no reference to Engineer's decisions, conciliation procedures and the like, but instead at clause 19 provided for a straightforward arbitration agreement between the contractor and sub-contractor. The submissions on behalf of Pirelli were relatively simple. It was argued that the sub-contract arbitration clause clearly and sufficiently set out the parties agreement for the resolution of disputes and it was not necessary to go beyond it. In particular, the sub-contract provided for the parties to refer a dispute to arbitration 'at any time', whereas the incorporation of main contract clause 94 would prevent that happening. Worse still, it was argued that the Engineer's decision would in fact require to be carried out by the contractor, a process which appeared unreal and absurd. In response, Cegelec argued that the written decision of the contractor substituting for the Engineer, and the conciliation process, should both be regarded as steps intended to fulfil the contractual undertaking to settle disputes amicably. The stepping down of the main contract provisions therefore did no more than define the processes which might lead to amicable settlement. His Honour Judge Humphrey Lloyd QC recognised that the task before the court was one of construction of the contract to ascertain the parties intentions when they entered into contract, by reference to the words that they used. He was satisfied that the sub-contract arbitration agreement was intended to be and should be read as the parties agreement as to how disputes between them were to be resolved. He considered that it was verging on the absurd to think that amicable settlement is represented by a requirement to put a dispute to one of the contracting parties, which if not accepted will become final and binding. He noted that the only purpose of such a requirement would be to delay matters for up to three months. This conflicted with the sub-contract provision which permitted disputes to be referred at any time. Accordingly the sub-contractor Pirelli would be entitled to rely upon the terms of their sub-contract to refer matters to arbitration without an incumbrance of the main contract provisions concerning Engineer's decisions or conciliation procedures.
CJ-9838
|
|||
|
© Brewer Consulting |
|||
 |
|||