| Date | 17 March 1999 |
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| Judgment | Redland Aggregates Limited -v- Shepherd Hill Engineering Limited, CA 11 December 1998 |
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| The Issue | Joinder of arbitration in civil engineering contracts and sub-contracts. |
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| Implication |
There is an implied term in the CECA Blue form of sub-contract that if the contractor is unable or unwilling to bring about tripartite arbitration within a reasonable time span, the sub-contractor will be free to proceed in arbitration with the main contractor alone. |
printThe civil engineering forms of main contract and sub-contract contain complex provisions for the resolution of disputes. These provisions are further complicated when a disputed matter is common to all three parties; the employer, main contractor and sub-contractor. The most recent amendments to the ICE main contract forms and CECA 'Blue' form of sub-contract, drafted to meet the requirements of the Housing Grants Construction and Regeneration Act, provide further complication to an already difficult process. At the heart of the matter lies an intention of the drafters to afford the main contractor a means of avoiding two arbitration proceedings in respect of the same subject matter, with the attendant risk of inconsistent findings of fact. Accordingly clause 18(2) of the Blue form of sub-contract contains provisions to the effect that providing an arbitrator has not yet been appointed in connection with a sub-contract dispute, the main contractor may require that that dispute be dealt with jointly with a related dispute under the main contract. Whilst this may appear at first sight a perfectly sensible approach, there is nevertheless one glaring difficulty from the sub-contractor's point of view. The main contract places no express obligation upon the main contractor to proceed diligently with a main contract arbitration and indeed places no obligation upon the employer to accede to such a tripartite arbitration. Clause 66 of the main contract requires the main contractor to obtain an Engineer's decision in respect of the disputed matter prior to the commencement of an arbitration. More importantly the main contractor is not compelled to arbitrate and may decide to conciliate, negotiate, or as sub-contractor would say, prevaricate. Whilst the latest amendments to the contracts require the main contractor to proceed promptly with adjudication, the processes relating to arbitration remain largely unchanged. These matters were considered by the Court of Appeal in the recent case of Redland Aggregates Limited-v-Shepherd Hill Engineering Limited. Shepherd Hill was engaged by Essex County Council as main contractor to construct a by-pass. In turn it sub-contracted with Redland for asphalt surfacing works. The sub-contract was in the standard FCEC Blue form containing the clause 18(2) previously mentioned. Disputes arose between Shepherd Hill and Redland with the latter making claims for extension of time and prolongation and disruption costs in the order of £500,000.00. In due course Redland referred the matters to arbitration under the terms of the sub-contract. Shepherd Hill replied that it required the disputes in question to be dealt with jointly with disputes under the main contract, applying the terms of clause 18(2) of the sub-contract. Whilst it was accepted that the main contractor was entitled to invoke the provisions of clause 18(2), the problem lay with its approach thereafter. Shepherd Hill did not press for arbitration with the employer. Whilst some subsidiary matters had been referred to the Engineer for a decision, when the action came to trial in the High Court none of the key disputed matters had come within sight or sound of an arbitrator, although it was by then two years since the sub-contractor had first requested arbitration. Shepherd Hill maintained that for that period it was entitled to proceed by negotiation with the employer. It argued that it was not obliged to ask the Engineer for a decision, nor, if it was unfavourable, to proceed to arbitration. The High Court accepted that contention. This of course had the effect that the sub-contractor might be locked out indefinitely from obtaining any formal resolution of its disputes under the sub-contract. Sir Christopher Staughton examined the provisions of the main and sub-contracts closely. He considered that both the main contractor and sub-contractor must be held to have been aware that there would be difficulty in operating clause 18(2) of the sub-contract without agreement with the employer. He accepted that under the terms of ICE main contract, the employer could not be compelled to participate in a tripartite arbitration, and that the main contractor will have in effect agreed to a procedure which it may not be able to deliver. The central issue was whether the main contractor was obliged to arrange a tripartite arbitration (if it can) within a reasonable time, following a notice to the sub-contractor under clause 18(2). If the main contractor was free to consult its own interest and no other, the sub-contractor might have to wait for its money till the crack of doom. Sir Christopher Staughton held that the contract could not be construed in that way. Once the sub-contractor had requested arbitration to enforce its claims, and the main contractor had placed an obstacle in the way of that request by way of a requirement for tripartite arbitration, such an arbitration ought to be set up and conducted with all deliberate speed. A reasonable time would be quite a short period and certainly not two years, or eighteen months, or anything like it. How then would the courts deal with a breach of this obligation? The breach would not give rise to an action in damages since that would be an undue burden on the main contractor who may not have power to compel the employer to join in such an arbitration. Accordingly the term was to be treated as a "condition subsequent", in the sense that if it is not performed, the sub-contractor is no longer obliged to participate in a tripartite arbitration. The sub-contractor is then free to proceed to under clause 18(1) with an arbitration between itself and the main contractor.
CJ-9911
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