| Date | 9 June 1999 |
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| Judgment | Harbour and General Works Ltd -v- Environment Agency, QBD 19 February 1999 |
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| The Issue | Entitlement to an extension of time for commencement of arbitration. |
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| Implication |
Parties must take care to precisely comply with the contractual steps for commencement of proceedings to overturn decisions of an engineer or adjudicator. |
printIt is common practice in the construction industry for contracts to contain time limits within which the parties must commence proceedings to resolve disputes. Thus for example the failure by a contractor to give the appropriate notices within the contractual time limits may mean that the decision of an architect or engineer is binding and final. An example of such an arrangement is clause 66 of the ICE Conditions of Contract 6th Edition. Clause 66 requires that every dispute which may arise between the parties must be notified to the Engineer who shall state his decision in writing. Broadly speaking should the contractor then disagree with the decision of the Engineer, it has one month within which it must give notice referring the disputed matter to a conciliation process, or three months within which it must refer the matter to arbitration. The decision of the Engineer is said to be final and binding upon the contractor unless either one of these steps has been followed. In March 1998 these procedures were amended to include the adjudication provisions of the Construction Act. The much criticised amendments introduced by the ICE retained the concept of the Engineer's decision, and provided for conciliation and adjudication to be commenced without time limit. The amendments also require that arbitration may only be commenced within one month of an adjudicator's decision. The effects of such time limits were recently examined in the case of Harbour and General Works Ltd -v- Environment Agency. The contract was an ICE 6th Edition prior to the amendments for adjudication. Harbour was employed as contractor to carry out and complete works involving the construction of flood defences at Harwich. Following substantial completion Harbour submitted five claims arising out of the works for matters including additional excavation costs and additional cost due to delay to site access. A notice of dispute was issued and the Engineer's decision was given on each of the five disputed claims. Within two weeks Harbour wrote to the Engineer stating that the decision was unacceptable. At this point Harbour had taken no steps to commence conciliation or arbitration. A few days prior to the expiry of the three month period for the giving of notice of arbitration, Harbour gave notice that it required the dispute to be considered under the ICE conciliation procedure. The Environment Agency waited until the three month period had passed, and then replied to the effect that the one month period for issuing a notice of conciliation had expired and accordingly the notice served was invalid. The following day, Harbour served a notice to refer to arbitration, itself out of time by approximately eight days. In the notice Harbour invited the Environment Agency to confirm that the arbitrator would have jurisdiction to decide on all issues connected with the final certificate including the claims. The Environment Agency refused to give such confirmation and accordingly Harbour applied to the court for an extension of time under the 1996 Arbitration Act for the commencement of the arbitration. Section 12 of the 1996 Act provides that a party may apply to the court for an Order to extend the time for taking steps to begin arbitration proceedings and that the court shall make such an Order only if satisfied (a), that the circumstances were outside the reasonable contemplation of the parties and that it would be just to extend the time or (b), that the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question. Counsel for Harbour argued that in this case the circumstances were indeed outside the reasonable contemplation of the parties. He firstly argued that there had been a procedural mistake. Instead of giving notice to refer to arbitration within the three month period, Harbour had given notice of conciliation out of time. This was simply a procedural slip which could be put down to the complexities of the contract. Secondly, he argued that having received the notice of conciliation out of time, the employer did not draw the attention of Harbour to the procedural error until after it was too late for Harbour to serve a notice to refer to arbitration. Thirdly, he argued that in any event the Engineer's decision which was the subject of this dispute was not conclusive as to the issues and did not contain final details which had not become apparent until issue of a final payment certificate. Mr Justice Colman QC held that clause 12 of the 1996 Arbitration Act was based on the concept of party autonomy. In other words, any power given to the court to override the bargain that the parties had made must be fully justified. He held that an extension could not be justified in this case. Harbour's failure to operate the clause properly was a matter entirely within its control and not outside the parties' reasonably contemplation. Nor did he consider that the Environment Agency's failure to state what was wrong should make any difference, providing that the Agency did not obstruct or mislead Harbour. The Agency was entitled simply to ignore the ineffective notice for as long as it chose. The Environment Agency's conduct did not make it unjust to hold Harbour to the strict terms of the contract and accordingly Harbour were not entitled to an extension of time for the service of its arbitration notice.
CJ-9923
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