Ashville Investments Ltd v Elmer Contractors Ltd; Elmer Contractors Ltd v Ashville Investments Ltd

As approved by the Judge

In these appeals the parties are respectively the buildings owners (Ashville) and the contractors (Elmer) for the construction of six warehouse units in Wokingham. The contract between them was in the JCT Form (July 1977 Revision) under seal and was dated the 22nd December, 1982. Negotiations for the work began in April 1982. Ultimately Ashville invited Elmer to tender on the basis of a specification dated the 9th December and drawings dated the 16th December 1982. On this basis Elmer quoted a price for the building works on the 21st December, 1982. A meeting then took place between the parties' representatives on the 22nd December at the end of which the contract under seal of that date was entered into for the building work to be done for £715,000, which had been Elmer's tendered price. Appended to the sealed document was an amended version of the Conditions forming part of the JCT Form together with initialled drawings and specifications relating to the work which was to be done.

It is, however, an undisputed fact that there were substantial differences between the specifications and drawings upon which Elmer tendered and those which were initialled on the 22nd December, 1982 and incorporated into the building contract. It is Elmer's contention that they were unaware of these differences until well after the works had begun. The evidence filed on behalf of Ashville is to the effect that the differences were specifically drawn to the attention of Elmer's representatives at the meeting of the 22nd December, 1982. Those representatives then considered the cost implications of such differences but decided not to change their tender price. It was only thereafter that the contract was executed.

Further, condition 1(1) of the Contract Conditions provided that "The Contractors shall upon and subject to these conditions and those contained within the specification carry out and complete the design and the works shown upon the contract drawings etc. etc.". Elmer's representatives appreciated that on its face this clause imposed a potentially wide obligation upon them. The question of the extent of Elmer's design responsibility was one of those which was discussed at the meeting of the 22nd December, 1982. Again, there is a dispute between the parties as to what was agreed Nevertheless Ashville's architects prepared a Minute of that meeting, the relevant part of which for this present issue read "At a meeting on December 22nd 1982…a contract was entered into between Ashville and Elmer for the above building project in respect of which the parties reached the following agreement for the interpretation of various contract and specification clauses as follows—CONTRACT CLAUSE 1.1.—This is a reference to heating, plumbing and electrical installations." On this point Elmer's contention is that the Minute correctly records the scope of the agreement on the design question reached at the meeting of the 22nd December. Ashville's contention apparently is that the Minute was in no way contractual and that the obligations undertaken by Elmer were those set out in the contract documents, properly construed.

The work began in the middle of February 1983. Completion date was 1st August, 1983, later extended to 12th August, 1983. However the contract was not actually completed until the 8th December, 1983. Elmer then complained to Ashville that a sum in excess of £150,000 was due to them, first, as they had done work additional to that provided for by the contract documents pursuant to architects' instructions and, secondly, that a substantial part of the delay in completion was attributable to this additional work, which meant that Ashville were not entitled to much of the liquidated damages which had been deducted from monies otherwise payable to Elmer, indeed the latter contended that by reason of the delay so caused they were entitled to additional remuneration under the contract. Elmer then claimed arbitration under the arbitration clause in the contract, to which I shall refer in more detail hereafter. An arbitrator has now been appointed. Elmer delivered their Points of Claim on the 31st January, 1985.

The basis of Elmer's claim in the arbitration put shortly is that the work which they agreed to carry out for the tender figure was that which was contained in the specification and drawings upon which they tendered: further, that their design liability under the contract was limited as set out in the Minute of the meeting of the 22nd December, 1982 which I have already quoted. In these circumstances, if the written contract must be taken as providing otherwise, then Elmer's contention is that it does not represent what was truly agreed between themselves and Ashville. Consequently in their Points of Claim Elmer seek inter alia rectification of the contract on the ground that it was entered into between themselves and Ashville as a result of either of a mutual, or alternatively a unilateral mistake. Elmer also seek damages allegedly sustained by them as a result of an innocent misrepresentation and or a negligent mis-statement made to them by Ashville's representatives which induced them to enter into the contract about which they now complain.

Points of Defence were served on the 27th June, 1985. Paragraph 8 of these denied that the arbitrator had any power under the arbitration clause in the building contract to order rectification of it. Paragraph 9 in its turn denied that the arbitrator had power under the same arbitration clause to grant any relief in respect of the misrepresentation pleaded in the Points of Claim. I should say at this stage that the Points of Claim originally alleged in the alternative that Ashville's misrepresentation had been innocent or fraudulent. After Ashville had taken the jurisdictional objections in their Points of Defence, it was not until the 31st March, 1986 that they suggested that these should be referred to the Commercial Court for decision. Elmer did not agree so Ashville issued an Originating Summons on the 14th May, 1986 seeking declarations, first, that the arbitrator did not have jurisdiction under the relevant arbitration clause to hear and determine issues which had arisen in that arbitration involving mutual mistake, innocent misrepresentation and fraudulent misrepresentation; and secondly, that the arbitrator had no power under the agreement to grant the relief claimed in respect of those issues, namely rectification and damages. The Originating Summons also claimed an appropriate order under section 24(2) of the Arbitration Act, 1950 having regard to the allegation of fraud that there then was in the Points of Claim. On the 11th July, 1986 Elmer issued a corresponding Originating Summons for declarations that the arbitrator did have jurisdiction to hear and determine all issues which had arisen in the pleadings in the arbitration and that the arbitrator had power to grant all the relief claimed in the Points of Claim.

These two summonses came before Sir Neil Lawson sitting as a Deputy Judge of the Queen's Bench Division on the 21st January, 1987. After hearing argument he delivered a reserved judgment on the 29th January, 1987. I should say that mindful no doubt of the clear provisions of section 24(2) of the 1950 Act, before the hearing before the learned Judge Elmer had made it clear that they were not proceeding with the allegation of fraud against Ashville and indeed expressly abandoned it at the hearing. The Points of Claim were duly amended to give effect to this on the 9th March, 1987.

In the event the learned Judge dismissed Ashville's Originating Summons and granted Elmer the declarations asked in theirs. Ashville now appeal asking that the learned Judge's decision on each Originating Summons should be reversed.

It is convenient at this point to set out the arbitration clause in the relevant building contract. In so far as is relevant for present purposes it was in these terms:

"Provided always that in case any dispute or difference shall arise between the Employer or the Architect on his behalf and the Contractor…as to the construction of this Contract or as to any matter or thing of whatsoever nature arising thereunder or in connection therewith…then such dispute or difference shall be and is hereby referred to the arbitration and final decision of a person to be agreed between the parties, or failing agreement…appointed…by the President or Vice President for the time being of the Royal Institute of Chartered Surveyors."

The learned Judge held that the extent of the arbitrator's jurisdiction and whether he had the power to grant the relief sought depended upon the proper construction of the arbitration clause. He expressed the view that the dispute or difference between the parties about the alleged disparity between the tender documents and the sealed contract documents was not one "as to the construction of the contract". On the other hand, in relation to the issue involving the Minute of the...