Beaufort Developments (NI) Ltd v Gilbert Ash (NI) Ltd

JurisdictionUK Non-devolved
JudgeLORD GOFF OF CHIEVELEY,LORD LLOYD OF BERWICK,LORD NOLAN,LORD HOFFMANN,LORD HOPE OF CRAIGHEAD
Judgment Date20 May 1998
Judgment citation (vLex)[1998] UKHL J0520-2
Date20 May 1998
CourtHouse of Lords
Beaufort Developments (NI) Limited
(Appellants)
and
Gilbert-Ash NI Limited

And Others

(Respondents)(Northern Ireland)

[1998] UKHL J0520-2

Lord Goff of Chieveley

Lord Lloyd of Berwick

Lord Nolan

Lord Hoffmann

Lord Hope of Craighead

HOUSE OF LORDS

LORD GOFF OF CHIEVELEY

My Lords,

1

I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Hoffmann. I find myself to be in complete agreement with his reasoning and his conclusion; and I too am satisfied that, with all respect to the distinguished members of the Court of Appeal who decided the case, Northern Regional Health Authority v. Derek Crouch Construction Co. Ltd. [1984] Q.B. 644 was wrongly decided and must be overruled. I too would therefore allow the appeal–a conclusion which, I have no doubt, will be welcomed by the courts in Northern Ireland who would, if they had been free to do so, have wished to follow the same course. Like my noble and learned friend, I gladly acknowledge my debt to the writings of Mr. I.N. Duncan Wallace Q.C. on the subject.

LORD LLOYD OF BERWICK

My Lords,

2

Standard forms of building contract have often been criticised by the courts for being unnecessarily obscure and verbose. But in fairness one should add that it is sometimes the courts themselves who have added to the difficulty by treating building contracts as if they were subject to special rules of their own.

3

Two recent examples illustrate the point. In Dawnays Ltd. v. F.G. Minter Ltd. and Trollope & Colls Ltd. [1971] 1 W.L.R. 1205 the Court of Appeal held that when a sum is certified by an architect as due under a building contract (in that case the RIBA form) the employer has no right of set-off. The justification for this decision was said to be that cash flow is the life blood of the building trade: see Modern Engineering (Bristol) Ltd. v. Gilbert-Ash (Northern) Ltd. (1973) 71 L.G.R. 162 per Lord Denning at p. 167. The decision came as something of a surprise in the official referees' corridor. It was overruled a few years later when the Modern Engineering case reached the House: [1974] A.C. 689. "It is not to be supposed" Lord Diplock said, at p. 718:

"that so an elementary an economic proposition as the need for cash flow in business enterprises escaped the attention of judges throughout the 130 years which had lapsed between Mondel v. Steel (1841) 8 M.& W. 858 and Dawnays' case in 1971…."

4

And so the House held, restoring the decision of His Honour Judge Edgar Fay Q.C., that the ordinary common law right of set-off, whereby a breach of warranty may be set up in diminution of the price, applies as much to building contracts as to contracts for the sale of goods.

5

In the meantime Dawnays' case had been followed in five other cases in the Court of Appeal. This is not surprising when one considers the pressure of litigation in this field. One erroneous decision of the Court of Appeal is bound to lead to others.

6

The same applies to the second example, although the intervening period has been somewhat longer. The arbitration clause in Northern Regional Health Authority v. Derek Crouch Construction Co. Ltd. [1984] 1 Q.B. 644 gave the arbitrator the power to "open up review and revise any certificate" of the architect, as does the arbitration clause in the present case. The Court of Appeal held 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. Since it would have been unjust to the contractors to deprive them of the opportunity of challenging the architect's certificates in that case, the Court of Appeal held that the arbitrations (there were two of them) should go ahead.

7

As in Dawnays' case, it appears that the decision in the Crouch's case 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.

8

It is clear from Pringle J.'s judgment in the present case, that but for the decision in Crouch, he would not have granted the defendant a stay of the plaintiffs' action under section 4 of the Arbitration Act (Northern Ireland) 1937, and the Court of Appeal would have upheld his decision. In my view they would have been right. So the question is whether the Crouch case was correctly decided.

9

In the present case we are concerned with clauses 30.9, 30.10 and 41.4. Clause 30.9 provides that the final certificate is to be conclusive evidence of the matter certified in accordance with the elaborate provisions set out in that clause. Clause 41.4, the arbitration clause, provides, as one would expect, that the arbitrator's powers to open up and revise certificates are subject to clause 30.9. So the arbitrator has no power to open up and revise the final certificate, save as provided by clause 30.9, and in particular by clause 30.9.3. But we are not here concerned with the final certificate. It has not yet been issued.

10

Nothing in clause 30.9 affects any certificate other than the final certificate. Indeed clause 30.10 specifically provides:

"Save as aforesaid no certificate of the architect shall of itself be conclusive evidence that any works materials or goods to which it relates are in accordance with this contract."

11

Interim certificates granted by the architect in the course of a building contract are an important part of the contractual machinery. But there is nothing in the present contract to make interim certificates conclusive; nor was there in the Crouch case. So there is no need for the contract to confer on the courts the power to open up and revise interim certificates. The power already exists, as part of the court's ordinary power to enforce the contract in accordance with its terms.

12

Then can it be said that the jurisdiction of the courts to open up and revise interim certificates is impliedly excluded by the terms of the arbitration clause? I do not pause to consider whether such an ouster of the court's powers would be effective in law; on any view it would require the clearest of language. I can find no such language in clause 41.4. Since an arbitrator's powers, unlike the powers of the court, are derived ultimately from the contract under which he is appointed, it is by no means unusual to find his powers spelt out in longhand. Thus under the old law (until changed by section 30 of the Arbitration Act 1996) an arbitrator had no power to rule on his own jurisdiction. Since he could not pull himself up by his own boot straps, he could not decide whether a valid arbitration agreement had ever come into existence. But the High Court can rule on its own jurisdiction. Similarly an arbitrator could not rule on a question whether the contract ought to be rectified. So it is not surprising to find the parties conferring on the arbitrator an express power to rectify the contract. But it would be hopeless to argue that because the parties had by clause 41.4 conferred on the arbitrator an express power to rectify the contact, they had by implication curtailed the power of the court to rectify the contract. By the same token, the courts power to open up and revise interim certificates is not excluded by the express power to open up and revise certificates conferred on the arbitrator.

13

For these reasons, and those given by my noble and learned friend Lord Hoffmann and Lord Hope, with which I agree, I would hold that the Crouch case was wrongly decided, and, like them, would allow the appeal.

LORD NOLAN

My Lords,

14

I confess to much sympathy with the very distinguished and experienced judges who have expressed or assented to the view that a clause such as clause 41.4 of the building contract giving the arbitrator power to "open up, review and revise any certificate, opinion, decision … requirement or notice …" confers upon him a discretion wider than that available to a court. The language used is not that of the Supreme Court Practice. It seems to suggest an informal and constructive approach to the resolution of problems occurring in the course of the building work, an approach appropriate to the work of an arbitrator who is chosen because he is an architect rather than a judge.

15

I am, however, persuaded by the arguments of Mr. Declan Morgan Q.C., and by the opinions of your Lordships whose speeches I have had the opportunity of reading in draft, that the Court of Appeal in Northern Regional Health Authority v. Derek Crouch Construction Co. Ltd. [1984] Q.B. 644 placed a weight on clause 41.4 greater than it will bear. I am persuaded in particular that clause 41.4, read in the context of the contract as a whole, cannot properly be construed as giving an interim certificate (as distinct from a final certificate) any conclusive effect in litigation between the parties. Further, I am satisfied that the clause cannot be regarded as conferring upon the arbitrator the power to modify the contract. I find it difficult to conceive of a contract properly so called which conferred upon a third party the power to modify its terms.

16

The decision in the Crouch case has stood unchallenged, although not uncriticised, for 14 years. It has now been virtually superseded by section 9(4) of the Arbitration Act 1996, unless and until (if ever) section 86 of that Act is brought into operation. Yet on the view of the law which has prevailed in your Lordships' House the relevant dicta in the Crouch case must clearly be overruled, in justice to the appellants. Pringle J. and the Court of Appeal in Northern Ireland would plainly have refused a stay to the respondents, on the compelling ground that to grant it would lead to duplication of proceedings, had it not been for their reluctant acceptance of what was said in the Crouch case. The same objection to a stay did not, as it happens, arise in...

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