Lafarge Redland Aggregates Ltd v Shephard Hill Civil Engineering Ltd
| Jurisdiction | England & Wales |
| Judge | LORD HOPE OF CRAIGHEAD,LORD COOKE OF THORNDON,LORD CLYDE,LORD HOBHOUSE OF WOODBOROUGH,LORD MILLETT |
| Judgment Date | 27 July 2000 |
| Judgment citation (vLex) | [2000] UKHL J0727-3 |
| Date | 27 July 2000 |
| Court | House of Lords |
[2000] UKHL J0727-3
HOUSE OF LORDS
Lord Hope of Craighead
Lord Cooke of Thorndon
Lord Clyde
Lord Hobhouse of Wood-borough
Lord Millett
My Lords,
The framework within which work is carried out by participants in the construction industry is provided by the law of contract. They are assisted in their negotiations within this framework by the various standard forms of contract which are in current use. Among the matters provided for in these standard forms is a mechanism for the resolution of disputes between the parties to the contract. This invariably includes an arbitration clause which includes provision for the appointment of an arbitrator.
Arbitration is a means of dispute resolution which is widely practised within the construction industry. But it too depends on the law of contract. The arbitrator provides his services to the parties under the contract which he enters into with them when he is appointed to act as their arbitrator, and it is the agreement between the parties to the arbitration clause that renders the arbitrator's award enforceable. This contractual framework causes no difficulty where the dispute is of concern only to the parties to the contract which contains the arbitration clause. But it is not well adapted to the position which is commonplace throughout the construction industry where work which the contractor has undertaken to carry out for the employer under the main contract is executed on the contractor's behalf by a sub-contractor. The only contract which binds the employer is his contract with the contractor under the main contract. The only contract which binds the sub-contractor is his contract with the contractor under the sub-contract. The doctrine of privity of contract inhibits the formation of any kind of implied contractual relationship between the employer and the sub-contractor. This arrangement usually works well enough while the works are in progress, as the main contract and any sub-contracts entered into by the contractor are designed to operate independently as regards the execution, completion and maintenance of the contract or sub-contract works and the payments due to the contractor and to the sub-contractor respectively. Its limitations are thrown into sharp focus where a dispute arises which is of concern to all three parties and arbitration is the preferred means of resolving it.
Background
The disputes which have arisen in the present case relate to the construction of the A133 Little Clacton and Weeley Heath Bypass. The main contract was entered into on 24 February 1993 between Essex County Council as employer and the appellant, Shephard Hill, as contractor. The works which were to be carried out under it consisted of the construction of approximately seven kilometres of carriageway together with associated side roads, bridges and culverts, drainage and accommodation works. It incorporated an amended form of the I.C.E. 5th Edition (June 1973) Standard form of Contract for Civil Engineering Works (Revised January 1979) (Reprinted January 1986) ("the I.C.E. Conditions"). The contract price was £7.7 million, to be measured and paid against a schedule of rates. By a contract dated 31 August 1993 the appellant entered into a sub-contract with the respondent, Lafarge Redland, for the work of supplying and laying the asphalt surfacing for the new carriageway. The sub-contract incorporated, with amendments, the F.C.E.C. Standard Form of Sub-Contract (September 1984 Edition) generally known as the Blue Form.
The commencement date of the main contract was 22 March 1993 and its completion date was 18 December 1994. This was a period of 91 weeks. The sub-contract works were to be carried out in accordance with the appellant's programmes and schedule of durations, the effect of which was that they were to be completed in 135 days. The main contract works commenced on 22 March 1993. The sub-contract works were scheduled to start in June 1993, but due to earlier delays the start was delayed until 1 October 1993. They were substantially completed on 17 January 1995. The engineer under the main contract certified that the main contract works were substantially completed on 19 February 1995. The effect of his decision was that there was a delay in the completion of the main contract works of 9 weeks as compared with the contractual completion date of 18 December 1994. Two interim extensions of time were granted to the appellant by the engineer under the main contract which amounted in total to 7.5 weeks. The effect of these decisions was that there was a period of 1.5 weeks for which no extension of time had been granted.
Disputes arose between Essex County Council and the appellant and between the appellant and the respondent during and following completion of the main contract and the sub-contract works. These disputes related primarily to the causes of delay to the main contract and the sub-contract works. They raised questions as to entitlement to extensions of time, entitlement to additional remuneration as a result of delays to completion, the appellant's right to withhold from sums otherwise due to the respondent monies in respect of the loss which the appellant claimed to have incurred by reason of the respondent's alleged delay in completion of the sub-contract works, whether or not additional work was instructed and, to the extent that it was instructed, the value of the additional work. The respondent's claims against the appellant amounted in total to about £450,000 exclusive of VAT and interest. The appellant's claims against Essex County Council amounted to about £1.7 million.
The provisions for the settlement of disputes arising under the main contract are set out in an amended clause 66 to the I.C.E. Conditions. The relevant parts of this clause provide:
"(1) If any dispute or difference of any kind whatsoever shall arise between the employer and the contractor in connection with or arising out of the contract or the carrying out of the works including any dispute as to any decision opinion instruction direction certificate or valuation of the engineer (whether during the progress of the works or after their completion and whether before or after the determination abandonment or breach of the contract) it shall be referred to and settled by the engineer who shall state his decision in writing and give notice of the same to the employer and the contractor. Unless the contract shall have been already determined or abandoned the contractor shall in every case continue to proceed with the works with all due diligence and he shall give effect forthwith to every such decision of the engineer unless and until the same be revised by an arbitrator as hereinafter provided.
Such decisions shall be final and binding upon the contractor and the employer unless either of them shall require that the matter be referred to arbitration as hereinafter provided. If the engineer shall fail to give such decision for a period of 3 calendar months after being requested to do so or if either the employer or the contractor be dissatisfied with any such decision of the engineer then and in any such case either the employer or the contractor may within 3 calendar months after receiving notice of such decision or within 3 calendar months after expiration of the said period of 3 months (as the case may be) require that the matter shall be referred to the arbitration of a person to be agreed upon between the parties or (if the parties fail to appoint an arbitrator within one calendar month of either party serving on the other party a written notice to concur in the appointment of an arbitrator) a person to be appointed on the application of either party by the President for the time being of the Institution of Civil Engineers. … Any such reference to arbitration may be conducted in accordance with the Institution of Civil Engineers Arbitration Procedure (1983) or any amendment or modification thereof being in force at the time of the appointment of the arbitrator and in cases where the President of the Institution of Civil Engineers is requested to appoint the arbitrator he may direct that the arbitration is conducted in accordance with the aforementioned procedure or any amendment or modification thereof. Such arbitrator shall have full power to open up review and revise any decision opinion instruction direction certificate or valuation of the engineer and neither party shall be limited in the proceedings before such arbitrator to the evidence or arguments put before the engineer for the purpose of obtaining his decision above referred to. The award of the arbitrator shall be final and binding on the parties…."
The provisions of this clause provide a system for the settlement of disputes between the contractor and the employer which derives its binding force from the contract which they have entered into. The decisions of the engineer are to be "final and binding" on the contractor and the employer unless either of them requires that the matter be referred to arbitration. If the matter is referred to arbitration the award of the arbitrator is to be "final and binding" on the parties to the contract between the contractor and the employer. No mention is made in the clause of any third party with whom either the employer or the contractor may be in dispute. Neither the engineer nor any arbitrator appointed under clause 66 has power to issue a decision or to make an award which is binding on any third party by virtue of the provisions of the main contract.
The sub-contract between the appellant and the respondent contains a preamble in which the following...
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