IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		St. Dunstan’s House
		16th January 2006

B e f o r e :

MR. JUSTICE JACKSON
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	SCHELDEBOUW BV	Claimant
	– and –
	ST. JAMES HOMES (GROSVENOR DOCK) LTD.	Defendant

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MR. SIMON HUGHES (instructed by Kingsley Napley) appeared on behalf of the Claimant.
MR. STEPHEN DENNISON QC and MS. CAMILLE SLOW (instructed by Trowers & Hamlins)
Appeared on behalf of the Defendant.
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1. This judgment is in seven parts, namely part 1, introduction; part 2, the facts; part 3, the present proceedings; part 4, the functions and duties of the construction manager; part 5, preliminary issues 1 to 3, is the employer entitled to replace the construction manager; part 6, preliminary issue 4, is the employer entitled to appoint itself as construction manager; and, part 7, conclusion.
2. This is the trial of four preliminary issues arising out of a construction project in Central London. The contractor, who is the claimant in these proceedings, is a company incorporated under the laws of the Netherlands, called Scheldebouw BV. I shall refer to this party as “Scheldebouw”. The employer, who is defendant in these proceedings, is a development company called St. James Homes (Grosvenor Dock) Ltd. I shall refer to this party as “SJH”. The construction manager for the building was until the 26^th August 2005 a company called Mace Ltd. I shall refer to this company as “Mace”. The central question which arises in these preliminary issues is whether, by one means or another, SJH was entitled to appoint itself as construction manager with effect from 26^th August 2005.
3. After this brief introduction to the case I must now turn to the facts.
4. SJH is constructing a substantial residential development known as “Grosvenor Waterside” close to the north bank of the River Thames in London S.W.1. SJH is using the construction management method. SJH has entered into trade contracts with a number of separate trade contractors for the execution of different parts of the works. There is also a professional team which provides architectural and other professional services in relation to the project as a whole.
5. Three of the buildings within the Grosvenor Waterside development are known as buildings D, E and F. By three separate trade contracts SJH engaged Scheldebouw as trade contractor to install the cladding on buildings D, E and F. The trade contracts in respect of building D is dated the 26^th January 2005. The trade contract in respect of buildings E and F are both dated the 8^th July 2004. I shall refer to these three trade contacts as “contract D”, “contract E” and “contract F” respectively. The three contracts are in similar but not identical terms. All parties are agreed that the differences between the wording of the three contracts are immaterial in the sense that those differences will not affect the outcome of the issues before the court.
6. I shall now set out the relevant provisions of contract D since that is the contract upon which counsel have concentrated their attention. The recitals to contract D read as follows:
7. Appendix 1 to the contract provides:
8. By a construction management agreement dated the 12^th August 2004 SJH engaged Mace to act as construction manager in relation to the Grosvenor Waterside project. This agreement required Mace to perform the functions of contract manager as set out in the various trade contacts made between SJH and the individual trade contractors, including Scheldebouw. The agreement between SJH and Mace is sometimes referred to as “the CMA”.
9. Scheldebouw duly commenced and proceeded with the work of designing and installing the cladding on buildings D, E and F. On the 20^th May 2005 Scheldebouw achieved practical completion of the cladding works to building E. On the 23^rd May 2005 a certificate of practical completion in relation to building E was issued by Mace, having been duly signed both by Mace and by the architect.
10. On the 26^th August 2005 SJH sent a letter to Scheldebouw which included the following passage:
11. Scheldebouw replied to this letter on the 1^st September, expressing concern about SJH’s substitution of itself as construction manager. On the 8^th September 2005 SJH sent a letter responding to Scheldebouw’s concerns, which included the following passage:
12. The issues raised in this correspondence were debated over the next three months but no resolution was achieved. SJH maintained that it was entitled to appoint itself as construction manager and Scheldebouw disputed that contention.
13. In order to resolve the deadlock between the parties Scheldebouw commenced the present proceedings.
14. By a claim form issued under Part 8 of the Civil Procedure Rules on the 15^th November 2005 Scheldebouw claimed declarations in the following terms:
15. At a directions hearing on the 23^rd November I directed that these proceedings should continue as though they had been commenced under Part 7 of the Civil Procedure Rules. I also fixed an early date for the trial of any preliminary issues which might be identified.
16. On the 14^th December SJH served its defence. By that defence SJH asserted that it had a contractual entitlement under each trade contract to appoint itself as construction manager.
17. At a directions hearing on the 20^th December the question of preliminary issues was revisited. The draft preliminary issues proposed by both parties were along similar lines. After discussion with counsel I directed that the following preliminary issues should be tried. (1) On their proper construction, do the trade contracts provide expressly that the construction manager can be replaced by any further or other person notified in writing by the employer to the trade contractor from time to time? (2) If the answer to question 1 is no, do any or all of the trade contracts contain an implied term which permits the employer on notice to replace the construction manager? (3) If the answers to questions 1 and 2 are no, do any or all of the trade contracts contain an implied term which permits the employer on notice to replace the construction manager for good cause? (4) If the answer to any of the above questions is yes, is the employer entitled under any or all of the trade contracts to appoint itself as the construction manager?
18. The preliminary issues were argued at a one-day hearing on the 10^th January. Mr. Simon Hughes represented Scheldebouw. Mr. Stephen Dennison Q.C. and Ms. Camille Slow represented SJH.
19. In giving my decision on the preliminary issues I shall approach matters in the following order: first, I shall analyse the functions and duties of the construction manager. Next I shall address preliminary issues 1 to 3 collectively. Finally I shall address preliminary issue 4.
20. My first task therefore is to consider the functions and duties of the construction manager.
21. The construction manager under contracts D, E and F has two separate and distinct functions. First, the construction manager is the agent of SJH and in that capacity he gives effect to SJH’s wishes and carries out SJH’s instructions. SJH decides, for example, what variations to the design should be made. The construction manager then gives instructions under clauses 2.1 and 10 of the trade contract, requiring the contractor to implement those variations. The construction manager’s second function is quite different. He has to reach decisions on matters where, at least potentially, the contractor and the employer have opposing interests. Under clause 9.4 the construction manager ascertains and certifies loss and expense payable by the employer to the contractor by reason of delay or disruption. Under clause 10.5 the construction manager ascertains and certifies adjustments to the contract sum consequential upon instructions given to the contractor. Under clause 13.5 the construction manager grants fair and reasonable extensions of time to the contractor. Under clause 14 the construction manager issues certificates of practical completion and certificates to the effect that defects have been made good. Under clause 16.2 the construction manager issues interim certificates specifying what should be paid to the contractor. Under clause 17.2 the construction manager issues the final certificate, which states the final balance which is due as between employer and contractor. Under clause 19 the construction manager issues various certificates consequent upon termination, if that occurs. For convenience, I shall refer to the construction manager’s first function as the “agency function”. I shall refer to the construction manager’s second function as the “decision-making” function.
22. In relation to the decision-making function the construction manager does not act in isolation. Although certain clauses require the construction manager to ascertain matters, any subsequent certificate issued by the construction manager must also be signed by the architect (see clause 1.6). Certificates issued by the construction manager under clauses 16 and 17 of the trade contract must be signed not only by the construction manager and architect, but also by the cost consultant. The construction manager named in the trade contract, namely Mace, had its own team of construction professionals. The parties to the contract must have intended that before the issue of certificates there should be consultation between (a) Mace’s professional team and (b) the architect and (when appropriate) the cost consultant.
23. In the case of extensions of time the written decisions of the construction manager are not certificates and they do not have to be signed or co-signed by anybody else. Under clause 13.5 the construction manager is obliged to consult with the architect about extensions of time, but he is not obliged to accept or defer to the architect’s opinions.
24. Having outlined the functions allocated to the construction manager under each trade contract, let me now turn to his legal duties. In relation to the agency function, the construction manager owes the ordinary duties of agent to principal. These do not call for any elaboration in the context of the present case. In relation to the decision-making function, however, the position is different. The duty of the construction manager is not simply to implement the instructions of his principal, but rather to hold the balance fairly as between employer and contractor.
25. The duties of certifiers and others with decision-making functions under construction contracts have been the subject of much authority. Let me start with Frederick Leyland & Co. Ltd. v. Compania Panamena Europea Navigacion Limitada [1943] 76 Ll.L.Rep. 113. The plaintiffs in that case were claiming payment for the repair of a ship. The defendants were the ship owners. Clause 7 of the contract for repair works included the following passage:
26. Many interesting points emerge from the judgments and speeches in Panamena but they are for another day. The relevant principle, which I derive both from the judgments of the Court of Appeal and from the speeches in the House of Lords, is that in performing his certification function Dr. Telfer (although not an arbitrator) was under a duty to act independently. It cannot be said that Dr. Telfer was an independent surveyor. He plainly was not. Dr. Telfer was the president of the defendant company, a director of the defendant company, and also the marine surveyor employed by that company. In other words, he was not an independent person but his duty was to act in an independent manner.
27. In Perini Corporation v. Commonwealth of Australia [1969] 12 B.L.R. 82, the plaintiff contracted to build a mail exchange for the defendant. Under the building contract the director of works, an officer of the defendant, had functions as certifier. At pp. 97 to 98 Macfarlan J. said this about the duties of the director:
28. In London Borough of Hounslow v. Twickenham Garden Developments Ltd. [1971] 1 Ch. 233, Mr. Justice Megarry reviewed the duties of certifiers under building contracts. At pp. 259 to 260 he said this:
29. In Sutcliffe v. Thackrah [1974] A.C. 727 the House of Lords held that an architect issuing interim certificates under the then standard form of building contract was not immune from suit in negligence. The speeches in the House of Lords contain many valuable statements about the duties of an architect when acting as certifier or decision-maker. At p. 737 Lord Reid said this:
30. Let me now move on 14 years to Beaufort Developments Ltd. v. Gilbert Ash NI Ltd. [1999] AC 266. This is the well known case in which the House of Lords overruled Northern Regional Health Authority v. Derek Crouch Construction Co. Ltd. [1984] Q.B. 644. The House of Lords held that the court had the inherent power to open up, review and revise architects’ certificates under the JCT standard form of building contract. Lord Hoffmann, in a speech with which Lord Lloyd agreed, said this at pp. 275 to 276:
31. Two relevant points emerge from passage. First, the architect is not and cannot be independent, because he is employed by the employer. Secondly, the architect makes decisions which are binding if they are not challenged. This passage seems to me entirely consistent with the authorities mentioned above. The fact that the architect is not independent is perfectly consistent with the proposition that he is required to act in an independent manner in certain situations. Indeed Lord Hoffmann recognised that in most cases the certificates issued by the architect will not in fact be challenged.
32. In Amec Civil Engineering Ltd. v. Secretary of State for Transport [2005] EWCACiv 291; [2005] BLR 227, the validity of an engineer’s decision under clause 66 of the ICE conditions was attacked on a number of grounds. One ground of attack was the engineer’s failure to abide by the rules of natural justice. Both this court and the Court of Appeal upheld the engineer’s decision. The reasoning of Mr. Justice Megarry in Hounslow was approved and applied both by this court and by the Court of Appeal. At para. 47 Lord Justice May (with whom Lord Justice Hooper agreed) said this:
33. Finally in this review of authority, I should perhaps mention the decision of this court in Costain Ltd. v. Bechtel Ltd. [2005] EWHC 1018 (TCC). The passage at paras. 37 to 53 sets out broadly similar principles to those emerging from the cases cited above.
34. Let me now draw the threads together. In many forms of building contract a professional person retained by the employer, and sometimes a professional person directly employed by the employer, has decision-making functions allocated to him. I will call that person “the decision-maker”. The decisions which he makes are often required to be in the form of certificates, but this is not always so. For example, there are many contracts (of which the present one is an instance) in which extensions of time do not take the form of certificates.
35. Three propositions emerge from the authorities concerning the position of the decision-maker.
36. In my judgment, these propositions are all applicable to the construction manager in the present case. The fact that the construction manager acts in conjunction with other professionals when performing his decision-making function does not water down his legal duty. When performing that function, it is the construction manager’s duty to act in a manner which is independent, impartial, fair and honest. In other words, he must use his professional skills and his best endeavours to reach the right decision, as opposed to a decision which favours the interests of the employer.
37. It follows from this analysis that SJH’s summation of the duties of the construction manager in SJH’s letter dated the 8^th September 2005 is not correct.
38. Having reviewed the position of the construction manager, I must now turn to the preliminary issues.
39. In relation to preliminary issue 1, Mr. Dennison, for SJH, contends that Part E of Appendix 1 confers an express power on SJH to replace the construction manager. Mr. Hughes, for Scheldebouw, contends that the last 20 words of Part E relate only to the design team and that “the design team” comprises only the architect, the structural engineer and the mechanical and electrical engineer.
40. Both counsel developed their submissions on issue 1 with commendable brevity; I shall follow suit. On this issue of construction I prefer the submissions of Mr. Dennison. I hold that Part E of Appendix 1 confers upon SJH an express power to replace the construction manager. I reach this conclusion for four reasons:
41. In relation to the fourth of the reasons which I have given, it should be noted that there is a difference between the wording of contract D on the one hand and the wording of contracts E and F on the other hand. In Part E of Appendix 1 the words in square brackets “Refer to section 1.2 of Annex to Trade Contract” appear in contract D, but do not appear in contract E or in contract F. Instead in contracts E and F there is a blank after the words “the design team in this contract means”. In my judgment, this difference in wording does not lead to any different interpretation of contracts E and F. I have reached this conclusion for two reasons: (1) Neither counsel relies upon this feature as leading to a different outcome. It is common ground between counsel that the preliminary issues must be answered in the same way in relation to all three trade contracts. (2) The blank space which appears in contracts E and F is obviously a slip. One must look at the annex in order to supply the omission and to see who constitutes the design team.
42. Let me now draw the threads together. For the reasons set out above, I hold that the answer to preliminary issue 1 is “Yes”. In those circumstances preliminary issues 2 and 3 do not arise for consideration. If the replacement of the construction manager is the subject of an express term, there cannot be an implied term covering the same ground.
43. Mr. Dennison, for SJH, submits that the answer to issue 4 is “Yes”. Mr. Hughes, for Scheldebouw, contends that the answer is “No”.
44. The written arguments of both parties were refined and developed during the course of the oral hearing. Drawing together Mr. Dennison’s skeleton argument and his oral submissions I would summarise the principal arguments advanced on behalf of SJH as follows:
45. Let me now turn to Scheldebouw’s case. Drawing together Mr. Hughes’s skeleton argument and his oral submissions, I would summarise the principal arguments advanced on behalf of Scheldebouw as follows:
46. The arguments advanced from both sides of the court room were cogently presented. Having carefully considered and weighed those arguments, I have come to the conclusion that, in relation to this issue, Mr. Hughes’s interpretation of the trade contract is correct. SJH had no power to appoint itself as construction manager. I reach this conclusion for nine reasons:
47. Let me now draw the threads together. For the reasons set out above, in my judgment the employer is not entitled under any or all of the trade contracts to appoint itself as construction manager. The answer to preliminary issue 4 is “No”.
48. I am grateful to all counsel for the excellence of the skeleton arguments and the oral submissions. For the reasons set out in parts 5 and 6 of this judgment my answers to the four preliminary issues are as follows: Issue 1, yes; Issue 2, this does not arise; Issue 3, this does not arise; Issue 4, no.