By Simon Nurney
The recent Harbour and General Works Limited -v- Environment Agency case is a salutory tale for those seeking to challenge decisions of architects or engineers under both the JCT and ICE family of contracts.
Both forms of contracts set time limits for challenging either the final certificate or engineer’s decisions. Previously, under the Arbitration Act 1950 all was not lost if a party missed such time limits, as it could seek an extension of time beyond that specified in the contract to commence arbitration proceedings. The relevant provision was section 27 of the 1950 Act which allowed an extension in circumstances in which undue hardship could be shown. This was given a relatively broad meaning and benevolent application by the courts, who took into account factors such as the size and strength of the claim, the extent of the claimant’s fault and whether the defendants had been obstructive. In addition, there was an overriding consideration of whether the hardship to the applicant was not only excessive but undeserved and unmerited.
It does seem harsh that a party can lose its rights in relation to substantive claims merely by being perhaps one day outside a contractual time limit and, to a certain extent, the courts sought to avoid depriving parties of their substantive rights. Nevertheless, in the construction field not all such extension of time claims have been successful. In relation to JCT contracts, the court in Emson Contractors Limited -v- Protea Estates Limited rejected an application for such an extension, whilst John Davies QC in ECC Quarries -v- Merriman found that failure to give a notice of dissatisfaction within 3 months in accordance with clause 66 of ICE 5th Edition resulted in the engineer’s decision becoming final and binding and not subject to arbitration.
It was against this background that Harbour and General Works Limited brought an application against the Environment Agency as it had fallen foul of the time restrictions in clause 66 of ICE 6th Edition requiring it to refer the dispute to arbitration within 3 months of the engineer’s decision.
The engineer’s decision in this case was given on 29 June 1998 and, therefore, the arbitration notice had to be served by 28 September 1998. Unfortunately for Harbour and General the notice to refer was only served on 6 October 1998, 8 days too late and they, therefore, sought an extension of time to allow the arbitration proceedings to be commenced or, alternatively a declaration that they could raise the same matters again at an arbitration on the Final Certificate for Payment.
Unfortunately for Harbour and General there has been a significant change to the courts’ powers in relation to such extensions of time following the Arbitration Act 1996. It is probably unlikely that Harbour and General would have been successful even under the 1950 Act, but under section 12 of the 1996 Act, there is no more reference to "undue hardship". Now, an extension of time can only be given if the court is satisfied that the circumstances were outside the reasonable contemplation of the parties when they agreed the provision in question and it would be just to extend the time or the conduct of one of the parties makes it unjust to hold strict terms of the provision in question.
The Commercial Court considered the application and effectively stated that section 12 imposes a tougher regime on parties seeking such extensions than the 1950 Act. The underlying principle of the 1996 Act is based upon the autonomy of the parties and what they have contractually agreed. On this basis Colman J stated that:
"the approach to the construction of section 12 has, in my judgment, to start from the assumption that when the parties agree the time bar, they must be taken to have contemplated that if there were any omissions to comply with this provision in not unusual circumstances arising in the ordinary course of business, the claim would be time barred unless the conduct of the other party made it unjust that it should."
The Judge found it impossible to characterise a negligent failure to comply with the 3 month time bar as being outside the mutual contemplation of the parties. Rather he found it to be an administrative oversight which was not uncommon in the industry and the Judge specifically stated that the court would no longer carry out a balancing exercise between the prejudice caused to the claimant on the one hand and the degree of fault on his part on the other.
Similarly, in relation to Harbour and General’s argument that they should be able to raise the same arguments in an arbitration on the Final Certificate for Payment, the Judge agreed that an engineer’s decision has an element of temporary finality pending any conciliation or arbitration proceedings. However, failure to commence conciliation or arbitration within the time limits turns such temporary finality into permanent finality. Therefore, as Harbour and General had missed the opportunity to arbitrate the engineer’s decision, his decision became final and binding and could form no part of the arbitration in relation to the Final Certificate.
Perhaps Harbour and General in this case would have had a case against its legal advisers in failing to advise it to adhere to the time limits, but it is an important lesson for both parties and their advisers to ensure that time limits are diarised and that all appropriate notices are served well in advance of such time limits. The consequences for failing to meet such time limits can be disastrous.
This article was first published in Macfarlanes' Construction Press Newsletter in July 1999.
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