The independence of the engineer

Page 1

The independence of the engineer

Date

5 April 2006

Judgment

Scheldebouw BV v St James Homes (Grosvenor Dock) Ltd, TCC

16 January 2006

The Issue

The requirement for impartiality and independence of the decision

maker under construction contracts.

Implication

Architects, engineers and construction managers generally carry a

dual function, both to act as agents of their employer and to act
independently and fairly in a decision making capacity. Such
functions are underpinning features of the construction contract.

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In many standard forms of construction contract, the named architect or engineer is required, either by the
express words of the contract or by operation of the general law, to carry out a dual function. Firstly, he will be
acting as an agent of the employer administering the contract on behalf of the employer and giving effect to
the employers requirements. Secondly, he will be required to carry out the functions of decision maker
under the contract. In this latter role he must act impartially and fairly between the employer and the
contractor.
The recent case of Scheldebouw v St James Homes provides a very useful review of the leading cases in
which this dual function has been examined. St James was a developer undertaking a substantial residential
development on the north bank of the River Thames in central London. The project was being constructed
under a construction management arrangement, in which St James had engaged a construction manager to
manage the design and construction of the project and had entered into a number of separate trade contracts
with different contractors to complete the design and construction of the works. This included Scheldebouw, a
Dutch company, who had been engaged to carry out cladding works to three of the buildings on the project.
As the works were nearing completion, St James wrote to Scheldebouw informing them that they had
terminated the appointment of their construction manager and would instead now undertake all the roles and
responsibilities of the construction manager themselves. Scheldebouw objected to this replacement
indicating that they had entered into the contract on the assumption that the construction managers duties
would be carried out by an independent and impartial third party.
This dispute could not be resolved and in due course proceedings were commenced in the Technology and
Construction Court. Mr Justice Jackson examined the legal duties of the construction manager which he
likened to the duties of an architect or engineer acting under a lump sum contract. He confirmed that the
functions allocated to the construction manager had two separate and distinct aspects. The construction
manager acted as an agent of St James and in that capacity he gave effect to St James wishes and carried
out St James instructions. The construction managers second function was however quite different. He was
required to reach decisions on matters where, at least potentially, the contractor and employer had opposing
interests. For example, he had duties to ascertain and certify loss and expense payable by the employer by
reason of delay and disruption to the works. Similarly, he certified adjustments to the contract sum and
granted fair and reasonable extensions of time.
The duty of the construction manager in all of these matters was not simply to implement the instructions of
the employer, but rather to hold the balance fairly as between the employer and the contractor.
Mr Justice Jackson commented that this concept of the dual function, which he characterised as the agency
function and the decision making function, had been examined by the courts on numerous occasions in the
past. In the 1969 case of Perini Corporation v Commonwealth of Australia the employer had appointed its
own employee in the role of certifier under a construction contract. The court concluded that although the
employee continued to be an employee, he became vested with duties which obliged him to act fairly and justly
and with skill to both parties to the contract.
Similarly, in the 1974 case of Sutcliffe v Thackrah, the House of Lords held that an architect issuing interim
certificates under a building contract could be sued for negligence. The court held that in many matters the
architect would be bound to act on his clients instructions, whether he agreed with them or not, but in many
other matters requiring professional skill, he was required to form and act on his own opinion. The building
owner and the contractor made their contract on the understanding that in all such matters the architect would
act in a fair and unbiased manner.
Taking all of these points into account, Mr Justice Jackson concluded that St James was not entitled to appoint
itself as its own construction manager. It was an unusual state of affairs for an employer to be the certifier and
decision maker and this required to have been established by an express provision of the contract from the
outset. The whole structure of the contract was built upon the premise that the employer and the construction
manager were separate entities. It was on this basis that Scheldebouw had entered into the contract and
upon which its price was based.
Whilst it was plainly not correct to say that the employer was incapable of performing those tasks
independently, in Mr Justice Jacksons view it was more difficult for the employer to act in this way than it
would be for a professional agent. Both the employer and the contractor would be expected to be driven by
their own commercial interests.
In every previous case before the courts in which the certifier was a direct employee of the employer, this had
been known at the outset and the contractor had priced the works on that basis. This was not the case for

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The independence of the engineer

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Scheldebouw and they were therefore entitled to reject a situation in which St James unilaterally chose to act
as its own construction manager.

- Geoff Brewer
CJ-0613

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