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A
decision made under clause 66 of the Institute of Civil Engineers (ICE)
conditions of contract has to be made independently and honestly but
will not be procedurally unfair if it does not comply with the rules
of natural justice. The term "dispute or difference" in clause
66 should be given an inclusive interpretation.
The appellants
were engineering contractors who had been engaged by the Secretary of
State for Transport, the defendant, to perform major renovation works
to a viaduct. Deficiencies in the structure of the viaduct became apparent
approximately 6 months before the 6 year limitation period was to expire.
It was thought that these defects could be traced to problems with a
structural component (the roller bearings) which the appellant had designed
and provided as part of the renovations. Though this could not be determined
conclusively without a detailed investigation.
The contract
was governed by the Institution of Civil Engineers (ICE) standard conditions
of contract and the mechanism for disputes is dealt with at clause 66
of these conditions. Clause 66 specifies that a dispute or difference
should be referred in the first instance to an engineer for a decision
and that after either the receipt of the written decision of the engineer
or the passing of 3 months without a response, it can be referred to
arbitration.
After the
defects in the structure of the viaduct (and the roller bearings) became
apparent, the defendant referred the so-called dispute to an engineer
for a decision. The decision was made within 7 days and stated that
the roller bearings provided and installed by the appellant were not
in accordance with the contract. Immediately thereafter, the defendant
asked the appellant whether they accepted this decision and, in the
absence of any response from the appellant, the defendant gave notice
of arbitration, pursuant to clause 66.
The appellants
argued that there was no valid dispute or difference within the meaning
of the phrase in clause 66, capable of being referred to the engineer;
and, secondly, that even if there was a valid dispute at the time of
referral, the decision reached by the engineer was not valid for procedural
reasons. The reasons given included the fact that the appellant had
not been given the opportunity to make submissions to the engineer before
he reached his decision and also that the engineer made his decision
with undue speed. There was a third ground of appeal relating to the
scope of the arbitrator's jurisdiction. Both Mr Robert Akenhead QC (the
appointed arbitrator) and Jackson J at the Technology and Construction
Court dismissed all three of these arguments.
In relation
to the first of the appellant's arguments, it was held that there was
a valid dispute which therefore was capable of being referred to an
Engineer for a decision. It was noted that the question of what constitutes
a "dispute" has been the subject of much litigation but that,
nonetheless, there is no clear definition of the term for the purposes
of arbitration clauses. In particular it was noted that inclusion of
the word "difference" along with "dispute" in clause
66 suggested that it should not be restricted to a strict legalistic
definition but rather that a broader meaning should be given to the
phrase. May LJ also noted that commercial sense suggests that the clause
should not be interpreted in such a narrow way as to prevent the parties'
commencing arbitration proceedings on time.
With regard
to the second argument, It was held that the conduct of the engineer's
decision and the arbitration had not been procedurally unfair and that
accordingly, their decisions remain valid. It was noted in particular
that whilst an engineer giving a decision on a referral pursuant to
clause 66 must act independently and honestly, he is not obliged to
adhere to rules of natural justice. There is no procedure specified
in the ICE conditions of contract as to how an engineer should conduct
his decision and the engineer is not expected to act in a judicial manner
in making his decision. The third argument was dismissed as being without
merit and it was held that the scope of the arbitration was the whole
matter, and not just those limited aspects on which the engineer had
given a decision.
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