MOWLEM (SCOTLAND) LIMITED v. INVERCLYDE COUNCIL
| FIRST DIVISION, INNER HOUSE, COURT OF SESSION |
| Lord President Lord Marnoch Lord Wheatley | XA29/02 OPINION OF THE COURT delivered by THE LORD PRESIDENT in CASE FOR THE OPINION OF THE COURT OF SESSION under the Administration of Justice (Scotland) Act 1972, Section 3 in arbitration between MOWLEM (SCOTLAND) LIMITED Claimant and Respondent; against INVERCLYDE COUNCIL Respondent and Appellant: _______ |
Act: Currie, Q.C.; Masons Claimant and Respondent)
Alt: Reid, Q.C.; DLA (Respondent and Appellant)
1 October 2003
[1]This arbitration arises out of a building contract for the construction of a local authority leisure complex in Greenock. The appellant, to whom we will refer as "Inverclyde", was the employer and the respondent in the arbitration. The respondent in this court, to whom we will refer as "Mowlem", was the main contractor and the claimant in the arbitration. In the case which has been brought before us at the instance of Inverclyde, the arbiter has stated questions of law for the opinion of this court in two parts. Part A relates to the competency of the case. Part B relates to substantive issues in the arbitration.
[2]We deal first with the procedural questions to which Part A relates. At the outset we should point out, while it might be argued that it would have been more appropriate for these questions to have been the subject of a separate hearing directed to whether the court should entertain the case, parties were agreed, and the court was content to accept, that these questions should be argued and decided along with the substantive issues to which Part B relates.
[3]Following the hearing on the substantive matters in this section of the arbitration, the arbiter issued a draft part award on 7 February 2001 and allowed parties until 23 February to make representations. Both parties did so. On 2 March 2001 Inverclyde submitted a Minute requesting that the arbiter state a case in terms of section 3 of the Administration of Justice (Scotland) Act 1972 (the 1972 Act), indicating that they would reassess their position should a further draft decision be issued. The arbiter issued a revised draft award on 6 May 2001. On 21 May 2001 Inverclyde again submitted a Minute asking that the arbiter state a case, on questions which were virtually identical to those contained in their first Minute. The questions related to some of the issues subsequently covered in the present stated case. On 29 June 2001 Inverclyde asked the arbiter whether he intended to state a case or whether they should infer that the arbiter was refusing to do so. In the meantime parties made representations in respect of the draft award issued on 6 May 2001, and in the light of these the arbiter made certain alterations and issued a further draft award dated 2 July 2001. On the same date the arbiter also wrote to parties indicating the detail of the questions he was prepared to state on the issues in the arbitration and requested comments. On 9 July 2001 Inverclyde indicated by fax that in the light of the re-issued draft they would propose to present a further Minute requesting the arbiter to state a case on certain specified questions. The fax continued:-
"These questions are essentially the same as those included in our previous Minute. We would request that you clarify that you are prepared to state a case on these questions. If you are not so prepared to state a case on these questions we shall forward the Minute on behalf of the Respondent and it will be then for you to comply with the relevant rules of court in respect of any refusal to state a case on the terms requested."
The arbiter responded on 13 August 2001, saying that he would state questions as stated in his fax dated 2 July 2001 to the parties and not in the form requested by Inverclyde in their fax dated 9 July 2001. On 3 October 2001 Inverclyde submitted a further Minute craving that the arbiter state a case for the Opinion of the Court in terms of section 3 of the 1972 Act, in identical terms to the request dated 9 July 2001. Mowlem asked that the arbiter delay a decision on this request and on 8 October 2001 wrote to the arbiter stating that as the arbiter had on 13 August 2001 refused to state a case on the terms set out in Inverclyde's fax of 9 July 2001, and as Inverclyde had thereafter failed to make an application in terms of Rule of Court 41.8 of the Rules of the Court of Session within fourteen days, the arbiter should now issue his part award in its final form. On 9 October 2001 Inverclyde wrote to the arbiter stating that the arbiter's letter of 13 August was not a refusal to state a case but rather was concerned to query the form of the questions proposed in Inverclyde's fax of 9 July. In these circumstances the arbiter did not sign his part award but stated the present case for the opinion of this court. It is with the status of the fax from Inverclyde dated 9 July 2001 and the arbiter's response dated 13 August 2001 that we are principally concerned.
[4]Thereafter, on 23 October 2001 the arbiter sent Mowlem a copy of the Minute submitted by Inverclyde on 23 October 2001 and indicated that in terms of Rule of Court 41.6(2) it was for Mowlem to decide within fourteen days whether to propose any additional questions for the case. On 30 October 2001 Mowlem replied, repeating their view that Inverclyde's application was out of time, but stating that if that view were wrong they sought to have additional questions stated. Those questions were in general terms directed to the question of the competence and validity of Inverclyde's request for a stated case.
[5]Rule of Court 41.5 provides:-
"(1)An application for a case for the opinion of the court on any question shall be made by minute setting out the question on which the case is applied for.(2)...
(a)where the application must be made before the issue of the decision of the tribunal, at any time before the issue of the decision; or
(b)where the application may be made-
(i)after the issue of the decision of the tribunal, ...
within the period mentioned in paragraph (3).
(3)The period referred to in paragraph (2)(b) is -
(a)...
(b)... within 14 days after the issue of the decision or statement of reasons, as the case may be."
Further, Rule of Court 41.8 provides that, where the tribunal has refused to state a case, the party whose application has been refused may lodge an application in the Court of Session within fourteen days of the refusal. Rule of Court 41.7 provides that in the event of a refusal there should be sent to the applicant a certificate specifying the date of the refusal and the reasons for the refusal.
[6]Section 3 of the 1972 Act provides:-
"(1)Subject to express provision to the contrary in an agreement to refer to arbitration, the arbiter or oversman may, on the application of a party to the arbitration, and shall, if the Court of Session in such an application so directs, at any stage in the arbitration state a case for the opinion of that court on any question of law arising in the arbitration."
[7]The first question which the arbiter decided was what was meant by a decision in terms of Rule of Court 41. Although the term "decision" is used in two contexts within the Rule, the arbiter held that the relevant use for present purposes was the decision of the tribunal in question. In terms of Rule of Court 41.4 the phrase "the decision of a tribunal" referred to the position where a tribunal had come to a determination on some aspect of the case before it. Mowlem had claimed that the arbiter's draft award of 2 July was a decision of that kind, and that therefore in terms of Rule of Court 41.5(2) the application by Inverclyde for a stated case had to be made within fourteen days of the issue of that decision. The arbiter concluded, however, that the arbitration with which he was concerned had at that stage not been concluded, although certain awards had been made and issued, and that therefore his draft part award of 2 July could not be regarded as a decision. He considered the proposition that the application might more properly be within the scope of section 3 of the 1972 Act on the basis that it was made "at any stage of the arbitration". But he had doubts about this argument, because of the case of Haley v Dumfries & Galloway 1985 S.L.T. 104, where an arbiter's interlocutor was treated as a decision for the purpose of the calculation of time limits.
[8]However, the arbiter then concluded that an award issued as a draft and not signed did not constitute a decision in terms of Rule of Court 41. If that were correct, then the time limits in Rule of Court 41.5(2) on which Mowlem relied, and which required that an application for a case must be made either before the issue of the arbiter's decision, or within fourteen days of the issue of that decision, did not apply. The arbiter also accepted that if he were wrong on that point, then his decision should be regarded as having been issued on 2 July 2001, when the draft award was faxed to the parties. Inverclyde had specifically claimed that their fax of 9 July 2001 was not a Minute applying for a stated case, but rather a request to state particular questions on the basis that, if the arbiter did not agree, a Minute would be presented. In these circumstances the application for a stated case made by Inverclyde on 3 October 2001, which would be then the only relevant application, would be out of time.
[9]The second question considered by the arbiter was whether, assuming it was open to Inverclyde at any time to lodge an application for a case to be stated, it did so by its fax of 9 July 2001, and the arbiter's fax of 13 August 2001 constituted a refusal. If that were so, then it was clear that Inverclyde had not invoked the appropriate procedure on the refusal by the arbiter to state a case, and the present stated case would be incompetent. The arbiter concluded that Inverclyde's fax of 9 July 2001 was not such an application but rather a request to formulate certain questions, and an indication that an application would be presented only if the arbiter did not agree to their proposals. Accordingly if the fax of 9 July sent by Inverclyde was not in itself such an application, that in turn meant that the arbiter's response of 13 August was not a refusal of an application. The arbiter therefore concluded that the Minute presented by Inverclyde on 3 October 2001 was not out of time, presumably in terms of the relevant Rule of Court. In these circumstances the arbiter decided to state the present case, reserving to himself the right to decide what questions should be posed therein.
[10]In this part of the appeal, counsel for Mowlem argued, firstly, that the arbiter was wrong to state a case. The arbiter should have simply proceeded to issue his part award in its final form. Counsel submitted that the issue of a draft award by the arbiter on 2 July 2001 was a decision in terms of Rule of Court 41; in essence it was his actual decision at that time. This meant that in the course of the arbitration there could be a series of decisions on the same matter issued at different times. If the draft award issued by the arbiter on 2 July 2001 was properly to be regarded as a decision, then the application of 3 October 2001 by Inverclyde was out of time in terms of both the statutory provisions and the Rules of Court, and the present stated case was incompetent and should be dismissed.
[11]Counsel then addressed the question whether, if it was open to Inverclyde at any time to lodge an application for a case to be stated, it in fact did so by its fax of 9 July 2001, and whether the arbiter's fax dated 13 August 2001 therefore constituted a refusal. The arbiter's conclusion, as noted above, was to hold that Inverclyde's fax of 9 July was not such a request, and that therefore his response of 13 August 2001 did not amount to a refusal. In particular he took the view that the fax of 9 July 2001 was simply seeking to ascertain the arbiter's attitude to the questions that Inverclyde sought to raise, in order to decide whether to make a further formal application by Minute. The arbiter's response dated 13 August 2001 specifically indicated that while he was prepared to state questions in the form contained in his fax dated 2 July 2001 as amended, he was not prepared to state questions in the form proposed by Inverclyde in their fax dated 9 July 2001. In these circumstances the arbiter therefore concluded that, as the fax of 9 July did not contain a Minute or an application for a stated case, his reply of 13 August was not a refusal of such an application and Inverclyde was not out of time in presenting its Minute on 3 October 2001.
[12]Counsel for Mowlem maintained that the conclusions of the arbiter in this respect were was simply wrong. The fax of 9 July 2001 was clearly an application by Inverclyde for a stated case and could not be interpreted in any other way. The arbiter had noted that the corollary would be that the fax of 9 July was to be treated as the Minute initiating the procedure for a stated case, since another Minute would only be put forward if the arbiter refused to agree to the request in the fax of 9 July. Counsel for Mowlem submitted that that was the position which the arbiter should have adopted, and that therefore the arbiter's letter of 13 August was a refusal to state a case on the questions contained in the fax of 9 July. Counsel argued that if an arbiter's response did not meet the request for a stated case, that response constituted a refusal. In other words, if an arbiter declined to state a case on specific questions posed by the applicant then the arbiter must be held to have refused to state a case. At no time in the present case did the arbiter state a case in the terms asked. Counsel further maintained that it was quite possible for there to be a refusal to state a case where an arbiter replied to a request without specifically so refusing. This is what had happened in the present case. Counsel also pointed out that the arbiter had not complied with the provisions of Rule of Court 41.74, which imposed certain duties on an arbiter where he refused to state a case, and that there had been no application to require the arbiter to state a case in terms of Rule 41.8. The present stated case was therefore incompetent because it proceeded on a request which was refused, and was only issued following a further incompetent request by Inverclyde dated 3 October 2001, which was out of time. So in respect of the questions for the opinion of the court posed by the arbiter in Part A of the case, counsel for Mowlem submitted that the first two questions should be answered in the affirmative, the third in the negative, the fourth and fifth in the affirmative, the sixth in the negative, and the seventh in the affirmative. In those circumstances the present stated case could not be considered by the court.
[13]In response counsel for Inverclyde submitted that a draft award was not a decision either at common law or in terms of the Rules of Court. The arbiter had yet to issue a decision on the nominated sub-contract issue which was the substantial question in the stated case, and had not yet signed off his decision on that matter in its final form. This could only happen once the part award was issued; when that had happened the arbiter's function in respect of the part award was completed. Counsel submitted that the question that had to be asked was whether what the arbiter had produced to date in respect of the nominated sub-contract issue could be enforced in the next part of the arbitration, without the arbiter signing it. The arbiter could always change his mind or correct a legal or factual error in his draft award. Until he had issued his final statement it was not his concluded view. There was clear provision in the Rules of Court to allow amendment of the draft award; Rule of Court 41.7(1)(b) allowed the arbiter to refuse to state a case on questions in certain circumstances, and Rule of Court 41.9(4)(b) allowed the arbiter to add additional findings-in-fact in the course of adjusting the case. The draft award issued on 2 July was therefore merely a proposal. Secondly, the fax of 9 July from Inverclyde was not a Minute making an application for a stated case. Its terms clearly indicated that no such request was being made. Thirdly, at no stage had the arbiter issued a certificate of refusal to state a case, together with his reasons for so doing. In an application to this court, the court could not ordain the arbiter to state a case unless he had issued a certificate of refusal, thus allowing the court to know the reasons for his refusal (Gunac Ltd v Inverclyde District Council 1982 S.L.T. 387). Finally, counsel for Inverclyde submitted that the time limits in Rule of Court 41.5(2) applied only where there was a decision. On either view a decision had not been issued on the part award. In all the circumstances counsel submitted that the arbiter was correct to state a case, and that the stated case was competent.
[14]In respect of the second matter argued by Mowlem, counsel maintained that the fax from Inverclyde dated 9 July 2001 was plainly not a Minute seeking a stated case, and that the arbiter's response dated 13 August could not therefore amount to a refusal.
[15]We are satisfied that the arbiter was correct to state a case in the present circumstances. We are in particular satisfied that the issue of his draft part award on 2 July 2001 cannot properly be regarded as a decision in terms of Rule of Court 41.5. It was merely an indication of the decision he proposed to make, and at the same time as he issued the draft part, the arbiter indicated the questions he was prepared to state on the issues in the arbitration, and invited comment on these. It is therefore clear that the draft part award issued on 2 July was not necessarily in its final form, and could have been amended as a result of any comments received from the parties. It is also of significance that the arbiter himself did not consider that the arbitration with which he was concerned was completed at that stage, and that therefore it followed that his decision had not yet been issued. In these circumstances we are satisfied that the arbiter's communication to the parties on 2 July 2001 did not represent, or amount to, his decision on the arbitration he was considering, and that as the stage of issuing a decision had not been reached by 3 October 2001 when Inverclyde applied for the present stated case, that application was not out of time in terms of Rule of Court 41.5. It is not necessary to express a view on the arbiter's apprehension that in terms of the case of Haley v Dumfries & Galloway any interlocutor by the arbiter may constitute a decision for all purposes, and so render incompetent any subsequent application for a stated case in terms of section 3 of the 1972 Act.
[16]Secondly, we are satisfied that the arbiter was right to conclude that, on the assumption that it was open to Inverclyde to lodge an application for a stated case at any time, their fax of 9 July 2001 was not such an application. It is quite clear from a reading of the terms of that communication that Inverclyde would only wish to lodge such an application if the arbiter were not to adopt a particular attitude to the questions which Inverclyde sought to raise. From this it would appear necessarily to follow that, had the arbiter complied with Inverclyde's request, Inverclyde would not have made a further application, and would have relied instead on their immediately previous Minute. In these circumstances we do not think that the arbiter's decision that the fax from Inverclyde dated 2 July 2001 should not be regarded as a Minute applying for a stated case was wrong. This therefore means that the arbiter's response to that fax on 13 August 2001 cannot be regarded as a refusal to state such a case. In these circumstances, we propose to answer the questions stated by the arbiter in Part A of the case as follows: questions 1 and 2 are answered in the negative; question 3 does not require to be answered; questions 4 and 5 are answered in the negative; question 6 does not have to be answered; and question 7 is answered in the negative.
[17]We therefore reject Mowlem's argument to the effect that this present stated case is incompetent and invalid and turn to deal with the substantive issues in the case, with which Part B is concerned.
[18]We begin by setting out a summary of events and contractual provisions to which our attention was drawn by the parties.
[19]According to the findings made by the arbiter, on 10 October 1994 Mowlem received tender documents from Inverclyde and was invited to submit a tender by 21 November 1994. Bill No. 1 (Preliminaries) stated that Curtain Walling H11 was to be carried out by one of a number of "listed domestic sub-contractors", being P. Briers, S.D.M. Construction Services, Parmir and Structal (U.K.) Ltd.
[20]In this connection it may be noted that, in terms of clause 19.2.1 of the Contract Conditions, a "Domestic Sub-Contractor" is a person to whom the contractor sub-lets any portion of the works other than a nominated sub-contractor. Clause 19.2.2 provides that the contractor is not without the written consent of the Architect/the Contractor Administrator (which consent is not to be unreasonably withheld) to sub-let any portion of the works. Clause 19.3 goes on to provide:
".1Where the Contract Bills provide that certain work measured or otherwise described in those Bills and priced by the Contractor must be carried out by persons named in a list in or annexed to the Contract Bills and selected therefrom by and at the sole discretion of the Contractor the provisions of clause 19.3 shall apply in respect of that list.
.2.1The list referred to in clause 19.3.1 must comprise not less than three persons. Either the Employer (or the Architect/the Contract Administrator on his behalf) or the Contractor shall be entitled with the consent of the other, which consent shall not be unreasonably withheld, to add additional persons to the list at any time prior to the execution of a binding sub-contract agreement.
.2.2If at any time prior to the execution of a binding sub-contract agreement and for whatever reason less than three persons named in the list are able and willing to carry out the relevant work then
either the Employer and the Contractor shall by agreement (which agreement shall not be unreasonably withheld) add the names of other persons so that the list comprises not less than three such persons
or the work shall be carried out by the Contractor who may sub-let to a Domestic Sub-Contractor in accordance with clause 19.2.
.3A person selected by the Contractor under clause 19.3 from the aforesaid list shall be a Domestic Sub-Contractor".
Bill No. 1 provided, at page 1/28, for the notification of the Contract Administrator in the event of there being less than three persons able and willing to carry out the relevant work. It also provided that before the start of the work to which the list related, the contractor must enter into a binding sub-contract agreement and confirm to the Contract Administrator that this had been done, giving the name of the selected sub-contractor.
[21]The part of the specification to which we have referred in paragraph [19] was headed as follows:
"H11 CURTAIN WALLING - STRUCTAL (U.K.) LTD.
To be read with Preliminaries/General Conditions
SCOPE OF WORK
The design, supply and installation of curtain walling including structural steel support elements where indicated in the documentation using Structal (U.K.) Ltd. Systems throughout ... "
[22]Mowlem invited each of the four persons named in the list to submit a quotation for the design, manufacture, delivery and installation of a curtain walling system in compliance with the specification H11. In the event P. Briers responded that it was not in a position to price for the supply of material as Structal carried out its own design, manufacture and delivery of its curtain wall systems. As an approved installer of Structal Systems, it could offer a price only for installation. S.D.M. Construction Services submitted a quotation for installation only of Structal curtain walling systems. Parmir declined to quote. On 3 November 1994 Structal submitted an offer for the design, supply, fabrication, delivery and installation of curtain walling, subject to certain qualifications. On 9 November 1994 Mowlem wrote to the Contract Administrator informing him of the difficulty which had been experienced in obtaining quotations and of the qualifications which Structal had attached to its offer.
[23]On 14 November 1994 the Contract Administrator advised Mowlem that certain points had now been clarified with Structal. After further exchanges Structal sent a fax on 18 November 1994 with a breakdown of its tender in the sum of £996,011.
[24]On 21 November 1994 Mowlem submitted a quotation to Inverclyde for £13,994,907.93. This included provision for curtain walling based on the price which had been submitted by Structal, and subject to the qualifications which Structal had attached to its original offer. In an appendix relating to clause 19.2 of the contract conditions headed "Provisional Sub Contractor" Mowlem set out the names of the sub-contractors to whom it proposed to sub-let portions of the work. Under the heading of Framed Curtain Wall Assemblies, it inserted the word "Structal". On 28 November 1994 the Quantity Surveyor advised Mowlem that only sub-contractors from the named lists could be used for the works covered by clause 19.3. on 29 November 1994, following discussion with the Quantity Surveyor, Mowlem submitted a revised tender for £13,972,391.43.
[25]On 30 November 1994 Structal informed the Contract Administrator that it was withdrawing its tender and sent him a fax confirming that decision. On the same day Structal informed Mowlem of its decision and sent to it a copy of the fax to the Contract Administrator.
[26]In early December 1994 Nelson Tectonics Ltd. ("Nelson") was informed by the Contract Administrator that Structal had withdrawn and that Nelson was under consideration. Nelson had a long history of working with the Contract Administrator. It was one of the relatively few companies in the United Kingdom which supplied and installed the Schuco system of curtain walling, which differed from the Structal system. In about July 1994 the Contract Administrator had met representatives of Schuco and Nelson. The object of this meeting had been to give Nelson some familiarity with the project so that it might submit a price for design, supply and installation of a Schuco system. It had been explained that several companies were being invited to submit a price, and that the successful bidder would have its system named in the contract documents. Nelson had submitted a bid in September 1994, but had been informed that it was unsuccessful and that Structal had made the lowest bid. Nelson was now invited to offer savings on its original offer to bring it down and into line with Structal's offer. For this purpose discussions then took place between Nelson and the Contract Administrator.
[27]At a meeting on 13 December 1994 between Nelson and the Design Team, who represented the Contract Administrator and the Quantity Surveyor, savings were discussed, and Nelson was asked to price the Bill of Quantities which was handed over. A final price of £935,291 was agreed with the Design Team at that meeting, subject only to Nelson's reviewing the current drawings handed over at the meeting, which it was asked to check in order to confirm the price. It may be noted that prior to that meeting Nelson had no dealings with anyone other than the Contract Administrator. At that meeting, but only after the price had been agreed, Nelson was informed for the first time that Mowlem was likely to be the main contractor. Nelson was asked to submit its price to Mowlem, provided that the price remained the same as had been agreed at the meeting. Nelson agreed to do so. The matters which remained to be resolved with Mowlem as main contractor related to attendances, programming requirements and the like.
[28]Following an internal review Nelson decided to confirm the price which had been agreed with the Design Team at the meeting. Nelson contacted Mowlem for the first time on 15 December 1994. The Contract Administrator had made it clear to Nelson that it was the only sub-contractor in regard to curtain walling.
[29]On 13 December 1994 at a meeting with the Quantity Surveyor to discuss the provisional sum for curtain walling following the withdrawal of Structal, Mowlem was informed that an alternative sub-contractor was in discussion with the Design Team, and that, when that sub-contractor had formalised a price, it would contact Mowlem with a view to Mowlem submitting a revised tender bid. The identity of the sub-contractor was not revealed. On 15 December 1994 Nelson made contact with Mowlem stating that a price for the curtain walling had been agreed with the Design Team, and that Nelson had been instructed by the Design Team to contact Mowlem to discuss such matters as attendances prior to the submission of Nelson's bid. Following that conversation Nelson faxed its price (£935,291) to Mowlem. This was considerably below Nelson's earlier unsuccessful offer. The savings were based on proposed amendments to the specification. Nelson referred to "your bill of quantities duly priced", being the bill which had been handed over at the meeting on 13 December 1994.
[30]On 15 December 1994 Mowlem discussed with the Quantity Surveyor adjustments to the tender to take account of what the arbiter refers to as the "substitution of Schuco/Nelson for Structal". On 21 December 1994 Mowlem wrote to the Quantity Surveyor confirming the adjustments, in particular specifying the sum of £22,962.50 as the extent to which preliminaries had to be increased to take into account the substitution of Nelson for Structal.
[31]On 22 December 1994 the Quantity Surveyor issued to Mowlem a Statement of Revised Tender Amount. The total overall amount was the same as that contained in Mowlem's revised tender dated 29 November 1994. The Statement omitted curtain walling work by Structal and added curtain walling work by Nelson, with consequential adjustments to profit and allowance items in the sum of £22,962.50, and a provisional sum for additional structural support. This brought out the same figure in respect of curtain walling, namely £996,011, as had formed part of Mowlem's revised tender of 29 November 1994.
[32]The Quantity Surveyor thereafter amended the priced bill of quantities by changing certain figures and adding two items as follows:
"Additional preliminaries related to items 0014-0016 (refer Mowlem's letter of 21 DEC 1994).
Defined Provisional Sum for additional steelwork supports to head of cladding at south elevation (refer Statement of Revised Tender - 22 December 1994)".
[33]On 22 December 1994 Mowlem signed the Statement of Revised Tender Amount and returned it to the Quantity Surveyor on the same day. On 6 January 1995 Inverclyde accepted Mowlem's tender in the sum of £13,792,391.43. Attached to its acceptance was the Statement of Revised Tender Amount and a schedule of tender correspondence, the last item of which was the letter from Mowlem dated 21 December 1994, the subject of which was stated as "Confirmation of revised Tender amount incorporating Nelson Tectonics Ltd. in lieu of Structal UK Ltd.". Inverclyde's letter was signed on its behalf by the Depute Director of Administration.
[34]It may be noted that the Contract Administrator's Specification Revision Log recorded, against 8 December 1994, "scope of work revised to remove structural steel supports to south ... "; and, against 13 December 1994, "revisions agreed with sub-contractor during tender period". While these alterations were logged, the specification was not altered until 14 February 1995 when architect's instruction No. 10 was issued to Mowlem, removing the words "Structal (U.K.) Ltd. systems". It did not substitute anything in place of these words.
[35]A pre-award meeting was held on 15 February 1995 between Mowlem and Nelson at which the parties regarded the curtain walling work as Performance Specified Work. At some stage thereafter a building sub-contract of the type used in Scotland for domestic sub-contractors was prepared. A copy was made available to the arbiter, but it had not been signed or dated and there was no satisfactory evidence about it.
[36]In about February 1996 Nelson went into receivership. By then relatively little of the sub-contract work had been performed. Some design elements had been sub-contracted by Nelson to another company, D.T.A. The sub-letting of such elements was not unusual. On 11 March 1996 Mowlem wrote to the Contract Administrator indicating inter alia that it was interviewing prospective sub-contractors with a view to carrying out agreed elements of the work. A further sub-contractor was appointed by Mowlem but it became insolvent. Mowlem then
decided to carry out the remaining work. Mowlem did not at any stage ask the Contract Administrator to take any steps under clause 35 of the contract conditions (which relate to nominated sub-contractors).
[37]In paragraph 42 of the case the arbiter states that the initial question for him was whether, from the outset, the provisions of the contract in relation to curtain walling were such that the curtain walling sub-contract was to be performed by "a named but domestic sub-contractor or by a nominated sub-contractor". The arbiter's view was that, in the light of the fact that none of the named sub-contractors was in a position to carry out the whole of the work involved in the sub-contract "the Contract Administrator by stipulating that Structal (U.K.) systems be used throughout had effectively named the sub-contractor in the contract bills". In paragraph 43 the arbiter states that it was for the Contract Administrator to put into effect the nomination procedure but this had not been done. Having considered what happened after Structal withdrew its tender, the arbiter states the following conclusions in paragraphs 50 and 51:
"50.I conclude that upon the withdrawal of Structal the existing provisions as to curtain walling including the purported list of sub-contractors were rendered inappropriate for the purposes of the Contract. By agreement between the Contractor Administrator and Nelson changes were made to the provisions in relation to curtain walling so as to enable it to be carried out by Nelson using a Schuco system and agreement reached as to the price at which Nelson would do the relevant (varied) works. The claimant was only informed after that agreement had been reached as to the identity of the sub-contractor and as to the pricing provision. The Statement of Revised Tender Amount provided by the Quantity Surveyor to the Claimant stated 'Omit' in relation to Curtain Walling Works by Structal UK Limited and 'Add' in relation to Curtain Walling Works by Nelson Tectonics Limited. The acceptance dated 6 January 1995 by the Respondent refers to that acceptance as subject to the terms of the correspondence referred to in the schedule attached hereto. The schedule (B/132) describes its last item of correspondence against the date 21/12/94 as 'Confirmation of revised Tender amount incorporating Nelson Tectonics Limited in lieu of Structal (U.K.) Limited' and is signed by the Director of Administration of the Respondent Mr. John Thompson. This constitutes a naming by the Contract Administrator of the sub-contractor within the meaning of clause 35.1
51.In any event, if the alterations made are not to be taken as the naming of the sub-contractor in the Contract Bills, the Contract Administrator in the verbal agreements and Statement of Revised Tender Amount named Nelson as the sub-contractor and the claimant agreed to that being done signing and returning the Statement of Revised Tender Amount and letter of 21 December 1994".
[38]At this point it is convenient to refer to the terms of clause 35.1 which provides:
"Where
.1in the Contract Bills; or
...
.4by agreement (which agreement shall not be unreasonably withheld) between the Contractor and the Architect/the Contract Administrator on behalf of the Employer
...
The Architect/the Contract Administrator has, whether by the use of a prime cost sum or by naming a sub-contractor, reserved to himself the final selection and approval of the sub-contractor to the Contractor who shall supply and fix any materials or goods or execute work, the sub-contractor so named or to be selected and approved shall be nominated in accordance with the provisions of clause 35 and a sub-contractor so nominated shall be a Nominated Sub-Contractor for all the purposes of this Contract ... ".
[39]The primary questions which are posed by the arbiter are as follows. He asks whether, on the findings of fact which he has made, he was entitled in law to hold that:
"9.There was a valid agreement between the Contract Administrator and (Mowlem) naming Nelson Tectonics Limited as sub-contractor within the meaning of clause 35.1.4 of the Conditions of Contract?
10.Nelson Tectonics Limited was named as a sub-contractor within the meaning of clause 35 of the Conditions of Contract?
[40]In addressing these questions counsel for Inverclyde emphasised that a clear distinction was drawn between a domestic sub-contractor and a nominated sub-contractor, both in the contract conditions and in the Bills of Quantities. The nomination of a sub-contractor required a specific instruction to this effect, and, according to the terms of the documents which related specifically to this type of arrangement, nomination had important implications in regard to the responsibilities of the main contractor on the one hand and the nominated sub-contractor on the other. In the present case Bill No. 1 stated at pages 1/34-35 that certain nominated sub-contractors were to be required to provide design or production information during the contract. Bill No. 7 identified certain work which would be the subject of nominated sub-contracts. It required the allowance of prime cost sums or provisional sums for this purpose. It was incorrect for the arbiter to state, as he did in paragraph 42, that Structal had been "effectively named". There was nothing in the contract documents which indicated that they were intended to become nominated sub-contractors, and no nomination procedure was followed through when Structal put forward its tender.
[41]Counsel for Inverclyde submitted that it appeared that the arbiter's conclusions in paragraphs 50 and 51 were based on the agreement which had been reached between the Contract Administrator and Nelson (without the involvement of Mowlem), Mowlem's letter of 21 December 1994, and the Statement of Revised Tender Amount which had been provided to Mowlem by the Quantity Surveyor, accepted by Mowlem and referred to in Inverclyde's acceptance of Mowlem's tender. However, the documents relied on by the arbiter represented no more than an arithmetical re-arrangement of figures to take account of the fact that Mowlem was revising its tender to reflect a quotation by Nelson instead of one by Structal. The Statement of Revised Tender Amount identified the price which had been given by Nelson as part of the explanation for the arithmetical changes. The additional sum which Nelson sought did not form part of the sub-contract but reflected adjustments arising out of the change of sub-contractor. It was not accurate to describe Nelson as "substituted" for Structal since it was plain from the arbiter's findings that Nelson did not design or manufacture the Schuco system. Overall the Statement was no more than a summary, which brought out a total tender figure which was the same as that originally quoted by Mowlem. The documents relied upon by the arbiter were not intended to create rights and obligations which were materially different from, and inconsistent with, what was provided in the other contract documents. At no stage was any alteration made to the application of clause 19 to curtain walling work. The specification, which had provided for only one system of curtain walling, namely that of Structal, was not altered until the architect's instruction of 14 February 1995, and the instruction was limited to the removal of a requirement to install the Structal system, as had been foreshadowed in the specification revision log as at 8 December 1994. No other system was specified in its place.
[42]Although Inverclyde had initiated discussion with Nelson, Mowlem was under no obligation to sub-contract curtain walling work to Nelson. In line with the provisions of clause 19, Mowlem could have proposed, when the main contract was let, that another sub-contractor should install the curtain walling in accordance with the Schuco system. There was no "agreement" between Inverclyde and Mowlem which would satisfy the terms of clause 35.1.4. It could not be said that there was any implied agreement as to the "naming" of a sub-contractor for this purpose. Such an implication was not necessary as a matter of business efficacy. Prior to the conclusion of the main contract between Mowlem and Inverclyde it was clear that neither Mowlem nor the Contract Administrator was under the impression that Nelson had been "named" with a view to its being a nominated sub-contractor. No procedure for nomination was carried out or even suggested. Counsel also submitted that clause 35.1.4 contemplated that an "agreement" could only arise after the main contract had been entered into.
[43]Counsel for Inverclyde also pointed out that, in terms of Bill No. 6 (Performance Specified Work) included (at page 06/3) H11 Curtain Walling. However, clause 42.18 of the contract conditions stated:
"Performance Specified Work pursuant to clause 42 shall not be provided by a Nominated Sub-Contractor under a Nominated Sub-Contract or by a Nominated Supplier under a contract of sale to which clause 38 refers."
[44]The specification did not appear to contemplate that the whole work, such as curtain walling required to be performed by one and the same contractor. This was consistent with the treatment of curtain walling as work which could be sublet to a domestic sub-contractor and was treated as performance specified work. In the event, Mowlem decided to carry out the curtain walling work itself. This would not have been possible in a case of work which required to be performed by a nominated sub-contractor. It appeared that the Contract Administrator had acquiesced in this or in any event had waived the need for consent to the employment of an alternative sub-contractor under clause 19.2.1.
[45]Counsel added that in any event whether a sub-contractor was "named" for the purposes of clause 35.1.4 was a separate matter from the question whether it was "nominated" under clause 35.6 and the other provisions of clause 35 relating to the nomination procedure. If it was the case that Nelson had been "named", it did not follow that it fell to be regarded as having been "nominated". It meant merely that it should have been nominated. The nomination procedure was not carried through. If it should have been, it was a failure for which the Contract Administrator would be responsible.
[46]In reply, counsel for Mowlem submitted that, in the light of the withdrawal of Structal of its tender and the fact that none of the other sub-contractors were in a position to design, supply and install the Structal system, it was no longer possible to apply H11 of the specification. No names were added to the list of persons set out in Bill No. 1. Mowlem did not select an alternative domestic sub-contractor and seek the consent of the Contract Administrator. Mowlem had been advised by the Quantity Surveyor that it could not go outside the list. Instead the Contract Administrator selected the sub-contractor, negotiated the work and the price, and instructed that the tender should be amended. It was not in dispute that the specification formed part of the Bills of Quantities. In the result not merely was one sub-contractor substituted for another. In addition, arising out of the removal of the Structal system and the selection of Nelson who were to install the Schuco system, there was a change in the system which was to be provided. The Statement of Revised Tender Amount, which should be regarded as having been issued by the Quantity Surveyor on the instruction of the Contract Administrator, had the effect of amending the Bills of Quantities, since it changed the work which was to be executed under the sub-contract and stipulated the sub-contractor by which the work was to be done.
[47]Counsel accepted that a sub-contractor could not be nominated without its agreement. However, in this case agreement had been reached in the discussions between the Contract Administrator and Nelson. There was no reason why a nominated sub-contractor could not be identified before the main contract was entered into. It was not open to Inverclyde to argue that the provisions of the contract relating to performance specified work entailed that Nelson could not be a nominated sub-contractor. Curtain walling had been specifically excluded from a list of various parts of the contract works in respect of which the arbiter had provided a ruling as to whether they constituted performance specified work. Lastly, if a sub-contractor had been "named" for the purposes of clause 35.1.4, it followed, in accordance with the view which the arbiter had taken, that it fell to be regarded as "nominated". It would be anomalous if Mowlem were deprived of the benefit of Nelson being treated as a nominated sub-contractor because the Contract Administrator had not completed the procedure or provided the paperwork but had decided to treat Nelson as a domestic sub-contractor.
[48]We have reached the conclusion that counsel for Inverclyde was well founded in maintaining that Nelson was not "named" as a sub-contractor within the meaning of clause 35.1.4.
[49]We are not persuaded that at the outset Structal was "named" within the meaning of clause 35.1.4 with a view to its being a nominated sub-contractor. In regard to the curtain walling work, for which it was one of the persons listed in Bill No. 1, it was plainly not treated in the contract documents or in the communications between Mowlem and Inverclyde as a prospective nominated sub-contractor. The fact that it was the only sub-contractor which responded to the invitation to tender, and that it was the only sub-contractor which could have offered to carry out the design and manufacture of curtain walling according to the Structal system does not, in our view, alter the position. Inverclyde could have required that in tendering Mowlem should treat Structal as a prospective nominated sub-contractor but did not do so either expressly or by implication.
[50]What would have been the position in regard to Structal was overtaken by its withdrawing its tender. We are prepared to accept that the discussions which took place between the Contract Administrator and Nelson proceeded on the footing that there would be an alteration to the specification in regard to curtain walling, and that the same applies in regard to the communications to and from Mowlem. However, the only alteration to the specification was the deletion of the requirement that the Structal system should be installed. As was submitted by counsel for Inverclyde, this opened up the way to consideration of the installation of a different system. It is true that an agreement of some sort was reached between the Contract Administrator and Nelson without reference to Mowlem. However, there appears to us to be no basis for the proposition that the Contract Administrator was in the position in December 1994 to require Mowlem to enter into a sub-contract with Nelson for the construction of curtain walling. We agree with the submission made by counsel for Inverclyde that Mowlem were free to propose an alternative sub-contractor for the purpose. The fact that they did not do so does not advance the argument that Nelson were "named" for the purposes of clause 35.1.4. It is consistent with Mowlem taking the view that the understanding which had been reached between the Contract Administrator and Nelson was one which would provide an acceptable solution for the difficulty created by the withdrawal of Structal, provided, of course, that certain consequential adjustments were made to its tender. It appears to us that counsel for Inverclyde was correct in treating the Statement of Revised Tender Amount as representing a summary of the figures reflecting the change of sub-contractor and the additional allowances arising out of that change. We cannot regard that Statement as an instruction by the Contract Administrator to Mowlem to accept Nelson's tender, or that the Contract Administrator had the power to give any such instruction.
[51]In the result we do not agree with the arbiter that there was a change in the Contract Bills by which Nelson was "named" as a sub-contractor with a view to its being nominated under clause 35. We do not agree that in any event there was an agreement between Mowlem and the Contract Administrator on behalf of Inverclyde whereby Nelson was so named or the Contract Administrator reserved final selection and approval of the sub-contractor which was to perform curtain walling work. We are bound to say that we have had some difficulty in interpreting the requirement of clause 35.1.4 that any agreement "shall not be unreasonably withheld". It appears difficult to apply such a provision to a stage before the main contract is entered into. However, for present purposes that point does not require to be considered further.
[52]We should add that, as at present advised, we are not inclined to accept the argument advanced by counsel for Inverclyde that, even if a sub-contractor had been "named" within the meaning of clause 35.1.4, it did not fall to be treated as a nominated sub-contractor unless the nomination procedure set out in clause 35.6 and elsewhere in that clause has been carried out. The "naming" of a sub-contractor plainly does not mean simply the identification or proposal of a particular sub-contractor, as happened in the case of Nelson, but the naming of a sub-contractor with a view to its becoming a nominated sub-contractor. If a sub-contractor has been "named", the rights and obligations of the parties, namely the main contractor, the employer and the particular sub-contractor, should be regulated in accordance therewith. Accordingly, even if the Contract Administrator failed to give effect to the nomination procedure, it might well have been open to an arbiter, standing the width of clause 41 of the contract conditions, to require that the rights and obligations of the parties should be regulated on the basis that the nomination procedure had been carried through. However, in the circumstances of the present case that does not arise.
[53]We should add that we have not been able to derive assistance from the decision of the Official Referee in St. Modwen Developments Ltd. v. Bowmen of Kirkland Ltd. 20 August 1996, unreported, and Norwest Holst Construction Ltd. v. Co-operative Wholesale Society Ltd. [1998] All E.R. (D) 61, to which we were referred by counsel for Mowlem. We regard each decision as depending on its own special facts. In the first of these cases it was held that, in following a practice of obtaining quotations from specialist sub-contractors and instructing the placing of orders with the sub-contractors as if in relation to prime cost sums, architects had treated the sub-contractors as if they were nominated sub-contractors. In the latter case in order to ensure that a security system and a detection system matched existing services, it was necessary that certain specialists were employed as sub sub-contractors. Hence they fell to be treated as nominated sub-contractors. The facts of the present case are quite clearly distinguishable.
[54]In all the circumstances we answer questions 9 and 10 in the negative. Question 8 is directed to whether, as the arbiter held, the actings of the parties subsequent to the conclusion of the contract were irrelevant to the issues before him. Since the conclusions which have reached do not depend to any extent on those actings it is unnecessary for us to answer that question. Questions 11 and 12 are framed on the assumption that Nelson was named as a sub-contractor within the meaning of clause 35.1.4 of the contract conditions. They ask whether the Contract Administrator made a decision within the meaning of clause 41.3.3 and whether the arbiter is entitled to open up and review and revise any such decision by determining that Nelson fell to be treated as having been duly nominated under clause 35.6. In the event these questions do not arise for our decision. Since Mowlem is not entitled to decree of declarator in terms of the eleventh crave in the arbitration we will answer Question 13 in the negative.
[55]We will remit the case to the arbiter to proceed as accords.