Appeal Court denies clause 30 has link with arbitration

The Court of Appeal has answered two important questions about clause 30.9 of the JCT Standard Form of Building Contract, 1980 edition, in its judgments in Crown Estate Commissioners v John Mowlem & Co Ltd (1994), unreported, allowing an appeal against a decision of Judge James Fox-Andrews QC, who was faced with conflicting case law.

The questions, which are of general importance, are:

lDoes the court have power under section 27 of the Arbitration Act 1950 to extend time under clause 30.9.3 which, as amended, relates to the effect of the final certificate in relation to arbitration proceedings which have not been commenced within 28 days of its issue? Judge Fox Andrews had answered that question in the affirmative.

lOn the proper interpretation of clause 30.9.1.1, in the absence of arbitration proceedings being commenced before or within 28 days of its issue, is the final certificate conclusive evidence that only those materials and workmanship that are expressly required to be of a standard and quality which reasonably satisfies the architect are to that quality and standard, as Judge Fox-Andrews, also held.

In doing so, he followed the views expressed by the late Judge John Newey QC in Darlington Borough Council v Wiltshier Northern Ltd (1993) 37 Con LR 29 who, in dealing with a JCT 63 contract, ruled that Clause 30(7) applied only to materials and workmanship expressly stipulated to be to the architect's satisfaction who had distinguished the earlier decision of Judge Thayne Forbes QC in Colbart Ltd v H Kumar (1992) 28 Con LR 58 who was considering a final certificate under IFC 84.

The latter decision was subjected to stringent criticism by Professor Duncan Wallace QC, and by other commentators, because it held that finality is not restricted to materials and workmanship which are expressly reserved by the contract to the opinion of the architect for approval of quality of standards, but includes all materials and workmanship 'where approval of such matters is inherently something for the opinion of the architect'.

The case attracted wide attention in the building industry because of its implications for contractors for whom Judge Newey's decision was welcome.

Unfortunately, the Court of Appeal prefers the wider view although there is no doubt in practice a clear distinction between setting contractual standards and ensuring compliance with them, and I do not find their Lordships' reasons at all convincing. Lord Justice Stuart-Smith dismissed Mowlem's Counsel's argument that both Clauses 2.1.4 and 30.9.1.1 are concerned with fixing standards and not with ensuring compliance with them, on the basis that the words 'where and to the extent that' in Clause 2.1.4. show that there must be something to which the provision does not apply.

Here is the Lord Justice's reason: 'If the contract was tailor-made for this project, there would be much force in this argument. But is is not; it is a standard form of contract, no doubt drafted in committee, and designed to cover a multitude of cases. In most, if not all, cases they may well be superfluous but are put in out of an abundance of caution.'

None of the members of the Court of Appeal accepted the submission that Colbart was wrongly decided and all of them thought that the wider interpretation was to be preferred. 'It would be strange that the contract should specify an objective standard of reasonableness only for the setting of standards for materials and workmanship and not the far more important question of compliance,' said Lord Justice Stuart-Smith. Anyone familiar with the labyrinthine workings of the JCT would not think it strange at all!

As to the first question, the Court was also of the view that there is no power to extend time under clause 30.9.3 and the message to contractors is that if one wishes to raise a challenge, the notice of arbitration must be served either before or within 28 days of the issue of the Final Certificate. In fact, it is my unhesitating view that the whole of clause 30.9 should be scrapped and the final certificate should merely have a financial effect.

At present, clause 30.9.1 makes a general provision, subject to the exceptions in clauses 30.9.2 and 30.9.3, that in any proceedings arising out of or in connection with the contract, the final certificate is conclusive evidence of everyone of the specified matters. Where the final certificate thus becomes conclusive evidence, the effect is that any claim in arbitration which seeks to support some provision of the final certificate is bound to succeed, and any claim that seeks to challenge a provision of the final certificate is bound to fail, without any hearing on the merits.

The 28-day time limit is very short and clearly Judge Fox-Andrews felt that this was the sort of case where a discretion in the Court to extend the time limit, where undue hardship is shown, would be appropriate. But there is authority against this view, namely the shipping case of Babanaft International Co SA v Avant Petroleum Inc (1982) 1 WLR 871 which decided that a claim did not come within section 27 of the 1950 Act where there was no clause in the contract relating to arbitration which specifically provided that claims should be barred unless notice to appoint an arbitrator is given within the time fixed by the agreement. Clause 30.9 does not do that and so there is nothing to extend.

In that case, the notice period was 90 days - which was more generous than JCT 80's 28 days. But relying on Babanaft, the Court held that Mowlem was out of time because of the clause 30.9.3 provision that, if the 28-day time limit is not met, an evidential provision will apply and prevent any hearing on the merits.

So there we have it and the fault appears to be that of the draftsman. There is no linkage in JCT 80 between clause 30.9, in which the time bar is found, and the arbitration clause itself.