Extra-Contractual Recoveries: Disqualification

I am now not a million miles from completing my book Extra-Contractual Recoveries for Construction & Engineering Work. It has been a long time in preparation. Its purpose is to consider all of the available routes, not expressly spelled out in a construction contract, by which a contractor can get paid for its work.

One of the things that has been apparent is that there are really quite a few legal principles on which there is relatively little, if any, authority or modern authority, and I propose in the coming weeks to post about some of these on these pages, partly because they are points of interest, and partly to enquire as to whether anyone has spotted any decisions on point that I might have missed.

Today, the topic is the disqualification of certifiers. All the textbooks in construction law deal with this. There are a number of cases which demonstrate that architects, engineers or other certifiers under construction contracts might be disqualified on various grounds. But I have been unable to find any case in the last hundred years where there has been such a finding.

My draft text on this topic is as follows. Feel free to comment, either by email to me or below.

 

Disqualification

  • As appears from the discussion below, there are a number of bases upon which a contractor might recover payment notwithstanding the absence of a certificate required by the contract. One such basis is that the certifier under the contract stands disqualified. The cases in which disqualification has been established are largely 19th century cases which, these days, would more likely be decided on the basis of prevention principles. That said, the circumstances in which a certifier will be disqualified are as follows.

Fraud or collusion

  • There are a number of cases that establish that fraud by a certifier, or collusion with one of the parties to the contract, disqualifies the certifier.[1]

Lack of Independence

  • Equally, a certifier will be disqualified if, even not tainted by fraud or moral turpitude, displays such weakness as to show a lack of necessary independence. The case typically cited in support of this proposition is the House of Lords decision in Hickman v Roberts[2] , a case in which the architect wrote to the contractor, explaining why he was not issuing a certificate, in the following terms:

…had you better not call and see my clients, because in the face of their instructions to me I cannot issue a certificate whatever my own private opinion in the matter…

  • These days, architects are rarely so naïve: where they do withhold certificates on the instructions of the owner, they typically do not admit as such at all, let alone in writing.

Unknown interests

  • The requirement for independence in a certifier means that the certifier must be disinterested in the amount certified, and if the certifier does have an undisclosed interest in the amount certified, then he will be disqualified. A paradigm case would be where the certifier, unknown to the contractor, owns shares or otherwise has a financial interest in the owner.[3] But there is also an objectionable interest where the certifier has made a promise to the owner, upon which the certifier might be liable, that the final cost of the works should not exceed a certain figure.[4]
  • In practice, however, such disqualifying interests are rare, because the interests are usually known to the contractor. The more modern approach is not to focus on the relationship between the certifier and the owner (recognising the reality that certifiers are not entirely independent of owners) but rather on the exercise of the certifying function. Jackson J (as he then was) put it thus in Scheldebouw BV v St. James Homes (Grosvenor Dock) Ltd[5]:

35 Three propositions emerge from the authorities concerning the position of the decision-maker.

    (1) The precise role and duties of the decision-maker will be determined by the terms of the contract under which he is required to act.

    (2) Generally the decision-maker is not, and cannot be regarded as, independent of the employer.

    (3) When performing his decision-making function, the decision-maker is required to act in a manner which has variously been described as independent, impartial, fair and honest. These concepts are overlapping but not synonymous. They connote that the decision-maker must use his professional skills and his best endeavours to reach the right decision, as opposed to a decision which favours the interests of the employer.

36 In my judgment, these propositions are all applicable to the construction manager in the present case. The fact that the construction manager acts in conjunction with other professionals when performing his decision-making function does not water down his legal duty. When performing that function, it is the construction manager’s duty to act in a manner which is independent, impartial, fair and honest. In other words, he must use his professional skills and his best endeavours to reach the right decision, as opposed to a decision which favours the interests of the employer.

The modern place of disqualification

  • These days, contractors (or more often, their lawyers) do sometimes write to certifiers, pointing out these principles of disqualification, and that can have some useful effect in terms of encouraging certifiers to exercise some more independence. A finding of disqualification of a certifier on one of the grounds noted above would hardly be helpful for that certifier’s professional reputation. But rarely, if ever, in modern times has there been a court finding of disqualification; there are other easier routes available to contractors.

[1] South Eastern Railway v Warton (1861) 2 F. & F. 457; Sharpe v San Paulo Railway (1873) L.R. 8 Ch. App. 597.

[2] [1913] AC 229. At first instance, Hamilton J had found that although the architect’s breach of duty gave the contractor the right not to be bound by his decisions, yet the contractor had elected to continue to treat the architect is the person by whose decisions he was bound, and therefore forfeited that right. Reversing that decision, the Court of Appeal found that the conduct of the architect amounted to collusion, and that as there had been no full disclosure, the contractor was not bound by his election. The House of Lords dismissed an appeal, but said that the architect’s conduct fell short of fraud, collusion or turpitude. Interestingly, although the Appeal Cases  headnote refers to “disqualification”, none of the members of the House of Lords used that expression, merely saying that it would be contrary to justice for the architect’s certificate to be binding (Lord Alverstone) and that in the circumstances the grant of the certificate could not be a condition precedent to the contractor’s right of recovery (Lord Shaw of Dunfermline).

[3] Such knowledge might be presumed; Ranger v G.W. Railway [1854] 5 H.L.C. 72.

[4] Kimberley v Dick (1871) L.R. 13 Eq. 1; Kemp v Rose (1858) 1 Giff. 258.

[5] [2006] EWHC 89 (TCC)

3 thoughts on “Extra-Contractual Recoveries: Disqualification

    • A very good question! It is not far off, and if people were to stop giving me briefs, I would have time to knock it over. No pre-ordfering yet. I am, still undecided as to the mode of publication? Trad book? Ebook? Something else? Thoughts on this would be welcome.

      • Given the main market would be employed solicitors and counsel, I would think a traditional book would be the first port of call as something to be kept on the office shelf (that’s where it would live at my firm!) and with an accompanying ebook/PDF so that it is searchable for key terms.

Leave a Reply to phenell Cancel reply