THE 1990 BILL TOMPKINS MEMORIAL LECTURE How fair are we in dispute resolution in the construction industry? by NORMAN ROYCE, FRIBA, PP.CIArb THE Bill Tompkins memorial lecture was delivered on I June 1990 to the Channel Islands Branch in Guernsey where he had lived in retirement. The meeting was chaired by Sir Charles Frossard FCIArb, Bailrff of Guernsey. The lecturer is England's most senior building arbitrator. WE are here today to honour the memory of a very happy man. How many little boys have an enormous yearning to become train drivers. . . and how few achieve that ambition . . . and happiness. Bill Tompkins was fortunate to choose the right profession and to enjoy every minute of his time spent first as a very successful builder of world wide repute and later as an international arbitrator. Perhaps the culmination of his building career was in 1965 when he was elected President of the Chartered Institute of Building and with the presentation of a special medal for his outstanding efforts on behalf of the Industry. He was instrumental in forming the Jersey and Guernsey branch of the Chartered Institute of Arbitrators. He also had the good fortune to meet and marry Betty. I had an early choice of either aviator o r architect, and had to pause and reflect on what might be in the greater danger, the lives of the passengers of my aircraft or the stability of my structures. Fortunately as an architect I have been able t o share the responsibility of structures with some of my engineer friends. I cannot recollect having ever killed any of my own passengers although in 1964, having landed upside down - which is not easy, my passenger whose name believe it o r not - was John Lucky was heard to remark, 'I never want to fly again!' - and he never did. Today I a m addressing you as an architect and arbitrator on just a few matters that have occupied my minc! over the years when trying to relate the practice of law to what happens in the practice of building. Traditions We in this country make jokes about our professions May 1991 and none d o this more than lawyers, in their lighthearted references, but I know that there is nothing which is inconsistent with respect for the law. It is part of our national characteristic to invest our most respected institutions with a sort of mocking tenderness -part of our national characteristic of restraint and disinclination to wear our hearts upon our sleeves. I always say that being an architect is better than working for a living! I so often reflect on the words of that most eminent of judges who once referred to: The High Court as being the court of initial error, The Court of Appeal as being the court of intermediate approximation. The House of Lords as being the court of final error, which if by chance is right, is invariably so for the wrong reasons. But in truth the whole of our system of administering justice - a system which has been adopted in many parts of the world, is based on the preservation of that which appears to be good in the work of our predecessors. But, of course, nothing is perfect and time changes people and conditions, so that we make progress by changing that which appears defective. I believe that we d o not always get it right. Much of what we d o is termed tradition and that which is handed down sets a standard by which we can measure ourselves and our work. It applies to almost everything in life, but it must be regularly updated. So that over the years there have been many changes in the Law especially in respect of construction disputes. It is, however, of interest to consider how practice in the various industries evolved. There is usually a good reason for that evolution, especially if one endeavours to trace it back through the history of the old craft guilds, although Havelock Ellis was not quite sure of this when he wrote 'Progress is the exchange of one nuisance for another'. Changes in the Construction Industry We should admire and keep the best of the past, but also keep a vision of the future. The changes in the construction industry and particularly in respect of large firms of builders have been enormous since the war. Large firms then carried out 90% of the work with their own labour and only specialist trades such as lifts and special finishes were handled by subcontractors. Now there are no large firms of builders they are merely building contractors specialising in management, and sub-contracting the whole of the trades from excavation to roofing, and the subcontractor has grown in importance and practical site supervisors are now becoming as scarce as triangle players. The construction industry has developed over the centuries through changing techniques, customs and usage. It is popular to talk about 'the state of the art' when disputes develop, and to endeavour to prove that subsequent methods, and legislation, have set a new standard since the date of the contract under consideration. But this is only part of the problem. During the 1930s and to some extent up to the 1950s architects had the advantage of a more practical approach to their work. It has now become very academic. Building firms were run by builders, now they are run by accountants. The situation has now arrived in many contracts where the architect cannot rely on the average contractor being a practical expert in the building process and with the deterioration in supervision 'the state of the art' is so often governed not by the Architect or main building contractor, but by a series of sub-contractors, and labour-only gangs. Two other factors have contributed to the low standard of supervision on contracts: (i) Up until recently the construction industry has had too many builders chasing too few contracts so that tenders have been unrealistically low, which has led to the appointment of inferior supervisors in charge of work beyond their capabilities. This has attracted more claims. (ii) The advent of fee competition amongst the professional team has reduced the standard of site information which has made it more important to have experienced site supervisors available, to convey, describe and co-ordinate sub-contractors' shop drawings, but this has not happened. Architects have also suffered from the 'no win - no fee' basis in respect of planning applications for many years. Lawyers may soon be faced with this problem in their work in the near future. Background to Standard Building Forms of Contract Up until 1800 buildings were erected to a brief description or specification of the work, and payment was effected at intervals with a retention held back by the employer. There were no conditions of contract as we know them today, and the architect or employer had absolute power, and builders felt at an enormous disadvantage. With the formation of the Institute of British Architects in 1834 the increase in the scale of building resulted in a more professional and disciplined approach, by the architectural profession, with a general chance of builders obtaining contracts by 'contracting in gross' as opposed to 'measure and value' conditions being introduced into tendering documentation. 'General Conditions' clauses inserted into specification documents varied from one architect to another. The General Conditions clauses were only to be found in the specification document and were not incorporated in the actual contract. However, the specification was signed by the parties and annexed and referred to in the contract documents. The time had still to arrive when the building contract took the format of the present day Standard Form of Building Contract. Standard Forms of Contract Much has been said - especially by lawyers - about the many weaknesses of the Standard Forms of Contract but that is generally when disputes have arisen. Generally speaking they have proved satisfactory. Their existence relieves owner and builder of the necessity of themselves evolving a form of contract to meet each individual case. Were it not for the Standard Forms, the employer would be saddled with the expense of drafting an appropriate form of contract whilst the builder would be obliged to scrutinise the contract in detail to see that his own rights are safeguarded. The Standard Forms act as a guarantee to both parties. Both are aware that representatives of their own interests have helped compile the documents. A builder need not ordinarily consult his solicitor on the legal conditions contained in the Standard Forms. They are the conditions which he knows and upon which his business is based. There must, of course, in most contracts be special conditions of some kind but special conditions should not be inserted relating to matters already 'dealt with' in the standard general conditions, nor be at variance with the standard conditions. Acceptance of the document involves a certain surrender of rights by the parties to a building contract but standardisation in clear and simple language has helped create a confidence between parties and the Arbitration 1980 Form clarifies many of the earlier rather obscure provisions contained in the 1963 edition. Of course the Standard Forms are compromise documents, and there is always a danger of wanting yesterday to come back. The Aims of the law Pluto is credited with saying that justice is a set and constant purpose giving to every man his due; and at the Bentham Club Presidential Address in 1985, Sir Jack Jacob stated: 'The social interest which the administration of civil justice promotes may be seen in many ways, the cumulative effect of which is greatly to enhance the respect for law and to increase the understanding of the importance of rules of law as regulating social relations. It helps to bring into the open and to make public the developing nature of legal and social relations in the light of changing social conditions. The Rt Hon Lord Roskill has stated that: 'The practice of the law involves two real dangers. The first is that lawyers as a race, are a very close corporation, working very closely together. Like most close corporations, they suffer from a tendency to self-satisfaction, and become resistant to change. The second, which in the biblical phrase, like unto the first, is, that lawyers do not see the law, or themselves, as others in the world outside them and it.' How Fair is the Law? I have pondered over the necessary attributes of a legal system from a practical point of view and believe that it should be seen to be: (i) Fair (ii) Equitable (iii) Efficient (iv) Quick and simple (v) Speedy and economic I have considered these requirements in respect of disputes in the Construction Industry. Fairness There is no doubt that the Courts d o not support any procedure which would lead to an unfair result, so that it would appear, that it is an understood, and an accepted application, that the judge or tribunal must act fairly, impartially and judicially, and in accordance with the requirements of natural justice. In the House of Lords in the Bremer Vulkan case, Lord Diplock said, in respect of arbitrators: '. . . the parties make the arbitrator the master of the procedure to be followed in the arbitration. Apart from a few statutory requirements under the Arbitration Acts . . . he has complete discretion to determine how the May 1991 arbitration is to be conducted, from the time of his appointment, to the time of his Award, as long as the procedure he adopts does not offend the rules of natural justice.' Well then, what is Natural Justice and how does it relate to fairness? In Carlisle Place and Wimpey (1980) Robert Goff, J. (as he then was) said: 'Generally speaking, courts do not interfere with procedural orders made in the course of hearing of arbitration. It might, of course, be different if an arbitrator failed in his duty to act fairly, though normally one would expect such a matter to come before the court on the basis that there had been misconduct.' It appears that Equity is the quality of being impartial or reasonable and is said to equate with fairness. T o act in an equitable manner is to be reasonable, fair and just. But: In Snell's Principles of Equity it states: 'It would be a mistake to suppose that the principles of equity as administered in the courts and described in his book are CO-extensivewith the principles of natural justice. Owing to the difficulty and doubtful wisdom of framing and enforcing any general rules to cover them, many matters of natural justice are not subject to legal sanctions, but are left to the dictates of public opinion, or to the conscience of each individual.' 'In order to ensure the smooth running of society it is necessary to formulate general rules which work well enough, in the majority of cases. Sooner or later, however, cases arise in which, in some unforeseen set of facts, the general rules produce substantial unfairness.' The Building Contract Dictionary defines 'Equity' as 'Literally, fairness or natural justice'. So then to act with fairness is to be free from discrimination, and dishonesty, to be just and impartial. It is of interest that at the International Arbitrators meeting a t Selsdon Park recently I was informed by the delegates from Europe that there is no such word as 'fairness' in French, Italian, German o r Spanish. The nearest word is 'impartiality'. We are guided then towards the expression 'Natural Justice' and to act in accordance with the rules of Natural Justice appears to call for the following principles to be observed by courts and tribunals: (i) N o man shall be a judge in his own cause. (ii) No man shall be condemned unheard. (iii) There is a duty to act judicially. (iv) There is a duty to act fairly. (v) There is a duty to declare any interest by way of: (a) A financial interest. (b) A likelihood of bias. The existence of a moral obligation to perform these duties is undeniable. The question is whether it is backed by legal sanctions. How practical is it? How near is Fairness to Natural Justice? When a caveman's mate was stolen by another caveman, the latter was liable to be knocked on the head with a stone club. In prehistoric times this was probably thought to be very good natural justice, but it would not d o today, as it is forbidden to take the law into one's own hands. Nor can the rules of equity of which the best known is that forjustice to be done it must be seen to be done, be equated with those of natural justice. In Maclnnes v Onslow Fane (1976) 3 ALL ER 21 1, Megarry, V.C. after expressing the view that the phrase 'natural justice' should be rejected in favour of terms such as 'fairness' o r 'the duty to act fairly' went on to say: 'The suitability of the terms "fairness" in such cases is increased by the curiosities of the expression "natural justice". Justice is far from being a natural concept. The closer one goes to a state of nature the less justice does one find. Justice and with it "natural justice" is in truth an elaborate and artificial product of civilisation which varies with different civilisations.' At about the same time a similar view was put by Ormrod, L.J., in Norwest Holst v Department of Trade (1978) 3ALL ER280, CA at P294: 'The phrase "the requirements of natural justice" seems to be mesmerising people at the moment. This must, I think, be due to the apposition of the words "natural" and "justice". It has been pointed out many times that the word "natural" adds nothing except perhaps a hint of nostalgia for the good old days when nasty things did not happen. Perhaps we should use "fairness". If one can assume that 'fairness' equates in general terms with justice the whole ethos of our legal system appears a great deal clearer to the lay mind, stripped as it were of its considerable.mystique. The practical aspects of law - especially in commercial disputes become a lot clearer. In the construction world, all that the parties to the contract should expect, is fairness on both sides in the execution'of a contract. The professional team is expected to d o its work in the preparation of the design and drawings, in a reasonable and clear manner, and the contractor and subcontractors, to carry out their work, in a reasonable manner, in respect of quality, time and cost. The Unions would be quite satisfied with a fair day's work for a fair days's pay! . . . perhaps! However, if we are to d o better in the 1990's we must stop mistaking good intentions for achieved reality. I suppose we all have our own ideas of what is fair and what is not fair. Certainly Charles Dickens had. M r Pickwick when on trial for breach of promise to Mrs Bardle said to his lawyer - 'I've no doubt that justice, right and fair play will prevail and his lawyer observed, 'That will be a change.' Sam Weller once remarked 'It's over and can't be helped and that's one consolation as they always say in Turkey ven they cuts the wrong man's head off.' Changes in the Law I believe that the construction industry has suffered as a result of some changes in the law which formerly gave it protection. Professional members of the industry are facing problems of enormous claims and enormous costs of professional indemnity, and courts are tending to equate failure with negligence. T o an average designer, the Latent Damage Act is complex, convoluted, and in some cases unclear, so that there are problems arising on the question of interpretation. Lack of clarity affects all parties when a dispute occurs, and it seems a great pity that parliamentary draughtsmen could not have expressed principles simply, without the complex cross-referencing of some sections which are beyond the average designer to unravel. Very few architects, engineers and builders have the special expertise of a legal draughtsman. The main weakness for the construction industry is that the Act does not answer questions, which it was initially hoped it would, and for which we lobbied for inclusion; for example, when does a cause of action arise? If foundations develop problems within a year or two and it is not uncommon, when was the actual date of the cause of action? The Act offers no solution as to the clarification of the starting date, such as, for example, the date of practical completion. The uncertainty remains. The Latent Damage Act gives little guidance on the practical assessment of the extent of damage required by the 'sufficiently serious' test which it establishes. In construction cases, damage may not only be latent, but also progressive, making the cut-off point for limitation purposes even more difficult. A classic example is provided by London Borough of Bromley versus a firm many have heard o f . . . Rush & Tompkins Ltd, where Judge Sir William Stabb considered four possible starting dates for the running of time where corrosion of steel reinforcement in concrete, had led to cracks in the building's exterior. In order, the possibilities were: (i) depassivation and the start of corrosion of the steel reinforcement; (ii) the appearance of hairline cracks in the exterior caused by the corrosion; Arbitration Concern of Designers One of the great worries for designers and their dependants is how long will liability follow them into their retirement. It would seem that professional indemnity insurance should be retained at least fifteen years after the contract has been completed. In the same way documents may well have to be retained for a similar period. Another worry is that subsequent purchasers of a property may have a right of action against the designer, if he purchases the property in ignorance of the fact that the property is already damaged when he purchased it. company is involved. I believe that much unnecessary time-consuming and expensive litigation, for the apportionment of liability, could be avoided if there were only one source of insurance cover. People involved in the construction industry find it difficult to distinguish between a defendant's liability in the test of negligence, as opposed to their contractual obligation in the light of the many and varied judicial authorities. In the case of D & F Estates Ltd & Others v Church Commissioners and Others the judge in the first instance held that the main contractors were in breach of their duty to provide adequate and proper supervision of a sub-contractor's work and were liable in negligence to the plaintiffs for this breach of their duty - a decision which upheld the fundamental requirement of the 'builder in charge'. We had always considered a main contractor to be responsible for his sub-contractors, but both the Court of Appeal and the House of Lords concluded that the main contractors were under no liability to the plaintiffs for damage attributable to the negligence of their sub-contractor (for plastering) in failing to follow the instructions of the manufacturer of the plaster they were using. For years architects have advised clients to adopt the traditional method of contracting, because of the safeguards provided by a main contractor taking on the responsibility for the workmanship of the subcontractor. I am now reminded of the words of a song that we sang during the war 'Where d o we go from here?' Effects of the Civil Liability (Contribution) Act 1978 With the increase in the size and complication of building projects, and the involvement of so many subcontractors, there is a growing tendency in both litigation (and arbitration by consent) for parties to be joined in an action. Where there are several defendants in an action, liability may be proportioned between them, so that each will make a contribution to the cost of the remedial works necessary, in proportion to the liability awarded. The joint tortfeaser rule -described in a House of Lords debate as manifestly unfair - means that if several parties to an action are found to be proportionately liable, and only one has the resources to pay the damages, the one left pays the lot. The construction industry has failed to produce a national approach to insurance arrangements. Lawyers are bound to advise their clients to sue all the parties when a problem occurs, and the courts serve t o determine the proportion of payments between the parties' various insurers. Project insurance could be arranged for the employer so that only one insurance Evidence and the Adversarial and Inquisitorial Systems It is sometimes difficult to elucidate from the evidence given exactly what the point is that an expert is trying to make. Under the common law with the Adversarial System, tribunals act as 'umpire', being passive with little investigating power. In the Inquisitorial System evidence is clarified by an expert appointed by the court. Both systems have the objective of endeavouring to arrive at a fair and just settlement. Arbitrators have very wide powers which are not always widely exercised. I would like to see wider powers to enable judges and arbitrators to take the initiative in questioningexpert witnesses. It is already exercised in small cases by arbitrators where lawyers are not involved, in order to 'bring out' the salient points of a submission. In fundamentally technical disputes it does assist in bringing about relatively speedy conclusions to the proceedings. I would also like to see more use made of the appointment of court experts in instances where the opinions of technical experts acting for the parties are diametrically opposed; the unbiased and independent (iii) The occurrence of enlarged cracks, constituting a danger to the public; and (iv) the spalling of concrete following corrosion of the reinforcement. Although His Honour Sir William Stabb had no hesitation in rejecting the first and last of these dates, he expressed difficulty in choosing between the others. This choice was critical, since the two dates fell either side of the relevant date for limitation purposes. Relying on the agreed expert evidence, Judge Stabb eventually held that the second of the four dates constituted 'relevant and significant damage'. The action was accordingly statute-barred. However, it may be noted that the judge concluded that the hairline cracking was neither discovered nor reasonably discoverable by the plaintiffs, at the time when it must have occurred. May 1991 views of such experts could be fairer and of greater assistance, in our adversarial system, in assisting the judge in arriving at his decision. Likewise the power to appoint special experts to enquire and report could help shorten the time of the hearing and ensure that a completely independent opinion had been obtained. Delays Delays through adjournments in the Official Referees Courts have done a great deal of harm to the image of Official Referees. Cases before Official Referees should always have a set date except in very special circumstances such as when genuine negotiations are in progress. But if an adjournment is granted a new date should be fixed and realistic dates and times should be allowed for. I am aware that many cases are settled, but the duplicated bookings which at present appear to be the norm, lead to enormous additional costs and heartache to the parties involved, and have a considerable knock-on effect on dates fixed for arbitrations when the counsel involved have to give priority to the cases they are involved in, in the Official Referees Courts. I know that a growth in disputes and a shortage of Official Referees has led to this state of affairs. Another matter which I believe to be wrong is when a judge who tries a case for liability does not deal with the matter of quantum in the subsequent trial. In arbitration this seldom happens and it seems so logical and practical to me that this should not occur. Surely the same Judge with a knowledge of the case from the start is the right person to see the action through to its conclusion and to perform that Solomon-like balancing of the rights of either side. Arbitrations Over the years arbitration has changed from a genial occupation to a quite complicated pursuit. As the seventy-fifth anniversary of the founding of the Institute of Arbitrators passes so the demands for knowledge and a retentive memory grow. No longer d o arbitrators judge solely in equity; in this country they are bound by precedent. They are bound but not manacled. Arbitrators still have considerable freedom in their decisions. Arbitrators are still nominated by the disputants. There is complete freedom of choice when appointing them. This is the greatest compliment which can be paid to the wisdom and knowledge of arbitrators. In arbitration the parties select their judge; in the courts they d o not. So as the late Cedric Barclay once said, 'Arbitrators are elected because of their skill, ability and experience. T o maintain this aura, they must behave like Caesar's wife'. I d o not exactly know what she did, but she must have done it well judging by the smile depicted on her face by subsequent illustrations in the history books. It is often forgotten that because most disputes are commercial arbitrations an arbitrator is justified in many instances in departing from normal rules of procedure. Many trades have arrived at a procedure which they adopt as being swifter and better than strict reference to the Courts. Quality arbitrations are examples, where the decisions of an expert probably produces the right and fair answer more readily than a full scale session before a Court of Law or even an Arbitration Tribunal. The general conduct of the case must be 'fair' in the sense that it is impartial and does not prejudice one party against the other. But the award must be based strictly upon the terms of the parties' agreement out of which the dispute arises, and a generally equitable decision or 'palm tree' justice on the basis that on the facts of the case, it is 'unfair' for the contract to be applied as strictly as might be applied, in some cases is wrong. It should not be forgotten that the aim of arbitration is to obtain swift justice at low cost. The appointment of lawyers can generate extra expenditure which ultimately has to be borne by the parties. It is said that if solicitors are to be instructed, then the dispute might as well go directly to the High Court. Whilst this is an over simplification, many disputes which could be settled quickly without the assistance of lawyers so often develop into a full scale legal battle before an arbitrator. As Lord Justice Scrutton said in W Naumann v Edward Natham & CO Ltd as long ago as 1930: 'During the last thirty or forty years business men have formed the view that it is possible to be too accurate in investigating disputes and that it is better on the whole for business to have a rough and ready way of getting at the truth than the more accurate, expensive and dilatory method of the courts. 'This is particularly the case with the class of disputes which are known as quality disputes. If a buyer rejects goods on the ground that goods do not comply with the contract in many particulars, the question is one which requires someone to understand the trade to decide it properly; and if that quality dispute is to be decided in the Courts, the Judge who has the merit of complete impartiality and ignorance of the subject-matter, listens to three or four gentlemen who say it is in accordance with the contract and three or four gentlemen on the other side who say with equal positiveness that it is not. He may, if he is an exceptionally intelligent Judge, manage to see through the contradictions of the witness; but he may not. At the end of the proceedings there will be a fairly expensive bill of costs, and commercial men may not be satisfied that the right result has been arrived at. In this case it was held by the Court of Appeal that the Arbitration evidence showed that the dispute had been settled by arbitration in London in the "usual" way and that the procedure adopted was not contrary to public opinion. As to what is meant by the 'usual procedure', Lord Scrutton said that this was the first case in which he had known the trade prove the 'usual way', because it appeared to him that the evidence here was overwhelming that the umpire had carried out the usual procedure in a quality arbitration. I d o not believe that the same decision could be relied on now. Conclusion Disputes are inevitable in building contracts, d o what one will. How can it be otherwise? In ordinary commercial contracts, disputes are numerous and sometimes very complex. If we have disputes in commercial transactions how can we avoid them in building contracts where the operations take place not in the factory of the contractor, but on the site of the building owner, which becomes in effect a temporary factory in which a contractor must set up his plant, deploy his labour, and organise his operations. That factory, too, is the centre of a network of operations - sub-contractors, nominated and otherwise, suppliers, nominated and otherwise, architects, engineers, surveyors, specialists and tradesmen, with all sorts of officials jointly breathing down the necks of those concerned. The wonder is not that there are many disputes, but that there are not many more, and May 1991 that is only in the construction industry. Somebody once calculated that we have 35 million laws on the statute books to enforce the 10 commandments! There are of course far more disputes than require to be resolved by litigation or arbitration. They are usually settled during the course of the contract, whether by negotiation, conciliation or mediation. Of course if there were no disputes to resolve the world would be a better place, though some of us might be poorer. When, in this imperfect world, disputes inevitably d o arise we should seek to resolve them with all that we can command of good sense and efficiency - around a table if possible - and with a fairness and understanding that is expected of reasonable people, before they develop into a full scale legal battle. But if they should so develop I hope that judges will have more regard to the practical aspects of the construction industry rather than allowing lawyers to turn matters of fact into matters of law. Joyce Grenfell once remarked that it is not so much the pursuit of happiness as the discovery of joy that is important, but Cicero took a more prosaic view in his observation 'Let us make the best of what has happened'. I gain confidence, however, from the thought that I shall eventually succumb to that richly deserved obscurity that comes to us all, but I hope still with some of that wonderful enthusiasm that Bill Tompkins displayed in every task he tackled and with the thought that it has all been well worthwhile.
0
You can add this document to your study collection(s)
Sign in Available only to authorized usersYou can add this document to your saved list
Sign in Available only to authorized users(For complaints, use another form )