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HARBOUR AND GENERAL WORKS LTD
THE ENVIRONMENT AGENCY
COURT OF APPEAL
16 SEPTEMBER, 12 OCTOBER 1999
BEFORE: WALLER AND TUCKEY LJJ
Martin Bowdery (instructed by Beale & Co) for HAGWL.
Timothy Elliott QC (instructed by Mills & Reeve, Cambridge) for the respondent.
James Wilson Barrister (NZ).
ALTERNATIVE DISPUTE RESOLUTION – ARBITRATION – Commencement – Extension of time fixed by agreement – Contract providing different time limits for referring engineer’s decision to conciliation and arbitration – Builder referring decision to conciliation outside time limit for conciliation but within time limit for referral to arbitrator – Employer not alerting builder to conciliation time limit until after expiry of arbitration time limit – Whether time for commencing arbitration should be extended – Arbitration Act 1996, s 12(3).
COMMERCIAL LAW – CONTRACT:- Building contract with arbitration clause – Construction of – Engineer – Engineer’s decision –Contract providing for engineer to make decisions on disputes over certificates – Builder making claims in respect of certificate of substantial completion – Engineer making decision on liability but not quantifying some claims – Time limit for challenging engineer’s decision expiring – Whether engineer’s decision could be reopened in arbitration on final payment certificate – Institution of Civil Engineers Arbitration Procedure (1997), r 5.2 – Institution of Civil Engineers Conditions of Contract (6th edn, 1993 amendment), cl 66.
SCIENCE AND TECHNOLOGY – ENGINEERING WORKS:- Contract for certain construction works subject to the Institution of Civil Engineers Conditions of Contract – How treated
HISTORY AND SUMMARY
EA employed H Ltd to carry out certain construction work subject to the Institution of Civil Engineers Conditions of Contract (6th edn, 1993 amendment)(the ICE Conditions). Clause 66a provided that any disputes over a certificate issued by the engineer would be referred to him for a decision. Under cl 66(4), such a decision would be final and binding unless both parties accepted a recommendation by a conciliator or the decision was reversed by an arbitrator. Clause 66(5) and (6) respectively provided that the parties had one month from the engineer’s decision to serve notice of referral to a conciliator, and three months to serve notice of referral to an arbitrator. Originally the ICE Conditions had not contained any time limit on giving notice of conciliation, but in August 1993 the time limit in cl 66(5) had been inserted by means of corrigenda, and that provision had been inserted into the contract between the parties. On 29 June 1998 the engineer gave a decision on five claims made by H Ltd in respect of a certificate of substantial completion. He reached a decision on principle in respect of those claims, but did not quantify all of them. Mistakenly relying on the pre-corrigenda version of the contract, H Ltd served notice of referral to a conciliator on 23 September 1998, nearly two months outside the time limit established by cl 66(5) but five days within the time limit for serving notice of referral to an arbitrator under cl 66(6). EA replied on 25 September, questioning the validity of the notice, but it did not refer H Ltd to cl 66(5) until 5 October. On 6 October H Ltd served notice of referral to an arbitrator, even though the time limit under cl 66(6) had expired eight days previously. Accordingly, H Ltd applied to the court for an order under s 12b of the Arbitration Act 1996 extending the time for commencing the arbitration.
a Clause 66, so far as material, is set out at p 53 f to p 55 b, post
b Section 12, so far as material, is set out at p 57 d to g, post
It contended that the circumstances were outside the reasonable contemplation of the parties within the meaning of s 12(3)(a), and that EA’s conduct made it unjust for the claim to be barred under s 12(3)(b). Alternatively, H Ltd sought a declaration that it was entitled to reopen the engineer’s decision in a further arbitration on the final payment certificate. It relied, inter alia, on r 5.2c of the Institution of Civil Engineers Arbitration Procedure (1997)(the ICE Arbitration Procedure) which provided that an arbitrator had jurisdiction over any issue connected with and necessary for the determination of the dispute, irrespective of whether there had been compliance with any condition precedent to referring the matter to arbitration. The judge held that the circumstances of the case fell outside s 12(3) of the 1996 Act, and also dismissed the alternative application for a declaration. H Ltd appealed.
c Rule 5.2 is set out at p 63 d e, post
(1) On its true construction, s 12(3) of the 1996 Act precluded the court from interfering with a contractual bargain unless the circumstances were such that the parties would, at the very least, have contemplated that the time bar might not apply if those circumstances had been drawn to their attention when they had agreed the provision. If they had so contemplated, it was then for the court to rule whether justice required giving an extension. Such a construction prevented certain circumstances which might not have been in the parties’ reasonable contemplation, such as a failure to read the provisions of a contract, from triggering consideration of an entitlement to extend time. However, the mere fact that the party seeking the extension had been in control of the circumstance did not disqualify that circumstance from being one to which s 12(3) applied, although it might be a material fact in assessing its significance. For example, that provision might apply where the relevant party put the notice to arbitrate through the wrong letterbox, even though such a circumstance might be said to be within the party’s control at least to some extent. Moreover, although the mere fact that a notice was a near miss assisted very little in considering whether the circumstances were within s 12(3), it would not be an irrelevant circumstance when taken with other circumstances. In the instant case, H Ltd had failed to read the provisions which had been agreed, and that was not a circumstance triggering the court’s power under s 12(3). Nor had EA been under any obligation to advise H Ltd that time was about to expire or that it appeared that the latter had failed to read the relevant provisions. In those circumstances, it was not unjust to hold H Ltd to the strict terms of the time bar (see p 59 f h to p 60 d h to p 61 a, and p 64 d, post); dictum of Mance J in Grimaldi Cia di Navigazione SpA v Sekihyo Line Ltd  3 All ER 943 at 958 explained.
(2) On its true construction, r 5(2) of the ICE Arbitration Procedure did not give an arbitrator jurisdiction over any issue which had been determined by the engineer and which was final and binding by virtue of the provisions of cl 66(4) of the ICE Conditions. Once the decision of the engineer had become final and binding in relation to any matter, there was no ‘issue’ which could be said to be connected with and necessary to the determination of any dispute or difference. Such a construction accorded with commercial common sense since it was unlikely that a contract would provide for decisions of the engineer to be ‘final and binding’, but then leave the whole matter uncertain once the final certificate had been produced. Even if that was wrong, it was difficult to see how the decisions in the instant case could be said to be ‘connected with and necessary to 51 the determination’ of the dispute in relation to quantification that had been referred to the arbitrator. Accordingly, the appeal would be dismissed (see p 63 h to p 64 d, post).
Decision of Colman J  1 All ER (Comm) 953 affirmed.
For the statutory power to extend time for commencing arbitration proceedings and for the ICE Conditions of Contract, see 2 Halsbury’s Laws (4th edn reissue) Supp para 651 and 4(2) Halsbury’s Laws (4th edn reissue) para 302 respectively.
For the Arbitration Act 1996, s 12, see 2 Halsbury’s Statutes (4th edn)(1999 reissue) 575.
Cases referred to in judgments
Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd  2 All ER 778, 1 AC 266, 2 WLR 860, HL.
Cathiship SA v Allansons Ltd, The Catherine Helen  3 All ER 714.
Consolidated Investment and Contracting Co v Saponaria Shipping Co Ltd, The Virgo  3 All ER 988, 1 WLR 986, CA.
Fox & Widley v Guram  1 EGLR 91.
Grimaldi Cia di Navigazione SpA v Sekihyo Line Ltd  3 All ER 943, 1 WLR 708.
Liberian Shipping Corp v A King & Sons Ltd  1 All ER 934, 2 QB 86, 2 WLR 856, CA.
Mid Glamorgan CC v The Land Authority for Wales (1990) 49 Build LR 61.
Monmouthshire CC v Costelloe & Kemple Ltd (1965) 5 Build LR 83, CA.
Nea Agrex SA v Baltic Shipping Co Ltd  2 All ER 842, QB 933, 2 WLR 925, CA.
Vosnoc Ltd v Transglobal Projects Ltd  2 All ER 990, 1 WLR 101.
Harbour and General Works Ltd (HAGWL) appealed from the decision of Colman J on 19 February 1999 ( 1 All ER (Comm) 953) dismissing its applications for (i) an extension of time under s 12 of the Arbitration Act 1996 to commence arbitration proceedings against the respondent, the Environment Agency, in connection with a decision made by an engineer on 29 June 1998, determining various claims made by HAGWL in a dispute over a certificate of substantial completion issued under the contract between the parties, and (ii) a declaration that it was entitled to reopen the engineer’s decision in a further arbitration over the final certificate. The facts are set out in the judgment of Waller LJ.
Martin Bowdery (instructed by Beale & Co) for HAGWL.
Timothy Elliott QC (instructed by Mills & Reeve, Cambridge) for the respondent.
Cur adv vult
12 October 1999. The following judgments were delivered.
This is an appeal from the judgment of Colman J given on 19 February 1999 (see  1 All ER (Comm) 953). Before the judge the appellant, Harbour and General Works Ltd (HAGWL), sought an extension of the period of time within which to commence an arbitration under s 12 of the Arbitration Act 1996; in the alternative it sought a declaration that no extension of time was required. In relation to both points Colman J ruled against the appellant.
Extension of time application
This application was for an extension of time for the commencement of arbitration under a contract on the Institution of Civil Engineers Conditions of Contract (the ICE Conditions). Under the contract HAGWL was employed by the respondent to carry out and complete works involving the construction of flood defences at Parkeston Quay, Harwich. In dispute were and are five distinct claims by the appellant for additional costs in respect of the carrying out of the works. The claims related to additional excavation costs (claim 1), additional costs due to delay to site access and temporary works approval (claim 2), additional costs incurred in delays resulting from variation order no 12 (claim 3), additional costs incurred for land-based filling (claim 4), and various additional costs incurred for miscellaneous items (claim 5).
The conditions of contract were the ICE Conditions (6th edn) dated January 1991, incorporating the corrigenda dated August 1993 but amended and added to in relevant respects. The relevant clause, so far as the first point is concerned, is cl 66, and I shall set that clause out in full incorporating the relevant corrigenda but italicising the corrigenda to cl 66(5) since that aspect is of relevance.
‘SETTLEMENT OF DISPUTES
66(1) Except as otherwise provided in these Conditions if a dispute of any kind whatsoever arises between the Employer and the Contractor in connection with or arising out of the Contract or the carrying out of the Works including any dispute as to any decision opinion instruction direction certificate or valuation of the Engineer (whether during the progress of the Works or after their completion and whether before or after the determination abandonment or breach of the Contract) it shall be settled in accordance with the following provisions.
Notice of Dispute
(2) For the purpose of sub-clauses (2) to (6) inclusive of this Clause a dispute shall be deemed to arise when one party serves on the Engineer a notice in writing (hereinafter called the Notice of Dispute) stating the nature of the dispute. Provided that no Notice of Dispute may be served unless the party wishing to do so has first taken any steps or invoked any procedure available elsewhere in the Contract in connection with the subject matter of such dispute and the other party or the Engineer as the case may be has (a) taken such steps as may be required or (b) been allowed a reasonable time to take any such action.
(3) Every dispute notified under sub-clause (2) of this Clause shall be settled by the Engineer who shall state his decision in writing and give notice of the same to the Employer and the Contractor within the time limits set out in sub-clause (6) of this Clause.
Effect on Contractor and Employer
(4) Unless the Contract has already been determined or abandoned the Contractor shall in every case continue to proceed with the Works with all due diligence and the Contractor and the Employer shall both give effect forthwith to every such decision of the Engineer. Such decisions shall be final and binding upon the Contractor and the Employer unless and until as hereinafter provided either (a) the recommendation of a conciliator has been accepted by both parties or (b) the decision of the Engineer is revised by an arbitrator and an award made and published.
(5) In relation to any dispute notified under sub-clause (2) of this Clause and in respect of which (a) the Engineer has given his decision or (b) the time for giving an Engineer’s decision as set out in sub-clause (3) of this Clause has expired and no Notice to Refer under sub-clause (6) of this Clause has been served either party may within one calendar month of receiving notice of such decision or within one calendar month after the expiration of the said period give notice in writing requiring the dispute to be considered under the Institution of Civil Engineers’ Conciliation Procedure (1988) or any amendment or modification thereof being in force at the date of such notice and the dispute shall thereafter be referred and considered in accordance with the said Procedure. The recommendation of the conciliator shall be deemed to have been accepted in settlement of the dispute unless a written Notice to Refer under sub-clause (6) of this Clause is served within one calendar month of its receipt.
(6)(a) Where a Certificate of Substantial Completion of the whole of the Works has not been issued and either (i) the Employer or the Contractor is dissatisfied with any decision of the Engineer given under sub-clause (3) of this Clause or (ii) the Engineer fails to give such decision for a period of one calendar month after the service of the Notice of Dispute or (iii) the Employer or the Contractor is dissatisfied with any recommendation of a conciliator appointed under sub-clause (5) of this Clause then either the Employer or the Contractor may within 3 calendar months after receiving notice of such decision or within 3 calendar months after the expiry of the said period of one month or within one calendar month of receipt of the conciliator’s recommendation (as the case may be) refer the dispute to the arbitration of a person to be agreed upon by the parties by serving on the other party a written Notice to Refer. (b) Where a Certificate of Substantial Completion of the whole of the Works has been issued the foregoing provisions shall apply save that the said period of one calendar month referred to in (a)(ii) above shall be read as 3 calendar months …
Arbitration—procedure and powers
(8)(a) Any reference to arbitration under this Clause shall be deemed to be a submission of arbitration within the meaning of the Arbitration Acts 1950 to 1979 or any statutory re-enactment or amendment thereof for the time being in force. The reference shall be conducted in accordance with the Institution of Civil Engineers’ Arbitration Procedure (1983) or any amendment or modification thereof being in force at the time of the appointment of the arbitrator. Such arbitrator shall have full power to open up review and revise any decision opinion instruction direction certificate or valuation of the Engineer.(b) Neither party shall be limited in the proceedings before such arbitrator to the evidence or arguments put before the Engineer for the purpose of obtaining his decision under sub-clause (3) of this Clause. (c) The award of the arbitrator shall be binding on all parties. (d) Unless the parties otherwise agree in writing any reference to arbitration may proceed notwithstanding that the Works are not then complete …’
I can take the events leading up to the reference of the claim to arbitration from the judge’s judgment (at 957–959):
‘On 21 January 1997 the engineer issued a certificate of substantial completion with effect from 22 April 1996. On 3 April 1998 the engineer issued an interim certificate in the sum of £39,662·08 including VAT in response to the submission of claims 1 to 5 by HAGWL in the course of 1997. On 6 April 1998 HAGWL gave to the respondent notice of dispute seeking the engineer’s decision on each of the five claims. On 18 May 1998 HAGWL sent to the engineer a statement of final account, indicating a final price of £5,737,156·86. The engineer’s decision was issued on 29 June 1998. Some of the claims were accepted outright or in principle and others rejected in principle. Claim 3 and claim 5, item 2.9 were the subject of detailed calculations. On 15 July 1998 HAGWL wrote to the engineer and stated that the decision was unacceptable. On 8 September 1998 the engineer’s representative wrote to HAGWL raising a question relating to the reconciliation of the figures arising from the engineer’s decision, their final account and their claims. In the meantime, HAGWL had taken no steps under cl 66 either to commence conciliation under 66(5) or arbitration under 66(6). If it was going to proceed by conciliation it was obliged to give notice in writing requiring the dispute to be considered under the Institution of Civil Engineers Conciliation Procedure (1988) as amended and to do so within one calendar month of receiving notice of the engineer’s decision, that is to say within one month of 29 June 1998, namely 28 July. If it was to bypass the conciliation procedure, which it was entitled to do, and proceed directly to arbitration, it had to give the respondent notice to refer to arbitration within three calendar months of receiving notice of the engineer’s decision, that is to say by 28 September 1998. On Wednesday, 23 September 1998 HAGWL sent a fax to the respondent by which it stated that it was dissatisfied with the engineer’s decision in respect of the total amount which it was entitled to be paid under or arising out of or in connection with the contract, that sum being in the order of £2m. The letter continued:”Accordingly, we hereby give notice that we require the dispute to be considered under the Institution of Civil Engineers Conciliation Procedure.” The letter then set out a list of three appropriate conciliators and continued:”We invite you to agree to one of the above names and would draw your attention to Rule 4 of the Conciliation Procedure which requires that we agree a Conciliator within 14 days of the Notice of Conciliation.” This notice of conciliation was just short of two months out of time. On Friday 25 September 1998 the respondent’s solicitors sent by fax the following letter to HAGWL:”We have been instructed by the Environment Agency who have forwarded to us your letter to them dated 23rd September 1998 which purports to be a Notice of Conciliation. Our clients reserve their rights to 55 dispute whether it is a proper Notice of Conciliation. In the meantime, we hereby acknowledge receipt of your letter, and we will revert back to you on its contents as soon as possible.” The copy of the letter now before me is receipt-stamped 28 September, so it may be that it was not received during office hours until that date, which was the following Monday. On that Monday, HAGWL sent a letter by fax to the respondent stating that it had that day received the solicitors’ 25 September letter, that the solicitors had not provided any detail as to what their concerns were about the notice of conciliation, that HAGWL believed that the letter was a correct and proper notice of conciliation and setting out the five claims in question. The letter concluded:”We trust the foregoing will remove any doubts you may have had over the status of the Notice of Conciliation but should, however, you continue to harbour doubts would you please make the details of your concerns known to us by return of fax so any possible delay to the Conciliation process may be avoided.” On the same day the engineer issued a final payment certificate. This was based on the engineer’s decision of 29 June in respect of the five claims, that is to say it proceeded on the assumption that such decision was correct in principle and it went on to quantify claims 3 and 5 to the extent accepted by the engineer. A sum of £72,718·96 including VAT was certified to remain payable as the final amount due. On 30 September 1998 HAGWL informed the respondent by fax that its 28 September letter had inaccurately described one of the claims. Then on 5 October 1998 the respondent’s solicitors wrote to HAGWL informing it that under cl 66(5) of the ICE Conditions time for issuing a notice of conciliation had expired on 28 July and that, accordingly, the notices of conciliation served on 23 and 25 September were invalid. On the following day, 6 October 1998, eight days after time for the commencement of arbitration had expired under cl 66(6)(a), HAGWL’s solicitors sent by fax to the respondent’s solicitors two communications. (i) There was a “Notice to refer Dispute to Arbitration” by which they referred to the notice of dispute of 6 April 1998 and to the engineer’s decision issued on 29 June 1998. They state that they understood from HAGWL that “there [was] some uncertainty whether that decision [had] to be read alongside the final financial evaluation of 28 September”(no doubt referring to the final payment certificate). The letter went on:”Our clients are dissatisfied with the engineer’s decision in respect of the total amount which they are entitled to be paid under or arising out of or in connection with the Contract. We are now instructed to give notice that they require the dispute to be referred to arbitration.” The letter then set out “the matters in dispute”, namely the five claims. (ii) The covering letter sent by the solicitors stated in effect that they did not accept the respondent’s solicitors’ analysis that the notice of conciliation was invalid but that, in order to protect their client’s position, they had served the notice to refer to arbitration. They asked for confirmation that the respondent did not challenge that notice by contending that it was not served within time, failing which, HAGWL would make an application under s 12 of the Arbitration Act 1996 for a short extension of time. The letter concluded:”Further, we put you on notice that our clients will be requesting an Engineer’s decision on the Final Certificate and, in the event of the decision being unsatisfactory, our clients will be referring to arbitration the whole question of the Final Certificate. Any Arbitrator appointed in that dispute will have jurisdiction to decide on all issues connected with the Final Certificate, including the validity of our client’s claims 1–5. Please confirm you accept that the Arbitrator will have such jurisdiction.”’
As the judge indicated, neither confirmation was given and it was for that reason that the appellant issued its application for an extension of time to 6 October 1998.
It is perhaps just right to add to the judge’s summary, the following. HAGWL accepts that it was out of time with its notice of conciliation. The explanation for that is to be found in an affidavit of Mr. Jones dated 7 October 1998, where he says:
‘This application arises because [the appellant] applied the time limits set out in the Contract Conditions and not the Corrigenda in challenging the engineer’s decision and seeking a review of that decision by a conciliator.’
Clause 66(5), prior to August 1993, placed no time limit on the giving of a notice of conciliation following the decision of an engineer. After August 1993 the corrigenda inserted the time limit of one calendar month and it was that time limit which had been inserted into the terms of the contract between the appellant and the respondent in this case.
Section 12 of the Arbitration Act 1996
That section provides as follows:
‘(1) Where an arbitration agreement to refer future disputes to arbitration provides that a claim shall be barred, or the claimant’s right extinguished, unless the claimant takes within a time fixed by the agreement some step—(a) to begin arbitral proceedings, or (b) to begin other dispute resolution procedures which must be exhausted before arbitral proceedings can be begun, the court may by order extend the time for taking that step.
(2) Any party to the arbitration agreement may apply for such an order (upon notice to the other parties), but only after a claim has arisen and after exhausting any available arbitral process for obtaining an extension of time.
(3) The court shall make an order only if satisfied—(a) that the circumstances are such as were outside the reasonable contemplation of the parties when they agreed the provision in question, and that it would be just to extend the time, or (b) that the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question.
(4) The court may extend the time for such period and on such terms as it thinks fit, and may do so whether or not the time previously fixed (by agreement or by a previous order) has expired …’
As the judge suggests, and is not in issue, an applicant for an extension of time under s 12 has to establish that:(a) the circumstances are such as were outside the reasonable contemplation of the parties when they agreed the provision in question and that it would be just to extend time; or alternatively (b) the conduct of one party makes it unjust to hold the other to the strict terms of the provision in question.
Mr. Martin Bowdery before the judge, and before us, submitted primarily that the ‘circumstances’ were outside the reasonable contemplation of the parties when they entered into the contract and he submitted that the relevant circumstances were as follows. First he said that there had been a procedural mishap in that the appellant had used the wrong type of notice but still notified the respondent that the engineer’s decision was challenged. Secondly, he relied 57 on the circumstance that the respondent only informed the appellant of this after the time for service of the correct notice had expired. Thirdly, he relied on the fact that the engineer only provided details of the financial consequences of his decision after the time for service of the notice to refer to arbitration had expired.
So far as the third point is concerned, the financial consequences of the engineer’s decision, so far as at least 90% of the claims were concerned, was clear. Those claims had been rejected. So far as one or two minor items were concerned it is true that they awaited quantification. There is no issue between the parties that, in so far as quantification has now been finalised by the final certificate produced by the engineer, that quantification can itself be the subject of a decision by the engineer which can be referred to arbitration and which has indeed been referred to arbitration.
In relation to the proper approach to s 12 the judge said as follows (at 961–962):
‘The enactment of s 12 of the 1996 Act marked a clear change in the law and practice relating to the extension of time for commencement of an arbitration beyond that specified in a contractual time-bar provision. This is clear both from the change in the wording previously applicable and to be found in s 27 of the Arbitration Act 1950 and in the Report on the Arbitration Bill by the Departmental Advisory Committee on Arbitration Law (1996) under the chairmanship of Saville LJ (as he then was). Under s 27 the court had given the words “if [the court] is of the opinion that in the circumstances of the case undue hardship would otherwise be caused” a broad meaning and relatively benevolent application. This is clear from the leading authorities on the section, such as Liberian Shipping Corp v A King & Sons Ltd  1 All ER 934, 2 QB 86, Consolidated Investment and Contracting Co v Saponaria Shipping Co Ltd, The Virgo  3 All ER 988, 1 WLR 986 and Nea Agrex SA v Baltic Shipping Co Ltd  2 All ER 842, QB 933. The courts approached the concept of undue hardship by reference to such factors as the size and strength of the claim, the extent of the claimant’s fault, the pendency of negotiations between the parties, whether the respondent had been obstructive, the extent to which the respondent would suffer prejudice in addition to the loss of its time-bar defence if time were extended and generally whether the hardship was not only excessive but undeserved and unmerited. The approach was not unlike that to extensions of time under RSC Ord 3, r 5. Paragraphs 69 and 70 of the Departmental Advisory Committee Report explained the change to the wording of s 12 as intended to reflect the underlying philosophy of the Act as being that of “party autonomy”. By that phrase was meant “among other things, that any power given to the court to override the bargain that the parties have made must be fully justified”. The idea that the court had “some general supervisory jurisdiction over arbitrations has been abandoned”. It was for that reason that the court’s power of extension was confined to the two cases covered by s 12(3)(a) and (b) of the Act. It is to be observed that these two cases,(a) circumstances beyond the reasonable contemplation of the parties when the agreement was made and when it would be just to extend time and (b) where the respondent’s conduct makes it unjust to enforce the time limit, are very closely related to party autonomy and are conceptually quite different from the “undue hardship” and Ord 3, r 5 approach. Accordingly, the approach to the construction of s 12 has, in my judgment, to start from the assumption that when the parties agreed the time bar, they must be 58 taken to have contemplated that if there were any omission to comply with its provisions in not unusual circumstances arising in the ordinary course of business, the claim would be time-barred unless the conduct of the other party made it unjust that it should. In this connection, it would appear quite impossible to characterise a negligent omission to comply with the time bar, however little delay were involved, as, without more, outside their mutual contemplation. Narrowly overlooking a time bar due to an administrative oversight is far from being so uncommon as to be treated as beyond the parties’ reasonable contemplation. The process of identifying and evaluating in the balance the disparity between the prejudice to the claimant on the one hand and the degree of fault on his part on the other will not normally be a relevant exercise in determining whether there were circumstances beyond the reasonable contemplation of the parties. The circumstances in question must in each case include those which caused or at least significantly contributed to the claimant’s failure to comply with the time bar.’
I agree with the above approach. I do not think it differs from the approach of Clarke J in Fox & Widley v Guram  1 EGLR 91, Geoffrey Brice QC sitting as a deputy judge of the High Court in the Commercial Court in Cathiship SA v Allansons Ltd, The Catherine Helen  3 All ER 714 or Mance J in Grimaldi Cia di Navigazione SpA v Sekihyo Line Ltd  3 All ER 943, 1 WLR 708. Nor do I myself think that it differs very much from the approach of Judge Raymond Jack QC sitting as a judge of the High Court in the Commercial Court in Vosnoc Ltd v Transglobal Projects Ltd  2 All ER 990, 1 WLR 101, albeit the judge obviously had some doubts about the actual decision.
I would however sound one note of caution as to what might follow on a rather strict application of the approach and which in my view cannot have been intended. The point which I would make can be made by reference to the circumstances of this particular case. Colman J categorised the circumstances as a ‘mistake as to [the] operation’ of cl 66, and held it came nowhere near ‘the area of circumstances outside the reasonable contemplation of the parties envisaged by s 12’. The actual mistake on further refinement can be said to be a failure to read the provisions which had been agreed. If one were to pose the question whether it would be contemplated by the parties that they would not even read the provision that they had agreed when contemplating operating the provision, the sensible answer would seem to be that one could not even reasonably contemplate that.
Does that mean that the clearer it is that the circumstance is one that the parties would not have contemplated as happening or contemplated as one for which an extension of time would not be allowed if it had been asked for, the more likely it is that the circumstance is one not within the reasonable contemplation of the parties? In my view that cannot be the proper construction of the subsection. The subsection is concerned with party autonomy. Its aim seems to me to be to allow the court to consider an extension in relation to circumstances where the parties would not reasonably have contemplated them as being ones where the time bar would apply, or to put it the other way round, the section is concerned not to allow the court to interfere with a contractual bargain unless the circumstances are such that if they had been drawn to the attention of the parties when they agreed the provision, the parties would at the very least have contemplated that the time bar might not apply—it then being for the court finally to rule as to whether justice required an extension of time to be given. That is an approach 59 which did not commend itself to Judge Raymond Jack QC in the Vosnoc case  2 All ER 990 at 1001, 1 WLR 101 at 112, but I suggest that if the absurdity of some circumstances being outside the contemplation of the parties triggering the power under s 12(3) is to be avoided, the above construction gives best effect to the intention of the draftsman. In this very case it enables circumstances such as a failure to read the provisions which might not be reasonably contemplated, to be circumstances which do not trigger consideration of an entitlement to an extension of time.
I should also add that albeit if a circumstance was within the control of a party seeking an extension, that might be a material factor in assessing the significance of the circumstance; I would not think that control alone disqualifies a circumstance from being one to which the subsection applies. I am not sure that this was the judge’s view, but in case his reference to control is so interpreted, it is right to be clear about the matter. Thus, for example, if a notice to arbitrate was put through the wrong letterbox by the relevant party, that might be said to be within the control of that party at least to some extent, but that might be an example of a case where s 12(3) could apply.
I should just add a further sentence on Judge Raymond Jack QC’s decision in the Vosnoc case. I agree with the view of the judge that the mere fact that a notice is a near miss assists very little in considering whether the circumstances are within s 12(3). At the same time it seems to me not an irrelevant circumstance when taken with other circumstances, and I would not myself cast any doubt on the actual decision. I do not understand Mance J to have cast any doubt upon the decision in the Vosnoc case in his decision in the Grimaldi case. Indeed, as I understand his judgment, he was merely reserving a further question when he said:
‘On the approach adopted by Judge Jack, a mistake of law as to what suffices to refer a matter to arbitration within the meaning of a clause requiring such a reference to be made within a specific time may fall within s 12(3)(a), while a mistake of law as to what requires to be referred to arbitration within such time will not. The distinction is narrow, and I should like to reserve my judgment on the possibility of applying s 12(3)(a), both in a case of reasonable misapprehension about the scope of the circumstances falling within an arbitration agreement, and in a case of reasonable misapprehension about the need to commence arbitration within a particular time. The construction of a contract is a matter on which even courts can hold very different views, sometimes only resolved at the highest level.’ (See  3 All ER 943 at 958, 1 WLR 708 at 723.)
In any event, as will now be apparent, I agree with the judge that the circumstances in this case of failing to properly read the provision relating to the time for commencement of an arbitration to challenge the decision of the engineer is not a circumstance triggering the court’s power under s 12(3).
As to the other two matters relied on by Mr Bowdery, I agree with the judge that they too do not amount to circumstances that would trigger that power and there is nothing I can usefully add to his reasons.
The respondent’s conduct
Once again there is little that I can add to the judge’s reasoning. There was no obligation on the respondent to advise the appellant that time was about to expire or that it appeared that the appellant had failed to read the relevant provisions.
In those circumstances it does not seem to me unjust to hold the appellant to the strict terms of the time bar.
The declaration application
The appellant rests this aspect of its appeal on three distinct grounds so far as the skeleton argument is concerned. First, the submission is that the dispute on the final payment certificate would have to encompass claims 1 to 5 irrespective of whether or not the appellant has complied with any condition precedent for referring these claims to arbitration; second, that there was no engineer’s decision until he issued the final payment certificate; and third that there was no proper notice of dispute under cl 66(2).
That third point has not been pursued and there is thus no reason to consider it further.
It is convenient to deal with the second point next, ie the submission that there was no engineer’s decision until the final payment certificate was issued. This submission rests on an observation of Lord Denning MR in Monmouthshire CC v Costelloe & Kemple Ltd (1965) 5 Build LR 83 at 90:
‘The third point is this: Did the Engineer state his decision in writing and give notice of it? It is said by the Council that the Engineer stated his decision in the letter of 7 April 1961. I do not think he did. The Engineer does not purport to state a decision. He only makes observations and comments on all the 11 claims. The judge has divided them into two groups. As to one half (as to which there has been a previous claim and rejection) the judge has held that the Engineer stated his decision on those matters. As to the other half (where there has been no previous claim or rejection) he held there was no decision within clause 66. I cannot agree with this view. It seems to me the whole 11 claims must stand or fall together. They are all on the same basis.’
On the basis of the above observation, the submission is that because the engineer did not reach a final decision on claim 3 and items 2.9 and 2.11 of claim 5 in that he left quantification over, there was no decision of the engineer at all. It was submitted that all the claims must stand or fall together in the phrase of Lord Denning MR.
It seems to me that the observation of Lord Denning MR is one that should be confined to the particular case. In fact in that case the primary ground of decision was that there had been no reference of a dispute to the engineer. That involved examination of the letter under which the dispute was referred and was a conclusion with which all members of the Court of Appeal in that case agreed. Thus the observation was on any view obiter. More important however it was confined to the particular circumstances of that case and the authority cannot be taken as laying down as a rule of law that if the disputes are referred to an engineer then there can be no decision of the engineer at all if he only deals with nine out of the ten disputes referred.
When one examines what was referred to the engineer in this case and examines the decision of the engineer, one can see the specificity of the disputes referred to him and the specificity of the engineer’s decisions in relation to each item.
In my judgment there is nothing in the point that there has been no engineer’s decision in this case.
That brings me back to the submission that the dispute on the final payment certificate will have to encompass claims 1 to 5 irrespective of whether the appellant has complied with any condition precedent for referring those claims to arbitration. There are three ways in which the appellant, through Mr Bowdery, suggests that the above proposition succeeds. First, he submits that the arbitrator is given jurisdiction over claims 1 to 5 by virtue of r 5.2 of the Institution of Civil Engineers Arbitration Procedure (1997)(the ICE Arbitration Procedure). Second, in the alternative, he submits that the arbitrator has such jurisdiction as a result of the judgment in Mid Glamorgan CC v The Land Authority for Wales (1990) 49 Build LR 61. Third, he submits, the arbitrator has such jurisdiction because on a proper construction of cl 66(4) there was no final and binding engineer’s decision.
Proper construction of cl 66(4)
It is convenient to commence with the third of the above propositions. The submission of Mr Bowdery is that cl 66(4) only provides ‘temporary finality’ until the issue of the final payment certificate. Mr Bowdery places great reliance on the decision of the House of Lords in Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd  2 All ER 778 esp at 786, 1 AC 266 esp at 276 per Lord Hoffmann:
‘… to make the certificate conclusive could easily cause injustice. It may have been given when the knowledge of the architect about the state of the work or the effect of external causes was incomplete. Furthermore, the architect is the agent of the employer. He is a professional man but can hardly be called independent. One would not readily assume that the contractor would submit himself to be bound by his decisions, subject only to a challenge on the grounds of bad faith or excess of power. It must be said that there are instances in the nineteenth century and the early part of this one in which contracts were construed as doing precisely this. There are also contracts which provided that in case of dispute, the architect was to be arbitrator. But the notion of what amounted to a conflict of interest was not then as well understood as it is now. And of course the inclusion of such clauses is a matter for negotiation between the parties or, in a standard form, the two sides of the industry, so that what is acceptable will to some extent depend upon the bargaining strength of one side or the other. At all events, I think that today one should require very clear words before construing a contract as giving an architect such powers.’
The Beaufort case seems to me to be of little assistance. The case concerned a form of contract in dissimilar form to the one with which this case is concerned. The question was whether the court had the same powers as an arbitrator to open up and review decisions of the architect administering the contract. Lord Hoffmann drew distinctions between certificates which were final and certificates which were not, and it was in relation to certificates which were not final that the House of Lords concluded that the court had the same powers as an arbitrator to open up the same. There simply is no support for the view that where wording of the type used in cl 66(4) is used, ie that decisions are to be ‘final and binding’ unless certain steps are taken that those words should be construed as only ‘temporarily binding’.
Mr Bowdery suggested that his construction was commercially more convenient since it enabled the engineer to deal with situations during the currency of a contract and allow those decisions to be reopened at the end of the contract. That argument seems to me to be two-edged. Firstly, there is no necessity for the contractor to insist on a decision of an engineer, albeit I appreciate that the employer may do so. Secondly, it may in fact be commercially more convenient if a decision which is final and binding can be taken at an early stage of the contract. All will depend on the particular circumstances that prevail in particular industries and indeed on particular contracts. What the court must do is simply construe the words of the contract which has been adopted by the parties in any particular situation.
In this case I see no basis on which the words used in cl 66(4) should be given anything other than their natural and ordinary meaning.
Mid Glamorgan CC v The Land Authority for Wales (1990) 49 Build LR 61
I can find nothing in the Mid Glamorgan CC case which would support the argument that matters which have been decided by the engineer and not been the subject of an arbitration notice, and which are thus by cl 66(4)‘final and binding’ can be reopened in an arbitration relating to the final certificate. Whether or not they can be reopened would seem to me to have to rest on the particular provisions of the contract with which this case is concerned including r 5.2 of the ICE Arbitration Procedure. Accordingly it is to that rule to which I now turn.
Rule 5.2 of the ICE Arbitration Procedure (1997)
That rule provides:
‘Once his appointment is completed the Arbitrator shall have jurisdiction over any issue connected with and necessary to the determination of any dispute or difference already referred to him whether or not any condition precedent to referring the matter to arbitration had been complied with.’
The submission of the appellant is that if a matter has been referred to arbitration then it is open to the arbitrator to consider decisions of the engineer on other matters even if those decisions have become final and binding because they were not challenged in accordance with the procedure under cl 66. So in the instant case after receipt of the final certificate which quantified those claims left unquantified by the engineer’s decision, the appellant gave notice to the engineer of a dispute in relation to quantification. The engineer having resolved that dispute, the appellant then gave notice for an arbitration to take place on those items. It is plain that the object of the appellant in commencing the arbitration was to try and give jurisdiction to the arbitrator to resolve those matters which were previously the subject of the engineer’s decision and in relation to which cl 66(4) prima facie applies.
The primary submission of Mr Elliott QC is that r 5.2 does not allow an arbitrator to have jurisdiction over any issue which has been determined by the engineer and which is final and binding by virtue of the provisions of cl 66(4). He submits (and this was a submission accepted by the judge) that once the decision of the engineer has become final and binding in relation to any matter, there simply is not an ‘issue’ which could be said to be connected with and necessary to the determination of any dispute or difference. Albeit at one time I did wonder whether some assistance was given to Mr Bowdery by the final sentence of cl 66(8) in his argument that even decisions of the engineer unchallenged were reviewable provided they could be said to be ‘connected with and necessary to the determination of any dispute or difference already referred 63 to [the arbitrator]’, I was very much persuaded by Mr Elliott that there was no force in that point. Mr Elliott pointed out that there are decisions which are taken by the engineer with a small ‘d’ which are to be distinguished from a decision with a capital ‘D’. The decisions with a capital ‘D’ being those taken under cl 66.
It seems to me that the construction of r 5.2 suggested by Mr Elliott is the correct construction and accords with commercial common sense. It seems unlikely that a contract would provide for decisions of the engineer being ‘final and binding’ and then leave the whole matter uncertain once the final certificate had been produced.
In any event, even if r 5.2 did allow a decision of the engineer, unchallenged and thus final and binding, to be reopened in the context of an arbitration over some other aspect, it is difficult to see how the decisions in this case the subject of the decision letter could be said to be ‘connected with and necessary to the determination’ of the dispute in relation to quantification that has been referred to the arbitrator.
In my judgment the appeal from the decision of the judge should be dismissed. I have not dealt with the respondent’s notice because agreement has been reached on what will be the result if the appeal was otherwise to be dismissed.