Commercial contracts

In Nash Dyson LJ implied a term to “give effect to the reasonable expectation of the parties” that rates of interest would not be set dishonestly, for an improper purpose, capriciously or arbitrarily:

If asked at the time ... whether it accepted that the discretion ... could be exercised dishonestly, for an improper purpose, capriciously or arbitrarily, I have no doubt that the claimant would have said “of course not”.

In Socimer Rix J provided detail on limb two saying that decision-making powers were limited, by “necessary implication” (which sounds like construction): “by concepts of honesty, good faith, and genuineness, and ... the absence of arbitrariness, capriciousness, perversity and irrationality”. ' In Gan Insurance v Tai Ping Insurance, the scope of an inelegantly expressed power to approve settlements was disputed - “No settlement and/or compromise shall be made and liability admitted without the prior approval of Reinsurers”. ⁸ In the Court of Appeal Mance LJ, observing that the purpose of the sub-clause was to protect the reinsurer which was “directly exposed to loss”, ⁹ held that the limit was: “along the lines that the reinsurer will not withhold approval arbitrarily, or .... will not do so in circumstances so extreme that no reasonable company in

Duty to cooperate - case law and comment 57 its position could possibly withhold approval”.^{[1] [2] [3] [4] [5] [6] [7] [8] [9]} Other terms which have been used to limit decision-making include a requirement of “genuineness”, or that it should not be “so outrageous in its defiance of reason”.

Construction contracts

In construction and engineering settings manifold powers are usually delegated to an independent professional acting on behalf of the client as an agent.² These powers allow clients to manage the contract, sometimes in circumstances where, without such provisions, contractors can walk away, such as powers to award an extension of time following acts of prevention.

Such decisions are subject to re-examination by judges or arbitrators.² The role of certifiers or approvers is to act in a fair and impartial manner.^{2 5} In a leading case, Sutcliffe v Thackrah, Lord Reid said that the contract is made:

on the understanding that ... the architect will act in a fair and unbiased manner and it must therefore be implicit in the owner’s contract with the architect that he shall ... reach such decisions fairly, holding the balance between his client and the contractor.^{2 6}

In Balfour Beatty Civil Engineering Ltd v Docklands Light Railway Ltd, where the certifier was an employee, Sir Thomas Bingham MR agreed with Vivian Ramsey QC that the employer must: “act fairly and reasonably, even where no such obligation was expressed in the contract”. Jackson J ruled that an employee might only be appointed as a certifier if expressly permitted by the contract, as the purpose of appointing a certifier was to provide protection to the contractor against under-certification.”

Commenting that valuation is not an exact exercise Hobhouse J said in Secretary of State for Transport 1» Birse-Farr Joint Venture that the its purpose is to provide a fair progress payment system.² This is also not new law. In 1901 Sir AL Smith MR, commenting that final payment is “not a mere matter of arithmetic”, said that the architect: “owed a duty to the builder ... to hold the scales fairly and to decide impartially ... the amount which the builder was entitled”.' ¹ Mr Recorder Toul-son QC referred to the position of the architect as “quasi-arbitral”, ruling that when taking termination decisions the architect should act fairly; noting that the Courts are used to applying such a standard.^{[10] [11] [12]} Even in a notoriously difficult environment, such as construction contracting,^[13] neither Courts nor contracting parties appear to have difficulty’ with such standards.

• [1] Ibid, at [73] and [76],
• [2] Bluewater Energy Services BV v Mercon Steel Structures B7(n. 222 above).
• [3] Ludgate Insurance Company Ltd v Citibank NA (n. 229 above) at [35].
• [4] Hudson at 2.076 “a Certifier [decides] matters such as value, quality of work or extension of time as part of an administrative function ... the Certifier is ... acting as agent".
• [5] Modern Engineering v Gilbert-Ash Northern [ 1974] AC 689.
• [6] See generally Hudson, chapter 4.
• [7] Sutcliffe >' Thackrah (n. 8 above), at 737. Lord Morris - the architect must be "fair and honest”, “he is not employed ... to be unfair” at 740-741. Lord Salmon - the architect “must act fairly and impartially” at 759.
• [8] Balfour Beatty Civil Engineering Ltd v Docklands Light Railway Ltd (n. 220 above) at 10-11. At 10.85 Sergeant and Wieliczko note that this does not mean that the level of valuations must be reasonable. Ramsey ) held in Bluewater Energy Services BV v Mercon Steel Structures BV (n. 222 above) that a clause requiring that Mercon “continuously proceed with action satisfactory to BLUEWATER to remedy such default” is “not ... construed by reference to an objective standard. ... there is a limitation on ... to concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality”.
• [9] Scheldebouw v St. James Homes (Grosvenor Dock) /.rn'|2()06| BLR 113.
• [10] Secretary of State for Transport r Birse-Farr Joint Venture [ 1993] 62 BLR 36 at 53.
• [11] Chambers p Goldthorpe [1901] 1 KB 624 at 973. See also Sutcliffe r Thackrah (n. 8 above). See Hudson and Wallace, Hudson’s 11th edn (n. 72 above) at 6.022-6.035 and Sergeant and Wieliczko at 10.88 - Wedncsbury principles should be applied by certifiers together with Sutcliffe duties.
• [12] John Barker Construction Ltd r London Portman Hotel Ltd 83 Build LR 35 at 45E.
• [13] Stella Rimington, former Director General of MIS, in her autobiography. Open Secret (2002): “the Thames House Refurbishment was fraught with difficulties. It was clear that dealing with the building industry was just as tricky as dealing with the KGB.”