The Courts have recently ventured into the murky waters of the name borrowing provisions of the JCT Works Contract.
Judge Humphrey LLoyd QC gave his decision in Belgravia Property Company Ltd v S&R (London) Ltd on 18 July this year on various issues concerning the mechanics of those provisions and gave some useful guidance on what might be expected of the Works Contractor and the Management Contractor when operating them.
Belgravia was the Employer under a Management Contract with Taylor Woodrow Management Limited. Taylor Woodrow employed S&R as a Works Contractor to carry out various plastering works. Both contracts were (in all material respects) in the standard JCT 87 form.
S&R considered that its works had been undervalued by the architect when certifying amounts payable under the terms of the Management Contract. S&R therefore sought to operate the "name borrowing" clause in the Works Contract (clause 4.27) and to persuade Taylor Woodrow to join with it in an arbitration against Belgravia. Taylor Woodrow stated that clause 4.27 was subject to clause 1.11 of the Works Contract and that, as a result, before consenting to the borrowing of its name by S&R to commence arbitration against Belgravia Taylor Woodrow was entitled to demand such indemnity and security in respect of costs it might incur in the operation of the name borrowing clause as it might reasonably request. As S&R did not agree to that contention, Taylor Woodrow withheld its consent to use of its name by S&R in any arbitration against Belgravia.
Despite the lack of consent from Taylor Woodrow, S&R commenced an arbitration against Belgravia to recover the monies it claimed it was owed. Belgravia claimed that the arbitrator appointed had no jurisdiction to deal with S&R’s claim and referred the issue of the arbitrator's jurisdiction to the Court.
The Judge confirmed that the arbitrator did not have jurisdiction to deal with S&R's claim. The only person in a position to commence arbitration against Belgravia was Taylor Woodrow and S&R did not have the right to commence arbitration against Belgravia in its own name. The Judge also confirmed that clause 4.27 of the Works Contract is subject to clause 1.11 of and therefore Taylor Woodrow was entitled to demand an indemnity and security in respect of costs it might incur in the operation of the name borrowing clause.
Whilst they did not form the basis of his decision, the Judge also referred to various actions which are likely to be required of each party when operating the name borrowing provisions. In essence these involve each party keeping the other fully informed of all documents and correspondence received and all actions taken in relation to the name borrowing arbitration. He also suggested that a Management Contractor would be entitled to withhold its consent to use of the name borrowing clause in the event that the arbitration (or conduct of it) reflected badly on its reputation in the eyes of the Employer.
As the Judge said, there are "very great difficulties in trying to fathom how in practice name borrowing provisions should work": the judgment in this case should resolve some of them.
For further information, please contact Victoria Peckett at victoria.peckett@cms-cmck.com or on +44 (0)20 7367 2544.
