Scheldebouw BV v St. James Homes (Grosvenor Dock) Ltd

A construction manager may perform both an agency function for the employer and a decision-making function affecting the parties’ competing interests. When performing the latter function, the manager must act independently, impartially, fairly and honestly, using professional skill to reach the right decision rather than one favouring the employer.

An employer may replace a construction manager where the contract expressly permits replacement. However, appointing the employer itself as the construction manager and certifier is sufficiently unusual that it requires clear express words. General wording permitting appointment of another person is insufficient where the contract’s structure assumes that employer and construction manager are separate entities.

Scheldebouw BV was a trade contractor engaged by St. James Homes (Grosvenor Dock) Ltd to install cladding under three trade contracts. Mace Ltd was named as construction manager. The employer later notified Scheldebouw that Mace’s appointment had ended and that the employer would undertake the construction manager’s roles.

Scheldebouw commenced proceedings seeking declarations that the employer’s conduct was repudiatory. The court tried four preliminary issues concerning whether the contracts permitted replacement, whether any replacement term was implied, and whether the employer could appoint itself. The central questions were whether the replacement wording applied to the construction manager and whether it authorised self-appointment.

1. Functions and duties. The construction manager had an agency function, involving implementation of the employer’s instructions, and a decision-making function, involving matters such as loss and expense, variations, extensions of time, practical completion, interim payments and final certification.
2. Those functions attract different duties. When acting as agent, the construction manager owes the ordinary duties of agent to principal. When making decisions affecting the employer and contractor, the manager must hold the balance fairly. The manager is not independent of the employer in the sense of being separately retained, but must act independently, impartially, fairly and honestly. The duty is to use professional skill and best endeavours to reach the right decision, rather than a decision favouring the employer.
3. The involvement of the architect and cost consultant did not remove or dilute the construction manager’s duty. Nor did the availability of adjudication or litigation provide an equivalent substitute for the protection supplied by a separate professional decision-maker.
4. Replacement. Appendix 1, Part E conferred an express power to replace the construction manager by written notification. Its natural construction applied the replacement mechanism to the relevant entities identified in that provision. Commercial context and the annex supported that conclusion. Preliminary issue 1 was therefore answered yes, and issues 2 and 3 did not arise.
5. Self-appointment. The employer was not entitled to appoint itself. The contract’s structure assumed that employer and construction manager were separate entities, and self-appointment would create substantial anomalies, including the employer issuing certificates to itself and the dispute-resolution machinery becoming distorted.
6. The words permitting appointment of another person were not sufficient to authorise this unusual arrangement. The employer’s legal duty to act fairly and independently did not make self-appointment acceptable, particularly because an organisation would find it more difficult to decide against its own commercial interests than would a professional agent. The answer to preliminary issue 4 was no.