Al Waddan Hotel Ltd v Man Enterprise Sal (Offshore)

[2014] EWHC 4796 (TCC) (14 December 2014)

FIDIC — implied terms of cooperation and non-prevention of performance — a party cannot take advantage of its own wrongdoing — the Employer’s responsibility for the obligations of the Engineer

The issue before the court was whether the Contractor ("MAN") was entitled to submit a dispute to arbitration before the expiry of the contractual time-period by which the Engineer was first required to issue a decision on the dispute, which was a condition precedent to arbitration, but in circumstances where by the default of the Employer ("AWH") the parties knew that the Engineer would not issue a decision within that period or at all.

The contract in question was the FIDIC Red Book (4th edition, 1987) (the "1987 Red Book"). The relevant clause was sub-clause 67.1 which states that if a dispute arises between the parties, it shall in the first place be referred to the Engineer, who shall issue a decision within 84 days. The court held that it was very well established under the FIDIC form that the procedure under clause 67.1 was a condition precedent to arbitration.

Here, MAN referred a dispute to the Engineer in accordance with sub-clause 67.1. It became evident that no Engineer’s decision would be given because AWH had ended the Engineer’s retainer and it took no steps to re-engage or replace the Engineer. Subsequently MAN referred the dispute to arbitration. AWH contested this on the basis that even though there would be no Engineer’s decision, MAN was still bound to wait until the expiry of the 84-day period which the Engineer had to make a decision.

The court rejected AWH’s argument and found that the dispute could be referred directly to arbitration notwithstanding that the condition precedent had not been complied with.

In coming to this conclusion the court reviewed the broad, longstanding legal principles of cooperation and prevention of performance, cited in the 1881 case of Mackay v Dick [1881] 6 AC 25.

Some 17 years earlier in Stirling v Maitland (1864) 5 B & S 840, the court had said:

"... if a party enters into an arrangement which can only take effect by the continuance of a certain existing set of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative",

HHJ Raeside QC held that these principles were so well established that they could be readily implied into common law contracts. Here at least the court looked to the more recent case of Attorney General of Belize v Belize Telecom [2009] 1 WLR 1988, where Lord Hoffman said that:

"There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?"

Applying these principles, the court found that the condition precedent at sub-clause 67.1 could be displaced by either or both of what it labelled the "refusal approach" and the "hindrance avoidance approach".

The refusal approach was based upon a long line of authorities again dating from Victorian times which held that where an independent decision-maker appointed by the parties refuses to carry out his or her delegated function then the parties may come before the court to seek the relief or remedy that would otherwise have been obtained from the appointed decision-maker. Accordingly, upon the Engineer "clearly and absolutely" stating that it would not perform its decision making function, the parties were able to elect either that the contractual requirement no longer bound them or to attempt to obtain another Engineer. As AWH had not taken any steps to obtain another Engineer, the parties were no longer bound by the requirement to obtain the Engineer’s decision.

The "hindrance avoidance" approach is based upon the longstanding principle most frequently cited from the speech of Blackburn J in another Victorian case of Roberts v Bury Improvement Commissioners (1870) L.R. 5 C.P.310 where the Judge said that:

"no person can take advantage of non-fulfilment of a condition the performance of which has been hindered by himself".

In respect of this the court noted that AWH was obliged under the contract not only to engage the Engineer but also to ensure that the Engineer’s contractual obligations were fulfilled. This meant that AWH were under an obligation to maintain the Engineer’s retainer or appoint another Engineer in instances of non-performance.

AWH had breached this obligation because it ended the Engineer’s retainer and failed to appoint another Engineer, thereby preventing the performance of this condition. Accordingly, AWH was not entitled to rely upon the condition precedent that made it necessary to obtain an Engineer’s decision before the dispute could be referred to arbitration. This meant that MAN was not bound by the condition precedent and was entitled to refer the dispute to arbitration.

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