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

Factual and Procedural Background

This case concerns a construction project in Central London involving a residential development known as "Grosvenor Waterside." The employer, a development company referred to as Defendant, employed a construction management method and entered into separate trade contracts with various contractors, including Plaintiff, a trade contractor engaged to install cladding on three buildings within the development. The construction manager role was initially held by Company A until 26 August 2005.

Dispute arose when Defendant purported to replace Company A as construction manager by appointing itself to the role. Plaintiff challenged Defendant's entitlement to do so under the trade contracts. Plaintiff commenced proceedings seeking declarations that Defendant was in repudiatory breach of the contracts by replacing the construction manager and appointing itself.

The court directed that four preliminary issues be tried concerning (1) whether the trade contracts expressly permit replacement of the construction manager, (2) whether any implied term permits replacement, (3) whether any implied term permits replacement for good cause, and (4) whether Defendant is entitled to appoint itself as construction manager.

Legal Issues Presented

1. On their proper construction, do the trade contracts provide expressly that the construction manager can be replaced by any further or other person notified in writing by the employer to the trade contractor from time to time?
2. If the answer to question 1 is no, do any or all of the trade contracts contain an implied term which permits the employer on notice to replace the construction manager?
3. If the answers to questions 1 and 2 are no, do any or all of the trade contracts contain an implied term which permits the employer on notice to replace the construction manager for good cause?
4. If the answer to any of the above questions is yes, is the employer entitled under any or all of the trade contracts to appoint itself as the construction manager?

Arguments of the Parties

Defendant's Arguments

• The trade contracts expressly permit Defendant to appoint "any further or other person" as construction manager, which includes Defendant itself.
• If the parties had intended to exclude Defendant from appointing itself, this would have been expressly stated.
• The construction manager acts as Defendant's agent, implementing instructions rather than making independent value judgments, so Defendant can perform this function.
• The construction manager has a duty to act honestly, fairly, and impartially, providing sufficient protection to Plaintiff even if Defendant assumes the role.
• It is in both parties' interests that the construction manager carries out duties correctly; there is no conflict of interest in Defendant acting as construction manager.
• Other professionals involved in decisions (architect and cost consultant) provide checks and balances.
• Authorities recognize certifiers often have conflicts of interest but are expected to set them aside; prior cases involved certifiers employed by the employer.
• If Defendant fails in duties as construction manager, Plaintiff has remedies through adjudication or litigation under the contract.

Plaintiff's Arguments

• The trade contract clearly distinguishes between Defendant and the construction manager as separate entities; the contract does not contemplate Defendant becoming construction manager.
• It is rare and unusual for an employer also to act as certifier; only one reported case exists where this occurred with express contractual provision.
• No express term permits Defendant to appoint itself as construction manager; general wording in the contract is insufficient.
• Certifiers have duties to act fairly, impartially, and independently, which conflict with Defendant occupying the construction manager role.
• Defendant becoming construction manager removes protections for Plaintiff and creates conflicts of interest.
• Although Plaintiff can challenge decisions, adjudication or litigation is costly and time-consuming, making practical protection inadequate.
• The dispute resolution scheme is distorted if Defendant is both decision-maker and employer, as Defendant would not challenge its own decisions.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first analysed the dual functions of the construction manager: (1) agency function, acting as Defendant's agent to implement instructions; and (2) decision-making function, requiring independent, impartial, fair, and honest judgment in issuing certificates and making determinations affecting the contract.

Reviewing authoritative precedents, the court confirmed that although the construction manager is employed by the employer and not independent in person, the role imposes a legal duty to act independently and fairly in decision-making. This duty is essential to balance the interests of employer and contractor.

On the first three preliminary issues, the court found that the contract expressly permits Defendant to replace the construction manager by notifying Plaintiff in writing, based on the wording in Appendix 1, Part E, and related annexes. The court rejected Plaintiff’s narrower interpretation limiting the replacement mechanism to the design team.

On the fourth preliminary issue, the court concluded Defendant is not entitled to appoint itself as construction manager. The reasoning included:

• The unusual nature of an employer acting as certifier requires an express contractual term, which is absent here.
• The contract structure presumes separate employer and construction manager entities; merging these roles causes practical and legal anomalies, including distorted dispute resolution and self-certification.
• The construction manager’s duty to act independently and impartially is more difficult for Defendant as an entity to perform than for a professional agent.
• The phrase "any further or other person" must be limited to competent persons, not literally any person including Defendant itself.
• Although both parties share an interest in correct certification, commercial realities mean employer interests often diverge from contractor interests.
• Contractor protections include an independent professional as construction manager and the manager’s duty of fairness; these protections are lost if Defendant assumes the role.
• Involvement of other professionals does not adequately safeguard impartiality, especially for extensions of time where no certificates are issued.
• Reported cases where employer acted as certifier involved contractor knowledge and consent at contract formation, which is not evident here.
• Allowing Defendant to appoint itself risks a scenario where Defendant replaces the entire professional team, fundamentally altering the contract Plaintiff priced.

Accordingly, the court rejected Defendant's broad interpretation of the contract and upheld Plaintiff's position on this issue.

Holding and Implications

The court's answers to the preliminary issues are:

• Issue 1: Yes – The trade contracts expressly permit Defendant to replace the construction manager by written notice.
• Issues 2 and 3: Do not arise – Because an express term exists, no implied terms need consideration.
• Issue 4: No – Defendant is not entitled under the trade contracts to appoint itself as construction manager.

The direct effect of this decision is that Defendant’s purported self-appointment as construction manager was not authorised, preserving the contractual protections for Plaintiff. The court did not establish any new precedent beyond applying established principles of contract interpretation and the duties of certifiers under construction contracts.