§ Order of the Day for the Second Reading read.
§ LORD ASKWITH
My Lords, this is a very short Bill of five clauses, but the whole matter is in Clause 1, the rest being purely formal. The principle of the Bill is to prevent parties to contracts from acting as umpires or arbitrators; in fact, to prevent a person being an arbitrator in his own cause. The late Lord Bowen referred to one of these contracts as "a curiously coloured contract" and spoke of human weakness and preconceived opinion. Clause 1 comes to this, that if in a written agreement it is laid down that future differences shall be submitted to arbitration, such a provisionso far as it provides that a party to the agreement or any engineer, architect, surveyor, officer, servant or agent employed by him shall be the umpire or sole arbitrator shall be void.In that case there are three alternatives provided. They can agree upon a new umpire or sole arbitrator, or such a person may be appointed by a third party, as is very frequently the case—somebody nominated by the president of one of a number of associations or societies—or, failing either of these two courses, either 710 party can apply to the Court, and the Court may on such application appoint an umpire or sole arbitrator in place of the person mentioned in the agreement.
That is the form—a good type of clause —adopted by such railways as the London and North-Eastern Railway, by such bodies as the River Douglas Catchment Board, the River Nene Catchment Board, the War Office, the Post Office, and the Office of Works and the Ministry of Transport; also by the Association of Consulting Engineers, by the Institute of Electrical Engineers, I think by the Mechanical Engineers, by the Royal Institute of British Architects (who have been improving their clause for years, and in 1931 very largely met the desires of their contractors, though the clause might be yet further improved), and by the Institute of Structural Engineers, as well as by many others. The reasons why these clauses have been objected to have been shortly put before me by the Structural Engineers. They object to the employer's engineer giving a final and conclusive decision on every matter arising. That is a bad contract; and a second bad contract is when the engineer has the power, at the instance of the employer only, to refer questions to an independent arbitrator, while the contractor is given no power to refer to an independent arbitrator. A third bad clause is one in which, while there is an independent arbitration clause, that clause is rendered illusory by all the material points being excepted and reserved for final and conclusive decision to the employer's engineer.
As an instance of the type of bad clause, there has been put in my hands a draft contract which is being sold by a reputable stationer in Chancery Lane, and this gives an instance of what a clause can be. It says:If any dispute or difference shall arise between the contractors and the council touching or concerning the works hereby contracted to be done or any altered additional or omitted work or in anywise relating thereto such dispute or difference shall be left to the decision of the engineer whose decision shall be final and conclusive between the parties hereto and shall not be impeached in any Court of Law except on the ground of fraud or collusion.It is known to any one who has had to do with drafting of memoranda and articles of this sort how, when a draft clause is put before them, people are like 711 sheep, so that it gets into common use as this clause has been getting into common use. The reason why contractors accept such an objectionable clause is that it is said that if they do not like it they should not enter into the contract containing this clause. But their answer is that they are in fact given little opportunity of having anything to say on the conditions of the contract, which is drawn up by the employer and issued as the conditions on which all contractors are invited to tender on a competitive basis.
Agreements are not always voluntary even though they seem to be voluntary, for contractors are faced with the alternative of going without work or risking the acceptance of unfair conditions of contract, which employing authorities frequently refuse to modify. The scales are weighted in this way against individual contractors, who have often to accept contract conditions which they do not like in the hope that the unacceptable conditions will not be used oppressively against them. These hopes are only too often disappointed. The reason why the employer's engineer should not be the sole arbitrator is this. He cannot be expected to be impartial and unbiased in matters which may prejudice his employers, and still less in matters which may involve his own professional competence and professional reputation. He is deciding between his own paymaster on the one hand and the contractor on the other. He is an advocate of the interpretation which favours his employer, and therefore cannot fairly be a judge between that interpretation and the contractor's interpretation. He will often be the real defendant where the point at issue is his own alleged negligence, neglect, or delay or where his own certificates, opinions, decisions, requisitions, or notices are under review. How can he be an unbiased judge in such cases? It is an unfair burden. The contractor's security and whole financial interest may be at the mercy of his employer.
Judges of the High Court have often adverted to this kind of difficulty. I cite but one, which was given by a Judge of noted skill some years ago. He remarked that in a case of this kind the arbitratorwould have a difficulty in separating his two duties, and a gentleman who possibly is extremely skilled in his profession is very likely to confuse the two portions of his 712 duties; and, having to obey and follow the direction of one of the two parties in reference to the great proportion of what he has to do throughout the business, he falls into the way of taking a certain amount of instructions from them with reference to other parts of his duties.That opinion, and the view in favour of this Bill, was strongly expressed to me by my noble friend Lord Atkin, who un-fortunately this morning telephoned to me to say he was laid up with a chill but authorised me to state that he strongly approves of the Bill.
There are a number of good clauses. On the other hand, there are very bad clauses. After two bad clauses, a certain corporation put in this:In case any question, dispute, or difference shall arise between the employers and the contractor, not already hereinbefore provided to be settled in the manner set out in the two preceding clauses, such question, dispute or difference shall be referred to the engineer as arbitrator, and in such case the employers shall not be liable in respect of any claim by the contractor unless and until the liability of the employers and the amount of their liability in respect of the claim shall have been awarded by the arbitrator whose award in such case shall be a condition precedent to any liability of the employers or any right of action against the en plovers in respect of such claim.This was strongly objected to by the civil engineering contractors, but the corporation would not even see them on the point.
Another one was that of a water board:'The engineer shall be the exclusive judge upon all matters whatsoever relating to the construction, incidents, and consequences of this said plans, drawings, specifications, bill of quantities, and other documents of this contract or to the execution of the said works or otherwise, howsoever arising out of or connected with the contract, and the certificates of the engineer under his hand shall, so far as they respectively extend, be binding and conclusive on both parties. The engineer may from time to time modify any preceding certificate or certificates by any subsequent certificate.A similar bad clause existed on the London and North-Eastern Railway:All questions, matters, and things touching or concerning the contract shall be decided by the engineer in his sole and absolute discretion, and his decisions shall be final and without appeal.A contractor in a case like that has absolutely no chance. The London and North-Eastern Railway, however, when approached by the constructional engineers and other bodies of engineers, have entirely modified that clause and 713 provided for independent arbitration. There are a large number of good people and also a large number of bad, and it is to induce the bad to conform with the good, and not to allow this bad practice to continue, that this Bill is brought in.
I have a very large number of letters in support of the Bill which I need not read to your Lordships, except, possibly, a few specimens. The Federation of British Industries has just held a full meeting, and I am informed that I have authority to say that they entirely support the Bill. I have a letter, too, from the National Union of Manufacturers to say that they are prepared to support the principle of the Bill. They add: "You may say so in your speech in the House of Lords." The Royal Institute of British Architects inform me that the Bill has been submitted to the council at their last meeting, and the writer says:I am very glad to inform you that the Council of the Royal Institute agreed to authorise you to state in the House of Lords that they approve of the Bill and its objects.The Institute of Structural Engineers state thatthis Institute will give their moral support to the proposed Bill to amend the law relating to arbitration.The Association of Consulting Engineers state thatthe principle of the Bill has the strong support of the Committee of the Association.Then the Council of the Institution of Civil Engineers suggest that, in addition to an engineer-employer not being allowed to be an arbitrator, no large shareholder in a company should be allowed to be an arbitrator, which would be an addition to the Bill. They allude to various points which they think they will have to consider but which really are not touched by the Bill itself at all. They support the principle of the measure. The Society of Incorporated Accountants and Auditors do the same. The Institute of Arbitrators and the National Federation of Building Trades Employers also support the Bill. On behalf of this last-mentioned body it is stated:My Federation not only approve the Bill in its entirety, but also wish to express their grateful thanks to you for bringing it forward. The proposals and the method of approach have all met with the entire approval of this Federation. This Federation has about 10,000 members, and my 714 council speak with emphasis and conviction on their behalf.The Chartered Surveyors' Institution, the Civil Engineering Contractors, the British Electrical and Allied Manufacturers Association, the Association of British Chambers of Commerce, the London Chamber of Commerce, the National Federation of Specialists and Sub-Contractors, and so on, either by resolutions of their councils or, in cases where there has not been time, by letters from their Chairmen, say that they fully approve the Bill. In fact, I may say, in the words of the National Federation of Specialists and Sub-Contractors, that "it would remove an unfortunate and unfair state of affairs." I do not think I need trouble your Lordships with any more of these lists of supporters. I have put shortly before the House what the objects of the Bill are, and I have read the reasons why it is so much favoured by all these people. It removes a difficulty. I have had no word of dissent from the Bill. There is evidently an evil that requires to be stopped, and I beg to move.
§ Moved, That the Bill be now read 2a.—(Lord Askwith.)
§ LORD SNELL
My Lords, I do not intend to oppose the Second Reading of this Bill because it affirms the entirely equitable principle that a man should not be a judge in his own case and also affirms that no one whom that man controls should be absolute judge. To that extent there is no objection in principle to the passing of this Bill providing that its operation is somewhat limited. I am not for the moment speaking on behalf of the Labour Party, which has not had an opportunity to consider this Bill, but I do know, I think, what is the mind of local authorities in regard to this problem. They would not, I believe, raise any objection to it provided that the principle only applies in those cases in which any contract or other agreement specifically lays it down that certain questions of difference shall be submitted to arbitration.
It frequently happens that contracts are entered into by a local authority which provide that a chief engineer or other executive officer concerned shall be the sole judge in certain matters, such, for instance, as to whether any given material is or is not satisfactory. Other like matters include standards of 715 workmanship, the removal and re-execution of any work, or making good defects. Matters such as these have always been considered as questions that should be excluded from the scope of arbitration, and it would not appear that the Bill as it is drawn, so far as I understand it, could diminish in any way the sole discretion of the council's officers in regard to such questions. Your Lordships will immediately see the importance which local authorities are likely to attach to this matter. Members of borough, county and urban district councils are not experts in regard to the quality of material and the many technical matters that they have to consider. They have to rely in great part upon the judgment of their executive officers, and it is important to them, I think, that nothing should be done which would prevent local authorities from asking their technical advisers to get on with the work.
The result of this Bill might be to delay the execution of contracts in great part, and it is of very great importance as a rule for local authorities to get their contracts completed as speedily as possible. Therefore, on the assumption that there is no objection to be raised to the Bill in principle, we would only ask that these matters of detail should be considered. In the event of your Lordships giving a Second Reading to this Bill, someone might have to consider whether any modification in detail was called for having regard to the practice of local authorities in this country.
§ LORD GAINFORD
My Lords, to-day I attended a meeting of the executive committee of the Federation of British Industries when this Bill was fully considered by those present. It had been previously considered very carefully by their contracts committee. They were unanimously in favour of the Bill, and they hope not only that it may receive a Second Reading and be passed through this House, but that the Government may find opportunity of enabling it to pass through another place on to the Statute Book.
§ LORD MARKS
My Lords, I support this Bill as an engineer, having had experience in contracts which have given me difficulty owing to the fact that the person for whom work was being done has insisted upon this peculiar system 716 that the engineer himself shall determine all questions of dispute between himself and the contractor. There are many questions which arise in connection with every contract that call for some variation in the method of the work that is being done. There may be a question of difference between the engineer and the contractor or the architect and the builder which can be readily adjusted, and would be easily adjusted were it known that in case of any difficulty between the two it could be referred to a third person, an outside person, to determine the matter in dispute. But when there is a rigid contract under which the contractor is bound, whatever the conditions be, to accept the decision of the engineer or the architect, it makes for an arbitrary interference with the ordinary work which is being done, and at least very considerably delays the execution of the work.
I have had contracts of my own in which I have objected to certain things and the contractor has objected to other things. When it has been left solely to the decision of the engineer there has been a feeling of restraint on the part of the contractor and of embarrassment on the part of the engineer; but where-ever there is a difficulty between two persons, one the expert and the other the contractor, and they can feel that an outside person can settle the matter, there is a more friendly feeling existing between the contractor and the engineer or the architect and the builder as the case may be than is possible when the architect is the sole arbiter all the way through or the engineer is the master of the position. I support this Bill because I believe that it will make for fair dealing between contractor and engineer, and, further than that, because it may make for a better and more friendly feeling between contractor and engineer, knowing full well from the start, as they will do, that if there is any unreasonableness on either side some independent person, not the paid servant of one, will come in to settle the matter in dispute. I also support the Bill because I am sure it will lead to greater expedition in the carrying out of contracts, will remove any suspicion there may be otherwise at the beginning that one is the master and is an arbitrary master, and will make the contractor feel throughout that he will have a reasonable chance of his work being 717 properly judged not by the man who is in charge of it but by someone else who has equal knowledge of the work that ought to be done.
I also support this Bill on behalf of my own profession. I have been practising as a civil engineer for fifty years, and I know something of the difficulties that always arise when you have a running contract and the embarrassment is thrown upon the owner of requiring that his servant shall be the arbitrator in any dispute. I hope this Bill will be considered as a Bill to promote fair dealing between the master and the workmen and between the agent and the owner of the building which is being put up. The necessity of it is now recognised by good firms and large concerns, but, unfortunately, the whole of the country is not equally placed. There are contractors who are willing to agree to some of the things that are done and who enter into contracts because they are afraid of losing a job; then when they get on the job they commence to grumble and give considerable trouble to the engineer, due to the fact that they have undertaken to do something they are not capable of carrying out. I hope the Bill will be looked upon as one bringing about fair dealing between one man and another, and I support it very heartily.
§ LORD AMULREE
My Lords, I also support the Bill. In addition to the large number of bodies quoted by my noble friend Lord Askwith in support of the Bill, I may mention that another important body, the Building Industries National Council, also supports it. This body is composed of architects, building contractors, quantity surveyors and others interested in the building industry. With reference to the point raised by the noble Lord, Lord Snell, I think from my reading of the Bill that his apprehensions are met. As I read the Bill it is only certain specified differences that are to be referred to an independent arbitrator, and all the minor matters of which he spoke are reserved for the decision, not in the sense of arbitration, of the officer of the local authority. This point has been under discussion between local authorities and other bodies for a number of years. As far back as 1925 there was a meeting between representatives of the Association of Municipal Corporations, the British Water Works 718 Association and the Institution of Municipal and County Engineers on the one hand and representatives of the London Chamber of Commerce and the Federation of British Industries on the other hand. The question discussed at that time was whether a certain form of agreement should not be drawn up which might be applicable to all building contracts with which local authorities have to deal.
As a matter of fact they were not able to arrive at any exact form of agreement, but the opinion of the Association of Municipal Corporations is, I venture to suggest, embodied in this Bill. May I quote from the Municipal Review, which is the organ of the Association:Whilst we recommend the acceptance of the principle of a. reference of disputes to an independent arbitrator, we would add that in most contracts there will be sonic questions which of necessity should be excluded from the arbitration clause and should be determined by the appropriate officer of the corporation. To take a common example, a contract for the construction of works may provide for the mixing of cement and concrete in correct proportions and for its use immediately after being mixed. In a case of that kind, the engineer ought clearly to have power to condemn any concrete which, in his opinion, does not comply with the conditions of the contract; it would he impracticable in such a case to refer the question to an arbitrator.That discussion having taken place and that recommendation having been made in 1325, there was in 1931 a further discussion between the Federation of British Industries and the Association of Municipal Corporations and the Association adhered to the same opinion. They were still of opinion, while agreeing to the general principle of a reference of disputes to an independent arbitrator, that certain matters should be reserved for the determination of the appropriate officer of the corporation.
As I read the Bill that idea is carried out. The Bill says:Any provision in a written agreement made after the commencement of this Act to the effect that all or any specified differences whether present or future shall be submitted to arbitration so far as it provides that a party to the agreement or any engineer, architect, surveyor, officer, servant or agent employed by him shall be the umpire or sole arbitrator shall be void. …The Bill therefore contemplates that any agreement entered into under the scope 719 of the Bill shall be in two parts, one specifying the matters referred to the independent arbitrator and the other relating to disputes which would come under the immediate survey of the officer of the building owner. In those circumstances I venture to suggest that the points of criticism made by my noble friend Lord Snell have been met by the Bill. Whether the Bill is drafted in proper language is a matter which may have to be considered, but in principle I think the Bill does carry out what he has in mind.
Like my noble friend Lord Marks, I think this Bill, if it becomes law, will have a good effect in ensuring that all agreements and all building contracts which are undertaken shall be carefully drafted before the tender is let out. At the present time in many cases it is the practice to give out work when only the general outline of the contemplated work has been decided upon. A great many details are left to be filled in afterwards. The result is a great amount of delay and a great amount of dispute as to what is included in the agreement. These matters under many contracts are reserved for the determination of the arbitrator or the officers of the building owner. There has been a great amount of dissatisfaction in the past and in many cases agreements have been so hardly driven that many contractors have been brought to the verge of insolvency.
One principal result which may well follow from this Bill, if it becomes law, is the adoption of a scheme well known in Canada and the United States as the time and progress schedule. Under that plan before any work is undertaken the whole scheme of the proposed building is worked out in detail, giving specified times between which every section of the work should be carried out from the excavations to the finishing of the building. If such a scheme were adopted here by architects or engineers questions in dispute would seldom arise because the whole thing would be worked out in detail before the work was undertaken. One good effect of that would be a reduction in the time of building and a reduction in cost. According to an authoritative report there might be expected to be a reduction of one-third in time and a reduction of 15 per cent. in cost. The matter was dealt with at 720 considerable length by the Building Industry Council of Review in 1932, and it was reported that work done under such a scheme as this would result in completion of the work in one-third less time and a reduction of cost by 15 per cent. I beg to support the Bill.
§ THE SECRETARY OF STATE FOR AIR (VISCOUNT SWINTON)
My Lords, I think I should perhaps add a few words in courtesy to my noble friend. I am not going to ask your Lordships not to give a Second Reading to the Bill, but my noble friend asked me a difficult question when he wanted to know whether I could guarantee that the Bill will get through another place. That is a guarantee which I am afraid I cannot give. Your Lordships know what a very heavy programme the Government have put before Parliament and I could not possibly give any guarantee of that kind. I would only add that obviously as the noble Lord has put the broad proposition, that where parties really enter into an agreement that there shall be arbitration which everybody supposes is to be independent and then the arbitration is in fact to be carried out by someone who is not independent at all, such an arbitration clause should not necessarily hold good, that is a proposition which everybody could accept. But I am not sure whether all your Lordships are aware that that position is to a large extent met by the amendment made by the Arbitration Act, 1934.
I do not say it goes the whole way that this Bill goes, but this matter was considered, your Lordships will remember, by the Mackinnon Committee, who were rather deprecating altering contracts that people had made, yet thought that there was an evil to be met and recommended that the Courts should have power to set aside an arbitration clause where the arbitrator turned out not to be independent. Effect is given to that recommendation by Section 14 of the Arbitration Act, 1934. I only add that remark so that, either if the Bill did not find favour in all respects in your Lordships' House or in another place, or if time prevented the passage of the Bill, your Lordships might have the consolation of knowing that the evil of which everyone, or nearly everyone, has complained and which it is intended that this Bill should remedy, is already remedied, 721 at any rate to a great extent, by the Arbitration Act, 1934.
§ On Question, Bill read 2a and committed to a Committee of the Whole House.