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Contractual name-calling that confuses even the experts

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TECHNICAL & PRACTICE - LEGAL MATTERS

Probably every qualified architect has at least a basic knowledge of arbitration - what it is, and how it works. Some architects have acquired a wide and detailed understanding of the issues, as a result of their personal involvement as expert witnesses or as arbitrators. But even among practising arbitrators there are few who would claim to have a full understanding of name-borrowing arbitrations. Mention 'nameborrowing'and you are likely to get a glazed look in response. Actually, the same blank expression is frequently seen on the faces of lawyers and judges when name-borrowing is mentioned.

Most judges have thrown up their hands and come out with exasperated phrases to describe it; 'very difficult to construe', 'grave difficulties in understanding', 'relationships which cannot be given any jurisprudential label', and 'very great difficulties in trying to fathom how in practice the name-borrowing provisions should work'.

The basic idea of nameborrowing is simple enough. It is intended to cater for the situation where a subcontractor's entitlement depends on what is due under the main contract. The subcontractor wants more money, and can only get it if the extra money is first shown to be due from the employer to the main contractor under the main contract. The problem is that only the main contractor has the contractual right to make the claim, but the main contractor may not be interested in pursuing it.

The solution is to give the subcontractor the right to step into the shoes of the main contractor and bring an arbitration claim in the main contractor's name. Similar arrangements apply where there is a works' contractor whose entitlement depends on what is due under the management contract.

A recent case decided by Judge Humphrey LLoyd QC in the Technology and Construction Court, Belgravia Property Co v S & R (London) Ltd (19 July 2001), has shed light on the subject.

It used to be thought that a name-borrowing arbitration created a three-party arrangement which included a direct relationship between the employer and the subcontractor (Lorne Stewart v William Sindall , 1986), but in the Belgravia case, Judge LLoyd convincingly explained why that view was wrong.

So who is the real claimant? As with these things, the terms need to be defined, and it depends what you mean by 'real'. In name, the main contractor is the claimant. The only rights considered by the arbitrator are the rights applicable between the main contractor and the employer. If the arbitrator makes orders against the claimant, it is the main contractor who must comply with them. The main contractor incurs liability for the arbitrator's fees, and potentially for the employer's costs of the arbitration. But the person in the driving seat is the subcontractor. It is the subcontractor who must give notice (in the main contractor's name) to commence the arbitration. It is the subcontractor who must prepare the statement of case and the evidence, and present the claim. And it is the subcontractor who must finance the arbitration, including indemnifying the main contractor against the liabilities and costs arising out of the arbitration.

What happens if the employer wants to bring a counterclaim against the main contractor? The counterclaim may be entirely distinct from the claim and may have nothing whatever to do with the subcontractor. It had previously been thought that such a counterclaim could not be brought. But this idea was exploded in the Belgravia case. Judge LLoyd said the employer may pursue any counterclaim that is permitted by the arbitration agreement in force between the employer and the main contractor. If the counterclaim does not concern the same subject matter as the subcontractor's claim, the main contractor will have to appoint their own representatives to deal with it, acting alongside the representatives engaged by the subcontractor.

A word of warning. General statements about what happens in name-borrowing arbitrations are only useful up to a point. The Belgravia case concerned a works' contractor and a management contract, rather than a subcontractor and a main contract. At the end of the day, the correct legal analysis is always going to depend on the exact terms of contract in force on the project.

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