Early December 2017 witnessed the reveal of FIDIC’s newest versions of its 1999 Red, Yellow and Silver Books, otherwise known as the Rainbow Suite. This Second Edition of the 1999 version was cited by FIDIC as bringing in wording which would ultimately enhance the certainty and transparency of the standard provisions. Chief among these is the new obligation of the Engineer to act ‘neutrally’ when looking to reach Agreement or make a Determination under sub-clause 3.7 (formerly sub-clause 3.5). Guidance issued by FIDIC in relation to the Yellow Book states, with regard to sub-clause 3.7, that “…when acting under this Sub-Clause the Engineer treats both Parties even-handedly, in a fair-minded and unbiased manner”.
In the 1999 Edition, the Engineer was simply required to make ‘a fair determination in accordance with the Contract, taking due regard of all relevant circumstances’. The insertion of an additional ‘neutrality’ requirement is certainly an interesting development which could be open to future interpretation, as the term ‘neutral’ is not actually a defined term in the revised wording and as a result is arguably quite vague. FIDIC have specifically stated that this change is designed to highlight the key fact that when the Engineer is exercising his or her duties in accordance with sub-clause 3.7, he or she cannot be said to solely be required to act in the interests of the Employer, despite the nature of the relationship between the two. This serves as a useful opportunity to remind clients of the well-established principles in this area concerning the duties of the Engineer within the context of his or her contractual relationship with the Employer.
It has long been accepted that while the Engineer is an agent of the Employer and thus owes a contractual duty of professional care to said Employer, the parties will still ordinarily contract on the basis that in certain circumstances the Engineer will be required act in a manner which is fair and unbiased to both parties. Such circumstances have been held to generally include situations where the Engineer must exercise his or her professional skill, including (but not limited to):
- issuance of payment certificates;
- expression of satisfaction with the works; and
- any other matter where the Engineer is required to attempt to achieve Agreement between the parties or make a formal Determination.
The seminal authority on this point is that of Sutcliffe v Thackrah (1), where the House of Lords essentially distinguished between the duty of care owed by the Engineer to the Employer and the duty of the Engineer to act fairly and impartially in the circumstances outlined above – it was stated that these two roles are not inconsistent with one another and as a result both should be observed and executed by the Engineer depending on what the circumstances called for in any given situation.
This general position regarding how the Engineer’s contractual status and duties should be viewed is well-established and has been echoed in a number of subsequent decisions which serve to make clear that although the Engineer cannot necessarily be said to be independent of the Employer, this fact will not be deemed to compromise his or her ability to act fairly in the exercise of decision-making powers concerning both the Employer and the Contractor. Whether the Engineer is deemed to meet these requirements will ultimately depend heavily on the case at hand – for instance he or she may consult with and report to the Employer regarding the quality of work as required and where no fraud or collusion are present such actions will not constitute a breach of the Engineer’s duty. What will ultimately be required is an independent view, primarily in regard to granting the certificate of payment, which is free from any type of control or influence on the part of the Employer.
It should also be remembered that the courts have repeatedly warned that the duty of the Engineer to act fairly and in an unbiased manner should not be misconstrued as being solely at his or her discretion as to what is fair or unfair. This is a duty which can be interpreted quite strictly by the courts, and if the Engineer is deemed to have not met the required standards of fairness and independence as between both the Employer and Contractor, he or she can be found to be at fault.
Clients should thus bear in mind that while the Engineer may in fact be an agent of the Employer, this does not by any means reflect the totality of his or her duties, and will in certain circumstances be contractually required to act honestly and impartially where the situation calls for it.
Contributor to this article, trainee Ameer Gazder.