The use of name borrowing arises when the architect directs the contractor as to the amounts contained in an interim certificate to be paid to subcontractors. If the subcontractor feels aggrieved about the amount certified, then the respective clauses of NSC/4 and the works contract require the contractor to allow the subcontractor to use its name, and if necessary, join with the subcontractor in arbitration proceedings against the employer.
At first blush, this provision appears straightforward. It is not difficult to imagine the situation where the subcontractor is unhappy at the amount certified. The contractor attempts to negotiate an increase on its behalf, but the architect declines to increase the amount. In that situation, the name borrowing provisions can be used to the subcontractor’s advantage. It commences arbitration in the contractor’s name against the employer.
There are, however, pitfalls that ought to be considered prior to embarking on such an arbitration. For one thing, the courts are not convinced of the soundness of the name borrowing provisions. Lord Justice Browne-Wilkinson expressed this view in Gordon Durham & Co Limited vs Haden Young Limited. He said: “In my judgement, the correct approach is for the Court to give effect to the relationship which the parties have chosen to adopt, however unwise that choice may seem to be.” What he may have had in mind was:
- what if the contractor is not supportive of the subcontractor’s claim?
- what disputes can the arbitration deal with – can it include those that are properly disputes between employer and contractor?
There have been no clear guidelines by the courts. Their lordships have tended, if confronted by a name-borrowing dispute, to limit their view to the issues before them. They have refrained, not unsurprisingly, from delving deeper into the complex issues that this type of arbitration may raise. This means that it is with no certainty that we can predict how the courts will deal with these issues.
- Subcontractors can “borrow” the names of main contractors
- There is legal risk associated with doing this, as some consequences remain untested
What can be taken from the limited previous decisions on this topic is that the courts are likely to adopt the following basis:
- the claim is made by the contractor in its own name, albeit the claim is truly the subcontractor’s
- the contractor will be bound by any awards made by the arbitrator under the name-borrowing provisions. This applies even if the award is to the contractor’s prejudice
- the contractor may refuse to allow the subcontractor to borrow its name. This will be particularly relevant where an award could be to the contractor’s prejudice or if the contractor thinks that there is no merit in the subcontractor’s claim.
- as the courts have been very keen to stick to the express terms of the contract, it seems unlikely that the employer would be entitled to counterclaim for any default on the part of the contractor.
So, although the intention behind the provision was to provide a further route to seek redress, the ramifications have not been fully explored.
Laura Armstrong is a solicitor with McGrigor Donald in Glasgow.