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CONSTRUCTION LAW July 2015

Alan Jones BSc DMS FRICS MCIArb

The examination paper

The pattern of the paper will follow past years
There will be 8 questions, you must answer 5
No compulsory questions
All questions carry equal marks

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Passing law exams

Read the law study guide.
Provide EVIDENCE.
Use the right words.
Using the correct words is more important in legal studies than in any
other part of the course.

Passing law exams

Know the law!
Read the questions and answer them.
Purely descriptive answers will not do at this level.
Explain
Discuss
Analyse
Advise
Be logical. Present EVIDENCE to support your point of view in the form of
statute or decided cases.

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Issues to be considered
Standard Forms of Contract
Letters of Intent and Agreement
Liability for defective work
Liquidated and ascertained damages
Payments to contractors
Ending the contract
Dispute resolution

Contract formation
How is the contract formed?
What is required to form a binding contract?
At what point does it come into force?
Letter of intent
Does it give rise to a contractual obligation?
If so what is that obligation?
British Steel v Cleveland Bridge
Turriff Construction v Regalia Knitting Mills
Letters of interim agreement
Monk Construction v Norwich Union
See also
C.J. Simms v Shaftsbury PLC
Kitsons Insulation v Balfour Beatty
Hall and Tawse v Ivory Gate

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What is the contract for?

A weapon?
A means for claiming whats due to you.

A shield?
A mechanism to make sure you get what youve paid for.

A mechanism for risk allocation?

The conventional lawyers view
What risks?
The contract risk balance

Collaborative contracts
Typically characterised by:
Non-confrontational language
An emphasis on procedures not remedies for breach
Issues of good faith
Inclusion of measures of performance

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Collaborative contracts
Partnering contracts frequently include a requirement for the parties to
work together in a spirit of mutual trust and co-operation (e.g. NEC3).
JCT Constructing Excellence (2007) goes further in requiring parties to:
.work together with each other and with all other Project
Participants in a co-operative and collaborative manner in good faith
and in the spirit of mutual trust and respect.
Project Participants are defined in the contract as the parties
engaged by the Client or by any supplier to provide work and/or
services in relation to the Project from time to time

Collaborative contracts
How enforceable are these obligations?
Good faith obligations in commercial contracts exist in many legal
systems (e.g. the USA and the EU).
No such overall obligation in English law
Roselodge v Castle (1966)
Walford v Miles (1992)
The concept of a duty to carry on negotiations in good faith is inherently
repugnant to the adversarial position of the parties when involved in
negotiations. Lord Ackner
In general, the courts will support the agreed terms provided the
contract is legal.

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Collaborative contracts

Selecting the correct form of contract

To collaborate or not?
Trying to make the wrong form of contract work

Collaborative contracts
How can partnering principles be made effective?
Critical success factors and measures of performance
Target cost, pain and gain share
Performance related profit

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Defects and design liability

Patent and latent defects
Level of design responsibility?

What responsibility does an architect owe to his client?

Bolam v Friern Hospital Management Committee
The state of the art defence Greaves v Baynham Meikle
A continuing duty of care? (see Eckersley v Binnie & Partners (1988) and
Pride Valley Foods v Hall and Partners (2001))

Who is responsible for the selection of appropriate materials?

Rotherham MBC v Frank Haslam Milan (1996)

Defects and design liability

What is the position under a design and build contract?
Who is responsible for the design?
Practical issue surrounding the letting of a D&B contract.
Fitness for purpose v. due skill and care.

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Payments to the contractor

Must be in accordance with the contract conditions
Assumption that contractor can be paid for all work undertaken is this
the case?
Rectifying defects, using more expensive materials than specified,
inaccurate quantities more than actually required, etc.
Consider that contractors always want to be paid for exactly what they
have done but this may not be correct!

Liquidated and Ascertained Damages (LADs)

"Liquidated" means that the future impact of the breach of contract is
converted to a fixed sum of money.
Ascertained means that the likely impact of the breach is calculated in
some way not just estimated.
Definition then is "a monetary amount fixed and agreed by the parties in
advance, as the damages payable in the event of a specified breach of
the contract
In place of the normal right to claim damages measured by the amount
of loss.
Must be a reasonable assessment of the losses the Employer is likely to
suffer in the event of non-completion
The default approach outside of any contractual provision is unliquidated damages decided by the court.

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Liquidated and Ascertained Damages

There are usually contractual procedures to be followed before
damages may be deducted.
Typically:
There must be a valid certificate of non-completion.
Advance notice of the intention to deduct damages is required.
The must be a valid date for completion
The damages clause must still be operable
Employer MAY deduct damages
Amount of damages is fixed and is stated in the contract.
Contractors rights of objection?

Contractors defences against LADs

Argue for more extensions of time (list in the contract)
Argue that the completion date is at large e.g. by showing that the
contract administrator has failed to administer the contract properly
Peak Construction v McKinney Foundations (1970)
Argue that the damages clause is inoperable e.g. because it is
ambiguous. e.g. Bramhall City Council v Sheffield CC (1983)
Argue that the sum is a penalty

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Damages or penalty?
Penalty - a sum designed to penalise the contractor for not finishing on
time rather than a fair assessment of the employers loss
The Court will decide whether the amount stated is damages or a
penalty.
If the sum is 'extravagant and unconscionable' compared with the
maximum likely loss it is a penalty.
Why wont the Courts allow a penalty clause?
The Courts tend to uphold liquidated damages provide they are
supported by reasonable calculations.

Ending the contract

Normal ending is through PERFORMANCE.
How else may contracts end?
Contracts may be terminated due to: Frustration
Breach

"Frustration" is a legal doctrine which may bring about termination of a

contract when external events make the contract either: illegal,
impossible of performance, or
radically different from the original bargain

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Contracts made incapable of performance

Example:Taylor v Cauldwell (1863)
Cauldwell granted Taylor a license to promote a series of concerts to
be held in a hall.
After the contract was signed but before the first concert the hall was
burned down.
Taylor sued for damages on the grounds that Cauldwell was in breach
of contract for not providing the venue.
Held that the contract was frustrated.

Where the contract becomes so different that it is

no longer the same bargain

Frustration occurs whenever the law recognises that without default of

either party a contractual obligation has become incapable of being
performed because the circumstances in which performance is called for
would render it a thing radically different from that which was undertaken
by the contract. It was not this that I promised to do.
Lord Radcliffe in Davis Contractors v Fareham UDC (1956)

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Frustration
Frustration cannot however be used simply because the obligations of
the parties are more difficult than they thought

Example:Brecknock Navigation Co. v Pritchard (1796)

Pritchard undertook to build a bridge and to keep it in repair for a
certain period.
During construction the bridge was swept away by a flood.
Held that the contract was not frustrated, and that the contractor must
rebuild the bridge within the original price.

See also Sharpe v San Paulo Railway (1873) and Thorn v

London Corporation (1876).

Termination
Termination may arise either:
Through the exercise of a contractual right
many contracts provide either the client or his
representative (usually the engineer) to
terminate at will.
Termination at will will generally provide for the
contractor to be compensated for costs involved,
but not always!
As the result of a breach of contract.

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Remedies for breach

General remedy is damages
Damages are defined here as the costs arising as a direct result of the
breach of contract
Damages must therefore not be too remote from the breach, and
The extent of the damages likely to flow from a breach must have been
reasonably foreseeable at the time the contract was signed. (Hadley v
Baxendale (1854), Victoria Laundry v Newman Industries (1948),
Balfour Beatty v Scottish Power (1994))
Will require the injured party to take action for recovery, and quantum
will be decided by the Court.
Alternative is make provision in the contract to liquidate future damages.
Most common breach in construction contracts?

Termination for breach

Where one party behaves so badly that the law gives the other party the
option of ending the contract.
The common law right to terminate or 'repudiate' a contract can arise in
two ways: Either party may make it clear that they have no intention of performing their
side of the bargain.
Either party may commit such a serious breach that they will be treated as
having no intention of carrying out their obligations.

A breach of this kind is known as a 'repudiatory breach'.

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Termination for breach

In either case, the innocent party may either: 'affirm' the contract and hold the other party to their obligations (this includes
the right to claim damages for the breach),
bring the contract to an end through repudiation.

If repudiation is chosen both parties are released from their obligations,

but the terms of the contract remain relevant in establishing liability,
assessing damages (including liquidated damages), and resolving
disputes.

Repudiation
Repudiatory conduct does not automatically end the contract.
Contract will only be brought to an end when the innocent party notifies
the other party that he is exercising his right to terminate
Once the relevant notifications are given they are then irrevocable.
Intentions may be implied from the parties conduct as well as in words
Important for the innocent party to make clear decisions and to act
promptly.

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When does a breach of contract justify

termination?

It depends upon the seriousness of the breach and the conduct of the
parties.

Some examples.

Breach by the employer

Failure to give possession of the site:
Refusal to give possession constitutes a repudiatory breach.
Issue is whether his conduct shows that he does not intend to be
bound by the contract.
Example:- see Carr v J.A. Berryman (1953)

Throwing the contractor off the site without good reason

Example:- see Roberts v Bury Commissioners (1870).
Non-payment of monies due: Failure to pay on time is not a
repudiatory breach, but persistent refusal to pay may be.

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Breach by the employer

Bradley v Jefco Mechanical Services (1988)
Case concerned a 113,000 sub-contract for electrical work.
Contract not in writing, and no agreement about time or methods of
payment.
Five payments made which were late and short
Sub-contractors suspended work.
Main contractor threatened that after seven days they would treat this
as a repudiation
Sub-contractor submitted a further claim for 31,000 and were offered
5,000.
Held that the sub-contractor was not entitled to terminate for the
original failure to pay, but that the main contractors later conduct
clearly showed that they had no intention of paying
This would justify the sub-contractor bringing the contract to an end.

Breach by the employer

Withholding certificates:
E.g. where the architect refuses to certify at the proper time, or where he
negligently under-certifies
Would enable the contractor to claim damages but will only justify
termination in the most serious cases.

Hindrance of the contractor:

E.g. where the employer deliberately hinders the contractor or where he
persistently fails to perform his contractual obligations.
May be serious enough to terminate

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Breach by the contractor

Unjustified abandonment or suspension of the work:
Needs to be complete abandonment
J.M. Hill & Sons v Camden LBC (1980)
Contractors complained of late payment
Took away their labour and most of their plant but left a supervisor on site
Held that the whilst the contractor was clearly in breach of contract, the
breach was not sufficient to justify termination

Breach by the contractor

Defective work:
Not generally grounds for termination unless the defective work is very
serious (Hoenig v Isaacs (1952))
If it can be proved that the work is seriously defective the employer need
pay nothing. (Bolton and Mahedeva (1972))

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Breach by the contractor

Delay: Only three situations where delay by a contractor will

justify the employer terminating the contract.
Delay may be so great as to show that the contractor has no intention of
being bound by the contract.
The contract may make time of the essence.
Once a delay has occurred, the employer may make time of the essence by
giving reasonable notice to the other party.

Methods of dispute resolution

Litigation
Use of the ordinary courts.
The Technology and Construction Court has specialist
judges who are used to dealing with the issues that
concern the construction industry.

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Litigation
Advantages
Always available if there has been a breach of the law.
Judges are used to dealing with points of law.
TCC judges have specialist skills.
Can join in other parties.
Finality of the decision.

Litigation
Disadvantages
Formal.
Expensive.
Slow.
Limited choice of location.
Lack of privacy.
Availability of appeals.

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Methods of dispute resolution

Arbitration
A less formal method which must be agreed to by the parties. The
arbitrator is chosen for his technical knowledge and often has no
formal legal qualifications.

Arbitration

Advantages

Choice of arbitrator.
Finality of decision.
Speed.
Cost.
Flexibility/control - party autonomy.
Informality.
Privacy.

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Arbitration

Disadvantages
Dealing with points of law.
Lack of appeals.
Multi party disputes no automatic right to join in
another party.

Arbitration
General principles
s1 The provisions of this Part [Part 1 of the Act] are
founded on the following principles, and shall be construed
accordingly-

(a) the object of arbitration is to obtain the fair

resolution of disputes by an impartial tribunal without
unnecessary delay or expense;
(b) the parties should be free to agree how their
disputes are resolved, subject only to such
safeguards as are necessary in the public interest;
(c) in matters governed by this Part the court should
not intervene except as provided by this Part.

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Methods of dispute resolution

Adjudication

May be contractual or statutory. Latter introduced to

provide a quick fix for construction disputes.
Like arbitrators, adjudicators are technically rather than
legally qualified.

Statutory adjudication
Advantages
Independent assessment.
Quick decision.
Automatic enforcement limited challenge.
Binding for duration of the contract works.
Can be reassessed after work completed.

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Statutory adjudication
Disadvantages
Quick decision.
Use as a ambushing tactic.
Automatic enforcement limited challenge.
Binding for duration of the contract works.
Can be reassessed after work completed.

Questions?
And
Good luck with your revision and exam!

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