Five Legal Questions in Construction Industry - Assignment Example

Number Letters of intent Within a perfect world contractors and employers, as well as contractors andsub-contractors would finalize all the aspects of a deal and then record it in some written and signed contract before any expenditures are incurred or any work is performed. In real sense, these parties happen to be under pressure commercially to start work or the preparatory work the soonest possible as well as turn to a letter of intent, as they continue negotiating the whole contract. In addition, at certain cases, there may be no formal contract that is included. Doing things under the letter of intent may enable parties to start ahead on a program of construction in various valuable ways that make it possible to commence the design process. Some letters of intent are able to create binding obligations among the parties while some do not (Adrainese 2010). This depends on the drafting as well as the circumstances while the parties may fail to replace the letters of intent with a contract that is formal. In this case, if disputes may arise then the parties will have to resolve the matter on the type of legal obligation that has been created, that is if there exists any, and the rights that the legal obligation gives to the parties involved (Adrainese 2010) A Letter of intent is a word without any technical meaning. It may be used to describe whatever contract. Typically, it is used to refer to a letter from the employer to the contractor. It may also be a letter to the subcontractor from the main contractor. It shows the employer or main contractor’s willingness (in this context) to engage in to a formal contract that is written, for the works that have been described within the letter. It also plays as a request that the contractor or the subcontractor to start the works even before the execution of a formal contract. This serves as a favour to the contractors at certain times in the sense that they may not wait till the formal contract is formulated which may also take time. It also states the demand to start carrying out of the agreed work based on their intention to get into a contractual relationship (Adriaanse 2010, P. 58). Contractors may prefer to finish their work at a given time in order to save time to another job elsewhere and so through the letters of intent they are able to begin the tasks earlier. In this regard, letters of intent can be said to be a reaction that has been prompted by negotiations that take long hence affecting a contract’s completion date through delaying of the date of commencement (Adriaanse, 2010, P.55). Letters of intent operate in three key categories; A. First, a letter of intent can operate as a comfort letter; this means that it will be a non-binding statement for both parties’ future intentions. This category LOI is meant to give a contractor the authority to begin the work. The contractor can only be paid on basis of ‘quantum meruit’, which is some reasonable means of payment for work done in this scenario since there lacks a formal contract. Without a notice and at any time the employer may call for the work to stop and the contractor as well is able to stop working at any given time and with no notice (Adrainese 2010). There will be no breach of contract in a case where work is delayed or defective because a contract does not exist. However, the defectiveness of the work could be put into consideration when assessing compensation for work done. In some cases of such letters of intent, a court may establish a contract from such letter based on the parties’ intentions (Adrainese 2010). B. The second category of LOI may act as a contract that is temporary on the letter’s terms, that will be governing the parties’ relationship unless and/or until the execution of a formal written contract. This LOI is the interim contract with whose term takes shorter time compared to the intended time of the final contract. What happens here is that mostly the full final contract comes in to replace the interim contract. This happens particularly where the letter of intent has been set to expire at some date and the involved parties have ignored this expiry date and work has been going on. It becomes tempting to continue with the contract, however, in a case where there is exceed on the caps agreed then there exists a risk of lack of entitlement to compensation C. The third category of Letters of intent may operate as the final contract that is deemed to incorporate terms and conditions in the formal written contract intended by both parties despite the nonexistence of a formal execution. The category to which a letter of intent will lie can only be decided by a court (Adrainese 2010). Therefore, for the creation of a contract that is legally binding, several elements need to be considered. These include certainty of the key terms, mutual intention to commit to a binding lawful contract, and consideration the price that is paid under a contract as an exchange for the other parties’ performance as an obligation (Adrainese 2010). In the case of Ampleforth Abbey Trust vs Turner and Townsend Project Management in the year 2012, a legal judgement was made in relation to letters of intent. Turner and Townsend had been appointed to be project managers for several projects in Ampleforth College. On Turner and Townsend’s advice, Kier Northern, the contractor was appointed on a letter of intent basis to facilitate early beginning on site. Eight letters of intent were drawn, however, despite the agreed contract, it was not signed. The work took 4 extra months to be cleared. The settlement reached due to late delivery was not in favour of Ampleforth so Ampleforth filed a lawsuit against Turner and Townsend for negligence. Ampleforth was awarded compensation of the damages on the basis of “loss of chance” since the letter of intent had failed in making provision for liquidated as well as ascertained damages, even though such a provision had been set out in a proposed contract (Adrainese 2010). The case educates individuals to avoid use of letters of intent since they fail to cover all eventualities that are set out in the standard contract. They lessen pressure for the contractor to sign some more comprehensive obligations. Consequently, Tender documentation has to set out documentation and terms for proposed contract to avoid any reasons for delay of contract agreement. Any kind of legal agreement should be expressed through writing as well as registration (Adriaanse 2010, P. 63). Letters of intent are always the poor relationships of carefully negotiated as well as documented contracts. Despite this, letters of intent might continue to exist in critical construction environment. This makes it significant to ensure that letters of intent comply with designed requirements and specifics to avoid ambiguity. 2. EXEMPTION CLAUSES These can also be referred to as exclusion or limitation clauses. They make an attempt to limit or exclude the liability of a party, or the remedies or rights of the other party. They are clauses that make it possible for exclusion of liability for one party in a contract (Richards, 2011, page 165). In a construction contract, a relationship is generated between several parties. The contract sets out the obligations of each party towards the other as well as the remedies available after a party fails to deliver the contract. In most circumstances, the law might create other remedies, which might be available for the parties despite the provisions of the contract. Parties may limit every party’s liability through the use of an exemption clause as a way of creating certainty. According to Richards, several ways to limit the liabilities in a certain contract include the following: Making a statement that the contract does contain the whole agreement of the parties; Making a list of particular loss types that a party cannot be liable for; Setting some limit on amount of damages that a party can be liable for; Exclusion of specific remedies, which would be available otherwise to the party who is not in violation With respect to this, the court made an attempt to restrict the use of exclusion clauses. The first thing was the judge’s hard work towards ensuring of equality between contract parties specifically with the presence of unequal barging power. In cases where large firms obligated exemption clauses on relatively small businesses to dodge their liability, without concern on the reasonableness of the clause due to the fact that it was bound by the ‘freedom of contract’ name (Richards, 2011). After the intervention of the statute by the Unfair Contract Terms ACT 1977, exemption clauses use turned to be much more effective and fair. In the case, ‘Photo Production Ltd vs Securicor Transport Ltd,’ Lord Wilberforce explained that exception clauses should be interpreted similarly to any other terms irrespective of the occurrence of a breach or not. The exclusion scope is determined through examining the contract’s construction (Richards, 2011, P.182). With regard to this, two steps must be overcome before the exclusion clause goes through Unfair Contract Terms Act. One is that the exclusion clause has to show that its incorporation to a contract was properly done and the second step is whether the interpretation would cover the claimed breach (Richards, 2011). Incorporation The law traditionally holds that exemptions clauses will only operate if they are part of the contract. Therefore, there are three corporation methods: Incorporation by signature- in accordance with the case, ‘L Estrange vs Graucob,’ in which Miss L’ Estrange signed a document to purchase a machine without noticing the exclusion clause in the document, the parties relying on the exclusion clause did not take sufficient steps to bring the exclusion clause to the notice of Miss Estrange. The court judged that the exclusion clause did not bind the plaintiff since the plaintiff lacked knowledge of the exclusion clause on the printed document. In such situations where the clause has been written in some document that is signed by all the involved parties, it then becomes part of contract. However, where a document lacks signatures, the exemption clauses that it contains can only be incorporated in condition that a party relying on that clause is able to prove that before the formation of the contract he/she took reasonable measures to bring it to the other party’s attention. With respect to this, there arises some contradiction, the party does not have to prove that the other party has read or understood the clause except a situation in which the clause is specifically unusual or burdensome. It fails to be essential to prove that that particular person’s attention was in fact drawn to it (Richards, 2011). Incorporation by Notice The case Parker vs SE Railway provides the general rule which is that an exemption clause will be incorporated to a contract where the part who relies on the clause took reasonable measures to draw the clause to the attention of the other parties (Richards, 2011). According to the case Thornton vs Shoe Lane Parking, if the exemption clause is wide then the person relying on it should have done much more to bring it to the attention of the other parties (Richards, 2011). The notice must have been issued before the contract formation as demonstrated in the case Olley vs Marlborough (Richards, 2011). Incorporation by previous dealing course Terms (including exemption clauses) could be incorporated to an agreement in a case where course of dealings in between parties were consistent as well as regular, in accordance to the case McCutcheon vs David MacBryne LTD (Richards, 2011). In the case, D send a car by bout. This had happened severally before. D got represented with various conditions in a fine print but failed to read. P did not get D to sign the document this time. The bought sank. The meaning of this is dependent on the facts, though, it has been indicated by courts that equality power bargaining among the parties could be considered (Richards, 2011). Interpretation For the exemption clause to be operational, it has to cover the breach (in the assumption that the contract was breached). It is important too in case there is then the kind of liability arising. In general there exist two liability varieties which include liability for negligence which is liability that arises due to a party’s fault, and the strict liability, which is liability that arises due to state of affairs. In this case, the party who is at breach will not necessarily be at fault. Courts do require that a party who relies on an exemption clause to have properly drafted it in order for it to exempt the party from the arising liability. If the exists an ambiguity. The interpretation is strictly against the party who is relying on the same clause. Here, the rule is that the exclusion clauses are interpreted against the party who is relying on them (Richard, 2011, p 179). Construction assignments are quite complex and need hard work to minimise the risks as well as the uncertainties involved. The use of exclusion clauses within the contract formation could help in avoiding potential losses. The Unfair Contract Terms Act made it much more controllable as well as functional in avoiding business contract risks. There is need to write it with respect to corporation legal requirements, UCTA test and interpretation. 3. Legal concept of professional negligence as applied to the construction industry Professionals in construction, the same as all other professionals could be liable to third parties and their clients for loss and damages that are brought about by professionals’ negligence. The point of start in any claim of professional negligence is the consideration of the possibility of recovery of the losses in the contract. Negligence happens to be the most significant tort liability field this day as it is the regulator of most activities within the society today. Liability in tort gets to be more significant where the route of contract is not available: where commercial transaction arrangement has not resulted to direct contractual relationship in between the parties, in a case where one party turn out to be insolvent or in a case of lapse of limited contractual period. It is true that careless advice given by professionals may bring harm to those relying on it and even to those who are not directly dealt with by the professional (Cooke 2009, P. 256). However, it is not all careless acts and faults on the professional part that will result to negligence. For one party to launch negligence claim, the claimant has to satisfy certain requirements; the first being Duty of Care existence between the parties. In the circumstances of physical or personal injury, an harms reasonable foreseeability happens to be sufficient to facilitate the rise of duty of care according to the principle of ‘neighbour’ that was established in Donoughue v/s Stevenson in the year 1932. In the case, the plaintive filed a case against a beer manufacturer due to a snail found in the beer bottle that caused the plaintiff a stomach illness. The court judged in favour of the plaintiff. The beer manufacturer owed duty of care to the plaintiff in the sense that he could have seen the harm earlier. The beer manufacturer would have failed the neighbour test if by chance he had seen the harm earlier and taken measures for preventing the injury that the plaintiff had suffered (Murphy and Witting, 2012, p.28). Similarly, most cases in construction involve economic loss claims. The test happens to be lesser straight-forward due to policy driven limitations. The other factor complicating construction cases is contractual matrix that significantly affects whatever tortious duty of care scope. After ascertaining the duty of care, the next negligence element “Breach of Duty” has to be fulfilled. The plaintiff has to prove that the defendant breached his duty as well as the fact that his behaviour was below expectations as far as care is concerned. The dispute is the measurement of the care level the plaintiff expects from the defendant. Standard care test is a test of comparison usually on the basis of ‘hypothetical reasonable person.’ If the claimant has been caused injury and losses and the defendant can prove that any other reasonable person would have acted the same way then the defendant will not be liable for the injury or losses (Murphy and Witting, 2012, P.111). In the case Blith v/s Birmingham 1856, the claimant sued against a plumper for negligence. The plumper had installed plugs of water in front of the house of the claimant. The plugs got damaged 25 years later and the due to cold frost that was not usual and then leaked to the house of the claimant. The court held in favour of the defendant in the sense that he had considered the usual temperature range at the time of installation hence acted as any other reasonable person would. After duty of care and breach of duty have been confirmed, the court will look for ‘Causation’ the application of ‘but for’ test. Here the court will address a query of whether, however, for the careless actions of the client the plaintive would have experienced the damages. The most essential thing in the situation is that despite the lack of knowledge on what caused the harm, the defendant will be liable, nevertheless he contributed develop the harm and there was a possibility to show that the harm to the client was materially increased by his wrongful actions. In the case ‘McGhee v/s National Coal Board 1972,’ the court found a defendant guilty due to his lack of providing his workers with washing facilities something that made a contribution to an increase in the disease the claimant suffered. The other negligence element that the court will enforce will be to enable it to gain more control in the imposing of liability to damage. Through remoteness of damage test, the court will determine if the harm was sensibly foreseeable or not. The suffered harm has to be of type, class or kind, which was foreseeable reasonably caused by the negligence of the respondent (Murphy and Witting, 2012, P.179). Upon the fulfilment of the negligence elements, the court will rule in favour of the plaintiff and set the amount the defendant will pay as damages. Just like in any other industry, professional in construction field have to act with care and professionalism when dealing with clients. However, where a an advise given to the client by a professional results to be wrong, then it is not at all times that the professional would beheld negligent. This is due to the fact that there has to be evidence that will show that his actions were not carried out with reasonable care having been tested against the expected standards of the other professionals within the field. It is advisable that professionals keep in mind that as they make decisions, their actions’ consequences will affect others. 4. Health and Safety Regulations Health and safety of workers is critical at a place of work. Increase in employee injuries as well as deaths that are in relation to workplace happen to be a main concern to the public as well as the law. Improvement of working conditions for bettering of employee health and prolonged life is essential. One of the ways that this can be done is through creation of lawful involvements that will enforce more liability on firms to provide workers with a safe workplace as well as imposing serious legal actions for the outcomes of their lack of doing so. However, it was not possible to take actions against those companies that caused injuries to employees due to the fact that the two available approaches, which are ‘Actus Reus & Mens Rea’, were not applicable on enforcing guiltiness on companies. ‘Mens Rea’ principle was not possible for application on firms due to the fact that a company’s state of mind is hard to determine (Murdoch & Hughes 2000). The necessity for a comprehensive legislation piece for health and safety of workers at their place of work led to ‘HASAWA (The Health & Safety at work etc. Act 1974) coming into force. Thus, HASAWA 1974 addresses the general principles that can be applied to all companies to ensure the health and safety of employees at the place of work and the public as well, who are prone to the work activities effects. HASAWA 1974’s comprehensive approach facilitates for secondary guidelines to sit beneath it to provide specific industries regulations. Under HASAWA 1974 there are regulation pieces that have been categorized into two: managerial and operational regulations. The operational regulations addresses particular processes for safety as well as health that are to be adhered to as working tasks are carried out. The managerial regulations demands that companies maintain written health and safety rules (The Management of Health & Safety at Work 1999). It entails carrying out of risk assessment for risk identification as well as controls it with an aim of reducing the potential harm. The rule is overall and can be applied in all different businesses. The construction (Design & Management) regulations 2007, does focus on the industry of construction. The regulation governs health and safety practice management in construction projects for risk minimization. It further describes the main responsibility holders and as well as their responsibilities in a construction project. The coordinators have a responsibilities of closely working with their clients and advising them on the decision making process. Their primary role is the coordination of work between different parties as well as monitoring the health and safety plan through the life cycle of the project and holding the file for health and safety. Additionally, the designer involved is responsible for carefully considering health and safety requirements in his project selections, making a consideration of the project whole life cycle. The designer must not begin the work till the assignment of a CDM Coordinator. Another responsibility entrusted to CDM is that the Client with an obligation for provision of information that is needed for project team as well as the preparation of an appropriate health and safety plan by the contractor and implemented in the course of the construction work. Most significantly, an experienced CDM Coordinator should be assigned before the general work kicks off. Meanwhile, the main role of the principle contractor is in the construction phase. He is responsible for preparation as well as implementation of the construction health as well as safety plan for the reduction of the risk of accidents and the rest of the public. His other responsibilities toward the employees are to provide them with any required training and inductions as well as adequate welfare facilities. CDM Reg.2007 might consider lack of adherence to its rules as a breach, as an active health and safety at workplace management tool. Legal measures could be taken against an organization that failed to adhere to the regulations even though there is no existence of an injury or accident. Therefore, checking and enforcement of CDM Reg. 2007 is overseen by Health and safety Executive. The inspectors of HSE make use of their power in enforcing lawful actions where a breach is revealed, and they are tested in HASAWA 1974. The Corporate Manslaughter and Corporate Homicide Act 2007 (CMCHA) is not under HASAWA (1974). However, it finalizes the health and safety management responsibilities picture for companies and organizations. Unlike the CDM (2007), it is not an act of prevention but rather deals with consequences of failure of company management. CMCHA (2007) was mainly developed to address the challenges of the previous law act that was in place earlier. This is because the previous Act was not effective since it was unable to enforce legal Actions on companies although it was applied on individuals easily. With an aim of correcting the noticed weakness of the old Act, the newly incorporated Act embraced a different approach altogether. It does this by laying the responsibility on the management of the companies rather than the individuals. By this approach, a company or an organization, under The CMCHA 2007, could be found guilty for manslaughter if a gross failure of its management practice caused a death. The Act it was practiced for the first time in the case of R v Cotswold Geotechnical Holdings Ltd. Alexander, who was then working for the defendant in taking soil sampling from an excavated, died when the pit collapsed and buried him alive. The court found that the company was tolerated on its behaviour about health and safety policies which led to a gross breach of its duty toward the deceased and caused his death. Accordingly the director of the company was convicted of negligence manslaughter and was penalized by a heavy fine. The CMCHA 2007 and the CDM 2007 impose heavy health and safety management responsibilities. Working hand in hand both acts provide a combined approach for health and safety management responsibilities through the combination of consequential and preventive nature. Again through working together, health and safety guidelines provide some comprehensive impact as well as close gaps that were earlier used for escaping the responsibilities for health and safety. 5. Dispute Resolution Resolution of disputes is one of the things that organization managements are unable to run away from. All the time companies with sealed agreements disagree and the disputes that arise require to be solved. This is the only way that projects can be run smoothly as planned initially (Murdoch & Hughes 2000, P. 122). Such disputes are also very common as far as construction projects are concerned just like in other field. Dissatisfaction, delays, substandard service complains among others is just but a few of the disputes that arise in construction projects. The resolution of the disputes is a process of bringing arising disputes to an end. This happens through negotiations, where involved parties come together and talk about the issue and come to an agreement, or mediation which will involve a mediator who happens to be from the outside, and his obligation is to assist the parties come to an agreement. The other way is through the use of services provided by an independent arbitrator or a court, which determines the way in which the dispute is settled and a binding conclusion is made (Murdoch & Hughes 2000, P. 123). Looking at the situation between CC Developments Ltd, the client within the scenario and DD Ltd, there exists several disputes that have not been resolved yet. The agreement between the two companies was that DD Ltd renovates the shopping mall which is Notting don city. CC Developments has raised some complaints. The company claimed that running of the project was not as smooth as expected and the contracting company failed to provide information enough with regard to shop units’ interior design. It also appealed that changes in specifications were done late. DD Ltd on the other side has expectations that are impracticable on the finishing quality that may fail to be realized since according to the company the provisions of the agreement have already been met. The company feels that CC Development Ltd.’s behaviour is quite unprofessional since they gave vague as well as incomplete instructions regarding the awaiting plan. Other arguments involve delays, specifications and costs. In the resolving of the above disputes the best practices have to be incorporated. A keen dispute resolving approach selection does enlighten the importance of dispute resolution clause to extend where the workers may not be covered in the agreement (Murdoch & Hughes 2000, P. 133). Active resolution of disputes may facilitate respectable relationship between employers and employees through early stage issue resolution. One can produce more as well as cooperate better if they are sure that their employers will handle their complaints with some seriousness and if not resolved then there is a chance that an independent party will be involved to support in the issue resolution. In addition, a respectable system of determining disagreements focussing on active resolution in the construction field can result to saving costs involved in seeking external disagreements resolution (Murdoch & Hughes 2000, P. 123). Adjudication is a disagreement resolving procedure where an expert rules on some technical issue to the point that further method will be suggested (Adriaanse 2010, P. 120). The procedure is mainly applied in disputes encountered in the construction field as shown in ‘Housing Grants, Construction and Regeneration Act 1996’ (HGCR). Under HGCR, the awards are compulsory on parties involved on provisional basis at least. Under the Act, construction agreements have to include an adjudication provision, where the adjudicator will within 28 days of referral give a decision (Adriaanse 2010, P. 120). The process of arbitration is private, formal and binding, where a decision will be made by a chosen 3rd party who is the arbitrator. In the situation with CC Development Ltd. and DD Ltd, the resolution can be done through arbitration with the two parties agreeing to involve a 3rd party to resolve their issues. The act of arbitration offers a wide will for parties to make a decision between them on the way to resolve the dispute. However, it provides a contingency position where both parties are unable to agree. Its importance to both parties is that it offers confidentiality as well as controls the process such that both parties will take part in tailoring processes. The process facilitates an ability of choosing an expert in construction field arbitrator. The process saves costs over lawsuit and resolution is guaranteed (Richards 2011, P. 210). Mediation is another dispute resolution method that is non-binding. It is private and has a structured form and makes use of a 3rd party to assist in negotiations. In the case where an agreement is reached then it becomes binding. It use has significantly increased from 1999 when Civil Procedure Rules were introduced. According to CPR, active case management involves encouragement of parties involved to make use of the ADR process in a case where it is found appropriate by the court. Part 26 of the CPR includes particular provisions on the use of ADR (Adriaanse 2010, P. 120). The mediator’s role in mediation is to facilitation of negotiations. For mediators it is appropriate to give their views that show the side they take on the parties involved. A mediator gets both parties to focuses more on future of their companies and commercial needs instead of trying to analyse events of the past as well as attempting to establish their lawful rights (Smith & Keenan 2007, P. 125). The most critical thing is that a mediator has gone through mediation training. However, the mediator’s knowledge and experience on the matter at hand is immaterial. These arguments prove that mediation is the best method to resolve the issues arising. Distinct professions are invited to give their advice accordingly. Through that, managers will find it easy to make decisions on the way out since they have all the advice they require. Bibliography Adriaanse, J., 2010. Construction contract law: the essentials, 3rd ed. Ed. Basingstoke: Basingstoke: Palgrave Macmillan Adriaanse, J., 2010. Construction contract law: the essentials, 3rd ed. Ed. Basingstoke: Basingstoke: Palgrave Macmillan Construction Design and Management Regulations 2007 Cooke, J., 2009. Law of tort, 9th Edition, Harlow, England: Pearson Education Limited. Corporate Manslaughter and Corporate Homicide Act 2007, ed.), London, Spon Press Murdoch J. and Hughes W 2000 Construction Contracts: Law and Management, (3rd Murphy, J., Witting, C.A. and Street, H., 2012, Street on torts, 13th edn, Oxford: Oxford University Press. Richards, P., 2011. Law of contract, 10th edn, Harlow, England; New York: Longman/Pearson Read More