Construction Law and Dispute Resolution in the Firm - Essay Example

 Construction Law and Dispute Resolution in the Firm 1. Introduction Construction activities may require the main Contractor or the Employer to sublet the work to other contractors. This strategy may be pursued in order to speed up progress or to benefit from specific expertise among other reasons. The individual, business or other such entity that is provided with such contract and has the ability to fulfil such undertaking is referred to as the sub contractor. In all given circumstances the sub contractor is expected to oblige the stipulations of another entity’s contract. Based on the business conditions or other such stipulations the sub contractor may assume many forms through which he fulfils the instilled obligations of the Employer or main Contractor. In most given circumstances the sub contractor is hired by a general contractor in order to execute specific project objectives. The general contractor generally pays out the sub contractor as per accepted conditions. A general or main contractor may also hire sub contractors in order to mitigate project risks or to reduce the costs. Using this approach the general or main contractor is able to provide better service through lowered costs along with lowered risk on their part. In general construction practice the sub contractors in question are often employed by the same general or main contractors allowing the sub contractor to develop essential expertise. However, there are differing legal stipulations when it comes to dealing with different forms of contractors. These can be better understood if the types of sub contractors are classified. This text will attempt to discern the change when a domestic subcontractor is changed into a nominated subcontractor as per the UAE Civil Code and English common law. 2. Sub Contractor Types Sub contractors can be classified in a number of ways but this text will consider classification based on the JCT standard form of contracts1 because the FIDIC method of classifying sub contractors is rather limited. The classified types of sub contractors are2: Domestic subcontractor is any subcontractor who enters into contract with the main contractor in order to provide any goods or services that were required under the main contract. These subcontractors can be seen as employees of the main contractor. Nominated subcontractor is any subcontractor who has been approved of by recommendation from the Engineer, Designer or Architect. The main contractor is nonetheless allowed to profit from these subcontracts even if approval stems from the original Employer’s end. Furthermore, the main contractor is responsible for providing the subcontractor attendance including water and power along with other required amenities. Typically the nominated subcontractor is a direct employee of the original Employer. Named subcontractors are effectively the same as domestic subcontractors and are beyond the scope of this discourse. What is the level of liability of the subcontractor? According to the FIDIC red book’s Clause 4.43, the subcontractor cannot be provided with the entire contract for work agreed between the Employer and the main Contractor. If this were done then it would become hard to differentiate between the legal status of the main contractor and the subcontractor. Furthermore, if this were the case then the contention behind subcontracting to minimise risk by distributing it would be lost altogether. Thus it can be positively be indentified that subcontracting involves transfer of risks as per the dominant view on the issue. However, as per Clause 4.4 of the FIDIC red book the Contractor “shall be responsible for the acts or defaults of any Subcontractor”4. Based on this it can be surmised that the domestic Subcontractor is basically a liability for the Contractor and any claims that arise are a responsibility for the Contractor and not the Employer. However, it must be kept in mind that a domestic subcontractor is also selected after consultation with the Employer’s Engineer unless otherwise stated in the Contract as per Article 4.4 sub clause (b) and (c) of the FIDIC red book5. Nonetheless even if such a stipulation exists within the Contract even then such approval comes directly from the Employer. The use of domestic subcontractors merely ensures that the liability and hence the risk shifts from the domain of the Employer to the domain of the Contractor. This position is clearly established in the FIDIC red book yet the actual application of law is entirely a different affair especially under the concept of tort. For example, in the case of Junior Books Ltd vs Veitchi Co Ltd6 the nominated subcontractor laid a defective floor during construction. The House of Lords declared in its judgement that the nominated Subcontractor was directly liable for any such claims including pure economic loss due to delayed production in place of the main Contractor. In contrast, later cases have tried to avoid this kind of judgement and have instead made void any tort claims that are somehow inconsistent with any form of direct warranty between the Employer and the nominated Subcontractor7. This standpoint has been confirmed by the actions of the Court of Appeal8 and the High Court9 who have stated that the previously stated view is not binding upon them. Hence, the view presented in Junior Books can be neglected outright if it were not for similar cases such as Murphy v Brentwood DC10. Thus the view presented in Junior Books is safely disregarded for most cases that arise in such disputes. It can clearly be seen that the position of the law has shifted in this sense and so the more recent interpretation stands true for most cases. On the other hand if the Employer chooses to subcontract with complete consent such as through their Engineer then the issue of liability reverses roles. The Contractor is still able to reap the profits from such an arrangement but any claims that arise out of such an arrangement are directed towards the Employer alone11. It is now up to the Employer to hold the Subcontractor liable as related before in the Junior Books case. Standards of Workmanship and Quality Generally the responsibility of a main Contractor tends to arise in situations where the nominated Subcontractor’s work fails to meet workmanship standards or drops below acceptable quality levels for any other reasons such as substandard material supply. For most general cases it is the Contractor’s implied obligation to construct any projects in a competent manner using only materials that are of acceptable quality. In this sense the obligation for fitness of the material will only arise in case that the Employer has expressly relied on the Contractor’s judgement. The Employer steers clear of any defects in materials if a Subcontractor has been nominated because the obligation for quality is strict and tends to remain intact as such12. Even then certain circumstances may arise that would dislodge the implied warranty in concern to the quality of materials. Such an instance would arise for example where the main Contractor employs a supplier who in the Employer’s knowledge would enter into contract on terms that would limit the liability or where the main Contractor has no objections to the nomination of a Subcontractor13. The position of the UAE Civil Code is similar under Article 890 where these issues have been handled in a similar manner14. Furthermore the main Contractor is under limited liability in case that the nominated Subcontractor has errors in design. This limitation of liability occurs given the fact that the main Contractor is only responsible for building in line with the provided design. However, it must be kept in mind that any defects in the materials are still the Contractor’s responsibility including any errors that might arise due to faulty design of materials. Overall this indicates that the Contractor will be in different legal positions depending on the involvement of a nominated Subcontractor or a nominated Supplier15. Repudiation Claims One of the most tenuous situation arises when an involved Subcontractor repudiates a contract. In the case of a domestic Subcontractor it is the main Contractor’s responsibility to deal with the issue as any delays or cost overruns that occur will be seen as emanating from the main Contractors. However, the situation is markedly different when it comes to dealing claims of repudiation from nominated Subcontractors. When a nominated Subcontractor repudiates a contract it tends to have multiple negative consequences for the intended project such as drastic increases in cost due to inflation along with fiscal damage occurring due to rectification of defects. Such action on the part of the nominated Subcontractor may also lead to delays in the works of other Subcontractors and hence the main Contractor. The FIDIC red book does not address this area in any clear terms at all16. Instead the Employer and the Contractor must look to relevant case law in order to deal with this matter. Case law makes it clear that any liability arising out of a nominated Subcontractor’s repudiation will have to be covered by the Employer alone such as in the Hospital Board v TA Bickerton & Son Ltd17 case. The Contractor is not responsible for any failing on the part of the nominated Subcontractor because the Employer nominated him. Additionally if the main Contractor were to file for damages that resulted in loss of time or other such circumstance that caused fiscal damage, it would matter if the repudiation of the nominated Subcontractor had a direct relation to such loss such as in Fairclough Building Ltd v Rhuddlan DC18. If the main contractor files for unconnected damages then there will be no compensation and if compensation is provided it will be limited in terms of the Employer’s liability such as in the John Jarvis v Rockdale Housing Association Ltd19 case. Additionally the nominated Subcontractor cannot bring a claim against the Employer if the main Contractor fails to pay up as per Article 891 of the UAE Civil Code20. The same position has been reinforced by Article 1109 of the UAE Civil Code whereby consent is required for transfer of payment authority from Employer to main Contractor21. 3. Conclusion Based on the arguments presented above it is clear that the FIDIC red book does provide clear differentiation when it comes to domestic Subcontractors and nominated Subcontractors roles and responsibilities but fails to deal with certain grey areas. As far as the question of compensation, liability, workmanship and quality is concerned, the FIDIC red book and relevant case law are clear that liability arises from the party that approves of the Subcontractor. However, when it comes to contentious issues such as repudiation claims the liability tends to shift in the favour of the Employer because the main Contractor is not compensated for indirect losses. Though both parties suffer due to nominated Subcontractor repudiation but the extent of damage to the main Contractor is greater. 4. Bibliography Books: Adrianne, J, Construction Contract Law (2nd edn Palgrave Macmillan 2007) Anthony Speaight and Gregory Stone, Architect's Legal Handbook (8th edn Architectural Press, London 2005 Bramble, Barry B and Callahan, Michael T, Construction Delay Claims (2nd edn Wiley Law Publications, New York 1992) David Chappell, Understanding JCT Standard Building Contracts (8th edn Routledge, London 2007) Furst, S and Ramsey, V, Keating on Construction Contracts (8th edn Thomson, Sweet & Maxwell 2006) Hudson’s Building and Engineering Contracts (11th edn Sweet & Maxwell, London 1995) John Murdoch and Will Hughes, Construction Contracts: Law and Management (4th edn Routledge, London 2007) Thomas, R and Ellis, R, Interpreting Construction Contracts (ASCE Press 2007) FIDIC Conditions of Contract (4th edn IFCE, London 1987) FIDIC Conditions of Contract (4th edn IFCE, London 1999) Whelan, James and Hall, Marjorie J, The Civil Code of the United Arab Emirates (1st edn Graham & Trotman Ltd, 1987) Articles: Adil Sinjakli, ‘Nominated Sub-Contractors under UAE Construction Law’, Arab Law Quarterly 18(1) 2003 Table of Cases: Fairclough Building Ltd v Rhuddlan DC [1982] 2 A Il ER 623 Gloucestershire CC v Richardson [1969] 1 AC 480 Greater Nottingham Co-operative Society Ltd v Cementation Piling and Foundations Ltd [1988] 2 A Il ER 971 Hospital Board v TA Bickerton & Son Ltd [1970] 1 A Il ER 1039 John Jarvis v Rockdale Housing Association Ltd [1986] 36 BLR 48 Junior Books Ltd vs Veitchi Co Ltd [1983] 1 AC 520 Murphy v Brentwood DC [1990] 2 A Il ER 908 Nitrigin Eireann Teoranta v Inco Alloys Ltd [1992] 1 A Il ER 791 Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] 1 A Il ER 791 Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454 Read More