Construction Contracts Law - Case Study Example

Brief Facts: It is a contract about the construction of a new warehouse incorporating high quality offices. The building will function as Warehouse and administrative centre for a commercial manufacturing business. The client requires tight financial control, and the Approximate estimated value of the project is 4.0m. During the development of the office building (JCT SBC 05/Q) the following events occur: On the date that the Contractors are due to start the project the main Entrance to the site (as stated in the Bills of Quantities) is blocked by Materials left by the Client. These materials are not removed from site for 1 Week. During the excavation of the substructure works ancient roman coins are Found. This leads to a delay of 1 month to allow for archaeological Investigation work.. When concreting the foundations in January the contractor complains that The weather is too cold for the concrete to "go-off" and that they are being Delayed. During the erection of the steel frame the contractor claims he is being Delayed due to a severe shortage of skilled steel-fixers in the area. During the internal finishings elements of the works the contractor requests additional information regarding the suspended ceiling system. I would like to explain the basic tenets of Contract Law, before giving any specific advice. In simple terms "An agreement enforceable by law is a contract" and "Every promise and every set of promises forming the consideration for each other is an agreement" In an agreement there is promise from both the sides and if we talk about 'Promise', it can be defined as "When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise" Thus, when there is a proposal from one side and the acceptance of that proposal by the other side, it results in a promise. This promise from the two parties to one another is known as an agreement. Also all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void. In nut shell the essentials needed for a valid contract, therefore, are as under : An agreement between the two parties. An agreement is the result of a proposal or an offer by one party followed by its acceptance by the other. Agreement should be between the parties who are competent to contract. There should be a lawful consideration and lawful object in respect of that agreement. There should be free consent of the parties, when they enter in to the agreement. The agreement must not be one, which has been expressly declared to be void. A proposal, when accepted, results in an agreement. It is only after the acceptance of the proposal that a contract between the two parties can arise. After the offer has been accepted, it becomes a promise which, if other conditions of a valid contract are satisfied, binds both the parties to the promise. These basic rules of offer, acceptance and invitation to treat etc are amply illustrated in the cases 'Pharmaceutical Society of Great Britain v. Boots Cash Chemicals Ltd.(1952)2 Q.B.795)' , 'Felthouse v. Bindley(1862)6L.T.157)' and also in 'Fisher v. Bell (1961) 1Q.B. 394)'. The intention to create a legal relationship is demonstrated by 'Rose and Frank Co. v. Crompton & Bros. Ltd.(1925)A.C.445)', Balfour v. Balfour(1919)2K.B.571)', By 'Jones v. Padavatton(1969)All E.R. 616)', and also through 'Merrit v. Merrit(1970)2All E.R.760)' As per the facts of the case it was a contract about the construction of a new warehouse incorporating high quality offices and the client wanted tight financial control. There is no express condition laid down as to 'Time as the essence of the Contract' But through the wording of the contract it is quite clear that the client has laid down two conditions, first the quality of workmanship should be of the highest order and secondly, he wants tight financial control that can only be possible by the completion of the project at the earliest or in the minimum possible time. It can be said that there are implied conditions in the text of the contract as to time of completion. It is alleged that on the date that the Contractors are due to start the project the main entrance to the site (as stated in the Bills of Quantities) is blocked by materials left by the Client. These materials are not removed from site for 1 Week. The possible repercussion of the above stated scenario is that the project is delayed from the very start. It is the responsibility of the clients to remove the materials left by him. Due to that reason the contractor could not commence work on the project for nearly one week. Here, we have to examine whether time is of the essence of the contract or not, it solely depends on the intention of the parties. If the parties have not expressed their intention , then it depends on the nature of the contract. In this case by examining the facts of the case that states that client has laid down two conditions, first the quality of workmanship should be of the highest order and secondly, he wants tight financial control that can only be possible by the completion of the project at the earliest or in the minimum possible time so it is quite clear that time is an essence of the contract in this case. It is also not the case that one party has waived the right to insist on performance by the stipulated time. 'Where the time is of the essence of the contract and one party waives the right to insist on performance by the stipulated time and allows an extension, his act does not operate as an entire waiver of the essential condition as to time, but merely has the effect of substituting the extended time for that originally fixed'(Halsbury's Law of England, 4th ed, para 486) Here it can be said that though time is an essence of the contract in this case but the project got delayed by the fault of the client as he didn't gave optimum working conditions to the contractor and his team. So, in this case the client can not sue for breach of contract or the loss suffered by him due to the late completion of the project due to this reason alone. 'Ashmore and Son v. Cox & Co.'(1899)1Q.B.436) , 'Aron & Co. v. Comptoir Wegimont,(1921)1K.B.435) and 'Bowes v. Shand'(1877)2A.C.455) amply illustrates the point of essence of time in law of contract. In fact the contractor can ask for compensation from the client for the loss he must have endured for one full week due to the fault of his client for not providing him the optimum working conditions to start work. Contractor can seek damages under various heads of bearing the labour cost and the cost of installing machinery for one full week without getting the opportunity to start work. The second allegation on the basis of which the client wants to seek compensation is that during the excavation of the substructure works ancient roman coins are found. This leads to a delay of 1 month to allow for archaeological Investigation work. This circumstance will come under the Doctrine of Frustration that means frustration due to change in circumstances. The doctrine of frustration has been extended to those cases, where there was no physical impossibility of performance of the contract, but because of the change in circumstances the adventure was frustrated, or by the literal performance of the contract the main object of the contract could not be fulfilled. The case in point is Krell v. Henry(1903)2K.B.740 It was observed in this case that if change of circumstances the purpose of the contract could no longer be achieved then in that case, the parties were discharged from performing their further obligations. In the present case also since ancient roman coins were found and the archaeological department got involved which makes it a matter of state and national interest. So neither, of the parties could do anything about it. They can either end the contract their itself or continue to carry on with the work. At most the contractor can claim compensation for the work finished on the building by him prior to stoppage of work due to the archaeological Investigation work. The third count on which the contract got delayed was that when concreting the foundations in January the contractor complains that the weather is too cold for the concrete to "go-off" and that they are being Delayed. The present condition makes the performance of the contract physically impossible in the given conditions. The only remedy in these circumstances to both the contractor and the client is that they either discharge the contract on this count or they can discharge by Novation. It means substitution of an existing contract with a new one. When, by an agreement between the parties to a contract, a new contract replaces an existing one, the already existing contract is thereby discharged, and in its place the obligation of the parties in respect of new contract come in to existence. 'Evans v. Drummond'(4ESP. 89) illustrates the above stated point. The fourth count that dispute arose between the contractor and the client is that during the erection of the steel frame the contractor claims he is being delayed due to a severe shortage of skilled steel-fixers in the area. Well, on this count the client can either seek damages or terminate the contract because it is the primary responsibility of the contractor to arrange for the work force and later on he can not seek an exemption due to delay on this count. If there is a physical impossibility to perform the contract then only he can plead it. But it is also a stated position that Impossibility does not mean mere commercial difficulty. A distinction is drawn between the happening of an event which makes the performance of the contract impossible, beyond the control of the promisor, and an event which makes the performance only difficult or more expensive. The nature and the terms of the contract may help in deciding whether the performance has become impossible, or merely commercially difficult. In this case it seems that the contract has just become commercially difficult and the client can certainly seek damages from the contractor on that count for the delaying of the work. The fifth count on which dispute arose was that during the internal finishings elements of the works the contractor requests additional information regarding the suspended ceiling system. It is the duty of the client to provide the requisite information to the contractor and if on that count the project gets delayed then the contractor can either terminate the contract and seek the compensation from the client for the work already commenced and finished by him or proceed the work making it known to the client that if he fails to provide the information sought by the contractor then in that case the quality of the construction can be affected and the contractor will not in many manner responsible for that. As to the damages part it can be said that remedy by way of damages is the most common remedy available to the injured party. This entitles the injured party to recover compensation for the loss suffered by him due to the breach of contract, from the party who causes the breach. 'Hadley v. Baxendale'(1854)9Ex.341,at 354) lays the rules as to damages: On the breach of contract such damages can be recovered as may fairly and reasonably be considered arising naturally, i.e., according to the usual course of things from such breach; or, As may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract. Reference: J.Beatson. Anson's Law of Contract (28th ed.) Oxford University Press Bangia,R.K. Contract Law.ALA. Read More