Construction Contract Law - Case Study Example

Part One: Henry, the employer has certain express obligations towards the contractor David under JCT Standard Business Contract 2005 with quantities.As an employer, he has not honoured his obligations for smooth running of the contract for which David is in no way responsible. Although, the employer is now asking the contractor to give a lump sum quotation to complete the contract as originally scheduled, contractor is under no obligation to entertain the same if it is impossible to complete the contract as per the original schedule even with an extra amount for the delay on the part of the employer. Henry should thoroughly analyse the situation and evaluate the risk before undertaking to complete the order on schedule. The employer’s threat to withhold the interim certificate in the absence of the contractor giving the lump sum quotation, is also illegal. The contractor Henry is therefore entitled to avoid the contract or refer to adjudication. Relevant provisions in the JCT SBC 20051 with quantities and case law in support of the contractor’s stand shall be examined hereunder. JCT SBC 2005 imposed obligations on the contract administrator which if he fails to perform, the employer becomes liable to contractor for breach of contract. If the employer directly deals with the contractor bypassing the contract administrator, the contractor should avoid dealing with him directly. He should not accept instructions directly from him but insist on the same being routed through the administrator. Even otherwise, the contractor should ask for written confirmation of the administrator for employer’s direct instructions. Implied obligations of the contractor are that he should complete the contract and he has also the right to complete the work in time as per schedule for which the employer should cooperate. Merton LBC V Stanley Hugh Leach Ltd 2lays down two implied general obligations of the employer. That the employer shall not obstruct the contractor from carrying out his obligations as per the contractual terms and he should take all steps to ensure that the contractor is able to perform his part of the contract. The employer, having once agreed, cannot split the contract and give it to another contractor as other wise the contractor can assume it as a repudiatory breach of contract by the employer and enable him to terminate the contract. Especially the contractor should ensure that the employer incorporates the unilateral termination clause in all the subcontracts if the main contract contains one such clause as otherwise, the contractor will become liable to subcontractors in such an eventuality. The employer should handover possession of the site to the contractor at the right time and in the absence of an express term in the contract, it should be taken as an implied one. Employer should appoint an administrator and if the contractor does not object for not appointing one, it will be taken as a waiver of the right to have administrator by the contractor. The employer is deemed to be in breach of duty if the contract administrator unduly delays giving of instructions to the contractor.3 There are some more implied obligations owed by the employer but they are irrelevant to the problem presented herein. In Carr v JA Berriman Pty Ltd (1953)4, the implied obligation of the employer not to split the contract was asserted and the contractor was held entitled to terminate the contract for the reasons of the employer’s repudiatory breach as mentioned above. In the earlier contract form of JCT MC 98, the employer had the right to terminate the contract without assigning any reason and was not liable for damages to the contractor. 5 Some of the express obligations under JCT SBC 05 are, duty of payment as consideration for the contract, nomination of architect or the contract administrator, appointment of quantity surveyor as per the respective articles. In case of the nominees leaving their posts, the employer is bound to appoint replacements within 21 days. Though the contractor can object to the replacements on justifiable grounds, he cannot do so if the replacement is a local authority and the architect , contract administrator or quantity surveyor happens to be its employee.6 Since the architect is already appointed in the instant case, the employer is not entitled to speak to David regarding his intention to withhold interim certificate. Therefore, the contractor should inform the employer that what ever is the intention regarding payment, it should come from the architect. As he is clearly entitled to payment for the work already executed, the contractor should demand interim certificate and later the payment. The employer or even the architect has no right to withhold issue of interim certificate for want of lump sum quotation form David, the contractor. After giving notice to the architect, contractor can terminate the contract for the reasons of repudiatory breach by the employer. However, the termination of contract should be initiated through adjudication process as a statutory right. Now the JCT SBC 05 also has provided for mediation as a mode of dispute resolution meaning that the parties can resolve the dispute by agreement.7 As per the Housing, Construction and Regeneration Act 1996, adjudication is dealt with as below. First, the aggrieved party should give notice to the other party, here the employer, to refer the dispute to adjudication. The appointment of the adjudicator must be made within seven days of notice. The adjudicator thereafter should give his decision within 28 days or any extended period as may be mutually agreed between the parties. The adjudicator can extend his period of decision by 14 days with the party who referred the dispute. While deciding the dispute, the adjudicator is expected to act impartially and he can assume authority to decide according to facts and law applicable to the dispute. His decision shall be binding on the parties until the dispute is finally decided by arbitration or litigation if the parties choose to appeal against the adjudicator’s decision. JCT SBC 05 has adopted the part 1 of the Scheme of Construction Contracts (England and Wales) Regulations 1998 (The Scheme) which is the adjudication procedure.8 Conclusion In view of the above provisions and case law, David, the contractor will do well to refer the matter to adjudication claiming repudiatory breach of contract by the employer whose attitude to withhold interim certificate in the absence of a lump sum quotation that too directly without the architect’s knowledge does not augur well for the smooth progression of the contract. He should also make claim for settlement of money due for the works completed so far. As stated above, the contractor should take the architect into confidence before initiating the adjudicating process. However in case of a compromise between the employer and the contractor resulting in giving the interim certificate and the extension of time or by a lump sum quotation to complete the work on schedule as the case may be. In whichever way it is compromised, the contractor David must assert his rights before proceeding further. Part Two Tort is a civil wrong and actionable against the person committing it. Just as in contract there are obligations, tort also is driven by obligation on individuals towards other individuals without there being any contract as such. These rights and obligations in tort are derivatives of common law or creations of statutes. As said above, tort covers a variety of wrongs such as trespass, assault, libel, negligence and statutory torts etc. Some torts which are criminal offences arise from obligations owed to the State and actions are initiated by the State for such wrongs. In civil wrongs, the individual who has been wronged is entitled to proceed against the wrongdoer, the tortfeasor for the tortious liability or the obligations.9 In this paper, the tort of negligence is discussed in general and within the context of construction law. For invoking an action for negligence tort against some one, the cause of action arises when the duty of care owed by the tortfeaosr to the party injured is breached causing injury or loss to the latter. The term injury signifies not necessarily a bodily injury but also some form of loss or damage to the party who has suffered. There was no such concept of negligence in tort until 1932. Whereas the possibility of duty of care is unlimited these days, it was being recognized only in discrete situations giving rise to duty of care.10 The duty of care in modern law of tortious negligence was first recognised in Donoghue v Stevenson [1932]11 which propounded the theory of “neighbourhood principle” based on the maxim “love thy neighbour”. The neighbour is the person who is immediately affected by negligence. In other words the person or persons who are so closely and directly affected by the negligent act. In Donoghue V Stevenson, it was observed by Lord Atkin that the person who owed a duty of care ought to have foreseen the injury that might be caused by his particular act or omission. Thus, “reasonable forseeabilty” is the corner stone around which tort of negligence came to be built. Though this case did not lead to explosion in litigation, new areas of liability came to be established by courts on case by case basis. Later, in Anns v Merton London Borough Council [1978]12, the House of Lords laid down a two-stage simple test for the liability in negligence. First, to enquire the closeness of relationship between the wrong doer and the inured party and the carelessness on the part of the former likely causing damage to the latter. Secondly, if the answer is in the affirmative, to examine the possibility of the limited scope the duty by the former towards the latter. The House of Lords meant the public policy considerations which could limit the scope of duty. Although this came to be criticized, it gave rise to new areas of liability. But in subsequent decisions, Anns approach was not followed. The decision in Murphy v Brentwood District Council [1991]13, negatived the exemption sought to be given to public authorities for duty of care as decided in Anns case. Lord Keith suggested a three stage test in Caparo Industries plc v Dickman [1990]14. They are forseeabilty, proximity and fair, just and reasonableness. But the same Lord Bridge cautioned that this should not be followed as a rigid formula. Negligence in construction industry. The courts have found it less difficult to apply the duties of care principle to the cases of construction industry. Public policy considerations especially have helped restrict floodgates of claims for negligence for economic loss i.e loss of profit which is far fetched and difficult to bear by the ‘wrong doers’! The general rule is that the pure economic loss is not recoverable though not damage for personal injury or damage of property. This rule is helpful where claimant does not own the property but at the same time sues the defendant for his alleged negligence just because claimant has an interest in that property. Thus in Spartan Steel and Alloys Ltd v Martin Co Ltd [1973]15, the defendant caused disruption in electricity supply to the claimant’s plant while the defendant was attending to a work when an electric cable which did not belong to the claimant was cut. Court held that claimant could only have compensation or the damage caused to the metal that was under process because of disruption and not the loss of profit because of the closure of his factory for one day. The actual loss to the metal which is direct is considered as economic loss and the loss of profit which is not direct is considered as pure economic loss.16 In the case of construction industry, defective product or defective building results in repairs. The cost of repairs is considered a pure economic loss as far as the manufacturer, designer or builder is concerned. This is not direct because they do not owe a duty of care as not to cause pure economic loss. Only if the defect causes damage to other property or personal injury, tortious liability of negligence would arise. This was the basis in the above mentioned decision in Murphy v Brentwood District Council [1991]17 where defective foundation of the claimant’s house fetched loss in subsequent sale of the claimant’s property. This was rejected because this was not the case of defective product (building) causing damage to other property but to itself. Incidentally, Defective Premises Act 1972 may give relief to the claimant in such cases but on the ground of negligence.18 The “other property” issue was raised in Baxall v Sheard Walshall [2002]19. But the causation in negligence and duty of care were discussed. The Court of Appeal held such a duty was owed to the future tenants of a defective building. Here, there was a claim for damage to the equipment inside the building due to two floods that entered through leaking gutters and drains. Baxall who was the current tenant claimed against the original architect Sheard Walsall holding that he owed duty of care to all the future owners of the building by design that would prevent damage to the contents of building. The court decided in the defendant’s favour because the defect was patent and not latent and that claimant who was the ‘future’ tenant/owner could have easily noticed the defects. Thus chain of causation was broken between the parties and hence the defendant was held not liable.20 Limitation The Limitation Act 1980 has prescribed a period of six years for various torts including negligence although for a claim for personal injury, it is only three years. The period begins to run from the date of causation i.e the date on which the damage occurs. In construction industry, it is a little difficult to pin point the time the damage was first suffered. In Pirelli General Cable Works v Oscar Faber and Partners [1983]21, the House of Lords decided that cause of action for negligent advice should be reckoned from the date the cracks became visible rather than the date it was reasonably discoverable. Though this decision was subject to criticism, Latent Damage Act 1986 put an end to the controversy by insertion of section 14 A into the Limitation Act 1980 which provides an alternative limitation period of three years from the date the claimant had the knowledge of feasibility of making a claim i.e the damage was sufficiently serious to start proceedings, date of identification of the defendant and the when he was convinced that damage was attributable to the act or omission of the defendant. And in the case of the claimant being an infant or of unsound mind, the date period beginning to run is when the disability ceases or when the claimant dies whichever is earlier.22 Tort claims between the employer and the contractor While the duty of care owed to the employer by an architect has been clearly established because of their proximity, it is yet to be clarified whether a duty of care in tort exists between the employer and the contractor though in Barclays Bank Plc v Fairclough Building Ltd 23 it was held that sub-contractor owed a duty of care to the main contractor in avoiding financial loss to the main contractor which he had to pay to the employer under the contract. 24 Bibliography Books Murdoch John, 2001, Construction contracts: law and management Taylor & Francis Murdoch Henry and Hughes Will, 2007, Construction Contracts, ed 3, Routledge. Ndekugri Issaka and Michael Rycroft, The JCT 05 Standard Building Contract: Law and Administration, Ed 2, Butterworth-Heinemann. Ramsey Vivian and Thomas Telford Limited, 2007, Construction Law Handbook, Thomas Telford. Cases Anns v Merton London Borough Council [1978] AC 728 Barclays Bank Plc v Fairclough Building Ltd [1994] 68 BLR 1. Baxall v Sheard Walshall [2002] CILL 1837 Caparo Industries plc v Dickman [1990] 2 AC 605 Carr v JA Berriman Pty Ltd (1953) 89 CLR 327 High Court of Australia Donoghue v Stevenson [1932] AC 562 Merton LBC v Staley Hugh Leach Ltd (1985) 32 BLR five1 Murphy v Brentwood District Council [1991] AC 398 Pirelli General cable Works v Oscar Faber and Partners [1983] 2 AC 1 Spartan Steel and Alloys Ltd v Martin Co Ltd [1973] QB 27 Others Brewer Geoff, 2002, An Architect’s Liability in Tort, available at accessed 15 March 2010 JCT Standard Business Contract (SBC) 05 with quantities, available at accessed 15 March 2010 Read More