Construction Contracts in Context - Assignment Example

Section A Question (A) & (B) The employer’s act or omission to act can cause delay in the execution of contract. In the instant case the employer UTIL makes changes in the design after the contractor has made considerable progress in the laying of foundation work etc. With the existing conditions, it has become an unbuildable contract. However the contractor is determined to proceed with the contract in order to save the reputation of their firm. Already six weeks have elapsed to understand the new documents and in contractor’s estimation, the change will entail 35 weeks of delay necessitating the postponement of completion date by 35 weeks. Clause 2.27.1 of JCT 2005 1 requires the contractor to give notice to the Architect or Contract Administrator immediately on being confronted with problems that the JCT says as “material circumstances” 2 for the possibility of delay in execution of work listing out therein reason or reasons for the delay. He is required to mention in the notice each Relevant Event leading to the delay. Section 2.27.2 says that the contractor should mention in the notice itself or by a separate letter, the details of effects of each such event including the estimated period of delay either for the completion of the work in full or part of the work beyond the originally scheduled date of completion. As per clause 2.27.3, the contractor should also keep the Architect or the Contract Administrator notified promptly for possible changes in the estimated period of delay or changes in any other connected matters besides responding to the Architect or the contract Administrator’s reasonable requirement of any information. The contractor is then entitled to adjustment of the completion date as per clause 2.28 which requires the Architect or the Contract Administrator to consider the reasonableness of the contractor’s notice and give extension of time by fixing a later date as the completion date which is fair and reasonable. The Contractor is entitled to a notice from the Architect/Contract Administrator about the decision to extend or otherwise, not later than 12 weeks or sufficiently earlier if the period of completion is less than 12 weeks. The contractor is entitled to the information from the Architect or the Contract Administrator as to how extension of time has been given for each Relevant Event. Clause 2.28.5 envisages that if the actual completion date goes beyond the extended time as above, the Architect/Contract Administrator may notify the contractor in writing within 12 weeks formally fixing the date of practical completion date as the completion date after considering the reasonableness of the delay having regard to relevant events or fix a completion date earlier than previously fixed subject to clause 2.28.6.3 and 2.28.6.4 or just confirm the previously fixed completion date. Restrictions placed by the two clauses 2.28.6.3 and 2.28.6.4 are that the Architect/Contract Administrator should not fix completion date earlier to the relevant Date for Completion and should not change the length of Pre-agreed adjustment except when the relevant variation or other work mentioned in clause 5.2.1 “is itself the subject of a Relevant Omission.3 Clause 2.29 lists out as many as thirteen relevant events out of which departure from the contract drawings as mentioned in clause 2.15.1 is the relevant event for the case on hand and attracted by clauses 2.29.1 and 2.29.6 reading as “variations and any other matters or instructions which under these Conditions are to be treated as, or as requiring, a variation”4 and “any impediment, prevention or default, whether by act or omission, by the Employer, the Architect/ Contract Administrator, the Quantity Surveyor or any of the Employer’s Persons, except to the extent caused or contributed to by any default, whether by act or omission, of the Contractor or of any of the Contractor’s Persons” 5 Since the departure is in the form of altogether a new design which renders the preliminary work done by the contractor a total waste, it can be classified as a case of prevention. Clause 3.14.1 empowers the Architect/Contract Administrator to issue notice requiring a variation.6 Clause5.1 defines variation as “the alteration or modification of the design, quality, quantity of the works including….”7 Burden of proof lies on the contractor to apply for extension of time even if the relevant delaying event is employer’s fault.8 A question arises whether the contractor loses his right to extension of time or it is a condition precedent to serve notice. Lord Salmon held in Bremer Handelgesellschaft mbh v Vanden Avenue-Izegem (1978)9 answered in the affirmative in view of a clause in the contract requiring the sellers to advice in time the impossibility with reasons. In City Inn v. Shepherd Construction (2001), in connection with construction of a hotel, the employer had specifically amended the contract under JCT 80 that even in the case of architect’s instruction, the contractor should serve a written notice for extension of time unless there was a waiver by the architect. In the absence of such a waiver, the court held that contractor was held not entitled to extension of time owing to failure on his part to serve notice.10 JCT 98’s clause 25.3.3.1 had no such requirement upon contractor’s notice as a precondition for architect’s duty to extend the completion date.11 A departure from this strict stand was made in an Australian case Gaymark Investments Pty Ltd v. Walter Construction Group Ltd (1999) on the basis of the prevention principle that ‘one cannot benefit from one’s own errors”.12 If the employer’s breach causes the delay on the part of the contractor and it still requires the contractor to notify for the extension of time as a precondition, it goes against the prevention principles. In the Gaymark case, contractor had the obligation to serve notice within 14 days of arising of delay failing which he would not be entitled to extension of time. As the delay was caused by the employer’s default, the court found it in favour of the contractor and held that employer was not entitled to liquidated and ascertained damages.13 In Multiplex Constructions (UK) Ltd V. Honeywell (2007)14, Mr Justice Jackson reviewed the law relating to prevention as follows. (1) Even though the employer’s conduct may be legitimate in a construction contract, it is an act of prevention if it will cause delay beyond the completion date of contract. (2) If such acts provide for extension, it would not set time at large. And (3) If the extension of time clause is ambiguous, it should be interpreted in favour of the contractor.15The third point of law is in accordance with the principle of construction laid down by Lewison16 as “Where two constructions of an instrument are equally plausible, upon one of which the instrument is valid and upon the other of which it is invalid, the court should lean towards that construction which validates the instrument”17 Discussion and conclusion The above provisions and the case law would show that the contractor ICP must notify the architect forthwith the estimated 35 weeks of delay and require the architect for adjustment of completion date. As discussed above, the employer is not entitled to any liquidated damages for the delay since as per prevention principle, he can not be allowed to profit from his own errors. On the other hand, the contractor must require the employer to pay for the cost of construction and demolition and removal of the foundations already laid. In this connection clause 3.10 of JCT 2005 needs to be examined. It says that contractor must comply with the instructions of the Architect/Contract Administrator he is empowered to give. The contractor has the liberty not to comply if the instructions relate to variations referred to clause 5.1.2 in full or part provided he gives his objection in writing to the Architect/Contract Administrator. But clause 5.1.2 does not envisage an objection to the variation relating to the drawings. The only option left before the contractor as per the provisions of the JCT 2005 revised in 2007 to comply with the instructions of the architect and ask for postponement of the completion date by 35 weeks. Besides, the contractor can ask for payment of proportionate value of the foundation laid and cost of its removal. Further, if the variation requires additional labour and materials, the contractor must ask the architect to issue necessary instructions for grant of the same. Although the act of the employer is a prevention or impediment leading to practical impossibility of the contract execution, the contractor’s further action depends on the acceptance or otherwise by the Architect to comply with the contractor’s request for postponement of the completion date along with approval for payment of the work already done and additional cost involved as a result of variation. Although in the common law, the contractor has the protection under the rule of prevention principle, the contractor should demonstrate his readiness to comply with the variations if sufficiently complemented with postponement of the completion date and payment of additional cost. The contractor must wait for 12 weeks for the Architect’s response as provided for in the relevant clause of the JCT SBC 05, for further action. Bibliography Case Law Bremer Handelgesellschaft mbh v Vanden Avenue-Izegem (1978) 2 LLR 109. Multiplex Construction (UK) Ltd v Honeywell Control Systems Ltd [2007] Adj.L.R. 02/08 Internet resources JCT 2005 Standard Building Contract With Quantities Revision 1 2007. Web 30 March 2010 Other resources Books Eggleston Brian Liquidated Damages and Extensions of Time: In Construction Contracts, 3 ed, Wiley-Blackwell, 2009. Print. Knowles Roger, 150 Contractual Problems and their solutions, 2 ed, Wiley-Blackwell, 2005. Print. Lewison Kim, The Interpretation of Contracts” 3 ed, London: Sweet & Maxwell. 2004. Print. Section B Expert determination is a form of alternative dispute resolution similar to arbitration, adjudication or mediation. Appointment of expert in a contract for resolving disputes involves the same procedure as in others such as arbitration etc. However, expert determination is distinct from arbitration in that the former is not under the control of courts and the experts are engaged on a contractual basis and they are liable for negligence. The expert determination is not appealable unless the expert gives reasons for his opinion.18 In Conoco and Others v. Phillips Petroleum Company U.K. Ltd and Others (1996)19, it has been held that expert’s status is not that of a judge or arbitrator but enforceable as a condition in contract. Expert determination does not involve investigation as comprehensive as in formal proceedings in court, arbitration or adjudication. Just only one mind is entrusted with the problem without any documentary disclosure, oral evidence or oral submissions resulting in a rough justice unlike in formal procedures.20 Court assistance for summoning witnesses, court order for inspection, assessment of expert’s fees are not available for aiding a determination by a third-party expert unlike in arbitration. Neither the expert determination can be enforced as a judgement of a court or an arbitration award. However, an expert determination can be annulled by the court for reasons of fraud or collusion or for being outside the terms of reference. While an expert can be sued for negligence i.e want of duty of care, an arbitrator can be sued for bad faith. His fess can be reviewed by the court but he is not liable for negligence.21 However, an expert can be included in an arbitration clause by virtue of special wording in a clause of a contract. In Cott UK ltd v F E Barber Ltd, the arbitration clause reads as “Arbitration. Any dispute …..Shall be referred …..a person to be appointed by the Director General of the British Soft Drinks Association. The person ……..shall be an independent person and shall act as an expert and not as an arbiter and his decision shall be final and binding on the parties” 22 There is growing interest in expert determination for resolving construction disputes as mediation or conciliation are not always successful. Although the expert is expected to act with fairness, he is not bound by rules of natural justice. He can hear the parties in private without the presence of other parties. Unlike an adjudicator under HGCRA, his decision is final though not enforceable as an award. His decision can be enforced as a matter of contract. The expert determination is cheaper and quicker as the expert is not bound by procedures.23 Expert determination facilitates quickest solution and it is the least expensive method of dispute resolution when facts are not in dispute. As it is privately conducted even amongst the disputants and others involved, confidentiality of commercially sensitive information is ensured. Expert termination is the most appropriate forum when technical or valuation matters are in dispute. For example, experts from the same field in which disputants are related to, are appointed to benefit form their expertise. It does not strain the relationship between parties to the dispute as much as in other forms such as litigation or arbitration which are adversarial in nature. Generally, parties bear their own cost of expert advice and the expert has no power as such to award costs on the losing party unless he is authorised to do so by terms of references which are pre-determined.24 Expert determination clauses in contracts are binding and as such parties will have no recourse to courts. However, court can interfere to order for expert determination if a contract so provides. In Douglas Harper v Interchange Group Ltd (2007)25, it was reiterated that expert determination clause should prevail and court refused to interfere as there was provision for expert determination in the contract. This case involved payment of commission to Harper for sale of computer software to be fixed after following an expert determination procedure. Harper resorted to court proceedings without invoking the expert determination procedure. In Halifax Life Ltd v The Equitable Life Assurance Society (2007)26, it was held that expert determination procedures were biding and that court could only resolve whether the dispute needed to be decided by an expert determination and not interfere with the expert’s decision. This case involved an expert to determine assessment of reinsurance premium. Although the expert made the assessment, he did not give reasons. Halifax challenged on the ground of ‘manifest error’. Court opined that since there would be no apparent justice done if the parties could not understand why one of them lost and another won, it remitted back to the expert ordering him to give reasons. Creswell J took the analogy of section 70 (5) of the Arbitration act 1996 which mandates the court to order an arbitral tribunal to give reason for its decision.27 In Sunrock Aircraft Corporation v Scandinavian Airlines System Denmark-Norway-Sweden (2007)28, the Court of Appeal upheld the validity of expert determination provision in a contract. In this case, the claimant demanded the court to order for award of damages for non participation in expert determination instead of ordering for mandatory expert determination. Accordingly, court approved for levy of nominal damages as the correct measure of claimant’s loss. Expert determination appears to give no protection to the innocent party except on the ground of fraud, in that a court cannot entertain an appeal from an expert determination. However if there are reasons given for the expert determination, appeal maybe possible as a contractual provision as held in Conoco and Others v Phillips Petroleum Company and Others (1996)29 Arbitration has its own advantages over other form of dispute resolution. It has wider scope than in expert determination. Besides facilitating a legally binding decision, an arbitration in a construction contract has the arbitrator to reopen and review any certificate, opinion, requirement or notice. Courts have no power to do so as held in Northern Regional Health Authority (1984)30, unless there was an agreement between parties to that effect. Thus an arbitrator has wide powers to review an architect’s decision in respect of grant of extension which a court would not do “by virtue of Crouch.”31 In Crouch’s decision courts have abrogated their power to review an architect’s decision though the court can overturn the decision of the architect on the ground of bad faith. In John Barker v London Portman Hotel (1996)32, it was held that court could interfere if the contractual machinery had broken down and that architect had acted unlawfully. The extension of time granted by the architect was fundamentally wrong as there was lapse of time in taking original decision and there was total breakdown of contractual machinery, it was not fit and proper to remit back to architect for redetermination and instead the court itself took the responsibility of determining the length of time.33 There has been confusion in meaning of expert determination and arbitration with the result claims are filed in the wrong forums. Each forum is meant for different category of claim. The expert determination clauses some time confuse the function of an expert with that of an arbitrator. An arbitrator’s award is registerable in a court for being enforced. It has the effect of a judgement. Expert determination is not of that nature. The expert merely decides an amount by virtue of a contractual provision to engage an expert. The amount decided by the expert becomes a debt owed by one party to another and the debt cannot be registered in a court for being enforced. However its validity can be questioned in an arbitration or litigation.34 Why expert determination is referred is because it provides for the parties to bear their own costs and share equally the expert’s fees.35 Arbitrators are not generally technically qualified though they may be experts in law. Hence parties lose the right to contest the arbitrator’s decision if they do not object to their appointment at the outset.36 Discussion and conclusion Campbell v. Edwards [1976] 37 involved a challenge of a valuation of an expert valuer. The valuation of £10,000 was accepted by the tenant and amount was paid to the landlord before vacating the premises demised. Afterwards, the she obtained valuation from two others who valued far below the original valuation at £ 3,500 and 1,250 respectively. The court refused to interfere on the ground that it was a closed affair. The expert valuation was obtained and the possession was handed over after payment of the residue to the landlord. Objection if any should have been made before handing over possession. More over, the only valuer named in the contract was only the one who made the valuation. The other two valuers had no place in the contract at all. Further, the valuation of £ 10,000 appealed to common sense considering the length of stay and the residue. Besides, the expert determination could not be challenged as the valuation was given as requested without the need for substantiation. The decision demonstrates the certainty of expert determination as against the arbitration. If the same contract had a provision for arbitration instead of expert determination, it would have been in the form of an award subject to the dispute arising over the valuation. In the absence if the expert determination, if the land lord had claimed the same amount of £ 10,000 and tenant had paid and there would have been no question of dispute after paying the amount and handing over possession. Even otherwise, with a provision for arbitration, the tenant could not have raised the dispute after handing over possession and payment. If the dispute had been raised before payment and handing over of the possession, still expert determination would have prevailed if there had been a provision for it in the contract. If the arbitration had been invoked in time, it would have involved the procedures, evidencing and argument and an award with all the attendant delay, cost and uncertainty. Adjudication especially meant for construction contract has been purposely provided for as a stop gap arrangement for relief to the aggrieved party so that, if necessary, the adjudication order can be challenged. Adjudicators are therefore ideally technically qualified so that they can replace the expert determination requirement. Moreover, the adjudication can be invoked then and there for each dispute as and when arises during the contractual process. Moreover adjudicator is bound to give his decision within 28 days and maximum 42 days subject to being so extended by the party who referred the dispute for adjudication. Since the adjudicator is technically qualified rather than legally qualified, matters arsing in construction contracts being mostly technical in nature and having the sanction of law, the adjudication in fact amounts a hybrid form of expert determination and arbitration subject to challenge in subsequent proceedings in arbitration or litigation. The adjudication having become statutory, the decision is binding until the dispute is finally determined by arbitration or litigation. Moreover, the parties cannot contract out to dispense with adjudication. The JCT has therefore rightly incorporated the adjudication requirement in construction contracts. As in arbitration, adjudicator also is expected to act impartially. Even if it is challenged in arbitration or litigation, the arbitrator and the court are both benefited by the wisdom of technically qualified adjudicator to arrive at an impartial decision on technical and monetary issues. The adjudication therefore seems to be the ideal forum to combine both expert determination as well as arbitration or mediation. This not only reduces the delay due to expert determination process but also avoids the otherwise unimpeachability of the expert determination. If the expert determination is part of adjudication process, it can be challenged as well, unlike a standalone expert determination process. It is very much the need of the hour for the construction industry beset with payment hassles. The expert determination process has almost become redundant due to advent of adjudication as part of the statutory process. Besides, the expert determination is informal whereas the adjudication with inbuilt expert determination is formal with legal sanction. Bibliography Case law Campbell v. Edwards [1976] 1 WLR 403, at 408 Conoco and Others v. Phillips Petroleum Company U.K. Ltd and Others. (1996) Commercial Court. C.I.L.L. 1204 Douglas Harper v Interchange Group Ltd [2007] EWHC 1834 Halifax Life Ltd v The Equitable Life Assurance Society [2007] EWHC 503 John Barker v London Portman Hotel (1996) 12 Const LJ 277 Northern Regional Health Authority v Crouch (1984) QB 644 (CA) 26 BLR 1 Sunrock Aircraft Corporation V Scandinavian Airlines System Denmark-Norway-Sweden [2007] EWHC Civ 882 Other sources Books Davenport Philip. Construction Claims. Ed 2, Federation Press, 2008. P 12-13 Print. O’Reilly Michael, Civil engineering construction contracts, ed2, Thomas Telford 1999, p139 Print Powell-Smith Vincent, Sims John and Dancaster Christopher, Construction Arbitrations; a practical guide., Wiley-Blackwell, ed 2 1998 p5 Tackaberry John A, Bernstein Ronald and Marriott Arthur L, 2003, Bernsteins handbook of arbitration and dispute resolution practice, Volume 1, Sweet & Maxwell, ed 4 ,2003 P 27 Electronic Resources Pinsent Masons, Advice Note, Expert Determination, 2010 Web 31 March 2010 Clifford Moya, Resolving disputes using expert determination, Addleshaw Goddard LLP, 2007. S Web 30 March 2010 Read More