Blyth and Blyth Ltd v Carillion Construction Ltd - Essay Example

iNOVATIONS Novation Section A Hoovers case is similar to the case of Blyth and Blyth Ltd v Carillion ConstructionLtd, where the facts concerned the terms of a novation agreement between the consulting engineer of the construction and leisure complex near Edinburg. After a novation agreement, disputes arose between the contractor and the engineer. The contractor was counter-claiming for additional costs incurred, arising from insufficiencies and inaccuracies of the supplied information by the engineer; who supplied it initially to the employer. This formed part of the tender documentation which was supplied by the employer. The engineer, on the other hand, was claiming unpaid professional fees. The construction contract was a contractor design 19811, and JCT standard form building contract. The 1981 design edition was amended to provide that the contractor should assume the works responsibility for the work plan, either after or before the execution of the contract. In the pleadings, the contractors primary position was that the novation agreement was to rewrite the terms of appointment between the engineer and the employer, and substituting contractor with employer. However, this position was not pursued at trial. During the trial, the contractor asserted that re- writing terms of appointment did not affect the novation agreement. He also submitted that, after the novation agreement, the creditor of the obligation was now the contractor, and the other part of the obligation owed to the consultant engineer in providing services and advice was unaltered. In further submissions, the contractor submitted that they retroactively became parties to a contract and hence creditors to the obligations.2 They contracted with the engineers to give services to a third party, and if such obligations were not properly performed, the contractors had a right to claim for losses. Lord Essie went ahead to describe the issue as follows. To effect the novation agreement produced, one has to examine legal, logical state of the defenders analysis to the effect of the novation agreement. He asserted that a novation is a three sided agreement, where a contractor engages a consultant to give services to an employer. Therefore, the questions arising are whether the consultant can be judged based on the employers performance(C). Also, when there is defective performance, whether losses that the consultant B is liable, are those putting the employer in a state of satisfactory service. Lord Essie found that contractors cannot claim for losses in proper novation agreements, where losses are caused by breaches of engineers prior to a novation agreement. Consequently, contractors need to protect themselves in terms of appropriate contractual conditions when taking over responsibility of the process of designing. This can be done through novations, such as CIC novations and collateral warranties, which have appropriate wording protecting design teams from pre- novation losses. According to the Blyth and Blyth case, the contractor is required to take the risk associated with constructions. This always applies, whether the contractor has not made the design, or may have had a few consultations before selection of the contractor. The contractor faces with a situation where they have to accept the legal risk where they have no control over, and also cannot pass it to those primarily responsible; similar to the High Sky situation3. The Sky High faces a legal situation where they are supposedly held liable for the defects occurring in the constructions. Here is where novation comes in; to ensure that design consultants are novated to the contractor. It ensures that when they are made liable for previous designs, they can have rights to seek redress from previous design consultants. It also ensures that the novation agreement puts the contractor in a place where they would have been if pre-contract design were produced and if the consultants were directly working for the contractor when they produced the design. It can be possible according to Chatsworth v cussins, where the original employer was not released from prior obligations (Remsey, 2007 p.556). Therefore, Sky High may first consider getting into a novation agreement with the contractor to prevent pre-novation liabilities. Certainly, Prime Design should be held liable, because the developing defects were due to their incompetence. However, certain positions as the Blyth case may prevent them from enforcing such novations and may still make them liable. In the case, the contractor found them liable for the pre- contract design, but there was no effective remedy against the actual designer who came up with a faulty design. The court held that the contractor had received assignment on the clients rights against the consultant. Also, this limited the contractor from claiming losses that the client could recover. The contractor was unable to recover anything, and the client did not suffer any damage. Additionally, Sky High may consider asserting liabilities and defenses on the contractor, and that the contractor should sue the consultants. From the perspective of the client, this arrangement becomes problematic because it is like performing duties to the client and not the contractor. Therefore, the consultant is entitled to assert limitations and defenses against the contractor, as it would have been able to assert when sued by the client. The CIC document also has a provision that consultant should not be absolved only because the client has not yet suffered a loss4. However, this raises a serious question in terms of this provision as to whether it can solve the legal issues of created by pre- contract duties, which are not owed to the contractor, but firmly still remain owed to the customer. Questions arise particularly arise on the scope losses suffered by the client and whether they are different to the ones suffered by the contractor, or are they just only non- existent. The Blyth case just highlights the complex legal issues found innovation arrangements. However, the CLLS agreements attempt to avoid the uncertainties involved. CCL standards provide that the contractor can claim for any losses directly to the consultant if there are any damages. The losses are not limited to a clients losses. Therefore, Sky High can consider asserting the different law provisions such as the CCL standards to remove liability from their side5. Also, SkyHigh can take advantage of the deficiencies in different wordings to relieve themselves from liabilities. Accordingly, SkyHigh can claim that Hoover, as an employer is responsible for all the liabilities, because they accepted the documentation with the various defects in wording without bothering to make any amendments. Hoover buys shares of a medium sized company, SkyHigh Projects Limited. Hoovers lawyers discover defects in wording of many items in the construction document. So decide to view the document commercially in regards to the many shortcomings. The Sky High contractors, can, therefore, argue that Hoover accepted all the liabilities and should be ready to undertake any remedial construction6. Similarly, Sky High can assert the case of Technotrade, whereby the original consultant (Prime Design) can be sued and the deal- breaker does not have to pay damages. In the case of Technotrade Ltd v Larkstore Ltd, Technotrade were the consultants in the case and produced a soil report on behalf of the developer of Starglade Ltd. They produced a soil report of a sloppy land in Kent and concluded that the land was fit to build a two storey structure. The clause did not have any clause that prohibited any assignation of the report. Later, Larkstore bought the land from Starglade, and contracted with Bess Ltd to construct the house under build and design contract. Larkstore relied on Technotrades report and used it without any consent from Technotrade. Later a landslip occurred7 causing damages, and required costly stabilizations. Larkstore and Strglade entered into a deed assignation benefiting Lakstore with Technotrades report. This expressly gave Lakstore the right to sue Technotrade for their obligations and breaches. The owners of the houses affected the landslip and sued Bess and Technotrade. Lakstore also brought a third party action against Technotrade, relying on the Deed of Assignation. Technotrade used the defense of legal "black hole," or a no loss defense. They defended themselves stating that if the assignation had not taken place Starglade could not have been be in a better place because Laksore had taken the rights of Starglade. Also, they argued that Starglade had not suffered any loss because they sold the land at full market value. The court held that, Technotrade was assigned legal remedies available and the right to sue, as opposed to the loss. The court also rejected Technotrades argument8. The court also stated that the legal principle being applied by Technotrade is to ensure that the contract- breaker, just pays damages that could be paid to the assignor (Star glade). Also, the principle was not put to enable them completely get off the hook. In view of this case, Prime Design cannot completely be off the hook in paying the incurred damages. They would be liable to pay a certain amount of damages, because they had a certain assignation. Therefore, Prime Design can be liable to a set amount of damages but cannot shoulder all, but legal remedies and the right to sue them from appointment. The results of the clause novation will either be transfer of duties, change of parties, or change of certain wordings in the contractual agreement.In the case of Hoover, the developer, who was the employer of the construction contract, can be liable or freed from remedial structural loses depending on whether the warranties referred to, are properly worded, and sufficiently to protect the developer prior to novation agreements. This will be dependent on the discretion of the court9. In Corp v Prairieland construction, the court rejected and indemnours argument, who asserted that a subsequently executed indemnity terminated their earlier obligations in the previous Indemnity Agreement. iiThe court argued that the parties to the two indemnity agreements were not the same, therefore, ruled that subsequently executed contract between same parties did supersede the first, therefore, was not applicable in this case. One important provision is the one providing that the liability of the consultant shall be to the contractor, regardless of whether such liability is accruing before or after the date of novation. Hence the liability in this case is on SkyHigh, depending on whether they agree to perform appointment and to be bound by terms of the appointment10. Novation is the act of replacing a unique contract with another one, but on the same terms; and one party substitute another. A novation either substitutes are replacing an existing obligation with a new one or substitutes parties. The execution of a written agreement is unique draft for each situation. Because of this, standard novation agreement can be used and modified to suit specific agreements. Certainly, such agreements cannot be left to armature draftsmen. Novation agreements are always valid as long there is consent and agreements with the original parties. This validity is supported by Anti- Assignment Act, where such transfer is invalid if there is no agreement to transfer (Lando 2000 p.128). Novation agreements always transfer duties from the original obligatory to another obligatory. This situation provides a means where people can work around a privy of contract, however, original parties may be bound by the original contractor may be able to exercise their duties as under the original contract. Hoover buys share in the company Sky High, which means that they come in as an additional party to a contract. This does not completely release the other parties from their obligations. The definition of a Novation was further explained by Staughton Lee in the case of Linden Gardens, where he says that novation occurs where there is a rescission of the contract. Then there is the substitution with a fresh contract, than obligations of a contract are carried out by different parties. An excellent example is construction work. Before the completion, where there is a separate transaction, then agrees to sell incomplete project to C. C can be given the benefits of contractual specification for construction works through a novation agreement substituting A with C, in the original contract where there was an agreement with B. The effect of a true novation agreement, will release the contractual obligations of A to the contract, in agreement with B. When A is released from the obligations in the original contract, B may sue C for any breaches in the contract by A from the day of the novation agreement11. Question B Novation agreements should be particular to prevent construing them in a manner not intended. Every important detail should be involved. The Structure of novation agreements should be is as follows: Names of all the parties concerned, most of the time three The terms of the appointment document, terms of the building contract, putting in place recitals of the works concerned and other matters that are considered relevant. The agreement among other things should include;- -A clause releasing employer from liabilities to the consultant -A clause releasing the consultants liability to the employer- A clause indicating the current fees in regards to consultation -A clause referring to the changes agreed in regards to the appointment, this always refers to the attached appendix or schedule. - A clause setting liabilities between the contractor and consultant. This agreement will set as though the contractor had been part of the agreement from the beginning instead of the employer. Accordingly, Novation agreements can be made under Construction Industry Council, which has a provision where the contractor can be offered a warranty from the work, thus strengthening the position of novation12. They should also include different warranties and exclusion clauses to protect different parties intended to be protected. Common law principle provides that y; any agreement to substitute any original agreement is void. This is unless; it is agreed to the satisfaction and carried into execution. Therefore, there is always need for execution and agreement to the parties satisfaction. However, entering into a deed can be satisfactory as to the contractual debts. Consent is seen to be a vital part innovation agreements. Therefore, it is necessary that principal contracts between developers and contractors include express terms placing obligations on consultant and contracts to enter a novation agreement. Accordingly, it is advisable that specimen form of a novation agreement should be appended into the original contractual document to prevent the risk of having an agreement that is unenforceable. Section B Developments in common and statutory law and different innovations in procurement have had different effects. However, the greatest impact has been seen in re-drafting the JCT 2005 and the entire contracts suite, thus giving different players in the construction industry a new set of body for contracting. This has enabled the contractors to have a wider range of procurement options. The 2005 edition had a very dramatic change; however, risk allocation largely remained the same. The 2005 amendments were as a result of JCT contracts and were as a result of several calls after several business researches. Research showed that the business or the business, there was expressed preference for integrated useful documents, rather than a series of documents that have different supplements. The JCT 2005, was drafted with less legalistic language and was also incorporated much user friendly changes. The most striking changes were seen in areas of dispute resolution, contractors design obligations and third party rights. JCT produced guidelines that were to be used as guidelines or to be used as a reference tool by contracting parties. The aim of JCT was to present contracts in a user friendly manner. Therefore, they produced contracts that were stand-alone without the use of supplements. Therefore, contracts include information useful for use and information with all additional explanatory information. Substantially, the structure of the contracts overhauled the clauses which were grouped into sections as control and payment of works, which were numbered and wording revised. This aimed at user plainer and there was no much use of legalistic language (Solicitors 2007 p.16).Most of the clauses were simplified and shortened13. The changes also included long definition of terms that at point has used reference to statutory provisions. Such statutory provisions are like VAT legislation and CDM regulations. Sometimes the legislators referred to include procedural rules such as arbitral rules and scheme for construction contracts14. One can also see deletion of some provisions as Performance Specified works, Nominated Sub- contracts and suppliers and contractors price statement. Insurance for Employers Loss of Liquidated damages also does not appear in the standard form. Additionally, there are optional provisions that can be chosen such as sectional completion and contractors, and are chosen as required. There is no need to separate supplements, but rather the contract can be read with the main contract form. The amendments included the design responsibilities of the contractor. The 2005 amendments made two additions, including Intermediate works construction contracts with contractors design and Minor Works building contracts with building design. These are specifically tailored for the smaller business and put some design supervision to the contract administrator or the architect. The contracts in the amendment were not intended to substitute build and design contracts. However, they are seen as intending to for the contractor to be responsible for some discrete element of design. Also, both contracts give obligations to the supplier to give enough information for a detailed contract portion and also examine contractors proposals. Afterwards, satisfy that the proposal requirements are adequate. This is crucial, in terms of execution, agreement and consent which are required in different contracts and also novation agreements. Also, the sections that allow deletion of amendments of contracts can be seen as a source of disputes. This is because, at several points, the contractor may attempt to amend provisions so as to allow erroneous duties on the contractor15. Strikingly, contractors plan obligations in the two contracts differ under 2005 ICD. Under the ICD 2005, the standard of care of different portions is provided as that of a professional designer. The standard of care includes reasonable skill and care and diligence. Presumably if such due diligence or care was carried out it is upon the courts discretion. Also, the amendments included the obligation of the contractor in design completion. This includes express clauses including IDP 2005, MWD 2005, SBC 2005 and DB 2005. The express clauses provide that contractors are not responsible in checking design adequacies, which are within employers requirements. However such JCT amendments seem to kick out certain positions of law as provided in Cooperative Insurance Society v Henry Boot Scotland Limited. In this case of Henry, the court held that the contractor was under duty of care to in examining pre- existing design and satisfying himself that the plan produced was capable of being constructed. Therefore, the contractor was under such duty of care. Hence these provisions by JCT, look to kick out this principle, and contractors duty of care are discharged under the provisions of JCT. However, these amendments do not mean that the contractors responsibility in relation to the plan is non- existent. Under DB 2005, ICD 2005 and SBC 2005, a contractor has an obligation of notifying inadequacies to the employers requirements when they are aware of such inadequacies. They should then reimburse costs through variation16. Accordingly under MWD 2005, the contractor should ensure that the plan by employers is compliant with all the legal requirements. This is with the exception of DB 2005, where employers requirements state that they are so compliant. The 2005 JCT arrangements also provide a procedure for reviewing designs. SBC 2005 and DB 2005 have a plan review procedure. Here, the contractor is required to submit all documents for plan for review. Following the review, documents can be graded as; a contractor to proceed with works in regards to the plan document. A design is marked in the event that it is supposed to be returned in 14 days of submission. A contract is marked B, if the contract designer should continue with the construction. This means that the contractor should continue with a contract according to the architect or employer, and includes broad comments. A contract is marked C if no works can be carried out and that contractor should resubmit plan documents, and put into consideration the comments made. Further, the provisions provide that a contractor can only be paid if designs are executed in accordance with B or A. despite these provisions; it remains to be seen whether an employer can choose to make comments in regards to the design17. These comments are in regards to gaining confidence that the contractors are properly enforcing contractual agreements. However such comments may be regarded as raising challenges that may increase variations to the contract. Therefore, depending on whether such comments constitute variation, it may require inserting variation clauses to the original agreement. The JCT 2005 also had a provision of third party rights. JCT has consistently refused to incorporate contractual warranties between third parties and the main contractor, despite the market demand. This refusal has led to the proliferation of many forms of collateral warranties. This is seen in the infamous decision of Murphy v Brentwood which involved pure economic loss and recovery in tort. In this case, the building was not adequately inspected by the local authority, and the building became unstable therefore dangerous. The claimant could not raise money to repair the damages and had to sell the house at a loss. He sought recovery of the loss from Brentwood District Council. His action for recovery failed as the court identified the loss as purely economic. Many commonwealth jurisdictions have rejected this position18. However, in 2003, there was the inclusion of third party rights in the Major Project Form, but this did not extend to warranties. The CD 2005 includes provisions of subcontractor and the main contractor collateral warranties in DB 2005 and SBC 2005; which favor funders, purchasers and tenants. Perhaps, putting in place these provisions was because of the alarming number of bespoke warranties which existed. Notably, across the 2005 suite of contracts, the nature of provisions widely vary, as MWD/MW05, has no clauses. On the other hand, SBC 05 has provisions for sub- contractor collateral warranties and collateral warranties and also right to the third parties. When making contractual agreement, when such provisions exist, care must be taken in relation to third party right information one is filling. Similarly, parties should agree on factors like parts of the works to be let or purchased and the third party rights which should be granted. The provisions also provide that specific details should be given proper attention, which include whether a contractor may be liable for any losses incurred by beneficiary, and how the clause warranty will apply, including specific details. It further provides that the contractor cannot ask for third party rights if there are no specifications as to third party rights19. Also, the JCT 2005 provides sub- contractor remedies in ICD/CD 05, DB 05 and CBC 05, therefore, incumbent that the contractor complies with requirements set out in the contract as to obtaining the warranties. Parties also have the discretion to decide whether the obligation is restricted or absolute, using the best reasonable endeavors. There were changes also put in place in regards to dispute resolution procedure. The JCT has fair dispute resolution mechanisms despite different shielding away from an uniform procedure. JCT adjudication contracts have been scrapped to favor Scheme construction contracts. Consequently there can only be a reference to one dispute at a time. Also, multiple disputes can be referred to in one adjudication as seen in R Durtnell & Sons v Kaduna Ltd. Conclusion The 2005 JCT arbitration exists, however, express entry need to be made in particulars of contracts. MW/2005 and SBC 2005, also provides for procedures to be used for dispute resolution.Conclusively, general terms in 2005 JCT are excellent and create more clarity in enforcing contracts. Similarly, the contracts under the provisions are open to parties, which can input clauses, add or omit different circumstances, making them flexible20. References Top of Form Barnes, Peter, and Matthew Davies. 2008. Subcontracting under the JCT 2005 forms. Oxford: Wiley-Blackwell. http://site.ebrary.com/id/10301341. Top of Form CORNES, D. L., & WINWARD, R. (2008). Winward Fearon on Collateral Warranties For Construction Contracts. Chichester, John Wiley & Sons. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=351669. Bottom of Form Bottom of ForTop of Form CHAPPELL, D. (2009). Standard Letters for Building Contractors. Chichester, John Wiley & Sons. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=428235. Bottom of Form Top of Form CHAPPELL, D. (2007). The JCT design and build contract 2005. Oxford, UK, Blackwell. http://site.ebrary.com/id/10232686. Top of Form KOTHARI, V. (2006). Securitization: the financial instrument of the future. Hoboken, NJ [u.a.], Wiley. Bottom of Form Bottom of Form Top of Form LANDO, O., & BEALE, H. G. (2000). Principles of European contract law. The Hague [The Netherlands], Kluwer Law International. Bottom of Form Top of Form SOLICITORS, M. (2007). MacRoberts on Scottish Building Contracts. Chichester, John Wiley & Sons. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=470629. Bottom of Form Top of Form RAMSEY, V. (2007). Construction law handbook. London, Thomas Telford. Bottom of Form Read More