Construction Contract Law-1 For Shifty

 

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Contents   Table of Cases 1.  Question 1

 pg1    pg1

What are the similarities and differences in the respective roles of the architect and the engineer in the industry? In what ways does an architect and an engineer ensure compliance with contract requirem r equirements? ents?  2.  Question 2

 pg4 

In what circumstances is it appropriate to imply terms into a building contract? 3.  

Question 3 

 pg6  

In 2002 Clangers Ltd completed the design and installation of a new heating system for a block of residential flats in Mayfair. Numerous complaints were made by the tenants about leakages and the failure of the system to maintain a constant specified maximum temperature in the winter months. Conditions worsened in the severe winter of 2009/10 with reports of numerous leaks and breakdowns in several flats. The tenants took action against the landlord (Propertydeal Limited) under the variou variouss tenancy agreements and obtained compensation after respe r espective ctive clai claims ms had been evaluated by the landlords surveyors. Propertdeal then brought an action against the main contractor Buildglobal Enterprises Ltd in negligence alleging negligent workmanship. Buildglobal added the subcontractor, alleging that t hat Clangers Ltd owed Propertydeal Limited a duty of care. Advise Propertydeal. 4.  

Question 4 

 pg8 

On 1 April 2010 Spanlink Limited contracted to build a tunnel under the terms to link  Canvey Island with Kent. Excavation works were commenced and the tunnel was  bored through to the Kent side by November 2011. Between that date and completion in 2012 there were various delays and disruption to the works caused by non payment to contractors and sub-contractors. One of the subcontractors Moleman Essex Ltd suspended work three times in June 2010 for 6 weeks; January 2011 for 2 weeks, and in January 2012 for three weeks. Spanlink Limited claims liquidated damages of  £110,000 against Moleman Essex Ltd who have now counterclaimed for £500,000 for  loss and expense and a declaration that they were entitled to 11 weeks extension of  time. Assuming the claims cannot be negotiated what dispute resolution process would you recommend and why? On 30 of January 2012 Moleman gave notice of suspension of the work exercising its right under the Housing Grants (Construction and Regeneration) Act 1996. Spanlink  have issued proceedings for unlawful termination of the contract. Discuss the respective merits of the contractor¶s and subcontractor¶s claims.

5.

References

 

 

1. The fundamental role of an architect and engineer in the construction industry is to provide a professional consultancy to the industry by way of drawings and specifications for  employers and contractors. However through the various forms of contracts their roles can expand to employers agent/representative or contract administrator. There are both similarities and differences in the powers and duties given to them through standard building contracts for architects and civil engineering contracts for engineers (please refer to table 1).

Firstly it is the appointment appoint ment of an architect in a standard building contract that dictates their  duties and role. A design and build contract usually takes actual design responsibility from the architect as is transferred to the appointed design and build contractor through the main contract. However it is possible for a client to retain the services of an architect to act as representative/contract representative/con tract administrator on a scheme sc heme,, also known as employers agent. The architect, through their appointment with the contracto co ntractor, r, will still have a professional duty to  provide adequate consultancy to ensure design complies co mplies with planning, building regulations and ultimately the clients requirements. An architect appointed by the t he design and build contractor will still have a contractual/legal contractual/legal responsibility to the client cli ent despite not being appointed by them as they will usually be required to sign to a collateral warranty. On a more traditional contract i.e JCT 2005 with quantities, the architect ar chitect will be retained by the client in a role as contract administrator and employers agent together with their th eir design responsibility responsibility for the full design compliance of a scheme with a client. In contrast in a civil engineering form of contract the engineer¶s role outside of design cannot be appointed to others.

Their primary roles in the industry are as designers; the architect will be responsible for the appearance, compliance and suitability of the design with the engineer being more responsible for ensuring the proposed design works structurally. In this respect their  responsibilities in such that they will both need to ensure that the building is suitable both in appearance and buildability. A civil c ivil engineer designs infrastructure such as harbours, canals, railways and gas work.

Architects under standard building contracts, such as the JCT, and engineers under ICE contracts have authorization to supervise the work to ensure compliance with requirements, as previously mentioned this responsibility will depend on the architect¶s appointment.

 

Although the required supervision between the two consultants are different, ³The RIBA Conditions of Engagement provide for periodic but not constant supervision´ (John Uff, 2009) whereas on civil engineering contracts the work on site will be given full time supervision by the engineer or his representative. Both have access to inspect the works at all reasonable times, under clause 3.1 of JCT standard building contract and clause 37 of ICE Conditions. The duty of certification of payment is given to both, under their respective contacts, and it is their responsibility to check interim valuations. They must value progress of contract works as well as fees, preliminary costs and provisional sums that make up the contract sum; if  expressed in the contract terms materials delivered to site which are not yet incorporated into the works may need to be valued. When carrying out certificates they owe a duty of care to 1

their employer as the House of Lords in the case Sutcliffe v Thackrah  ³decided that an architect was liable for f or the Employers loss arising from negligent over-certification´  over-certification´  (NdeKugri, 2009). It s more difficult to determine whether they are liable under negligence to the contractor as there is no contract between the two, as sseen een in the Court of Appeals 2

decision in Pacific in Pacific Associates v Baxter  . However the House of Lords stated, in the case of  3

 Arson v Casson Beckman Rutley , that considering the importance of cashflow to a builder  they could successfully sue the architect for negligently certified less money.

Another role shared by architects and engineers is the power to write instructions for contract variations with regards to the relevant events. events. It is also the role to value the t he works or loss and expense. Through checking contractor valuations, instructing variations and producing with holding notices they are making sure that work are being carried out to the contract. When the contractor believes the construction to be complete the architect archit ect and engineer both have the power to inspect and snag the work and notify the contractor of any defects and or  faults that need to be completed before a certificate of practical completion is signed. This is another example of making sure that works are complying with the contract and the employers r equirements. equirements.

1

(1974) AC 727 (1988) 44 BLR 33 3 (1975) 3 ALL ER 901 2

 

  Table 1: Similarities and Differences of Architects and Engineers E ngineers Role and duties of Architects and Engineers (These are subject to their a pp a ppointments ointments in contract) Similarities

Differences

y

   

Design Consultants

y

y

Lead project review meetings

y

 

Interim payment certificates

y

 

Supervise/inspect work 

y

 

Issue notice of defective work 

y

 

Issue notice of practical completion

y

y

y

y

  Engineers Design temporary works   Different aspects of design   Architects prepare contracts

  Architects can select specialist contractors

  Architects role is appointed under a standard  building contract. A Engineer¶s, under a civil engineering contract, role cannot be given to others

 

2. ³A term of a contract which the parties to that contract did not expressly agree either in writing or orally and which is not negative by or inconsistent with some express term´ ( D.Chappell,2001).  D.Chappell,2001). Terms can be implied by statute; common law; fact and by custom.

A term becomes an implied term when it can be reasonably assumed that all parties could have envisaged its inclusion or consideration, Lord Pearson expressed this in Trollope and  4 Colls ltd v North West Regional Hospital Board  . Courts can also apply implied terms to make the contract work and give it business efficacy; the ³Moorcock´ case is a leading example. Implied terms can be appropriate in any building contract as they can accommodate a requirement that is not stated in express terms in writing or orally but stands up to any test of its reasonable inclusion. The most necessary test being that without its consideration the contract could not be exercised. However for these to apply all parties must understand the terms implied and it is clear they both agree with the intention of its inclusion; moreover  terms cannot be implied just to ³make the contract more sensible, fairer or better´ (Elliot & Quinn, 2009). Statutes such as the Unfair Contract Terms Act 1977 and Sales of Goods Act 1979 can be used as implied terms of a contract and they may be appropriate in certain building contracts. Section 13 of the SGA says that goods supplied to the buyer must correspond with the description that it was sold. In Re In  Re Moore and Landauer & Co5 an order of canned fruit was to  be delivered in boxes consisting 30 cans however what was actually supplied was a box containing 24 cans and therefore did not match the description at purchase. This would be relevant when in contract with a trade supplier and a certain quantity of bricks per pallet specified at order. Section 14 of the act deals with quality and fitness of purpose of goods; ³where goods are sold in the course of a business there is an implied term that goods are of   satisfactory quality´ (D.Cracknell,2003) (D.Cracknell,2003).. Although subsection (2C) states that if an an examination of the goods is carried out before purchase and a defect was revealed or should have been the implied term cannot apply. Furthermore should the purpose of the goods be 6 

obvious it does not need to be expressed, in Frost in Frost v Aylesbury Dairy Co Ltd  it was held that the purpose of milk was implied because it clear it would be drunk. Section 14 would be

4 5 6

(1973) 1 WLR 601 (1921) 2 KB 519 (1905) 1 KB 608

 

appropriate when ordering the manufacture of a passenger lift where an inspection may not  be carried out and the purpose is clear.

The Housing Grants, Construction and Regeneration Act 1996 is another example of statute that is specific to construction contracts and can be implied when building contracts are silent on matters such as arbitration, which is covered by section 108 of the act. This act also deals with payment terms of construction contracts, sections 110 and 111 deal with notices of   payments and withholding notices and give time limits on when notices are needed to be sent, for example the payer is ³to ³ to give the payee a notice complying with section 110A(2) not later  than five days after the payment due date´ (The Housing Grants, Construction and Regeneration Act, 1996). A major facture in the t he construction industry today is Health and safety standards on building sites and in the work place which must be adhered to whether  expressed in contract or not.

7 

Terms can also be implied through common law. In the case Liverpool case Liverpool City Council v Irwin   the Court of Appeal held that there was an implied term for the landlord to keep the common  parts clear and lighted. Past cases and their judgments can set precedents which can later be used if relevant to future disputes.

Implied terms by custom are when terms are usually part of a contract in that particular trade or business. Hutton business.  Hutton v Warren8 is an example of this whereby a farmer had a tenancy on the defendant¶s field which he work on and got the crop ready for harvest. Just before harvest his tenancy was terminated so he put in for compensation for his labour and expenses spent on the crops which the defendant declined to pay as it was not part of the tenancy agreement. The court held these terms were implied as they were commonly used in farmer tenancies. 9

Moreover  British   British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd  is an example of terms implied by custom which is relevant to the construction industry.

7

(1977) AC 236 (1836) 1 M&W 466 9 (1975) QB 303 8

 

3. Propertydeal are citing that Buildglobal owe a duty of care, as seen in Donoghue in  Donoghue v 10

Stevenson , for producing a product, the building, which was not properly built and was defective. D&F defective.  D&F Estates v Church Commissioners11 was a similar case where action in tort, due to no contractual relationship, was brought against the contractor for defective plaster  work however both the Court of Appeal and House of Lords found the contractor not to be liable as they ³may ³ may not owe a duty in tort to supervise the work of a sub-contractor where it  would be unjust or unreasonable to impose such a duty´ (Elliot and Quinn, 2009). Clangers Ltd, who designed and installed the new heating system, was a sub-subcontractor of  Buildglobal and therefore it would probably be unreasonable for Buildglobal to owe a duty of  care to Propertydeal.

Moreover was a duty of care owed from Clangers Ltd, the specialist contractor, to the employer Propertydeal? Junior Propertydeal? Junior Books v Veitchi

12

is a relevant case as the employer, Junior 

Books,, brought Books brought action against a gainst the sub-contractor, Veitchi, because the factory floor they installed was defective. As there was no contractual relationship between the two parties the action was claiming negligence. The House of Lord decided the sub-contractor owed a duty of care because they alone were responsible r esponsible for for the composition and installation of the flooring, for which Junior Books relied on their skill, and that it was ³ foreseeable that if  Veitchi carried out the work negligently Junior Books would suffer financial loss´ (www.brewerconsulting.co.uk,2010). (www.brewerconsu lting.co.uk,2010). This would suggest Clangers Ltd owed a duty of care tto o Propertydeal because they were the specialist contractor who was responsible for design and installation.

However the judgment by the House of Lords was surprising as in cases since Junior Books 13 decisions have not been in favor of the claimant. Such as Murphy as  Murphy v Brentwood DC  where the defendants were found not liable as the claim was pure economic loss. Therefore this would suggest Propertydeal would find it difficult to win when claiming through negligence in the law of tort. Although this may be changing as the TCC have relied upon the judgment in in Junior  Junior Books v Veitchi in recent cases such as Architype as  Architype Projects v Dewhurst McFarlane 14

& Partners .  10

  (1988) AC 177

11 12

(1982) 1 AC 520 (1991) 1 AC 398 14 96 Con LR 3, TTC 13

 

  In Propertydeal¶s case the tenants complained about leakages and temperature faults with the t he heating system, therefore defective works. ³The courts have traditionally been insistent that  a defect is not the same thing as damage.´ (Elliot & Quinn 2009). Unless the defect has caused personal injury or damage to other property the defendant can not be held liable. It is not specified that the leaks caused property damage or the fault to temperature was harmful to the tenants health, if this were the case Propertydeal could use common law.

However in Anns in Anns v Merton London Borough15 the House of Lords compensated for damages due to defective foundations. This was because the foundations caused cracks in the build building ing which was seen as other property damage. Although as previously mentioned, in Murphy in  Murphy v  Brentwood DC , the courts have drawn back on recovering damages on defective works through negligence.

There is also the factor of time to as the case has been brought against the contractors eight years after the heating system was installed. There is a limitation period in breach of contract and negligence. This limitation period was used by the House of Lord in their decision in 16 

 Pirelli General Cable Works Limited v Oscar Faber and Partners  ,   , ³the damage was not  discovered until some seven years later by which time the t he limitation period had expired´  expired´  (www.brewerconsulting.co.uk,2010). (www.brewerconsu lting.co.uk,2010). However in the same judgment it was said that the action accrued when the damage first came into existence, the tenants in Mayfair made numerous complaints however it is not specified whether these came before or after the limitation period.

Properydeal have paid compensation to the tenants and it was not specified that the leaks and temperature fault caused either damage to property or personal injury, therefore they are claiming pure economic loss and so the builders cannot be liable under law of tort. The Court 17 

of  Appeal  Appeal in Spartan Steel & Alloys Ltd v Martin & Co Ltd  says what can be claimed as damages through negligence, this being damage to property and economic loss arising from damages for example the profit Spartan Steel would have made from the damaged steel. However Spartan Steel were not successful at claiming claimi ng the profit on the metal that would

15

(1978) AC 728 (1983) 2 AC 1 17 (1972) 1 QB 27 16

 

have been processed while the factory was closed because this was seen as pure economic loss. Propertydeal are trying to recover the compensation they have already paid pa id out, therefore theref ore it is pure economic economic loss.

4. a) In some contracts the method of dispute resolution is stipulated, for example in a Domestic Sub-Contract DOM1 clause clause 38 is ³settlement ³settlement of disputes´. In this case a decision must be made on the appropriate method for Spanlink Limited and Moleman Essex Ltd,  below is a list of the most common:

y

  Arbitration

y

  Mediation

y

  Adjudication

y

  Litigation

Arbitration is the appointment or an independent arbitrator who will hear the arguments of   both parties and come to a legally binding decision. This method is cheap as it does not involve the courts and is fair because the arbitrator can be chose for expertise and experience in a particular matter. However it is not suitable to disputes involving multiple parties and it relies on co-operation.

Mediation is the cheapest and quickest option and involves a mediator who will work with the parties to assist in the them m reaching reac hing an agreement agree ment which they both can can live with. This  process will last 1 to 2 days and because the courts are not involved it is cheap. However it is not legally binding and it can only work if the parties are willing to negotiate.

Litigation is when the dispute goes to court, this is usually a last resort, and it is not reliable. This is because you do not have the choice of judge and outside of the TCC judges do not have knowledge on technical matters. It is also very expensive and as seen in Costain Ltd v  v  18

Charles Haswell & Partners Ltd  the decision may go in your favour but the court costs out weigh the settlement.

18

(2009) EWHC 3140 TCC

 

Adjudication is another popular route and is similar to arbitration as the parties put forward their cases to an adjudicator, who will be an expert in the industry. Adjudication is less formal than arbitration and litigation and is often used to allow work to continue. It is a fairly quick process as the adjudicator has a maximum of 28 days to review the case and make a decision.

On review of the dispute resolution the most appropriate process would be adjudication. Litigation would be too expensive and unreliable; mediation relies on the willingness to negotiate which Spanlink Limited and Moleman Essex Ltd are not willing to do. As the  process may involve three parties including the employer adjudication would be more suited than arbitration.

4.b) Moleman Essex Ltd had the right to suspend work when they were not paid their due amount. Unless there are reasons for Spanlink to withhold payment which under section 111 of the Housing Grants (Construction and Regenerations) Act they must send notification, we assume they did not do this. Furthermore Spanlink can not argue that they were awaiting  payment from their employer due to ³prohibition of conditional payment provisions´ in the same act. Therefore Moleman Essex can suspend works through contract Clause 21.6 of a Domestic Sub-contract DOM1 and statute Section Sect ion 112.

However they cannot take this action until they give notice to the contractor of their intention to suspend work; Section 112 of the 1996 act states ³the right may not be exercised without first giving to the party in default at least seven days notice of intention to suspend  performance´ (Housing Grant, Construction and Regeneration Act, 1996). T herefore herefore Moleman Essex Ltd¶s claim for £500,000.00 loss and expense and extension of time is not valid.

 

References

Cases y

  Sutcliffe v Thackrah (1974) AC 727

y

  Pacific Associates v Baxter (1988) 44 BLR 33

y

y

  Arson v Casson Beckman Rutley (1975) 3 All ER 901   Trollope and Colls Ltd v North West Regional Hospital Board (1973) 1 WLR 601

y

  Re Moore v Landauer & Co (1921) 2 KB 519

y

  Frost v Aylesbury Dairy Co Ltd (1905) 1 KB 608

y

  Liverpool City Council v Irwin (1977) AC 236

y

  Hutton v Warren (1836) 1 M&W 466

y

  British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd (1975) QB 303

y

  Donoghue v Stevenson

y

  D&F Estates v Church Commissioners (1988) AC 177

y

  Junior Books v Veitchi (1982) 1 AC 520

y

  Murphy v Brentwood DC (1991) 1 AC 398

y

  Architype Projects v Dewhurst Macfarlane & Partners 96 Con LR 3, TCC

y

  Anns v Merton London Borough (1978) AC 728

y

  Pirelli General Cable works Limited v Oscar Faber and Partners (1983) 2 AC 1

y

  Spartan Steel & Alloys Ltd v Martin & Co Ltd (1972) 1 QB 27

y

  Costain Ltd v Charles Haswell & Partners Ltd (2009) EWHC 3140 TCC

Statutes y

  Unfair Contract Terms Act 1977

y

  Sales of Goods Act 1979

y

  Housing Grants, Construction and Regeneration Act 1996

Books

y

  Cracknell, D.G (2003) Obligations Contract Law: Old Bailey Press, 4 th Edition

y

  Chappell, D. Marshall, D. Powell-Smith, V. Cavender, S (2001) Building Contract rd

Dictionary: Blackwell Science, 3 Edition

 

y

th   Elliot, C. Quinn, F (2009) Contract La w: Routledge-Cavendish Routledge-Cavendish 7 Edition

y

  Uff, J (2009) Construction law: Sweet & Maxwell, 10th edition

y

   Ndekegri, Issaka E (2009) The JCT 05 standard building contract: Law and administration,, Butterworth-Heinemann administration Butterworth-Heinemann 2

Websites

y

www.brewerconsulting.co.uk, .co.uk, 2011   www.brewerconsulting

nd

Edition