Articles from the Silver Shemmings Ash Team on contractual matters, recent case law changes and items of interest in the construction and property world
October 2, 2018 | Silver Shemmings
Most of our tradesmen have cleared the site we are contracted to work on. However, our electricians are still on site currently. Would this constitute abandonment of the works?
Abandonment of the works must entail complete stoppage of all the works and the clear intention not to continue at some future date. By abandoning the work, it may be construed as an intention to repudiate the contract.
As a contractor I have entered into a contract for the construction of a number of commercial properties. One of the provisions in the contract relates to liquidated damages – can you explain the meaning of this term?
Liquidated damages is a sum of money that has been stated in the Contract as the damages payable in the event of a specific breach, such as by way of example delay in completion of the Works or a section of the Works. The sum usually represents the damage on a weekly or daily basis and it must be a genuine pre-estimate of the loss likely to be caused by the breach or a lesser sum. As there is a specified sum there is no need to prove actual damage after the event. It also does not matter that the actual loss is greater or less than the stated sum and it is noted that the specified sum is recoverable even if in the event there is no loss.
I have entered into a contract and the other party has said that the contra proferentem principle will apply in the event of any ambiguities. Can you explain what the party means by this?
This means that if there is an ambiguity in the contract in which all the other methods of interpretation have failed to resolve so much so that there are two alternative meanings to certain words, the court will construe the words against the party who put forward the contract and therefore give effect to the meaning which is more favourable to the other party.
When can a certificate of practical completion be issued and what are the effects of this?
A certificate of practical completion can be issued when the contractor has fulfilled its obligation under the Contract save for the fact that de minimis (very minor) works had not been carried out. The effect of issuing such a certificate is that:
• The defects liability period begins
• The contractor’s liability for insurance ends
• Liability for liquidated damages end
• The employer’s right to deduct full retention ends. Half the retention percentage becomes due for release
• Liability for damages caused by frost occurring thereafter ends
What are the differences between patent and latent defects?
Patent defects are defects which are discoverable by reasonable inspection and the term embraces all the items which the architect might be expected to find and bring to the attention of the contractor so that remedial work can be carried out. Latent defects, on the other hand, are defects which are not discoverable during the course of ordinary and reasonable examination by a reasonable person skilled in building, but which manifests itself after a period of time.
What are the differences between a penalty clause and a provision for liquidated damages?
A penalty clause is where the sums of money inserted into a contract are extravagant and unconscionable, and the purpose being to coerce a party to performance. A penalty clause is unenforceable, and the sum is irrecoverable. Liquidated damages, on the other hand, are enforceable as they are a genuine and reasonable pre-estimate of the loss likely to be caused by a breach (such as delay) or a lesser sum, as assessed at the time the contract was entered into.
What is the measure of payment where the contract has not fixed a price or where, for some reason or another, the contract price is no longer applicable?
In this instance the doctrine of quantim meruit applies, which means ‘as much as he [the contractor] deserved’. In other words, the contractor becomes entitled to payment of a reasonable sum, by virtue of an implied obligation on the part of the employer to pair a fair remuneration according to the extent and quality of the work done.
What does it mean to say that the Contract is rescinded?
This means that the Contract has been terminated or abrogated by one of the parties. A contract may be rescinded on grounds of misrepresentation, mistake or fraud. Importantly, an essential precondition to the right of rescind is the principle of resitutio in integrum which means restoration to the original position. Notably, it does not require that a person should be put back into the same position as before, but instead should be put back into as good a position as before. Indeed, the court must do what is practically just, even though it cannot restore the parties precisely to the state they were in before the contract.
Can you please confirm what a Scott Schedule is?
A Scott Schedule is a formal document sometimes used in litigation or arbitration, which sets out the issues in dispute and the contentions of the opposing party in tabular form.
What does it mean to say that time is ‘at large’?
Time is said to be ‘at large’ when there is no specific date for the completion of the contract and in the absence of an express term as to the date for completion the contractor’s common law obligation is then to complete the works within a reasonable time. What is a reasonable time is a question of fact depending on all the terms of the contract and the surrounding circumstances.
In the contract I have entered into, one of the provisions states that time is of the essence – what is the effect of this?
This means that if one of the parties to the contract fails to complete their obligations by a specified date in the Contract, then this will be considered a repudiatory breach and the other party can treat the contract as terminated if he/she so wishes.
I have been told that the Employer has sought to deduct sums by way of an abatement as opposed to withholding sums by way of set off. Can you please explain what the Employer means by this?
Abatement of price is when the valuation of the amount due is reduced to take account of the reduction in value of the works resulting from the defects in question. Set off, on the other hand applies to withholding specified amounts from an agreed sum to recover costs for rectifying defective works and any delay. Set off therefore requires that a breach of contract can be demonstrated.
Could you please inform me as to what events will be deemed to be ‘force majeure events’?
Force majeure is a term which is used with reference to all circumstances independent of the will of man, and which it is not in his power to control. If such an event occurs, then the contracting party may be released from its contractual obligations, or alternatively, it may allow the contractor to claim an extension of time. A strike, a breakdown in machinery, supply shortages as a consequence of war, refusal of an export licence and fire caused by lightening have all been held to be within the definition of force majeure in various types of contract.
What is the legal effect of heading a letter or email ‘without prejudice’?
The legal effect of heading correspondence ‘without prejudice’ very much depends on the contents of the letter and the actions of the parties. If correspondence is headed ‘without prejudice’ and it is for the purpose of settling a dispute, then it cannot be given in evidence without the consent of both parties. Consent may be implied however, if a party wishing to rely upon the privilege, seeks simultaneously to reveal part of the document which is to their advantage. However, discussions will only be privileged if there is a dispute and an attempt to settle it. It must also be noted that heading a letter ‘without prejudice’ or failing to do so, is not conclusive; a court will look at the substance of any correspondence to determine whether it really is ‘without prejudice’.
What are the main requirements that must be satisfied in order to enter into a legally binding contract?
There are five main elements that must be satisfied in order to enter into a legally binding contract:
1. There must be an offer by one party
• An offer is an expression by one party of willingness to be bound by some obligation to another.
• An offer may be made in writing or orally or by conduct.
• An offer can be made to an individual or group or to the world at large.
• An offer can be contrasted with an invitation to treat, which is merely a supply of information to tempt a person into making an offer. In instances where it is more difficult to detect if there has been an offer made or simply an invitation to treat, the courts will look at the intentions of both parties.
2. There must be an unqualified acceptance by the other party
• An acceptance is the act of agreeing to an offer.
• Acceptance may be made in writing, orally or by conduct.
• Acceptance must be unqualified – if an acceptance is qualified then it will amount to a counter offer, which the first person is free to accept or reject.
o An example of this is where supplier A provides a quotation to contractor B with A’s special terms of business. This is the offer. If B writes purporting to accept the offer subject to his own contract terms, this is a qualified acceptance and amounts to a counter offer.
o This is known as the Battle of the Forms and in these circumstances, if there is a contract it is often the set of terms last in time which were acted upon which is decisive.
3. There must be consideration except in the case of deeds
• Consideration is something which is given, done or forborne by one party in return for some action or inaction on the part of the other party.
• In the case of building contracts, the consideration will be the carrying out of the works by the contractor and the payment by the employer.
• Consideration need not be adequate but must be sufficient. In other words, it does not matter that what one of the parties has given is not equivalent to what is given by the other.
• Consideration must not be unlawful and must not be a vague promise.
• Consideration must be present or future – it cannot be something already done ir given at the time the contract is made.
4. There must be an intention to create legal relations
5. There must be genuine consent
• Duress makes the Contract voidable (the contract is valid but may be annulled by the innocent party) – duress is where the party has been forced or coerced into entering the contract
Author Richard Silver is Senior Partner at Silver Shemmings Ash. He is multi qualified as a Barrister, Solicitor & Chartered Quantity Surveyor with over 30 years of experience in the Construction Industry
Aside from his work globally as a legal advisor, his main focus is dispute resolution, encompassing the Construction, Building, Rail & Civil Engineering sectors. Having acted as Arbitrator, Adjudicator, Mediator, Lead Representative and Expert Witness on quantum, programme & planning he is widely experienced, as Lead Representative & Advocate, in all forms of Dispute Resolution
AAt Silver Shemmings Ash, we provide seminars and training alongside our core activities in contentious and non-contentious matters. The purpose of these is to facilitate a greater knowledge and understanding of construction and property law. There remains a considerable lack of training in such areas for companies and this is an issue which we are looking to address
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