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References are references to the main work.

Chapter 1   Construction Contracts

Formal requirements - Contract or No Contract?

1-215   It should be noted that there is no general requirement for a building contract to be in writing.[1] However, there are four statutory requirements for writing that may be relevant:

(1)  Building contracts do not ordinarily dispose of any interest in land104 but there is a disposition of an interest in land in the case of a building lease.105 By s 2 of the Law of Property (Miscellaneous Provisions) Act 1989, such a contract must be in writing and contain all of the terms of the contract between the parties.

(2)  Section 4 of the Statute of Frauds 1677 provides that a guarantee106 must be contained in or evidenced by a note or memorandum in writing signed by the surety107 or his agent.

(3)  Arbitration agreements must be in writing[2]. Further, this requirement may not be satisfied merely by incorporating by reference into a written contract terms and conditions which contain an arbitration clause.109

(4)  The Housing Grants, Construction and Regeneration Act 1996 will only apply to construction contracts that are in writing.110

Further, the parties themselves may set up the expectation that the conclusion of their contract is to marked by a formal step, usually the signing of a contract document.  Often, in the construction industry, this document is never signed, whether by oversight, intention or something in between.  At least three legal analyses are possible[3]:

(a)        If the parties do not intend to create legal relations until signature, there is no binding contract unless the document is signed[4].  This analysis will almost always prevail where the parties use the words “subject to contract” and sometimes without these words[5];

(b)        If the terms have in fact been agreed, there is a contract regardless of whether the solemn recording of the agreement takes place[6];

(c)        There may be a more limited binding agreement in place, but the fuller terms of the unsigned written document do apply unless it is signed[7].

Many construction cases have been fought on this ground; they typically turn on their own facts and the perceived merits in the case.

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[1] However an agreement apparently confirmed by a handshake will not necessarily mean that a binding contract has been concluded particularly if there was insufficient certainty of terms to found that contract as, amongst other things, the duration of the period of occupation had not been fixed. See McNicholas Construction (Holdings) Limited v. Endemol UK plc (2003) CILL 2049

[2] The main part of the Arbitration Act 1996 applies only if the arbitration agreement is in writing (s 5(1)), but other parts of the Act apparently apply even if the arbitration agreement is not in writing.

[3] See Chitty on Contracts 28th edition 2-106 for cases illustrating these principles.

[4] Okura v Navara [1982] 2 Lloyds Rep 537 per May LJ, The Gladys (No 2) [1994] 2 Lloyd’s L Rep 402, Iganazio Messina & Co v Polskie Linie Oceaniczne [1995] 2 Lloyd’s L Rep 566.

[5] See for example Picardi v Cuniberti (2002) TCC www.adjudication.co.uk/cases/picardi.htm in which Judge Toulmin said at paragraph 115:

“On 9th March 2000, Mr. Picardi sent his letter of appointment. I am satisfied that it was required to be signed as a condition of the conclusion of the contract. This is clear from the fact that the letter said clearly that the letter of appointment was for Mr. and Mrs. Cuniberti’s examination and signature, and the fact that if they had any query Mr. Picardi would be happy to discuss it further. It is also clear from the other occasions when he wrote asking Mr. and Mrs. Cuniberti to return the contract signed. At no time did he suggest that the written contract simply reflected the terms already agreed.”

As to effect of the “subject to contract tag” see eg Bryen & Langden v Boston [2005] EWCA Civ 973 at paragraph 36:

The mere fact that two parties propose that their agreement should be contained in a formal contract to be drawn and signed in the future does not preclude the conclusion that they have already informally contractually committed themselves on exactly the same terms. Of course, if they negotiate on a “subject to contract” basis such a conclusion will be precluded.

[6] Branca v Cobarro [1947] KB 865. For more recent building examples see

Drake and Scull  v Higgs and Hill in 1994 (11 CLJ 214) in which Judge Fox-Andrews said:

“In circumstances where a sub-contractor is asked to tender on the basis that a contract will only come into being when a written contract has been executed and the sub-contractor commences work with all essential terms having been agreed, a court will not ordinarily regard the absence of an executed contract as significant. Each case must however depend on its own facts.”

Stent Foundations v Carillion (2001) 78 Con LR 188

Harvey Shopfitters Ltd v ADI Ltd, unreported, [2003] EWCA Civ 1757, in which Latham LJ said:

“the mere fact that the letter giving instructions to proceed envisages the execution of further documentation, does not preclude the court from concluding that a binding contract was nonetheless entered into, provided that all the necessary ingredients of a valid contract are present.”

Westminster Building v Beckingham [2004] EWHC 138 (TCC), www.bailii.org/ew/cases/EWHC/TCC/2004/138.html, in which Judge Thornton said:

“Mr Beckingham allowed work to proceed, remained silent as to his concerns about the contents of the proffered contract and proceeded throughout the works as if the IFC84 Form was applicable to the works. Thereby, he accepted the proffered form by his conduct in allowing the work to proceed and waived any precondition of its taking effect by not signing and not challenging the contract documents.”

See also Bryen & Langden v Boston (supra); if the terms in fact agreed to albeit never signed up include a term that a standard form apply, then a finding of a contract being formed will normally be paired with a finding that those standard form terms have been incorporated by reference.

[7] More or less this result will usually obtain either by treating the limited agreement as a contract, or by characterising the contractor’s right to be paid as a matter of restitution, pursuant to the more modern doctrine of quantum meruit; see para 1-472 below.

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Unfair Terms in Consumer Contracts Regulations 1999

1-222   These regulations are made pursuant to the European Communities Act 1972, and apply to certain terms in contracts between sellers/suppliers and consumers that are treated by the legislation as unfair.  A full description of these complex provisions is outside the scope of this work; the following is a brief survey of decided cases in the construction field:

  • In Zealander v Laing (1999)[1] the arbitration agreement in an NHBC Agreement was struck down.
  • In Director General of Fair Trading v First National Bank (2002)[2] Lord Bingham gave a general explanation as to unfairness under the regulations[3].
  • Picardi v Cuniberti (2002)[4] an adjudication clause in the RIBA terms of engagement was struck down.
  • Lovell v Legg and Carver(2003)[5], an adjudication clause in a residential building contract was found to be not unfair.
  • In Westminster Building v Beckingham (2004)[6], an adjudication clause in a domestic building contract was upheld.
  • In Cartwright v Fay (2005)[7] Picardi was construed very narrowly and distinguished; an adjudication provision in a domestic building contract was again upheld.
  • Similarly, in Allen Wilson v Buckingham (2005)[8] Judge Coulson followed the Westminster v Beckingham line, and again narrowed Picardi.
  • In Bryen & Langley v Boston[9] the Court of Appeal found that the Regulations could not bite because the term in question had not been “imposed” on the consumer[10].

[1] CILL 1510

[2] [2002] 1 A.C. 481

[3] ”A term falling within the scope of the Regulations is unfair if it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer in a manner or to an extent which is contrary to the requirement of good faith. The requirement of significant imbalance is met if a term is so weighted in favour of the supplier as to tilt the parties’ rights and obligations under the contract significantly in his favour. This may be by the granting to the supplier of a beneficial option or discretion or power, or by the imposing on the consumer of a disadvantageous burden or risk or duty.”

[4] [2002] EWHC 2923 (QB), CILL 1980, 19 Const LJ (2003) page 350

[5] (2003) TCC, www.adjudication.co.uk/cases/PDFs/161%20Lovell%20Projects%20-v-%20Legg%20and%20Carver.pdf

[6] [2004] EWHC 138 (TCC)

[7] Bath County Court, www.adjudication.co.uk

[8] [2005] EWHC 1165 (TCC)

[9] [2005] EWCA Civ 973

[10] Rimer LJ at paragraph 40:

“It follows, in my view, that in assessing whether a term that has not been individually negotiated is “unfair” for the purposes of Regulation 5(1) it is necessary to consider not merely the commercial effects of the term on the relative rights of the parties but, in particular, whether the term has been imposed on the consumer in circumstances which justify a conclusion that the supplier has fallen short of the requirements of fair dealing.”

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Implied Terms of Contract

Economy in Cost Contracts

For Release 18

Paragraph 1-315 (Release 14) noted that, whilst there little doubt that a contractor in a cost contract is not entitled to be paid cost incurred wastefully or extravagantly, there was little or no reported case law on the topic.

Such authority now appears from the South Australian Supreme Court Decision in OneSteel Manufacturing v United KG [2006] SASC 119: Debelle J found an implied term in a target cost contract that the reimbursable costs should be reasonably and properly incurred.

June 2006

Examples of no implication

1-335   There are a number of terms outlined below which are frequently put forward as implied terms but which in law cannot be supported as such.

  • There is no implied term in a lump sum contract that the contractor will be paid the reasonable value of his work. The contractor is to be paid according to the contract he has entered into.

.  There is no implied term in a maintenance contract that the contractor owes the employer a fundamental obligation of trust and confidence analogous to that owed by employee to employer.237

  • It was held in Frank & Collingwood v Gates238 that there is no implied term that the employer will pay the contractor any additional sum to cover VAT (if a price is quoted without reference to VAT, then VAT should be regarded as included within the price). But note that this case involved an employer who was a consumer and not VAT registered. A different conclusion was reached in Tony Cox (Dismantlers) v Jim 5,239 a case arising out of a contract between two parties involved in the construction industry where there was found to be a custom that prices quoted are exclusive of VAT.
  • There is no implied term that where the employer engages an architect the architect is to issue certificates for payment. Certificates are only appropriate where the contract expressly calls for them.
  • Where there is an agreed date for completion there is no implied term that that time will be extended if the employer orders additional work or otherwise prevents or impedes progress. Unless there is an extension of time provision in the contract the effect of such matters is to set time at large, thus nullifying the original completion date altogether.

.  There was no implied term under JCT 63 contracts that nominated sub-contracts should be in standard form.240

.  There are no implied terms in JCT contracts requiring the contractor to obtain the consent of the employer before determining a nominated sub-contract, nor empowering the architect to order the dismissal of a nominated sub-contractor.241

  • There is no implied term in nominated sub-contracts that the standard form should apply.
  • In a sub-contract which requires the sub-contractor to carry out the work at times required by the main contractor, there is no implied term requiring the main contractor to make sufficient work available to allow the sub-contractor to work economically; Martin Grant & Co Ltd v Sir Lindsay Parkinson & Co Ltd (1984) 29 BLR 31, CA. In Kelly Pipelines v British Gas PLC (1990) CILL 555 where a tender contained details of the minimum and maximum number of teams the contractor proposed to provide by way of resources the minimum being 30, it was held that there was no implied term in the contract that at least enough work for 30 gangs would be provided.

 

.  There is no implication in sub-contracts that the main contractor should allow the sub-contractor 2.5 per cent or any other discount.242

  • In Midland Land Reclamation Ltd and Leicestershire County Council v Warren Energy Ltd243 it was found that there was no term to be implied into a gas supply contract that the gas would be supplied at more than nominal pressure.

.  In the engagement of architects, there is no implied term that standard RIBA terms of engagement apply.244

  • There is no implied term in an architect’s retainer permitting the employer to terminate the architect’s services during the project.

.  There is not ordinarily any implied absolute warranty on the part of an architect or engineer as to the effectiveness of his work,245 although there may be such an implication in exceptional circumstances.246

  • It is sometimes said on the authority of Gilbert-Ash v Modern Engineering that the right of set-off may only be excluded by express words.247
  • There is no implication in a construction contract that a party will not invoke the adjudication procedure save where there is a dispute or difference properly referable to adjudication and judicable pursuant to its notice[1].

[1] John Roberts v Parkcare (2005) CILL 2288 (this is the first instance decision, later overturned but not on this point)

Contracts