Construction Law

Peter Aeberli September 2011
www.aeberli.co.uk
1
COURSE FOR BPP PROFESSIONAL EDUCATION
CONSTRUCTION LAW BASIC PRINCIPLES

Peter Aeberli
RIBA, ARIAS, ACE, FCIArb, Barrister
Chartered Arbitrator, Adjudicator, Registered CEDR Mediator

TIME TABLE

9.30 - 9.45: Introduction.

9.45 - 11.00: The Construction Process - Roles and Legal Relationships -
The Statutory Context.

11.00 - 11.15: Coffee.

11.15 - 12.45: Obligations in Contract and Tort.

12.45 - 13.45: Lunch.

13.45 - 14.45: Obligations in Contract and Tort.

14.45 - 15.45: Construction Disputes and their resolution.

15.45 - 16.00: Tea.

16.00 - 17.00: Understanding Construction Contracts and Professional Services
Agreements.

INTRODUCTION

The purpose of this seminar is to introduce the basic principles of construction law, not to
provide a detailed consideration of particular standard form contracts or contractual
arrangements, or to give a detailed analysis of recent construction law cases.

Construction law is not a separate branch of law, such as the law of trusts, or real property or
family law. Rather it involves the application of well-understood legal principles, in particular
the law of contract and tort, to a particular commercial activity, the procuring of construction
projects.

Further material relevant to the topics covered by these notes can be found at
www.aeberli.com.

_________________________

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SESSION 1: THE CONSTRUCTION PROCESS
ROLES AND LEGAL RELATIONSHIPS -THE STATUTORY CONTEXT

Peter Aeberli

PART A: THE PROCUREMENT PROCESS

1. The nature and extent of construction activity
Construction activity extends from, at one extreme, the individual house for a private
client to, at the other, new hospitals or shopping developments. It encompasses
buildings, engineering works, such as sewers and bridges, and major infrastructure
projects, such as airports and trunk roads. Arguably, the defining characteristic of the
construction process is that it concerns the procuring of purpose built solutions to client
needs, not the purchase of off the shelf products.
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2. The persons involved
Those involved in the construction process include:

- The client, the employer;
- Design consultants principally architects and engineers (civil, structural,
mechanical and electrical);
- Quantity surveyors;
- Contract administrators (employers representatives);
- CDM Co-ordinators (formerly planning supervisors) and principal contractors
(see the Construction (Design and Management) Regulations 2007 (the CDM
Regulations));
- Contractors, sub-contractors and specialist contractors (specialists).
- Regulatory authorities principally planning authorities (always a local authority)
and building control authorities (usually, but not necessarily a local authority).
- Specialist agencies, such as the Health and Safety Executive and the
Environment Agency.

There are, in addition, funders, purchasers and tenants, and users.

1
Lord Bingham at t he KCCCL 1996 Conf er ence suggest s t he f ol l owi ng
r easons f or const r uct i on di sput es. Pr oj ect suppl i ed i s var i abl e unt i l
f i ni shed, and pr i ce i s f l ui d cr eat es uncer t ai nt y and oppor t uni t y f or
ar gument . Long del i ver y, mor e possi bi l i t y of changi ng ci r cumst ances.
Compl ex pr oduct s need det ai l ed pl anni ng, gr eat er possi bi l i t y of er r or
and i ncompl et eness. Unusual number and r ange of par t i ci pant s, scope
f or mi sunder st andi ng and buck passi ng. Lar ge amount s of money at
st ake can make cost l y di sput e r esol ut i on seem wor t hwhi l e. Non
speci f i c cont act document at i on, compl ex. A cl ai ms cul t ur e, gr oss
i nequal i t y of commer ci al power and a t endency t o pl an f or cl ai ms.

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3. The decision to build
Those involved are the client and, in the case of a developer, its funders. The decision
to build may involve consideration of other options evaluated in the light of the clients
needs and requirements. Feasibility studies may be required, usually involving a
design consultant and possibly a quantity surveyor or other financial advisor.

4. Typical stages of a construction project
A typical construction project will involve the following stages (work stages) and
numerous published plans of work, such as the RIBA Plan of Work, reflect these
stages. In practise, however some stages may overlap, or may do so for certain parts of
the project.

Feasibility
The clients requirements and constraints on development are assessed in sufficient
detail to decide whether to proceed with the project. If so, an initial (strategic) brief is
prepared identifying requirements for and constraints on the project and covering
matters such as location, function, quality, budget, programme, consultant roles and
procurement route.

At the end of this stage, the client will begin to assemble a consultant team. The range
of consultants depends on the nature of the project and the procurement route. If the
project is notifiable under the CDM Regulations, a CDM Co-ordinatator must,
generally, be appointed by the client,
2
as soon as is practical after initial design work
or other preparation for construction work has begun

Outline proposals
A final (project) brief is prepared along with outline proposals for the project. Outline
development control approval (outline planning, landlord consents) may be sought at
this stage. The British Property Federation views this stage as part of Feasibility.

Final proposals
Designs for the project and developed and costed in sufficient detail to enable detailed
design to commence. Final development control approval (full planning approval) is,
ordinarily, sought at the end of this stage.

Detailed Design
Although this stage is some times merged with Final proposals, it is important that all
aspects of the design of the project are sufficiently developed and co-ordinated so that
changes during subsequent work stages are minimised and production information
(information for construction) can be prepared. A design freeze is usually imposed at
the end of this stage, and Building Regulation approval sought.

Production information
Information is prepared showing how the project is to be constructed and remaining
statutory (for instance, building control) and other approvals are obtained. Depending

2
The r egul at i ons onl y appl y t o cl i ent s: who i n t he cour se or
f ur t her ance of a busi ness ( a) seeks or accept s t he ser vi ces of anot her
whi ch may be used i n t he car r yi ng out of a pr oj ect f or hi m; or ( b)
car r i es out a pr oj ect hi msel f .

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on the procurement method, production information may be prepared before or during
the construction of the project. Where consultants prepare production information it
generally (should!) comprise fully co-ordinated drawings, schedules and specifications.
Depending on the procurement route, bills of quantities may also be produced.

Depending on the procurement method, detailed design and production information for
parts of the project (works packages) may continue during construction of the project.

Tender action
Tender documentation is prepared and tenders obtained and appraised. The timing of
this stage, and the work encompassed by tender, depends on the procurement method.
The next stage, construction, cannot start until a principal contractor is appointed.

The British Property Federation views all the stages between Feasibility and
Construction as the Pre-Construction phase.

Construction
The construction stage involves three principal stages, mobilisation, construction to
completion (often referred to as practical completion), as well as work, including
making good of defects, from practical completion up to final account (final
certificate). The employers consultants may have inspection and certifying duties
during this stage. If the project is notifiable under the CDM Regulations, a principal
contractor must, generally, be appointed by the client before construction work starts.

The interrelationship between the Construction stage and the Pre-construction stage
depends on the procurement route.

PART B: LEGAL RELATIONSHIPS

1. Structuring legal relationships
The structure of legal relationships adopted on a construction project depends partly on
the chosen procurement and payment route and partly on the extent to which persons
other than the client, who might suffer loss or damage if it is defective (such as funders
and those who may acquire interests in the project on completion), are to be included in
this structure. The principal objective is to ensure that there are clear lines of
contractual responsibility between those who are to provide goods, materials and/or
services in connection with the project and those who may suffer loss or damage if
those goods, materials or services are inadequate.

2. Procurement routes
The principal procurement routes are as follows. In deciding what is appropriate,
consideration should be given, not only to how design and construction responsibilities
are allocated and programme, but to where risk, particularly the risk of delay and
disruption to the procurement process is to lie.

- Traditional procurement (general contracting). The client engages consultants to
design and a contractor (a main contractor) to construct the project in accordance
with prescriptive information provided by the consultants. It can be difficult to

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decide where design stops and workmanship starts, see Rotherham MBC v.
Haslam Milan & Co Ltd (1996) 78 Build LR 1 (CA).
3

The client may wish to designate sub-contractors, or specialists, to undertake
specific packages of work (usually referred to as naming or nomination). If so,
appropriate legal relationships must be structured between the employer, the
main contractor and the sub-contractor/specialist.
4

It may be necessary to procure certain elements of design from those
constructing the works. It so, this can be done either by identifying a design and
build element within the main contract (in J CT contracts referred to as
performance specified work or contractor design portion supplement work) or
procuring the design from a designated sub-concentrator/specialist.

- Design and build procurement. The client engages consultants to provide such
design as the client considers necessary (the employers requirements or, if
only part of the project is procured in this way, the performance specification)
and engages a contractor, who will ordinarily have provided proposals for the
design (contractors proposals) with its tender, to complete the design and
construct the project.. A variant of this form of procurement is where the
employer requires the design and build contractor to engage the consultant who
prepared the employers proposals to complete the design. A simple novation is
unlikely to be appropriate as it can result in conflicts of interest for the designer.

- Turnkey contracting is a variant of design and build, as is the Private Finance
Initiative (PFI). PFI contracting involves a legal entity, known as a special
purpose vehicle, taking on obligations to the client, usually a public body, for
maintenance and, possibly, operation as well as design and construction of a
facility to be used by that client. The special purpose vehicle may involve a
number of different organisations who contract with each other, possibly under a
partnering agreement which seeks to provide for how risk and reward is to be
shared between the participants so that disputes are minimised. The special
purpose vehicle may also be involved in financing the project, with those costs
being recouped from the public body during the operation period. In practice
most, if not all, of the work will be sub-contracted to organisations that are not
part of the partnering agreement.

3
Rotherham The ar chi t ect s consi der ed t hat t hey had l ef t not hi ng
r el evant t o sui t abi l i t y unspeci f i ed, t hey bel i eved st eel sl ag was
sui t abl e. Speci f i cat i on not l ef t open t o al l ow cont r act or t o exer ci se
ski l l and j udgement , but because ar chi t ect t hought no f ur t her
st i pul at i ons necessar y.
4
See cases such as Bickerton v. NW Metropolitan RHB [ 1970] 1 WLR 607
HL) . Nomi nat ed subcont r act or i n l i qui dat i on. Cont r act or not l i abl e
t o r ei mbur se empl oyer f or cost s of compl et i on over and above t he
or i gi nal subcont r act pr i ce and ent i t l ed t o damages f or del ay i n r e-
nomi nat i on, whi ch t he empl oyer was obl i ged t o make. The cont r act or
had nei t her t he r i ght nor t he dut y t o car r y out t he nomi nat ed sub-
cont r act wor ks.

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- Management contracting. The client engages, in addition to consultants, a
contractor (the management contractor) to advise on matters such as buildability
and construction sequence and programme. In due course, the management
contractor engages sub-contractors for specific packages of work in accordance
with the programme; design of other packages continuing mean time. There is
often some dilution of the management contractors responsibility for the
construction works. If so, direct contractual links need to be created between the
employer and the sub-contractors or specialists.

- Construction management. Similar to management contracting. The client
engages the works contractors and a construction manager to co-ordinate them.
The construction manager is not directly responsible for the construction works.

3. Payment routes
The principal payment routes are as follows. They provide different balances of risk
between employer and contractor, particularly as regards the cost of construction being
greater than anticipated. It is usual to move away from lump sum where the quantity of
the work cannot be readily predicted at the outset.

- Lump sum. The contractor is paid a fixed amount for the works. If the contract
is entire (which is unusual, as instalment payments are generally provided for)
the lump sum is payable on completion (substantial performance) of the works.
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It may be difficult to identify what the works are: Are they as indicated on the
drawings and specification, what if there is a bill of quantities?

- Measurement and value. The contractor is paid at the agreed rates for the works.
The agreed rates are based on approximate quantities and the works are re-
measured on completion.

- Cost plus. The contractor gets paid for the actual cost of its works plus an agreed
percentage for its profit.

- Guaranteed Maximum Price (GMP). The intention is that the GMP sets the
maximum sum payable for the works indicated in the contract documents. The
intention is to put the risk of design development and unforeseen contingencies
on the contractor, even though the scope may be poorly defined at the time of
contracting. It does not apply if there are changes to the works. This can be a
fertile area of dispute. Consider Mowlem v. Newton Street (2003) CILL 2002;
6

Skanska v. Egger (2003) CILL (1969).
7

5
See cases such as Appleby v. Myers ( 1867) LR 2CP 651, Hoenig v. Issacs
[ 1952] 2 Al l ER 176, get s pai d subj ect t o an abat ement f or def ect i ve
and i ncompl et e wor k.
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Mowlem: Cl ause pr ovi ded t hat t he cont r act or accept ed r esponsi bi l i t y
f or al l r i sks, cont i ngences and ot her mat t er s i nf l uenci ng and
af f ect i ng or whi ch mi ght i nf l uence or af f ect t he car r yi ng out of t he
wor ks" . Pr oj ect concer ned conver si on of of f i ce t o f l at s. Unexpect ed
r epai r s r equi r ed t o t he concr et e f r ame. Cour t hel d t hat t hi s r i sk l ay
wi t h Mowl em.
7
Skanska: Addi t i onal st eel wor k pr ovi ded post cont r act was a desi gn
devel opment , not a change i n t he Empl oyer s Requi r ement s. The t ender

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- Target Cost. The intention is to introduce a gain/pain share. Any saving on the
Target Cost is shared between the Employer and the Contractor according to a
contractual formulae. If the Target Cost is exceeded, the contractor does not
recover the full amount of costs to which he would be entitled. Rather they are
abated in accordance with a contractual formulae.

4. Extending protection to third parties
The position of a purchaser of a development can be protected by assigning the benefit
of the various contracts to that person, this may not always be possible or appropriate.
In consequence, the principal method (at present) for extending protection to third
parties that may suffer loss or damage if the project is defective is through collateral
warranties. A warranty is a contractually binding promise given to a third party by a
party to a contract (the warrantor) with another party (the principal), that the warrantor
will perform its contractual obligations to the principal. The warranty is collateral
because it is secondary and parasitic on the principal contract to which is relates. It is
common on large development projects for warranties to be given by principal
consultants, contractors and specialists in favour of funders and purchasers or major
tenants. Warranties should not be confused with indemnities.

This may change as the construction industry adapts to the Contracts (Rights of Third
Parties) Act 1999. This provides that a third party can enforce a term of a contract if it
expressly states that the third party can or if the contact confers a benefit on that third
party, unless the contract shows that the parties did not intend the term to be
enforceable by the third party. The third partys rights are subject to the defences
available to the contract parties, but the parties cannot vary or rescind the contact
without the third partys agreement so as to affect its benefit.
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At present, most
contacts in the construction industry seek to exclude the operation of this Act.

5. Securing funds for remedial work
Clear lines of responsibility are little use if there are no funds available when things go
wrong. Apart from carrying out appropriate financial checks on those concerned, the
principal methods for ensuring that funds are available to carry out remedial works and
meet claims are by use of insurance or bonds (either performance or on demand, see
Trafalgar House v. General Surety and Guarantee (1995) 73 Build L R 32).
9

Performance bonds
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dr awi ngs had i ndi cat ed a need f or st eel and t her e was suf f i ci ent
i nf or mat i on t o show t hat mor e det ai l ed i nf or mat i on woul d be pr ovi ded
post cont r act . What was shown on t he post cont r act dr awi ngs di d not
const i t ut e a desi gn change.
8
Pr obabl y t hi s does not r est r i ct exer ci si ng r i ght s under t he cont r act .
9
Trafalgar House I n t hat case hel d t o be a per f or mance bond. Pr oof of
damage needed bef or e l i abi l i t y. Thi s may mean t hat t he money i s not
avai l abl e t o compl et e t he wor ks, Paddington v. Technical & General
[ 1999] BLR 244.
10
I nsur ance compani es pr ef er per f or mance bonds, banks on demand bonds.
The l anguage t ends t o be ar chai c and not compat i bl e wi t h t he r el evant
const r uct i on cont r act s, see cr i t i ci sms i n Paddington v. Technical &

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A performance bond is a contractual undertaking by a third party (the
bondsman/surety/guarantor) often, but not necessarily, an insurance company or
parent company, to pay money to another person, the creditor, in the event that
the person, the principal debtor, whose performance is being bonded, usually a
contractor, fails to comply with its contractual obligations to the creditor. The
amount of a performance bond will generally be calculated as a percentage
(often 10%) of the value of the contract to which the bond relates. This sum is
only payable on proof of default by the bonded party, and then only to the extent
that the principal has suffered damage as a result of that default.
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On demand bonds
Performance bonds can be contrasted with on demand bonds. An on demand
bond can be called, not on proof of default by the principal debtor, but on the
presentation to the bondsman, by the creditor, of documentation stipulated for in
the bond. Banks prefer such bonds, as they do not have to investigate whether or
not there has actually been a default, merely check that the correct
documentation has been submitted.

Since a bond is, ordinarily, a promise by one person to answer for debt of another, it
should be made or evidenced in writing, signed by the bondsman. If not, it will be
rendered unenforceable by s. 4 of the Statue of Frauds 1677.

6. Securing funds through insurance
Those engaged in the procurement process carry a range of insurance policies and these
are often stated as a contractual requirement.

- Consultants generally carry professional indemnity insurance against the risk of
claims against them in the course of their business and, in many cases, are
required to carry such insurance by their professional bodies. Such insurance
indemnifies the consultant both in respect of the costs of meeting claims arising
out of its failure to perform services with reasonable skill, care and, possibly,
diligence (failure to perform their professional duty) and for the costs incurred in
defending such claims. It is generally written on a claims made basis.

- Consultants, contractors and specialists generally carry public liability insurance.
The principal purpose of such insurance is to provide an indemnity in respect of
damages payable because of accidental injury to persons or accidental loss or
damage to property. It is usual for liability that would normally be covered by a
professional indemnity policy to be excluded. As employers they must also, by
law, carry employers liability insurance.

- Contractors and specialists generally have contractors all risks insurance. The
principal purpose of such insurance is to provide an indemnity in respect of
physical damage to the works being constructed, and related materials, caused
other than by defects in design, workmanship or materials. Sometimes, however,
the latter type of damage is not wholly excluded.

General [ 1999] BLR 244. Not e al so t he aut omat i c det er mi nat i on on
i nsol vency pr obl em.
11
See f or exampl e, Paddington v. Technical & General [ 1999] BLR 244.

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- Contractors and Specialists (particularly suppliers) normally carry insurance
providing cover in respect of injury to persons or damage to other property due
to failure of products supplied by the insured. This is arranged either as part of
their public liability insurance policy or as a separate product liability policy. In
either case, this insurance is concerned with damages payable in respect of injury
to persons or loss or damage to property caused by products put into circulation
by the insured, not with damage to those products, themselves. Such insurance is
not, in consequence, a complete substitute for a professional indemnity policy,
but it may be all that a specialist can obtain at an economic level.

- Project insurance may be available. This is taken out by the Client and is
intended to provide an indemnity in respect of defects, including design and
construction defects, in the Project. Such insurance only covers major elements,
is likely to be expensive and have a high excess. It generally involves some
waiver of subrogation rights. The insurer may wish to appoint someone to
protect its interest during the course of the Project.

PART C: THE STATUTORY CONTEXT IN OUTLINE

1. Introduction
The principal legislation relevant to the construction process is concerned with
planning and building control, but there is also legislation concerned with health and
safety and environmental protection. Criminal sanctions are imposed for non-
compliance. There is also legislation concerned with procurement, defective work and
materials, work affecting adjacent premises and dispute resolution. Some of this
legislation is highlighted later in this seminar.

2. Planning legislation.
The principal legislation concerned with planning is the Town and Country Planning
act 1990, as amended by the Planning and Compensation Act 1991 and subsequent
legalisation. The features of the system, which is administered by local planning
authorities, are as follows.

- Development plans (strategy for development) are drawn up for each area.
- Development (including change of use) requires planning permission before it
can be carried out.
- Procedures are laid down for applying for outline and final planning approval.
- Applications are considered in accordance with matters such as local and
government planning policy and the relevant development plan. Approval can
be given subject to conditions.
- Appeals from a refusal or the imposition of conditions can be made to the
Secretary of State (generally dealt with by a planning inspector).
- A further appeal lies (by what is in effect judicial review) to the court.

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3. Building legislation.
The principal legislation concerned with building control is the Building Act 1984 and
the Building Regulations (2000), as amended. The features of the system, which is
administered by approved persons (generally local authorities), are:

- The regulations, which are principally concerned with health and safety
12
in
respect of buildings, deal with a number of mattes ranging from structure, fire
safety, resistance to moisture, and sound, ventilation, drainage, conservation of
fuel and glazing.
- The regulations are generally described in functional terms. But deemed to
satisfy standards, expressed in quantitative terms, are set out in a range of
approved documents.
- Those wishing to erect or extend or make material alterations to buildings must,
in general, apply for and obtain building regulation approval for those works.
- The application can be passed or where the plans do not comply with the
building regulations, rejected or passed subject to conditions requiring
modification.
- Checks can be carried out during the course of construction to check compliance.

4. Health and Safety legislation
The principal legislation is the Health and Safety at Work Act 1974 and the regulations
made under that Act. Such regulations concern matters such as scaffolding, machinery,
material packaging and are outside the scope of this seminar. Of particular concern are
the Construction (Design and Management) Regulations 2007, which impose various
duties, some actionable in tort, on those involved in construction works, including
designers, contractors and clients using such persons in the course or furtherance of a
business.
13

- The clients (non delegable) principal duties
14
are to ensure that those it appoints
are competent; there are suitable project management arrangements for health
and safety in place and ensure that designers and contractors are provided with
such information concerning the site, use of the project and time to be allowed to
constructers for planning before start on site in the Clients possession. In the

12
See The Bui l di ng Regul at i ons 1985, r eg. 8 ( no dut y beyond t hi s) .
Bui l di ng Act 1984, s. 38 ( cr eat es ci vi l l i abi l i t y, not yet i n f or ce) .
See al so Tesco St or es v. War ds Const r uct i on ( 1995) Bui l d LR 94.
Pur pose not r ef er abl e t o t he pr ot ect i on of pr oper t y or chat t el s.
St or e bur nt down, omi ssi on of f i r e bar r i er s. No dut y of car e owed by
counci l , i n appr ovi ng dr awi ngs t o ensur e r egul at i ons compl i ed wi t h, so
no damage t o pr oper t y caused t o owner s or occupi er s.
13
Thus domest i c homeowner s pr ocur i ng wor k on t hei r own homes appear t o
be exempt .

14
Cl i ent s ar e r egar ded by t he HSE as one of t he maj or f or ces t hat can
pr event acci dent s t hei r at t i t ude t o heal t h and saf et y i s i mpor t ant
and gui des t he whol e pr oj ect : Eg Kevi n Myer s, f or mer chi ef i nspect or
of const r uct i on f or t he HSE: To an ext ent cl i ent s ki l l peopl e. Too
of t en i n t hi s i ndust r y best val ue i s seen as t he cheapest j ob
possi bl e. Pr essur e i s i mmedi at el y put on cont r act or s t o cut cor ner s
and t hat goes down t he suppl y chai n.

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case of a notifiable project,
15
to appoint the Principal Contractor and CDM Co-
ordinator; provide health and safety information to the CDM Co-ordinator as
soon as possible; ensure that, so far as reasonably practical, work does not begin
on site if a health and safety plan hasn't been prepared; ensure the information in
the health and safety file is up to date; ensure that the construction phase does
not start unless the Principal Contractor has prepared a construction phase plan
which is sufficient to enable the construction work to start without risk to health
or safety.

- The CDM Co-ordinators principal duties are to ensure the project is notified to
the HSE; ensure the design refers to health and safety management and has
adequate information regarding the structure and materials; ensure co-ordination
between designers; give adequate advice to Clients regarding competence of
contractors; ensure preparation of the heath and safety file and that this is
delivered to the Client on completion of the project; advise and assist the Client
in its compliance with the Regulations; co-ordinate co-operation between
designers and contractors in relation to design or any change in design during the
construction phase; gather in and communicate information; advise the Client
about competence and resources.

- Designers principal duties are to advise Clients as to their duties (this includes
checking that a CDM Co-ordinator has been appointed and the project notified);
to ensure that all designs have regard to the need to avoid any foreseeable risks to
health and safety of anyone involved in the construction, cleaning of the structure
or anyone who may be affected by the work of such person (for example, the
public, there is also an express duty to consider the health and safety of end users
in offices, shops and other workplaces); try to combat these risks at source; give
priority to measures for protecting those involved in construction, cleaning and
those who may be affected; ensure any design gives adequate information about
any aspect of the structure which may affect those involved in the construction,
cleaning or those affected by this; cooperate with the CDM Co-ordinatator
(including providing information necessary for the health and safety file), if any,
and any other designers.

- The principal contractors (can also be the CDM Co-ordinator) principal duties
are to prepare a construction phase plan before the start of the construction
phase; take reasonable steps to ensure co-operation between all contractors;
ensure so far as possible that all contractors comply with the health and safety
plan; provide the CDM Co-ordinator with all information which he will require
to put in the health and safety file; ensure all contractors are provided with all
information regarding health and safety risks and that each contractor passes on
this information to its employees. The new Regulations make clear that the
principal contractor has key roles on ensuring that construction work is carried
out, so far as reasonably practical, safely and without risk to health. It must also
manage, plan and monitor its own risk and consult the workforce and make

15
A pr oj ect i s not i f i abl e i f t he const r uct i on phase i s l i kel y t o i nvol ve
mor e t han ( a) 30 days; or ( b) 500 per son days of const r uct i on wor k.

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available to them site surveys etc; that all contractors are informed of the amount
of time that will be allowed for planning and preparation before they begin work.
If design changes and decisions during the construction phase have significant
health implications, liaise with the CDM Co-ordinator about any implications for
the construction phase plan.

- Contractors principal duties are not to carry out construction work unless the
client is aware of its duties under the Regulations; to plan, manage and monitor
its work to ensure, so far as practical, that it is carried out without risk to health
and safety, to ensure that its sub-contractors are informed of the time available
for planning and preparation before they begin work, to provide training for
workers to enable their work to be carried safely without risk to health; to take
reasonable steps to prevent unauthorised access to site. In the case of a notifiable
project, a contractor has further duties are to cooperate with the principal
contractor; to provide the principal contractor with all the information which may
affect the health and safety of construction workers or those who may be affected
by construction work; to provide all information the principal contractor would
expect to be included in the health and safety file; not allow any employee to
work unless he knows the name of the CDM Co-ordinator and principal
contractor and has a copy of the health and safety plan.

- The completed health and safety file should be provided to those who
subsequently acquire an interest in the project.

5. Environmental legislation
The principal environmental legislation affecting the construction industry is as
follows.

- Controls over waste management provided for in part 2 of the Environmental
Projection Act 1990. Controls over contaminated land are provided for in the
Environment Act 1995.

- Controls over air pollution (including integrated pollution control) in part 1 of
the Environmental Projection Act 1990.

- Controls over water pollution in the Water Resources Act 1991.

These controls are administered by the Environment Agency. Other relevant
legislation includes the Water Industry Act 1991 (discharges to drains and sewers), the
Control of Pollution (Amendment) Act 1989 (carriage of waste) and the Control of
Pollution Act 1974 (noise from construction sites and machines).

_____________________________

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SESSION 2: OBLIGATIONS IN CONTRACT AND TORT

Peter Aeberli

INTRODUCTION

In this section of number of, mostly, common law principles relevant to the
procurement of buildings are considered. Knowledge of the general law of contract,
tort and property, is assumed.

PART A: CONTRACT ISSUES

The contractual liabilities of those involved in the procurement of construction projects
depend principally on the terms of the agreements they conclude. Nevertheless, there
are few matters that merit special consideration.

1. Contract formation
The principal difficulties that can occur in this area concern tenders, letters of intent
and the battle of forms. Questions of illegality can also arise.

Tenders
A contract may be concluded when an invitation to tender is followed by a conforming
tender, Blackpool & Fylde Aero Club v. Blackpool BC [1990] 1 WLR 1195 (CA).
16

See also Harmon v. House of Commons (1999) 67 Con LR 1,
17
discussed in Craig
(2003) Const LJ 237.

There may be statutory controls over the tender process under the various EU
Directives and consequent Regulations concerned with procurement of public works.
These provide for the advertising of contracts above a certain value, the prohibition of
technical specifications in contract documents that favour particular providers and

16
Blackpool I nvi t at i on t o t ender usual l y no mor e t han an of f er t o
r ecei ve bi ds, but coul d gi ve r i se t o bi ndi ng obl i gat i ons. Her e,
al t hough not expr essl y st at ed, i t was cl ear t hat t her e was a
cont r act ual obl i gat i on t o consi der t he t ender i n conj unct i on wi t h
ot her s. Li abl e si nce f ai l ed t o do so, st af f di d not empt y l et t er box
i n t i me f or i t t o be consi der ed.
17
Harmon: Wher e publ i c sect or empl oyer i nvi t es compet i t i ve t ender s,
cont r act comes i nt o exi st ence under whi ch i t under t akes t o t r eat al l
( compl i ant ??) t ender s f ai r l y. Har mon was hel d i n br each of t hi s
obl i gat i on al so i n br each of t he r el evant pr ocur ement di r ect i ves.
Cour t al so hel d, as a mat t er of causat i on t hat but f or t hese br eaches
Har mon woul d have been awar ded t he cont r act . Thus coul d r ecover t he
cost of pr epar i ng t he t ender as damages ( 500, 000) . Cour t al so hel d
t hat , i n pr i nci pl e, i t s damages coul d be assessed by r ef er ence t o t he
l oss of i t s ant i ci pat ed gr oss mar gi n or pr of i t .

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require the application of objective criteria when evaluating and awarding such
contracts.
18

Letters of intent
A letter of intent generally states an intention to contract in the future, but creates no
liability in respect of that further contract. Depending on the wording it may give rise
to an obligation to pay a quantum meruit for work requested, if provided, it may create
an immediately binding ancillary contract for certain works or may give rise to an if
contract, which only comes into force if the requested work is commenced, British
Steel v. Cleveland Bridge [1984] 1 All ER 504.
19

A good recent example is ERDC Group v. Brunel University [2006] BLR 255 (TCC)
20

where a series of capped letters of intent were issued but work continued to completion
after the last of these. The contractor claimed a quantum meruit, the employer
contended that valuation was governed by the intended contract provisions and rates.
Also employer advanced a counterclaim for breaches occurring after the expiry of the
last letter of intent (in September 2002).

Battle of forms
Negotiations for construction contracts, particularly at the sub-contract level and below
may continue for extended periods. The question of when, if at all, a contract is
concluded, whether by agreement or conduct, and what terms apply, can involve

18
Ri ght s under t he r el evant l egi sl at i on, eg t he Publ i c Ser vi ce Cont r act s
Regul at i ons 1993 ar e subj ect t o shor t t i me bar s ( 3 mont hs) , see f or
exampl e, Morton Communications v. Home Office [ 1999] BLR 112.
19
British Steel Let t er of i nt ent asked f or wor k t o pr oceed i mmedi at el y,
pendi ng pr epar at i on and i ssue of a f or m of subcont r act whi ch at t he
t i me st i l l i n negot i at i on. So no i f cont r act ei t her , t er ms t o
uncer t ai n. Hence ent i t l ed t o r easonabl e pr i ce, and no possi bi l i t y of
a count er cl ai m f or del ay. Not e al so Monk Construction v. Norwich
Union ( 1992) Bui l d LR 107 ( CA) . Let t er aut hor i sed maxi mum sum t o be
expended on enabl i ng wor ks pendi ng concl usi on of cont r act , whol e j ob
bui l t . Ent i t l ed t o quant um mer ui t on wor k done out si de t er ms of
l et t er . Not e: Jarvis v. Galliard [ 2000] BLR 33 ( CA) , even i f t he
l et t er of i nt ent l ooks as t hough i t coul d gi ve r i se t o a cont r act ,
wor ds such as subj ect t o concl udi ng a f or mal cont r act r ead i n t he
cont ext of a pr el i mi nar i es cl ause t hat r equi r e t he cont r act t o be by
deed may oper at e i n a si mi l ar manner t o t he wor ds subj ect t o
cont r act . But cont r ast Stent Foundations v. Tarmac Construction,
( 1999) 78 Const LR 188 ( CA) unt i l f i nal document s avai l abl e not
const r ued i n t hi s way.
20
ERDC: Pr i or t o t he 1
st
Sept ember 2002 ( t he l ast l et t er of i nt ent ) a
cl ear i nt ent i on t o cr eat e l egal r el at i ons, t hus a ser i es of cont r act s
each super sedi ng t he pr evi ous one, up t o t hat dat e. Wor k was t o be
val ued usi ng t he r el evant r at es and pr i ces. Af t er 1
st
Sept ember 2002,
t her e was a move t o a non- cont r act ual basi s, but , on unusual f act s of
t he case, not r i ght t o swi t ch f r omcl ai mant s r at es t o val uat i on based
ent i r el y on cl ai mant s cost s, had cont i nued t o appl y f or payment based
on r at es, r at es wer e r easonabl e. Whi l e somet hi ng mi ght have t o be
added, i f pr oj ect t ook l onger t han al l owed f or i n t he r at es and
pr i ces, f or cost s i ncur r ed due t o pr ol onged execut i on of t he wor ks,
t he payi ng par t y was not r equi r ed t o pay f or del ay or i nef f i ci ency.
Count er cl ai m f ai l ed, as no cont r act i n pl ace at t i me of al l eged
br eaches.

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extensive analysis of the communications between the parties in the light of when work
actually commenced. Consider Butler Machine Tool v. Ex-Cell-O Corp [1979] 1 WLR
401 (CA); Percy Trentham v. Archital Luxfer [1993] 1 Lloyds Rep 25 (CA).
21

Illegality
Contractors or consultants are occasionally engaged on the basis that they will be paid
in cash. Such arrangements will be illegal and the contract unenforceable by either
party, if intended to defraud the revenue (tax) or customs and excise (VAT).

2. Assignment and sub-contracting
The normal legal principles of assignment apply. Benefits can be assigned in contract
law, not burdens, although the latter can be vicariously performed (sub-contracted).

Assignment
Only contractual benefits can be assigned. Contractual prohibitions on assignment will
be effective; Linden Garden Trust v. Lenesta Sludge Disposals [1994] 1 AC 85 (HL).
22

Vicarious performance
Vicarious performance (sub-contracting) does not generally relieve the original
contracting party of its obligations. This is so even where the obligation is one of skill
and care and an apparently competent person is used/engaged for the design work in
question, consider Moresk Cleaners Ltd v. Hicks [1966] 2 Lloyds Rep 338.
23
On the
other hand, a designers obligation may be discharged by exercising skill and care in
the choice of components that involve no in context design.

This issue was also considered in Co-operative Group Limited v J ohn Allen Associates
Limited [2010] EWHC 2300 (TCC), where, at para. 180, the judge derived the
following principles from his review of authorities.

(1) That construction professionals do not by the mere act of obtaining advice
or a design from another party thereby divest themselves of their duties in
respect of that advice or design.

21
Percy Trentham Wher e t r ansact i on f ul l y execut ed, cont r act came i nt o
exi st ence dur i ng per f or mance even i f coul d not be pr eci sel y anal ysed
i n t er ms of of f er and accept ance. The cor r espondence, i n i t sel f , di d
not est abl i sh t hi s but payment was made by i nst al ment s and wor ks
compl et ed t hough negot i at i ons never concl uded.
22
Linden Gardens Cont r act ual bar on assi gnment wi t hout consent , val i d,
assi gnment voi d as bet ween or i gi nal cont r act par t i es.
23
Moresk Desi gn i nvol ved r ei nf or ced concr et e st r uct ur e on sl ope,
desi gner r el i ed on cont r act or f or desi gn. I f desi gn ent r ust ed t o
ar chi t ect , empl oyer can l ook t o ar chi t ect t o see t hat bui l di ng
pr oper l y desi gned. Ar chi t ect has no power t o del egat e dut y t o any one
el se, cer t ai nl y not a cont r act or . I f ar chi t ect not abl e t o desi gn
par t of t he wor ks. Thr ee choi ces. I t can say, not my f i el d. I t can
ask empl oyer t o empl oy a speci al i st consul t ant t o deal wi t h t hat
aspect of t he mat t er . Or , whi l e r et ai ni ng r esponsi bi l i t y, i t can seek
appr opr i at e advi ce and assi st ance f r om a t hi r d par t y, payi ng hi m out
of own pocket , wi t h knowl edge t hat i f goes wr ong, and sued, can sue
t hi r d par t y.

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(2) That construction professionals can discharge their duty to take reasonable
care by relying on the advice or design of a specialist provided that they act
reasonably in doing so.

(3) That in determining whether construction professionals act reasonably in
seeking the assistance of specialists to discharge their duty to the client, the court
has to consider all the circumstances which include

(a) Whether the assistance is taken from an appropriate specialist;

(b) Whether it was reasonable to seek assistance from other professionals,
research or other associations or other sources;

(c) Whether there was information which should have led the professional to
give a warning;

(d) Whether and to what extent the client might have a remedy in respect of the
advice from the other specialist;

(e) Whether the construction professional should have advised the client to seek
advice elsewhere or should themselves have taken professional advice under a
separate retainer.

Many standard form contracts include restrictions on sub-contracting. Breach of such
provisions does not invalidate the sub-contract but may given an entitlement in
damages.
24

Client designated sub-contractors
Sub-contractors are sometimes designated by the client (commonly referred to as
nomination or naming). By restricting the Contractors freedom to construct the works
as it wishes, the Client may be at risk if the designated sub-contractor defaults,
particularly if it fails to complete the works and another sub-contractor has to be
engaged. The issues are considered in cases such as Bickerton v North West MRHB
[1969] 1 All ER 977 (CA).
25

Novation
If contractual burdens are to be transferred, this must be by agreement between the
original contracting parties and the third person that is to assume the relevant
obligations. A true novation extinguishes (rescinds) the original contract and replaces
it with a new contract.

24
John Young v. The Rugby Group, 19
t h
December 2000 ( l awt el ) .
25
Page: 4
Bickerton: Empl oyer bor e t he r i sk, i n t er ms of addi t i onal cost and
del ay, of ar r angi ng a new nomi nat i on, under J CT 1963. Consi der al so
Per cy Bi l t on v. GLC [ 1982] 1 WLR 794 ( HL) , al so concer ned wi t h J CT 63.
The new nomi nat i on was i nval i d i f i t di d not i ncl ude wor k necessar y t o
r emedy def ect s i n t he or i gi nal subcont r act or s wor k. . Mor e r ecent
ver si ons of t hi s cont r act cont ai n compl ex machi ner y f or such
occur r ences.

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Novation is sometimes used in the design and build procurement route to ensure that
the clients designers are responsible to the contractor for completing the design
26
but
with some obligations to the original client retained. There is great scope for conflicts
of interest in such an arrangement and it may, as in Blyth & Blyth v. Carillion (2002)
79 Con LR 142
27
(Scotland), not amount to a true novation.

3. Privity of contract
The Contracts (Rights of Third Parties) Act 1999 has implications for the devising of
contractual relationships for the procurement of construction projects. The current
position favoured by contract drafting bodies is to exclude its operation.

- Themis Avaamides v. Mark Colwill [2007] BLR 76 (CA). The third party must
be expressly identified either individually or as a member of an identified class
or by description within the meaning of s. 1(3) of the Act, to have rights under
the contract.
28

4. Contract terms
Contracts concerned with the procurement of construction projects are, generally,
subject to a number of implied terms. There may also be statutory terms for payment
and dispute resolution.

Contracts for consultant services
That the consultant will perform the services to be provided with reasonable skill and
care (and diligence) and in a reasonable time (see also the Supply of Goods and
Services Act 1982, Part II). See George Hawkins v. Chrysler (UK) Ltd (1986) 38 BLR
36 (CA).
29

26
For f ur t her di scussi on of t hi s t ype of ar r angement see Try Build Ltd
v. Invecta [ 1999] 71 Con LR 140.
27
Blyth: The Novat i on Agr eement di d not amount t o a f ul l r esci ssi on
of t he or i gi nal cont r act , some r esi dual r i ght s r emai ned; but i t
pr ovi ded t hat t he l i abi l i t y of t he desi gner bot h bef or e and af t er
assi gnment woul d be owed t o t he cont r act or . Hel d, on const r uct i on,
t hat t hi s agr eement di d not gi ve cont r act or a r i ght t o r ecover damages
suf f er ed by i t f or br each of t he consul t ant ' s agr eement pr i or t o
novat i on, si nce or i gi nal cl i ent had not suf f er ed damage. Not e: I t
was accept ed by Car i l l i on t hat t he novat i on agr eement oper at ed mor e
l i ke an assi gnment t han a t r ue novat i on.
28
Themis: t he r el evant par t of t he agr eement under whi ch t he def endant s
pur chased t he company s asset s ( t he company bei ng i n cont r act wi t h t he
cl ai mant s) mer el y r ef er r ed t o t he pur chaser agr eei ng t o set t l e t he
cur r ent l i abi l i t i es of t he company. Al bei t an ear l i er par t of t he
cl ause r ef er r ed t o compl et i ng out st andi ng or der s of t he company' s
cust omer s, t he CA was not pr epar ed t o const r ue t he gener al r ef er ence
t o l i abi l i t i es as r ef er r i ng t o t he cust omer s. Thus t he agr eement di d
not gi ve t he cl ai mant s, t o whom t he company had a l i abi l i t y, a cl ai m
under t he C( RTP) A ( i t appear s t hat except i ons t o t he r ul e of Pr i vi t y
wi l l be const r ued nar r owl y.
29
Hawkins: A desi gner s dut y di d not ext end t o war r ant i ng f i t ness f or
pur pose. Thi s cont r ast s wi t h t he hi gher dut y of a per son desi gni ng
and const r uct i ng, who owes a dut y t o ensur e t hat t he pr oduct i s
r easonabl y f i t f or t he pur pose of whi ch i t i s i nt ended.

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That the client will not hinder or prevent the consultant from performing its obligations.

Contracts for construction work
As regards goods and materials: That goods and materials will be of satisfactory
quality and, if the employer reasonably relies on the contractors expertise in selecting
them, that they will be reasonably fit for the purpose for which they are to be used (see
the Supply of Goods and Services Act 1982, Part I, as amended). The necessary
reliance is unlikely to be found where the employer has engaged a designer. Consider
Young & Marten v. McManus Childs [1969] AC 454 (HL);
30
see Rotherham MBC v.
Haslam Milan & Co Ltd (1996) 78 Build LR 1 (CA).
31

As regards workmanship: That the work will be done with all proper (reasonable) skill
and care (see also the Supply of Goods and Services Act 1982, Part II). This duty
includes a duty to warn of known design defects in the work being constructed.
32

Note also the employers duties: That it will not hinder or prevent the contractor from
performing the contract; where there is an independent certifier, not to hinder or
interfere with the latters exercise of its certifying duties, that it will do all that is
necessary on its part to bring about completion of the contract by, for instance, giving
possession of the site within a reasonable time and, if appropriate, obtaining necessary
planning permissions and Building Regulations consents.

Contracts for design and construction work
Where the employer reasonably relies on the contractors skill and judgement, that not
just the goods and materials used, but the completed building will be fit for the

30
Young & Martin Roof er s pur chased and i nst al l ed Somer set 13 t i l es, a
t ype suggest ed by t he devel oper of t he houses concer ned. Af t er
i nst al l at i on f ai l ed because of l at ent manuf act ur i ng def ect . Al t hough
t he f i t ness f or pur pose t er m excl uded, t he mer chant abl e qual i t y t er m
not excl uded and t hese t i l es not mer chant abl e.
31
Rotherham: The speci f i cat i on pr ovi ded f or gr anul ar har dcor e t o be
st one, et c, sl ag or a combi nat i on. St eel sl ag used, expanded, cr acked
f l oor s. Ther e was no i mpl i ed t er m of f i t ness f or pur pose si nce,
al t hough t he pur pose made known, f r eedom of choi ce was not gi ven t o
cont r act or t o enabl e i t t o exer ci se ski l l and j udgement i n choi ce of
mat er i al but because ar chi t ect bel i eved no f ur t her st i pul at i ons
necessar y. The t er m al l owi ng f or i nspect i on and sampl i ng by
ar chi t ect , di d not show r el i ance by empl oyer on cont r act or , t he
r el i ance was on t he ar chi t ect , and hi s exper t i se and knowl edge, not on
t he cont r act or . Al so t he sel ect i on of mat er i al s was par t of t he
over al l desi gn whi ch, i n t hi s case, was t he r esponsi bi l i t y of t he
ar chi t ect . Ther e was an i mpl i ed t er m of mer chant abi l i t y, but
sat i sf i ed si nce sl ag used was f i t f or some of t he pur poses wi t hi n t he
descr i pt i on under whi ch i t was sol d and sal eabl e under t hat
descr i pt i on wi t hout abat ement of pr i ce, e. g. har dcor e f or r oad
bui l di ng.
32
See f or exampl e, Plant Construction v. Clive Adams [ 2000] BLR 137
( CA) . I t i s not cl ear i f t hi s dut y ext ends t o a dut y t o war n of
def ect s t hat ought t o have been i dent i f i ed by a r easonabl y compet ent
cont r act or .

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particular purpose for which it was intended; Graves & Co Ltd v. Baynham Meikle
[1975] 1 WLR 1095 (CA).
33

Note also Co-operative Insurance Society Ltd v Henry Boot Scotland Ltd [2002]
EWHC 1270 (TCC). Unless the contract provides otherwise (see J CT WCD05) an
obligation to complete a design includes examining the design at the point at which
responsibility is taken over, assessing the assumptions upon which it was based and
forming an opinion whether those assumptions were appropriate.

Contracts with a builder for the purchase of a dwelling to be constructed, or in the
course of construction by that builder
That the builder will do its work in a good and workmanlike manner, that he will
supply good and proper materials; and that the dwelling will be reasonably fit for
human habitation, Hancock v. Brazier (Anerley) Ltd [1966] 1 WLR 1317 (CA).
34
This
is an exception to the caveat emptor rule, generally applicable to contracts for the sale
of real property. (Note: Many new dwellings are sold by builders/developers with
express warranties along these lines backed by insurance, such as that available through
the NHBC).

Contracts for the purchase of goods
That the goods will be of satisfactory quality and, if there is reasonable reliance on the
suppliers expertise in selecting them, that the goods will be reasonably fit for the
purpose for which they are to be used (see the Supply of Goods Act 1979, as amended).
The necessary reliance is unlikely to be found where the goods are specified by a
designer.

Terms as to payment and dispute resolution
In most cases payment is dealt with expressly but, in the absence of an express term,
contracts with contractors and consultants will be subject to an implied obligation to
pay a reasonable price and, in the absence of a contract, an obligation to pay for work
and/or materials requested on aquantum meruit basis.

The Housing Grants, Construction and Regeneration Act 1996, Part II, requires any
construction contract in writing, other than those entered into with a residential
occupier for work on their own dwelling, to contain specific provisions concerning

33
Graves & Co Fl oor s cr acked because of use of f or k l i f t t r ucks. Si nce
owner s made known t he pur pose f or whi ch bui l di ng r equi r ed and r el i ed
on cont r act or s ski l l and j udgement t o pr ovi de a package deal f or
war ehouse, t he dut y of t he cont r act or was t o see t hat t he f i ni shed
wor k was r easonabl y f i t f or pur pose, not mer el y t o use ski l l and car e.
As f or t he subcont r act or engi neer s, i n t hi s case common i nt ent i on was
t hat t hey woul d desi gn a pr oj ect f i t f or pur pose. Even i f t hei r onl y
obl i gat i on was one of ski l l and car e, her e i t was cl ear t hat a new
mode of const r uct i on was bei ng used, and vi br at i on not ed as a pr obl em
i n BS Ci r cul ar . Fai l ed t o t ake account of t hi s, t hus br each of dut y.
34
Hancock That t he bui l der wi l l do wor k i n good and wor kmanl i ke manner ,
t hat he wi l l suppl y good and pr oper mat er i al s and t hat t he dwel l i ng
wi l l be r easonabl y f i t f or habi t at i on. Thi s dut y encompasses t he whol e
dwel l i ng as wel l as i t s par t s, i ncl udi ng par t s const r uct ed bef or e t he
sal e. Ther e i s no such dut y i f t he dwel l i ng has been compl et ed bef or e
t he sal e.

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dispute resolution (adjudication) and the method and timing of payments into
construction contracts. The Act achieves this by providing that if the parties do not
expressly include such terms in their contract, the relevant provisions in the Scheme for
Construction Contracts 1998 are implied into the contract.

The Act also invalidates pay when pay clauses and gives a statutory right to suspend
performance upon notice for non-payment of sums due.

For the purpose of Part II of the Act a construction contract is a contract for
construction operations. Construction operations are widely defined and include most
building and engineering works as well as professional services relating to such works.

5. Exemption clauses
Exemption clauses are more common in consultants agreements
35
than in construction
contracts, the latter being often drafted by consensus bodies such as the J CT.
Exemption clauses may be found in bespoke construction contracts but, in the case of
consumer contracts these may be difficult to enforce and may give rise to criminal
sanctions, for instance if they purport to exclude the implied terms of quality under the
Sale of Goods Act 1979 or the Supply of Goods Act 1982.

Provisions that make certain types of decision or certificates conclusive may be found
in certain standard form construction contracts.
36
Risk allocation and insurance
provisions in construction contracts may also have a similar effect to exemption
clauses. Consider, for example, the J CT joint names insurance regime Co-operative
Retail Services v. Taylor Young [2002] 1 WLR 1419 (HL).
37
But note Tyco v. Rolls
Royce [2008] BLR 285 (CA), para 77ff, where Rix LJ , probably obiter, suggested that
a provision for joint names insurance may well influence the construction of the
contract, but if the underlying contract indicates that one co-assured may be liable to
another, there is nothing in the doctrine of subrogation to prevent it from proceeding
against the other to recover the insurance proceeds in the absence of an express ouster
of the right of subrogation.

Exemption clauses are more likely to survive the relevant statutory controls (the Unfair
Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations

35
Common exempt i on cl auses i n consul t ant s agr eement s i ncl ude cl auses
seeki ng t o l i mi t t he per i od dur i ng whi ch cl ai ms can be made and t he
maxi mum amount t hat can be cl ai med, and net cont r i but i on cl auses,
whi ch seek t o modi f y t he common l aw of j oi nt and sever al l i abi l i t y.
I t i s sur pr i si ng t hat such t er ms have not at t r act ed t he at t ent i on of
t he Of f i ce of Fai r Tr adi ng.
36
See, f or exampl e, Barking v. Terrapin [ 2000] BLR 479. The f i nal
cer t i f i cat e i ssued under t he t hen st andar d f or of cont r act J CT WCD
1981 was concl usi ve as t o mat er i al s and wor kmanshi p but not desi gn,
bei ng t o t he sat i sf act i on of t he Empl oyer .
37
Co-operative Services: The i nsur ance pr ovi si ons i n J CT 80 pr ecl uded a
cl ai m i n r espect of f i r e agai nst t he cont r act or and subcont r act or ,
bot h because of t he r equi r ement t o i nsur e i n t he j oi nt names of t he
par t i es and on const r uct i on of t he pr ovi si ons r el at i ng t o t he
cont r act or s obl i gat i ons i n t he event of f i r e.

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1994 or 1999)
38
if they have been individually negotiated, alternatives are offered and
they are drafted with regard to available insurance.

6. Certificates and certifiers
Many construction contracts, particularly those entered into with employers, provide
for the contract to be administered by an Architect, Engineer or other contract
administrator. It used to be considered that the function of such a person was, at least
under the standard form engineering and building contracts, to determine rather than
give effect to the rights of the parties and that the decisions of such a person were
binding on the parties other than were expressly stated to be subject to review by a
contractual mechanism such as arbitration, Northern Regional Health Authority v.
Crouch [1984] QB 644 (CA). This view has now been discredited and Crouch
overruled by Beaufort Developments v. Gilbert Ash [1998] 88 Build LR 1 (HL).

The current view is that, in the absence of clear words to the contrary (see for instance
J CT provisions relating to the Final Certificate), the role of the contract administrator is
to give effect to the parties rights on an interim basis and his decisions and certificates
are not binding in subsequent proceedings.

In exercising their certification functions (including if exercising a review function, eg
under ICE, clause 66) contract administrators have to act independently and honestly
and fairly, but what is fair is flexible and tempered to the particular facts and occasion.
A certifiers decision does not have to be reached by a judicial process (in accordance
with the dictates of natural justice, hearing both sides); Amec v. S of S for Transport
[2005] BLR 227 (CA).
39

In other respects contract administrators act as the agent of their employers;
Consideration should be given to whether there is to be a role for a contract administrator
(agent or independent); Merton LB v. Leach (1985) 32 Build LR 51; but note Beaufort
Developments v. Gilbert-Ash [1998] 88 Build LR 1 (HL).
40
For a recent example, where
the contract was to be administered by a construction manager, and this view of his duel
functions confirmed, see Scheldebouw v. St Jamess Homes [2006] BLR 113 (TCC).
41

38
The new r egul at i ons cover a wi der r ange of cont r act s but t he consumer
must st i l l be an i ndi vi dual per son.

39
Amec: The CA hel d t hat t her e was no di f f er ence i n t hese r espect s
bet ween an Engi neer s cer t i f i cat i on f unct i ons under t he I CE condi t i ons
and hi s r evi ew f unct i ons under cl ause 66. Al so hi s posi t i on was not
t he same as an adj udi cat or .
40
Merton Ar chi t ect act s as agent when suppl yi ng cont r act or wi t h
dr awi ngs, i nst r uct i ons, l evel s, and t he l i ke and i n super vi si ng t he
pr ogr ess of t he wor ks and seei ng t hat i t i s pr oper l y execut ed. To t he
ext ent t hat t he ar chi t ect per f or ms t hese dut i es, t he empl oyer
cont r act s t hat t he ar chi t ect wi l l per f or m t hem wi t h r easonabl e
di l i gence, ski l l and car e. But wher e t he cont r act conf er s on t he
ar chi t ect di scr et i onar y power s whi ch he must exer ci se wi t h due r egar d
t o i nt er est s of cont r act or and empl oyer , l at t er does not under t ake
t hat he wi l l exer ci se t hose power s r easonabl y, r at her t han he wi l l
l eave hi m f r ee t o exer ci se hi s di scr et i on f ai r l y and wi t hout i mpr oper
i nt er f er ence. Beaufort suggest s t hat may be an agent i n al l cases?
41
Scheldebouw: The empl oyer s const r uct i on manager s cont ent i on t hat t he
const r uct i on manager was t her e ent i r el y as i t s agent and t o pr oj ect i s

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7. Limitation Issues
Depending on whether or not the contract is a simple contract or entered into by deed,
the period in which proceedings must generally be brought is either six years or twelve
years from date of breach.

In the case of a designer the original breach will occur when the design is first
produced but, were the designer is engaged throughout the project, there is a continuing
duty to review that design at least until it is constructed, possibly until substantial
completion of the works. Thus the limitation period in a claim against a designer may,
depending on the terms of its contract and the circumstances, run from substantial
completion of the works or the termination of its contract, if earlier, New Islington &
Hackney HA v. Pollard Thomas [2001] BLR 74 (TCC) (but note the duty to review is not
of the same character as the duty owed in respect of the initial design, since the duty to
review only arises if something makes a review necessary or prudent).
42

In the case of a contractor, work will be progressively covered up thus, in the case of
defective work it may be possible to postpone the commencement of the limitation
period by establishing deliberate concealment of a fact relevant to the claimants cause
of action (s. 32(1)(b) Limitation Act 1980).
43
The generally accepted view is that
something more than merely getting on with shoddy work is required to establish
deliberate concealment, something unconscionable, William Hill v. Bernard Sunley
[1982] 22 Build LR 1.
44
See now, Cave v. Robinson J arvis [2002] 2 WLR 1107
(HL).
45

agent , wi t h no obl i gat i on t o act i ndependent l y and i mpar t i al l y, was
r ej ect ed, he di d, i n exer ci si ng deci si on maki ng f unct i ons, have t o act
f ai r l y and i mpar t i al l y, usi ng hi s pr of essi onal ski l l s and best
endeavour s t o r each t he r i ght deci si on, as opposed t o a deci si on t hat
f avour s t he i nt er est of hi s empl oyer . Not e t he j udge al so hel d t hat
t he cont r act di d not per mi t St J ames t o r epl ace t he or i gi nal cont r act
manager wi t h i t sel f .
42
New Islington: Al l eged l ack of sound i nsul at i on i n pr oper t i es desi gned
by Def endant . Found on t he f act s and under RI BA For mt hat t her e was a
cont i nui ng dut y t o r evi ew desi gn up t o Pr act i cal Compl et i on, but not
af t er t hat dat e. Cause of act i on accr ued not on knowl edge of def ect
but when f aul t exi st ed, t hi s was when pr oper t i es handed over on
Pr act i cal Compl et i on. Cl ai mant had knowl edge mor e t han 3 year s bef or e
pr oceedi ngs commenced so s. 14A Li mi t at i on Act 1980 di d not assi st .
Not e al so Thameside MBC v. Barlows [ 2001] BLR 113 ( CA) . I n t he case
of an act i on agai nst bui l der f or damages f or def ect i ve houses t he
l i mi t at i on per i od commenced on t he dat e of del i ver y t o or possessi on
by t he empl oyer si nce i t i s onl y t hen t hat t he empl oyer coul d make a
cl ai m.
43
Section 32(1) (b): Wher e any f act r el evant t o t he Pl ai nt i f f ' s r i ght of
act i on had been del i ber at el y conceal ed f r om hi m by t he Def endant .
Sect i on 32( 2) . Del i ber at e commi ssi on of a br each of dut y i n
ci r cumst ances i n whi ch i t i s unl i kel y t o be di scover ed f or some t i me
amount s t o del i ber at e conceal ment .
44
William Hill v. Bernard Sunley Under t he pr evi ous l egal i sat i on
del i ber at e conceal ment was r egar ded as cl osel y aki n t o f r aud. I t
appear ed t hat t hi s l i nk was br oken i n Brocklesby. See f or an exampl e
of what was r egar ded as necessar y, Gray v. TP Bennett [ 1987] 43 Bui l d
LR 63 wer e t he cour t was sat i sf i ed t hat t he wor k had been del i ber at el y

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8. Property rights passing by contract
Contracts relating to construction projects may provide for the transfer or use of various
property rights.

Rights in goods and materials
Property in goods and materials supplied under a construction contract will, in the
absence of express terms to the contrary, pass to the employer at the time that they are
worked into the building. Property in those materials will have passed to the contractor
under the relevant sub-contract or supply contract in accordance with the intention of
the parties to that contract. In the case of supply contracts, the Sale of Goods Act 1979,
as amended, contains provisions to determine when property pass (although
commonly override by Romalpa (retention of title) clauses in supply contracts) and, see
s.25,
46
to enable the contractor, as buyer in possession with the consent of the seller, to
give good title to the employer when payment is made under the main contract. See P5
Ltd v. Unite Integrated Solutions [2006] BLR 150.
47

These provisions do not, however, apply to contracts for work and materials, these
being governed by the Supply of Goods and Services Act 1982, as amended, which
says nothing about the passing of property.

Copyright
A consultant has copyright in his work, such as drawings and models, see the
Copyright, Designs and Patents Act 1988. Subject to any express or implied agreement
to the contrary, a consultant can prevent, by injunction, the unauthorised copying of
that work, such as by repeating the design in some other building. It can also claim
damages or an account of profits. It is usual, however, for contracts with designers to
contain express provisions giving the employer a licence to use the designs for

or gani sed t o conceal t he hacki ng of f of concr et e ni bs f r om t he
empl oyer s i nspect or s, t he Ar chi t ect / Engi neer .
45
Cave: Lor d Mi l l et t i dent i f i ed t wo si t uat i ons, wher e a per son t ook
act i ve st eps t o conceal a br each of dut y af t er he became awar e of i t ,
and wher e t her e was del i ber at e wr ongdoi ng by a per son and he conceal ed
or f ai l ed t o di scl ose i t i n ci r cumst ances wher e i t unl i kel y t o be
di scover ed f or some t i me. Lor d Scot t di d not consi der t hat t he
st at ut e needed embel l i shment . Del i ber at e was t o be cont r ast ed wi t h a
br each t hat was not del i ber at e, i nadver t ent , acci dent al , uni nt ended.
46
Sect i on 25 SGA, s. 9 Fact or s Act 1889. Del i ver y or sal e of goods by
a per son, who has bought or agr eed t o buy t hose goods t hem, and who
has obt ai ned, wi t h t he or i gi nal sel l er s consent , possessi on of t he
goods, t o a per son r ecei vi ng t he same i n good f ai t h and wi t hout not i ce
of any l i en or ot her r i ght of t he or i gi nal sel l er i n r espect of t he
goods, i s ef f ect i ve t o t r ansf er t i t l e t o t hat per son.
47
P4 Ltd: P4 suppl i ed equi pment t o Tudor ( appar ent l y under a cont r act
of sal e) subj ect t o t er ms i ncl udi ng a r et ent i on of t i t l e cl ause.
Tudor was a subcont r act or t o Uni t e under DOM/ 1. Bef or e P4 pai d, Tudor
became i nsol vent , Tudor had not , appar ent l y, been pai d by Uni t e. Hel d,
al t hough t her e was a del i ver y and agr eement agr eed di sposi t i on of t he
equi pment t o Uni t e wi t hi n t he meani ng of s. 25( 1) SGA ( see s. 9
Fact or s Act 1889) , s. 25( 1) onl y pr ovi ded pr ot ect i on i f t her e was a
sal e or ot her di sposi t i on ( eg. payment was made) , not wher e t her e was
an agr eement f or a sal e or ot her di sposi t i on.

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constructing the project and, as necessary, in connection with its subsequent
maintenance or alteration. Problems can occur where the consultant is engaged to
provide a partial service, see for example Stovin-Bradford v. Volpoint Properties Ltd
[1971] 1 Ch 1007 (CA).
48

The consultants lien
The client will, unless the contract provides otherwise, have property in the documents
the consultant prepares, other than internal working documents. But the consultant
may exercise a lien on such material against payment of its fees and expenses.

PART B: TORT - ISSUES

1. Liabilities in negligence imposing a duty of care
The normal principles of liability apply. The application of the tests for imposing of a
duty (foreseeability, proximity and justice and reasonableness) can cause difficulties.
This is because, in the case of damage to property, it can be difficult to categorise the
type of harm, and because the law is reluctant to allow claims in negligence to short
circuit carefully structured contractual relationships.

Identifying the category of harm
In general, it is easier to establish a duty in respect of damage to property than in
respect of damage to economic interests (pure economic loss). But, in the case of a
defective construction project, the harm can be regarded either as damage to property
or as economic loss. The distinction depends, principally, on the concept of other
property and the complex structure theory, Murphy v. Brentwood [1991] 1 AC 398,
although the requirement for ownership may also be relevant, Delaware Mansions v.
Westminster CC (1998) 88 Build LR 99
49
(now see [2000] BLR 1 (CA). But note, on
the continuing nuisance point, [2002] BLR 25 (HL)).

Once the relevant category of harm is identified, consideration must be given to the
appropriate proximity test.

- In the case of damage to persons or property this is usually established by the
physical proximity of the parties or physical proximity at the time of damage
between the defective thing, put into circulation by the defendant, and the
claimant or its property.

48
Stovin Bradford Ar chi t ect agr eed t o car r y out desi gn wor k t o obt ai n
pl anni ng appr oval . Nomi nal f ee compar ed wi t h f ul l ser vi ce f ee ( 100
Gui neas) . Hel d: t her e was an i mpl i ed l i cence t o make use of dr awi ngs
f or pl anni ng, but no i mpl i cat i on of a l i cence t o use dr awi ngs f or
er ect i ng a bui l di ng. I t may be t hat t he l i cence onl y t akes ef f ect on
payment , Blair v. Osbourne & Tomkins [ 1971] 2 QB 78, 85 ( CA) .
49
Delaware West mi nst er had dut y i n r espect of t r ee r oot s, br eached when
adopt ed r educed t r ee pr uni ng r egi me. But any damage occur r ed bef or e
Fl ecksun became f r eehol der , and had t aken no assi gnment f r om pr evi ous
owner , so can onl y sue i f f ur t her damage dur i ng i t s owner shi p. The
posi t i on was si mi l ar i n nui sance ( but nui sance cont i nui ng af t er
pr oper t y i nt er est acqui r ed) . Del awar e, t he management company, di d
not , however , have suf f i ci ent pr opr i et ar y i nt er est i n t he bui l di ng f or
a cl ai m i n nui sance or negl i gence, Lei gh and Sul l i van v. Al i akmon
[ 1986] 1 AC 785; Canar y War f Lt d v Hunt er [ 1997] 2 WLR 684 appl i ed.

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- In the case of economic harm, this requires reliance and reasonableness of
reliance on statements, Caparo Industries v. Dickman [1990] 2 AC 605, or
voluntary assumption of responsibility, Henderson v. Merrett Syndicates [1994] 3
WLR 761.

Consider cases such as Bellefield Computer v. E Turner & Sons Ltd [2000] BLR 97
(CA)
50
(physical damage); Machin v. Adams [1997] 84 Build LR 79 (pure economic
loss);
51
Baxall Securities Ltd v. Sheard Walshaw [2001] BLR 36 (physical damage);
52

50
Bellefield: Bui l der const r uct ed i ndust r i al bui l di ng. Fi r e Separ at i ng
wal l bet ween t wo par t s of bui l di ng negl i gent l y const r uct ed and di d not
ext end f ul l hei ght . Pur chaser of bui l di ng suf f er ed damage when f i r e
spr ead f r om one si de of bui l di ng t o t he ot her , bot h t o bui l di ng and
cont ends. Hel d: Fact t hat one si de of bui l di ng used f or di f f er ent
pur pose f r om ot her , di d not make ot her pr oper t y f r om ot her si de of
bui l di ng, but coul d r ecover l oss caused by f i r e damage t o cont ent s,
not bui l di ng i t sel f as no dut y owed i n r espect of pur e economi c l oss.
Ot her pr oper t y r ul e a pol i cy i ssue.
51
Machin: Machi n agr eed t o pur chase pr oper t y bei ng ext ended, cont r act
pr ovi ded f or t he i ssue of a f i nal cer t i f i cat e by t he ar chi t ect . The
ar chi t ect knew t hat pr oper t y t o be sol d, and t hat hi s cl i ent needed a
l et t er i ndi cat i ng t he ext ent of t he wor ks, he knew or must have known
woul d be shown t o someone el se. Let t er sai d wor ks sat i sf act or y
st andar d t o dat e, t wo weeks l ef t t o compl et e. Di d he owe dut y of car e
i n negl i gence t o pur chaser shown l et t er . Hel d, no r el i ance by Ms
Machi n, and di d not owe dut y of car e because i gnor ant of pur pose f or
whi ch advi ce i n l et t er r equi r ed by Ms Machi n, t hus no assumpt i on of
r esponsi bi l i t y and, because ant i ci pat ed woul d r et ur n t o si t e t o
cer t i f y compl et i on, coul d not ant i ci pat e t hat Ms Machi n woul d r el y on
l et t er t o t ake i r r evocabl e st ep. Need f or a connect i ng t hr ead bet ween
pur pose f or whi ch advi ce gi ven and t he act i on whi ch an advi see who
r el i es on i t t akes, and t her ef or e wi t h t he damages t he advi see
suf f er s. Her e no such t hr ead, coul d not say f r om what har m t he
ar chi t ect was t o be r egar ded as havi ng under t aken t o guar d t he
pur chaser .
52
Baxall v. Sheard: Def ect i ve desi gn/ super vi si on of r oof dr ai nage by
def endant , Ar chi t ect t wo f aul t s, shoul d have not i ced over f l ows
omi t t ed, syst em under si zed. Cl ai mant t akes l ease af t er havi ng
pr oper t y sur veyed. Subsequent f l ood due t o l ack of over f l ows and
bl ockage. Second f l ood due t o under si zed syst em and no over f l ows.
Li abl e f or damage t o goods st or ed i n pr emi ses due t o second f l ood
because of under si zed syst em ( l at ent def ect ) a mat er i al cause. Not
l i abl e f or f i r st f l ood because a r easonabl e possi bi l i t y of di scover y
of def ect on i nspect i on. No l i abi l i t y f or wor ks necessar y t o cor r ect
def ect s i n t he r oof syst em i t sel f . Cour t of Appeal di d not di sagr ee
wi t h t he l egal pr i nci pl es adopt ed, but concl uded, as a mat t er of
causat i on, t hat t he r eason f or bot h f l oods was t he same, t he l ack of
over f l ows t hus no l i abi l i t y f or ei t her occur r ence. But not e, t hi s
case doubt ed i n Pear son Educat i on Lt d v. Char t er Par t ner shi p Lt d
[ 2007] EWCA Ci v 130. I n t hat case CA hel d t hat Ar chi t ect s wer e l i abl e
t o t he cl ai mant l essees of a war ehouse i n ci r cumst ances wher e t he
ar chi t ect ' s negl i gent desi gn of t he r ai nwat er dr ai nage syst em had l ed
t o a f l ood t hat caused t he cl ai mant subst ant i al f i nanci al l oss. An
ear l i er f l ood, of whi ch t he cl ai mant was not awar e, was not enough t o
pl ace t he cl ai mant out si de t he r ange of any dut y of car e owed t o i t by
t he ar chi t ect s and i t di d not br eak t he chai n of causat i on bet ween t he
ar chi t ect ' s want of car e and t he damage caused.

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see [2002] BLR 100 (CA) (CA differed from the judge on causation). Note also Payne
v. J ohn Setchell [2002] BLR 489, 513ff
53
(pure economic loss). Note, Baxall was
applied but the reasoning questioned, in Pearson Education v. The Charter Partnership
[2007] BLR 324 (CA).
54

Claims that short-circuit the contractual matrix
The requirement that the imposition of a duty must be just and reasonable will, coupled
with the proximity test, generally precludes duties to avoid economic loss that cut
across or are intended to augment contractual obligations, see discussion of Junior
Books v. Vetchi [1983] 1 AC 520 in Henderson v. Merrett Syndicates,
55
consider also
Pacific Associates Inc. v. Baxter [1990] 1 QB 993 (CA).
56

53
Payne: Ar chi t ect engaged t o pr ovi de desi gns f or t er r aced pr oper t i es
i ncl udi ng f oundat i ons. At end of wor k pr ovi ded l et t er t o cl i ent , Mr
Wr i ght , dat ed Oct ober 1998, cer t i f yi ng t hat wor k was car r i ed out t o
i t s sat i sf act i on. Hel d, t he pur pose of pr ovi di ng t he l et t er was t o
pr ovi de t he t hen owner wi t h a document t hat coul d be used t o sat i sf y a
pr ospect i ve pur chaser t hat t he f oundat i ons coul d be t r eat ed as havi ng
been soundl y bui l d t o a sat i sf act or y desi gn ( Def endant accept ed t hi s
i n evi dence) . The document was i nt ended t o be seen and r el i ed on by a
pr ospect i ve pur chaser who mi ght come on t he scene at any t i me af t er
1998. Thus def endant had dut y i n l aw not onl y t o Mr Wr i ght but t o
subsequent pur chaser s and t hose l i kel y t o l end money secur ed on t he
house t o t ake car e t hat t he st at ement s wer e r el i abl e. The j udge
r emar ked obiter t hat t he dut y was not i ndef i ni t e i n t i me, coul d be
r egar ded as owed 10 year s, si nce t he cer t i f i cat e was t o be t r eat ed as
t ant amount t o NHBC cover ( wel l t her e you go! ! ! ) .
54
Pearson: Def endant s speci f i cat i on f or r oof dr ai nage syst em
i nadequat e. Fl ood occur r ed i n mi d 1990s causi ng damage t o st ock of
l essee of war ehouse I BD. Loss adj ust er s knew syst em i nadequat e, but
di d not advi se I BD. Lease and ot her asset s of I BD t r ansf er r ed t o
Pear son i n 2000. Fur t her f l ood because of i ncapaci t y of t he dr ai nage
syst em i n 2002, caused 2 mi l l i on damage t o Pear son' s st ock. Hel d:
Def ect was l at ent , t hus appl yi ng Baxal l , Def endant was l i abl e t o
Pear son i n negl i gence. CA hel d t hat t he f act t hat a t hi r d par t y became
awar e of a l at ent def ect di d not make t hat def ect pat ent t o ot her who
nei t her knew or ought t o know of t he di scover y. CA sai d t hat t he
Baxal l pr i nci pl e t hat wher e i t was r easonabl e t o expect an occupi er t o
i nspect t he pr oper t y bef or e ent er i ng i nt o occupat i on, no dut y of car e
woul d be owed i n r espect of any def ect such an i nspect i on shoul d
di scl ose, al t er nat i vel y t hat f ai l ur e t o car r y out such an i nspect i on,
br oke t he chai n of causat i on, mer i t ed consi der at i on by t he HL.
55
Henderson: Two r el at i onshi ps Di r ect Names empl oy managi ng agent ( but
l i mi t at i on pr obl ems) . I ndi r ect Names ar e member s of a syndi cat e
( empl oy Member s Agent ) . The Member s Agent empl oys a Managi ng Agent .
No cont r act bet ween managi ng agent ( negl i gent ) and names. Exi st ence
of cont r act ual r i ght not i nconsi st ent wi t h co- exi st ence of r i ght i n
t or t , but agr eement of par t i es can modi f y shape of dut i es i n t or t
whi ch, i n absence of cont act woul d be avai l abl e. Managi ng agent s owed
dut y of car e t o names, had vol unt ar i l y assumed r esponsi bi l i t y f or
pr ovi si on of under wr i t i ng ser vi ces ( under t hi s head t he j ust and
r easonabl eness r equi r ement l ess i mpor t ant ) and t her e was concomi t ant
r el i ance. But have t o ask whet her assumpt i on of r esponsi bi l i t y i s
consi st ent wi t h t he cont r act ual mat r i x. Not usual l y i n t he case of
bui l di ng cont r act wor ks.
56
Pacific Associates: Fact t hat empl oyer i n cont r act wi t h bui l der as
wel l as engi neer r el evant t o f i ndi ng t hat no dut y of car e owed by

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2. Liabilities in negligence other considerations
There are a number of considerations to be born in mind, other than the principles
relevant to establishing a duty of care, when considering the potential liability in
negligence of those involved in the procuring of construction works.

Liability of employers
Provided that reasonably competent consultants and contractors are engaged, the
general rule is that an employer is not liable for the torts of independent contractors.
There are, however, a number of exceptions relevant to construction. These are usually
classified under the heading of extra hazardous activities and include work on or near
party walls (eg Alcock v. Wraith [1991] 59 Build LR 16)
57
and work on highways. But
now see Biffa Ltd v. Maschinefabrak [2009] BLR 1 (CA)
58
where the court took a
narrow view of this doctrine, seeking to restrict it to activities that were inherently or
exceptionally dangerous, whatever precautions were taken, as opposed to those, like
welding, that were only dangerous if proper precautions werent taken.

Liability of consultants
A consultant generally owes concurrent duties in negligence and in contract to his
client but there is doubt as to whether this duty is limited to damage to persons and
other property; contrast Storey v. Charles Church (1997) 13 Const LJ with Samuel
Payne v. J ohn Setchell [2002] BLR 489 (both TCC).
59
A consultant also owes a duty
of care to those whose person or property might, foreseeably, be injured or damaged
because of defects in its work. Duties of care to third parties to avoid financial harm
(pure economic loss) will be more difficult to establish (in general there will be
insufficient proximity).

engi neer t o bui l der . Bui l der s cl ai m i s agai nst t he empl oyer . A
r ecent exampl e of t he same pr i nci pl e can be seen i n RM Turton v.
Kerslake [ 2000] Ll oyd s Rep PN 967 ( NZCA) . Heat i ng syst em negl i gent l y
under speci f i ed by engi neer engaged by Ar chi t ect . Cont r act or engaged
t o const r uct wor ks i ncl udi ng t he speci f i ed syst em. Cont r act or hel d
l i abl e t o empl oyer when syst em f ai l ed. Coul d Cont r act or r ecover f r om
engi neer i n negl i gence. Hel d not j ust and r easonabl e t o i mpose a dut y
i n such ci r cumst ances, i nconsi st ent wi t h t he cont r act ual mat r i x.
( Onl y i n Canada has such a cl ai msucceeded) .
57
Alcock: Wor k by a bui l der on a par t y wal l , causi ng damp and dr y r ot
i n next door pr oper t y.

58
Biffa: The aut hor i t y i n whi ch t he ext r a hazar dous doct r i ne was
devel oped, Honeywi l l v. Lar ki n [ 1934] 1 KB 191 ( CA) was descr i bed as
anomal ous. I t mi ght not sur vi ve a HL chal l enge. The CA al so
conf i r med t hat , i n deci di ng whet her someone was an empl oyee,
super vi si on shoul d not be equat ed wi t h cont r ol , i e cont r ol over t he
manner i n whi ch t he wor k was execut ed. Onl y wher e t her e was cont r ol
was t her e an empl oyer / empl oyee r el at i onshi p. Not t he case her e wher e
one per son ( OT) engaged anot her , Pi ckf or ds, t o pr ovi de wel di ng over a
weekend, t he wel der s pr ovi di ng t hei r own equi pment , and havi ng t hei r
own f or eman t o super vi se and Pi ckf or ds, not OT, deci di ng how many t o
br i ng.
59
I n Storey t he j udge consi der ed t hat t he concur r ent dut y i ncl uded pur e
economi c l oss. I n Payne, t he j udge consi der ed t hat such a vi ew was
i nconsi st ent wi t h t he r easoni ng i n Mur phy v. Br ent wood, and t hat t he
concur r ent dut y onl y ext ended t o damage t o per sons and ot her
pr oper t y( ! ) .

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Liabilities of contractors (builders)
A contractor will owe a duty of care in negligence to those whose person or other
property might, foreseeably, be injured or damaged because of defects in his work. A
contractor will not generally owe a duty of care in negligence to avoid financial harm
(pure economic loss) to third parties
60
as it is difficult to find the required proximity.
Defects in the project constructed by the contractor will, because of the other property
rule, usually be regarded as pure economic loss, see Murphy v. Brentwood [1991] AC
398.

But what is the position where the duty in tort arises in the context of a contractual
relationship. Can a builder, like a building professional, be concurrently liable in tort
and contract for defects in the property they construct due to a want of skill and care in
design, if relevant, or construction? The CA assumed this was the case in Bellefield
Computer v. E Turner & Sons Ltd [2000] BLR 97. For the opposite view, see Payne v.
J ohn Setchell [2002] BLR 489 (TCC),
61

This question has now been considered by the CA in Robinson v. PE J ones
(Contractors) Ltd [2010] EWCA Civ 9; [2011] BLR 206 (CA) in the context of
whether a builder who sold a house in the course of construction owed the purchaser a
concurrent duty in negligence in respect of defects in a chimney, the period available to
bring the contract claim, being a claim under the NHBC warranty, having expired. The
court, see in particular J ackson LJ at para. 68ff, said that, unless assumption of
responsibility was shown which was unlikely, a builders concurrent duty in tort to its
client was, unlike the wider concurrent duty owned to its client by a professional
person, only to take reasonable care to protect the client against suffering personal
injury or damage to other property.

Liabilities of valuers
A valuer engaged by, or on behalf of an intending purchaser of small residential
property, will generally owe a duty of care in negligence to that intending purchaser to
avoid causing him financial harm (pure economic loss) due to defects in the work
provided, even where the valuer is engaged by a third party, such as a mortgage
company, see Smith v. Eric Bush [1990] 1 AC 851. Subject to statutory control, this
duty can be limited or excluded by appropriately worded exemption clauses. Damages
for breach of that duty will be quantified on a difference in value basis.

Exemption and risk allocation clauses
The interrelationship between the imposition of a duty of care in negligence and an
exemption clause in a contract to which either the tortfeasor or the claimant is a party,
but not both, raises a number or complex issues concerned with the question of reliance

60
I t i s possi bl e t hat a cont r act or does owe a concur r ent dut y of car e i n
negl i gence t o i t s empl oyer by anal ogy wi t h Henderson.
61
Payne: ( not e dat e of case Mar ch 2001) . A desi gner s concur r ent dut y
i n negl i gence, t o i t s cl i ent , was hel d t o ext end onl y t o avoi di ng
damage t o per sons or ot her pr oper t y, not t o def ect s i n t he pr oper t y
desi gned. Ther e was no sust ai nabl e di f f er ence bet ween bui l der s and
desi gner s i n t hi s r espect and, i n Mur phy v. Br ent wood i t had been
deci ded t hat , as a mat t er of pol i cy, bui l der s shoul d not be l i abl e i n
negl i gence f or def ect s i n t he t hi ngs t hey const r uct ed

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and the allocation of risk. Consider British Telecommunications Plc v. James
Thompson, [1999] BLR 35 (HL);
62
Smith v. Eric Bush [1990] 1 AC 831 (HL).
63

Statute of limitations
The availability of a remedy in the tort of negligence will be statute barred if a claim is not
brought within the periods allowed by the Limitation Act 1980, as amended by the Latent
Damage Act 1986. In addition to the normal 6 years from cause of action, a claim may be
brought within 3 years of, to paraphrase, reasonable discoverability;
64
provided that, in

62
British Telecommunications ( Empl oyer sought t o sue domest i c sub-
cont r act or ) Hel d by t he Scot t i sh cour t t hat i t was not j ust and
r easonabl e t o al l ow empl oyer t o sue t he domest i c wher e t he empl oyer
had an i nsur ance obl i gat i on f or t he ki nd of har m suf f er ed under t he
mai n cont r act . Rever sed by HL ( not e empl oyer i nsur ed t he r i sk of such
an occur r ence, but domest i c subcont r act or was not wi t hi n t he ambi t of
t he j oi nt names pol i cy) . See al so, National Trust v. Haden Young Ltd
( 1994) 77 Bui l d LR 1 ( CA) . I nsur ance pr ovi si ons i n MW80 di d not
al l ocat e r i sk so coul d sue subcont r act or i n negl i gence wher e i t had
set f i r e t o t he exi st i ng pr emi ses. Consi der Co-op Retail Services v.
Taylor Young [ 2002] BLR 64. The obl i gat i on t o i ncl ude a per son wi t hi n
a j oi nt names pol i cy appear s t o al l ocat e r i sk f or t hat per son s
def aul t t o t he i nsur i ng par t y.
63
Smith Rel i ance by P on D s ( val uer t o Mor t gage Company) exper t i se
despi t e excl usi on cl ause i n D s cont r act wi t h Mor t gage Company and
Mor t gage Company not bei ng l i abl e t o P. Despi t e cl ause, r el i ance and
r easonabl eness of r el i ance, so pr oxi mat e r el at i onshi p and a dut y of
car e owed.

64
Section 14A: Reasonable discoverability:
" ( 5) For t he pur poses of t hi s sect i on, t he st ar t i ng dat e f or r eckoni ng
t he per i od of l i mi t at i on under subsect i on ( 4) ( b) above [ t he t hr ee year
per i od f r om r easonabl e di scover abi l i t y] i s t he ear l i est dat e on
whi ch t he pl ai nt i f f or any per son i n whom t he cause of act i on was
vest ed bef or e hi m f i r st had bot h t he knowl edge r equi r ed f or br i ngi ng
an act i on f or damages i n r espect of t he r el evant damage and a r i ght t o
br i ng such an act i on.
( 6) I n subsect i on ( 5) above " t he knowl edge r equi r ed f or br i ngi ng an
act i on f or damages i n r espect of t he r el evant damage" means knowl edge
bot h - ( a) of t he mat er i al f act s about t he damage i n r espect of whi ch
damages ar e cl ai med; and ( b) of t he ot her f act s r el evant t o t he
cur r ent act i on ment i oned i n subsect i on ( 8) bel ow.
( 7) For t he pur poses of subsect i on ( 6) ( a) above, t he mat er i al f act s
about t he damage ar e such f act s about t he damage as woul d l ead a
r easonabl e per son who had suf f er ed such damage t o consi der i t
suf f i ci ent l y ser i ous t o j ust i f y hi s i nst i t ut i ng pr oceedi ngs f or
damages agai nst a def endant who di d not di sput e l i abi l i t y and was abl e
t o sat i sf y a j udgment .
( 8) The ot her f act s r ef er r ed t o i n subsect i on ( 6) ( b) above ar e - ( a)
t hat t he damage was at t r i but abl e i n whol e or i n par t t o t he act or
omi ssi on whi ch i s al l eged t o const i t ut e negl i gence;
( 9) Knowl edge t hat any act s or omi ssi ons di d or di d not , as a mat t er
of l aw, i nvol ve negl i gence i s i r r el evant f or t he pur poses of
subsect i on ( 5) above.
( 10) For t he pur poses of t hi s sect i on a per son s knowl edge i ncl udes
knowl edge whi ch he mi ght r easonabl y have been expect ed t o acqui r e- ( a)
f r om f act s obser vabl e or ascer t ai nabl e by hi m; or ( b) f r om f act s
ascer t ai nabl e by hi m wi t h t he hel p of appr opr i at e exper t advi ce whi ch
i t i s r easonabl e f or hi mt o seek;

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either case, claims cannot be brought more than 15 years after the date of the act or
omission complained of (the long stop). The test for reasonable discoverability is not at
all clear: See Harris Springs v. Howes [2008] BLR 229 (TCC) and commentary.

The facts of Pirelli General Cable Works Ltd. v. Oscar Faber & Partners [1983] 2 AC 1
(HL) illustrate how these rules might work in practise, but the decision in that case, as to
when damage occurs, is problematic because it would now be characterised as an
economic loss case and was not followed by the Privy Council; Invercargill CC v.
Hamlin [1996] 2 WLR 367 (PC).
65
See the discussion in Abott v. Will Gannon [2005]
BLR 195 (CA).
66

Statutory transfer or causes of action in negligence
Note, s. 3 of the Latent Damage Act 1986. Where a cause of action in negligence has
accrued to a person in respect of damage to property, and another person acquires an
interest in that property before the material facts about the damage have become known
to a person with any interest in that property, a fresh cause or action accrues to that other
person on the date he acquires his interest. This provision was considered in Payne v.
J ohn Setchell [2002] BLR 489.
67

but a per son shal l not be t aken by vi r t ue of t hi s subsect i on t o have
knowl edge of a f act ascer t ai nabl e onl y wi t h t he hel p of exper t advi ce
so l ong as he has t aken al l r easonabl e st eps t o obt ai n ( and, wher e
appr opr i at e, t o act on) t hat advi ce. "

The l eadi ng case on t hi s i s Hawar d v. Fawcet t s [ 2006] 1 WLR 682 ( HL)

65
Pirrelli: ( Not e f i r st i nst ance j udge s f i ndi ng t hat appel l ant s had
been negl i gent i s passi ng t he desi gn of t he chi mney was not
chal l enged) . Cause of act i on i n t or t f or negl i gence desi gn or
const r uct i on of a bui l di ng accr ues when damage came i nt o exi st ence,
her e when cr acki ng occur r ed i n t he chi mney, not when i t was di scover ed
or shoul d wi t h r easonabl e di l i gence have been di scover ed ( but what i f
a pur e economi c l oss cl ai m, as suggest ed i n Mur phy) . Invercargill: PC
accept ed t hat i n NZ l ocal aut hor i t i es di d have a dut y t o t ake
r easonabl e car e dur i ng t hei r i nspect i on of new dwel l i ngs. I n t he
par t i cul ar cont ext of l at ent damage t o a bui l di ng, t he pl ai nt i f f s
cl ai m was f or economi c l oss, not physi cal damage, Such l oss onl y
occur r ed when t he mar ket val ue of t he house was depr eci at ed by r eason
of t he def ect i ve f oundat i on havi ng been di ssever ed. The measur e of
l oss bei ng cost of r epai r , i f r easonabl e t o r epai r , or depr eci at i on i n
mar ket val ue, i f not . Pi r el l i was doubt ed.
66
Abott: Al t hough concer ned wi t h whet her Pi r el l i was cor r ect , CA
r egar ded i t as bi ndi ng, and di d not have t o consi der whet her t he cl ai m
was a physi cal damage or an pur e economi c l oss cl ai m. Thus, hel d t hat
t he cause of act i on accr ued, i n r egar d t o negl i gent st r uct ur al advi ce
and desi gn, when cr acks occur r ed i n t he bay wi ndow bui l t i n accor dance
wi t h t hat advi ce/ desi gn. CA sai d, obiter, t hat even i f I nver car gi l l
was appl i ed, " and t he cl ai mant s' cause of act i on accr ued at t he t i me
t hey suf f er ed economi c l oss, I do not accept Mr Hol wi l l ' s submi ssi on
t hat t hi s occur r ed i n Mar ch 1997. The def ect i ve desi gn had not caused
any l oss at t hat t i me. I t woul d onl y do so when i t mani f est ed i t sel f
i n some way whi ch woul d af f ect t he val ue of t he bui l di ng, measur ed
ei t her by t he cost of r epai r s or depr eci at i on i n mar ket val ue. "
67
Payne: The j udge doubt ed t hat a cause of act i on f or pur e economi c l oss
coul d t r ansf er under t hi s pr ovi si on, si nce i t was not a cl ai m f or
damage t o pr oper t y.

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3. Liabilities in nuisance
Building operations inevitably cause some inconvenience to neighbours, but will not
amount to a nuisance in law provided they are reasonably carried out and all proper and
reasonable steps are taken to ensure that no undue inconvenience is caused to
neighbours, for instance, by noise and dust. This qualification to the normal principles
of nuisance does not apply if reasonably foreseeable physical damage is caused to
neighbouring property or reasonably foreseeable interference with their property rights
(such as easements).

Construction operations that cause material damage to other property, Midland Bank
Plc. v. Bargrove Property Services (1992) 60 BLR 1,
68
or that interfere with natural
rights of support for adjoining land, or with the property rights of adjoining owners,
such as rights of light, rights of way, or rights of support, will be actionable in
nuisance.

In most cases, a claim can be made both against the employer and the contractor. An
injunction as well as damages can be claimed.

4. Liabilities in trespass
Where building operations intrude onto or over other land, those responsible will be
liable in trespass to the owner of that land. An injunction as well as damages can be
claimed. But note, as regards the maintenance of property from adjacent land, the
provisions of the Access to Neighbouring Land Act 1992 and, as regards work on party
walls, the provisions of the Party Wall, etc Act 1996.

5. The Defective Premises Act 1972
There is under this Act a statutory duty, actionable in damages, to see that work taken in
connection with the provision of (including conversion to) a dwelling is done in a
workmanlike manner or a professional manner, as appropriate, with proper materials and
so that as regards that work the building will be fit for habitation when completed. The
duty is owed by a person who takes on such work for example, developers, suppliers of
goods, local authorities and possibly DIY enthusiasts. If engaged in the business of
undertaking that work the duty encompasses the work of sub-contractors engaged by that
person. The duty is owned to the person commissioning the works and to any person
who acquires an interest (legal or equitable) in the dwelling.

The scope of the Act is narrow. "Provision of a dwelling" does not encompass
rectification works to an existing dwelling, Andrews v Schooling [1993] 1 All ER 723
(CA). Also, the gist of the action is unfitness for habitation at date of completion,
Thompson v. Clive Alexander and Partners (1992) CILL 755. There is a limited defence
for those who follow instructions.

68
Midland Bank: Def ect i ve r et ai ni ng wal l const r uct ed by D on i t s l and.
Woul d cause l oss of suppor t i n due cour se, P t ook mat t er i nt o own
hands, r epai r ed. No physi cal damage. No r ecover y. Shoul d have
appl i ed f or qui timet i nj unct i on. But i t may be necessar y t o show
act ual danger , not j ust a r easonabl e per cept i on of danger t o succeed,
Bi r mi nghamv. Tyl er [ 2008] BLR 445 ( CA) .

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The limitation period is six years from the date the dwelling was completed or, in the
case of further work carried out by a person to rectify his earlier work, six yeas from the
time that work is finished (s. 1(5)); see Avirl Alderson v. Beetham Organisation [2003]
BLR 217 (CA).
69

___________________________

69
Avril: Beet ham t he devel oper conver t ed pr emi ses t o dwel l i ngs. Wor k
done def ect i vel y. Damp due t o i nadequat e damp- pr oof i ng so
uni nhabi t abl e on compl et i on, but t hat mor e t han 6 year s bef or e cl ai m
br ought . Beet ham al so car r i ed out r emedi al wor k i n a good and
wor kmanl i ke manner but because of mi s- di agnosi s of t he pr obl emdi d not
cur e t he damp. Thi s wor k compl et ed l ess t han 6 year s bef or e t he
act i on. Hel d t hat t he i nt ent i on of Par l i ament was t o gi ve a f r esh
cause of act i on t o pr ovi de a dwel l i ng f i t f or habi t at i on i f t he
f ur t her wor k di d not r ect i f y t he or i gi nal wor k as i nt ended. No doubt
t he f ur t her act i on i s onl y i n r espect of t he f ur t her wor k, but t hat
wor k i s f or t he pur pose of r ect i f yi ng t he or i gi nal wor k. Thus damages
wer e based f or t he f ai l ur e t o r ect i f y t he or i gi nal wor k.

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SESSION 3: CONSTRUCTION DISPUTES AND THEIR RESOLUTION

Peter Aeberli

SECTION A: TYPES OF CONSTRUCTION DISPUTE

Construction disputes generally concern claims for payment, claims for loss and
expense caused by delays or disruption during design and/or construction, or claims for
damages due to defects in the completed works, sometimes all of these.

1. Claims for payment
Apart from the action in debt, the common law provides little in the way of remedies
for non-payment of amounts due under a construction contract or professional services
agreement. Failure to pay, unless persistent is not, generally, a repudiatory breach,
justifying termination of the contract by the other party.

The position is now modified by Part II of the Housing Grants, etc. Act 1996 which
provides that a party to a construction contract who is not paid sums due to it by the
final date for payment of those sums can, on seven days notice suspend its obligations
under the contract until such time as it is paid. The act also invalidates pay when pay
clauses other than in cases of insolvency.

Abatement, set-off and counterclaim
Claims for payment are often resisted on the basis that the services or work provided
was defective or that the party seeking payment is, itself, in breach some other
obligation under the contract. Such allegations can amount to an abatement, a set off
and/or a counterclaim.

The difference between these concepts has its roots in pre 1875 J udicature Act
procedure. Put briefly:

- An abatement is an allegation that, because of defects, the services or work
supplied are not worth the contract price and that, in consequence, less, or
nothing should be payable for those services. Loss caused by delay in the work
does not amount to an abatement, consider Mellows v. Bell Projects (1998) 87
Build LR 26.

- A set off is an allegation that the claimant is itself in breach of some obligation
under the contract, causing damage to the defendant, and that it is only just that
in equity both the claimants and the defendants cross-claim should be
considered in the same proceedings, their being one judgement to the net winner,
see Hanak v. Green [1958] 2 QB 9.

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- A counter-claim is an allegation that the claimant is in breach of some obligation
to the defendant that can, under the rules of court, be brought in the same
proceedings as the claimants claim. Many counterclaims can be relied on as a
set-off or abatement. But this is not always the case. For example a claim under
a separate contract with the claimant, or an allegation of breach of contract relied
on to resist a claim on a cheque, do not give rise to a set off.

Statutory controls over counterclaims
If Part II of the Housing Grants, etc Act 1996 applies to the relevant contract,
70
the
right to resist claims for payment by consultants or contractors by relying on
counterclaim, set-off or, possibly, abatement is severely curtailed. The allegations
relied on to resist payment must have been the subject of a notice of withholding
issued within the contractual or statutory period for issuing such notices. If not, the
claimant will be entitled to summary judgement on his claim, and the respondents
allegations will be sent for trial or arbitration, as the case may be.
71

2. Delay claims (time) and disruption and prolongation claims (money)
It is important to distinguish between the time and the money consequence of delay and
disruption claims.

Practical completion and substantial completion
Certain contracts, principally JCT Standard Forms, refer to Practical Completion. For a
consideration of what this means see, for example Jarvis v. Westminster Corporation
[1970] 1 WLR 637; Kaye v. Hosier & Dickinson [1972] 1 WLR 146, 165.
72
Other
contracts (eg ICE Standard Forms) adopt a more flexible concept of what is necessary to
achieve competition. See also the common law concept of substantial completion; Hoenig
v. Isaccs [1952] 2All ER 176 (CA).
73

70
Sect i on 104( 1) : A const r uct i on cont r act i s an agr eement wi t h a per son
f or any of t he f ol l owi ng: ( a) The car r yi ng out of const r uct i on
oper at i ons; ( b) Ar r angi ng f or t he car r yi ng out of const r uct i on
oper at i ons by ot her s, whet her by subcont r act t o hi mor ot her wi se; ( c)
Pr ovi di ng hi s own l abour , or t he l abour of ot her s, f or t he car r yi ng
out of const r uct i on oper at i ons. Const r uct i on oper at i ons ar e def i ned
i n s. 105. The cont r act must al so be i n wr i t i ng, s. 107, and must not
pr i nci pal l y r el at es t o oper at i ons on a dwel l i ng ( a house or f l at ) t hat
one of t he par t i es occupi es or i nt ends t o occupy as hi s r esi dence.
71
See al so common l aw posi t i on. Cl ear wor ds needed t o excl ude r emedi es,
Gi l ber t Ash ( Nor t her n) Lt d v. Moder n Engi neer i ng ( Br i st ol ) Lt d ( 1972)
1 Bui l d LR 73.
72
Jarvis Pr obabl y can be pr act i cal l y compl et e despi t e l at ent def ect s.
But not i f pat ent def ect s, gi ven t he pur pose of t he mai nt enance per i od
( subst ant i al per f or mance concept di spl aced?) . Al l t he const r uct i on
wor k t o be done must be done. Now J CT st andar d f or m cont act s al so
make a l i nk bet ween Pr act i cal Compl et i on and t he pr ovi si on of
i nf or mat i on f or t he heal t h and saf et y f i l e.
73
Hoenig: I n t he case of an ent i r e cont r act , t he cont act or i s ent i t l ed
t o payment wher e t he wor k i s subst ant i al l y f i ni shed, even i f def ect i ve
( i ncl udi ng i ncompl et e) i n cer t ai n r espect s, an abat ement of t he pr i ce
bei ng al l owed f or t he def ect s. One t est i s t o ask whet her t he wor k i s
ef f ect i ve f or i t s pr i mar y pur pose. I f not , i t i s not subst ant i al l y
compl et e?

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Delay claims
A delay claim is ordinarily a claim for more time to complete, brought under the express
terms of the contract. The contention is that because of delays caused by events which
entitle the contractor to more time under the contract (generally events for which the
employer is responsible, but other neutral events may be included, the completion date
of the contract should be extended.

Concurrent delays (one compensatable the other not) can cause problems. The general
principle is that in such as case the contractor gets time, thus relief from liquidated
damages, but not money, but note City Inn v. Shepherd Construction [2008] BLR 269
(OHCS, Scotland) where it was held that these ridged principles of causation were
disposed by the express wording of the (J CT) contract which, in the case of extensions of
time, required them to be fair and reasonable (it is doubtful if this reflects the law of
England and Wales).

In the absence of a contractual mechanism to extend time, a contractor may be able to
resist a claim for damages for late completion on the grounds that, because of acts or
omissions for which the employer is responsible, it was prevented from completing its
works by the completion date; Multiplex Construction v. Honeywell Control Systems
[2007] BLR 195.
74
If such an argument succeeds, the employer cannot rely on the
contract completion date as founding a claim in damages. Instead the contractor has a
reasonable period to complete its work, and is only in breach of contract if that period
expires without the works being completed.

A good review of some of the problems associated with delay claims is found in Balfour
Beatty v. Chestermount Properties (1993) Build LR 1.
75
See also the Society of
Construction Law Delay and Disruption Protocol.

Making time of the essence
For a consideration of the problems that arise where there is no fixed (and extendible)
time to complete; see Sawton Engineering v. DGP International [2006] BLR 1 (CA).
76
A
notice making time of the essence can only be issued if there is a breach at that time; the

74
Mul t i pl ex: The act s or omi ssi ons need not be def aul t s, t he pr i nci pl e
appl i es t o l egi t i mat e act s as wel l , but i n ei t her case i t must be
shown t hat t hey pr event ed compl et i on on t he due dat e. The cour t al so
sai d t hat ambi gui t i es i n an ext ensi on of t i me cl ause shoul d be
r esol ved i n f avour of i t al l owi ng l egi t i mat e ext ensi ons of t i me and
suggest ed t hat l oss of an ent i t l ement t o mor e t i me t hr ough non-
compl i ance wi t h t i me l i mi t s f or maki ng a cl ai m di d not put t i me at
l ar ge.
75
Balfour Beatty: The pr obl ems di scussed concer n t he ef f ect of act s of
pr event i on not encompassed by an ext ensi on of t i me cl ause, on t he
cont r act dat e f or compl et i on ( t i me at l ar ge) . How r el evant event s
occur r i ng dur i ng a per i od of cul pabl e del ay shoul d be deal t wi t h ( t he
net ext ensi on met hod) . The i ssue i s how many days shoul d be added t o
t he compl et i on dat e, not by what dat e shoul d t he cont r act or have
compl et ed. Concur r ent causes ( r el evant and i r r el evant ) can al so be a
pr obl em. The bet t er vi ew i s t hat t he cont r act or get s an ext ensi on,
but no pr ol ongat i on cost s. I t s al l t o do wi t h bur den of pr oof .
76
Sawton: t he or i gi nal l y agr eed f i xed per i od, wor k cont ent , var i at i ons,
al l ar e r el evant i n deci di ng what a r easonabl e per i od i s.

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contractor can only be legitimately determined for delay if such a notice period has
elapsed or if the contractors failure to complete within a reasonable period of time was a
fundamental breach. To establish what a reasonable time was, it is necessary to consider
at the time that the question arose, all the relevant circumstances.

Condition precedents and delay claims
It is common for extension of time machinery in contracts to include provision for
contractor to give notice of delays. If expressed as a condition precedent to an
entitlement to more time, the question arises whether failure to give the notice in respect
of an employer fault event puts time at large under the prevention principle. This was
accepted in Australia in Gaymark v. Walter Construction [1999] NTSC 143 (NSW) but
was doubted by Jackson J in Multiplex v. Honeywell [2007] EWHC 447 (TCC).

Disruption and prolongation claims
If a consultant or contractor is disrupted in carrying out its works, this may give rise to a
claim either in damages, if a breach of contract can be shown, or for a contractual
payment, if the reasons for the disruption are matters that give rise to such an entitlement.
Where the disruption delays the completion of the work in question, such a claim is often
referred to as a prolongation claim.

A prolongation claim can also provide a consultant or contractor with a defence to a
claim against it for damages for delayed completion of its work. This defence will be
based either on the grounds that the contract provides for an extension to the contract
period in such circumstances (an extension of time claim) or, if it does not, that the
defendant has been prevented from completing by the contractual date because of
circumstances for which the claimant is responsible and, thus, it is entitled to a
reasonable time to complete its works. This is sometimes referred to as time being at
large.

Because of the possibility that a number of different occurrences will be responsible for
any delay or disruption alleged, including the inefficiencies of the person carrying out the
works in question, it can be extremely difficult to prove causation and damage by linking
a particular occurrence with particular financial and time consequences. In consequence
global claims are common are common, see discussion in British Airways v. McAlpine
(1994) 72 Build LR 26.
77
See also the discussion of such claims in John Doyle v. Laing
Management [2002] BLR 393 (Scotland).
78

77
British Airways The appr oach of seeki ng t o f or ce a par t y t o
i ndi vi dual i se occur r ence and damage was r ej ect ed. A gl obal cl ai m can
be advanced. The pr obl emi s al so di scussed i n Mer t on v. Leach ( 1985)
32 Bui l d LR 51. What i s al l eged i n a gl obal cl ai m i s t hat t he wor k
ought r easonabl y t o have cost x. I n f act i t cost y. The onl y
expl anat i on f or t he di f f er ence i s t he occur r ences r el i ed on by t he
Cl ai mant . Such a cl ai m can be at t acked by showi ng t hat t he pr emi ses
ar e not cor r ect or t hat t her e wer e ot her occur r ences whi ch coul d have
r esul t ed i n t he cost over r un or , usual l y f ol l owi ng cr oss- exami nat i on,
t hat t her e i s no evi dence t hat any of t he mat t er s r el i ed on had any
cost consequences.
78
John Doyle: Gl obal cl ai ms coul d be def eat ed by showi ng t hat an event
f or whi ch t he def endant was not r esponsi bl e pl ayed a par t i n causi ng
t he gl obal l oss or made a mat er i al cont r i but i on t o t he gl obal l oss.
But f ai l ur e of t he gl obal cl ai mdi d not necessar i l y mean t hat no cl ai m

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These difficulties are compounded in multi-party cases where it is sought to establish that
failures by one party, usually a consultant, are responsible for the claimant having to
make payments to another party, usually a contractor.

3. Defects in the services or the works
The usual principles of causation and remoteness of damage, together with the usual
defences, apply.

In the case of defects occurring during the course of construction, Kay & Hosier v.
Dickenson [1972] 1 WLR 146 (HL), Lord Diplock, 165 provides support for a
temporary disconformity theory, that there is no breach until completion. The
argument being that it is unrealistic and unfair to treat every disconformity, however,
short lived-as a breach of contract potentially sounding in damages. The scope of this
doctrine is, however, somewhat unclear. It was not accepted to be of universal
application by Roskill LJ in Lintest Builders. v. Roberts [1980] 13 BLR 38. Also, in
many cases, the obligation is to carry out as well as to complete the works in
accordance with the stated standards: Nene Housing Society v. National Westminster
Bank [1980] 16 BLR 22 (TCC).

But note Shawton Engineering v. DGP [2006] BLR 1: Where time is not of the
essence and where the party said to be in breach by delay is nevertheless making an
effort to perform the contract, it is intrinsically difficult for the other party to establish a
fundamental breach. Although not referred to this suggests some sympathy for the
temporary disconformity doctrine.

Also note, ANM Group v. Gilcomston [2008] BLR 481 (OHCS, Scotland) where the
this doctrine was applied to postpone the commencement of the limitation period for a
claim against a contractor to the date of the final certificate (probably not good law in
England).

Loss and damage
The ordinary measure of loss is cost of rectification but damages may also be recoverable
for inconvenience and discomfort, but seldom distress. In cases, usually concerning
subjective of aesthetic complaints, where the court is satisfied that the contract has been
performed to a substantial extent, it may consider that the cost of rectification is wholly
disproportionate and, if diminution in value cannot be shown, award damages on a loss of
amenity measure, not cost of rectification; Ruxley Electronics v. Forsyth [1995] 3 WLR
118 (HL).

Mitigation and betterment
The claimant must mitigate its loss and failure to exercise a contractual remedy may
affect the level of damages as in Pearce v. Baxter [1999] BLR 101 (CA).
79

woul d succeed because t her e may be suf f i ci ent evi dence t o appor t i on
i ndi vi dual l osses t o i ndi vi dual event s f or whi ch t he def endant was
r esponsi bl e. Fur t her mor e, i n consi der i ng causat i on a common sense
vi ew had t o be t aken.
79
Pearce A r ef usal t o al l ow cont r act or t o r emedy def ect s or t o gi ve
i nst r uct i on t o do so, r est r i ct s damages t o cost cont r act or woul d have

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Alternative quotations for any remedial work are desirable. Betterment issues can also
arise, and credit may have to be given if the original cost of construction, to the client,
would have been higher had the design not been defective. In consequence, full
records should be kept of the condition of the premises before any remedial work is
done and of the work itself and the steps taken to ensure that it was reasonable in the
circumstances.
80

Proving a loss without property
Problems can arise where the employer either does not have, or sells its interest in the
land where the project is being constructed, particularly if there is a prohibition on
assignment in the relevant contracts. Consider Linden Garden Trust v. Lenesta Sludge
Disposals [1994] 1 AC 85 (HL);
81
Darlington BC v. Wiltshire Northern. (1994) 69 Build
LR 1 (CA);
82
Alfred McAlpine v. Panatown [2000] BLR 331 (HL).
83

i ncur r ed i n r emedyi ng t hem. Not e di f f er ent r el at i onshi p bet ween
compl et i on and mai nt enance per i od i n J CT cont r act s and I CE cont r act s.
80
Skandia Property v. Thames Water [ 1999] BLR 338 ( CA) , i f wor k beyond
r ei nst at ement under t aken, must be r easonabl e and f ol l ow pr oper advi ce.
Her e r epl acement of f ul l wat er pr oof i ng syst em not r ecover abl e, no
pr oper i nvest i gat i ons car r i ed out .
81
Linden Gardens Cont r act ual bar on assi gnment wi t hout consent , val i d,
assi gnment voi d as bet ween or i gi nal cont r act par t i es. I n t he McAlpine
case, br each and damage occur r ed af t er t he empl oyer , St Mar t i n, had
sol d t he pr oper t y and pur por t ed t o gi ve assi gnment . Hel d: St Mar t i n
coul d r ecover r eal damages, even t hough no pr oper t y i nt er est at dat e
of br each si nce knew at t i me of cont r act f or mat i on was goi ng t o be
occupi ed, possi bl y pur chased by t hi r d par t i es, not by St Mar t i n, and
no aut omat i c acqui si t i on of r i ght s agai nst pur chaser on acqui si t i on,
t he Al bazer o [ 1977] AC 744, pr i nci pl e appl i ed.
82
Darlington: Dar l i ngt on agr eed wi t h Mor gan Gr enf el l , who di d not own
pr oper t y, t hat l at t er woul d be empl oyer under bui l di ng cont r act f or
const r uct i on of t he Dol phi n Cent r e, Wi l t shi r e was t he cont r act or . At
t he end of const r uct i on, r i ght s under t he cont r act s wer e t o be
assi gned t o Dar l i ngt on. Af t er compl et i on def ect s emer ged, t he r i ght s
wer e assi gned t o Dar l i ngt on. Di d Dar l i ngt on have a cl ai m f or r eal
damages? Yes appl yi ng t he St Mar t i ns ( Al bazar o) pr i nci pl e ( whi ch
doesn' t r eal l y wor k si nce Mor gan Gr enf el l never had pr oper t y) . The
cour t al so di scussed t he possi bi l i t y of Mor gan Gr enf el l havi ng a
per f or mance i nt er est , whi ch coul d be compensat ed.
83
Panatown Empl oyer di d not own l and on whi ch bui l di ng t o be const r uct ed
and no i nt er est i n t hat l and ( di f f er ent compani es i n t he same gr oup) .
Bui l di ng al l eged t o be def ect i ve: coul d empl oyer r ecover subst ant i al
damages? Di scussi on of t he nar r ow gr ound of l i abi l i t y ( Al bazer o
pr i nci pl e under whi ch t he consi gnee s l oss i s at t r i but ed t o t he
consi gnor wher e i t i s i n t he cont empl at i on of t he cont r act i ng par t i es
t hat pr oper t y woul d pass f r om t he consi gnor af t er cont r act f or mat i on
i n ci r cumst ances wher e t he consi gnee woul d not have di r ect r i ght s
agai nst t he shi p- owner . The consi gnor i s t r eat ed as havi ng cont r act ed
on behal f of t hose who wi l l acqui r e an i nt er est . The consi gnor must
account t o such per sons f or t he damages r ecover ed) . Al so a br oad
gr ound of l i abi l i t y was i dent i f i ed ( t he per f or mance i nt er est ) . Thi s
was t hat a per son who engaged per son t o pr ovi de wor k and mat er i al s and
di d not r ecei ve t he cont r act ed f or per f or mance suf f er ed a l oss, at
l east wher e i nt ended t o pay f or t he r emedi al wor ks. Consi der at i on of
whet her t he dut y of car e agr eement by cont r act or t o t he l and owner

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4. Tax and VAT considerations
The incidence of tax and VAT should not be overlooked in deciding what amounts are
to be claimed in debt or damages.

5. Problems with multi-party proceedings
Two problems are frequently encountered in multi party proceedings. The first
concerns the status of compromises between two parties in proceedings between one of
those parties and a third party. The second concerns the availability or otherwise of
rights of contribution under the Civil Liability (Contribution) Act 1978.

Settlement
A settlement between two parties is, under the principle in Biggin v. Permanite [1951]
2 KB 314 (CA), generally admissible as evidence as to the quantum of the claim in
proceedings between one of those parties and a third party, and may be relevant as the
measure of loss under the second limb of Hadley v. Baxendale.
84

Note Lubermans Mutual v. Bovis [2004] EWHC 2197 (Comm.),
85
where, because of
the absence of any method of calculation in a global settlement, Bovis was unable to

af f ect ed t hese pr i nci pl es. Yes, because nei t her pr i nci pl e appl i ed
wher e t he par t i es cont empl at ed a di r ect cl ai m bet ween l andowner and
cont r act or .
84
The set t l ement i s not evi dence as t o l i abi l i t y see Biggin v. Permanite
[ 1951] 2 KB 314 ( CA) , di scussed i n P&O Developments v. Guys & St
Thomass NHST [ 1999] BLR 2. Ther e can be pr obl ems wi t h appor t i oni ng
t he set t l ement bet ween t he var i ous def endant s i f t he set t l ement i s not
appor t i onabl e bet ween t hem; Brompton v. Hammond and Lerche [ 1999] BLR
162.
85
Lubermans: Bovi s was empl oyed as cont r act or by Br aehead t o const r uct a
r et ai l and l ei sur e cent r e. Di sput es ar ose. Bovi s cl ai med some 37
mi l l i on as due f r om Br aehead. Br aehead count er cl ai med f or damages of
bet ween 75 and 103 mi l l i on f or al l eged mi smanagement of t he pr oj ect ,
def ect i ve wor k and l i qui dat ed damages. The di sput es wer e set t l ed by an
agr eement under whi ch Br aehead pai d 15 mi l l i on t o Bovi s. The met hod
of cal cul at i on of t hat gl obal sum was not i dent i f i ed. Bovi s was
i nsur ed by Luber mans under a const r uct i on, engi neer i ng and desi gn
pr of essi onal l i abi l i t y pol i cy and a commer ci al excess l i abi l i t y
pol i cy. Bovi s cl ai med 19 mi l l i on f r om Luber mans on t he basi s t hat
t hi s was t he amount of Br aehead' s val i d count er cl ai m and t hat t he 15
mi l l i on payment was t he r esul t of set t i ng of f 19 mi l l i on due t o
Br aehead agai nst Bovi s s ent i t l ement t o 32 mi l l i on and cost s f r om
Br aehead. Hel d: ( 1) I t was an i mpl i ed t er m of a cont r act of
i ndemni t y i n t he f or m of a l i abi l i t y pol i cy t hat i t was an essent i al
el ement of t he i nsur ed' s cause of act i on t hat hi s l oss had been
speci f i cal l y ascer t ai ned by means of a j udgment , ar bi t r at i on awar d or
set t l ement agr eement . ( 2) I n l aw, an i nsur ed who r el i ed on a
set t l ement as a means of ascer t ai nment had t o pr ove by ext r i nsi c
evi dence t hat he was i n t r ut h under a l i abi l i t y i nsur ed by t he pol i cy
and t hat what he pai d by way of set t l ement of t hat l i abi l i t y was
r easonabl e. Ther ef or e a set t l ement agr eement def i ci ent i n not
i dent i f yi ng t he l oss suf f er ed speci f i cal l y by r ef er ence t o t he i nsur ed
l i abi l i t y coul d not amount t o a val i d ascer t ai nment . The cour t coul d
not open up a gl obal set t l ement and eval uat e f or r easonabl eness t he
i nsur ed' s own assessment s of t he amount s al l ocat ed t o each cl ai m
agai nst t he i nsur ed. I f t he agr eement di d not speci f i cal l y i dent i f y
t he cost t o t he i nsur ed of di schar ge of t he cl ai mor cl ai ms sai d t o be

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recover from its insurers in respect of what it said were sums allowed in that settlement
in respect of employers claims against it which were encompassed by the policy.

Contribution
Contribution is only recoverable between those responsible to the same person for the
same damage; consider BICC Ltd v. Parkinson [2002] BLR 64
86
(CA). In the matrix of
liabilities that occur in complex construction projects, this may not always be easy to
establish.

- There must be a basis of liability, Co-operative Retail Services v. Taylor Young
[2002] 1 WLR 1419 (HL).
87

- Liability must be for the same damage; Royal Brompton Hospital v. Hammond
[2002] 1 WLR 1397 (HL).
88

- Liability must be owed to the same person; Birse Construction v. Haste (1996) 1
WLR 675 (CA).
89

6. Contractual remedies and procedures
In addition to a partys common law rights, contracts used in the construction industry,
particularly standard form construction contracts, often provide for express rights,
either in addition to or in substitution for common law rights.

wi t hi n t he scope of t he cover , t he ascer t ai nment of t he r el evant l oss
t o t he assur ed coul d not be suppl i ed by ext r i nsi c evi dence whet her
obj ect i vel y or subj ect i vel y eval uat ed. Accor di ngl y t he gl obal
set t l ement agr eement i n t he i nst ant case di d not sat i sf y t he
r equi r ement of ascer t ai nment of l oss under t he l i abi l i t y i nsur ance
pol i ci es si nce i t di d not i mpose on t he i nsur ed any i dent i f i abl e l oss
i n r espect of any i dent i f i abl e i nsur ed event ual i t y. That concl usi on
was not cont r ar y t o t he publ i c pol i cy of encour agi ng set t l ement of
cl ai ms.
86
BICC: Def ect s i n cont ai nment bund t o cont ami nat ed soi l , l eadi ng t o
cont i nui ng wat er i ngr ess. Thi s was caused bot h by desi gn and
const r uct i on. I t was t he same damage f or t he pur pose of t he Act . As
desi gned and const r uct ed, t he bund was i nef f ect i ve t o keep wat er out .
87
Co-operative Services: The i nsur ance pr ovi si ons i n J CT 80 pr ecl uded a
cl ai m i n r espect of f i r e agai nst t he cont r act or and subcont r act or .
Thus t he consul t ant sued by t he empl oyer i n r espect of t he same damage
coul d not br i ng cont r i but i on pr oceedi ngs agai nst t hat cont r act or and
subcont r act or . Not e t he si mi l ar concl usi on r eached i n r espect of I FC
84 i n Scot t i sh & Newcast l e v. GD Const r uct i on [ 2003] BLR 131 ( CA) .
88
Royal Brompton: Cl ai m, i n ar bi t r at i on f or del ay, agai nst TW,
compr omi sed. Cl ai m agai nst consul t ant was f or negl i gent over
cer t i f i cat i on of ext ensi on of t i me. Coul d Consul t ant cl ai m
cont r i but i on f r om TW. Not t he same damage. Basi s of consul t ant s
l i abi l i t y was di mi nut i on of chance of success of r esi st i ng cl ai m by
cont r act or . Basi s of cont r act or s l i abi l i t y was damages f or del ay) .
The same damage di d not i ncl ude damage t hat was not t he same, but
was subst ant i al l y and mat er i al l y si mi l ar .
89
Birse: A subcont r act or sued by a cont r act or i n r espect of a cl ai m by
t he empl oyer f or def ect i ve wor k, was not ent i t l ed t o br i ng
cont r i but i on pr oceedi ngs agai nst t he engi neer al l eged t o be l i abl e t o
t he empl oyer f or t he same damage. The l i abi l i t y was not t o t he same
per son.

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- The right of the employer to carry out work at the contractors expense where the
contractor has failed to carry out such work, despite being instructed to do so
under the contract. Note Bath and North East Somerset DC v. Mowlem [2004]
BLR 153 (CA) where an interim injunction was granted restraining Mowlem
from denying access to the site to a contractor engaged pursuant to such a
provision.

- The right of the employer to deduct or claim damages at an agreed rate (usually
called liquidated and ascertained damages) where the contractor fails to complete
its works within the agreed contract period, including any extensions awarded
under the contract. The agreed rate must be stated in the contract and must be a
genuine estimate of the employers likely loss, not a penalty.

- The right of the contractor to claim extensions to the contract period where
prevented from completing by circumstances outside its control (in more
complex contracts a list of events entitling an extension may be given).

- The right of the contractor to recover payment for instructed variations to its
work in accordance with a pre-determined set of rules (this being one of the
reasons why a bill of quantities or schedule of rates is included in the contract).
90

- The right of the contractor to claim further payments (often referred to as loss
and expense) where disrupted or delayed in carrying out the works because of
matters for which the employer, or those engaged on his behalf, are responsible.

- The right of either party to determine the employment of the contractor where
the other party commits a specified default. In the case of the employer, this
usually includes non-payment or interference in the decisions of the contract
administrator. In the case of the contractor, this usually includes failure to
proceed regularly and diligently with the works or suspending the works without
reason. Unlike termination for repudiatory breach at common law, the contract
continues in existence to determine the parties rights. If a new contractor is
engaged, this will be under a different contract.

- The securing of moneys earned by, but not due to the contractor, such a retention
monies, in trust accounts (this only works if separate accounts are actually set
up).
91

Such provisions may also be found in professional services contracts, but they are
likely to be much more rudimentary and uncertain in scope.

7. Insolvency
Insolvency (corporate) bankruptcy (individuals) are, in most cases, governed by the
Insolvency Acts 1986 and 2000, and the Enterprise Act 2002. When a bankruptcy

90
How i s t he cost of t he var i ed wor k assessed? Thi s i s one of t he
pur poses of i ncl udi ng a bi l l of quant i t i es, see Henry Boot v, Alstom
[ 2000] BLR 247 ( CA)
91
Onl y wor ks i f i n separ at e bank account , el se cannot be t r aced.

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commences (when the bankruptcy order is made) all property belonging to or vested in
the bankrupt vests in the trustee, for distribution between the bankrupts creditors.
There is no automatic vesting of property in the case of a winding up, but the liquidator
takes control or custody of the companys property. In either case the trustee or
liquidator, as the case may be, can disclaim onerous property including unprofitable
contracts.
92

Insolvency also affects proceedings against the insolvent person.

- When a bankruptcy petition is pending or a bankruptcy order made, the court
may stay any proceedings (including arbitration) against the bankrupt and such
proceedings may not per pursued against the bankrupt prior to discharge, other
than with the consent of the court.

- Once a winding up order is made or a provisional liquidator appointed, no action
or proceedings can be proceeded with or commenced against the company or its
property without the leave of the court.

There are similar restrictions on actions and proceedings where an administrative
receiver or administrator is appointed under the Insolvency Acts or the Enterprise Act
but their role is more concerned with continuing or selling the business or its
constituent parts as a going concern. The Enterprise Act favours, and streamlines
administration and restricts administrative receivership, thus reinforcing the rescue
culture.

- Clauses (such as forfeiture clauses) that seek to divest the insolvent party of
rights will be ineffective if they contravene the principles of insolvency law, for
instance if they offend against the pari passu principle, British Eagle v. Air
France [1975] 1 WLR 758, 780 (HL).
93
It does not appear that clauses providing
for or giving a right to determine the contractors employment upon the
insolvency of one of the parties fall foul of this principle.
94

- Clauses that provide that the employer may, in the event of determination, sell
the contractors machinery or materials to recoup its losses are likely to be
regarded as a floating charge on the contractors assets. Such charges must be
registered under s. 395 of the Companies Act 1985 to be effective, in the event of

92
A per son i nt er est ed i n such a cont r act can appl y t o t he
t r ust ee/ l i qui dat or t o r equi r e hi m t o deci de whet her or not he wi l l
di scl ai mwi t hi n 28 days, or such ot her per i od as t he cour t al l ows, i f
t he t r ust ee/ l i qui dat or does not do so, i t i s deemed t o have adopt ed
t he cont r act .
93
Mullan v. Ross and London ( 1996) 86 BLR 1 ( CA, NI ) . Decl ar at i on made
t hat cl ause pr ovi di ng f or payment di r ect l y t o subcont r act or on mai n
cont r act or i nsol vency woul d of f end agai nst t he par i passu pr i nci pl e
enshr i ned i n equi val ent of s. 107 I nsol vency Act 1986.
94
By anal ogy wi t h t he posi t i on i n l andl or d and t enant l aw wher e cl auses
det er mi ni ng l eases on i nsol vency have been hel d t o be ef f ect i ve.

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the contractors insolvency, against the administrator or liquidator; Smith v.
Bridgend CBC [2002] BLR 160 (HL).
95

Upon insolvency, mutual credits, debts and other dealings between the insolvent and its
creditor are ordinarily subject to statutory set off, unless the creditor had notice that a
bankruptcy or winding-up petition was pending at the date the debt became due.

SECTION B: THE FORUM FOR DISPUTE RESOLUTION

1. Arbitration or litigation
Arbitration and litigation are alternatives. Construction litigation is governed by the
Civil Procedure Rules and is generally commenced in the Technology and Construction
Court. There is a Pre-Action Protocol for Engineering and Construction Disputes.
96

Arbitration is governed by the Arbitration Act 1996. But, in many cases will also be
regulated by Arbitration Rules such as the ICE Rules and CIMAR (Construction
Industry Model Arbitration Rules).

Subject to a consumers right to litigate claims below a certain limit (set by reference to
the small claims jurisdiction of the county court, now 5,000) an arbitration clause will
be binding on both parties, unless invalidated by the Unfair Terms in Consumer
Contracts Regulations 1999, such as happened in Zealander v. Laing Homes [2000] 2
TCLR 724.
97
If either seeks to litigate a dispute under the contract containing such a
clause, the other can apply for a mandatory stay of those proceedings (see s. 9 of the
Arbitration Act 1996), thus forcing the dispute to be resolved by arbitration.

Arbitration may be preferable to litigation, particularly in the county court, if the matter
is before a, possibly disinterested, judge with little construction background. It may
also be quicker to bring the matter to a hearing. Furthermore, it is confidential, there
are no restrictions on representation and the proceedings can often be tailored to suit
the needs of the parties. If not properly managed, however, arbitration can be more

95
Smith: I CE 5
t h
Edi t i on pr ovi ded f or t hi s. Si mi l ar pr ovi si ons ar e
f ound i n t he cur r ent edi t i ons.
96
Thi s set s out r equi r ement s f or t he l et t er of cl ai m( bef or e act i on) and
f or t he def endant s r esponse. I n par t i cul ar , j ur i sdi ct i onal
obj ect i ons shoul d be t aken i n t he r esponse, f or i nst ance a cont ent i on
t hat t he mat t er i s gover ned by an ar bi t r at i on cl ause. Ther e i s al so a
r equi r ement f or t he par t i es t o meet bef or e pr oceedi ngs commence t o
agr ee t he mai n i ssues, t he r oot cause of di sagr eement on t hese and t o
consi der how t he mat t er can be r esol ved wi t hout l i t i gat i on or , i f
l i t i gat i on i s unavoi dabl e, how i t can be conduct ed t o compl y wi t h t he
over r i di ng obj ect i ve. I f t her e ar e l i mi t at i on pr obl ems, t he cl ai mcan
be commenced i mmedi at el y but quest i ons about how t he pr ot ocol shoul d
be compl i ed wi t h br ought bef or e t he cour t . The pr ot ocol does not
appl y t o pr oceedi ngs f or t he enf or cement of adj udi cat or s deci si ons,
f or i nj unct i ve r el i ef , f or summar y j udgement or wher e t he mat t er s at
i ssue have been adj udi cat ed.
97
Zealander: The NHBC ar bi t r at i on agr eement was i nval i dat ed because i t
woul d have f or ced t he cl ai mant / consumer t o l i t i gat e par t of i t s cl ai m,
ar bi t r at e t he r est and had not been dr awn t o t he cl ai mant s at t ent i on
and i ndi vi dual l y negot i at ed.

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expensive than litigation, nor, which may be an advantage, is legal aid available. There
may also be difficulties if the arbitrator lacks legal qualifications or experience.

It used to be considered that if a construction contract provided for decisions to be
made and certificates issued by a third party, such as an architect, those decisions could
only be challenged in arbitration. This is no longer the case and such decisions, unless
expressly stated to be binding, can be opened up and reviewed either in court (or in
arbitration?), Beaufort Developments v. Gilbert Ash [1998] 88 Build LR 1 (HL).

2. Adjudication
If Part II of the Housing Grants, etc Act 1996 applies to the contract, either party will
have a right to adjudication of disputes in accordance with a procedure complying with
the statutory requirements (either provided for in the contract or provided for in the
Scheme for Construction Contracts 1998).
98
In general, the result will be a decision on
the dispute within 28 days of an adjudicator being appointed and the matter being
referred to that adjudicator. The adjudicators decision is final but not biding (the
underlying dispute can still be litigated or arbitrated). The adjudicators decision, if
involving the payment of money, should be enforceable by summary process unless the
adjudicator lacked jurisdiction or was not impartial (actual or apparent bias). See the
discussion in Macob Civil Engineering Ltd v. Morrison Construction Ltd [1999] BLR
93,
99
similar reasoning adopted in Bouygues (UK) Ltd v. Dahl-J ensen (UK) Ltd [2000]
BLR 522 (CA).
100

There is uncertainty as to whether Part II of the Housing Grants, etc Act 1996 conflicts
with Article 6.1
101
of the European Convention on Human Rights, see the Human
Rights Act 1998, the current first instance view is that it doesnt.

3. Mediation
Mediation (or conciliation) is a best regarded as a form of facilitated negotiation.
Provisions for this are found in certain standard form contracts and may provided that
the neutral can express of view on the merits if the matter does not settle.

Mediation is consensual and non-determinative; it may or may not be evaluative.
Mediation works best where parties are prepared to view the dispute between them in
commercial, not strictly legal terms. It can be particularly useful in helping to resolve
multi-party disputes. An unreasonable refusal to consider mediation may have cost

98
The r i ght i s not l ost mer el y because t he par t y seeki ng adj udi cat i on
has commenced l i t i gat i on, see Skodia Property v. Thames Water [ 1999]
BLR 338 ( CA) .
99
Macob: Adj udi cat or s deci si on whi ch appear s on i t s f ace t o be pr oper l y
i ssued, bi ndi ng and enf or ceabl e, even i f val i di t y or mer i t s chal l enged
because of al l eged er r or s of f act and l aw. The usual r el i ef summar y
j udgement .
100
Bouygues (UK) Ltd: Er r or s wi t hi n j ur i sdi ct i on do not af f ect
enf or ceabi l i t y by summar y j udgement , as t hi s i s answer i ng t he r i ght
quest i on i n t he wr ong way, as opposed t o answer i ng t he wr ong quest i on.
Gr ave br eaches of nat ur al j ust i ce may r ender a deci si on unenf or ceabl e
by summar y pr ocess, i f t hey dest r oy t he adj udi cat or s i mpar t i al i t y.
101
The r i ght t o a f ai r t r i al , et c.

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implications in legal or other proceedings; Halsey v Milton Keynes General NHS Trust
[2004] EWCA (Civ) 576.
102

_______________________________________

102
Halsey: The unsuccessf ul par t y has t o show why t her e shoul d be a
depar t ur e f r om t he nor mal cost s r ul e so as t o depr i ve a successf ul
par t y of some or al l of i t s cost s because i t had r ef used t o agr ee t o
al t er nat i ve di sput e r esol ut i on. Such a depar t ur e i s not j ust i f i ed
unl ess i t was shown t hat t he successf ul par t y had act ed unr easonabl y
i n r ef usi ng t o agr ee t o t hi s. I n deci di ng whet her a par t y had act ed
unr easonabl y t he cour t shoul d bear i n mi nd t he advant ages of ADR over
t he cour t pr ocess and have r egar d t o al l t he ci r cumst ances of t he
par t i cul ar case. Rel evant f act or s coul d i ncl ude: ( i ) t he nat ur e of
t he di sput e; ( i i ) t he mer i t s of t he case; ( i i i ) t he ext ent t o whi ch
ot her set t l ement met hods had been at t empt ed; ( i v) whet her t he cost s of
ADR woul d be di spr opor t i onat el y hi gh; ( v) whet her any del ay i n set t i ng
up and at t endi ng ADR woul d have been pr ej udi ci al ; ( vi ) whet her ADR had
a r easonabl e pr ospect of success ( vi i ) whet her t he successf ul par t y
had r ef used t o agr ee t o ADR despi t e t he cour t ' s encour agement . Ther e
was no basi s on whi ch t he cour t coul d di scr i mi nat e agai nst successf ul
publ i c bodi es when deci di ng whet her a r ef usal t o agr ee t o ADR shoul d
r esul t i n a cost s penal t y. The Lor d Chancel l or ' s ' ADR Pl edge' was no
mor e t han an under t aki ng t hat ADR woul d be consi der ed and used,
wher ever t he ot her par t y accept s i t , i n al l sui t abl e cases by al l
gover nment depar t ment s and agenci es. I t was di f f i cul t t o see
ci r cumst ances i n whi ch gr eat wei ght shoul d be gi ven t o t he Pl edge.

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SESSION 4: UNDERSTANDING CONSTRUCTION CONTRACTS
AND PROFESSIONAL SERVICES AGREEMENTS

Peter Aeberli

INTRODUCTION

Construction contracts and professional services agreements do not exist in a vacuum but
are, or should be, prepared in response to a number of legal and practical issues, many of
which have their roots in the nineteenth century, if not earlier.

PART A: CONSTRUCTION CONTRACTS - ISSUES

The principal vehicle through which works are constructed is the construction contract.
Such contracts should address the following issues.

1. Setting the parties' primary obligations (what is to be provided for how much,
when?)
What is to be provided?
Consideration should be given to the various procurement routes and their allocation of
design/performance risk (traditional, design and build, contract management, management
contracting). Consideration should be given to whether there is to be a role for a contract
administrator (agent or independent).

Is there to be a maintenance period after completion? How does this affect the employers
right to damages, consider Pearce v. Baxter [1999] BLR 101 (CA).
103

How is the work to be provided described (drawings, quantities and/or schedules)? Is the
work to be described prescriptively or by performance?

What is the standard of performance?
Are such standards to be express or implied (Sale of Goods Act 1979, Supply of Goods
and Services Act 1982, common law)? For terms implied at common law see, for
example Merton v. Leach (1985) 32 Build LR 51.
104

103
Pearce A r ef usal t o al l ow cont r act or t o r emedy def ect s or t o gi ve
i nst r uct i ons t o do so, r est r i ct s damages t o cost cont r act or woul d have
i ncur r ed i n r emedyi ng t hem. Not e t he di f f er ent r el at i onshi p bet ween
compl et i on and mai nt enance per i od i n J CT cont r act s and I CE cont r act s.
104
Merton I mpl i ed t er m t hat empl oyer woul d not hi nder or pr event t he
cont r act or f r om car r yi ng out i t s obl i gat i ons i n accor dance wi t h
cont r act and f r om execut i ng t he wor k i n a r egul ar and or der l y manner .
No dut y on t he cont r act or t o check f or di scr epanci es and di ver gences
i n t he ar chi t ect s i nf or mat i on.

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4/2
Are standards to be objective or subjective (who decides compliance)?

Where are standards to be stated (contract conditions, drawings, quantities, specifications,
schedules)?

When is performance required?
What dates are to be fixed, (start, on site, progress and completion dates, phases)? How is
completion assessed?

What is to be paid for?
What is the payment route (lump sum, measurement and value, cost plus). Particularly in
a lump sum contract, what work is to be paid for? Some lump sum contracts allow
provisional sums. These, in effect, introduce packages of measurement and value work.

2. Altering the contracted for performance
Why must there be an express power to alter the contracted for performance?

Defining the scope of the power to alter performance (quantity and quality of work,
method and timing of performance).

Determining the consequences of an alteration of performance (cost,
105
loss/expense,
time).

3. Monitoring and controlling the manner of performance
Is a general power to instruct the contractor required.

Are provisions needed to allow for monitoring performance (early warning, assessing
compliance (quantity, quality, method and time))?

Are provisions needed dealing with the possibility of defective work (opening up, testing,
removal of defective work, dealing with potentially defective repetitive work)?

Are there any restrictions on who performs the contractor's primary obligations
(contractor, sub-contractors, specialists, suppliers)? If so, who decides?

Who is entitled to performance (parties, assigns, third parties)? Are warranties to be
provided, if so, on what terms?

4. Valuation and timing of payments
Balancing cash flow against security for the paying party. Complying with the statutory
context (Housing Grants, Construction and Regeneration Act 1996).

Interim payment options (valuation of work, activity schedule, milestones), What is
included and when (work, materials - unfixed, off-site, advances on account, mobilisation
payments)? Determining the time and amount of payments (schedules, bills of quantities).

105
How i s t he cost of t he wor k assessed, t hi s i s one of t he pur poses of
i ncl udi ng a bi l l of quant i t i es, see Henry Boot v, Alstom [ 2000] BLR
247 ( CA) .

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How does the assessment of interim payments relate to the contract sum?

Authorising and releasing payment (who decides, status of certificates, interim and final).

5. Risks and sanctions
Time and cost risks
How does the contract allocate responsibility for delays and additional costs due to delays
or disruption in performance (defaults, neutral events).

Are damages for late completion to be liquidated. If so how is the rate of damages to be
assessed so as to reflect the likely level of loss.

Performance risks and sanctions
Dealing with non-performance by contractor, sub-contractors or the employer:
Suspending performance and determining the contract.

Balancing risks by retention of monies, passing of title clauses, rights of suspension
(Housing Grants, Construction and Regeneration Act 1996). Consider also bonds,
collateral warranties and limits on post completion liability (conclusivety provisions).

Injury to persons and property
Allocating the risks consequent upon injury to individuals or damage to the works and
other property (indemnity and insurance clauses).

6. Dispute resolution
Alternative procedures for dispute avoidance, management and resolution (contract
administrator, adjudication, arbitration/litigation, mediation). The legal context:
Arbitration Act 1996; Housing Grants, Construction and Regeneration Act 1996, s. 108;
status of contract administrators decisions.

PART B: PROFESSIONAL SERVICES AGREEMENTS - ISSUES

The principal vehicle through which consultancy services, for instance those of an
architect, an engineer or a quantify surveyor, are procured is the professional services
agreement. Such agreements should address the following issues. In practice,
however, professional services agreements are usually more rudimentary than
construction contracts.

1. Setting the parties' primary obligations
The primary obligations are concerned with what is to be provided for how much, when?

What is to be provided?
How is the scope of the consultants services determined (work stages, types of services,
scope of work, brief and budget)?

What use can be made of any information provided by the consultant (copyright, licence
to use drawings, ownership of drawings)?

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Where are express standards recorded (contract conditions, the brief, schedule of
services)?

In most cases, the contract will describe the services in the most rudimentary terms, if
at all. Much will depend on conceptions of what is encompassed by a professional
level of service. A good introduction can be found in Hudson (1995) pp. 243-261. One
of the most contentious areas is the extent to which a designer, engaged during the
construction of works, has a duty to inspect the construction. In the absence of express
terms to the contrary, the carrying out of periodic inspections as necessary to
administer the building contract, and to check important matters of construction, is all
that can ordinarily be expected. It is not unusual for a consultant to contend that any
defects in the project are the result of failings by the contractor for which it is not
responsible and which it could not have identified during periodic inspections.

What is the standard of performance?
Express and implied standards (Supply of Goods and Services Act 1982, common law)?
Skill and care, diligence, best or reasonable endeavours, or what?

If the standard is one of skill and care, what can be expected, is, in most cases, assessed by
reference to the designers peers, those in the same profession. It will usually be
necessary to rely on expert evidence from an expert in the same profession to support an
allegation of breach of a duty of skill and care.

When is performance required?
Over what period are the services to be performed?

How much?
What is the payment route (lump sum, percentage, time charge)?

2. Altering the contracted for performance
What is the scope of the clients power to instruct the consultant to perform additional
services, change the brief or change the design?

What are the consequences of such instructions (cost and time)? How are additional
payments to be calculated, what records should be kept?

3. Monitoring and controlling the manner of performance
Does the client have any control over the manner in which the consultant performs the
services (authorising commencement of work stages, terminating performance where
services no longer required)?

Can the client monitor performance, require defects to be corrected (authorising drawings
and consultants proposals)? What are the implications of approving the consultants
work?

Can the consultant sub-contract or delegate the performance of its services?

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Who is entitled to performance (original parties, assigns, third parties)? Are warranties
required, if so, on what terms?

4. Quantification and timing of payments
Balancing cash flow against security for the paying party. Complying with the statutory
context, if applicable (Housing Grants, Construction and Regeneration Act 1996).

Interim payments. What is to be included and when? Determining the timing and amount
of interim payments (who decides)?

5. Risks and sanctions

Time and cost risks
How is responsibility for time resulting from delays in performance (defaults, neutral
events) allocated, if at all?

How is responsibility for the cost of disruption in performance (fault, neutral events)
allocated, if at all?

Should there be a closed list of events that entitle the consultant to money. Should all
circumstances beyond the consultants control be included, or nothing said at all?

Performance risks and sanctions
Dealing with non-performance by the client or the consultant: suspension (see Housing
Grants, Construction and Regeneration Act 1996) and termination. Should, the client be
able to terminate the appointment at will?

Insurance and exemption clauses (limitation period, liability cap, set off, net contribution).

6. Dispute resolution
Procedures for dispute avoidance, management and resolution (adjudication,
arbitration/litigation, mediation). The legal context: Arbitration Act 1996; Housing
Grants, Construction and Regeneration Act 1996, s. 108.

PART C: STANDARD FORM CONTRACTS

1. The use of Standard Form Contracts and Agreements
Because of the complexities of the construction process, it is usual for consultants and
contractors, at least where the employer is professionally advised, to be engaged on
standard terms of contract. These contracts will be drafted by one of the partys
advisors, alternatively Standard Form Contracts may be used. These are published, in
the case of consultants, by the professional institutions and, in the case of contractors,
by contract drafting bodies set up by the construction industry with representation from
all sectors of the industry. These standard form contracts are amended from time to
time by the bodies responsible for their production.

The selection of an appropriate standard form contract should reflect the chosen
procurement route as well as the nature and complexity of the project.

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2. Principal Standard Form Building Contracts
The J oint Contracts Tribunal produces the principal building contracts, the majority of
these provide for lump sum pricing.

- The SFBC 05 family of contracts for major works using general contracting.
These allow for phased completion and for packages of work (design portion
supplement work) to be designed by the contractor. The variants relate to the use
or otherwise of bills of quantities.

- The IFC 05 contract, for intermediate works using general contracting. This
allows for phased completion and use of employer selected sub-
contractors/specialists (naming), and for packages of work to be designed by the
contractor. Design can also be carried out by named sub-contractors/specialists.

- The MW 05 agreement, for small works. There is, in the MWD form, provision
for design by the contractor.

- WCD 05. This is the J CTs contract for use where a design and build contractor
is to be engaged.

- MC05. This is the J CTs contract suite for use where the project is to be
procured using Management Contracting. There is also a suite of contracts for
Contract Management.

- J CT also publishes more specialised contracts such as the J obbing Contract and
the J CT Measured Term Contract (MT 05) and standard form warranties and
bonds.

The J CT has also produced a consumer contract for use in connection with small
domestic works and is engaged in preparing a professional services agreement. It
publishes standard form sub-contracts (which replace the old forms known as DOM/1
and DOM/2) for all of its Main Contract forms.

3. Principal Standard Form Engineering Contracts
The principal engineering contracts are produced under the sponsorship of the
Institution of Civil Engineers (by the CCSJ C). These contacts provide for
measurement and value pricing and allow for the contract administrator (the engineer)
to have more involvement in the manner in which the work is carried out than would
normally be the case under a building contract.

- ICE Edition 7
th
Edition 1999. The form is intended for use on projects that
consist mostly of civil and structural engineering works.

- The ICE Conditions of Contract for Minor Works 1995 edition. This form is
intended for use where such works are of a straightforward nature and of short
duration.

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- The ICE Design and Construct Conditions of Contract 1992 Edition - This is
similar in structure to ICE 6
th
Edition but provides for the contractor to be
engaged on a design and build basis.

4. Principal Standard Form Consultants Agreements
These are produced by the RIBA (for architects) and the ACE for (engineers). They are
very consultant friendly and, in consequence, are often modified in use.

5. Other Standard Form Contracts
Other standard form contracts are produced by the Institute of Mechanical and the
Institute of Electrical Engineers, the Government (the GC/Works family) and the ICE
group responsible for the New Engineering Contract.

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What are the main roles involved in a construction project?

What are the principal standard form building contracts?

Peter Aeberli September 2011

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