40 Questions and Answers on Contract Law (Part 6)

161. THE CONTRACTOR CLAIMED THE 'MATERIAL ON-SITE' PAYMENT FOR THE MATERIALS REQUIRED FOR CONSTRUCTION AFTER 15 MONTHS. WILL YOU PAY RIGHT NOW OR NOT?

Payment would depend on the contract terms regarding the timing and condition of materials. If the contract specifies timely claims and proper material maintenance, delayed claims may be denied. In Henry Boot Construction (UK) Ltd v Alstom Combined Cycles Ltd (2005), the court emphasized the need for timely payment claims to ensure materials remain fit for use.

162. WHAT IS THE PURPOSE OF RETENTION?

Retention is a portion of payment withheld by the client until project completion to ensure contractor performance and remedy defects. In Ruxley Electronics & Construction Ltd v Forsyth (1996), retention was highlighted as a practical method to protect clients, providing leverage for defect rectification post-completion.

163. WHAT IS THE PURPOSE OF THE PERFORMANCE GUARANTEE?

A performance guarantee ensures the contractor fulfills contractual obligations, providing the client with compensation if the contractor defaults. In Moschi v Lep Air Services Ltd (1973), the court established that performance guarantees are critical in high-stakes projects, protecting client interests by securing contractor commitment.

164. WHY MIGHT A VARIATION OCCUR?

Variations occur due to changes in project scope, unforeseen site conditions, or regulatory compliance adjustments. They allow flexibility to adapt to evolving project needs. In Blue Circle Industries Plc v Holland Dredging Company (UK) Ltd (1987), the court recognized that variations address necessary project adjustments but should be carefully documented to prevent disputes.

165. SHALL APPROVAL OF REVISED PROGRAM BE TREATED AS APPROVAL OF EXTENSION OF TIME?

Approval of a revised program does not automatically imply an extension of time unless explicitly agreed upon. The contract must specify if time extensions are granted with revised schedules. In Wells v Army & Navy Co-Operative Society Ltd (1902), the court highlighted the need for clear terms when revising programs to avoid assumptions of time extensions.

166. WHAT ARE THE CONSEQUENCES OF TAKING OVER A PROJECT?

Taking over a project typically ends the contractor’s obligations for work completion, with remaining responsibilities transferring to the client. It can also affect liability for defects. In Surrey Heath Borough Council v Lovell Construction Ltd (1988), the court noted that project takeover must be documented to delineate responsibilities post-handover.

167. WHAT IS A CONCURRENT DELAY?

A concurrent delay occurs when both the client and contractor are responsible for overlapping delays. This can impact entitlement to time extensions and damages. In Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999), the court established that concurrent delays should be carefully evaluated to apportion responsibility fairly.

168. WHAT IS THE PURPOSE OF COST REPORTS?

Cost reports monitor project expenditure against budget, providing insights into financial health and identifying potential overruns. In Costain Ltd v Bechtel Ltd (2005), the court noted that accurate cost reports are essential in maintaining budget control and ensuring project completion within financial limits.

169. WHAT IS COST VALUE RECONCILIATION?

Cost value reconciliation (CVR) compares the cost of work completed against projected revenue, tracking profitability and financial performance. In Amec Building Ltd v Cadogan Square Ltd (1997), CVR was recognized as an important tool for managing cash flow and maintaining project profitability.

170. WHAT ARE THE CONTENTS OF A TYPICAL COST REPORT?

A typical cost report includes:

• Actual vs. Projected Costs: Comparing budgeted and spent amounts.
• Work in Progress: Detailing completed work and outstanding tasks.
• Cash Flow Forecast: Projected income and expenses.
• Profitability Analysis: Assessing margin and potential profit. In Harmon CFEM Facades (UK) Ltd v Corporate Officer of the House of Commons (1999), the court acknowledged the role of cost reports in ensuring transparency and accountability in project finances.

171. HOW DO YOU SEE THE GLOBAL CLAIM IN THE CONTEXT OF THE CONSTRUCTION INDUSTRY?

A global claim seeks compensation for cumulative project delays or disruptions without specifying individual causes. Such claims are controversial as they lack detailed causation, making it challenging to establish direct connections between specific events and losses. In Walter Lilly & Co Ltd v Mackay and DMW Developments Ltd (2012), the court ruled that while global claims are permissible, they require substantial supporting evidence to be successful, particularly in complex construction projects where multiple factors contribute to delays.

172. WHAT ARE THE PRACTICAL ISSUES WITH THE GLOBAL CLAIM?

Practical issues with global claims include:

• Proof of Causation: Difficulty in linking specific events to overall loss.
• Complexity in Quantifying Damages: Challenges in isolating losses from various concurrent causes.
• Potential for Dismissal: Lack of detailed causation can lead to claim rejection. In John Doyle Construction Ltd v Laing Management (Scotland) Ltd (2004), the court noted that global claims must sufficiently demonstrate causation; otherwise, they risk rejection for being overly generalized.

173. WHAT ARE THE CLAIM MECHANISMS AVAILABLE TO DEAL WITH LATENT DEFECTS?

Claim mechanisms for latent defects include:

• Warranty Claims: If a warranty covers the defect, the contractor can be held liable.
• Defects Liability Period: A specified period post-completion for the contractor to rectify defects.
• Tort of Negligence: A claim may be made if negligence led to latent defects. In Murphy v Brentwood District Council (1991), the court highlighted that latent defects discovered after construction may lead to tortious claims if they result from negligence, particularly if the defect causes physical damage.

174. HOW CAN AN END-USER PURSUE A CLAIM ARISING FROM LATENT DEFECTS?

An end-user can pursue a latent defect claim by:

• Relying on Contractual Warranties: If provided by the contractor or developer.
• Filing a Tort Claim: For negligence if the defect causes foreseeable harm.
• Pursuing a Defects Liability Provision: Engaging the contractor to rectify issues within the defects liability period. In Anns v Merton London Borough Council (1978), the court set a precedent for allowing claims for latent defects under tort law if a foreseeable risk of harm exists.

175. IS A CONTRACTOR ENTITLED TO COMPENSATION FOR LOSS OF PROFIT FOR TERMINATION OF CONTRACT OR OMISSION OF THE SCOPE OF WORK?

A contractor may be entitled to loss of profit if termination or work omission breaches the contract without justification. However, specific contract terms may limit this entitlement. In British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd (1912), the court ruled that loss of profit is recoverable if it results directly from a breach, provided the contractor mitigated losses as reasonably possible.

176. WHAT ARE THE COMMON GROUNDS FOR THE EMPLOYER’S CLAIMS?

Common grounds include:

• Delay Damages: Compensation for contractor-caused delays.
• Defective Work: Claims for costs to rectify defects.
• Liquidated Damages: Pre-agreed amounts for delay or non-performance. In Croudace Ltd v Cawoods Concrete Products Ltd (1978), the court confirmed that employers could claim for delay-related costs if the contractor’s performance deviated from contractual timelines or standards.

177. CAN THE CONTRACTOR PASS THE FULL AMOUNT CLAIMED BY THE EMPLOYER TO A SUBCONTRACTOR IN RELATION TO DELAY IN PARTICULAR SUBCONTRACT SCOPE?

The contractor may pass on the employer’s claims to a subcontractor if the subcontractor’s delay directly caused the employer’s losses. In London Borough of Merton v Stanley Hugh Leach Ltd (1985), the court recognized that a main contractor can recover delay damages from a subcontractor if causation and liability are established within the subcontract terms.

178. CAN THE MAIN CONTRACTOR CLAIM FROM SUBCONTRACTOR MORE THAN THE AMOUNT AVAILABLE UNDER LD?

A main contractor can only claim up to the liquidated damages (LD) amount specified in the subcontract unless the subcontract terms allow for additional claims. In Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd (1915), the court established that claims should not exceed the agreed damages unless otherwise stipulated, enforcing the importance of clear LD provisions in contracts.

179. WHAT IS THE MECHANISM AVAILABLE FOR MAIN CONTRACTOR OR THE EMPLOYER IF DELAY DAMAGE CLAUSE IS NOT AVAILABLE IN A CONTRACT?

If no delay damage clause exists, parties may pursue general damages based on actual losses from delays. In Hadley v Baxendale (1854), the court determined that, in the absence of liquidated damages, general damages may be awarded based on foreseeability and causation principles.

180. IS THE CONTRACTOR ENTITLED TO AN EXTENSION OF TIME IF THE QUANTITIES GIVEN IN THE BOQ FAILED TO REFLECT THE ACTUAL SCOPE AT THE SITE?

If the BOQ quantities are significantly inaccurate, the contractor may be entitled to an extension for additional time required to complete the work. In Blue Circle Industries Plc v Holland Dredging Company (UK) Ltd (1987), it was held that significant discrepancies in quantities could justify time extensions or compensation if they impact the completion schedule.

181. HOW CAN A CONTRACTOR PROVE HIS REDUCED EFFICIENCY WITH VALID CONTEMPORARY RECORDS?

A contractor can document daily site records, work logs, productivity reports, and resource utilization to substantiate reduced efficiency claims. In Walter Lilly & Co Ltd v Mackay (2012), the court upheld that detailed records are critical in proving disruption or productivity loss, making a strong case for efficiency-related claims.

182. HOW TO DEAL WITH A PRACTICAL SITUATION WHEN A VERBAL INSTRUCTION TO VARY THE WORK IS DIRECTLY ISSUED TO THE SUBCONTRACTOR BY THE EMPLOYER?

The contractor should seek written confirmation of any employer-issued verbal instruction to the subcontractor, aligning it with the main contract’s variation procedures. In Wells v Army & Navy Co-Operative Society Ltd (1902), the court underscored the need for written documentation to avoid ambiguity and establish accountability.

183. IN THE ABOVE SCENARIO, IF THE SUBCONTRACTOR EXECUTED THE VARIED WORKS WITHOUT THE WRITTEN CONFIRMATION BY THE ENGINEER AND SUBSEQUENTLY BY THE MAIN CONTRACTOR, WHAT IS THE ALTERNATIVE SOLUTION RATHER THAN SIMPLY REJECTING THE SUBCONTRACTOR’S CLAIM?

The main contractor can negotiate a retrospective agreement for the variation, establishing scope and cost, if both parties accept the necessity and legitimacy of the additional work. In Costain Ltd v Bechtel Ltd (2005), the court recognized retrospective validation of work as a practical solution where unauthorized work benefits the project.

184. DOES THE CONTRACTOR REALLY LOSE THE ENTITLEMENT TO CLAIM IF HE FAILS TO SERVE A NOTICE OF CLAIM WITHIN THE TIME LIMIT SPECIFIED IN THE CONTRACT?

Typically, failure to serve notice within the stipulated time may invalidate the claim unless the employer waives this requirement or the contract permits exceptions. In Balfour Beatty Construction Ltd v London Borough of Lambeth (2002), strict compliance with notice requirements was enforced, emphasizing that timeliness is crucial to claim preservation.

185. USUALLY, THE CONDITION OF CONTRACTS INSISTS THE CONTRACTOR TO TAKE NECESSARY MEASURES TO MITIGATE THE IMPACTS TO THE EMPLOYER IN CASE OF ANY DELAY EVENTS EVEN THOSE ARE BEYOND THE CONTRACTOR’S CONTROL. DOES IT MEAN THE CONTRACTOR SHOULD TAKE SUCH NECESSARY MEASURES AT ITS OWN COST?

The contractor should take reasonable measures to mitigate delays; however, costs for unavoidable delays often qualify for reimbursement if they stem from employer-responsible events. In Mitchell v CNE (1910), it was held that contractors are expected to mitigate but can claim compensation for costs related to non-controllable events.

186. WHAT IS A DISPUTE?

A dispute is a disagreement regarding rights or obligations within the contract. Disputes often arise over performance, payments, or scope interpretations. In Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd (1993), the court emphasized the importance of clearly defined contractual terms to minimize the potential for disputes.

187. WHAT IS CONFLICT?

Conflict refers to broader tensions or incompatibilities between parties, often arising from differing interests or values. It may lead to disputes but is not confined to specific contractual disagreements. Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd (1968) illustrated that conflict often encompasses fundamental relational issues beyond explicit contractual terms.

188. HOW DO YOU AVOID DISPUTES AT THE POST-CONTRACT STAGE?

Dispute avoidance strategies include:

• Clear Documentation: Ensuring all instructions and variations are documented.
• Effective Communication: Regular meetings and updates.
• Timely Resolution of Issues: Addressing grievances promptly. In Amec Civil Engineering Ltd v Secretary of State for Transport (2004), the court highlighted the importance of documentation and open communication in preventing escalation of minor issues into disputes.

189. FACTORS TO BE CONSIDERED WHEN SELECTING DISPUTE RESOLUTION MECHANISM?

Key factors include:

• Nature of Dispute: Complexity and technicality.
• Cost and Time: Efficiency of resolution method.
• Relationship Impact: Desire for ongoing collaboration. In Cable & Wireless Plc v IBM UK Ltd (2002), the court endorsed consideration of these factors, emphasizing that dispute mechanisms should align with the project’s and parties' objectives.

190. WHAT IS NEGATION?

Negation is the process of invalidating or voiding certain contract terms or obligations, typically due to enforceability issues or mutual agreement. In Photo Production Ltd v Securicor Transport Ltd (1980), the court confirmed that fundamental breach allows contract negation where obligations become impossible or unenforceable.

191. HOW DO YOU SEE WIN-WIN SITUATION?

A win-win situation in contract resolution is where both parties reach a mutually beneficial outcome, often through compromise and open communication. It aims to preserve relationships and fulfill both parties' essential needs without prolonged conflict. In Cable & Wireless Plc v IBM UK Ltd (2002), the court highlighted that win-win approaches, such as mediation or early negotiation, are valuable in maintaining ongoing business relationships, especially in long-term contracts.

192. WHAT IS MEDIATION?

Mediation is a voluntary, non-binding process where an impartial mediator helps parties reach a resolution. It emphasizes collaboration and open dialogue without imposing a decision. In Halsey v Milton Keynes General NHS Trust (2004), the court promoted mediation as a means of resolving disputes efficiently and cost-effectively, especially when parties seek to avoid litigation or maintain a working relationship.

193. WHAT IS CONCILIATION?

Conciliation is similar to mediation but often involves a conciliator who may take a more active role in proposing solutions. It is typically used when parties need a third party’s guidance to reach a settlement. In Cable & Wireless Plc v IBM UK Ltd (2002), conciliation was viewed as beneficial in fostering cooperation, as the conciliator’s proposed solutions can encourage compromise without binding either party to a decision.

194. WHAT IS EXPERT DETERMINATION?

Expert determination is a dispute resolution method where an independent expert, with subject matter expertise, provides a binding decision on technical issues in a dispute. This approach is particularly useful in construction and engineering disputes. In Halifax Life Ltd v The Equitable Life Assurance Society (2007), the court acknowledged that expert determination is an efficient and reliable method for resolving complex technical disputes where specialist knowledge is required.

195. WHAT IS ARBITRATION?

Arbitration is a formal, binding dispute resolution process where an arbitrator or tribunal hears both parties' arguments and renders a final decision. It is an alternative to court proceedings, providing confidentiality and a degree of flexibility. In Fiona Trust & Holding Corporation v Privalov (2007), the court reinforced the validity of arbitration agreements, affirming arbitration as a suitable method for complex international commercial disputes.

196. WHAT ARE THE MAIN THINGS PARTIES SHOULD CONSIDER IN AN ARBITRATION AGREEMENT?

When drafting an arbitration agreement, parties should consider:

• Seat of Arbitration: Determines the legal jurisdiction governing the process.
• Arbitration Rules: Such as those of the ICC or LCIA.
• Number of Arbitrators: Deciding whether one or a panel of arbitrators will oversee the case.
• Confidentiality: Ensuring the privacy of the proceedings. In Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of Pakistan (2010), the court emphasized that these factors are critical to ensuring the arbitration process aligns with parties' expectations and legal requirements.

197. WHAT ARE THE CHARACTERISTICS OF AN ARBITRAL AWARD?

An arbitral award is:

• Binding: The decision is final and enforceable.
• Confidential: Details of the award are typically private.
• Customizable: Can be tailored to the needs of the parties.
• Recognized Internationally: Through conventions like the New York Convention. In Westacre Investments Inc v Jugoimport-SPDR Holding Co Ltd (1999), the court highlighted the binding and final nature of arbitral awards, affirming that courts should rarely intervene unless there is a fundamental procedural issue.

198. WHAT ARE THE CIRCUMSTANCES THAT A PARTY CAN CHALLENGE AN ARBITRATION AWARD?

A party can challenge an arbitral award on grounds such as:

• Lack of Jurisdiction: If the arbitrator exceeded their authority.
• Serious Procedural Irregularity: Affecting fairness.
• Public Policy: If the award contradicts the principles of justice. In Lesotho Highlands Development Authority v Impregilo SpA (2005), the court ruled that awards could be challenged for procedural flaws or jurisdictional overreach but not for mere errors in law or fact, emphasizing the finality of arbitration.

199. HOW DO YOU HANDLE THE COSTS OF ARBITRATION?

Costs of arbitration are typically borne by the losing party, though arbitrators may allocate costs based on each party's contribution to the dispute's escalation. In Essar Oilfield Services Ltd v Norscot Rig Management Pvt Ltd (2016), the court upheld the arbitrator’s decision to allow costs, including third-party funding, highlighting that arbitrators have broad discretion in awarding costs to ensure fairness.

200. HOW ARE THE ARBITRATION AWARDS ENFORCED ACROSS THE JURISDICTIONS?

Arbitration awards are enforced internationally under the New York Convention, which allows for recognition and enforcement in over 160 countries, provided the award meets basic procedural standards. In IPC v Sedco Forex International Inc (1986), the court emphasized that awards compliant with the New York Convention are readily enforceable, fostering confidence in arbitration as a reliable mechanism for international dispute resolution.