Are you ready for Estoppel?

Not many construction professionals have heard of Estoppel, but it is such a powerful legal doctrine that we should all understand. Indeed I have used it in three recent adjudications and won all three as a result of invoking and evidencing it.

In its most common application it provides a protection when the parties to a contract do not use the terms and conditions set out within the contract document and adopt a different process on site.

As any Legal Professionals reading this will be muttering there are numerous forms of Estoppel; Promissory, Representation, by Convention, by Silence and Proprietary; but this post is all about Estoppel by Convention.

Before we all get excited we need to understand estoppel can only be used as a shield, which means you can only use it to defend your position. It cannot be used for gain.

What is Estoppel by Convention?

Estoppel by convention occurs through the parties departing from the strict interpretation of their contract. The doctrine means that one party cannot unilaterally revert to the strict interpretation of the contract without allowing the other party either the time, or opportunity to also comply.

Many readers will recognise situations when the time delay imposed by the NEC (or JCT for that matter) to submit quotations for changes with an impact programme, before an instruction /change is implemented, becomes unacceptable to a Main Contractor, and an instruction to “just do it and it will be sorted out later” is issued. After such a procedure the Main Contractor cannot refuse to pay for the work he required purely on the grounds of the procedures in the subcontract not being followed.

It is easier to showcase other application of these principles by examples.

Scenario 1
In the subcontract there was a condition precedent for payment that the subcontractor notified the Main Contractor prior to carrying out any work he deemed to be extra and/or on dayworks.

During the course of the works the Main Contractor’s Foreman was empowered to verbally instruct additional works, the subcontractor recorded and applied for the additional monies on a daywork basis. This process continued throughout the contract. Over a period of 12 months and the subcontractor was been paid over ￡90,000 on the basis of hours recorded and daywork rates.

However, at the end of the project the Main Contractor stated “As you did not notify any of the dayworks in accordance with the subcontract provisions we hereby certify against your claim of ￡100,000.00 a value of ￡nill”

This practice was estopped. The Main Contractor & subcontractor have clearly carried out a different process to the subcontract provisions throughout the lifetime of the contract. The subcontractor successfully used estoppel as a shield enabling them to protect the monies they have been previously paid.

Scenario 2
In the subcontract there was a condition requiring the subcontractor to give notice to the Main Contractor of a compensation event within four weeks should the Main Contractor not issue a compensation event for works which the Subcontractor deemed extra.

During the course of the Works the Main Contractor issued numerous verbal instructions (which the subcontractor confirmed back to the Main Contractor) and substantial drawing revisions and required the works progressing immediately prior to quotations being submitted for acceptance. Overall there were over 200 “variations” with only a handful ever receiving formal compensation events. The Main Contractor was paying monies for all variations during the course of the contract, however at final account stage the Main Contractor, reverted to certifying ￡nill as the Main Contractor had not issued a Compensation Event and the Subcontractor had not issued a notice.

This practice was estopped. The Main Contractor & subcontractor have clearly carried out a different process to the subcontract provisions throughout the lifetime of the contract. The subcontractor successfully used estoppel as a shield enabling them to protect the monies they have been previously paid.

Conclusion

Estoppel is a powerful concept that has the potential to apply to the ad hoc procedures that arise on nearly every construction project.

For Main Contractor’s, to avoid having Estoppel used against you, adhere to the contract documents. They are there to protect you.

For Subcontractor’s; if the Main Contractor reneges on agreements or processes that have been agreed on site for both parties convenience, Estoppel by Convention could be applicable.

About Ed Ranns;
Ed Ranns is a Director at RPS Ltd. He has over 18 years of site QS experience prior to setting up a construction claims and dispute resolution consultancy. Ed specialises in writing extensions of time claims, disruption claims and adjudication referrals as well as advising on the proposed conditions of any subcontract. You can contact him on 07780604510 or via email at [email protected] for free impartial advice.