Construction Law & Dispute Resolution

1) To consider Chapman’s legal entitlement, if any, to receive reimbursement from Anglo for the work already undertaken, it must be recognised that the letter from Anglo’s architect, confirming that their tender had been accepted “subject to formal contract” and that their clients wanted work to start on the site in six weeks, could be perceived to be a letter of intent. Therefore, the letter of intent from Anglo could, in the circumstances, be considered to be a conditional contract, according to the decision in British Steel Corporation v. Cleveland Engineering Co, so that Chapman were right to start work and expect reimbursement for the resources expended in doing so. However, this must also be contrasted with the decision in Regalian Properties Plc v. London Dockland Development Corporation because whilst one party, in British Steel Corporation v. Cleveland Engineering Co, requested the other to perform services and supply goods under the expected contract, the costs Regalian sought reimbursements for arose from seeking to obtain and then perform the contract.
Nevertheless, if it is accepted that Anglo’s letter was a letter of intent and, thus, a conditional contract then, where Anglo ousts Chapman from the site or otherwise shows an intention not to be bound by the contract, Chapman may claim the value of the work done and damages, on the basis of the decision in Bank of Boston Connecticut v. European Grain & Shipping Ltd. Moreover, Chapman may also be able to claim payment at contractual rates or prices for work not already included, illustrated by the decision in Felton v. Wharrin, along with a reasonable sum assessed and payable as a contractual entitlement. But, of course, Chapman also needs to be advised that Anglo will be entitled to an abatement of the sum otherwise due if the work that already been done is defective in any way, according to the decision in Slater v. CA Duquemin Ltd.
Furthermore, by way of conclusion, in effectively advising Chapman, any action taken with a view to recognising their legal entitlement may also lead to a claim for specific performance of the contract where it should not have been terminated, illustrated by the decision in Palmer v. Lark and Beswick v. Beswick. Therefore, with this in mind, it must be recognised that the doctrine of frustration has evolved, illustrated by the nature and scope of the decision in J Lauritzen AS v. Wijsmuller BV, The Super Servant Two. On this basis Chapman needs to be advised that the courts may elect to give effect to the demands of justice where injustice would result by looking to effectively ‘kill’ the contract and discharge all of the parties from further liability under it within very narrow limits due to some outside event or extraneous change of situation without blame or fault on the side of the party seeking to rely upon it – i.e. in this case in view of Anglo’s change of ownership brought about by their takeover by another company.
3) In view of the authorities reviewed in the decision in Alfred McAlpine Capital Projects Ltd v. Tilebox Ltd by Justice Jackson it is important to discuss the circumstances where it is now possible for a contractor to successfully challenge a liquidated damages clause because it is, in reality, a penalty clause on the basis of this evaluation. Therefore, with this in mind, it is first interesting to consider the fact Justice Jackson noted only four cases where the relevant clause for liquidated damages within the contract had been “struck down as a penalty” clause in the decisions of Commissioner of Public Works v. Hills, Bridge v. Campbell Discount Co Limited, Workers Trust & Merchant Bank Limited v. Dojap Investments Limited, and Ariston SRL v. Charly Records. Such a view arose because it was recognised there was a broad gap between (a) the level of damages likely to be suffered, and (b) that stipulated in the contract in each of these cases so as to be struck down.
As a result, Justice Jackson recognised that it is commonly understood that in view of the fact “the rule about penalties is an anomaly within the law of contract, the courts are predisposed … to uphold contractual terms which fix the level of damages for breach” and that “this predisposition is even stronger in the case of commercial contracts freely entered into between parties of comparable bargaining power”. This is because the idea penalty clauses being struck out is not actually part of any wider doctrine that requires or permits the courts to rewrite contracts or to strike out clauses that are perceived as being unduly harsh was more latterly supported by the work of Professor Atiyah regarding the development of the concept of freedom of contract. But it is also to be appreciated the rule in relation to the development of law regarding penalty clauses – and the hybrid development of liquidated clauses as penalty clauses – dates back to the even earlier decision in Law v. Local Board of Redditch and the reasoning of Justice Kay.
Nevertheless, by way of conclusion, Justice Jackson also recognised that Lord Dunedin formulated a rule regarding as to when a clause for liquidated damages can be challenged as a penalty clause, in the decision in Commissioner of Public Works v. Hills, as being in relation to “whether the sum stipulated for can or can not be regarded as a genuine pre-estimate of the creditor’s probable or possible interest in the due performance of the principal obligation”. This was then taken on still further Lord Dunedin, in the decision in Dunlop Pneumatic Tyre Company Limited v. New Garage & Motor Company Limited, where he recognised whether a liquidated damages clause should be struck out as a penalty clause was, in fact, a matter of ‘construction’ that it was for the courts to determine in any given case on the basis of the size of the sum and when the damages were to be paid and as to whether their requirements were deemed to be ‘unconscionable’ or unduly ‘oppressive’.
4) In looking to effectively discuss the nature of the legal obligations typically owed by each of the parties to one another in a lump sum construction contract, then, so long as each party fulfils their obligations, it is arguable such contracts provide the most effective means of achieving payment where the work involved is largely determined by the method of construction for the employer. Moreover, lump-sum contracts also look to provide incentives on the part of the employer so as to supply optimal levels of cost-reducing effort on the part of the contractor and can also be used so as to avoid some of the costs. But it is also important to appreciate that any benefits accrued by the employer through their agreement with the contractor must be weighed against the costs at a later date because when these factors are combined in a dynamic setting, there is no ‘a priori’ welfare ranking of the lump-sum scheme.
Therefore, whilst there is not a right to repudiate for breach of condition, compensation can be obtained for a breach of warranty. Furthermore, if the contractor is prevented from completing their contractual obligations because of some default from the employer, the injured party may recover damages for breach of contract or reasonable remuneration for the work, supported by the decision in Planché v. Colburn. As a result, all parties are obliged to fulfil their obligations in doing the work to the standard that a reasonable person would expect and make payment in a timely manner for work completed on the part of the contractor and employer, respectively, illustrated by the decisions in Cutter v. Powell and Bolton v. Mahadeva. But it may be argued the contractor is at something of a disadvantage because they must show that they have substantially performed their duties in order to be paid, illustrated by the decision in Dakin (H.) & Co Ltd v. Lee, or a quantum meruit, supported by the decision in Sumpter v. Hedges, so long as the employer has a genuine ability to accept or reject the part performance as it stands.
However, in conclusion, it is also to be appreciated that, in spite of the nature of their obligations, an innocent party is still able to terminate a contract and regard themselves as fully discharged because of another party’s breach of their obligations because it is always possible to sue for damages for breach of contract. But, whilst the right of an innocent party to treat a contract as discharged only arises with a breach of condition, or regarding an intermediate term, according to the decision in Hochster v. De La Tour, this may be dangerous for the innocent party. This is because the contract in any given circumstances continues at both party’s risks with all obligations remaining to be fulfilled in the way the contract prescribes in the circumstances, according to White & Carter (Councils) Ltd v. McGregor. Moreover, such a view is also supported by the decision in Howard v. Pickford Tool Co. This is because of the fact that the court in this case also recognised that if a client refuses to choose to accept the breach, then the contract will continue to remain enforceable.
5) In looking to advise Maxwell on the appropriateness of their stance, in view of the courts’ powers to award costs under Part 44 of the Civil Procedure Rules (‘CPR’) 1998 (as amended) in relation to the pre-action protocol and court orders where the court requires the parties to look to Alternative Dispute Resolution (‘ADR’) before seeking to proceed via litigation and it is deemed unreasonable for either of the parties to fail to comply. This is because this is in keeping with the fact that Rule 1.4(2)(e) of the CPR 1998 requires the judiciary in this country to look to encourage parties seeking court litigation to use an alternative dispute resolution procedure if it considers that appropriate and the context of this duty is the role of the court in furthering the ‘overriding objective’ of the CPR under Rule 1.1 in the interests of the law and the individuals involved in each of the disputes
Moreover, in advising Maxwell, it is also to be recognised, on the basis of Rule 44.3 of the CPR 1998 that the conduct of both parties will be taken into account at all stages during proceedings and will be taken into account when the court in question comes to awarding costs. As a result, in view of Maxwell’s conduct, they need to be advised the court may move heavily in favour of the Whitworths’ in this respect for their having inflated the costs of proceedings unnecessarily. Such a view arises in view of the fact that it is also important to recognise the fact that mediation, as part of the ADR process, is meant to be non-adversarial. Therefore, with this in mind, it is actually supposed to encourage communication, before a third party, with a view to reaching an agreement that is in the best interests of all concerned without having to resort to the process of litigation to resolve their dispute, whilst the decision in Halsey v. Milton Keynes General Trust NHS also discussed whether the court had the power to order parties to submit their disputes to mediation.
However, by way of conclusion, in looking to advise Maxwell, “to oblige truly unwilling parties to refer their disputes to mediation would be to impose an unacceptable obstruction on their right of access to court” under Article 6(1) of the European Convention on Human Rights 1950. Moreover, even if this were not the case, the court stated it would be “difficult to conceive of circumstances in which it would be appropriate to [order unwilling parties to refer their disputes to mediation]”. Therefore, in looking to effectively advise Maxwell, it must be recognised that, whilst the judiciary should always look to explore the reasons for any resistance to ADR procedures, where a party, such as Maxwell, remains “intransigently opposed to ADR … it would be wrong for the court to compel them to embrace it” the option is still available for them to go to court where it suits the parties in question – in spite of the fact that its features directly addressed the problems that had been felt by the business community.