Newsletter – Don’t start work without your (construction) contract!

Certainty is a great thing yet construction projects, large and small, are often performed without a formal contract in place. If a dispute ends up in legal proceedings, the courts may have to analyse what the parties have said, in the best way they can, no matter how vague or uncertain the exchanges were.

In the recent case of Goldsworthy (t/a Goldsworthy Builders) v Harrison [2016] EWHC 1589, which concerned a project for work on a residential, occupied property, Goldsworthy carried out works for the Harrisons. The Harrisons envisaged using a commonly adopted, standard form of contract; the Joint Contracts Tribunal (JCT) minor works contract form. Works began and it was more than a year before a copy of the contract was sent out for signing. Goldsworthy would not sign but subsequently took a dispute to adjudication, and obtained a favourable award. Goldsworthy then asked the court to enforce the award, but the Harrisons claimed that the minor works form did not apply.

In England and Wales adjudication is a statutory process applying, with limited exceptions, to all construction contracts. One such exception is in the case of residential occupiers – a category which would have covered the Harrisons and adjudication would not have applied but for the use of the JCT form.

The court noted that whether there is a binding contract, and what the terms of that contract are, depends on what the parties have agreed.

To achieve this a court will consider all communications between the two parties, whether in writing or oral, and their conduct to determine if, on an objective conclusion, all the terms which are considered essential in law to create a contract were agreed and there was an intention to create ‘legal relations’. A binding contractual relationship can be made even though the parties defer to a later date the agreement of other, important matters. Contracts can come into existence also asa result of conduct.

In the circumstances found in Goldsworthy v Harrison, without more complete evidence from the Parties, the judge found it impossible to say that there was no triable issue as to whether the parties had agreed to the application of the JCT minor works terms (with appropriate gaps). The result of this was that Goldsworthy’s application to enforce the adjudicator’s award by summary judgment failed.

The advice which must be drawn from this case, which is a situation all too commonly found, is that it is better to have the formal contract executed before any work is commenced. Newsletter – Retention of Title

Retention of Title

The Court of Appeal of England and Wales has ruled in the recent case of PST Energy 7 Shipping LLC Product Shipping & Trading S.A. v O.W. Bunker Malta Ltd and others [2015] EWCA Civ 1058 that a retention of title clause prevented a contract from being a sale of goods contract. Although the case was decided in the context of shipping, producing direct implications for ship owners, it is likely to have wider implications for retention of title clauses in the context of the supply of goods contracts.

In the PST Energy 7 Shipping case, the contract included a clause that, pending payment, the ship owner held the fuel as a baillee but was able to continue using the bunker.  This did not release the ship owners from their obligation to pay for the fuel.

Overall, as reported, this decision has implications for contracts for the supply of consumable goods where a retention of title clause provides ever diminishing security for payment. Newsletter – Good Faith

Good faith duties are still narrowly construed in English law.

The debate about the extent of a good faith duty in English law continues to rumble on and in 2015 the courts continued to construe express good faith obligations narrowly.

In Portsmouth City Council v Ensign Highways Ltd [2015] EWHC 1969 (TCC), a case that considered a general good faith obligation in a long term, Private Finance Initiative (PFI) road maintenance contract, the judge found that the council was not subject to that duty when it came to its contractual obligation to assess the award of service points, which required the exercise of a discretion.

The Judge did find, however, that the council was subject to an implied obligation to make the contract work; namely that it would exercise its discretion by not acting in an arbitrary, irrational or capricious manner and also by acting honestly and on proper grounds.

It seems that the good faith clause was used to import into the implied term two extra, fact-specific duties. Contrary to the approach that was being taken in order to force Ensign to negotiate the original contract, which the council could no longer afford, the council could not simply award the maximum number of points for each contractor default.

(Note this case was heard before the case of Arnold v Britton was decided, the court followed Rainy Sky SA v Kookmin Bank [2011] UKSC 50 by interpreting the contract using commercial common sense.) Newsletter – When good sense doesn’t always prevail!

A contract’s plain meaning may override commercial good sense.

In the case of Arnold v Britton [2015] UKSC 36 the Supreme Court of England and Wales delivered a significant judgment on interpreting contracts, concluding that where the contractual wording is clear, the courts are reluctant to depart from its plain meaning to invoke considerations of commercial good sense.

This judgment reinforces a recent trend in which the courts have downplayed the importance of looking at whether or not a contract makes commercial common sense unless there is ambiguity or lack of clarity in the language used. The result is that where an event occurs that was not intended or contemplated by the parties, judging from the contract language used, the courts will only give effect to the parties’ intention when it is clear.

In the cited case the decision meant tenants had to pay a service charge much higher than they ever anticipated. Despite the harsh outcome, Lord Neuberger was clear that “there is no principle of interpretation which entitles a court to rewrite a contractual provision simply because the factor which the parties catered for does not seem to be developing in the way in which the parties may well have expected“. Newsletter – Duty of Care and Duty to Warn

In the eleventh of its newsletters Cerno considers the duty of designers, contractors, and sub-contractors to warn of the potential dangers on construction projects. This article was first published on 11 January 2013 and a link to the newsletter follows.

Cerno – Articles – Newssheet 11 (2013-01-11)

For more information please e-mail to: Newsletter – Tiered Dispute Resolution

In the tenth of its newsletters Cerno considers dispute escalation clauses. This article was first published on 14 December 2012, and a link to the newsletter follows.

Cerno – Articles – Newssheet 10 (2012-12-14)

For further information please e-mail to: Newsletter – Termination of contracts.

In the ninth of its newsletters Cerno considers termination of contracts. This article was first published on 3 December 2012 and a link to the newsletter follows.

Cerno – Articles – Newssheet 9 (2012-12-03)

For further information please e-mail to: Newsletter – Mediation

In the eigth of its newsletters Cerno discussed the process of mediation as a dispute resolution mechanism. A link to that newsletter, which was originally published on 25 November 2012, follows:

Cerno – Articles – Newssheet 8 (2012-11-25)

For further information please e-mail to: Newsletter – “Without Prejudice” – Not as absolute as you think!

In the seventh of its newsletters Cerno discussed the degree of reliance that can be placed upon the claim that communications were made on a ‘without prejudice’ basis. A link to that newsletter, which was originally published on 9 November 2012, follows:

Cerno – Articles – Newssheet 7 (2012-11-09)

For more information please e-mail to: Newsletter – Burden of Proof

In the sixth of its newsletters Cerno discussed the burden of proving facts alleged in civil law cases. A link to that newsletter, which was originally published on 2 November 2012 follows:

Cerno – Articles – Newssheet 6 (2012-11-02)

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