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A brief case law update

Recent case law confirms that, to be a “construction contract”, all contract terms must be in writing, provides guidance on the construction of a condition precedent, considers whether time was of the essence in a payment provision, and rules on the validity of notification of an intention to refer to arbitration.

Contract terms in writing

In order for the adjudication and payment provisions of the Construction Act to apply to a contract, it must be a “construction contract in writing” within s107.

The leading case on this point is RJT Consulting Engineers Ltd –v- DM Engineering (Northern Ireland) Ltd, where Lord Justice Ward said “On the point of construction of s107, what has to be evidenced in writing is, literally, the agreement, which means all of it, not part of it”.

This approach was confirmed in the recent case of Rok Building Ltd –v- Bestwood Carpentry Ltd. On the facts, Akenhead J held that there was undoubtedly a contract between the parties, but that not all the oral terms that had been agreed were contained in or evidenced in writing. In the circumstances, therefore, the adjudicator had no jurisdiction to decide the dispute referred to him.

Although this decision doesn’t contain any new law, it serves as a useful reminder of the difficulties that can be faced when a negotiated agreement isn’t properly recorded in writing. This will all change when the proposed amendments to the Construction Act come into force, probably next year, but, until then, parties should ensure that, if they want to adjudicate their disputes, they should record all the terms of their agreement in writing.

Condition precedent

A condition precedent is something that must be complied with before a party can avail itself of an entitlement under a contract. For example, a contractor might only be allowed to claim an extension of time or loss and expense if he’s notified the employer of likely delays to completion within a certain time period of his becoming aware of the circumstances giving rise to the claim.

In the recent case of WW Gear Construction Ltd –v- McGee Group Ltd, the parties had added a bespoke condition precedent, which, on its wording, referred to the wrong clause (ie not the clause containing the entitlement to which it was a condition precedent). The clause was intended to make it a condition precedent of the contractor’s entitlement to loss and expense that he apply for it within a certain time.

Reference was made to the leading authority of Chartbrook Ltd –v- Persimmon Homes Ltd, where Lord Hoffmann said “We do not easily accept that people have made linguistic mistakes, particularly in formal documents, but in some cases the context and background drive a court to the conclusion that something must have gone wrong with the language. In such a case, the law does not require a court to attribute to the parties an intention which a reasonable person would not have understood them to have had”.

Akenhead J corrected the “obvious mistake” in the contract and made it clear that the condition precedent was enforceable. He emphasised that the contractor had to apply for loss and expense within the time limit or his entitlement would cease.

Time of the essence

An express clause that time is of the essence of an agreement enables the party relying on the clause to terminate the agreement and, if appropriate, claim damages if the other party fails to perform an obligation in accordance with the time specified in the agreement.

If parties haven’t expressly made time of the essence of the agreement, it can sometimes be implied where the circumstances of the case or the subject matter indicate that a time limit must be complied with, for example where the failure of one party to perform on time deprives the other of the benefit of the contract which it was intended that he should receive.

In the recent case of Dominion Corporate Trustees Ltd –v- Debenhams Properties Ltd, the court held that the failure of Dominion to pay Debenhams the sum of £425k on time was not a fundamental breach of contract entitling Debenhams to terminate because time was not of the essence. It didn’t deprive Debenhams of the benefit of the agreement or render it incapable of performing its own obligations. Also, one of the matters taken into account by the judge was the fact that the agreement provided for interest on late payment, which was an express remedy for the failure to make payment on time. In circumstances where express provision was made for late payment, the judge did not think that the time specified for payment was of the essence of the agreement.

Validity of notification

Contracts often contain provisions relating to the giving of notices. The courts won’t generally interfere with provisions in a contract freely agreed between parties and it’s therefore very important to consult the contract before serving any form of notice under it.

In the recent case of Anglian Water Services Ltd –v- Laing O’Rourke Utilities Ltd, Edwards-Stuart J held that, where a contract provided for service of communications at a party’s “last notified address”, service of a notice of arbitration on the party’s solicitor wouldn’t be valid service unless he’d previously notified his solicitor’s address as the relevant address for service. The fact that the notice had been passed on to the party within a matter of minutes wasn’t relevant. As it turned out, however, the judge went on to find that the solicitor’s address had in fact been notified as the relevant address and the notice had therefore been validly served.

This is a good example of the sort of disputes that can arise where methods of service of notices are prescribed by the contract and is a reminder that any such contractual terms must be complied with.

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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