10 Liability in contract and tort
Where a contract has been properly made, in terms of the criteria laid out in the previous Chapter, it then becomes necessary to identify precisely what obligations it imposes on the parties – that is to say, what terms it includes. This is because where any party fails without lawful excuse to perform fully and exactly a contractual obligation, that party is guilty of a breach of contract. In considering this question, what emerges is that there are three types of contractual term: those express terms which are contained in the main contractual document itself; those (also express terms) contained in other documents to which the main contract document refers; and those terms which are implied by law.
In addition to those obligations created by a contract, a party may incur legal liability under the law of tort. The most important example of this type of liability is that based on negligence.
10.1EXPRESS TERMS
10.1.1Terms and representations
Since English law does not as a general rule require a contract to be made in any particular form (see Section 9.2.6), it is in principle possible for the parties’ agreement to be spread over a number of documents, and even to include oral statements. Even where the parties have eventually signed a document described as ‘the contract’, it is open to a court to decide that this document does not paint a complete picture, and that the true contract consists of that document plus other terms. However, a court will not be quick to do this, for there is a presumption that a written document that appears to contain all the terms of a contract in fact does so.
The result of these principles of contract law is the creation of some uncertainty regarding the status of a statement or promise made by one party to the other during the course of negotiations leading to the signing of a formal contract. Such a statement (which might be oral, or might equally be contained in, say, a letter) can be treated in law as a term of the contract. In this case, if it is untrue, the innocent party may bring an action for breach of contract. Alternatively, if it has operated as an inducement to the other party to enter into the contract, the statement may be treated as a misrepresentation, in which case the legal remedies available will depend on whether it was made fraudulently, negligently or innocently. This is not the place to discuss the remedies for misrepresentation, which will be found in any textbook on the law of contract. Suffice it to say that they are generally less beneficial to the innocent party than a right to sue for breach of contract.
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In seeking to decide whether a particular statement is a term or a mere representation, the courts make use of several guidelines. Some of these may point in opposite directions. It is for example presumed that a statement made at a very early stage of negotiations is probably a representation, while a statement made by an ‘expert’ is more likely to be treated as a term. However, what is very often decisive in the context of construction contracts is the strong presumption that, where the parties have signed what purports to be a complete contract document, this represents the whole of their contract. As a result, any other statement, promise or assurance is likely to take effect, if at all, as a mere representation.
10.1.2Contract documents
As mentioned above, a contract made in writing frequently consists of more than one document. Certain categories of document are routinely found in construction contracts and the main ones are described below.
Contract documentation is the means by which a designer’s intentions are conveyed to the client, the statutory authorities, the quantity surveyor, the contractor and the sub-contractors. In addition, the other design consultants each add their own specialized information to the increasing body of documentation as the project progresses. From a management and administrative point of view, every item in this ‘contract documentation’ is important, because it describes and records all aspects of the project. However, by no means every item comes within the more limited legal definition of ‘contract documents’, a special term used in construction contracts to describe those documents which are legally binding. In one case, for example, it was held that a preliminary site survey report was not incorporated into the contract, even though it was specifically referred to in the contract drawings.1
As to what the term ‘contract documents’ includes, nearly all the standard-form contracts identify the articles of agreement, conditions of contract, drawings and bills as key contract documents. However, there are differences between forms when it comes to such items as programmes, specifications, project-specific data, etc. The elements of documentation will be examined briefly in turn, before looking at how they relate to each other and how the conditions of contract integrate them.
Articles of agreement
It should be noted at the outset that many English standard forms of contract contain a section called ‘definitions’ and it is also useful to know that each capitalized term in a contract usually means that the term has a defined meaning within the agreement. The definitions clause of JCT SBC 05 (clause 1.1) states that the ‘contract documents’ contain, among other things, a document called the ‘agreement’ which in itself is defined in the contract as the ‘articles of agreement’. The articles of agreement record in general terms what the parties have agreed to do. They identify the parties to the contract, what is to be built (the contractor’s
1 Co-operative Insurance Society Ltd v Henry Boot (Scotland) Ltd (2003) 84 Con LR 164.
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obligation) and what is to be paid (the employer’s obligation). They tie these obligations to the conditions and to the other contract documents.
In JCT contracts, the articles of agreement consist of three sections, namely the recitals, articles and contract particulars (see the definition of the term ‘agreement’ in clause 1.1 JCT SBC 11):
Recitals: In defining the contractor’s obligation, the articles of agreement do not descend to any great detail. They merely state, in a section starting with the word ‘whereas’, that ‘the employer wishes to have’ the briefly described works carried out. Some standard forms also record that tenders have been accepted, that drawings have been prepared, and so on. This section is called the ‘recitals’ (although only JCT contracts specifically give it this name). The purpose of the recitals is to describe the background to and the purpose of the contract. They help to provide a basis for interpretation of the detailed provisions contained in the contract clauses.
Articles: The articles substantiate the obligation of the contractor by stating that the works shall be carried out and completed in accordance with the contract documents. Moreover, the articles provide the place in which the parties should specify essential information, such as the amount of the contract sum, the name of the architect/contract administrator and the desired method of dispute resolution.
Contract particulars: This section contains the project-specific data. Older JCT forms contain an ‘appendix’ as a specific part of the contract documents instead of contract particulars.
Although they may use different terminology and present them in a different part of the form, all standard-form contracts will need to contain these three types of information. In the FIDIC 1999 Red Book there is a single page form of agreement form provided, as the contract particulars are annexed to the letter of tender which will also be a contract document. NEC3 does not have a standard form of agreement.
Conditions of contract
The conditions of contract are the very detailed clauses that follow on from the articles of agreement. The purpose of the conditions is to amplify and explain the basic obligations the parties undertake by signing the articles of agreement. The conditions also provide administrative mechanisms for ensuring that the correct procedures are observed. Effective contract clauses of this kind deal efficiently with what would otherwise be breaches of contract, and therefore ensure that the contract is kept ‘alive’. In FIDIC 1999 Red Book these are called the general conditions.
Project-specific data
Certain facts relating to the execution of a building contract will differ from one project to another. To enable standard-form contracts to be used in spite of these differences, the facts concerned can be summarized in a part of the contract variously referred to as appendix, contract particulars, contract data, abstract of
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particulars and so on, which should be filled in when executing the contract. JCT SBC 11 contains eight pages of ‘contract particulars’ as a subsection of the articles of agreement, NEC 3 has a 13-page section called contract data and FIDIC 1999 Red Book contains this data in the Appendix to the letter of tender, which is included with the tender documentation.
The project-specific data contains such items as the starting date (or date for possession), completion date (or duration of the contract), defects liability period (rectification period or defects correction period) and the amount of liquidated damages. Sometimes default provisions specify what is to happen if the relevant entry is left blank. Some provisions are not applicable at all unless the particular entry is completed, such as the employer’s right to delay possession of the site by up to six weeks (as in clause 2.5 JCT SBC 11).
The contents of the project-specific data are of fundamental importance in assessing the amount and duration of responsibility accepted by the parties. Therefore, close attention should be paid to these entries.
Drawings
The production of drawings is generally, although not always, the responsibility of the design team. The technical complexity of most modern buildings makes it essential that this process (including all associated information, as well as the drawings themselves) is properly planned and organized. Detailed guidance on this is available from numerous sources (for example, Thompson 1999, Wakita and Linde 2002). As with all types of communication, clarity is essential. The aim is to transmit the information in a way that can be understood. Good communication will inspire confidence; bad communication will cast doubt on the ability and integrity of the designer.
Drawings have many functions and a different drawing usually fulfils each function. First, they form a model of the designers’ ideas and help to articulate and predict problems with fabrication and with appearances. Isometrics, scheme design drawings and ‘artistic impression’ drawings help to fulfil this function. Although there is little information on them, which would enable a builder to erect the proposed building, they amplify and explain the basic nature of what will be required in the finished building.
Second, drawings are the vehicle by which the designers’ intentions are conveyed to the contractor. The detail design drawings contain information that shows how the separate parts of the building interact with each other. The detailed information from specialist sub-contractors and from other designers is coordinated and presented through such drawings.
Third, drawings form a record of what has been done. These ‘as-built’ drawings are essential to the building owner as a basis for future maintenance of the facility, and may not be the same drawings that were used for the purposes of fabrication. They are also a useful control document to compare what has been done with what was planned.
The multiple uses which different drawings are called upon to perform, and the interaction between drawings and other types of documentation, have often been a source of problems. Thus, detailed guidance has been developed for ensuring that a common approach to describing different types of work is used, resulting in
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guidelines for the production of drawings, specifications and bills of quantities. These currently represent best practice in the industry and should be essential reading for everyone concerned with the documentation of construction projects (Allott 1998).
The designer usually retains copyright in the design and, on completion of the work, can insist that all drawings are returned. When this is the case, neither the contractor nor the client is entitled to use the information again, for example to construct an identical building, without first obtaining the permission of the designer.
Schedules
There are at least two relevant definitions of schedules. First, schedules can be tables of information that summarize the quantities and dimensions of certain generic items, for example windows or ironmongery. Although they will rarely be cited as contract documents, they will often be bound up and included with the sets of drawings, as they are invaluable in summarizing detailed information. Clearly, a drawing will show all the windows in a building, but it is very useful to extract all the details of sizes and numbers on to one table. Although dimensions can be summarized in tabular form, some information is best conveyed on a dimensioned sketch, such as the arrangement of opening lights in a window. Such schedules provide information to quantity surveyors, builders, buyers and others in a form which has advantages over drawings (Hackett et al. 2007: 173): mistakes are easier to check; getting estimates and placing orders for similar items is simplified; prolonged searching through a specification is avoided. The aim of the schedule is merely to simplify the retrieval of information. It is not intended to supplant the bills of quantities, which will contain the full and final description of the work.
Second, in some contract forms certain contract provisions are relegated to appendices, typically called schedules. JCT SBC 11 for example, uses schedules for defining the contractor’s design portion (Schedule 1), insurance options (Schedule 3) and forms of bonds (Schedule 6). According to the guide to JCT SBC 11, these schedules form part of the conditions (Joint Contracts Tribunal 2011c), a fact that is not explicit in the standard form itself. However, this explains why the schedules are not specified as a distinct part of the ‘contract documents’ in the definition of this term (clause 1.1 of JCT SBC 11).
Specifications
Drawings provide information about the shape, appearance and location of the various components that have to be assembled but they convey little about the methods to be used, the quality of finishes and the workmanship to be employed. Assuming that such things are to be specifically controlled by the contract, rather than relying on the terms that would be implied at common law, this is a matter for the specification. This will include information about the materials and components to be used, the standard of workmanship that will be required, any specific performance requirements as well as the conditions under which the work is to be executed.
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Where bills of quantities are used for a project, information of this kind will be usually contained in the bills, and thus there will be no ‘specification’ in the sense of a separate document. However, not all projects need full quantification with bills of quantities; many projects are let by drawings and specification alone. Where this is done, the specification may be called upon to perform an even wider role. In order to prepare a useful and accurate specification, it is essential to be systematic and methodical.
Bills of quantities
The purpose of bills of quantities, and their status, may vary under different standard form contracts. However, when used, they are almost invariably specified as a contract document.
In JCT contracts, when bills are used, they are called ‘contract bills’ and they have a wide-ranging role because they define the whole of the contractor’s obligations for quality and quantity of work (for example JCT SBC 11). In the FIDIC 1999 Red Book quantities are used for tendering purposes to provide rates. The quantity of work described in the bills is only an estimate of what is required of the contractor as valuation and final accounts require remeasurement of the quantities involved. The contractor is obliged to undertake as much work as is necessary and this obligation is not affected by anything in the bills.
The contracts also govern the preparation of the bills, typically specifying that bills have been prepared in accordance with the relevant standard method of measurement. Because the bills have such contractual significance, especially under the JCT series of contracts, it is often necessary to be fully cognisant of what the relevant Standard Method of Measurement (SMM) contains. Any item of work that is not measured in line with the principles in the SMM must be expressed categorically in the bills, in terms of both the nature of the departure from the SMM and the items affected.
Bills of quantities originated for tendering purposes; indeed, engineering contracts still retain this emphasis. In many JCT contracts such as JCT SBC 11 (i.e. the version ‘with quantities’), the bills of quantities have additional roles to play in the valuation of variations and interim certificates, and in the control of the works. In addition, various other categories of information are often gleaned from the bills, such as the location of work and basic cost planning data. Not surprisingly, bills of quantities are increasingly being seen as hopelessly inadequate for all of these conflicting needs. There are many ways of choosing a contractor, and many ways of fixing a price for the work to be undertaken. To use the bills as the sole vehicle for both these purposes is an over-simplification that can lead to many problems (Skinner 1981).
The bills typically consist of preliminaries, preambles and measured works. These terms have specific meanings and it is useful to clarify their meaning:
Preliminaries contain the definition of the scope of the works. In the Common Arrangement of Work Sections (Allott 1998), section A is given over to defining the preliminaries and general conditions. It includes, among other things, particulars of the project, lists of drawings, description of the site, scope of the work, details of documentation and management
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arrangements. The preliminaries often contain items for pricing which will be for general use for the whole project such as huts, fences and security.
Preambles were once a separate description of the materials and workmanship to be employed in assembling the building and this was known as the ‘specification’ section of the bill. In the common arrangement, this is Section A33 of the work sections and, as a result, it is likely that ‘preambles’ will disappear from the vocabulary of building contracts.
Measured works are the detailed quantification of the works. This section should be presented according to the rules dictated in the contract.
Certificates
There are several types of certificate in building contracts. They fall into two main categories: those which certify the quantity of work done to date, on which payment is calculated; and those which certify that an event has taken place. The former are called interim certificates, and their use is one of the most distinctive features of building contracts.
Interim certificates are used in the majority of building contracts because it is not intended that the contractor should have to finance the whole of the building work. The contractor will be paid for the amount of work done at regular periods, usually one month. When each payment is made, a small percentage of the money due to the contractor (called retention) is kept back, and this is released when the work is completed. It is also possible for other amounts of money to be withheld, under a right known as set-off, for delay or for defective work. The issues of retention and set-off, which are of great practical importance, are dealt with in Chapter 15.
The second category of certificates consists of those that record an event (or non-event). They vary from one form of contract to another, but basically they are:
Certificate of practical completion
Certificate of final completion
Certificate of non-completion
The full effect of these certificates is covered in Chapter 18.
Other documents
Additional contract information is contained in instructions, which contain information more detailed than that found in the tender documents. There are also other documents, such as descriptive schedules, further drawings and setting-out information. These may be necessary for the contractor to execute the work but such additional information must not impose extra work on the contractor. There will usually be an express term to this effect. If the contract administrator wishes to impose changes when issuing these instructions then a variation order must be issued to cover the changes.
There will typically be an obligation on the contractor to provide a programme of work. Although certain dates in the contract are legally binding, the programme is not. All the contracts make it clear that, even though the contractor must provide a programme soon after being awarded the contract, there can be no extra
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obligations imposed by it. The programme is essential as a management control mechanism. It is also extremely useful to all participants in resolving claims for extra time. In order for it to be effective in these roles it must be revised as the project progresses and this is also usually a requirement.
Interaction between documents
The relationships between the various forms of documentation are worthy of comment. These documents may have to stand on their own for certain purposes but for the purpose of procuring the building they must interact and this interaction must be consistent and dependable. One result of the JCT approach is that the specification can no longer be a separate document in its own right; the bills are the only vehicle for defining quality or quantity of the contract work. Because the specification is embodied within the bills, any specification notes on the drawings will have no contractual significance, unless they are incorporated into the bills either directly or by reference.
10.1.3Priority of documents
On a construction project of any substantial size, the sheer weight of detail found in the contract documentation gives ample scope for discrepancies and inconsistencies. These may arise within one particular document, as where a clause in the general conditions of contract is inconsistent with a clause in one of the annexed schedules. They may also arise between two documents, as where something in the bills conflicts with something in the conditions.
The general approach of most standard form contracts to this problem is that in the event of finding a discrepancy, the contractor should refer it to the contract administrator (JCT SBC 11: 2.15, NEC3: 17.1, FIDIC 1999 Red Book: 1.5). The latter must then issue instructions so as to resolve the discrepancy and, if these cause delay or disruption, the contractor will be entitled to an extension of time and to compensation for loss and expense (JCT SBC 11: 2.29.2.1 and 4.24.2.3). Furthermore, if the instructions constitute a variation, the contractor will be paid at the appropriate rate for the work involved.
When called upon to resolve a discrepancy of this kind, the contract administrator should normally act in accordance with the general principles of law that govern the interpretation of contracts. However, this is subject to the terms of the contract itself, and it is noticeable that these general principles are expressly modified by a number of standard form building contracts. For example, one of the common law rules is that, where there is a conflict, written words prevail over typed words, and typed words in turn prevail over printed words. That rule is based on the sensible ideas that documents which are prepared for a specific job, rather than being taken ‘off the shelf’, are more likely to reflect the parties’ true intentions. If it were to be applied to a building contract, it would mean, for example, that provisions in bills of quantities would override the printed conditions of contract.
This is emphatically not the case, at least where the main standard forms are concerned. JCT SBC 11 clause 1.3 states that nothing in the contract bills shall
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override or modify what is contained in the agreement or conditions. This wording does not prevent the bills from imposing extra obligations on the contractor; it means that, where a particular matter is dealt with in the conditions, any special provisions on that subject in the bills are to be ignored.
In cases dealing with similar wording in earlier JCT forms of contract, the courts have ruled that the clause can operate to defeat what is the clear intention of the parties as expressed in the bills. The most striking example of this is the case of
MJ Gleeson (Contractors) Ltd v Hillingdon London Borough,2 where a contract for the provision of a large number of houses gave a single completion date of 24 months after the date for possession. In reality, as the preliminaries bill showed, the parties’ intention was that blocks of houses were to be handed over at 3-month intervals from 12 months onwards. When the first blocks of houses were not completed after 12 months, the employer deducted liquidated damages at the contract rate, but this was held to be invalid. The contract made no provision for sectional completion, and it could not be varied by the contract bills.
The Gleeson principle has in other cases forced the courts to block the clear intentions of the parties by ignoring provisions in the contract bills which purported to deal with the contractor’s duty to insure,3 the nomination of subcontractors4 and the early taking of possession by the employer.5 On the credit side, it also enabled a court to hold that, under a contract in which a contractor undertook merely to construct in accordance with the employer’s design, an obligation to carry out design work could not be imposed on the contractor by the ‘back door’ method of inserting a performance specification in the contract bills.6
10.1.4Interpretation of contracts
Where a contract is made in writing, a court will seek to give effect to the intention of the parties as expressed in the written documents. This means that, in general, oral evidence is not admissible to contradict, vary, add to or subtract from the written terms. However, oral evidence may be brought to explain the customary or technical meaning of a particular word in the contract, or to establish the background circumstances in which the contract was made.7
A particular question of interpretation, to which the courts have given conflicting answers, concerns the common practice of making alterations to, or deleting clauses from, standard form contracts. The question is to what extent, in interpreting the words that are present, a court should be influenced by what has been deleted. In one case,8 the Court of Appeal held that deletions should be completely ignored, and the remaining words interpreted as if the deleted clause had never existed. However, the opposite view (which seems rather more convincing) is that the parties must have had a reason for amending or deleting the
2 (1970) 215 EG 165.
3 Gold v Patman & Fotheringham Ltd [1958] 2 All ER 497.
4 North West Metropolitan Regional Hospital Board v TA Bickerton & Son Ltd [1970] 1 All ER 1039. 5 English Industrial Estates Corporation v George Wimpey & Co Ltd (1972) 7 BLR 122.
6 John Mowlem & Co Ltd v British Insulated Callenders Pension Trust Ltd (1977) 3 Con LR 64. 7 Pigott Foundations Ltd v Shepherd Construction Ltd (1993) 67 BLR 48.
8 Wates Construction (London) Ltd v Franthom Property Ltd (1991) 53 BLR 23.