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Builder in dispute with client over late payment

LCCL was approached recently by a local builder who had taken on a project for a client who was known to him. Due to the prior knowledge between the parties there was a level of trust and so neither thought a “formal” contract was necessary as they had an understanding. The work consisted of construction of a major extension to the existing property and the builder had experience in this field so hadn’t been particularly diligent in checking all the specifications. An e-mail trail of correspondence was available along with estimates, however there was no formal contract signed by the parties. This inevitably led to misunderstandings, delays and disagreement and dispute over what was included:

• the client claiming that the work was defective and not fit for purpose
• the builder claiming that some of the work was never included in the original price and this should have been “obvious”.

This situation is unfortunately all too common in the building or construction areas. The builder claimed that the client was not sure what they wanted and did not define it accurately in a scope of work and so this led to misunderstandings; this being further complicated as subcontracted tradesmen were also involved.

So how is this viewed in English law?

Any adjudicator must try and determine what the liabilities and obligations of the parties are within the contract formed.

There is some form of contract or agreement in place as even if there was no formal contract there is an agreement to carry out work, evidenced by the conduct of the parties; by the builder carrying out some work and the client paying; at least initially.

Without a written contract in place, it becomes difficult for an adjudicator or any tribunal to determine what has been agreed, but that is the task in hand. Referring to the case of. Dacy vs IDM, where the adjudicator had to decide whether there was a contract in place even if it was a verbal contract (at a meeting made at a bus stop!) and if so when did it come into being and what that contract consisted of. The fact that Dacy had engaged subcontractors following that meeting reinforced the decision that a contract had been formed during that meeting.

When the re-design was finally agreed the project progressed, but this was not without dispute and professionals becoming involved and inevitably led to delays and disruption to the project. So the lesson to be learned is quite a simple one: – both parties need to sign a formal contract which contains expresses exactly what is required from each.

Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security. John Allen Paulos

Certainty is what we strive for in our contracts, we read them carefully, we interpret them, we have them reviewed by experts or we certainly should do so before we sign them and we take them seriously. We know that we are entering legally binding agreement and have obligations and liabilities on both sides.

But what if in these uncertain times certainty is proving difficult? What if our interpretation is different from the other party on an issue neither party anticipated? Our standard forms of contracts generally have a force majeure or an unforeseeable event clause in them which we think covers us sufficiently. However, it is only when an event happens that both parties rightly turn to the contract to determine liability and obligations and in the case of Contractors inevitably look for extensions of time (EOT) and recovery of losses and expenses incurred.

Obviously Covid 19 had wide ranging implications in many different ways, but it was not so much the Covid outbreak itself but the responses and constraints imposed by the government following the outbreak that caused the issues. It was this uncertainty as to how we could manage to carry on as “much as normal”, and if we could not what would be the impact? How would we be able to carry and would it delay the works? Would it cost us more and if so, is this expense recoverable? In other words who is liable for this delay and /or cost?

So what do we know?

Parties have argued that to some degree an outbreak such as Covid 19 was foreseeable, – Ebola, Bird Flu, Swine Flu, there have been a few. So some argue that it was foreseeable, but it was the far reaching restrictions put in place that were not foreseeable. Never have the UK government or other governments around the world introduced such wide ranging measures.  So we need to look to the wording in our contracts:

• NEC cl. 60.1(19) an event.an experienced contractor….to have such a small chance of occurring that it would have been unreasonable for him to have allowed for it”.

It looks like within NEC3 standard contract then the assertion that as the lockdown measures had not occurred before it was unreasonable for a Contractor to have allowed for it. However there are other clauses which need to be considered to understand the whole picture: for example have PM’s instructions been issued regarding access restrictions? Or has the flow of information been hindered? 

• The 2016 JCT SBC cl. 2.29(14) states “force majeure”, without further definition as a Relevant Event leading to entitlement of extra time but difficulty may arise due to force majeure not being a principle of English common law. cl 29.2 (12) refers to “changes of law” which were brought in which certainly affected work patterns but remember Relevant Events are different to Relevant Matters cl. 4.22. As force majeure is a Relevant Event there is a potential entitlement to extra time. However for loss and expense it may be necessary to look elsewhere, for example: has a variation been issued which means a restriction of access to the site or a requirement to implement the work in a different manner (cl 2.29.(1)?.
• Within the FIDIC 1999 forms the force majeure clause was replaced in the 2017 form  with ”Exceptional Event”  however the non-exhaustive list of events remained fundamentally the same.  “If either party is prevented from performance obligations by force majeure, it may be excused performance of those obligations……. And Contractor may be entitled an extension of time and cost, and  force majeure is defined further in cl 19.1 as

There are four conditions where force majeure is defined.

(a) which is beyond a Party’s control;
(b) which such Party could not reasonably have provided against before entering into the Contract;
(c) which, having arisen, such Party could not reasonably have avoided or overcome, and
(d) which is not substantially attributable to the other Party.

The definition does not require that the event be unforeseeable by the parties at the time of the contract and the non-exhaustive list that does not mention pandemic does not preclude the possibility of a claim. Cl 19.4 (1999) entitles Contractors to an extension of time but only to cost in case of certain events or circumstance “of the kind” as described in the list. However the pandemic and consequences thereof may well be treated as a neutral delaying event where the Contractor is entitled to an extension of time only.

In all of these instances it is important that the Contractor has a

• An obligation to perform the works (as frustration or impossibility is unlikely to succeed)
• A duty to mitigate costs
• To use reasonable endeavours to minimise delay in the performance of the Contract.

And most importantly the Contractor must ensure that records are kept which then provide evidence of disruption and or delay. Whatever the Contract requires in the form of Notices (FIDIC cl. 19.2, JCT 1.7 and NEC3 Early Warning 16.3) this notification should be done promptly so as not fall foul of any time bar clauses.  

This blog is intended to provide general information and does not constitute legal advice.