Construction Contract Law Essay

Introduction

I am going to examine the case of Margaret Tomlinson V Iain Wilson and weather the use of adjudication would have assisted the parties in coming to cheaper and quicker solution to their quarrel. To give my opinion of the case I am going to explain other methods used to resolve disputes.

Arbitration

In arbitration an independent third party hears both sides in a dispute and makes a decision to resolve it. The arbitrator is impartial; this means he or she does not take sides. In most cases the arbitrator’s decision is legally binding on both sides, so it is not possible to go to court if you are unhappy with the decision.

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Most types of arbitration have the following in common:

  • Parties both agree to use the process
  • It is private
  • The decision is made by a third party, not the people involved
  • The process is final and legally binding
  • There are limited grounds for challenging the decision
  • Hearings are often less formal than court hearings. (Note, however, that some forms of arbitration do not involve hearings but are decided on the basis of documents only)

Litigation

Litigation is the traditional form of dispute resolution and involves using the courts. In England and Wales, even before court proceedings start, it may be necessary to follow a “pre-action protocol” dealing with the steps which the parties must take. This is to encourage active management of cases by the courts and the early exchange of information and documents in order to bring about a settlement of the dispute before the case reaches court. It is therefore important that all of the issues are identified at an early stage and a case is firmly established, even before threatening to bring proceedings.

The result of this will be that costs are front loaded and significant costs will be incurred at the beginning of the case. Whilst the usual rule is that the ‘losing’ party pays the costs of the successful party, it is unlikely that more than 50-70% of costs will be recoverable, and the successful party is still likely to have considerable legal costs if a dispute does not settle before trial.

Court proceedings are, by their nature, formal and based on legal rights and wrongs and procedures are fairly inflexible. As a result, all businesses should consider the other options available for resolving disputes because going through litigation can be very expensive and time consuming.

Mediation

In mediation, an independent third party (the mediator) helps parties with a dispute to try to reach an agreement. The people with the dispute, not the mediator, decide whether they can resolve things, and what the outcome should be.

Mediation is more than just negotiation – it has a carefully staged process. The mediator is there to help the discussions run smoothly, and to manage this process.

All types of mediation have the following in common:

  • It is voluntary – you can choose whether to mediate or not
  • It is private and confidential – what you talk about in mediation can’t be used in court later unless you both agree
  • You and the other party make the final decision on how to resolve your dispute
  • The mediator is impartial – he or she does not take sides or say who is right and who is wrong
  • The mediator is independent

Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999, No.2083)

The Unfair Terms in Consumer Contracts Regulations 1999 (Statutory Instrument 1999 No 2083 made under the European Communities Act 1972) implement an EC consumer protection directive aimed at defeating unfair or oppressive small print in consumer contracts.

  • A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.
  • A term shall always be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term.
  • Notwithstanding that a specific term or certain aspects of it in a contract has been individually negotiated, these Regulations shall apply to the rest of a contract if an overall assessment of it indicates that it is a pre-formulated standard contract.
  • It shall be for any seller or supplier who claims that a term was individually negotiated to show that it was.
  • Schedule 2 to these Regulations contains an indicative and non-exhaustive list of the terms which may be regarded as unfair.

Latham Report

The Latham Report of July 1994 was sponsored by Government and Industry following several poorly performing projects. The inefficiencies identified pointed to the need for greater partnering and collaboration in the Construction sector.

The 90’s was a bad period for the construction industry, overbuilt markets, heated economies, overextended developers, greed and mismanagement led to the decline of the industry. From major studies during the 1990s highlighted the inefficiencies of traditional methods of procuring and managing major projects. In particular the problems created by awarding contracts solely on the basis of lowest price. This experience has shown that this does not provide value for money in both the final cost of construction or the through life and operational costs. Relations over this period between the construction industry and government departments were also often typically characterized by conflict and distrust which contributed to poor performance particularly in the control of costs.

The report called constructing the team by Sir Michael made 30 recommendations to improve the industry. In chapter 9 (entitled ‘dispute resolutions’) of the report states that arbitratration is unsatisfactory because of frequent delays and the ‘constant specter of appeal,’ and recommends development of a project adjudication process which would permit speedy resolution of disputes essentially as soon as they arise. Here are some of the other recommendations Sir Latham Made.

  • Every construction contract should have, schedule of payment, notice of procedure and notice of with holding
  • The right to adjudicate
  • The right to suspend work if not paid (Housing Grants Construction And Regeneration Act 1996 passed by parliament)

Burchell v Bullard [2005] EWCA Civ 358 the Court of Appeal

What happened?

Burchell (a local builder) entered into a contract with Mr and Mrs Bullard to build two large extensions at their home in Bournemouth. The contract provided for payment in 4 stages. The first two payments were honoured. The third payment of �13,540.99 (submitted 31 August 2000) was never paid. Mr and Mrs Bullard’s position was that certain works were defective and wrote to Burchell stating what, in their opinion, needed to be done before they would pay. Following confrontations, and heated exchanges of correspondence, Burchell left site on 21 November 2000 and instructed solicitors.

On 14 May 2001, Burchell’s Solicitors wrote sensibly suggesting that to avoid litigation the matter be referred for alternative dispute resolution (“ADR”) through a “qualified construction mediator”. Mr and Mrs Bullard’s building surveyor rejected mediation as inappropriate for the technically complex matters complained of.

Litigation was commenced in February 2002, Burchell claiming �18,318.45 and Mr and Mrs Bullard counterclaiming �100,815.34. The litigation rumbled on with the case being eventually heard over 5 days at Bournemouth County Court in March 2004.

The Judgment

The judge awarded Burchell nearly his entire claim (�18,327.04). Mr and Mrs Bullard were awarded 15% of their counterclaim (�14,373.15). By this time the parties’ costs were in excess of �185,000.00 in what was effectively a �5,000 dispute.

The judge then addressed the parties’ costs and applied the general rule of thumb that costs follow the event i.e. the loser pays the winner’s costs. He then gave separate judgments on the claim and counterclaim. Burchell was awarded his costs associated with bringing his claim. The Bullards, whilst only partially successful, were awarded their costs of bringing the counterclaim. The bulk of both parties’ costs had been incurred in connection with Mr and Mrs Bullard’s exaggerated counterclaim. This meant that Burchell, who had been successful on his claim, and arguably successful in defending 85% of the counterclaim, now faced a legal cost bill of �136,000 against a recovery of �5000.00. Burchell appealed against this cost order.

Burchell appeal was successful, the Court of Appeal referring to the disproportionate parties’ costs as horrific. Burchell was awarded 60% of his entire legal costs (the Bullard’s bearing their own costs). The Court of Appeal was of the opinion that there should only be a single cost order based on the overall winner, judged by who writes the cheque at the end of the case (i.e. the Bullards paid �5,000).

Margaret Tomlinson V Iain Wilson [2007] (QBD) (TCC) Leeds District Registry

What happened?

Ms Tomlinson and Mr Wilson, a builder, entered into a contract for the construction of a small kitchen and bathroom extension to Tomlinson’s house in Easingwold. The parties agreed that the contract sum would be paid in stages.

Wilson had constructed the extension to roof level when work ceased. This work involved the laying of a concrete raft as the foundation for the extension. Tomlinson alleged that the work to the raft was so defective that the only appropriate course of action would be to demolish everything that had been laid down or erected so far and to rebuild the extension from scratch. Wilson alleged that the raft was fit for purpose although it was common ground that it had not been constructed in accordance with instructions.

It was an express term of the contract that works should be carried out in accordance with Building Regulations and that the foundation of the extension must be adequate for the purpose of supporting the structure.

There were defects in the work done by the builder. The main issue was whether the owner or the builder had repudiated the contract. It was agreed that it was necessary to find that one party by words or conduct had demonstrated an intention not to proceed further, and also, that the other party had accepted those words or conduct as a breach discharging him from further performance. In essence the question was did the builder walk off the job or did the owner prevent him from completing the work?

No work was done on site after 17 June 2005. On either 10 or 11 June 2005 there was a conversation between Tomlinson and Wilson. Tomlinson advised Wilson that he “obviously must be broke” because he was “always looking for money” but Tomlinson agreed that she would make the penultimate payment when the roof tiles were on. On 21 June 2005 Wilson wrote to Tomlinson advising that he would suspend all work on the property until and only if the matter of payment was resolved. The parties then agreed that works would be suspended pending a survey on the property.

On 15 July 2005, Tomlinson’s solicitor, Moore & Company, wrote Mr Wilson a letter in accordance with the pre-action protocol for construction and engineering disputes. This letter alleged that Wilson was in breach of contract and alleged that Wilson had failed to design and construct the extension with reasonable care and skill and in a proper and workmanlike manner. In addition, the letter stated that it was never a term of the contract that stage payments would be made and Wilson could not insist on stage payments being made. Wilson was also forbidden to attend the property. Wilson replied to this letter on 20 July 2005 rejecting Tomlinson’s claims.

Up to 15 July 2005 the parties were skirting around, rather than engaging with each other. The builder felt that the owner had been deliberately avoiding him and had doubts as to the owner’s intention to make the penultimate stage payment. He admitted that he suspended work on the roof because he was anticipating a breach of contract.

The evidence showed that the builder’s suspicions were justified. The owner’s letter of 15 July 2005 constituted an announcement that she regarded the project at an end. As it was put by the judge “she had moved from the chamber of complaints into the ante-room of litigation”.

The builder’s letter of 20 July 2005 was an acceptance of the owner’s repudiatory breach. The builder claimed damages for loss of profit which he was only entitled to if the contract was being brought to an end.

The issue then was the measure of damages where the building owner acts so as to bar completion by the builder.

The judge accepted the measure of damages based on a profit ratio of 20% of turnover. Allowing that 75% of the work had been done he awarded �500 as damages.

The Issue

Had the contract been repudiated by Tomlinson’s pre-action protocol letter? If not, were the raft foundations so defective that the extension required demolition?

The Judgment

The pre-action protocol letter amounted to an announcement on Tomlinson’s behalf that she regarded the project at an end. The letter stated that Wilson, after being excluded from the property, might return to work, but this would be by Tomlinson’s permission, on her terms, and without the right to stage payments which had been part and parcel of the original contract. Wilson’s letter in reply to the pre-action protocol letter accepted this repudiation.

It was a term of the contract that the concrete foundation was required to be built in accordance with the Building Regulations and the foundation must be adequate for the purpose of supporting the structure. The evidence showed that there were defects in the foundations but that these defects could be cured by repair rather than demolition and rebuilding.

How adjudication could have helped come to a quicker and cheaper solution

Before the Act came into force, parties to construction contracts were stuck with either litigation or arbitration to resolve their disputes unless they could negotiate a settlement. Litigation and arbitration suffered from the same deficiencies: they were (and remain) expensive and time consuming. It was and still is difficult for parties to handle litigation or arbitration processes without legal representation. In contrast, adjudication is less expensive and, whilst there is disruption to a business while the adjudication is live, this is short lived relative to the disruption caused by the litigation or arbitration processes. The whole process of adjudication can be over in as little as 28 days. The informality of adjudication (for example, the absence of strict rules of evidence and the fact that a hearing is often not required) has meant that parties to a construction contract can and increasingly do handle adjudications on their own.

Adjudication allows disputes to be resolved whilst works are in progress. Provided a dispute exists, either party can adjudicate at any time. A speedy dispute resolution process like adjudication can help to prevent relationships on site from deteriorating to the detriment of the project.

Adjudication has the full backing of the courts. The courts have endorsed the binding nature of adjudicator’s decisions pending a final determination of the dispute in litigation or arbitration and, save in exceptional circumstances, they will enforce an adjudicator’s decision. The empirical evidence so far suggests that disputes which have been adjudicated are not routinely being referred to the courts or to arbitration for final determination.

The right to adjudicate survives the discharge or termination of the construction contract. Adjudication was not apparently available for dispute resolution probably because Tomlinson was a residential occupier. Whether adjudication would not have provided the parties with a swift reality check and disposed of the matter more efficiently. The judge’s decision saved both sides a lot of time and money with out the use of adjudication. It’s stated on Fenwick Elliott’s website that the judge in this case commented that this case was an “unfortunate example” of a small building dispute in which, at the end of the day, there is no real winner. In addition, he highlighted during the course of the case that the parties were “set on a course which seemed, in terms of money, one of mutually assured destruction”. The parties’ costs in pursuing these claims would have run by thousands of pounds. The case had been heard over five days with two adjournments and experts on both sides. If adjudication was used I feel that it would only save money not time.

Conclusion

The experiences from the past the construction industry has learnt that smaller contracts can be resolved by adjudication which is a quick and cheaper way of settling disputes. For example the Burchell v Bullard case where the Bullard’s suffered from bad workmanship in their home but still ended up losing the case because of their extravagant claim and there refusal to mediation. Both sides of the Tomlinson V Wilson case are lucky that the judge ended the case in five days because they could of ended up going down the same route as the Burchell v Bullard case which ended up with both losing large amounts of money and time. I think adjudication would of helped Mrs Tomlinson come to cheaper solution but I don’t think adjudication would of helped come to a quicker decision. I have this opinion because adjudication allows disputes to be resolved whilst works are in progress and adjudication can help to prevent relationships on site from deteriorating to the detriment of the project. The outcomes of adjudication are beneficial both financially and to their business relationship.