Construction Law and Law of contract

The aim of this report is to identify and evaluate construction contract dispute between three parties in light of construction and contract law (Contract obligation and Tort). The three stakeholders are John (Owner of Construction Company), Chris (Contractor) and Peter (Project manager).

Introduction

According to Ayres (2012), the complex and challenging nature of construction involve changes, accidents, delays, and disputes. Construction contracts involve the complex contract because it is difficult to determine satisfactory performance of the obligation. A contract enclosed formal communication between parties defining nature of work, risk for parties and financial incentives for completion of work.

Therefore, a contract is an agreement between two or more parties enforced by law, in which, one party acquire the rights and forbearances by other. Construction law primarily deals with contract law by encompassing all aspect of the legal process of Contracts and agreements. Construction law resolves the disputes between the parties involved in the construction process and applicable to professionals and business (Hughes, Champion and Murdoch, 2015).

Overview of Construction law

According to Hughes, Champion and Murdoch (2015) construction contract enclosed a contract in which one party agrees for financial consideration to carry out building works for another. Construction law embraces legal principles to manage and settle the commercial activities in particular context of law of contract of construction projects.

In construction law, owner and contractor must act in good faith to meet the performance of a contractual obligation. The legal process states the role and responsibilities for both owner and contractor. For the owner, it is duty to cooperate with the contractor and avoid interference, which could delay performance of the contractor. For contractor, it is duty to perform services in appropriate manner (Bailey, 2014). 

Law of contract

McKendrick (2014) stated that law of contract deal with formation and consequences of legally binding agreements and access whether contract formed, elements to constitute of contract and its consequences for involved parties. According to construction specification institute (CSI), a contract involves a set of promises and for breach of promise law gives remedy of performance for which law recognize the duty’.

Andrews (2016) added that agreement reached through acceptance of an offer made by one party in return for stipulated consideration. The three essential elements of contracts are agreement, intention, and consideration. The agreement is offer made by one party and accepted by other. The intention is important, as court does not enforce promise if it is not legally binding.

Consideration is a promise in return for product/service performance. The agreement expression would be oral or written statement. In the case of oral agreement, if the principle statement of party defines the contract, then it is viewed as term (Schawel vs. Reade). Moreover, statement appearing in written agreement is regard as term and any previous oral statement not in written agreement is defined as representation (Routledge vs. McKay)  (Jones, 2016).

Principle of Construction contract

Contract for construction work

According to Greenhalgh (2016) contract for construction work highlight that building work must be good quality and satisfactory and if owner relies on the expertise of contractor then it must fit the purpose to which they are to be used (Rotherham MBC v. Haslam Milan & Co. Ltd, 1996). The contractor must perform all work will due skill and care in the light of ‘Supply of Goods and Services Act 1982).

On the other hand, an employer must not prevent the contractor from performing duties. In terms of payment, ‘Housing Grants, Construction, and Regeneration Act 1996 require that construction contract should be in writing (excluding residential dwelling) to obtain provision for dispute resolution (adjudication). The timeframe to bring the proceeding must be within 12 months from the date of breach (Morgan, 2015).

Liability in negligence

According to Ramsey and Furst (2016) In the case of liability in negligence, the normal principle of liability is applicable. To examine the imposing duty proximity, foreseeably, reasonableness and justice are applied. It is difficult to identify and categories the harm because law imposes limitations to claims negligence in short circuit contractual relationship. The category of loss is determined either damage to property or pure economic loss and the distinction is based on [Murphy vs. Brentwood (1991)] complex structure theory or [Delaware Mansions vs. Westminster CC (1998)] to examine the requirement for ownership.

Moreover, to evaluate the economic loss, the reasonable and responsibility of case examined. The contractual matrix for short circuit claims required the imposition of a duty along with proximity test to determine the duties to avoid economic loss [(Pacific Associates Inc. vs. Baxter (1990)] (Andrews, 2016; Carter and Courtney, 2016).

Background and case facts

John is a director of Construction Company and he decided to redecorate office building completely. Chris is the director of ‘Chris interiors’, agreed to complete the work in £6,000. John agreed with Chris, paid £1000 in advance, and agreed to pay the balance on satisfactory completion of work.

In addition, John also ‘Employs’ a new project manager, ‘Peter’ to take over the office while he visit his relatives in America. Peter agreed to start on 1 June and not to work for any other construction company during six months’ contract. On completion of redecoration work, John complained that paintwork is substandard.

Therefore, John demands to repaint all the walls and he refused to pay any more money. Chris is threating legal action for non-payment. Moreover, Peter has written to John stating that he is not working for him because got better job his ‘rival company’ at the end of the road has offered him a better job (construction and contract law).

Application of law of contract

This section analyses the legal position of John in respect to Chris and Peter. The element of law and consequences for related parties elaborated through application of law of contract. The offer and acceptance are two important conditions of contract and provide basis for consideration (Hughes, Champion and Murdoch, 2015).

John and Chris

Agreement and Intention

Chris has agreed to complete the decoration for £6,000 and John has paid £1,000 advance to Chris. This constitutes the oral agreement between the Chris (offer) and John (acceptance). The intention of parties to create legal obligation is important part of contract [Moresk Cleaners Ltd v. Hicks [1966].

The intention of both parties to complete the decoration against fixed amount of money represents an agreement. The consent of both John and Chris is genuine and does not obtain through misrepresentation, coercion or under influence as well as parties are competent to enter the contract (section 11).

Consideration

The agreement represents lawful consideration from both parties; as John promises to pay £6,000 for the completion of decoration of building and thus lawful and real consideration exist between two parties [Rotherham MBC v. Haslam Milan & Co Ltd (1996]. The certainty of meaning for agreed work is clear in term of amount and completion of task.

The agreement made between the two parties is capable of performance through oral agreement and represent a valid implied contract between John and Chris. To summarize, from the point of enforceability, John and Chris hold valid contract based on implied contract formation.

Performance and Dispute

The agreement between two parties is capable of performance. Chris has executed the contract through completing the decoration but John complained that paintwork is substandard [Thameside MBC v. Barlows [2001)].

John believe that Chris has breach of duty of care and resulted in foreseeable loss and therefore, John demands to repaint all the walls and he refused to pay any more money. Chris is threating legal action for non-payment based on execution of task.

John and Peter — Contract of employment

Contract of employment forms the agent-principle relationship where person agree to employee another person through contract which is either oral or verbal and have legal binding. The two types of employment contract are oral contracts and written contract of employment.

Law of contract and construction law

Advice for stakeholders

John and Chris

Breach of contract terms

The contractor must perform all work with due skill and care in the light of ‘Supply of Goods and Services Act 1982 but Chris has failed to perform quality and standard work. Chris has breached the performance clause of contract resulting in damage to property [Floyd v. United Home Imp. 1997]

Damages available to John

In the light of common law, when performance of contractor is sub-standard, employer is entitled to post-completion defects liability entitle the employer to demand the contractor to correct the defect. Despite the fact, it is difficult to determine that defect is contractor responsibility but contractor is entitling for payment for defect for which it responsible [Tibbs v. National Homes Const. Corp.1977].

Can John recover 1000 from Chris already paid

John can recover the advance amount from Chris because failure to perform its duty.

Chris claim for more money from John

In case of negligent contractor defect, the structure theory can apply if damage to property is irreversible. This includes cost of restoration along with reasonable loss to property. In case of loss of use of building, Damages could include interpretation loss under appropriate circumstances [BMG (Mansfield) Ltd v Galliford Try Construction Ltd (2011)].

Chris performance and obligation

Greenhalgh (2016) contract for construction work highlight that building work must be good quality and satisfactory and if owner relies on the expertise of contractor then it must fit the purpose to which they are to be used. As Chris has not painted the wall properly, this has resulted in breach of contract and poor performance. Therefore, contractual obligation not met in precise manner and there is no expectation of rule in case of poor performance.

Chris work is good then what can be taken against John

In the light of common law, there is little remedy available for non-payment other than debt in action. In case owner delay the payment claiming service is sub-standard, then allegation can view as abatement or set-off [Mellows v. Bell Projects (1998)] [Hanak v. Green [1958]

John and Peter

Performance clause

The misconduct of an employee such as under-performance or breach of terms of employment ultimately leads to dispute. In Case of John (Owner) and Peter (defendant), there is an employment contract with restriction to work for minimum period of six months. However, Peter terminated the contract with John before completion of six months and joined the rival. However, the breach of contract before six months enforces the contract.

Peter had employment and breaches of such nature affect the root of contract. The contract contemplated total liability and damages are foreseeable [Bayley & Associates Pty Ltd v DBR Pty Ltd (2013)].

Consider the injunction

According to a contract of employment must be in writing, if person is for more than six months. John hired Peter to act as project manager for 6 months and employment contract stated that Peter could not leave the employment before six months. In the absence of John, Peter was responsible for the office and breach of contract result in commencement of injection. The conditions of construction contract embrace integrated agreements between parties either supersedes or hereto prior negotiations.

Peter has breach the contract of employment and statues law determine the action against peter. The plaintiff claims that Peter has breached the employment contract and liable to pay the damages.

Replacement project manager and additional cost

Although there is no ‘Non-compete clause’ in the contract and in the case of public policy, Peter has right to of earning the living. Therefore, John cannot stop Peter to take employment with the rival. John cannot claim the additional damages as defendant had no intention to form the contract and thus, additional cost of project manager cannot recover. [Cooperative Centrale Raiffeisen Boerenleenbank BA (2011)]

 

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