Architect was Functus Officio

The plaintiffs were contractors to the defendants under a contract in the JCT Standard Form, 1980 Private edition with Quantities. The date for completion was 28th February 1986 with liquidated damages of £700 per week. The plaintiffs did not complete the works by the completion date but were granted an extension of time on 9th March 1986 until 25th March 1986. On that day the Architect issued a certificate pursuant to clause 24.1 and on the 3rd April 1986 the defendants informed the plaintiffs of their intention to deduct liquidated damages.

On 23rd June 1986 the Architect granted the plaintiffs further extensions of time until 14th and 21st April 1986. The works were practically completed on the 18thJuly. On 3rd December 1987 the Architect extended time until 20th May 1986. On 25th April 1988 a final certificate was issued. The defendants deducted £4,900 as liquidated damages for the period from the 20th May to July 1986.

On 18th November 1988 the Architect purported to issue a certificate pursuant to clause 24.1 of failure to complete by 18th July 1986. The plaintiffs commenced proceedings claiming £4,900 and applied for summary judgement. The defendants conceded that the Architect had no Authority to issue a certificate under clause 24.1 once a final certificate had been issued.

The issues were first, whether a fresh certificate under clause 24.1 was required after the last completion date and, secondly if a new certificate under clause 24.1 was required, the defendants had to give further notice pursuant to clause 24.2.1 even though one had already been given.

Decision

Yes, due to 3 main significant reasons identified:

“Clause 24.1 requires a certificate to be issued when a contractor has completed the works by the completion date in the contract or any later date fixed by the Architect under clause 25.3.2. If a new completion date is fixed and if the contractor has not completed by that date, a certificate to that effect must be issued whether or not a certificate had been issued in relation to an earlier and superseded completion date.

Per curiam: Contractors and employers need certainty and the issue of a fresh certificate will provide for it.

If a certificate under clause 24.1 is superseded then the notice required by clause 24.2.1 falls within it.

Since the Architect had not been given any valid certificate under clause 24.1 after fixing the completion date of 20th May 1986 and since the defendants could not give a notice under clause 24.2.1 because they lacked a valid certificate under clause 24.1, the conditions precedent to the deduction of liquidated damages were not fulfilled and the plaintiffs were entitled to judgement”1.

Principle

Due to the issues in the case Judge Newey gave judgement in an open court. “At the outset two points require to be noted. First, there was no application under section 4 of the Arbitration Act 1959 seeking a stay of the proceedings so that an arbitrator might issue the certificate that the Architect ought to have issued. Secondly, it was conceded that the Architect was functus officio once the final certificate was issued.2″

Authority

There were 2 cases considered in this case the first being Shore v Wilson (1842) where it was held that the general rule is that a contract is “to be construed according to the strict, plain, common meaning of the words themselves3″ stated by Tindal CJ. However “contracts are not made in a vacuum, there is always a setting in which they have to be placed4″: Lord Wilberforce in Reardon Smith Line Ltd v Hansen Tangen (1976).

Subsequent Cases

This established principle that a written notice from the employer under clause 24.2.1 is a condition precedent to the deduction of liquidated and ascertain damages in this case was first referred to in the case of Finnegan v Community Housing Association (1993), and then followed in the appeal of the case in 1995 and further stated that “in any event no employer should neglect the precaution of requesting a fresh certificate of non-completion and issuing a fresh notice of deduction.5″

Blue Circle Industries Plc v Holland Dedging Company (UK) Ltd (1987) 37 BLR 40

Court of Appeal: Purchas LJ, and Butler- Sloss J

Key Words

ICE- Dredging works- Arbitration clause- Deposition within Lough Lane- Unqualified acceptance- Forming islands- Acceptance – Quotation by letter- Resultant island broke- inter alia damages- Negligence- Breach of collateral warranty- Misrepresentation- Scope.

The appellants invited the respondents (Holland) for the execution of dredging works in Lough Lane. The contract conditions described as substantially the ICE Conditions 5th Edition (including clause 66, the arbitration cause). The tender referred to the dredged material being deposited in areas approved by the public authorities, the intention being to discharge the material excavated in suitable areas in the Lough. Holland tendered against the invitation and Blue Circle responded by an order form which on its face in typescript referred to the tender in terms of equivalent to an unqualified acceptance. The printed conditions included an arbitration clause.

After multi lateral discussions the general agreement was reached that the dredged material should be used to form a kidney-shaped island appropriate for use as a bird sanctuary. Holland quoted for the work which required inter alia after which Blue Circle accepted this quotation by letter.

In the event the construction of the island was only part successful; the resultant island merely broke the surface at low water.

Are Blue Circle Industries eligible to sue for damages in negligence, breach of collateral warranty and misrepresentation for its advice to the construction of the artificial island?

Decision

No, due to 3 main significant reasons identified:

“As the construction of the island was wholly outside the scope of the original dredging contract Holland would not, had they been unwilling, have been obliged to accept the work as a variation. Therefore the construction of the island was not a variation of the dredging contract but was the subject of a separate agreement.

The island dredging contract had been formed by the acceptance by Blue Circle by its letter.

The arbitration clause did not extend to the claims in negligence and misrepresentation. If those pleas were substantiated then but for the negligent advice or misrepresentation no contract would have been concluded and there would have been no arbitration clause; were the arbitrator to consider these matters he would have to adjudicate upon his own jurisdiction”1.

Principle

There is not as there are in some contracts, any definition of the word “variation” contained in the ICE Conditions, and authority on the meaning of the word is limited.

“The definition adopted by Purchas LJ is unexceptional. A variation is which bears some relationship to the work of which it is a variation. The power to order variations is not a power to order work which is wholly different from the original contract work. The construction of the island was not, because it could not be, a variation,2″ thus, Purchas LJ concluded it must have been a separate agreement formed by the exchange of the quotation and the order.

Authority

The decision made in Thorn v Mayor and Commonalty of London (1876) per Lord Cairns was considered in this case as it was held that if the additional or varied work “were so peculiar, so unexpected and so different from what any person reckoned or calculated upon to such an extent that it is not contemplated by the contract, then it would constitute a separate contract.3″

Subsequent Case

This case was considered in the England and Wales High Court (Technology and Construction) in the case of Supablast (Nationwide) Limited v Story Rail Limited as one of the issues regarded a variation. However the courts did not find much use in this case as it does “not lay down and definitive principle, and determines that one needs to look at the variation clause in question and determine, depending on what the variation clause covers, whether the extra or altered work falls within it or not.”4

Viking Grain Storage Ltd v TH White Installations Ltd (1985) 33 BLR 103; 3 Con LR 52

Queen’s Bench Division: Judge John Davis QC

Key Words

Tenders- Grain storage facility- Specialist contractor- Warranties of fitness- Liability for design- Whites conditions- Implied terms- Care and skill- Good quality materials- Fit for purpose- Intended purpose- Breach of contract.

The plaintiffs wanted to construct a large grain of drying and storage installation on site and prepared tender documents. The defendants submitted a tender under cover of a letter proffering a package deal of design, execution and management by a skilled and experienced specialist contractor. The letter also contained standard conditions of sale purporting to exclude warranties of fitness of the goods supplied and liability for the design of works. Viking accepted White’s tender “as per your design” but the contract did incorporate White’s conditions.

Viking commenced proceedings alleging that the installation was unfit for its purpose because of defects in it and White were liable having impliedly warranted that the installation would be fit for its purpose. White contended that no such term should be implied and that their responsibility in matters of the design, specification and supervision of the works was limited to the exercise of reasonable care and skill. By agreement the following preliminary issue was ordered:

“Whether there were implied terms of the contract that:

White would use materials of good quality and reasonably fit for their purpose; and

That completed works would be reasonably fit for their purpose, namely that of a grain drying and storage installation”1.

White admitted that they were under an obligation to use materials of good quality in the construction of the works but could they be held liable for breach of contract?

Decision

Yes, due to 3 main significant reasons identified:

“There was nothing in the contract or in any other relevant circumstance which was inconsistent with the term alleged.

There was no reason to differentiate between White’s obligation in relation to the quality of materials and their obligation as to design.

Viking had relied upon White in all aspects including design and on the skill and judgement of White and in the circumstances the terms contended for should be implied.2″

Principle

The purpose of the facility had been known to White and the plaintiff relied upon White to provide the facility fit for purpose and due to the building not being fit for purpose White was liable for breach of contract.

Authority

In this case there were many subsequent cases that were taken into consideration. The first was Young & Marten v McManus Childs where it was found that one who contracts to do work is under a higher obligation with regard to the goods he supplies and the work that he does than a “seller” who may be a mere middleman or wholesaler. The case of GH Myers & Co v Brent Cross Service Co was also used in the case through a statement made by Parcq J; “a person contracting to do work and supply materials warrants that the materials which he uses will be of good quality and reasonably fit for the purpose for which he is using them.3″ Finally a passage was considered from the case of IBA v EMI & BICC (1978) where the case of Samuel v Davis (1943) was applied in that “where a dentist undertakes for reward to make a denture for a patient, it is an implied term of the contract that the denture will be reasonably fit for its intended purpose.4″

Subsequent Case

This case was considered in the Supreme Court of Victoria (Australia) in Barton v Stiff, whereby the plaintiff agreed to construct a new house on land owned by the defendant. However some of the bricks in the construction failed because they were affected by salty ground water in the land. When Judge Hargrave analysed this case he referred to the Viking Grain case and considered a comment made by Judge John Davies QC in that “should a term for reasonable fitness be implied5″ in which he decided yes.

West Faulkner Associates v London Borough of Newham (1994)71 BLR 1

Court of Appeal: Simon Brown, Hirst and Balcombe LJJ

Key Words

“Contract- JCT Local Authorities with Quantities, 1963 Edition (1977 Revision)- Construction of Clause 25 (1)(b)- Meaning of “regularly and diligently”- Architects refusal to issue notice pursuant to clause 25(1)(b)- Whether failure to exercise skill and care.1″

The London Borough of Newham (“the council”) intended the refurbishment and renovation of 150 dwellings. The Council entered into a contract dated 16th September 1987 with William Moss Construction Ltd as the contractor on the JCT form of contract for use by Local Authorities with Quantities, 1963 Edition (1977 Revision), as amended by the Council’s own standard amendments. West Faulkner Associates (WFA) had been engaged by the Council by a contract to act as the architect for the works and was the architect named in the building contract.

The programme of works involved a rolling sequence of works, however almost from the beginning, progress was slow and it became clear that the programme would not be achieved and that completion would overrun that required by the contract. Clause 25(1) of the contract provided inter alia with part b) of the clause stating that the architect has the authority to issue a notice to the contractor “if he fails to proceed regularly and diligently with the works2″ specifying the default. If the contractor shall continue such default (whether previously repeated or not), then the “Employer may within 10 ten days after such continuation or repetition by notice forthwith determine the Employment of the Contractor under this Contract, provided that such notice shall not be given unreasonable.3″

The Council were of the opinion that the lack of performance by Moss was such that a notice under clause 25(1) (b) of the contract should be served and this opinion was communicated to WFA. Yet WFA refused to issue such a notice claiming that the performance of Moss, though poor, was not within the terms of clause 25(1) (b).

The Council brought proceedings against WFA for breach of contract failing to issue the notice, claiming for damages of the additional costs of engaging alternative contractors to finish the contract works, payments to tenants and lost rent.

“Judge Newey QC held that WFA were in breach of their duty failing to give Moss a notice under clause 25(1) (b) however WFA appealed”4.

The issues to be decided in the Court of Appeal were that the construction which they put upon the clause, namely that Moss had failed to be in default both by failing to proceed regularly and by failing to proceed diligently was correct. Also that even if WFA were wrong in their construction, such was that obscurity of the meaning of the clause that an ordinarily architect would have similarly misconstrued it and hence WFA were not in breach by failing to issue the notice.

Decision

The appeal was dismissed on 2 grounds:

“The literal meaning of the words used in the clause, as well as commercial logic and sense, required the contractor to proceed regularly and diligently and the contractor could be dismissed from the site if he failed to do either.

An architect owes his client a duty of skill and care and that the standard to be attained is that of the reasonably competent architect. WFA’s construction of the clause was one which no reasonably competent architect could have arrived at”5.

Principle

The words regularly and diligently were distinguished in a previous case by Simon Brown LJ: “Taken together, the obligation upon the contractor is essentially to proceed continuously, industriously and efficiently with appropriate physical resources so as to progress the works steadily towards completion substantially in accordance with the contractual requirements as to time, sequence and quality of work.6″

There is a standard of duty of care that an architect owes to his Employer in that it must be the level of a practically capable architect.

Authority

A case which was considered in this case as it had dealt with the same clause was Hounslow London Borough Council v Twickenham Garden Developments Ltd where the prior definition of “diligently” was stated by Simon Brown LJ.

Subsequent Case

This case was considered in the Hong Kong High Courts in the case of Tridant Engineering Co Ltd v Mansion Holdings Ltd as the plaintiff terminated the subordinate contracts allegedly because the defendant failed to execute the works with due diligence and regularly. The Judge in this case referred to Brown LJ’s definition in that “the duty to progress work regularly and diligently includes essentially the duty to proceed continuously industriously and efficiently with appropriate physical resources”7.

Question 2

2)

In this scenario a portion of the works were reserved within the contract documents for design and build by C and we will assume that it is C’s work which became defective after 2 years.

May it first be noted that due to the nature of works being a private sector commercial development and not a dwelling the Defective Premises Act 1972 will be of no significance to this case.

It is clear that the intention of one of your express terms was for the contractor to use full care and skill and due to a portion of the external wall collapsing we must now look at whether full care and skill was used and if so, are there any other terms that are usually implied in building contracts where C can be held liable for damages under negligence. The obligation of care and skill displayed by C is the same as that of the “Architect or any other person providing services only1″ as they are designing a specific portion of works.

Firstly we must look towards the issue of implied terms and whether or not the courts will impose these to the building contract. The two classifications are terms implied in law and terms implied in fact. Terms implied in law covers all the contractual relationships not based on presumed intentions of the parties, but based on wider policy issues. Terms implied in fact is an implication based on the presumed intention of the parties, and only when necessary to make the contract work commercially. Terms implied in fact will not normally be implied which are contrary to, or would have the effect of amending, express terms of the contract as demonstrated in Shell UK v Lostock Garage.

As for the quality of the materials chosen by C the most significant case that must be referred to is GH Myers & Co v Brent Cross where it was held that a person contracting to do work and supply materials warrants that the materials which he uses will be of a good quality and responsibly fit for the purpose. This was later approved by the House of Lords in Young & Marten v McManus Childs and applying this point of law to your scenario if the materials used by C were not of good quality and fit for purpose then they will be liable in damages, with these implied terms also corresponding with those implied in the Sale of Goods Act 1979.

One of the most significant factors in your situation is that you relied on the skill and judgement of the contractor for the design and construction of a portion of the works. As the contractor is designing and installing the works under the same contract the common law obligation, in the absence of terms to the contrary is, there is not only an implied warranty that work will be performed in a proper and workman like manner and with good quality materials, but also that the completed work will be fit for its intended purpose previously made known to C by E. It is the reliance placed by the owner on the contractor’s skill and judgment on design and construction which creates the contractor’s obligation.

The express obligation to use reasonable care and skill is the same as that implied in statute in a contract for services. The Act does not specifically define the standard to be applied but in the case of Bolam v Friern Hospital Management McNair J made a statement which makes the point more clear; “where there is a situation which involves the use of special skill or competence then the test as to whether there has been negligence or not is…the standard of the ordinary skilled man exercising and professing to have that special skill.2″ This was further approved by the House of Lords (HL) in Whitehouse v Jordon. To conclude, if C exercises the ordinary skill of an ordinary competent design contractor or “does what his peers (architects) would have done in the same circumstances C cannot fail under negligence3″. However under JCT 2005 Contractor’s Design Portion 2.19.1, this states the design liabilities of a contractor in these circumstances, expressing this as; “… the like liability to the Employer …as would an architect … who … has supplied such design … in connection with works to be carried out and completed by a building contractor who is not the supplier of the design.4″ To summarise if C has not used reasonable care and skill then C will be liable in damages. Following this point of law this still lays a predicament on the situation as it needs to be determined whether or not C acted negligently.

We must now look at whether the works done by C were “fit for the intended purpose” you required. The simplest case to define what is “fit for purpose” is to refer to Samuels v Davis. In this case Lord Scarman equated the position to that of a dentist making a set of false teeth where it has been held that there is an implied term that the false teeth will be a reasonable fit for purpose.

This situation can also be summarised in the case of Greaves & Co Ltd v Baynham v Meikle & Partners. However the most significant factor that arose from this case was the establishment of an exception to the general rule (the Bolam principle) that ‘care and skill’ is “always” the standard of performance required from a professional designer. Lord Denning stated that “as the owners made known the purpose for which the building was required … there is merely not just an obligation to use reasonable care.5″ The contractors were obliged to ensure that the finish work was reasonably fit for purpose.

The cases are of a similar nature in Viking Grain v TH White and IBA v EMI and BCC where the final product communicated to the defendant before works commenced and when completed were not fit for the intended purpose. In Viking Grain it was held that White was liable for a breach of contractual obligation to provide a product that was fit for purpose. Lord Scarman stated in the IBA case to emphasis the point of law that “I see no reason why one who…contracts to design, supply and erect a television mast is not under an obligation to ensure that it is reasonably fit for the purpose for which he knows it is intended to be used.6″

In analysing all the following cases it can be summarised that if you informed C of the works which you required and they failed to deliver on one of any of the implied terms then C will be held liable in the courts of law. Due to the portion of wall C designed and built collapsing this furthers the point that the works were clearly unfit for their desired purpose and thus you will be entitled to a remedy in damages. It is important to note that the contractor’s liability depends on the manner in which the contract has been executed. If the agreement is under hand, liability is for six years whereas if executed via deed, this extends to twelve years so due to the collapsing occurring only 2 years after the contract was set it can be assumed that C will still be in the liability period making them liable for damages.

To further strengthen your case where C has undertaken to carry out and complete the works in accordance with your plans, there is no warranty by you that the proposed work is buildable, or capable of construction. Thus any extra costs necessarily incurred by the contractor in overcoming buildability problems would not be reimbursed by you as held in the case of Thorn v London Corporation.

Question 4

To analyse your rights regarding the withholding of (£750,000) payment on account of liquidated damages we must refer to the case of Dunlop Tyres v New Motors Garage as this case has now became the leading authority on the enforceability of a liquidated damage clause.

In this case Lord Dunedin aimed to establish the difference between a penalty and liquidated damages but first the courts had to distinguish which one of the payments stipulated was is in truth. It was established in the case of Clydebank Engineering v Don Hose Ramos that the essence of a penalty is a payment of money stipulated as in terrorem (as a warning; as a deterrent) of the offending party with the essence of liquidated damages being a genuine covenanted pre-estimate of damage. Lord Chancellor further stated in this case that even with the use of an “abstract rule” it cannot be decided whether or not the sum the plaintiff is claiming is an extravagant or unconscionable amount. A subsequent case to look at is Public Works Commissioner v Hills where it concluded that whether a sum stipulated is a penalty or liquidated damages is a question of construction to be decided on the terms and inherent circumstances of each particular contract, judged of as at the time of making the contract and not at the time of the breach.

To assist this task of construction various tests have been suggested. The most significant to your scenario is that it will be held a penalty if the sum stipulated for is extravagant and an unconscionable amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. Secondly which was decided in Kemble v Farren is that it will be held to be a penalty if the breach of contract consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid.

By referring to the principles above it may be deemed that £750,000 is an extravagant and unconscionable amount and in applying this to your scenario it could be concluded that your claim would be unsuccessful in the courts. However by looking at the overseas case of Philips Hong Kong v Attorney General of Hong Kong the decision in Dunlop was applied. In this case the courts were very adamant in not interfering with the mechanism of the contract as this can cause further complications and also create discontinuity in commercial relationships and what has originally been agreed by both parties will be usually be imposed in the courts of law.

To conclude your scenario the case of Jeancharm v Barnet Football Club must be considered as the judge followed the principles established in the Dunlop case but further concluded by going against the decision held claiming the clause to be “extravagant” and had no relation to the project costs and was merely placed in the contract as a deterrent. However this case had no relation to construction so in and by applying Lord Dunedin’s principles set in the Dunlop case your claim for liquidated damages will more than likely succeed. Also as there is not a certified test to determine whether the amount claimed is extravagant or not, this further strengthens your case.

As for the second argument put forward by C in that no loss will be suffered as a result of the delay due to the current recession, this will more than likely be thrown out by the courts. In applying the case of Public Works Commissioner v Hills (as discussed) due to the economy being in a current recession this will not affect the contract in any way and will be deemed not to have any general effect .

When the courts make a decision regarding liquidated damages it will make no difference whether all or none of the properties have been sold or let. This is due to the fact that the sum stipulated for liquidated damages is a genuine pre-estimate of the loss foreseen at the time of making the contract and not, when the breach arises. The sum stipulated as liquidated damages, is, in law, recoverable whether or not you can prove that you have in fact suffered any loss or damage as a results of C’s breach of contract.

Due to the outcome of this case and the laws established it can be assumed that C’s argument will bear no significance to your claim.

The final argument that has been put forward regarding yourself and A not properly following the commonly adopted administrative procedures necessary to withhold monies is one that regards clauses and the case of A Bell v CBF.

Primarily if C fails to complete the works by the relevant completion date, A should have issued a certificate to that effect (a Non Completion Certificate) which now puts C in a period of culpable delay. However if at a later date an extension of time was issued which, has the effect of creating a new completion date, the period of culpable delay will be limited as this in effect cancels the original certificate issued therefore A is obliged to issue a further Non-Completion certificate.

Yet it must be stated that if this was not done the principle of law established in the case of A Bell v CBF will be applied in which case the plaintiff lost the right to seek a remedy in damages due to the failure of the architect issuing a further certificate.

Alternatively, after the period of culpable delay and only then (no later than 5 days before the final date for payment of the debt due under the Final Certificate) may you give notice in writing to C in terms of clause 2.32.2 that; either you are requiring C to pay liquidated damages to yourself or that you will withhold or deduct liquidated damages from monies due to the contractor with the amount of liquidated damages (£75,000 per week), being expressed in the Contract Particulars. The Liquidated Damages clause was amended and any withholding by you of Liquidated Damages from monies otherwise due to C is currently subject to s.111 of the Construction Act 1996.

To conclude this scenario if you have followed the commonly adopted administrative procedures as stated above then there will be no reason why C’s argument will be enforceable in the courts of Law.

Question 5

5)

To come to a conclusion on your current scenario with E there are 5 cases that must be considered with the main focus based around Peak Construction v McKinney as the case facts are quite similar to your own.

The basic essence of liquidated damages (LD) is that they correspond to a genuine pre-assessment of the likely loss that could occur from the breach of contract in question. “This follows from the general principle that the aim of damages is to place the innocent party in the position he would have occupied had the contract been performed without a breach1.”

With the general nature of construction there are ample reasons that can cause delay to a project. First to be noted is that any delay caused as a result of E that is in any way responsible for your failure to achieve the Completion Date, will be thrown out of the courts and there can be no recovery of LD at all.

The purpose of the JCT 2005 – 2.28-2.29 (EOT) is to enable E to recover LD when E is partly to blame for the overall delay. In Rapid Building Group v Ealing Family Housing Association it was accepted that a party must elect whether to claim for LD or unLD, but where the claim for LD had not been lost or had gone, E was not precluded from pursing its claim for unLD.

To determine