LLM in Construction Law

Question: Discuss about theConstruction Contract Law for Quashquell Construction. Answer: Issue and Facts QQ is a registered property developer based in UK which in wake of the Brexit referendum and reduced demand had decided in October 2015 that their current office building at Salford would be liquidated. The firm decided to move to a new office on March 1, 2016 situated in Hull where it purchased an old Victorian building. There was requirement of major refurbishment in this building coupled with a new central heating system. For the refurbishment works, QQ awarded a contract to Retro Salvagers Ltd (RSL). As part of the underlying contract between QQ and RSL, it was agreed that the works had to be finished by February 25, 2016 as the vacant old office had to be handed over to the new buyer. Further, moving over to the new office was possible for QQ only when refurbishment was completed. Additionally, the contract also specified that any delay in completion by RSL would lead to a decrease in the payment made at the rate of 4.5% of contract price per day. RSL was not able to finish the work on time and hence QQ had to shift operations to a hotel which happened to be situated in the nearby area. There was a delay of ten days during which the total loss borne by QQ was 4,700 in terms of rent and 5,000 in profits. For central heating system, Dapar Heating Systems Ltd (DHS) was approached by QQ for a quote. For the heating system proposed by DHS, QQ had a lot of queries about the energy efficiency of the proposed system but the sales representative from DHS that the system has superior energy efficiency and installation cost would be recoverable within two years. QQ was impressed by this aspect and decided to enter into a contract with DHS with the cut-off date of installation being fixed at 25th February. As per the contract, any delay above this date irrespective of the time would lead to a lump sum penalty of 1200. The engineers of DHS were pre-occupied with another work and hence there was a delay in the installation of the system. The system was only installed seven days after the companys office became operational. As a result, QQ had to incur incremental costs to the tune of 400 per day. The heating system installed malfunctioned again after three weeks and hence for a week the mobile he aters had to be deployed by QQ. Later on a physical inspection being conducted by independent expert, it was revealed that the heating system had installation issues and also belonged to the lower end of the energy efficiency. Due to a gas leak, there was an explosion in the heating system and caused loss to the company besides the employees. The core issue is to advice QQ in relation to the potential claims against RSL and DHS considering the above facts. Law There are essentially two aspects in the above case. One relates to the delay in the construction for which express provision has been included in the executed contract with the relevant parties. Considering the importance of time in construction contracts, there is usually an express provision present in such contracts to deal with the delay in construction. In case of not completing the construction at a particular date outlined in the contract, damages may need to be payable by the contractor to the client. These damages are known as liquidated damages (LD). The LD clause tends to be beneficial for the employer as the money specified could be claimed without actually proving the extent of loss and also disregards whether preventive measures were taken by the employer or not. For the contractor, LD clause leads to the fixation of the maximum liability that would need to be borne in case of any delays. The LD clause is usually upheld by the courts[1]. However, it is imperative that the LD clause must be based on a reasonable estimate of the possible loss incurred by the employer. The English courts do not allow for a penalty to be levied and in such cases may intervene Also, it is imperative that the agreed procedure as stated in the contract with regards to notices and other formalities needs to be followed by the employer. Further, the employer should not have been responsible for the delay caused due to restricted access to premises, altering service standards in the middle of the contract completion and other delays for which the contractor cannot be held responsible[2]. Besides, there is a second concern in relation to the non-performance of contractual duties by the contractor in regards to DHS. In this regards, it is imperative that if there is reliance of the employer on the expertise of contractor in the selection of goods or materials which are of requisite quality standards, then the concerned material suggested by the contractor should be appropriate for the use specified by the client or employer[3]. This is apparent from the verdict made in the Young Marten v. McManus Childs[4] case. As per this case, the plaintiff purchased tiles acting on the advice of the appellant. However, subsequently these files were not found to be merchantable due to the latent manufacturing defect that these contained. This was despite the fact that there no express clause related to fitness for purpose included in the contract[5]. However, it is critical to note that this is not the case when the client has sought an expert advice before making a choice. This is apparent from the decision made in the Rotherham MBC v. Haslam Milan Co Ltd[6] case. Also, in relation to the goods or services provided, it is imperative to comply with the provisions of the Supply of Goods and Services Act 1982 even though the same may not be expressly stated in the enacted contract. However, in order to avoid the same, it is recommended that standardised forms be used by the contracting parties to enter into a contractual relationship[7]. Additionally, with regards to negligence in providing the requisite standard of service, it is quite possible that the contractor may owe obligations to the employer both under contract law and tort law, a situation referred to as concurrent liabilities[8]. In this regard, Robinson v. PE Jones (Contractors) Ltd[9] case is highly significant. In this case, it was highlighted that on account of contract, it could not be assumed that the contractor also owes a duty to care automatically. However, an alternative viewpoint is provided by the decision extended in Barclays Bank plc v Fairclough Building LtdNo 2[10] case where the concurrent liability of the contractor was upheld and it was ruled that duty to care automatically arises in such cases. Hence, there is still debate on the subject of concurrent liabilities. But in instances, where the defect in construction is so serious that it has led to serious injury, then the purely economic loss could also be considered[11]. Application Based on the given facts and the relevant law, the first issue relates to the liquidated damages. Although liquidated damages are mostly enforceable, they must be initiated with the intent to recover the likely losses and not be punitive in nature. With regards to the LD clause in the contract with RSL, the specified LD is 4.5% of the contract value or 4.5% of 50,000 which amounts to 2,250. However, in actuality the loss suffered by QQ due to delay is 970. Clearly, there is a huge difference between the two amounts and hence it seems likely that the court may not enforce the LD clause as there is a penalty element included by QQ. However, there is no information in the case to suggest that the delay by RSL was on account of any interference or alteration of quality standards by QQ. Hence, RSL cannot claim any defence in this regard and would have to account for reasonable liquidation damages. In case of DHS, it is apparent that the liquidated damages in the contract are more than reasonable and hence there is no punitive compensation involved in the same. However, considering the nature of the clause, if the delay was of lesser duration and the loss incurred by QQ was considerably lesser, it is quite possible that the same could have been contested by DHS. Additionally, it is apparent that with regards to the energy efficiency of the heating system, QQ relied on the advice from DHS. However, evaluation from independent expert later revealed that the claim of DHS regarding efficiency was wrong. Hence, in line with the decision made in Young Marten v. McManus Childs case, QQ may claim payments for the poor energy efficiency of the system. This is despite the absence of an express clause regarding energy efficiency as it was a significant concern for QQ as apparent from the conversations. Additionally, damages may also be claimed for the lapses in installation by DHS whereb y it was expected that the contractor would comply with the provisions of the Supply of Goods and Services Act 1982 and thereby should have ensured that no lapses would have been done in installation of the system. Also, it is apparent in the given case that due to the negligence in the installation of the heating system as established by an independent expert, there was possible leakage of gas which eventually led to the explosion which besides causing injury to the employees has also caused economic loss in the form of property being damaged due to explosion. Based on the case facts, it seems apparent that the employer QQ could potentially have done nothing to avoid the same and was not also aware of the installation defect when the explosion occurred. As a result, QQ may also claim damages for the recovery of the loss to property caused due to the explosion citing the verdict delivered in the Barclays Bank plc v Fairclough Building LtdNo 2 case. Sally and Sean: Issue DHS has incorrectly installed the heating system and due to a gas leak, the heating system explodes which results in serious injuries caused to Sally and Sean. The core issue is to offer them advice based on the above facts. Law The relevant law in the given case is tort law. Essentially the first step is to establish that there is a duty to care. In this regard, firstly the category of harm needs to be determined as it could be property loss or economic loss[12]. This is in line with the arguments extended in the Murphy v. Brentwood[13] case. Further, in case of harm to property, appropriate proximity test must be applied. This is primarily based on the physical proximity with the item having defect. Once the duty to care is established, it needs to be ascertained whether the concerned party has breached the duty. Additionally, it is imperative that the damage suffered whether physical, property or financial should be attributed to the negligence. In order to ascertain the same, it needs to be analysed whether the damage could have been avoided if there no breach of duty by the defendant[14]. Further, in case of damage being suffered by third parties such as employees, potential liability claim for negligence may arise against employer and/or the contractor. In this regard, it is imperative that the employer while choosing the suitable contractor should have acted with responsibility and chosen contractors that could be deemed reasonably competent with regards to the underlying work[15]. Besides, it is imperative that the employer should also be compliant with the relevant provisions of the Health and Safety at Work Act 1974 coupled with Building Regulations 2000 so as to ensure that employees and other people present at the premises are provided a safe and secure ambience[16]. With regards to the contractor, duty of care in tort law would be applicable on all the property and people that can be potentially injured or suffer damages because of the detective work carried out by contractor. It is imperative that this damage should be foreseeable. Also, in cases involving pu re economic loss or financial harm, the contractor ordinarily will not owe any duty to care as the requisite proximity to third parties may be difficult to establish[17]. Application In the given case, Sally and Sean have suffered due to explosion in the heating system caused due to the gas leak. Based on the provided case facts, it seems likely that the gas leak would have been caused due to negligence of the contractor i.e. DHS rather than QQ. Further, with regards to preventing such an explosion, it is highly unlikely that the employer QQ could have foreseen the same and done anything incremental to avoid the same. The employer on its part has also called an independent expert to evaluate the malfunctioning heating system and the explosion occurred before the independent expert could submit the assessment to QQ. Additionally, with regards to choosing the contractor, the case provides no details which hints at lapses in the selection process. Further, for the contractor, it is apparent that duty to care would extend to employees on account of both foreseeability and also proximity. Also, in case DHS would have not been negligent in the installation of the heating system, it is quite likely that the gas leak would not have occurred or the explosion could have been avoided. This is a reasonable assumption to make considering that hardly one month had passed by when this happened and hence prima facie it has to be attributed to negligence by the contractor. As a result, all the conditions of the tort have been satisfied for the contractor who would be held liable for the injuries (damages) suffered by Sally and Sean. Issue Amy was present in the same room where occurrence of explosion took place and made an attempt to escape using the new staircase but as the stairs had a slippery surface, she slipped which led to her ankle being dislocated. The core issue is to advice Amy as to whether she can claim damages from her employer (QQ) or contractor responsible for heating system (DHS). Rule With regards to the tort of negligence, essentially three things need to be established. Firstly, there needs to be a duty to care arising for the appellant directed towards the plaintiff based on their relationship and proximity. Secondly, it is imperative that the appellant having a duty to care must breach the same and ensure that reasonable measures are not undertaken so as to ensure that the plaintiff does not suffer damage. Thirdly, because of the breach of duty, the plaintiff has suffered damages which were otherwise foreseeable and hence avoidable[18]. Also, considering the level of proximity and foreseeability, it is apparent that both the employer and contractor have a duty to care towards the employees. Thus, it is imperative that both must take prudent measures to avoid any damage[19]. In this regard, while the contractor must focus on providing quality services without negligence, the employer must take reasonable measures to ensure that safety and health of the employees is not compromised. For this, there are statutory provisions applicable both on the contractor as well as the employer so as to ensure that the employees are safe[20]. Application Based on the given facts, it is apparent that Amy has suffered damages in the form of an ankle injury because of negligence of both DHS and QQ. The negligence by DHS in installation of the heating system had led to the explosion as has been discussed above. However, it is reasonable to expect that QQ would have a proper evacuation plan in case of any fire or mishap and the same should be made aware to the employees. It is foreseeable that the slippery stair would create a potential threat for employee in case of any evacuation. Hence, QQ acting as a responsible employer in the interest of the employee safety should have fixed the staircase so as to ensure any mishap. But the same was not done which led to injury being sustained by Amy. Hence, in the given case, both QQ and DHS have acted in an negligent manner which led to Amy getting injured. Conclusion Based on the above discussion, it is apparent that QQ could claim liquidated damages from both RSL and DHS as the delay is attributed to the contractors only. Further, with regards to RSL, the LD clause appears punitive and hence the extent of damages actually paid could be scaled down in line with the actual losses. Besides, for providing inaccurate advice regarding energy efficiency of the heating system, QQ could claim monetary compensation. Also, for the lapses in installation, it is likely that DHS has breached implicit contractual obligations and also has led to economic loss. Thus, claims may be made by QQ against DHS under concurrent liabilities arising from both contract law and tort law. Based on the above discussion, it may be concluded that the contractor (DHS) had a duty to care towards Sally and Sean but failed to adhere to this duty despite the possibility of such an explosion being foreseeable. Clearly, such an incident was preventable if DHS had installed the system properly. Since the employer (QQ) had not acted negligently in terms of contractor selection and other safety measures, hence Sally and Sean could claim damages from DHS on account of tort law. From the above discussion, it may be concluded that both QQ and DHS have acted in a negligent manner. Negligence from QQ was apparent as slippery staircase while for DHS, it was apparent in the faulty installation of heating system. Hence, Amy may claim damages from both QQ and DHS for the injury suffered due to the explosion. References Primary References Barclays Bank plc v Fairclough Building LtdNo 2 (1995) 76 BLR 1 Murphy v. Brentwood [1991] 1 AC 398 Robinson v. PE Jones (Contractors) Ltd [2010] EWCA Civ 9; [2011] BLR 206 (CA) Rotherham MBC v. Haslam Milan Co Ltd (1996) 78 Build LR 1 (CA) Young Marten v. McManus Childs [1969] AC 454 Secondary References Cripps, Can builders be liable in negligence for mistakes in construction? (Cripps, 7 April, 2011) https://www.cripps.co.uk/can-builders-be-liable-in-negligence-for-mistakes-in-construction-2/ accessed 5 January 2017 Douglas Edlin, Common law theory (4th edn, Cambridge University Press, 2007) David Fletcher, Professional negligence in construction contracts (St.Johns Chambers, 29 April 2014) https://www.stjohnschambers.co.uk/dashboard/wp-content/uploads/2014/05/Professional-negligence-in-construction-contracts.pdf accessed 5 January 2017 Joshua Glazov, Liquidated Damages In Construction Contracts Part 1 What Are Liquidated Damages And Why Have Them (Construction Law Today, 30 April, 2009) https://www.constructionlawtoday.com/2009/04/liquidated-damages-in-construction-contracts-part-1-what-are-liquidated-damages-and-why-have-them/ accessed 5 January 2017 Julian Bailey, Construction Law (2nd edn, Routledge, 2012) Peter Aeberli, Aeberli, September 2011) https://www.aeberli.com/uploads/papers/BLS-CONSTRUCTION_LAW_INTRODUCTION_2011.pdf accessed 5 January 2017 Peter Collie, Builders are not liable in negligence for Defects ( No 5, 24 January 2011) https://www.no5.com/news-and-publications/publications/65-builders-are-not-liable-in-negligence-for-defects/ accessed 5 January 2017