by Vanessa Hall
Variations
Henry Boot Construction Ltd v Alstom Combined Cycles Ltd - 4th April 2000
This case concerned the ICE form and a variation requiring some extra sheet piling work. The relevant rate in the bills of quantities was an error and was too high. At first instance the judge directed the arbitrator to value the further sheet piling work by reference to the figure in the bills despite the fact that it was known to contain an error. Alstom appealed, saying that this would result in a windfall to Boot.
On appeal it was held that the arbitrator could not open up or disregard the rates in the bills on the ground that they were inserted by mistake. A comparison needed to be made between the work priced in the bills and the work covered by the variation order. If the work was very different it would not be reasonable to base the valuation on the bills rate and a fair valuation could then be made. It was the use of the rate that had to be reasonable, not the rate itself. However, the arbitrator was entitled to decide whether it was reasonable to use that rate as a basis for valuation, and the question was remitted to the arbitrator for consideration.
Contractual notices
Bovis Lend Lease Ltd v Braehead Construction Ltd - 19th April 2000
This case involved a pre-Construction Act contract and a claim for summary judgment in respect of interim applications. The application was resisted on the grounds that the employer was entitled to deduct LADs and set off a counterclaim for damages for various other breaches of contract.
Braehead did not fully comply with the notice provisions of the contract: ie issuing a notice of failure to complete by the Completion Date; and to make a “requirement” in writing. The notices were given too late and the judge held that the LADs would be reduced as Braehead could not rely upon notices issued after the date for payment to make deductions of LADs from those payments.
The “requirement in writing” was also examined. The court rejected the contention that such notices had to show details of the amount claimed and how it was calculated: the notices simply had to make it clear that LADs would be deducted.
This judgment is a useful reminder that contractual requirements for notices must be followed carefully, although employers will be relieved that they need only notify contractors of their intention to deduct LADs rather than provide detailed calculations.
There was no mention of the so-called “Construction Act” in this case, but it would be interesting to see whether the outcome of this case would have been different in an application for summary judgment in respect of interim payments where an employer failed to serve correct notices of withholding under the Construction Act.
Sale of goods act
AC Daniels & Co Ltd v Jungwoo Logic (a firm) - 14th April 2000
This was an interesting case which examined the statutory rules surrounding the sale of goods, and makes useful reading to anyone who might order special equipment or goods from a supplier or manufacturer.
The defendant attempted to supply the claimant with an injection mould for the manufacture of plastic medical waste bins. However the mould supplied never seemed to comply with the claimant’s specification, in spite of being sent back and altered several times.
The Claimant rejected the goods eventually and sued for restitution of the price and for damages for breach of contract. However the defendant said that the claimant had accepted the goods and therefore lost its rights of rejection.
The judge found that the claimant had not accepted the goods as it had never told the defendant that it accepted them, nor was there a significant period of inaction or acquiescence on its part.
The claimant was entitled to recover the price paid for the goods and its loss of profits.
The key reminder here is that if you are supplied with defective goods which you wish to reject, then you must not do or say anything to the supplier which could be construed as acceptance; nor should you allow a period of inaction to elapse as after a while the supplier will be entitled to assume that you have accepted the goods.
Formation of contract cases
DMA Financial Solutions Ltd v BaaN UK Ltd
- 28 March 2000
Banner Homes Group plc v Luff Developments Ltd - 28 Jan 2000
Hescorp Italia SpA v Morrison Construction Ltd - 17th March 2000
DMA were involved in lengthy pre-contractual negotiations which, the court found, did result in a concluded contract.
Úome negotiations are conducted on the basis that there will be no binding contract until the parties have produced a formal written agreement which they sign, even when all the terms have been agreed in negotiations.
Here, there was no evidence of it ever having been said in the negotiations that the parties would not be legally bound until a formal written agreement had been drawn up and signed. No words like “subject to contract” were used. This was a case where, if the parties did conclude their negotiations and did agree everything which was essential to be agreed, there was an immediate binding contract.
Summary: if you do not want a contractual relationship to be formed following negotiations unless a written contract is signed, then you must make it clear, for example by using the words “subject to contract”.
In Hescorp there was still no formal contract signed by practical completion. The court said that parties must agree on essential terms - eg terms without which the contract cannot be enforced. There is no contract if the parties are not in agreement on what they regard as an essential term. The court cannot make essential a term which the parties regarded as inessential. Here they regarded the completion date as an essential term requiring to be settled if there were to be a contract.
Summary: a contract is made when the essential terms are agreed, even if others have not been agreed. The parties decide what is essential but the court will view their negotiations objectively so if you consider a term essential to concluding a contract you should make it clear during correspondence.
Banner was a case where there was no contract, but the court held that a “gentleman’s agreement” could be enforceable.
Property was acquired on the basis of a pre-acquisition arrangement (that the party would obtain an interest in the land) which was not contractually enforceable. Using equity principles the court said that where a party had relied upon the "understanding" to his detriment, or to the advantage of the other, then the court would imply a "constructive trust" or proprietary estoppel, thus granting him the interest.
Compare this with the Countrywide case in the last issue of the Bulletin, where a consultant was induced to provide its services on the basis of an assurance that it would be appointed, and because the services were of benefit to the defendant, the defendant was obliged to reimburse the claimant notwithstanding that there was no binding contract between them.
Insolvency and ownership of plant
Smith (Administrator of Coslett (Contractors) Ltd) v Bridgend County Borough Council - 19th January 2000
This was a very complex case concerning the use, ownership and sale of an expensive coal washing plant under the ICE form of contract following the administration of the contractor. The case examined the different legal status of the plant during the completion of the contract with another contractor, the end of the contract when the employer had the right to sell the plant, and finally once the plant had been sold and the administrator was claiming the return of the proceeds of sale.
The administrator did not have the legal right to bring an action for the proceeds of the sale; only the contractor could have done that. On the other hand, only the administrator and not the contractor had the right to bring an action for delivery of the plant upon completion of the works.
It is difficult to extract brief practical guidelines from this case other than to say that a) the insolvency provisions of the ICE contract work fairly well to protect employers when used properly; b) a right to sell plant at completion of works following administration is a floating charge which should be registered and c) legal advice should be sought when a contractor goes
into administration!
For further information about any of these case, please contact Caroline Cummins at caroline.cummins@cms-cmck.com or on +44 (0)20 7367 3000.
