Construction law

We have variously done the following;

1. Warned Builders of the difficulties clients may present when you seek payment.

2. Warned Builders of the problems inherent in the practice of the client holding “retention money” as a security for the builder fixing any problems arising later.

3. Warned of the difficulties flowing from undertaking building work without a written contract;

4. The problems for clients when builders “buy” a contract and re-negotiate it to their advantage later, after they have started work.

5. Warned again of the difficulties flowing from undertaking building work without a written contract;

Now we write about the steps you must take when you don’t get paid. Most building or engineering contracts will have an Arbitration clause in some form or other. If so, it will be mandatory that the dispute be taken to arbitration. Get the help of a solicitor or a “claims consultant” to draft the papers for the arbitration. Depending on the nature of the dispute it might take a long time to produce workable drafts but it is essential work.

When the identity of the arbitrator is agreed he/she can give directions as to how the parties should proceed. It is wise for claimants to have anticipated the production of workable drafts.

The conduct of an arbitration by the claimant or the respondent is like the conduct of litigation; it needs the services of a litigator.

If a respondent is still trading (not in liquidation) it is open to the claimant to take the claim to arbitration with some prospect of making a recovery.

Unless we are practicing politicians (I mean of the Fianna Fail ilk) we should aspire to speak clearly and mean what we say.

“Inflation” is a term applicable to balloons and economies; we should remember that, when as here, the issue is economic inflation.

One of our clients holds the view that economic inflation is the mechanism by which certain social costs are transferred to the shoulders of old age pensioners. (Central government would, presumably, profess to avert such an outcome, because if it did not it would, we think, be removed from office, other things being equal). Our client might have expanded the opinion to include all persons on fixed and relatively low incomes.

The client’s view carries an implicit assertion; such a mechanism can be an engineered outcome. In short, the Government may desire exactly what it professes to decry. Or not.

We cannot afford to expend much effort to find out motivations; we should act on perceived outcomes.

Consider the “new” Public Works Contracts HERE. They were introduced in 2007 and are obligatory for use in State building projects.

They promptly came under criticism when introduced. (Who formulated them? We, here, think we know, but that is irrelevant; they were introduced on instruction. The Government gave the instruction).

See HERE for an extended treatise on what is wrong and unfair with the contracts.

There is nothing inherently evil about the Irish construction industry that the Government should seek to impose unfair costs in it. Those costs will fall inevitably on workers and their families.

It is beyond time to urgently revoke the provisions that saddle the industry with these contracts.

Education is not the focus of this blog. Prior reference to the Department of Education is made as an aside.

Construction and the construction industry is, however, a focus. It is instructive to get a judgment on anything, instead of the usual bureaucratic fog of words. So check out this article from “Construction Manager”

“Ireland: Setting benchmark costs
From a UK perspective, school building costs in Ireland are almost shockingly low. In February 2006, the Department of Education set a maximum build cost for primary and secondary schools of €1,230/m2 (£1,095), including VAT at 13.5%, but excluding site preparation and groundworks, professional fees and contractors prelims.
In November 2009, the DoE dropped the building cost limit to just €990m2 (£880). In fact, recent tenders have been coming in below that: according to Galway-based contractor JSL, the going rate for the building element is €600-€750/m2.
But the specifications expected in the two countries really aren’t comparable. Classroom sizes are smaller in Irish schools, there is no catering provision or dining halls, while floor, wall, ceiling and door finishes are all basic. Steve McGee FCIOB, JSL’s director of construction, says that it’s like visiting a “two-star hotel” compared to four stars in the UK.
Secondary schools are all individually designed, but primaries are based on the DoE’s “generic repeat design”: four variations each on 8, 12 and 16-classroom schools.
The DoE has also built “rapid delivery” primary and secondary schools using prefabricated timber SIPs or concrete panels in just 20 weeks. And it recently tendered two Passivhaus primaries, although McGee says the DoE was disappointed with the cost: JSL’s unsuccessful bid was €1,600/m2.
Ireland’s strict cost limits no doubt galvanised the market and put pressure on suppliers and product manufacturers. Unified procurement also meant no variation in procedures around the country, so learning from one project could be taken to the next. But the market struggled with the Passivhaus project.”

Remarkably, the builder of the Courts of Justice in the Strand, in London, became insolvent during and as a consequence of the work.
Many Irish builders are now becoming insolvent. That’s inevitable in circumstances where their employers, developers, are now insolvent and heading into NAMA.
Whatever the reason, this kind of difficulty is endemic for builders. In Marlborough v Strong [1721] 1 Bro. (P.C.) 175 the builder of Blenheim Palace was shortchanged by the Duke of Marlborough to the tune of £7,300 (an enormous sum).
The Duke refused to pay the shortfall on the grounds that his alleged agent, the Earl of Godolphin was not his agent. In fact the Duke had engaged the services of the Earl precisely to act for him in relation to the building; to employ people (including the architect, Sir John Vanbrough); and to enter contracts for the purpose. The Duke claimed that the Earl was acting as Lord High Treasurer of England and not as his private personal agent. The court thought otherwise and gave judgment for the builders.
(The Duke resembled some of Ireland’s developers; the Duchess reported him as not bothering, on one occasion, to remove his high riding boots in going to the task of “pleasuring” her.)

The law in Ireland and the law in England and Wales appears to be re-converging on the point (if, in fact, there ever was a divergence) that the existence of a contractual relationship is not incompatible with a duty in tort to avoid inflicting economic loss on someone.

Almost as a matter of course when the phrase “economic loss” appears, it will be with reference to matters pertaining to a building contract.

That was the case in Tesco Stores Ltd, v. Costain Construction Ltd. & Ors. [2003] EWHC

The judge in Tesco stated his finding as follows:

… I find that Costain assumed a duty of care to Tesco to carry out the work which it itself, rather than any sub-contractor, in fact did pursuant to that agreement with the care and skill to be expected of a reasonably competent building contractor. That work potentially included both physical work of construction and the making of decisions as to design, in the sense explained by May LJ in the passage which I have cited from his judgment in the second Bellefield case. I find that that duty did extend to not causing economic loss, for the reasons which I have endeavoured to set out.”

The liability of a builder/designer is contingent on the contract not having excluded a liability for negligence and the remedy for that is to read the terms of any contract to ensure no such liability is excluded.

Of course there are other difficulties for aggrieved property owners as was seen in Irish Equine Foundation Ltd. v. Robinson [1999] IEHC.

Here, the court decided, as a preliminary issue, that the Plaintiff’s claim was statute barred under the Statute of Limitations 1957.

The lesson is this; when the builders leave, carefully examine the work, time is running!

It is common in building agreements for the “employer” to hold back some monies due to the builder/contractor under the contract. This money is known as “retention money”.

The money belongs to the contractor. However, the “employer” is anxious to determine that no defects exist in the works which would allow the employer to deduct the cost of rectifying the defects from money due to the contractor. Until that determination is made the employer “retains” some of the money due to the contractor.

Given the collapse in the Irish construction industry it is now a serious problem to safeguard such retained money. If the money is kept by the employer with its own money it will be very difficult, if not impossible, to prevent the money from being lost in any insolvency of the employer. The remedy for this is to insist that the money be placed in a separate bank account (to the credit of the employer). Trust money (as this is) which is not mixed with the trustee’s money is not lost in an insolvency.

Even if the retention money was not required, under the terms of the contract, to be lodged in such a separate account, there is no reason why it cannot be done belatedly, before any insolvency is triggered.

The builder of the Empire State building in New York, when asked what the most important thing was in its building replied, “Getting the contract”.

What he did not say, but just might have been able to say, is that the “contract” may be subsequent to the commencement of work.

The reason for this lies in a practice common in the construction business, of issuing “letters of intent”. The intended purpose of these is to start the process of negotiation of the terms of the contract (or even to just gain time while the contract is being drafted), but to avoid inhibitions in the commencement of work.

The contract negotiation may be lengthy. Frequently, construction contracts are accompanied by “collateral” contracts intended to benefit third parties, such as the bank that is financing the construction.

Interesting, and profitable (for lawyers) questions arise when the work is completed in the absence of the formal signing of the contract. The correspondence may be replete with the slogan “subject to contract/contract denied”, but it will be difficult to maintain the position that there is no contract in such circumstances.

Depending on the course of the negotiations the planned terms of the contract may be readily discovered; very likely the intended terms were in the form of one of the RIAI contracts or some other model construction/engineering form.

Even if there is no contract, an “employer” is not entitled to deny responsibility for payment for work done. Claims of this kind used to be called “quasi-contract” but are now called “restitutionary”.

However, that circumstance and another where there was no “model” form of contract alluded to, present yet more interesting and profitable (for lawyers) questions as to what the subject matter of the contract was and whether one of the parties (the builder, usually) has complied with its terms.

This can easily arise where what was done was, say, constructing an extension to a house. Ideally, some construction professional (a surveyor, say) will have been engaged to specify the work and oversee its execution. If this has not happened and the work is not satisfactory, the “employer” must, belatedly, discover what are the minimum standards applicable to construction work. If the “employer” is not in business then the “employer” may be a consumer under the Sale of Goods and Supply of Services Act 1980 and some at least of the terms of the contract will be implied under the 1980 Act.

There is no reason, in the case of a small job, for work to commence before the execution of a proper written contract with a specification attached and for arrangements for the work to be supervised by a construction professional.

Litigation lawyers fight. If a lawyer is not generally fighting, he/she is not in litigation. Sometimes the lawyer is fighting for a plaintiff and sometimes the lawyer is fighting for the defendant.

Some lawyers find they invariably fight for plaintiffs and other lawyers find they invariably fight for defendants. The distribution of business in the “legal market for services” explains patterns like this.

Some firms of solicitors have one client only; an insurance company, say. The requirement of an insurance company (or a bank), for legal services, is substantial.

The fighting takes place in the context of legal proceedings.

What is it like to be involved in legal proceedings?

The answer is not straightforward; after all, what is the answer to the question, “What is it like to be in a fight?”.

It invites the reply, “What kind of a fight?”

There is no comparison between a soldier coming in to land on OMAHA BEACH in Normandy, on D-Day 1944, and a brawl in the local pub. Yet both are “fights”.

Or, to take another example, consider Gary Cooper in “HIGH NOON” with his shoot-out on the Main Street and compare it with the reality of the WILD WEST; most shootings consisted of sneak assassinations from darkened laneways.

Perhaps the term “fighting” is wrong; perhaps “contest” is closer to reality, as a description of what the process is like. If so, the phrase “unequal contest” springs to mind. Many legal proceedings are unequal contests.

The reasons for the inequality are many. From a lawyer’s point of view, the problem may be like that of a chess player drafted into the chess game after the game has started. Fatal strategic decisions may have been made and the positions on the CHESS board now reflect that.

By whom have the fatal mistakes been made? Possibly the opponent, possibly the lawyer’s client.

Metaphorically speaking, assume the fatal mistakes have been made by the opponent but the game is underway in a five-star hotel and will last ten days or thereabouts. You have a winning position, but do you have the money to book a room in the HOTEL for ten days?

Whatever about the strategic errors on the board, the opponent will immediately perceive your lack of resources and drag the game out. Like HENRY COOPER, you (metaphorically) have a weak eyebrow. The opponent will punch you there, you will bleed (metaphorically), and the referee will stop the fight, in his favour.

Furthermore, prior to that, being Henry Cooper, you have knocked your opponent down; he pleads, (to gain time and recover), that his gloves are torn, and he needs them replaced!

Reference has been made in this blog to the impracticality of litigants, generally, representing themselves.

In short, a lawyer is generally needed.

The same dictum applies in the conclusion of complex contracts.

In O’Mahony v Patrick O’Connor Builders Ltd. the parties agreed that the defendant do some building work for the plaintiff. When difficulties arose the parties agreed to the preparation of a report by an independent surveyor who would value certain works.

The defendant contended that the outcome of the valuation was binding on the parties.

(The plaintiff was denying that, and was asking the court to revisit the valuation issues).

As the court noted, there was not a clear contract in writing agreed between the parties. (Drawings and specifications were not sufficient to meet the need).

Consequently, through no fault of the valuer he had not executed his task on terms agreed between the parties. In particular, the valuer had made his report final without notifying the parties in advance; advance notice by the valuer before doing so had been a term of the agreement between the parties.

Consequently, the valuation was not binding and the issues, apparently settled by the valuation, were still at large.

A breach of contract does not give rise to an entitlement to compensation for every loss sustained by a Plaintiff.

Some losses are deemed too remote for the Defendant to be held responsible for them.

A good example of this occurred in Balfour Beatty Construction (Scotland) Ltd v Scottish Power plc [1994] CILL 743.

The Plaintiff was constructing a concrete aqueduct over a roadway. It established a batching plant to provide the concrete on site, with the Defendant supplying the power to run the plant. The concrete had to be delivered in one continuous process; a hiatus longer than 30 minutes would prevent a re-start and would ruin the work and materials applied. The Defendant’s power supply failed during the batch run. The work done had to be undone and the Plaintiff had to start again.

The court held that the Defendant was not answerable for the cost of demolition and reconstruction because the Plaintiff had not informed it of the need for a continuous pour.