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.

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.