A year of legal advice

At the beginning of a new year, Civil Engineering Contractor summarises some of the words of advice from Chris Binnington in 2008

    Chris Binnington walked the reader through an array of legal issues: the letter on intent, adjudication, legally leaving site (or not) and, of course, who owns the float.

What intent?
   It is indeed regrettable that the construction industry continues to utilise an instrument, the letter of intent, which adds little or no value to the relationship between the parties and, in addition, has the potential for creating significant disputes between the parties. Despite the complete absence of any tangible benefit in using a letter of intent many sectors of the construction industry continue to labour under the misapprehension that it provides some sort of benefit.

As a general rule letters of intent do not create legally binding arrangements. The letter of intent does not constitute acceptance of the contractor’s intention but is rather a statement of the intention to accept it at some later date. It is for this very reason that it is referred to as a letter of “intent”. In its purest form it can do nothing other than to create a sense of comfort on the part of the recipient. Perhaps, maybe, sometime in the future the issuer of the letter of intent will enter into a contract with the recipient. There is however no guarantee that that will happen and, should it not, the recipient of the letter of intent will have no rights of recourse against the issuer and may well have committed itself to expenditure which is not recoverable in the absence of the contract itself coming into being.

Our best recommendation is not to use letters of intent. We have not found any persuasive argument whatsoever that would encourage us to recommend their use. If the employer requires some aspect of the original enquiry to be carried out before it is in a position to place the full contract, it should enter into a proper mini contract with all the terms and conditions incorporated for the protection of both parties. Letters of intent create uncertainty and it is our experience that, wherever uncertainty is created, a significant opportunity for dispute will arise. Contracting should be like playing tennis: never let the ball go dead on your side of the court otherwise you will lose the point!

As the majority of adjudications will be conducted on a document-only basis, the format and content of the submissions becomes a vital ingredient for success. Regrettably, the quality of submissions, in the main, does not reach the standards appropriate for this form of dispute resolution. The following guidelines may be of assistance t the parties and adjudicators.

As the majority of adjudications are conducted on the basis of documents only, it is vital that the impression created by the claim or response is one of honesty and integrity and, furthermore, that the actual presentation makes the task of the adjudicator as simple as possible. Bearing in mind that an adjudicator’s most difficult problem will be resolving disputes of fact on the papers, it is essential that corroborative evidence should be given to support key facts wherever possible. This can be achieved by way of sworn affidavits in respect of persons involved in the construction and, if necessary, more than on affidavit supporting the same situation will ensure that the adjudicator gives maximum weight to that party’s factual submission.

Stay or go
Several times a year, we are consulted by contractors complaining that they were not paid and, accordingly, stopped work or left the site. Now they want to know how to recover the amounts due to them. That there is an automatic right to suspend work or to leave the site if payment is not made is, clearly, a common misconception in our industry. Unfortunately for contractors, unless their contract provides them with a specific right to stop work when payment is not made, their obligation is to continue to carry out the work and to follow the remedies provided in the contract: to dispute the employer’s right to withhold payment. Thereafter they may also be entitled to exercise their lien and to retain possession of the site as a form of security against any claim they believe they have.

Where, however, a contractor has abandoned the site or simply stopped work, such an action, in the absence of a contractual provision entitling the contractor to do so, would constitute a repudiation of the contract entitling the employer to accept the repudiation and cancel the contract. Such an action would place the contractor in a very difficult position as it would no longer have any claim for damages being the loss of profit on the remaining portion of the work and the employer would have a claim for damages against the contractor being the difference in cost between that of the original contractor completing the work and the costs of the replacement contractor brought in to complete the work subject to the normal common law rules of mitigation of damages for breach.

There is no doubt that, where a right is created in a contract allowing a contractor to stop work or reduce the rate of work during the execution of the work, this constitutes a very powerful right and will usually bring the issue to a head very quickly. This is not always the, however. In a road contract in Malawi, the Italian contractor suspended the work for 18 months following the Malawian government’s failure to honour a certificate due to lack of funds. This was a 4th edition 1987 FIDIC contract in which the contractor was entitled to suspend under the circumstances.

Contract document are, of course, hot the most exciting documents to read. Be that as it may, it is vital that contractors do read their contracts and, participle, having read them, understand what their rights and obligations are. The modern form of construction contract is a complex document with many interlinking clauses. It is very easy for contractors to make contractual mistakes based upon lack of understanding of the documents and the law will not come to the assistance of the ignorant. The old adage, if you do not understand then ask, is applicable and contractors will have only themselves to blame if they do not follow the rules. There are no referees in construction contracts giving out warnings followed by “yellow cars” and then, perhaps, “red cards”. You only have one chance and, if you get it wrong, the strong probability is that you will be shown a red card!

Chris Binnington