The construction industry is one of those industries where you find an abundance of contractual documents as often as you find a complete lack of any contractual documents. Deals can be negotiated and contracted within an inch of their life on one project, and done with a handshake on the next, and almost anything in between. There have been a couple of cases this year which highlight the importance of careful consideration when agreeing and discussing contractual terms and sticking to them during a project.
It might be human nature to hope for the best and trust others to act fairly, but as a litigation solicitor, I often find that common courtesy and fairness get swiftly side-lined when they clash with the need to pass the blame or considering the bottom line. Despite this, the number of times I come across contractors who have no contract documents at all, or do but they are “one of the JCT contracts” and they have not read the terms, or have agreed written terms but then don’t follow them or change them constantly without anything in writing to evidence the change. This is the bread and butter of a construction disputes solicitors’ day.
You can have a written contract. You can have an oral contract. However, it is also possible to have a hybrid contract which involve some written and some oral terms. Lack of clarity however, is a disaster waiting to happen. Was that a term you agreed to or just something you discussed? Are you being lenient on this occasion, or have you waived your right to enforce a term?
This year, the courts considered a matter in which a partially written and partial verbal contract was the subject matter. The case was Stonard v Green Shoots Capital UK Ltd [2021] EWHC 927 (Ch);
The parties had agreed a written contract, but the contract referred to a schedule which set out the payment provisions. That schedule did not, in fact, exist when the contract was entered into. This could have been devastating to the party seeking payment as the court was not willing to interpret the wording to includes a schedule which was purported to exist, but not in fact yet negotiated/existing. The parties however, each agreed a payment to be due on a fee sharing basis, but the parties disagreed on what the precise terms were. The court was therefore content to find that there was a partially written and partially verbal contract in that instance and that the court only needed to consider which parties’ version of the oral terms it accepted were accurate.
It is vital that all key terms are discussed and agreed before any contract is entered into. If a term cannot be agreed from the start, then it is important to consider if a mechanism for determining it can be agreed so parties have the level of certainty they need. The court’s decision as to what payments terms applied, in the above case, was based on witness evidence and two opposing understandings being presented. It could well have gone the other way.
These kinds of costly disputes can be avoided with just a bit of clarity from the outset and better still, a full and complete written contract setting out all key terms agreed.
The next case, which I found interesting, was Mansion Place Ltd v Fox Industrial Services Ltd [2021] EWHC 2972 (TCC);
This case considered issues of delay, extensions of time and liquidated damages. The parties had agreed the contractual provisions in advance – the contract was one of the JCT suite and everyone knew where they stood.
There were delays and requests for extensions of time; none completion notices were issued; eventually, after some conversations, the parties were able to get the project completed, albeit much later than contractually planned.
A payment application was then met with a pay less notice setting off liquidated damages. The contractor objected, stating that there had been an agreement that the employer would not claim liquidated damages and the contractor would not make any claims for loss and expenses of delay. The employer denied such an agreement was reached. The court considered the surrounding evidence and the parties witness testimony.
Once again, the dispute turned on one person’s word/recollection versus another. The court found that the employer during a conversation with the contractor had agreed to abandon any claims for liquidated damages which might be due to the employer under the terms of the contract. The court holding that this was a binding agreement.
Both of the above cases only ended up in court as a result of differing recollections between the parties as to what they had discussed, and in both cases the lack of written documents exchanged to reflect the agreement reached causes the issue to be unclear. In both cases, the parties each had a motivation to argue their own understanding, leading to extensive and costly litigation.
So, how do you allow yourself the flexibility of verbal negotiations on a fast-paced construction project without risking costly disputes?
There is nothing wrong with having negotiations informally to see if matters can be resolved without going legal or before enforcing the contracts you might have in place. Indeed, in a covid climate and certainly within the construction industry, sometimes a bit of flexibility is sensible to get the works over the line. Firstly, be clear;
- Be clear on what you are discussing – whether it is without prejudice with a view to finding a solution or is it open and something both parties can refer to if a dispute ensues?
- Be clear on what you are offering – are you giving something up indefinitely or just allowing some flexibility but reserving your right to challenge something later?
- Be clear on what has been agreed at the end of the discussion if it is something both of you intend to be bound by – walk away on the same page
Secondly, and most importantly, remember that recollections can fade even over short periods of time. As such the best way to stay out of a courtroom later down the line is to ensure that any agreement reached in a conversation is put in writing and circulated as soon as possible after the conversation.
If you find yourself in need of advice and assistance with construction related disputes contact Angie Papprill at apapprill@jacksons-law.com or call 01642 356500.
