What Goes Wrong
What approaches have been used in attempting to create third party rights arising from construction contracts, how successful have these attempts been, and how and why have the common law interpretations of these attempts influenced commercial practices?
Professional liability of a design professional has undergone many changes since the advent of modern communication techniques. This is because legally enforceability has become multinational and the failure to perform the professional services by a design professional now needs to fulfil international norms[1]. On these basis, there cannot be a single definition of legal liability which can prove to be satisfactory under all circumstances. What the law schools teach and what is learned from experience are two different things. But even for those not knowing legal liabilities, it is sufficient to know that Torts are laws dealing with civil wrong and these are violations of private rights, whereas a criminal wrong is a violation of public rights. Contracts[2] are made with the intention of precisely allocating and assigning the responsibility, balance of risk and reward arising out of that contract. Hence, choosing the right strategy to work now depends more on what the drafting of the contracts states, including fixing of who carries what risk.
Sometimes, construction professionals perceive things in a wrong perspective. An example of this can be seen in the case of Plymouth & South West Co-operative Society Limited v Architecture, Structure & Management Limited. Just before the drafting of the building contract by the developer, he was advised by the architect that whole of the work was equivalent to the contract amount quoted. Although the architect[3] informed the developer that a budget forecast for costing and construction purposes had not been carried out, he assured the developer that he would strictly introduce and follow all cost control measures and carry out careful monitoring of all aspects of the project. He also assured the developer that project would be completed within the proposed time and budget.
But in factual conditions, it was not so. When the matter was put up in a court, it was held by the court, that all the circumstances, including the presentation of an incomplete design and the absence of a viable advice from the architect led to the developer taking decisions and this led to failure of the project. The foremost priority of the developer[4] towards cost certainty was not addressed properly by the architect and his breach of duty in offering a viable advice to the developer also hampered the developer in implementing an alternative contract strategy. On these grounds, the claimant developer succeeded in taking action against the defendant architects on account of professional negligence for failing to advise the developer of a suitable contract strategy and also in failing to advise the developer in adopting other cost saving opportunities during the course of the project. Accordingly, it was ruled that the defendant architect[5] was liable to pay to the developer the additional costs incurred by him including the cost savings which the developer could not implement.
Why Things Go Wrong
In this regard, evaluation of limits which hamper the freedom of contract is required first. Because such limits are existing in many different forms, both in terms of the common law and legislation, it is easier to understand them in terms of doctrine.
Duress
Freedom of contract is available to all parties when they are able to contract freely. Problems arise only when it occurs that the parties are not in a position to decide on the terms of the contract, or whether they are willing to enter that contract at all.7 Here, the doctrine of duress is comes into force, which explains that when duress is involved, the contract is created while one of the parties to the contract is under a threat of harm or is ‘under duress’. Historically, the threats have always been those of physical violence, although in the modern times of globalisation, the law has started recognising the effect of economic duress.
When duress is considered in terms of physical violence, it can either be towards a person (Barton v Armstrong9) or a property (Dimskal Shipping v ITWF10). The logical basis of duress acting as a preventer of the enforceability of the contract is well recognised. Freedom of contract states that two parties should be able to enter in a contract freely and without any coercion. However, in case one of the parties is being subjected to duress and is entering the contract because of fear of safety of self or of something which they own, it becomes reasonably accurate to believe that the freedom of contract is being vitiated and under such circumstances the fair basis of enforcing the contract fail. Apart from appealing in theory, this doctrine of duress also appeals as far as practicality is concerned. It would create a chaotic society and a state of fear if it is found that individuals are strong-arming others so that they subjugate the rights of the weak.
Now, when the doctrine of economic duress is examined, things become more complicated. In this famous case[6] the doctrine of duress holds true because of the economic factors created, which were very much similar to physical threats which were so far considered to be getting in the way of freedom of contracts. This case was the first to bring forth the fact that there are economic threats that can take a role similar to physical threats. Other situations were also discussed, such as, one party may threaten to withdraw all its business from the other party if it is not accommodated with favourable terms, and such a threat is given with the knowledge that they know the other party’s business would fail if they take such a step. Moreover, such threats do carry an economic cost to the party being threatened because by not entering into the contract, it may suffer losses because of losing the business to a competitor. This raises some very important questions requiring answers regarding the scope of what would describe a normal practice and what would constitute as economic duress and therefore comes to stand in the way of freedom of contract.
Duress
Undue Influence
This is another important factor affecting the freedom of contract. This doctrine of undue influence goes on to explain the interventions which a party encounters in its ability to freely contract with another party without being affected by the influence of the dominating party[7]. To understand this doctrine this case of Etridge is perfect as an example. Here, a wife can be considered to have been coerced into signing away her rights to her home because of the influence created by her overbearing husband. Similar to the doctrine of duress, the doctrine of undue influence also holds that if a contract cannot be explained without reference to one of the parties’ will being overborne[8] then the contract is not made freely and hence should not be enforced.
Consumer Protection
Apart from the common law doctrines discussed above, all of which qualify in subjugating the freedom of contract, there also exists another significant body of legislation which details out situations under which agreements should not be enforced. This can be said to be running contrary to the freedom of contract theory. Such legislations include the Sale of Goods Act, 1979, the Supply of Goods and Services Act, 1982 and the newly promulgated Consumer Protection Act, 2015.24
Unlike the doctrines discussed above, it would be difficult to argue that consumer protection legislation protects the freedom of contract in any great measure. Such legislation is, by its very nature, a restriction of the ability of consumers and businesses to create contracts however they see fit. Take for example Section 22 of the Consumer Protection Act, 2015 which prohibits the enforcement of any unfair terms, whereas under the freedom of contract policy, it states that the parties entering into a contract are free to incorporate whatever terms they wish, regardless of fairness of those terms.
Lesson to Learn
From the above case it becomes imperative for the professionals to select an appropriate contract that matches the needs of their clients and they should also keep in focus the importance of adopting an overall risk strategy. Actually, in the construction industry, it is those risks which are actually not unforeseen or unclear which in most cases result in disputes. Although, the whole system connected with the project should be concerned with issues related to the project, including direction and control of the design process, design responsibility and change in management procedures, more important is the factor related to the unforeseen, which affects the payment making capability of the developer. In case the risk needs to be managed effectively, more attention has to be paid for the creation of unambiguously drafted contracts so that they represent the exact requirements of the concerned parties[9]. Unfortunately, the inclusion of unclear meanings in the contract terms leads to reducing the effectiveness of the project’s management, because valuable human resources are diverted to unfruitful discussions and towards division of responsibility in the project and finally this leads all parties to resort to legal recourse.
Undue Influence
The English Law
It becomes pertinent here to make reference to the English Law, which does not go by the spirit behind the language used, as far as legal conclusions are concerned, but by the meaning it conveys. Hence, it becomes all the more important for the parties concerned that interpretation of the contract should provide the desired effect which is desired from the literal meaning of the drafted words[10]. As per the English Law Rule, words are required to be given their natural meaning and this means that the law will not accept any linguist mistakes which are committed by the concerned parties to the contract.
Once it has been concluded from the language of the contract that something has gone wrong, the law shall not attribute it to the intention of the parties that they did not mean it this way. The law says that language cannot be allowed to interpret a meaning that opposes business common sense[11]. Using these principles, Tribunals in UK uphold the principle of pacta sunt servanda (meaning contracts must be performed) and prefer that if a party makes a promise of doing something, it must do it, no matter what difficulties are faced to achieve the result. Hence, under the common law, a party may contract for an impossible task, but once it has done so, it has to deliver and in case of failure, shall be liable to pay damages.
In Clayton v Woodman & Sons Ltd [1962], the Court of Appeal decided that the architect was not liable for injuries to the contractor’s workmen in case a part of the building fell on him because he had refused to change contract works involving alterations. As per the law, it is not required of the architect to advise the developer about the safety measures which need to be taken, in fact, he has no right to advise the developer regarding how to carry out the operations[12]. This injunction was followed by the court in the case of AMF International v Magnet Bowling Limited [1968] when it referred to what was said in the Clayton case and I quote: ‘That case (in both courts) further establishes that an architect has no right to instruct a builder how his work is to be done, or the safety precautions to be taken.32 It is the function and right of the builder to carry out his own building operations as he thinks fit. The architect, on the other hand, is engaged as the agent of the owner for whom the building is being erected, and his function is, inter alia, to make sure that, in the end, when the work has been completed, the owner will have a building properly constructed in accordance with the contract’. Unquote.
The New Ruling
Under the newly promulgated legislation Construction (Design & Management) Regulations (CDM) of 2007 (CDMR, 2007), most of the designer duties, which used to be previously applicable only in those projects which were notifiable, have now been made applicable to all projects, whether notifiable or not[13]. As explained in CDMR, 2007, the term ‘designer’ shall refer to the function performed by the designer, rather to the profession or job title. Hence, under the CDMR, 2007, a designated designer is one who is engaged to prepare drawings, specifications and bills of quantities. Another big change[14] in the duties described under the Regulations is that the designer shall not commence any extra work, other than initial design work, unless a CDM Co-ordinator has also been appointed. In addition, the designer must:
- make sure he is competent for the job;
- ensure the client is aware of duties to be performed under the Regulations;
- ensure that while preparing the design, he avoids risks to workers;
- ensure that hazards are eliminated which create risks;
- perform his duties so far as reasonably practicable;
- take into account the Work Place (Health, Safety and Welfare) Regulations, 1992;
- provide all relevant information about aspects of the design or construction or maintenance of the structure to assist the client, other designers and contractors as required under CDMR, 2007.
Conclusion
CDMR, 2007 puts in place the essential duties required of the designers, including the duty to check whether the client is aware about such duties. Under the CDMR, 2007, the designers are required to take a forward step as far as it is reasonably practicable or to take all the reasonable steps to accomplish the things prescribed under the contract[15]. As per the UK Common Law, a designer is now required to act competently as can be reasonably expected from other professionals who are performing under similar circumstances. The new regulation does not require perfection, but reasonable care and skill while performing duties undertaken by the designer. Fortunately, under the new Regulations, the law does not call for perfection from the designer, until the professional designer specifically promises of perfection in the contract document.
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Howard, N. (2013) Beginning Constitutional Law. Oxon: Routledge.
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