LAWBUILD
Letter No. 9
Wednesday, 23 June 2004
 |
 |
Lawbuild provides construction law expertise
to save clients time and money.
A personal message from Lawbuild's Principal
David Lewis
|
Publication
of correspondence, legal disclaimers and warnings: please read first
Which legal specialists do you think are the most important?
My own answer: judges, because without them you can't enforce your legal rights.
And it follows that the most important legal specialism is litigation.
It also follows, I think, that one of the most useful and important
attributes a lawyer can have is the ability to predict a judge's decision. (And
by the way, when I say "judge" I include arbitrators, adjudicators, and other
tribunals; and likewise when I write about the "court".)
Here's a related question. You're in dispute with someone, and
it's going to court. Legally you have a very strong case. Your opponent not
only is wrong in law, but has scarcely been able to put together a legally credible
claim or defence. This means you have a high chance of winning the case, does
it not? To which rhetorical question I reply, "Not necessarily."
I've often asked myself why judges get the law wrong. Now just
writing that sentence is risky: not because the judges will lock me up, but because
in theory the law is what the judges say it is, and the only judges who
can be said to have got the law wrong are those whose judgments have been reversed
on appeal or overturned by a higher tribunal. So I had better say, "why judges
seem to get the law wrong."
One indicator that a judge's decision is "wrong" is if it conflicts
with the current consensus among practising lawyers: a topic I examined, with
reference to the higher judiciary, in an essay called "The Consensus Principle."
(You can read it on Lawbuild's website at
http://www.lawbuild.co.uk/TheConsensusPrinciple.htm.)
At the lower end of the court system it strikes me that judges
have quite a strong desire, consciously or subconsciously, to be fair and just.
That of course is entirely honourable; and is to some extent recognised in Part
1 of the Civil Procedure Rules, which promotes the objective of enabling the court
to deal with cases "justly" and "fairly" (though this relates to the process rather
than the outcome).
Probably only a lawyer could complain about a judge's decision
being fair and just. I don't complain, but judges should never forget (for example)
that individuals and businesses enter into contracts on the basis of the law as
understood and explained by their lawyers. If a judge ignores that basis, then
even if he achieves fairness (which is unlikely) it will be at the expense of
predictability. And since commercial success in developed societies depends on
a reasonably high degree of legal certainty, unpredictable judgments could damage
the economy.
As result of my observations of the judiciary at various levels
I began to develop a simple theory to assist me in predicting the outcome of legal
cases. My theory - which I'm sure many other lawyers have arrived at - is that
in order to have a high probability of winning a court case you need to have not
only a strong legal case but also a strong moral case. In other words, you want
the judge to want you to win. If he wants you to win, he can no doubt
find legal justification for his decision.
If your case is about contracts, you need to ask yourself whether
the value received by the paying party corresponds to the amount he has paid.
If there is a significant imbalance, then whatever the rights and wrongs in law
you can reckon that the judge will want to find in favour of the party who has
received insufficient value for his payments or has paid too much for the goods
or services he has received.
As I've said, it's only a theory. It has the drawback that it
might cause lawyers to give over-pessimistic advice. But given the high costs,
and high risks, of litigation, and professionals' subconscious preference for
giving advice the client wants to hear, a justifiable dose of pessimism may be
no bad thing.
With kind regards.
Principal of Lawbuild, solicitors
Editor of the Lawbuild Newsletter
Contractors must tell residential occupiers
about adjudication clauses
Or risk being unable to enforce
them
Adjudication is useful to contractors as a quick, and sometimes
cheap, way of getting money from a client who unjustifiably refuses to pay. As
a contractor you can usually get a decision within weeks, and enforce it fairly
quickly through the courts.
By law, all building contracts - with a handful of exceptions
- must contain an adjudication clause. If they don't, the law will supply a standard
adjudication clause. The same applies, as we shall see, to most appointments
of architects and other construction professionals.
An important exception is any building contract or appointment
with "a residential occupier": in other words, where the works are to a house
or flat which the client occupies, or intends to occupy, as his residence.
Let's now turn (for an example) to a popular form of building
contract, the JCT Agreement for Minor Building Works 1998 Edition ("MW 98").
The JCT's Guidance Note says this form "is generally suitable for building work
(new, extensions, refurbishments etc.) up to a value of £100,000 (at 2000 prices)."
As you would expect, MW 98 is frequently used by homeowners.
MW 98 contains an adjudication clause which satisfies legal
requirements. Now as we've seen, if the client is living (or intends to live)
in the home where the works are to be done, such a clause is not legally required.
But so what? It's there, and both the contractor and the client could find it
useful if they want a quick and relatively cheap resolution of any disputes.
However, the contractor may find he can't legally use the adjudication
clause. This is because of the Unfair Terms in Consumer Contracts Regulations
1999, as interpreted by His Honour Judge Toulmin QC in Picardi Architects v.
Cuniberti, decided in the Technology and Construction Court on 19 December
2002.
Picardi v. Cuniberti was not about MW 98. It was
about the RIBA Conditions of Engagement known as CE/99, which also contained an
adjudication clause that was "surplus to requirements". Mr Picardi was the architect,
and homeowners Mr and Mrs Cuniberti were the clients or "consumers".
The Unfair Terms in Consumer Contracts Regulations make unenforceable
any terms which have the object or effect of "excluding or hindering the
consumer's right to take legal action, or exercise any other legal remedy, particularly
by requiring the consumer to take disputes exclusively to arbitration not covered
by legal provisions [.]."
Where a condition is particularly onerous or unusual, or involves
the abrogation of a right given by statute, the party putting forward the document
must show that it has been properly and fairly drawn to the other's attention.
Judge Toulmin was satisfied that adjudication clauses are "unusual
terms which must be brought properly and fairly to the other party's attention.
This means that before a party can rely on those terms, the architect must bring
them properly and fairly to the attention of the other party. This did not happen.
The least that Mr. Picardi would have had to have done [.]was to have drawn Mr.
and Mrs. Cuniberti's attention specifically to the [adjudication clause]."
The judge added: "The common law is, and always has been, concerned
to promote fairness between the parties. As common form contracts in this country
drafted by lawyers become ever more complicated, it is essential that both particularly
onerous and unusual terms are specifically drawn to the attention of the other
party. I include the requirement that either party may invoke an adjudication
procedure in this. This is an unusual procedure invented for good reason, primarily
to assist the construction industry to resolve its disputes. Parliament having
considered the Latham recommendations, specifically excluded private dwelling
houses from its application. A provision that, despite this exclusion, adjudication
is to be included as a matter of contract, is clearly an unusual provision which
must be brought to the specific attention of the lay party if it is later to be
validly invoked."
And later: "Here, the issue is whether or not the adjudication
provisions caused a significant imbalance in the parties' rights and obligations
arising out of the contract to the detriment of the consumer. The test [.] is:
does the term cause a significant imbalance in the parties' rights and obligations
arising out of the contract to the detriment of the consumer? An instance of
this is hindering the consumer's right to exercise a legal remedy [and] a requirement
to take a dispute to arbitration is an example of a significant imbalance."
Judge Toulim concluded that "a procedure which the consumer is
required to follow, and which will cause irrecoverable expenditure in either prosecuting
or defending it, is something which may hinder the consumer's right to take legal
action. The fact that the consumer was deliberately excluded by Parliament from
the statutory regime [.] reinforces this view. Costs in an adjudication can be
very significant." He therefore declined to enforce the adjudicator's award.
I am not entirely sure about the judge's reasoning. There is
a big difference here between adjudication and arbitration. An arbitration clause
prevents either party from taking a dispute to court; but an adjudication clause
does not. It therefore does not "[hinder] the consumer's right to take legal action."
The obvious lesson is that if you are a contractor, or an architect
or other consultant, and your standard contract contains an adjudication clause,
you need to bring the clause to the attention of your domestic clients if you
want it to apply.
A glossary of construction law
expressions: K and L are for .
Letter of intent
Business timetables frequently require works to start on site
before the parties are in a position to enter into a formal building contract.
A letter of intent (from the employer to the contractor) allows this to happen
without too much risk to the parties. Terms vary, but usually the employer can
terminate the commission at will and must pay the contractor the value of the
works completed.
Letters of intent may be limited to specified preliminary work,
or to work up to a specified maximum value.
Liquidated and ascertained damages
Also called LADs. Fixed damages stated in the building contract,
and usually set as an amount per week (or part of a week), which the contractor
must pay the employer (or which the employer may deduct from payments to the contractor)
if completion is delayed beyond the contractual date for completion, as adjusted
by any extensions of time.
LADs are void as a penalty if they are not a "genuine pre-estimate"
of the employer's potential loss, in which case the employer can usually recover
normal, unliquidated damages for breach of contract.
Latent defects insurance
Sometimes called latent damage insurance or project insurance.
Not seen all that often.
Developers will take out this cover in advance of construction
of a new building. It indemnifies the current building owner against the cost
of remedying defects appearing during a fixed period - typically ten years - after
completion of works. An insured building owners may transfer the policy to a
buyer.
A variant called "whole life insurance" will cover the first
35 years of the building's life.
Typical premiums are 1.5% to 2% of the building cost, but we
have also seen a fixed premium of 0.65% for buildings costing up to £10m. An
additional premium will cover other parties (such as the contractor).
Latent defects insurance can be a useful alternative to collateral
warranties if you want your project to be readily marketable to tenants and buyers.
The builder
from hell (revisited)
In our September 2002 article, "How to avoid the builders from
hell" (http://www.lawbuild.co.uk/NewsSep2002.htm)
we listed some bullet points to help our readers.
We were interested to read a similar checklist in The Week
magazine of 6 March, "Tips of the week . how to find a decent builder" which
summarised an article in The Times.
We wrote: "Be clear about the work which the builder is to do.
If there is no detailed specification, write a performance specification which
describes your expectations of the finished work and include it in the contract."
The Times advised readers to send a detailed specification
to as many building firms as possible and to analyse each quotation carefully.
We advised: "Enter into some sort of formal agreement. You could
purchase the JCT building contract for a home owner/occupier . Alternatively,
write the builder a letter stating the agreed terms." Our article added a list
of essential terms.
The Times also advised a written contract with, if possible,
a "penalty clause" stating a fixed amount payable by the builder for each week
that the project over-runs. (We didn't include a "penalty clause" as an essential
term, regarding this as desirable rather than essential. There are also certain
legal issues involving the concept of a "penalty clause": see our earlier article in this newsletter
on liquidated and ascertained damages.)
Our advice included: "Agree to pay the builder according to the
stages of work actually achieved; and not in accordance with a timetable (i.e.
on fixed dates), because if the builder is running late you don't want to become
liable to pay an instalment before the corresponding work stage has been completed."
And "Don't pay for materials in advance. Professional builders don't normally
ask for this; they finance their work upfront."
The Times advised readers to be wary of builders who ask
for cash up front, since "a good firm will have enough work on to guarantee cash
flow."
Our article also gave tips about doing a company search of the
builder, obtaining references from current or previous clients, employing a qualified
project manager and/or quantity surveyor (and not necessarily relying on an architect
to perform these functions), making sure the works are covered by your building
and contents insurance (unless the builder has agreed to insure them), asking
the builder to produce evidence of his "all risks" and public liability insurance
policies, not paying for anything without receiving an invoice for it, and - importantly
- not paying cash with no invoice if you suspect that the builder is trying to
evade VAT or income or corporation tax; while The Times also advised on
the dangers of plumping for the lowest estimate, the desirability of a detailed
quote including a contingency of around 10% to cover unforeseen circumstances,
checking to see if the contractor's letter paper shows a contact address and telephone
number (not just a mobile), and finding out if the contractor belongs to The Federation
of Master Builders or a similar organisation.
These useful tips from experts in the press show that Lawbuild
does not have the monopoly on ideas for combating the builder from hell, and we
will mention any other suggestions we come across.
Have you had to deal with the builder from hell, and do
you have any ideas that might help readers of The Lawbuild Letter to avoid meeting
him? Please email
us if you do.
They liked it
We received a number of complimentary
emails about The Lawbuild Letter No. 8, and in response to our email inviting
non-corporate readers to "opt in" to future issues.
The following selection omits the writers' names and companies,
but we would like to publish these details in future newsletters provided the
writer does not object. If therefore you are kind enough to email us about The
Lawbuild Letter, but don't wish us to publish extracts from your email and/or
your name and company, could you please add "Not for publication" or "Not for
attribution"? (And see our legal notice
below.)
"An invaluable publication . can't be without it . a priority
to read as soon as it arrives." Solicitors, London EC2.
"A lovely story of how you came about. I read it with great
interest." Telecommunications company, Luton.
"Thank you for sending Lawbuild Letter No. 8 and which I read
with interest." Estate agents, London EC1.
"Thank you David - this is always very informative." Solicitors,
Enfield.
"I have read it all & found it interesting, including the
origin of the 'Lawbuild name'." Property developers, London W1.
"I like your newsletter and I think it is an excellent tool -
and one that I think I should use." Solicitors, London SE27.
"Very, very enjoyable - as usual!" Accountants, Finchley.
"I enjoy receiving your Lawbuild newsletters, keep them coming.
I trust your venture is continuing to thrive." Construction managers, London
SE1.
"[A]lways an interesting read." Property company, London
W1.
"There are usually some interesting nuggets to be gleaned."
Commercial and industrial property consultant, Tonbridge.
"I find your Lawbuild Letter very informative and certainly one
of the best news letters I receive." Consultants, Stanmore.
"I circulate it to my colleagues [in] litigation and certain
other colleagues." Solicitors, London SE1.
"I find it very interesting and informative." Project managers,
London W1.
"I find them interesting." Paul Maidment, Gleeds, London
EC3.
A number of readers mentioned difficulty in opening the newsletter,
though the vast majority appear to have no difficulty. Our uneducated view is
that the problem may affect readers using email clients other than Outlook Express
or Microsoft Outlook, and/or may be due to our use of HTML or hypertext. We could
no doubt avoid the problem by producing The Lawbuild Letter in plain text and
without links, and that is an option we will consider if we get more complaints
about its viewability. (But plain text would make the newsletter look much duller
for the majority of our readers who have no problem viewing it as currently produced,
and producing two versions would be rather time-consuming.)
Business Network International®
Lawbuild and David Lewis are a member of the Victoria (London)
Chapter of Business Network International (BNI).
BNI is a business and professional networking organisation whose
purpose is to generate quality referred business for its members. BNI can claim
to be the most successful organisation of its kind in the world, as it records
the business transacted on a weekly basis. In 2003 members of BNI worldwide passed
2,800,000 referrals generating £750m of business. Currently, there are more than
3,000 active groups, of which 450 are in the UK and Ireland.
BNI groups limit membership to one person per business, so members
have an opportunity to lock out their competition.
You can contact us to ask about the benefits of becoming a BNI
member, and we can arrange for you to attend one or two meetings as a visitor
and without obligation.
To learn more, visit BNI Europe and BNI Victoria.
Newsletter stuff
Want to unsubscribe?
To remove your name from the mailing list for this newsletter,
please email unsubscribe@lawbuild.co.uk
(or request removal in a reply to the email enclosing this newsletter).
To add your name to our mailing list, email subscribe@lawbuild.co.uk.
Missed Lawbuild Letters Nos. 1 to 8?
Visit our website and click on the "Articles" tab.
All past issues are there.
Pass it on
Please forward this newsletter to anyone you think might like
to receive it. And we shall be glad to add that person to our mailing list for
future newsletters if you or they will send us their email address. (We don't
send the newsletter to individuals outside a company unless they've "opted in".)
Tell us
All feedback is very welcome.
We would like to hear from you if you have any comments, queries, corrections
or suggestions, but first read Publication
of correspondence etc. below.
About Lawbuild
Lawbuild is a specialist construction law practice offering
expert advice and services to anyone carrying out or lending money for construction,
and to any buyer, seller, landlord or tenant of recently built or refurbished
property. We are experienced, thorough and professional. Our aim is to save
clients time and money, and our charges are very reasonable.
Lawbuild is equally at home with contracts for services and with
many other kinds of non-specialist agreement.
Lawbuild's principal, David Lewis, has more than 25 years' experience
in contracts and construction law.
Contact information
Here's how to get in touch with us:
Email
letter@lawbuild.co.uk
but first read Publication of
correspondence etc. below.
Phone
020 8346 6424
Fax
020 8346 0745
Mobile
07887 757 606
Post
David Lewis
Lawbuild, solicitors
37 The Grove
LONDON
N3 1QT
Website
www.lawbuild.co.uk
Publication of correspondence,
legal disclaimers and warnings relating to this newsletter: please read
Publication of correspondence
Please note that all issues of The Lawbuild Letter are
(or will be) published on our website at http://www.lawbuild.co.uk/articles.htm.
As with letters to the editor of most publications, we will
assume that the writer has no objection to publication of his or her email or
letter, with attribution, unless the writer states otherwise.
If therefore you write to us about The Lawbuild Letter,
but don't wish us to publish extracts from your email or letter, please add "Not
for publication".
If you don't mind us publishing extracts, but don't wish us
to mention your name and company, please add "Not for attribution".
If we have previously published extracts from any email or
letter of yours, and you would like those extracts and/or references to your name
and company removed from our website, please email letter@lawbuild.co.uk and we will remove
them as soon as possible.
Disclaimers
Lawbuild is providing this newsletter on an "as is" basis and
makes no representations or warranties of any kind with respect to this newsletter
and disclaims all such representations and warranties.
In addition, Lawbuild makes no representations or warranties
about the accuracy, completeness, or suitability for any purpose of the information
published in this newsletter. The information contained in this newsletter may
contain technical inaccuracies or typographical errors. All liability of Lawbuild
howsoever arising for any such inaccuracies or errors is expressly excluded to
the fullest extent permitted by law.
Neither Lawbuild nor any of its employees or other representatives
will be liable for loss or damage arising out of or in connection with the use
of this newsletter. This is a comprehensive limitation of liability that applies
to all damages of any kind, including (without limitation) compensatory, direct,
indirect or consequential damages, loss of data, income or profit, loss of or
damage to property and claims of third parties.
Notwithstanding the foregoing, none of the preceding exclusions
and limitations is intended to limit any rights you may have as a consumer under
local law or other statutory rights which may not be excluded or in any way to
exclude or limit Lawbuild's liability to you for death or personal injury resulting
from our negligence or that of our employees or agents.
Intellectual property
The Lawbuild trade mark has been registered under the Trade Marks
Act 1994 of the United Kingdom of Great Britain and Northern Ireland in respect
of Classes 16, 41 and 42. All other trade marks, brand names, product names and
titles and copyrights used in this newsletter are trade marks, brand names, product
names or copyrights of their respective holders. No permission is given by Lawbuild
in respect of the use of any of them and such use may constitute an infringement
of the holder's rights.
You've come to the end
You've now reached the end of Lawbuild Letter No. 9.
We hope you've enjoyed reading it, and we look forward to hearing from you at
any time.
Return to start of newsletter
|
