CONTRACT LAW

Contract Law

Contract Law

Introduction

Simon Cuddle, a multi-millionaire property developer, decides to refurbish three of his properties. He enters into three separate contracts with the following companies; Best Builders Ltd ('BBL'), Ravishing Rooms Ltd ('RRL') and Perfect Print Ltd ('PPL').

Case 1

In the first contract, BBL agrees to build a new concert hall in the grounds of a large property called 'Taylor Caldwell Mansions' that Simon has recently purchased. Simon informs BBL that the work must be completed by 1st May 2010 as he has hired a pop group called the 'Dip-Sticks' for the grand opening on that day. Unfortunately, due to the cement mixing machines not working properly, the grand opening has to be put back until 1st June. As a result, Simon loses £20,000 on advertising, £10,000 on advanced ticket bookings and £30,000 profit from expected sales on t-shirts and CD's from the group's latest recording. Simon did make a telephone call to another builder in order to hire other cement mixers.

Analysis

Clause 6 inserts new subsection (1A) into section 110 of the 1996 Act. Subsection (1) of section 110 stipulates that every construction contract is to provide an “adequate mechanism” for determining what and when payments become due under the contract, and, in interpreting subsection (1), the courts have held that an “adequate mechanism” can include a certificate issued by a third party (e.g. an architect or quantity surveyor) under a superior contract. This has caused difficulties - a subcontractor may not be aware that a certificate has been issued in a superior contract and, where such a certificate covers work undertaken by other sub-contractors, payment to the sub-contractor is often delayed until all of the other work has been completed.

New subsection (1A) secures that it is not an adequate mechanism for these purposes to make the determination of what payments are due, and when, dependent upon work carried out in another contract (e.g. a superior contract) or upon someone's decision as to whether work has been carried out in another contract.

However, section 112 of the 1996 Act permits a contractor to stop carrying out work under the contract in the event of non-payment by the other party. Subsection (2) of clause 8 amends subsection (1) of section 112 to put it beyond doubt that a contractor may stop carrying out some, and not simply all, of the work in such a case. Subsection (3) of clause 8 inserts a new subsection (3A) into section 112. The effect of this is to make the “party in default” (i.e. the party who has not paid) liable to pay to the contractor stopping work pursuant to section 112 a reasonable amount by way of the costs and expenses he incurs by stopping work (for instance, the payee's reasonable costs in redeploying staff or removing plant and equipment).

Subsection (4) of clause 8 amends subsection (4) of section 112. Section 112 provides that any period during which the contractor stops work in pursuance of this right to do so in a non-payment situation is to ...