Construction
Contracts
Contract, Repudiation, Breach & Remedies
• Recap: Principles of Contract
• Element of Contract
• Contract in Construction
• Repudiation & Breach of Contract
• Remedies for Aggrieved Parties
This Week
“The law of contract is based on the
mutual exchange of obligations, in that
each side must contribute something to the
agreement to make it binding ”
John Uff, 9th Ed.
General principle
• In law, a ‘contract’ can be defined as:
‘A valid contract is a binding agreement
between two or more parties which creates
legal rights and obligations which the law
will enforce’
What is contract?
• A valid offer
• An unqualified acceptance (s.2)
• An intention to create legal relations
• Valuable consideration provided by each of the parties,
except in the case of contract under seal (s.2d)
• Certainty on the terms of the agreement (s.30)
• The parties must have legal capacity to contract (s.11)
• Genuine consent by the parties, for example, there must
be no duress involved (s.10, 14)
• The contract must be lawful (s.10(1))
Essential element of contract
Unilateral
Consensual
Deed or
Under Seal
Contracts
can exist
in 3 ways?
Types of contract
CONTRACT IN
CONSTRUCTION
• Standard Forms of Contract as basis of contract terms,
contains express terms in the Contract
• Tenders represent consideration and agreement features
in contract
• Estimates has its validity at certain level
• Letter of Intent is a familiar component
• Counter Offer and Battles of Form is common
• Incorporation of documents is essential to ensure rights
within the Contract
Contract in Construction
Why use standard forms?
Designed specially for construction work
Contents are generally understood by the
industry
Litigated and well-established terms and
conditions
Standard Terms of Contracts
• Standard forms usually include clauses which make the
printed conditions prevail over typed or handwritten
documents.
• This is counter to the normal legal presumptions that
written words prevail over standard printed words.
• In construction contracts, essential terms would be work
scope, price and timing.
• However, the law will imply an obligation to compare
within a reasonable time if no completion date is
provided, and that a contractor will be paid a reasonable
sum of no price has been agreed.
• There must be certainty, the courts will not enforce
any contract unless it is sufficiently clear and
complete.
• If the parties have not agreed as to some important
term there will be no contract .
• The party who has carried out work at the request of
the other will then be entitled to payment of a
reasonable sum or quantum meruit.
• Tender notice is normally an invitation to treat
• Invitation to treat: invitation by one party to another to
make an offer which, if accepted, becomes the basis of a
binding contract.
• A request for tenders is not an offer but an invitation to treat.
• The contractor’s TENDER SUBMISSION itself if an offer.
• An implied obligations to consider a conforming tender and
failure to do so will be a breach of contract.
Blackpool & Fylde Aero Club Ltd V Blackpool Borough Council (1990)
Tenders
• However: If the invitation to tenders is made to specified
parties and it is stated that the contract will be awarded to
the lowest (or the highest) bidder ,then this will be
binding as a unilateral offer.
• Exceptional cases: an invitation for tenders may itself be
an offer, and submission of a tender becomes acceptance
of that offer.
• Inaccuracy in tender info is inevitable, however warranty
of accuracy is implied.
• Employer can be held liable for negligence misstatement
despite strict terms requiring the contractor to furnish
themselves on site condition info
• Not an escape route for employer to negligently provide
inaccurate/ incomplete info
• Not an opportunity for contractor to held employer fully
responsible for the accuracy and completeness of info
Misleading Information and Data in
Tender Doc
• Contractor can withdraw his tender at any time
before it has been accepted.
• The conflicts happen when, pricing of tender
includes sub-contractor’s quotation.
• If sub-con withdraws his tender, main-con may
be badly affected.
Withdrawal of Tender
• A contractor may give an estimate for the works and it
will be held to be a firm offer in law, and its acceptance
will result in a binding contract.
Crowshaw V Pritchard & Renwick (1899)
Ng Bros. Construction v Kaolin Sdn. Bhd. (1985)
Estimates
• If A requests a quotation from B, B’s quotation is the
offer.
• If A accept the offer BUT subject to his own contract
terms, there is a counter offer.
• A counter-offer is not an acceptance, and actually
kills the original offer.
• Can only leading to a contract if it is then accepted
by the other party.
Davies & Co. Shopfitters Ltd. v William Old (1969)
Counter offer
HYDE V WRENCH
• In construction cases, LOI is usually used where
the client intends a contractor to commence work
before a formal contract is conclude.
• Why? To start early to reduce ‘interest on loan’,
for earlier completion.
• What are the effect of starting work on LOI?
Letter of Intent
Only binding-if
consist Essential
elements
Work paid
Non- based on
Binding! ‘Quantum
Meruit’
‘LOI’
Effect of Letter of Intent
British Steel Corporation v Cleveland Bridge Engineering (1981)
Ayer Hitam Tin Dredging v YC Chin Enterprise (1994)
Letter of Intent Cases
LOI will only be valid if it contains:
• Confirmation of the client’s intent to award a contract to
a named contractor.
• Reference to the scope of work in the invitation to
tender
• The consideration
• Effective date of contract
• Receipt of the contractor’s agreement
• Must make clear in the wording of the contract- whether
past goods/services will be included.
Letter of Intent in Summary
Breach
Performance
Discharge
by?
Operation of
Agreement Law
Discharge & Frustration
Remedies
Stop the
performance Injunction
Remedies Quantum
Damages
for BOC? Meruit
Specific
Performance
Discharge & Remedies
When party fails to perform some primary
obligation under the contract
When party performs defectively and differently
from the agreement
Ruxley V Forsyth
When party indicates in advance that he will not be
performing as agreed (*anticipatory breach)
Breach of Contracts
Must prove
• The existence of the contract
• The relevant obligation in the contract
• The breach
• That breach caused loss and/or damage which is not too
remote
• That he is entitled to recover damages measured at the
appropriate rate
REMEDIES include damages, quantum meruit and
equitable remedies (specific performance, injunctions,
rescission and rectification
Breach of Contracts
Breach of Condition
Repudiation,or Breach of Warranty
Rescission,or Claim for damages
Claim for damages
OR
Discharge
Breach of Contracts
CONTRACTUAL CLAIM DAMAGES FROM
• Claim made through BREACH
provision in contract e.g. • Claim made due to
LnE and EOT breach of contract
• Allowance made by • Derive through breach
contract • Rights as member of a
• Entitlement in contract contract
• Can be made without • Must be determined by
going through Litigation Court or Arbitration
or Arbitration
Contractual Claims and
Damages
Measure of Damages
The idea is to put the injured party to a position as
if the contract had been performed, so far as
possible by
Award the difference in value
Award the cost of restoration/ reinstatement
Damages for Breach of
Contract
Liquidated Damages Quantum Meruit
• Pre-assessed amount of damages • Reasonable sum - ‘as much as
• Recovery without proof is deserved’ or ‘what the job is
• Amount may be smaller or worth’
larger than actual sum
• Covers work done but no
• Genuine pre-estimate
payment received or cannot be
• Exist provision to allow such
damages in contract (must be obtained under contract.
agreed pre-contract) • Mainly, is a compensation for
• Contains wordings such as; reasonable remuneration
amount to be paid in case of (payment for payment)
such breach etc.
Damages for Breach of
Contract
