The construction and engineering team at Berwin Leighton Paisner get their heads around another load of pressing legal quandaries, including how to keep your subcontractors from holding up work …
Are we about to be sued?
Q: We have recently supplied a large number of air-conditioning units. Our customer, a large retail outlet, has complained that they are defective and is threatening court action to recover lost profit and the cost of replacement units. We are a small firm and our supply contract makes it clear that our liability is limited to the price of the units and that we are not liable for "indirect and consequential losses". Can it sue?

A: Your customer can sue, but to recover more than it paid it would have to show that the clause limiting your liability was unfair. Where two companies of roughly equal bargaining power negotiate a price for the supply of a product under an agreement that specifically provides where the risk of loss will fall, the courts are reluctant to set aside that bargain as being unfair or unreasonable. The parties will be taken to have had regard to all matters known to them at the time they made the agreement. The court's view is that the parties themselves are the best judges as to whether the agreement is commercially fair or not. Any price concessions that were made to your customer in your negotiations in return for limited liability on your part will be taken into account.

Unless the only possible conclusion that can be reached is that you took unfair advantage of your customer (which seems unlikely) the court should not interfere and you will be able to rely on your contractual limits of liability.

How do we keep subcontractors on track?
Q: An area of concern constantly arises on our projects – namely, delays caused to on-site production and completion of the erection of our timber frame by other subcontractors such as groundworks, scaffolders and bricklayers. What would be the best way to ensure that the main contractor does not allow its other trades to slip outside the programme dates?

A: If you are delayed by other subcontractors of the main contractor, most forms of contract give you an entitlement to extensions of time, loss and expense – see, for instance, clauses 11. 3 and 13.1 of DOM1. That is clearly a spur to the contractor to ensure your programme is not delayed.

If you normally work on bespoke contracts that do not contain such clauses, either try to have them included or try to get your programme incorporated as a contract document. Failure of the contractor to keep to your programme will be a breach on its part. However, there is a catch – if you do not comply with the programme, you will be in breach.

Can we suspend work?
Q: We have not been paid the full amount of our latest interim application. The employer gave a notice saying it disagreed with our valuation. The amount paid by the employer is much less than we think we are entitled to. Can we suspend our works until the full amount is due?

A: You can suspend the works if there is a sum due to you that is not paid in full by the final date for payment, provided:

  • No effective notice to withhold payment has been given; and
  • You have given seven days' notice of your intention to suspend the works.
However, you can only suspend if there is a sum due to you. There is obviously a dispute between you and the employer as to what is due. If you suspend the works now, and the matter goes to adjudication, and the adjudicator decides that you are not due any further monies at this stage, then you will have wrongfully suspended the works. You may be liable for damages or even to have your contract terminated. It is only if it is eventually decided or agreed that there is a sum due to you that you can rightfully suspend. It is therefore not a decision that you should take lightly.

Can I ditch a failing contractor?

Q: I am a developer who engaged a main contractor under a bespoke contract on a residential development project. The works are a long way behind schedule, the main contractor has failed to report problems to me as they have occurred and a number of defects are now coming to light. I have lost confidence in the main contractor. Can I terminate the contract, get a new contractor on board and claim damages? A: Maybe. Most forms of contract expressly allow you to terminate the contract under certain circumstances, such as if the other party is in breach of contract. If this is the case, it is important to follow any procedural steps also set out in the contract, such as notices. However, your contractual remedies, such as damages for breach of contract, will be limited to those stated in the contract. For example, you may not be entitled to recover any extra costs you incur as a result of engaging the new contractor. It is also worth checking any liquidated damages provisions regarding the delay issue. If your contract does not have an express termination clause, common law will probably not help. Common law only allows termination where the situation has become so serious that there has effectively been a refusal by the contractor to meet its obligations under the contract. If this were the case you would be entitled to terminate and recover damages for breach of contract. Every situation turns on the facts, but the circumstances described are probably not serious enough to allow a common-law termination. Delay to the project would not be enough (unless time was of the essence under the contract) and even the other breaches are unlikely to be sufficient.

Postscript

Got a question?
If you have a question for the Berwin Leighton Paisner team, send it to eleanor_cochrane@buildergroup.co.uk.