Same old precedent

The world is divided into two groups; those who believe that human beings perform better when working in competitive conditions, and those who believe that we perform better in a co-operative environment.

We know which group the Movement for Innovation belongs to. Its radical rethinking of construction envisages a brave new world of non-adversarial partnering, where participants in a building project will contract not to sue each other unless bad faith can be demonstrated. All members of the "virtual company" set up for a project will have the protection of a single insurance policy so that none of them can be sued by insurers in exercise of their subrogation rights. This will banish the "blame culture" and the risks will be shared in pre-arranged proportions, irrespective of personal blame.

So what place will there be in this new world for the skills of the contract draftsman? If contracts are to wither on the vine, perhaps we shall no longer have the pleasure of reading judgments like that of Lord Macfadyen in the case of City Inn Limited vs Shepherd Construction Limited.

The case concerned a building contract for the construction of a hotel on a JCT 1980 contract together with a schedule of amendments. Those amendments included the following clause: "Where in the contractor's opinion any architect's instruction will require an adjustment to the contract sum and/or delay the completion date, the contractor shall not execute the instruction unless he shall first have submitted to the architect details of his estimate of any adjustment to the contract sum and the completion date he requires."

The clause went on to provide a five-day period within which the parties should try to agree these matters, failing which the architect could either withdraw the instruction or tell the contractor to proceed, in which event the normal contractual provisions for valuation, awarding of time and assessment of loss and expense should apply.

The sting was in the tail. The clause concluded with a proviso that "if the contractor fails to comply with one or more of [those requirements], the contractor should not be entitled to any extension of time under Clause 25.3".

Will devices such as the condition precedent survive in the new world of partnering? It seems the answer is yes

Despite this provision, the architect and subsequently an adjudicator both awarded extensions of time in circumstances where the contractor was admittedly in breach of its obligation not to execute an instruction before giving estimates. For its part, the contractor argued that the clause in question amounted to a penalty clause and was therefore unenforcable.

Analysing the clause, Lord Macfadyen observed that, if not complied with, not only would the contractor be deprived of his entitlement to an extension of time, but the architect would also be deprived of the opportunity to review the instruction in the light of the contractor's opinion of its consequences. As such it was of material value to the employer, and failure to comply on the contractor's part was a breach of contract.

In his view, the clause amounted to a condition precedent to an extension of time which, if not complied with, had the effect of preserving the employer's right to liquidated damages for delay that would otherwise have been lost by an extension of time. The liquidated damages in the contract of £30,000 a week would therefore remain payable by the contractor on the basis that it was a genuine pre-estimate of the loss suffered by the employer as a result of delaying completion. It could not be converted into a penalty simply because the contractor failed to take the steps available to him.

Use of the device of the condition precedent is widespread in standard form contracts and as this case indicates, can cause a contracting party to lose an entitlement, which amounts to a considerable burden and which is undoubtedly disproportionate to the technical breach of contract involved.