Category Archives: contract law

Contractual requirement for notice to remedy breach did not apply to repudiation

A contractual termination clause may impose a requirement first to give the other party notice to remedy the breach if it can be remedied.

Will this apply to a contractual termination clause where a party terminated at common law following the other party’s repudiatory breach of contract?

In Vinergy International (PVT) Limited v Richmond Mercantile Limited FZC [2016] the High Court) said clause 17 provided 6 contractual rights to terminate, including on insolvency. So it was to be inferred that the 20 day notice requirement only applied to the specific right to terminate under clause 17.1.1 (a breach which could be remedied) and not to any other express rights to terminate under clause 17, nor to the common law right to accept a repudiatory breach of contract as ending the contract.

However the case turned on the interpretation of the clause. Other clauses may be interpreted differently so it would be dangerous to think the notice procedures can be bypassed in every case involving a repudiatory breach of contract.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Contract: party had effectively waived the requirement for it’s signature

In what circumstances will a contract result when a written offer document states that it is not binding until signed by the offeree and the offeree does not sign but nevertheless performs in the manner contemplated by its terms?

A party’s consent to a contract is by the acceptance of an offer.

That acceptance can be by the conduct of the offeree so long as that conduct, objectively interpreted, is intended to constitute acceptance.

Acceptance can be of an offer on the terms set out in a draft agreement drawn up between the parties but never signed.

If a party has a right to sign a contract before being bound, it is open to it by clear and unequivocal words or conduct to waive that requirement and to conclude the contract without insisting on it’s signature.

If signature is the prescribed mode of acceptance an offeror will be bound by the contract if the offeree waives that requirement and acquiesces in a different mode of acceptance.

It follows that where the requirement to accept a contract by signature is intended for the benefit of the offeree, and the offeree accepts in some other way, that should be treated as effective unless it can be shown that the failure to sign has prejudiced the offeror.

A draft agreement can have contractual force, although the parties do not comply with a requirement that to be binding it must be signed, if all the terms have essentially been agreed and their subsequent conduct indicates this. Though a court may be hard to persuade of this.

The later conduct of the parties is admissible to prove the existence of a contract, and it’s terms, although not as an aid to it’s interpretation.

In the Court of Appeal case of Reveille Independent Llc v Anotech International (UK) Ltd [2016] the provision that the contract would not be binding on Reveille, unless it signed, was obviously for it’s benefit. It was almost certainly Reveille’s standard form contract.

In not signing, Reveille as offeree was waiving a prescribed method of acceptance, set out for it’s benefit. That was effective so long as there was no prejudice to Anotech as offeror.

The only prejudice Anotech could point to was the commercial uncertainty as to whether it was bound by the contract. That was miniscule when Anotech was receiving all the benefit of Reveille’s performance of the contract’s terms.

In fact, viewed objectively Anotech could not have thought that it was prejudiced when from the outset it actively facilitated performance by Reveille of what Reveille was doing under contract in integrating products into the recording of a famous TV show and licensing Anotech to use the programmme’s brand in marketing its cookware products.

In short, Reveille waived the clause that there would be no binding contract in the absence of it’s signature on the contract, and this did not prejudice Anotech.

Reveille accepted the terms of the contract by conduct, leading to a binding contract.

Subsequent conduct by both sides had confirmed the existence of that contract.

Reveille’s failure to sign the contract just meant uncertainty as to the exact date the contract was formed.

However, Reveille had performed all it’s obligations as set out in the contract with Anotech’s participation and to Anotech’s benefit.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Contracts: Duty to use reasonable endeavours can survive cut-off date

Where a sale contract is conditional on one party obtaining an acceptable planning permission and that party agrees to use all reasonable endeavours to fulfill that condition as soon as possible, that party will not be allowed to exercise any right to cancel the contract that arises because the Condition was not fulfilled by a “Cut-off Date”, if the reason for non-fulfillment was that party’s own breach of that obligation.

That principle was reaffirmed by the Court of Appeal in Bristol Rovers (1883) Ltd. -v- Sainsbury’s Supermarkets Limited (2016).

But in that case Sainsbury’s were not guilty of any breach of their contractual obligations and that principle did not prevent them from cancelling the contract.

However the court did make it clear that Sainsbury’s obligation to use all reasonable endeavours survived the “Cut-off Date” and lasted right up to the point where they actually exercised their right of cancellation.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Extension beyond deadline: time no longer of essence

In the Court of Appeal case of Buckland v Farmer and Moody [1979] Buckley LJ said of breaches of contract: “If the party who is in the right allows the defaulting party to try to remedy his default after an essential date has passed, he cannot then call the bargain off without first warning the defaulting party by fixing a fresh limit, reasonable in the circumstances.”

He was citing Goulding J in the old case of Luck v White.

Therefore, in such circumstances the claimant could not simply pull the plug on the contract without fixing a new date that was reasonable in the circumstances.

In the High Court case of Hakimzay Ltd v Swailes [2015] the buyer had bought with vacant possession and served a notice to complete when this could not be provided.

This made time of the essence to complete by a certain date which was not complied with.

The buyer came up with proposals to allow the seller more time but wanted £10,000 off the price as compensation for having its money tied up unproductively with its solicitor.

But now having got the last tenant out, the seller sought to cancel the contract.

The court said the seller could not now just turn round and say, “I require you to complete forthwith. If you cannot, I shall terminate on account of your repudiatory breach, because during this continuing period after expiration of the notice to complete time remains of the essence.”

So the seller was not entitled to serve his notice of rescission of the contract, which was accordingly ineffective to bring the contract to an end.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Construction: availability of adjudication depends on nature of dispute not nature of remedy claimed

A claim for restitution can exist where there is no contract. There may be no contract because there was never agreement on the price. There the basis for claim is usually “unjust enrichment”. That is a different cause of action from breach of contract.

In a contractual dispute, where there has been a total failure of consideration, a party may recover the sums he has paid – as a claim for restitution instead of damages. In short the claim would be “for restitution”, but, would be based, not on unjust enrichment, but on “a total failure of consideration amounting to a breach of contract”.

In ISG Retail Ltd v Castletech Construction Ltd [2015], ISG Retail Ltd (“ISG”), had made an advance payment to Castletech Construction Ltd (“CC”) of £35,000 plus VAT. In return CC had provided nothing of value to ISG, so that, in breach of contract, there had been a “complete failure of consideration” by CC. So the adjudicator ordered CC to repay that sum forthwith.

CC said that the adjudicator had no jurisdiction to do what he did. Paragraph 1 of Part I of the Scheme for Construction Contracts (SI No 649 of 1998) (“the Construction Scheme”) confers the right on any party to a construction contract to refer to adjudication “any dispute arising under the contract”. CC said that ISG’s restitutionary claim was not made “under contract” because restitutionary claims are not made under contracts, they are made “in equity”, restitution being an equitable remedy – and as such the adjudicator had no jurisdiction/power to decide it under the Construction Scheme.

The High Court said CC had confused the dispute and the remedy.

The scope of the jurisdiction of the adjudicator had been determined by the nature of the dispute identified in the Notice of Adjudication, not by the nature of the restitutionary remedy claimed.

Here there was a total failure of consideration which is almost invariably the result of a breach of contract unless performance of the contract has been “frustrated”.

There was nothing in the Construction Scheme that deprived an adjudicator of the power to grant relief by way of restitution if that was an available remedy for the breach of contract in question.

It being established that the dispute arose from a breach of contract and was therefore within his jurisdiction, the adjudicator could award any remedy within his power – such as the payment of a sum of money – which the claimant was entitled to for breach of contract.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Building Contracts: Act quickly if you wish to challenge a Final Certificate

JCT Forms of Contract try to ensure that, when works have been completed, outstanding disputes can be rapidly and finally resolved.

In part this is by the employer’s agent issuing a Final Certificate, whereupon the contractor (and sometimes the employer) has 28 days to challenge it.

In the absence of a challenge, the Final Certificate becomes conclusive evidence for a wide range of issues, including defects, delays and outstanding cash disputes.

In the High Court case of Marc Gilbard 2009 Settlement Trust (trustees of) v OD Developments and Projects Ltd [2015] the claimant employed the defendant contractor to carry out works. The contract incorporated the JCT Standard Building Contract, Without Quantities, Revision 2 (2009).

The Contract Administrator issued a Final Certificate showing the defendant owing the claimant £232,153.54 plus VAT.

Within the relevant 28 day period, the defendant issued Part 7 proceedings in the Technology and Construction Court disputing the validity and correctness of the Final Certificate. Those proceedings had proceeded so slowly that, 13 months on, the first Case Management Conference had yet to be scheduled.

The defendant now wished the issues raised in the Part 7 claim to be referred to adjudication.

The court said the real interpretation issue was whether clause 1.9.3 of the contract envisaged:

1. one set of proceedings (whether adjudication, arbitration or court proceedings) issued within the 28 days to challenge the Final Certificate, or

2. an initial set of proceedings in which the relevant “matters” could be raised, but then allowed the challenger to commence other proceedings, beyond the 28 days, which would be equally legitimate so long as those same matters were raised in those later proceedings.

The court ruled that interpretation 1 was the correct interpretation. The purpose of clause 1.9.3 was to limit issues for which the Final Certificate was not conclusive to matters raised in any proceedings issued within the 28 days of that certificate.

The clause assumed that the party challenging the Final Certificate could choose the venue in which that was to be done. It could choose one of adjudication, arbitration or other proceedings (that’s to say in court).

The clause did not envisage more than one set of proceedings.

Nothing in clause 1.9.3 allowed a series of subsequent proceedings, with the first being commenced within 28 days, and the others starting months or years afterwards.

However if adjudication is the first option of a challenger under clause 1.9.3:

A. a challenger under clause 1.9.3, can within the 28 days issue simultaneous protective arbitration or court proceedings. This would protect the challenger’s position if they have messed up the reference to adjudication or the outcome of adjudication was no decision or a decision which is unenforceable; and/or

B. clause 1.9.4 of the JCT provisions allows 28 days more for a party to issue arbitration or court proceedings to challenge an adjudicator’s decision as to the Final Certificate.

But, if arbitration or court proceedings are the first option of the challenger, or if the challenger messes up the reference to adjudication, a party may end up out of time to challenge the Final Certificate.

Subject only to the qualifications at A and B above, the challenger has to challenge the Final Certificate in one set of proceedings, and those proceedings are the only means by which the Final Certificate can be challenged.

The JCT Design and Build Contract has a provision very similar to clause 1.9 which additionally and usefully allows the employer or contractor, before the final date for payment, to give notice “disputing anything in the Final Statement”.

The moral of this case is, if you are thinking of challenging a Final Certificate, to act without delay within the 28 day period to secure your position as above.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Sellers’ right to rest of deposit survived rescission of contract

All conveyancers are familiar with the contract clause that says that, if the buyer pays a deposit of less than 10% of the purchase price at exchange of contracts, the seller can require the rest of the 10% to be paid immediately if the buyer defaults at completion.

If the seller has cause to serve a notice to complete on the buyer that will trigger the seller’s entitlement to make that demand.

If the notice to complete is not complied with in time and the seller rescinds the contract under the standard conditions of sale or otherwise will the right to the rest of the 10% survive that rescission of the contract?

In the High Court case of Hardy & Anor v Griffiths & Anor [2014] the Judge ruled the answer to be “yes”.

The right to call for the rest of the 10% had accrued to the sellers on the sellers’ service of the notice to complete and the sellers’ later rescission of the contract had not discharged that entitlement.

So the sellers’ unconditional right to payment of the top up deposit survived the sellers exercising their right to rescind the contract.

The sellers were entitled to:

– sue for the rest of the 10% deposit as an agreed sum, which they could have sought to recover as a debt; or

– as they had, sue for damages for breach of the obligation to pay the further deposit, with the damages being equal to the amount of the further deposit.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Unfounded opposition to adjudicators invalidated decision

Where one party to an adjudication makes a fraudulent misrepresentation during the appointment process would that invalidate the process of appointment and make the appointment a nullity so that the adjudicator would not have had jurisdiction to act in the adjudication?

In the High Court case of Eurocom Ltd v Siemens Plc [2014] the application form sent to the Royal Institution of Chartered Surveyors (“RICS”) seeking the appointment of an adjudicator misrepresented to the RICS that a number of individuals had a conflict of interest.

Eurocom’s agent had admitted that he used the section of the application form allocated to name “adjudicators who would have a conflict of interest in this case” to refer to people without any conflicts of interest who he did not want to be appointed.

So there was a very strong prima facie case that the agent had made a clear misrepresentation and a deliberate and/or reckless false statement and that therefore he had made a fraudulent representation to the RICS as the adjudicator nominating body.

The High Court ruled that where a party applies to an adjudicator nominating body and makes a fraudulent representation then the fraud cancels the advantage which would otherwise have been got from the transaction by voiding the transaction completely.

The false statement had been material. It had been made during a process by which an adjudicator had to be nominated by an impartial adjudicator nominating body and, was improperly made to eliminate candidates based on them having a conflict of interest when actually they had none.

Where there had been a material fraudulent misrepresentation in the process of applying to an adjudication nominating body, the application for a nomination of an adjudicator would be invalid and it would be as if no application had been made.

It did not matter whether the RICS was deceived or not.

The fraudulent misrepresentation would have invalidated the process of appointment and made the actual adjudicator’s appointment a nullity so that the adjudicator would not have had jurisdiction to make the award Eurocom were now seeking to enforce through the courts.

So Siemens had an arguable defence to Eurocom’s claim. That claim must go to a full hearing and Eurocom were denied summary judgement on the claim to enforce the adjudicator’s award.

This case and it’s outcome is a clear warning to anyone who may be minded to use any parts of an application form for their own collateral purposes.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Challenge to adjudicator’s jurisdiction over “novation” unsuccessful and waived

Where the business of a partnership is incorporated the existing contractual rights and obligations of the partners are seldom novated to the new company. That is because that would involve the participation of each outside contracting party in the novation arrangements.

Instead the new company will, as between itself and the old partnership, take over the benefit of those rights, and assume responsibility for the performance of those obligations, probably informally.

However the position of the outside contracting parties remains unchanged. Generally, their contract will still be with the old partnership even if the old partnership has delegated its performance to the new company.

This was ruled to be the position in the High Court case of AT Stannard Ltd v Tobutt & Anor [2014] where the employing main contractor unsuccessfully challenged the sub contractor’s successful reference to adjudication.

The Employer challenged the adjudicator’s decision to award the full amounts claimed against the old partnership of £53,392.63 plus interest based on the facts that:

– the subcontractor had informally participated in the “novation” of the subcontract from the old partnership to the new company; and

– the breaches complained of had occurred whilst the contracting parties had still been the old partnership and the subcontractor; and

– such “novation” had passed the benefit of the old partnership’s rights and the burden of its obligations to the new company; and

– the “novation” which the subcontractor had informally participated in had released the old partnership from any liabilities for the breaches and had caused the new company to assume those liabilities; and

– the “novation” meant the parties to the contract were now the new company and the claimant; and

– therefore the adjudicator had had no jurisdiction to make the award against the old partnership.

The High Court rejected any idea that there had been any informal participation by the subcontractor or any “novation”. It had been the sort of informal takeover mentioned above.

Had the old partnership wished to challenge the adjudicator’s jurisdiction they should have done so in the adjudication proceedings instead of taking part in them without objection and waiting for an unfavourable outcome and doing it then. Indeed, by expressly and actively participating in the adjudication “without any reservation”, the old partnership had waived any right to challenge the adjudicator’s jurisdiction.

The court expressed disapproval of parties who challenge adjudications on jurisdictional grounds instead of challenging the substance of their outcomes in further arbitrations and legal proceedings.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Construction: performance bond could be replaced by payment into court

What if a construction contract requires the contracting party to provide the Employer with a performance bond but bond providers are unwilling to supply that bond?

Does the court have any alternative to ordering specific performance of an obligation which has turned out to be impossible to fulfil?

The reason why the original performance proves impossible is often that the contracting party does not have the property or other rights it needs to perform.

Old cases show that where there is an obligation between the parties and it proves impossible to perform it when the time comes for it to be performed, then, if specific performance would otherwise have been ordered by the court, the court will seek to order different specific performance so as to provide the customer with equivalent rights by replacing the performance originally contracted for with other performance.

The High Court case of Liberty Mercian Ltd v Cuddy Civil Engineering Ltd & Anor [2014] was the latest chapter in a long running litigation and that was very much the scenario here.

It would have been possible for Cuddy Civil Engineering Ltd (“CCEL”) to provide a Liberty with a performance bond had it responded to Liberty’s request to produce one during the course of the construction project. The main difficulty in obtaining it now arose because of the subsequent termination of the construction contract and underlying disputes between the parties.

The court ordered that CCEL should pay the sum of £420,000 into court as substituted performance for the provision of a performance bond on terms approximating to the terms of the performance bond CCEL had originally contracted to provide.

In addition there was Quantum, an insolvent subcontractor. Quantum had since been dissolved, but were capable of being restored to the register of companies.

In the construction contract CCEL had contracted to provide Liberty with a warranty from Quantum.

Here, the court ruled it appropriate to grant specific performance, against CCEL, to enforce that obligation.

This was because there was evidence that any such warranty might nevertheless be backed by professional indemnity insurance covering Quantum. So a warranty from Quantum would not necessarily have been useless.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.