Three common features of English construction contracts are:
1. Provisions for an independent third party (The Engineer, also referred to as the Construction Manager, the Supervisor, the Architect or similar) to issuecertifi- catessignifying particular events
2. Liquidated damages clauses, ensuring payments for non compliance with quality and time requirements
3. Dispute Adjudication clauses
20Peyman v. Lanjani [1985] Ch 457; CFW Architects (A Firm) v. Cowlin Construction Ltd [2006]
EWHC 6 (TCC) (23 January 2006).
21See The Wagon Mound [1961] AC 388 and The Wagon Mound No. 2 [1967] 1 AC 617.
Certificatesare merely a manifestation of the parties’ agreement and its effects are no more than the parties have agreed them to be. The function of a certificate is usually nothing more than to record factual events. Whether a certificate is conclusive as to what it purports to certify depends on the wording of the certificate. Usually construction contracts distinguish between interim and final certificates.
It is not uncommon to find the following or similar clauses within a construction contract:22
(1) The Construction Manager has no authority to issue and he shall not issue without the prior written approval of the Client, or of the Design Team Leader on the Client’s behalf, an instruction to any Trade Contractor varying the design or specification of work, materials and/or goods or the quality or quantity thereof as shown or described in any Trade Contract. The Construction Manager has no authority to consent to or agree to any amendment to the terms of any Trade Contract with any Trade Contractor nor to consent to or agree to any waiver or release of any obligation of any Trade Contractor under and in connection with a Trade Contract without the prior written approval of the Client.
(2) The Construction Manager has no authority to approve any design carried out by any Trade Contractor or to approve the quality of materials or the standards of workmanship where and to the extent that the Trade Contract requires that such approval is a matter for the opinion of the Design Team Leader without, in either case, the prior written approval of the Design Team Leader.
(3) The Construction Manager shall not grant any extension of time to any Trade Contractor nor shall he agree to accept any financial claim of any kind whatso- ever pursuant to the terms of any Trade Contract without having first consulted the Design Team Leader and having taken due account of its comments and without having first reported on the same to the Client.
(4) The Construction Manager has no authority to issue any certificate whatsoever (including, but without limitation, interim and final certificates and certificates of practical completion and making good defects) to any Trade Contractor unless the same has been duly signed by the Design Team Leader.
(5) The Construction Manager has no authority to issue any instruction or give any approval or do any other thing pursuant to a Trade Contract which would or might alter the cost of the Development to the Client by more than £1,000 in respect of any one such event without first referring the matter in writing to the Design Team Leader and to the Client, with his comments.. . .
(6) The Construction Manager shall have no authority to give any notice of default pursuant to any condition of the Trade Contract that provides for the
22See Bernhard’s Rugby Landscapes Ltd v. Stockley Park Consortium Ltd [1998] EWHC Tech- nology 326 (22 April 1998).
determination of the employment of a Trade Contractor by the Client, without having first consulted the Design Team Leader and the Client.
It will depend on the construction of the contract whether any certificate is binding and final or only interim in nature.
Liquidated damages clauses intend to fix damages for identified and specified events, such as delayed completion or failure to achieve performance criteria which have been warranted. Liquidated damages are pre-estimated amounts or a sum definitely ascertainable for breach of contract. The substitution of a larger sum as liquidated damages is regarded, not as a pre-estimate of damages, but as a penalty in the nature of a penal payment. Penalties are unenforceable. In dealing with the circumstances in which an agreed sum might be held to be a penalty instead of liquidated damages, the following principles will be fundamental:23
1. It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.
2. It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid.
The question whether a sum stipulated is a penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not at the time of the breach.24Although the parties to a contract who used the words “penalty”
or liquidated damages mayprima faciebe supposed to mean what they say, yet the expression used is not conclusive. The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages. The essence of a penalty is a payment of money stipulated asin terroremof the offending party whereas the essence of liquidated damages is a genuine covenanted pre-estimate of damage.
Dispute Adjudication:Since the enactment of the HGCRA 1996 dispute adjudi- cation is compulsory for all parties to a construction contract where the site is situated within England and Wales. Dispute Adjudication is a modern method of dispute resolution. In short, as has been confirmed by Lord Justice May in Quiet- field Ltd v. Vascroft Construction Ltd [2006] EWCA Civ 1737 (20 December 2006) dispute adjudication is intended to provide a speedy and proportionate temporary decision of disputes arising under construction contracts. The idea behind this is in essence that such a decision may settle the dispute for the time being in a fair way, and help the parties, if possible, to finally resolve their disputes by agreement without the need for protracted and often very expensive arbitration or litigation.
23Compare Campus and Stadium Ireland Development Ltd v. Dublin Waterworld Ltd [2006]
IEHC 200 (21 March 2006).
24Dunlop Pneumatic Tyre Company v. New Garage and Motor Company Ltd [1915] AC 79, at p. 86.
The general understanding is that the statutory provisions have been reasonably successful. But it is well known that there have been problems with some large contracts; as if huge disputes scarcely amenable to speedy, even temporary, deter- mination are nevertheless referred wholesale for adjudication; or if a procedure which is supposed to be speedy turns into something more akin to protracted and more expensive litigation or arbitration. The key features of English dispute adjudication are:
l Short delay of 28 days within which the adjudicator must render his decision
l Limited control of interim binding adjudication decisions
l Enforceability of dispute adjudication decisions by summary judgments The relevant provision of the HGCRA reads as follows:
A party to a construction contract has the right to refer a dispute under the contract for adjudication under a procedure complying with this section. For this purpose “dispute”
includes any difference.
An adjudicator derives his jurisdiction from his appointment. That appointment is governed by the statutory provisions of the HGCRA which require there to be a dispute that has already arisen between parties to a construction contract.