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The presented report is a legal submission on behalf of the legal counsel of Granville Developers Limited who has entered into a contract with a construction company Roady Enterprise Contracting Limited. The report comprises of the appropriateness of the method which has been adopted by Granville to resolve its dispute which has arisen between it and Roady Limited. There are a series of actions being taken by both the parties as there is non-fulfilment of contractual obligations from each of them. Hence, the company Granville needs to get acquainted with the appropriateness of the actions it has taken and also needs to know other alternatives available regarding its rights and liabilities.
Facts of the case
Before proceeding with the legal advice and focussing on the alternatives, it is important tohighlight the facts of the case. Hence, the material facts of the case are as follows:
Granville Developers Limited entered into a contract with Roady Enterprise Contracting Limited to build road network for the new housing development in Glasgow. The contract also included Roady to design and install street lights along with the network along with all the essential fixtures and fittings.
The work under the project started on 6th January 2020 and the work was smoothly continued until the time when Granville refused to make full payment in July's Interim Payment Certificate (IPC).
Moreover, Granville Limited also stated that the workmanship done around the junction is of low quality and is substandard as some of the professional workers were in isolation due to the growing pandemic of Covid-19 and hence, that part of work was done by temporary staff who have never done work with Granville before. Further, for about three weeks in July, there was no work done in continuation of the project.
As many of the professionals were in isolation till few weeks of September, the site was closed and meanwhile, Roady had put a request for an extension for the completion of the work under this situation is an exceptional circumstanceand also demanded more money. But both the request of Roady was rejected by Granville.
Apart from the above occurring, there are also a series of actions which has been taken from the side of both the parties regarding these issues. The actions taken by each side is as follows:
On 6th October 2020, Roady gave notice to Granville regarding its suspension of work if there is a failure in payment. Further, Roady also expressed its intention in the notice regarding the termination of the contract if they do not get the approval for the given request and demand for more money.
On 28th October 2020, without getting any approval of the request and more money, Roady wrote to Granville expressing the contract to be terminated with immediate effect and also stated that Granville has been failing in its obligations under the contract.
On 29th October 2020 Granville wrote to Roady and contested its right of terminating the contract and also asked Roady to return to the site for continuation of the project.
On 13th November 2020, as there was no reply from Roady, Granville again wrote to Roady regarding the termination of the contract on the ground that Roady is willing to continue the work as it has not returned to the site. Granville also demanded the deduction of delay damages and refer the matter for adjudication.
On 16th November 2020, Roady wrote to Granville again contesting its right to terminate the contract and also contested its right to deduct delay damages.
Till 30th November 2020, there has been no furtherance in any action from the side of any party and hence, Granville is need of legal advice for the same.
The law which is attracted as per the facts of the instant case is the prevailing contract law in the United Kingdom. The provisions regarding the termination of the contract are attracted when the parties to the contract are not able to perform their contractual obligations or they intentionally breach the provisions of the contract. The breach of contract from the side of any party makes the other party entitled to terminate the contract. But the termination of the commercial contract as in this case is also required to be done as per the provisions provided for this purpose under the UK contract law.[1]
The definition for the term 'terminate' under the common law is cofounded by difficulties and inconsistencies. In the strict sense under the common law, the termination of contract means that the contract has been discharged. But the right to terminate the contract also arises when there is a breach of contractual terms by any of the party and hence, the other party becomes entitled to bring the contract to an end.
Circumstances under which a party is entitled to terminate the contract
As per the facts provided in the above case, both the parties have issued notice to the other party regarding its intention to terminate the contract. The justification for such termination given by both the parties is the non-fulfilment of a contractual obligation by the other party. There have been many grounds recognised under the common law which gives the party a right to terminate the contract in case of violation of any of the terms of the contract.[2]Though the parties have the option of renunciation of the contract in case the renunciation is not contested by the other party, but in cases when one party contests the right of the other, the other party can terminate the contract on any of the grounds provided under the UK contract law.
Repudiatory breach of contract
Repudiatory breach of contract means when a breach of contract gives the right to the aggrieved party either to bring the contract to an end or to affirm and accept it. In both cases, the aggrieved party is entitled to get damages from the breaching party. The following constitutes a repudiatory breach of contract under the common law:
Breach of conditions against the warranty
A serious breach of an intermediate-term of contract
A refusal by the other party to perform the contract[3]
It is also important to note that not all the breach shall give rise to the aggrieved party to claim damages and the right to terminate the contract. The right shall only come into existence when there is a breach of material or vital term of the contract. If the breach is of such nature that it is neither a breach of an intermediate-term not a breach of a condition or warranty, yet it gives the aggrieved party a right to terminate the contract if it constitutes a sufficiently a serious breach. Hence, it shall be the discretion of the court to look at nature and the circumstances of the breach and decide if the termination is justified.[4]
Termination of the contract under the doctrine of frustration
The doctrine of frustration under the common law and English contract law is used as a device to set aside and terminate the contract when there are instances of unforeseen events beyond the control of the parties to the contract. This doctrine is attracted when the event is of such nature that it makes the performance of the contract impossible or practically changes the principle intention of the party to enter into the contract. The former circumstance which attracts the doctrine of frustration that is the impossibility of the contract due to the occurrence of an unforeseen event is attracted in this case as not only one country, but the entire world is hit by the pandemic of Covid-19. The occurrence of such event was beyond the control of the parties and this led to the isolation of the professionals due to which the completion of the project became impossible.[5]
The latter principle that changes in the principal interest of the contracting party are also attracted in this case as in this case there was a time limit in the completion of the road construction project, and the incompletion shall affect the party prejudicially creating a delay in the implementation of the party Granville.As per the facts of the case, Clause 1.1.85 of the contract provided for the time of completion of the contract which was 365 days. The completion of the project under such time was not done and hence, there was a delay in the housing development.
Traditionally, there was no way to set aside a contract which became practically impossible after its formation. It was in the year 1863 after the case of Taylor v. Caldwell[6]that the doctrine of frustration was established. But though the doctrine was established, yet its application was limited and it was applied only such cases when the performance of the contract was practically impossible. As per the facts of the above-mentioned case, there was a contract between two parties regarding the hire of a music hall for concerts. After the formation of the contract but before the date on which it was to be hired, a fire broke out and the music hall was burnt. Hence, it was held that the contract became impossible to perform. Blackburn J held that the historical judgment of strict liability[7] shall not be made applicable in this case as in this case there is an implied condition for the existence of the music hall for its performance. Hence, the parties were excused from performing the contract.[8] The implied term was expressed by the judge in the following words:
"In most of the cases, there is an implied condition in the contract which has the effect of releasing the parties from performing it and among all of it, such condition was in the bottom of the principle upon which the court took its decision."
Frustration due to incapacity or death
Under the doctrine of frustration, a contract also becomes frustrated when the person under the contract becomes unavailable due to illness, incapacity or death. Though in the instant case of Granville and Roady, there is no instance of death or illness, there is an instance of incapacity of professionals because of their isolation due to the growing pandemic of coronavirus. But in such case, it has been stated that the doctrine of frustration is applied only when the performance requires the personal service of the party. In the case of Granville and Roady, there was a requirement of personal service from the side of professional constructors and engineers. Hence, the occurrence of Covid-19 and the isolation of these professionals made the performance of the contract through personal service practically impossible.
Another ground regarding the termination of the contract which is attracted in the case of Granville Limited and Roady is the termination under the doctrine of frustration when there is an excessive delay in the performance of the contractual obligation.[11]But it has also been stated under the UK contract law and the common law that it must be a serious delay which shall prejudicially affect the true purpose and intention of the parties to enter into the contract.[12]The court also looks at the fact that whether the delay is sufficient to terminate the contract under frustration shall depend on the time when the event which has caused the delay has occurred.[13]
Application of the doctrine of frustration on the case of Granville Limited and Roady Limited
As per the material facts of the case, it can be stated that in this case, the doctrine of frustration is applicable. The justification is the failure on the part of Roady Limited and its professionals are due to a circumstance which is unavoidable as the growing pandemic of covid-19 has affected the whole world which is beyond the control of any person. Further, the skill of the professionals and workers cannot be replaced by any other person and hence, it has become practically impossible for Roady Limited to complete the work for Granville.
Moreover, the contract can also be terminated under the doctrine of frustration as there is an excessive delay in the performance of the contractual obligation.[14] The delay in the performance of the contract is also due to the growing pandemic of covid-19 as there were government guidelines regarding social distancing and lockdown which shut down the work in all sectors. Thus, this situation was beyond the control of both the companies which makes their contract frustrated and gives rise to terminate the contract to both the parties.
Further, the series of actions taken by each party after the contractual obligation comprises of giving of notices from each side of the parties along with their express intention to terminate the contract. The first notice was given by Roady regarding its suspension of work due to the growing pandemic and also the intention to terminate the contract in case Granville refuses to pay the extra sum. Hence, Roady Limited expressed the fulfilment of a condition which if not fulfilled, shall terminate the contract. It has been analysed according to the English contract law that though Roady Limited is entitled to terminate the contract under the doctrine of frustration and the unavoidable circumstance it cannot make Granville liable to pay the extra sum as Granville Developers Limited does not have any liability to pay extra for the completion of the contract.
The next action taken by Roady Limited was the notice for the termination of the contract as Granville Limited did not pay Roady the extra sum required for the completion of the project. Though Roady Limited is entitled to terminate the contract under the doctrine of frustration it is not entitled to terminate the contract under the ground of non-payment of the extra sum and hence, this ground is stated to be ineligible.
The next action was taken by Granville by issuing a notice contesting the right of Roady to terminate the contract and demanding them to return the site or else Granville shall terminate the contract. Hence, Granville has also imposed a condition the non-fulfilment of which makes Granville eligible to terminate the contract. Moreover, there has been no reply received from the side of Roady and the site remained closed and hence, Granville also becomes eligible to terminate the contract. Also, it has been observed that Granville is not liable to pay any extra sum to Roady as the work done by Roady is substandard due to its completion by the replaced experts.[15]The professionals and experts of construction were under isolation and hence, Roady has to get the work completed by replaced workers who have never worked before for Granville.
It has also been provided in express term from the side of Granville that they shall deduct the delay damages and recall the performance security due to the non-completion of work and has decided to refer the matter to adjudication. Clause 4.2 of the contract between the two parties for the payment of security money from the side of Granville to Roady regarding the completion of work. Moreover, Clause 8.8 of the contract provides for delay damages payable for each day of delay which is £5,000 per day.
As per the latest guidelines issued by the Cabinet Office on 9th June 2020, there has been publishing of Procurement Policy Note 04/20: Recovery and transition from COVID-19 (PPN 04/20) regarding the growing pandemic. Under these guidelines, it has been provided that it is the duty of the contracting party (Granville Limited in this case) to continue the payment of the supplier (Roady Limited in this case) but at the same time, it has also been stated under the guideline that the contracting party may terminate the contract in case there is an excessive delay or if the contract is no longer viable and relevant.[16]Hence, Granville is entitled to get the security payment as the project is not completed but it is not entitled to delay damages as the delay is not a result of negligence from the side of Roady Limited, instead, it is due to the growing disease of coronavirus. Moreover, Granville is entitled to get compensated reasonably for the substandard work done by the replaced workers of Roady.[17]
Appropriateness of the method adopted by Granville Developers Limited
The method adopted by Granville Developers Limited to get compensated for the payment of the security money is to refer the matter to adjudication. The process of adjudication is for the resolving of the disputes without approaching for the lengthy procedure of the courts which is also very expensive. This procedure is generally referred to in the matters of construction and it is a reference to the process introduced in the United Kingdom by the Housing Grants, Construction and Regeneration Act also called the Construction Act in 1996.[18]
This process begins when there is the issuance of notice by one party to the other regarding its intention to refer this matter to adjudication. But there are certain requirements to be fulfilled if the party wish to refer the matter to adjudication. Hence, Granville Developers Limited is required to fulfil these requirements in the notice if it wishes to refer the matter to adjudication. These requirements are as follows:
Description regarding the nature of the dispute between the parties
Details of when and where the dispute arose
The nature of the remedy which the party wishes to seek. In this case, it is the repayment of security money by Granville and delays damages (if it is agreed in the procedure)
Name and address of parties Granville and Roady along with the address where documents shall be served.[19]
The decision taken by Granville Limited is appropriate to some extent but the company may also adopt other alternatives for the resolution of its dispute with Roady. The benefits which could be experienced by Granville if it takes up the matter to adjudication is this process is quick in the resolution of the dispute and has a time table of 28 days for the resolution and hence, this process cannot be applied for complex disputes. Further, the parties are also at freedom to extend the time of resolution to 42 days in case the dispute is not resolved in the prescribed time. Another advantage in the process of adjudication which Granville shall get is that unlike the proceeding of the court, this process protects the privacy of the parties unless the decision of the adjudicator is reviewed by Technology and Construction Court.
Alternatives for the method adopted by Granville Developers Limited
Though there are advantages of the process of adjudication, yet there are many drawbacks which can be faced by the parties who are referring the matter to adjudication. The major drawback in this process is faced by the respondent as in this process the referring party may bring the matter before adjudication at any time which may be inconvenient for the respondent party. Hence, in this case, Granville has issued the notice to Roady which is at a convenient time for Granville but not Roady.
Hence, the company Granville is advised to take into consideration other modes as well for dispute resolution. Among the other modes of dispute resolution, the most commonly used method is the process of arbitration in the United Kingdom.[20] Though the construction project is referred for resolution to the process of adjudication, the parties may consent to refer the matter to arbitration. The major benefit which both the parties could get from the process of arbitration is the informality and the speedy way for the resolution of their dispute. Arbitration is a less formal process and hence, makes the dispute resolution faster along with the judgment to be binding which is called an award. Moreover, under this process arbitrators can decide those claims as well which in some instances the judges are not allowed to decide.[21]
Thus, by bringing the matter before arbitration, Granville Developers Limited can claim its security money for the performance of the contract as the project is not completed by Roady Limited. Both the parties can mutually approach for the process of arbitration and their respective claims settled before the neutral third party that is the arbitrator.[22]Both the parties can also reveal their intention to terminate the contract as the growing pandemic of covid-19 has made the completion of the project practically impossible. If the parties avoid the termination of the contract, they may negotiate to continue the contract in presence of an arbitrator and agree mutually to include specific terms which shall be beneficial for boththe parties. thus, this way the parties may be able to maintain a healthy relationship for future projects.
References
Books
Ashworth, A. and Perera, S., 2018. Contractual procedures in the construction industry. Routledge.
Fraser, G.R., 2020. Alternative Dispute Resolution Procedures(pp. 229-243). Routledge.
Kajkowska, E., 2017. Enforceability of Multi-Tiered Dispute Resolution Clauses. Bloomsbury Publishing.
Menkel-Meadow, C.J., Porter-Love, L., Kupfer-Schneider, A. and Moffitt, M., 2018. Dispute resolution: Beyond the adversarial model. Aspen Publishers.
Oke, A.E. and Aigbavboa, C.O., 2017. Sustainable value management for construction projects(pp. 75-86). Switzerland: Springer.
Schaufelberger, J.E. and Holm, L., 2017. Management of construction projects: a constructor's perspective. Taylor & Francis.
Case laws
Bank Line Ltd v. Arthur Capel and Co [1919] AC 435
Paradine v. Jane [1647] EWHC KB J5
Taylor v. Caldwell(1863) 3 B & S 826
Journals
Abdul-Malak, M.A. and Khalife, S., 2017. Models for the administration of structured construction contract notices. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction, 9(3), p.04517017.
Alaloul, W.S., Hasaniyah, M.W. and Tayeh, B.A., 2019. A comprehensive review of disputes prevention and resolution in construction projects. In MATEC Web of conferences(Vol. 270, p. 05012). EDP Sciences.
Hann, D., Nash, D. and Heery, E., 2019. Workplace conflict resolution in Wales: The unexpected prevalence of alternative dispute resolution. Economic and Industrial Democracy, 40(3), pp.776-802.
Kongsong, W., 2017. The reduction of the impacts in the contract management for government construction projects. International Journal of Applied Engineering Research, 12(23), pp.13310-13313.
Ogunnusi, M., Hamma-Adama, M., Salman, H. and Kouider, T., 2020. COVID-19 pandemic: the effects and prospects in the construction industry. International journal of real estate studies, 14(Special Issue 2).
Ojiako, U., Chipulu, M., Marshall, A. and Williams, T., 2018. An examination of the 'rule of law and 'justice implications in Online Dispute Resolution in construction projects. International journal of project management, 36(2), pp.301-316.
Soni, S., Pandey, M. and Agrawal, S., 2017. Conflicts and disputes in construction projects: An overview. J. Eng. Res. Appl, 7(06), pp.40-42.
Yaskova, N. and Zaitseva, L., 2017, October. Application of alternative dispute resolution in the field of construction projects. In IOP Conference Series: Earth and Environmental Science(Vol. 90, No. 1, p. 012182).
[2]Menkel-Meadow C.J., Porter-Love L., Kupfer-Schneider A. and Moffitt M., 'Dispute resolution: Beyond the adversarial model' (2018) Aspen Publishers.
[3]Alaloul W.S., Hasaniyah M.W. and Tayeh B.A., 'A comprehensive review of disputes prevention and resolution in construction projects' (2019) In MATEC web of conferences (Vol. 270, p. 05012) EDP Sciences
[4]Kongsong W, 'The reduction of the impacts in the contract management for government construction projects' (2017) International Journal of Applied Engineering Research, 12(23),13310-13313.
[5]Schaufelberger J.E. and Holm L., 'Management of construction projects: a constructor's perspective' (2017) Taylor & Francis
[6](1863) 3 B & S 826
[7]Paradine v. Jane [1647] EWHC KB J5
[8]Ojiako U., Chipulu M., Marshall A. and Williams T., 'An examination of the 'rule of law' and 'justice' implications in Online Dispute Resolution in construction projects' (2018) International journal of project management, 36(2), 301 305 3011 316.
[9] (1870-71) LR 6 Ex 269
[10]Menkel-Meadow C.J., Porter-Love L., Kupfer-Schneider A. and Moffitt M., 'Dispute resolution: Beyond the adversarial model' (2018) Aspen Publishers.
[11]Kajkowska E., 'Enforceability of Multi-Tiered Dispute Resolution Clauses' (2017) Bloomsbury Publishing.
[12]Yaskova N. and Zaitseva L., 'Application of alternative dispute resolution in the field of construction projects' (2017) In IOP Conference Series: Earth and Environmental Science (Vol. 90, No. 1, 012182).
[13]Bank Line Ltd v. Arthur Capel and Co [1919] AC 435
[14]Ashworth A. and Perera S., 'Contractual procedures in the construction industry' (2018) Routledge.
[15]Abdul-Malak M.A. and Khalife S., 'Models for the administration of structured construction contract notices' (2017) Journal of Legal Affairs and Dispute Resolution in Engineering and Construction, 9(3),04517017.
[16]Ogunnusi M., Hamma-Adama M., Salman H. and Kouider T., 'COVID-19 pandemic: the effects and prospects in the construction industry' (2020) International Journal of real estate studies, 14(Special Issue 2)
[17]Ojiako U., Chipulu M., Marshall A. and Williams T., 'An examination of the 'rule of law' and 'justice' implications in Online Dispute Resolution in construction projects' (2018) International journal of project management, 36(2), 303 307 314.
[18]Soni S., Pandey M. and Agrawal S., 'Conflicts and disputes in construction projects: An overview' (2017) Int. J. Eng. Res. Appl, 7(06), 40-42.
[19]Hann D., Nash D. and Heery E., 'Workplace conflict resolution in Wales: The unexpected prevalence of alternative dispute resolution' (2019) Economic and Industrial Democracy, 40(3), 776 781 789 802.
[20]Ashworth A. and Perera S., 'Contractual procedures in the construction industry' (2018) Routledge.
[21]Menkel-Meadow C.J., Porter-Love L., Kupfer-Schneider A. and Moffitt M., 'Dispute resolution: Beyond the adversarial model' (2018) Aspen Publishers.
[22]Oke A.E. and Aigbavboa C.O., 'Sustainable value management for construction projects' (2017) Switzerland: Springer, 75-86
