Exam

• Reasonable skill and care

  A duty to exercise the reasonable skill and care expected of a competent professional in the relevant field. Judged against the standard of a reasonably competent practitioner in that profession. Does not guarantee a perfect or successful outcome, but rather a reasonable level of professional competence.
• Fitness for purpose


  A more stringent obligation to produce a design that is fit for its intended purpose or use. Essentially a guarantee that the design will achieve the desired result or performance. A higher standard than reasonable skill and care, as it requires the design to be suitable for its specific purpose.
• Greaves & Co. (Contractors) Ltd. v. Baynham Meikle & Partners [1975]


  Established the distinction between reasonable skill and care and fitness for purpose in the context of design obligations. Held that "fitness for purpose" imposes a higher standard than "reasonable skill and care."
• IBA v EMI and BICC [1980]


  The Court of Appeal held that, in the absence of an express contractual rebuttal, a design and build contractor must ensure the works are "fit for their intended purpose."
• MT Højgaard v E. ON [2017]


  The UK Supreme Court found that despite "reasonable skill and care" wording, the contractor was still responsible for design defects due to a specific "fitness for purpose" requirement buried in the technical documents.
• The contract clause "the Contractor is to assume responsibility for both the design and construction of the Works" is ambiguous and does not explicitly specify the applicable standard for design obligations.
• The Project Manager's statement that the two duties (reasonable skill and care and fitness for purpose) are "more or less the same" is incorrect and potentially misleading.
• Assuming a "fitness for purpose" obligation for design could expose the company to significant risks and liabilities if the design fails to meet the intended purpose, even if reasonable skill and care were exercised.
• The key takeaway from these cases is that "fitness for purpose" imposes a stricter, absolute obligation to achieve a specified result, while "reasonable skill and care" is judged against the standard of a reasonably competent professional in that field.
• When a disagreement arises between parties as to whether an instructed variation or change is beyond the contemplation of the variation or change mechanism under a construction contract, the legal position is primarily determined by the specific terms of the contract and relevant case law.
• Trollope & Colls Ltd v Northwest Metropolitan Regional Hospital Board [1973]


  The court held that variations must be of the "same nature" as the original works and not so extensive as to constitute a different project altogether.
• Blue Circle Industries plc v Holland Dredging Co (1987)


  The court found that a variation requiring completely different work methods and plant was outside the scope of the variation clause.
• Sharkey v Wernher (1956)


  The court allowed a variation that increased the contract sum by over 50%, as it was still within the general scope of the original works.
• If the variation is found to be outside the scope of the variation clause, the contractor may argue that the variation mechanism no longer applies, and the additional work should be valued separately, often on a cost-plus basis.
• Conversely, the employer may argue that the contractor must still follow the variation procedure, even for changes beyond contemplation, as seen in Secretary of State for Defence v Turner Estate Solutions Ltd [2015].
• In extreme cases, the contractor could claim that the cumulative variations have rendered the original contract "frustrated" and unworkable, allowing the court to value the entire work afresh (J. Jarvis & Sons Ltd v Castle Wharf Developments Ltd [2001], overturned on appeal).
• The key takeaway is that the specific contractual wording and the nature/extent of the variations will determine whether they fall within or outside the variation mechanism. Clear drafting is crucial, as the courts will strive to give effect to the parties' intentions as expressed in the contract terms.
• The law relating to liquidated damages (LD) and penalties has seen a significant shift in recent years, primarily due to the landmark Supreme Court decisions in Cavendish Square Holding BV v Talal El Makdessi (El Makdessi) [2015] and Triple Point Technology, Inc v PTT Public Company Ltd [2021].
• Penalties Doctrine


  Traditionally, the enforceability of LD clauses hinged on the "genuine pre-estimate of loss" test established in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915]. A clause would be struck down as a penalty if the agreed sum was extravagant and unconscionable compared to the greatest loss that could conceivably be proved. However, in El Makdessi, the Supreme Court reformulated the test, moving away from the rigid "genuine pre-estimate" rule. The new test is whether the LD clause is a secondary obligation that imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in enforcing the primary obligation. This broader test considers the commercial justification and legitimacy of the clause, rather than just focusing on whether the sum was a genuine pre-estimate of loss. It provides more flexibility in upholding LD clauses, even if the sum exceeds the actual loss suffered.
• Triple Point Technology, Inc v PTT Public Company Ltd [2021]


  The Supreme Court clarified the application of LD clauses when a contract is terminated before completion. Overturning the Court of Appeal, it held that LD generally accrues from the start of the delay until termination, even if the relevant obligation is never performed. The court emphasized the commercial reality that parties agree to LD clauses to provide a remedy for delay that is predictable and certain, without having to quantify actual losses. Therefore, unless the wording clearly indicates otherwise, LD should apply up to termination but not thereafter.
• These developments have significant implications for construction contracts, which commonly include LD provisions for delayed completion or milestone breaches:
• The mechanisms for addressing time and money claims differ significantly between the JCT 2016 Design and Build Contract and the NEC4 Engineering and Construction Contract (ECC).
• JCT 2016 Design and Build Contract

  Extensions of Time: Governed by the list of Relevant Events in clause 2.26 and the provisions of clause 2.27. If a Relevant Event occurs, the Contractor may claim an extension of time under clause 2.27.

  Loss and Expense: Governed by the list of Relevant Matters in clause 4.23 and the provisions of clause 4.24. If a Relevant Matter occurs, the Contractor may claim direct loss and/or expense under clause 4.24.
• NEC4 Engineering and Construction Contract (ECC)

  Compensation Events: Governed by the list in clause 60.1 and the provisions of clauses 61-65. If a Compensation Event occurs, the Contractor may be entitled to both an extension of time (clause 63.3) and costs (clause 63.1) under a single mechanism.
• The key differences are:
• The courts in the UK have increasingly encouraged parties to consider mediation as a more effective means of dispute resolution, as evidenced by relevant case law and the Civil Procedure Rules (CPR).
• Halsey v Milton Keynes General NHS Trust [2004]


  The Court of Appeal provided guidance on when a party's refusal to mediate may lead to costs sanctions. It outlined factors like whether mediation had reasonable prospects of success and the reasonableness of the parties' behaviour.
• PGF II SA v OMFS Company 1 Ltd [2013]


  The Court of Appeal upheld a costs sanction against a successful party for unreasonably refusing to mediate, emphasizing the court's power to penalize such conduct.
• Thakkar v Patel [2017]


  The Court of Appeal reiterated that silence in response to an invitation to mediate is unreasonable conduct that can justify costs sanctions.
• CPR 44.2(4)(c)


  Allows the court to consider the parties' conduct in allocating costs, including efforts made to resolve the dispute by alternative dispute resolution (ADR) like mediation.
• CPR 44.2(5)(a)


  Permits the court to order costs sanctions against a party who has unreasonably refused to use ADR or failed to respond to an ADR invitation.
• CPR Practice Direction 44 para 4.4


  Provides guidance on factors the court may consider when deciding if a party's refusal to mediate was unreasonable, including the nature of the dispute, the merits of the case, and the costs of mediation.
• The courts have made it clear that parties should seriously consider mediation and provide reasonable justification for refusing it. Unreasonable refusal or failure to respond to mediation invitations can result in costs sanctions, even for successful parties.
• The quote from Susan Dunnett highlights how mediation can provide a more effective resolution by addressing the underlying interests and grievances, rather than solely focusing on monetary compensation.
• By encouraging mediation through case law and the CPR, the courts aim to promote early resolution, reduce costs, and court delays, and facilitate more constructive dialogue between parties in disputes.