Construction update - June 2007

Difference between reasonable and best endeavours

Case summary: In a contract, when a party is unable or unwilling to undertake to perform a specific obligation it will often agree to use its reasonable or best endeavours. But what does that mean and is there a difference between the two? The court said that "best endeavours" is a more onerous obligation than "reasonable endeavours" but that "all reasonable endeavours" may be the same as "best endeavours". If a party has agreed to use reasonable endeavours that does not include doing something that involves sacrificing its own commercial interests unless the contract stipulates otherwise. Sacrifices to your own commercial interests may however have to be made if you have agreed to use your best endeavours.

Comment: To achieve certainty, parties should consider setting out in the contract any specific actions a party must take as part of its obligation to use its best or reasonable endeavours. Note that "best endeavours" is often interpreted to mean that a party may be obliged to spend money.

Rhodia International Holdings Ltd v Huntsman International LLC (21/02/2007)

Extent of architect's duty to inspect

Case summary: The claimant house owner alleged that the periodic inspections carried out by the architect were inadequate. The architect's defence was that he had carried out sufficient inspections by walking round the site after each monthly site meeting. The court said the extent of the architect's duty to carry out periodic inspections (ie the frequency and duration) should be tailored to the nature of the works, but that it was unlikely that just carrying out an inspection after site meetings was acceptable. Inspections must be undertaken as and when required, depending on the progress of the works. Reasonable examination did not mean the architect had to go into every matter in detail, and it was inevitable that some defects would escape notice. Usually the architect does not guarantee that his inspections will reveal or prevent all defective works and, therefore, the architect's performance cannot be judged by the result achieved. On the facts, the architect should have carried out more than routine monthly inspections during the period in which the main structure was built.

Comment: Consider including in the contract some stipulations as to the expected frequency and duration of inspections to ensure the parties have a similar view as to what is required. Ensure that there is still a provision requiring the architect to carry out such inspections as are reasonable in the circumstances to cover any unexpected developments during the progress of the works.

McGlinn v Waltham Contractors Limited and others (21/02/07)

Is a letter of intent adjudicable?

Case summary: The court looked at whether the letter of intent in question amounted to a contract between the parties. In each case it is a question of construction whether the execution of a formal contract is a condition or term of the arrangements agreed in the letter of intent; or whether the letter is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will proceed. Even if it can be shown that a letter of intent does amount to a contract, it may not be adjudicable if it fails to satisfy the requirements of section 107 of the Housing Grants Construction and Regeneration Act 1996 (the Construction Act) - which requires that all the express terms of the agreement are in writing or evidenced in writing.

Comment: If you do not wish your letter of intent to be viewed as a contract, clearly mark the letter of intent as being "subject to contract".

Bennett (Electrical) Services Limited v Inviron Limited (19/01/07)

Doctrine of unreviewable error of adjudicator

Case summary: This case involved a residential occupier so the Construction Act did not apply. However, there were contractual provisions for adjudication. The adjudicator had decided that the terms of the contract were not contrary to the provisions of the Unfair Terms in Consumer Contract Regulations 1999. The court concluded that this decision was wrong because the terms relating to service of withholding notices were unfair, and therefore were not binding on Mr Dyason, the occupier. Domsalla, the contractor, argued that even if the adjudicator's decision was wrong, it was not capable of being overturned because of the unreviewable nature of adjudicators' decisions. The court accepted that if an adjudicator made an error but still acted within his jurisdiction the error could not be reviewed - but said that this rule only applied to adjudications under the Construction Act.

Comment: If an adjudicator wrongly decides an issue relating to jurisdiction or decides something outside his jurisdiction then, whether it is a statutory or contractual adjudication does not matter, that decision is not binding on the parties. Since this decision the court has confirmed that an adjudicator can reach a binding decision on his own jurisdiction (ie not subject to review by the courts) only if the parties have agreed that he should do so (Mott MacDonald Ltd v London & Regional Properties Ltd (23/05/07)).

Domsalla (t/a Domsalla Building Services) v Dyason (02/05/07)

The importance of getting the timing right in adjudications

Case summary: Three cases all dealing with issues of lateness have confirmed that, in general, time limits in adjudications should be strictly adhered to, although, if justice requires it, the court may grant some leeway. The cases determine that:

• Any clause in a construction contract permitting the adjudicator to reach or issue a decision out of time (ie after the 28 day period or that extended by the parties) does not comply with the Construction Act and is invalid. The Scheme for Construction Contracts will then apply.
• Failure to serve the referral notice within seven days of the notice of adjudication, as required by the contract, does not render the adjudicator without jurisdiction when the notice of appointment of the adjudicator has only been received on the seventh day and the referral notice and all supporting documents are served immediately the following day.
• As long as the adjudicator reaches his decision within the stipulated time period and it is delivered forthwith, the decision will be valid (even if delivery is thus slightly outside the time period).
• Any extension of time granted by the parties to the adjudicator to reach his decision is conditional on the terms of that extension. If the consent is to the "issuing" of the decision, the fact that the adjudicator has reached but not delivered his decision within the extended time period is insufficient. The decision is out of time and unenforceable.

Aveat Heating Ltd v Jerram Falkus Construction Ltd (01/02/07)

Epping Electrical Co Ltd v Briggs & Forrester (Plumbing Services) Ltd (19/01/07)

Cubitt Building & Interiors Ltd v Fleetglade Ltd (21/12/06)