Clarity is paramount
Disputes about the scope of contractual obligations have probably existed for as long as there have been contracts. No matter how clear parties may consider their contracts to be, there is always scope for disagreement.
In the recent Scottish case of Midlothian Council v Bracewell Stirling Architects and others, the courts had to consider whether the architect, Bracewell, had assumed responsibility for work by other consultants appointed to the project, even though those consultants had been directly appointed by the Council and had carried out the services in question before Bracewell’s appointment.
To cut a long story short, the courts found in favour of Bracewell and decided it had not agreed to assume responsibility for services provided by those other consultants. The contractual obligations were clear and did not extend in the way the Council argued.
Although the subject matter changes from cases to case, the episode serves as a reminder of the scope for dispute about the extent of contractual responsibilities. The story is all too familiar. So how do we go about trying to avoid these costly disputes?
The obvious answer is to be as clear as possible in contracts about what the parties' respective obligations are – though this may be easier said than done. Construction projects are complicated, usually involving multiple parties, and full of grey areas, leaving considerable scope for confusion and disagreement. Broad-brush statements about who is responsible for what may not reflect what is actually needed to deliver the project. The way responsibilities are intended to be allocated or shared may not be clear.
The parties should invest time in defining, as far as possible, the scope of a particular role in order to reduce the risk of confusion and arguments later. This could include the use of specific inclusions and exclusions from the scope and the use of responsibility matrices. Parties should also avoid statements that could be considered contradictory or open to different interpretations.
What we have learned from recent case law is that, if the requirements in the contract are clear (for good or for bad), parties cannot rely on the courts to come to their rescue if this would result in an unexpected commercial outcome. The courts apply the terms of the contract where these are clear. They will not intervene to protect a party from what turns out to be a bad bargain.
In the Midlothian case, the courts considered whether there was more than one potential interpretation of the contract. They recognised that if there were two potential meanings to a particular obligation, consideration may need to be given to which was consistent with business common sense. In this instance the terms were clear so they did not need to consider this. The courts did, however, comment that, if it had been necessary to decide the issue, the contractual position put forward by the Council would have been unusual and carrying considerable risks and would not therefore have been consistent with commercial common sense.
In plain English: joint names cover and subrogation rights
Joint Names Cover is cover under which the contractor and the employer are each named on the insurance policy. If damage to the works occurs as a result of an insured risk either party is entitled to bring a claim under the policy. More importantly, each joint name is usually protected from a claim by the insurer. If, for example, the contractor is a joint name and has damaged the building as a result of an insured risk (maybe a fire it has caused on site), it will usually be protected from a claim by the insurer to recover the reinstatement costs the insurer has paid.
Subcontractors tend to be either joint insureds or there will be a waiver of subrogation rights. Subrogation is where the insurer effectively steps into the shoes of the insured (i.e. the contractor) and brings a claim against the person who has caused the insured risk. If the insurer waives its rights of subrogation, it will be unable to pursue the sub-contractor to recover any sums the insurer has paid out which are attributable to the acts or omissions of the subcontractor.
This article was published in The RIBA Journal September 2018.