Temporary Dis Conformity 10-21-05

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July 2005

Ellis Baker is a Partner and Head of the Construction & Engineering Practice Group,White & Case, London. Anthony Lavers is a Professional Support Lawyer,Construction & Engineering Practice Group, White & Case, London andVisiting Professor of Law, Oxford Brookes University.

This article is based upon a presentation by the authors on 5 April 2005 to theSociety of Construction Law at a meeting in London chaired by Dr. Robert Gaitskell QC.

Introduction

This paper considers situations, which will be dened further below, where,during the currency of a project, the works do not comply with the contract

requirements and the legal consequences owing from that, specically thequestion as to whether the owner is entitled to a remedy against the contractor1.

The authors undertook to address this difcult issue because they hadcome across it in practice and found the (very limited) guidance provided bycommentators and judges at best uncertain and at worst actually contradictory.It is not claimed that all uncertainties and contradictions are resolved, whichwould require major appellate authority, but it is suggested that sense canbe made of the subject and the authorities and that this paper represents atenable approach. The members of the audience at the presentation on 5 April,who raised several challenging questions2, were kind enough to say that thispromotion of discussion of the subject was worthwhile and it is offered in that

spirit, rather than as a comprehensive solution.

The issue

The temporary disconformity issue in English law can be reduced in essenceto the question as to whether a contractor whose work has not, at a given time,

met the requirements of the contract can be said to be in breach of contract,giving the owner remedies prior to completion.

A range of views

Lord Diplocks dissenting speech inKaye Ltd v Hosier & Dickinson Ltd .3 isgenerally regarded as the beginning and the high point of the conceptof temporary disconformity. It is also likely to be the one for which manycontractors would wish to contend. His view can be summarised in thefollowing sentence from his speech4: Provided that the contractor puts itright timeously I do not think that the parties intended that any temporarydisconformity should of itself amount to a breach of contract by the contractor.

However, this view has been attacked frequently in the thirty years since it wasgiven by those representing owners, by commentators and by judges. A avourof what might be called the opposite end of the spectrum of opinion can beobtained fromLintest Builders Ltd v Roberts 5 and from Hudson6.

Temporary disconformity inconstruction and engineering contractsby Ellis Baker and Anthony Lavers

October 2005


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Roskill LJ inLintest emphasised that Lord Diplocks speech was a dissenting oneand questioned7 whether his Lordship on any view intended it to be of universalapplication (of which more below). He preferred the view that the buildingowner acquired a right at the time the defective work was done. The view inHudson may go even further; it is certainly more trenchantly expressed8: It issubmitted that, on grounds of both principle and practicality, a contractor willbe in immediate breach of contract whenever his work fails to comply with the

Contract descriptions or requirements.

While it might be objected that one formulation may not t every situation, theseviews, taken as they stand, appear irreconcilable, or at least inconsistent. Totest whether these, or any other, formulations could serve as a comprehensivestatement of the legal position, it was decided to create a set of scenarios towhich they could be applied.

The Scenarios

The Scenarios are stylised factual situations adapted to illustrate theapplications of different views of temporary disconformity.

Scenario A. The painter interrupted.In a construction contract, the specication calls for six coats of paint to beapplied to particular surfaces, with a minimum of 24 hours for drying andpreparation between each coat. After ten days of a six week contract, only twocoats have been applied. At this point, it is an example ofincomplete work . Itdoes not meet the standard required by the contract, although it is not defective,in the sense that the work done if continued, will be compliant.

Scenario B. The unskilled workforce.In a contract for construction of condominium apartments, the specicationcalls for the tting and sealing of a waterproof membrane and tiling on the roofterraces. During the rst two months of a six month contract, the contractorsemployees have applied the sealant inconsistently to the sheets of membraneand have tted the tiles unevenly. This is an example ofdefective work . It doesnot meet the standard required by the contract and is defective in the sense thatthe work done if continued, will be non-complaint.

Scenario C. The design ignored.The foundation design calls for the whole building a re station to besupported on piles, because of the difcult geological conditions of the site.After two months of a ten month contract, the contractor has adopted a oor onearth foundation design and built main walls on granular ll and partition wallssuspended from the main walls. The structure will not be capable of bearing itsdesign load. This should be regarded as a fundamental defect; a distinction will

be drawn in the analysis below between this and the defective workmanship inScenario B.

Applying the range of views to the Scenarios

Applying rst the Hudson formulation; a contractor will be in immediate breachof contractwhenever his work fails to comply with the contract descriptions or requirements (emphasis supplied). Taken at face value, this would include notonly Scenario C, but Scenario B and also Scenario A. This formulation appears,deliberately or not, to embrace mere incompleteness, although to classify

Scenario A as a breach of contract even attracting nominal damages would beabsurd. It might be argued, and contractors no doubt would argue, that givingany legal remedy (e.g. damages or the right to terminate in the case ofScenario B, other than the right to have defects rectied in time, would bevery unfair, if not unworkable. Scenario C, by contrast, is neither incomplete,nor merely a case of defective workmanship; it is fundamentally wrong andcannot be brought up to the contract specication by completing that which isincomplete or rectifying defects in the work. Table A shows the outcome ofapplying the immediate breach of contract formulation in its most extremeversion to the Scenarios.

Table A: Immediate breach of contract

Scenario A The painterinterrupted

Breach Doesnt makesense

Scenario B The unskilledworkforce

Breach Harsh tocontractor?

Scenario C The designignored

Breach Makes sense

The Diplock formulation applied to the Scenarios produces very different results,as appear from Table B: provided the contractor gets it right by the time ofcompletion, no temporary disconformity should amount to a breach, and eventhe award of nominal damages would indicate a legalistic analysis which doesnot make business sense. This undoubtedly covers Scenario A and there can

hardly be a sensible objection to the contractor being given the time agreed tobring the works to completion.

This analysis really treats Scenario B in the same way, so that defective workis to be regarded as equivalent to incompleteness, to be put right before thecompletion date. This is not uncontroversial and may be a source of objectionto owners, although it is how contractors would normally view it. The realdifculty is how far the Diplock formulation can be stretched to accommodateScenario Ctype facts

If it were just a case of timeousness, there may well be time for the contractorto demolish a structure which cannot function because the design has been

ignored, and rebuild it. On the Diplock formulation, that would deprive theowner of a remedy at the point where the useless structure was, for instance,about to be demolished. The outcomes of applying the Diplock formulation tothe Scenarios can be seen in Table B.


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Table B: Temporary disconformity should not amount tobreach of contract

Scenario A The painterinterrupted

No breach Makes sense

Scenario B The unskilledworkforce

No breach Generous tocontractor?

Scenario C The designignored No breach Doesnt makesense

Neither the Hudson formulation nor the Diplock formulation, at least as theystand, leads to satisfactory results when applied to the Scenarios. Tables Aand B reveal at least one very unattractive outcome for each party and a furtherone which would be controversial.

However, it must be emphasised that these are only notional positions, adoptedas representing opposite ends of a range of possible opinions as to what the lawshould be. It is therefore desirable next to try to ascertain the position in Englishlaw as it currently stands.

The position in English law

As has been mentioned already, Lord Diplocks was a dissenting voice inKaye v Hosier & Dickinson . English judges since have not been notablyreceptive to Lord Diplocks view on temporary disconformity; indeed, there isno English case in which it has not been distinguished, or even doubted.

Roskill LJs approach to the Diplock formulation inLintest Builders v Roberts isclassic in this respect, emphasising both that it was made by way of dissentand that it was doubtful whether his Lordship on any view intended it to be ofuniversal application.

More specically, the English courts have sought to avoid applying the Diplockversion of temporary disconformity in one of three ways.

First, that on the case before the court, and unlike that before theHouse of Lords, the defects were not corrected at the relevant time.

Second, that the principle is inconsistent with another contractual obligation.

Third, that the defects are too numerous or too serious to be treated as atemporary disconformity.

The rst two of these grounds of distinction are illustrated by the decision of

Mocatta J in Nene Housing Society v National Westminster Bank 9

. In that case,there was automatic termination of the contract for contractor insolvency and theissue for the court was whether defects in the work which existed at the time ofthe termination were a default justifying the owners call on the surety bond.

Mocatta J held that the defects were a default and distinguished the Diplockformulation on two grounds.

First, unlike the situation inKaye v Hosier & Dickinson , the defects had notbeen corrected at the time of the termination. Second, the express terms of theContract, which obliged the Contractor to carry out and complete the work,could not be construed as a single obligation but as two separate obligations

to carry out and to complete the work respectively. This is referred toin Hudson as the dual obligation; logically, it should not be necessary, or notalways, to wait until completion to ascertain if the work is being carried out.The learned Editors of the Building Law Reports10 give their opinion as that thedual nature of the obligation is a further reason to treat Lord Diplocks analysiswith caution.

But theNene case was only an early example of the courts nding ways to avoidapplying the Diplock version of the temporary disconformity principle. Otherslaid emphasis upon the presence in the contract of express obligations upon thecontractor to remedy defects. Such provisions are routinely found in the mainstandard forms, as well as in bespoke contracts. In the JCT form, Clause 8.4gives power to the Architect/Contract Administrator to issue instructions If anywork, materials or goods are not in accordance with this Contract.

ICE 7th Edition Clause 39(1) gives the Engineer power during the progress of theWorks to instruct removal of unsatisfactory work and materials which in theopinion of the Engineer are not in accordance with the Contract.

The courts have found the breach of the Contractors obligation to complywith such an instruction to constitute a crucial point of distinction from LordDiplock. InWilliam Tomkinson and Sons Ltd v The Parochial Church Council of St. Michael ,11 the owner instructed the contractor to rectify defects under theprovisions of the (JCT Minor Works) contract. The contractor failed to do so.HH Judge Stannard held that the employer was entitled to the cost of rectifying

the defects. While not central to the subject of this paper, it is perhapssurprising to note that the costs were held to be assessed by reference to thecost which the contractor would have incurred in remedying the defects, ratherthan the cost which the employer would have incurred in engaging anothercontractor to do the work.

TheTomkinson case can be regarded as fairly straightforward, becauseinstructions had been given and the defective work had not been corrected.

TheLintest Builders case, by contrast, could not have been dealt with in thisway, since no instruction had been given. The contractor had terminated thecontract for non-payment. The issue before the Court of Appeal was whether

the arbitrator, in determining the amount due to the contractor, was entitledto take into account the reasonable cost of rectifying defective work whichexisted at the time of termination. Despite the absence of an instruction torectify, the Court of Appeal decided that the owner had an existing right thatthe defective work should be corrected and that the arbitrator was entitled to


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take into account the cost of doing so. As Roskill LJ put it, The Architect couldtake action (under the contract). The fact that the Architect had not done soat the time when the Contractor properly determined this contract does not inmy judgment deprive the building owner of the rights which accrued when thedefective work was done.

TheLintest case is of signicance, too, because of the attempt by John Uff, as

counsel, to advance and indeed develop the Diplock formulation. His argumentwas that There was no accrued right merely because defective work had beendone a builder in those circumstances can do defective work as often and aslong and frequently as he liked provided that by the time the contract comes toan end and the defects period comes to an end he had remedied those defects.

If successful, that argument would have established the Diplock formulation asthe law on temporary disconformity. Roskill LJs reaction, however, dispelled thisprospect12: I confess I nd that submission rather surprising with respect, I donot think that is correct. Nicholas Dennys QC also sought to rely on Lord Diplockswords inGuinness plc v CMD Property Developments Ltd 13 and with a similarresult. Mr Dennys contended for a distinction between cases where recticationof the defect was required and those where there was no request: It is only failureto comply with such instructions that can give rise to a claim for the cost of havingthe work carried out by an alternative contractor. HH Judge Havery rejected thisversion of the Diplock formulation, applying bothLintest and Tomkinson . (See inparticular on this point the comment by Roskill LJ inLintest quoted above).

The third ground of distinction was that the defects in question fall outside theconcept of a temporary disconformity. This could be because they are toonumerous/too frequent or because they are too serious.

As has been seen, the attempt inLintest to persuade the Court of Appeal that acontractor can do defective work as often and as long as frequently as he likedreceived summary treatment.

The concept of a contractors work containing sufciently numerous defectsto warrant the grant of an immediate remedy was discussed inRice v Great Yarmouth Borough Council 14, where the Court of Appeal, dealing with thealleged repudiatory breach of a maintenance contract remarked on the parallelswith building contracts, in the number and variety of the obligations involvedand the varying gravity of the breaches which may be committed, some of whichmay be remediable and some not. Although in the circumstances the Councilsappeal failed, Lady Justice Hale held that The judge was right to ask himselfwhether the cumulative breaches would continue to deliver a substandardperformance. The Court referred on this point to a decision of HH JudgeWilliam Stabb inSutcliffe v Chippendale and Edmundson 15 as to whether an

owner was justied in terminating a contractors employment: the quality ofthe work was deteriorating and the number of defects was multiplying, many ofwhich (the architect) had tried unsuccessfully to have put right the contractorshad neither the ability, competence or the willby this time to complete the workin the manner required by the contract. (emphasis supplied)

The defect may, also, be too serious to be treated as a temporary disconformity,even though it is neither numerous nor frequent. The argument had again beendeployed inSurrey Heath Borough Council v Lovell Construction Ltd 16, wherea building had been largely destroyed by re: if, say Lovell, those principalobligations (completing work in accordance with the design and on time) aresatised, it matters not that en route the contractor may have been temporarilynegligent or in breach of contract. HH Judge Fox-Andrews offered the wryly

dismissive comment that the expression temporary disconformity does notimmediately appear apt to describe a destruction of a building by re whennearing completion.

The question, then, must arise as to whether it is possible to produce an accountof the law of temporary disconformity which can accommodate both the Diplockformulation and the English cases in which i t has been distinguished, namelyLintest , Tomkinson , Guinness and Surrey Heath .

The authors suggest that it is, but that the key is to be found in otherjurisdictions, where the concept of temporary disconformity has been morereadily applied.

Assistance from foreign jurisdictions

The New Zealand case ofAdkin v Brown 17 involved what the court describedas an almost unbelievably protracted saga involving a residential buildingcontract. The employer had terminated the contract on account of defectivework and the issue was whether the contractor had been in breach, so as toentitle him to do so. The New Zealand Court of Appeal18 approved the approachof the rst instance judge: ORegan J agreed that it was not open to Mr Adkinto terminate for breach of an essential stipulation as to structural safety becauseit was still possible that Mr Brown would perform the remedial work identiedby the expert so as to produce a structurally safe building Cancellation basedon an implied term that the building would be structurally safe or on allegedbreach of the obligation of the builder properly to complete the works waspremature. The defects could still have been remedied.

The New Zealand Court of Appeal was prepared to accept the view prevalentin the English cases that there will be situations where the defects in questioncannot be categorised as a temporary disconformity; but equally important is thefact that they regarded the defects in the case before them as precisely that:It does not seem to us that the High Court Judge was denying the possibilitythat it might have been an essential breach to leave the building in an unsafecondition at the end of construction. The fact that the buildings defects in thatregard could be remedied and that it could be completed for such a relativelysmall sum (even by the values of 1981) rather speaks for itself. It may be

that in another case it could be shown that a failure to meet such a structuralsafety requirement during construction could give rise to a right of cancellationon the part of the owner. It was held not to be so in this case and, we think,understandably so.


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The Courts signicant conclusion was that this decision was not in disharmonywith the so-called temporary disconformity theory.

The second instructive overseas application is provided by the decision of theHong Kong High Court19 inEu Asia Engineering Ltd vWing Hong Contractors Ltd 20.

This was a dispute between a main contractor and a subcontractor concerning

defects in concrete work, principally honeycombing in the ooring and bulgingat the joints. Kaplan J, faced with a citation of the Diplock formulation fromKaye v Hosier & Dickinson , found the case to be a straightforward applicationof temporary disconformity: Honeycombing is a frequent occurrence. I acceptthat it has to be put right. It has to be put right before nishes are applied tothe walls. I am quite satised that if there was any honeycombing, Eu Asiawould have made it good in the normal course of the work. To suggest that itcould give rise either to termination or to an allegation that it prevented a oorfrom being completed is quite unreal. Kaplan J actually applied the Diplockformulation expressly to the matter of bulging at the concrete joints: Suchdefects are commonplace and will in the normal course of events be remediedbefore nishes are applied. In my judgment, these defects come within LordDiplocks above observations.

The position now and looking forward

The starting point for any principle of temporary disconformity is that itcannot be viewed in isolation from the remedy sought and the provisions ofthe contract.

Pressure comes from the requirement, in certain circumstances, of a remedyprior to completion. As the BLR Editors, put it21 in their commentary on theGuinness case, the owner has need of some immediate rights it is unlikelyto be the common law, or business sense that in such cases the employer hasto await practical completion before the usual remedies for breach of contractare available to him.

The owner will, under any normal contractual arrangement, have two mainremedies i) to terminate the contract for contractor breach and ii) to recoverrectication costs for breach by the contractor of an express obligation to rectifythe work during the construction period.

The question then arises as to what defects will i) give rise to the right totermination of the contract during the construction period or ii) entitle theemployer to instruct the contractor to rectify a defect and recover recticationcosts if this is not done.

While i) and ii) are different in one key respect, namely, that usually only a veryserious breach would give rise to an entitlement to terminate, the criterion forthe availability of remedies isremediability .

The authors argue that this is the key to an understanding of temporarydisconformity and to an approach which both works and is consistent withjudicial pronouncements.

The starting point is the words of Lord Diplock himself:

Provided that the contractor puts it right timeously I do not think that the parties

intended that any temporary disconformity should of itself amount to a breach ofcontract by the contractor (emphasis supplied).

The clear implication was that if the defect could not be put right timeously bythe contractor it could, of itself, amount to breach of contract. This principle washelpfully developed inEu Asia and in Adkin v Brown .

InEu Asia , Kaplan J thought that defects which in the normal course of eventswould be remedied by the contractor before completion would fall within thescope of a temporary disconformity. It would follow in such a case that theemployer would not be entitled to terminate.

Similarly, inAdkin v Brown the court referred expressly to the issue as towhether the defects could be remedied (and, if so, at what cost) in the context ofa purported termination.

In bothEu Asia and Adkin v Brown , it was held that the defects were remediableand so should be classied as temporary disconformities. There is nothing ineither case to suggest that irremediable defects should be treated as temporarydisconformities, indeed, the New Zealand Court of Appeal expressly referred todefects which wouldnot be treated in this way.

Irremediability could derive from two basic sources. Either the nature of thedefect itself is such that the contractor cannot rectify it at all or in time, or thedefects, while not necessarily individually of great signicance are too numerous

to be remedied in time. In either case, an irremediable defect cannot be coveredby the temporary disconformity theory. The disconformity is not temporary; itwill remain at the time of completion come what may. The breach then takesplace at the point in the project where this state of affairs occurs and not atcompletion, as would otherwise be the case.

The effects can be tested by reference to the Scenarios put forward in the earlypart of this paper.


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Scenario A. The painter interrupted.If the painter is interrupted after ten days of a six week contract, with onlytwo coats of paint applied, there is no breach of contract at all. The work isincomplete and this state of affairs is remediable in that it can and ordinarilywill still be completed in time. It may be observed that it is most unlikely onthese facts that the painting contractor is in breach of the carrying out limb ofthe dual obligation either.

But if the facts of Scenario A are changed, so that after ve weeks and vedays of a six week contract only two coats have been applied, the contractoris already in breach at that point. Since the specication calls for 24 hours ofdrying and preparation time between coats, the position is irremediable.

Scenario B. The unskilled workforce.If the contractor can and normally would make good the defective workmanshipof his employees during the remaining four months of the six month contract,the inconsistent application of the sealant and the uneven tiling should beregarded as temporary disconformities. Although incomplete work and defectiveworkmanship as represented by Scenarios A and B are qualitatively different22,given remediability in each case the outcome is the same: no breach.When a time is reached at which the defects cannot be remedied beforecompletion, a breach of contract occurs at that point, even though completionhas not yet been reached. Again, the disconformity is not temporary because ofits irremediability.

Scenario C. The design ignored.The contractor in Scenario C has constructed defective foundations by ignoringthe design. The temporary disconformity principle does not apply to thissituation. The defect is not of a kind which is normally remedied as a matter ofcourse during the project. Even if it were technically possible to demolish thehalf-built structure and start again with a chance of nishing within the timefor completion, this is not the subject of routine remediation. The contractor

has taken a wholly wrong track and is in breach at that point, almost certainlyentitling the employer to terminate immediately. This view derives from thecriterion of remediability, but is also supported by the authority of theSurrey Heath case.

Conclusion

Temporary disconformity does have a role to play in English law, although itcannot be as wide a principle as was unsuccessfully contended for by counselin Lintest and in Guinness . The authorities, including Lord Diplocks speech, canbe reconciled so as to make sense. The importance of the remediability conceptcan be seen from the overseas authorities. The application of the concept to the

Scenarios illustrates that it is practical and realistic.

Appropriate contract drafting will always be crucial in protection of the partiesrights and remedies. However, it is not the owners sole protection.

In certain circumstances, the owner can have a remedy without waiting forcompletion. But the contractor will also be protected in its right to correctroutine defects or incompleteness without liability to pre-completion remedies.

The temporary disconformity principle as it appears to the authors is capableof affording these protections to the respective parties. It will be for a futureEnglish appellate court to decide whether it should do so.


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Endnotes

1 We refer throughout to contractors and owners for the sake of simplicity, although the same situation arises as between contractor and sub-contractor.

2 The authors are grateful to all contributors and to Chairman Dr. Robert Gaitskell QC for a most stimulating and useful question session.

3 [1972] 1 WLR 146.

4 At p. 165.

5 [1980] 13 BLR 38.

6 Hudsons Building and Engineering Contracts (11th ed) by Ian Duncan Wallace QC, Sweet and Maxwell, London, 1995.

7 At p.44.

8 At p.700.

9 [1980] 16 BLR 22.

10 [1995] 76 BLR at p.46.

11 [1990] 6 Con LJ 319.

12 At p.44.

13 [1995] 76 BLR 49.

14 [2000] Times Law Reports 26 July. The authors are grateful for having this case drawn to their attention subsequent to their presentation.

15 [1971] 18 BLR 157.

16 [1988] 42 BLR 25.

17 [2002] NZCA 59.

18 Blanchard J delivered the sole judgement.

19 Upheld on appeal by the Hong Kong Court of Appeal (CA No 29 of 1992) Unreported.

20 [1990] Unreported, noted in Hong Kong Construction Law by JA McInnis, 1996, Butterworths, Hong Kong. p. 203.

21

[1995] 76 BLR at p. 46.22 In the question and answer session, at the oral presentation of this paper, it was suggested that they are the same in any event. We see a signicant difference.

An architect or engineer can instruct the correction of defective work, but cannot, (unless he has a power to order acceleration), compel the contractor to get onwith incomplete work, while there is still time to complete it.


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