Legal Issues

Elective Module

Peter Fenn

MACE

PO Box 88

Manchester

M60 1QD

Tel 01613064233

Email: peter.fenn@manchester.ac.uk

1

Legal Issues

Table Of Contents And Workbook Outline

How To Use This Workbook

1. Introduction to the law

2. Contract

3. Tort

4. The Concepts of Standard Forms of Contract

5. The Key Areas Of Standard Forms; the Role of Management in Standard Forms

6. Health and Safety

7. Risk

8. Conflict Theory

9. Comparison Of Dispute Resolution Techniques

10. Negotiation

11. Mediation Principles; The Mediation Process

References And Bibliography

2

How to Use this Workbook

This workbook has been specially designed and written for the elective module in Legal

Issues. It will help you to plan your study and to work systematically through the course. You

should use this workbook as the basis of your studies. The workbook is just part of the

material which is provided at the Blackboard Virtual Learning Environment [VLE]. There

are 4 main teaching documents:

Uff, J. (2013), Construction Law, 11th Edition, Sweet and Maxwell *** eBook***

https://www.dawsonera.com/abstract/9780414028210 This Workbook [ available at any time as an ebook and on Blackboard]

The Learning Modules [available ONLY at Blackboard]

The Lecture Slides [copied by me and provided to each student; and available at any time on

Blackboard]

In addition I expect that you will do some reading. Uff, J. (2013), Construction Law, l is

very important and the workbook will refer to it repeatedly. NB the 11th

edition has been

published but be careful my references might be to the 9th

edition; there might be some

differences on page numbers between editions.

Content

The workbook is divided into sections that reflect the syllabus. Each section begins with an

introduction, which briefly explains the topic to be studied and may suggest areas to be

focused upon. This is followed by a list of objectives that should be achieved after studying

the section.

The substantive part of the text must be read very carefully and you must ensure that you

understand the concepts before moving on to the next section. It is important that you are sure

that you have achieved the objectives identified at the beginning of the section.

Writing an answer

It is important to understand how to write an answer to a question. When answering an essay

style question, you should try to structure your answer: start; middle and end is always a

good structure. Start your answer with a short introductory paragraph outlining your

treatment of the topic; set the stage for the text which follows. In the middle deal with the

substantive issues; what are they? At the end make sure you have answered the question; and

reach conclusions based on your text in the middle. Questions have a command work e.g.

discuss – this requires at least two viewpoints or opposing theories; make sure you deal with

the command word..

Having determined the issues in a problem (and remember there may be more than one issue

in a question) you may have to state the law that applies to the particular issue. In Mediation

this is less likely than other areas e.g. arbitration where a statute applies. If the law is from a

statute, you will need to state which Act and which section applies. So, for example, s 11 of

the Unfair Contract Terms Act 1977. It is not necessary to memorise s 11, but you should be

able to state the effect of the section. Having done so you must then show how it relates to the

problem you are dealing with and try to come to a conclusion on that issue. Sometimes it will

not be possible to arrive at a firm decision, normally because the question does not give you

3

all the facts. It is permissible to say that a particular conclusion is more or less likely in the

circumstances. It is also permissible to give one or two possibilities, but you must be careful

not to lose sight of the rest of the question.

The relevant law may also be found in the decision of a case; again less likely in Mediation

but needs to carefully monitored. You will need to state the name of the case and the principle

it provides. When stating the name it is not necessary to put down the entire citation just the

name of the case is sufficient: for example, Donoghue v Stevenson. Should you be unable to

remember the entire case name, simply 'the Donoghue Case' will suffice. When you cannot

remember either part of the name, but remember some salient facts, which will identify the

case, you may state those facts very briefly. For example, in relation to the above, you may

say, 'in the case of the snail in the ginger beer bottle'. Do not panic if you do not remember the

case name, it is more important to state the principle involved. Try to remember the most

important cases in each topic, rather than all the case names in the list. Many of the cases

merely illustrate a point, rather than create new law. These illustrative cases will help you to

understand how the courts apply already established principles of law.

I hope that you will find this course stimulating and challenging. It is hoped that when you

have completed the course you will have a sound appreciation of the basic principles of how

legal issues affect Engineers and Engineering.

Please note: Engineering projects operate within legal frameworks and jurisdictions; this

module describes the legal frameworks under generic headings and also provides some

analysis of the jurisdiction in England and Wales. Many countries share similarities with the

law of England and Wales, but many do not. It may be that the country in which you are

studying or working has a different legal system or that a particular area of the law is

different; you should always consider the effect of jurisdiction. The course you are following

attracts students of many disciplines [civil, mechanical and aerospace] and from many

nations and it would be impossible to consider all the aspects of law in the UK let alone in

each country and for each discipline

Good luck with your studies!

4

1. Introduction to law

This section deals with an introduction to, or of , the law. You are asked to do several things:

complete the Blackboard section [including some short discussion exercises]; read the

workbook; read some material from books in the library and visit some websites.

5

Section Aim and Objectives

The section might be described via an overall aim and measurable objectives.

Aim: To consider the relevance of the law, to engineers, projects and other professionals.

Within the overall aim the following measurable objectives are set

The student will be able to:

Explain the relevance of the law to projects and professionals

Understand the complex nature of the law

Describe the stratification of English Law

Distinguish between Criminal and Civil Law

Explain the structure of the courts in England and Wales

o in particular the Technology and Construction Court

1.1. Introduction to the Law

The law is far too complex and contains far too great a variety of kinds of legal rules for it to

be reduced to a single proposition e.g. laws are commands.

1. Historical background

How then do I introduce law to engineers? One technique might be to provide an historical

background. But this is too complicated for a simple treatment; a specialist branch of both the

law and history exists. Combined the expertise rests in legal historians. You might try

anyone of several excellent texts; my favourite [or more truthfully the one I have read]:

An Introduction to Legal History, J H Baker

More realistically English Law Smith and Keenan tell us that the present legal system began,

for all practical purposes, in the reign of Henry II.

2. Read the literature

Another technique might be to require you to read text and then answer questions; in the

traditional university sense this would take the form of books held in the library. I have made

arrangements for multiple copies of an excellent book to be held in the library; you must go

there and read chapter 1.

Harris, P. (2007), An Introduction to Law 7th

Edition, Cambridge University Press

Exercise: write short notes [<100 words]

Discuss: The law as a system of rules [see http://en.wikipedia.org/wiki/Law]

Distinguish between legal rules and moral rules and explain why people obey rules

6

Max Weber ,seen by many as the founder of sociology, wrote extensively on the law. Weber

examined the question of authority and proposed three types of authority1

1. The authority of the leader may be the result of personal characteristics or traits of the

leader: his or her charisma.

2. Obedience to the leader is sustained because it is traditional.

3. The authority of the leader or regime is legitimised through rules and procedures.

Bureaucratic [rational legal]

Sources of Authority

Charismatic Authority

Traditional Authority

Bureaucratic Authority

3. Reductionism

A third technique is to try to break things down into valid representative sections and deal

with the overall issue that way. I want to make a distinction between criminal and civil law

and then to study [mostly] civil wrongs; there is one area of law which has great implications

for engineers and involves criminal law, but mostly we are going to study civil wrongs. The

area which involves criminal law, is Health and Safety.

Non lawyers often make the mistake of assuming all law is criminal law. I don’t know why

this; maybe because all the law we see on TV is criminal law. In fact the law is divided into

two great branches: criminal and civil. To further confuse things; “Civil Law” means several

things: not criminal [and this is what we are concerned with]; the law of a state; Roman Law.

England and Wales are common law countries; many other countries use the common law

system e.g. USA; many others do not and have a codified law sometimes based on Roman

Law e.g. France. France is a civil law country or jurisdiction.

The distinction between a crime and a civil wrong is not in the nature of the wrongful act but

in the legal consequences that flow from the act. If the wrongful act [or the omission to do

something] is capable of being followed by criminal proceedings then it is a crime. If it is

capable of being followed by civil proceedings then it is a civil wrong. If it is capable of

being followed by both civil and criminal proceedings then it is both a crime and a civil

wrong. Criminal and civil proceedings are easily distinguishable: the procedure is different

and the outcome is different. One useful difference is the standard of proof [wiki

http://en.wikipedia.org/wiki/Burden_of_proof] in criminal proceedings the standard is beyond

a reasonable doubt in civil proceedings the standard is the balance of probabilities. So in

civil proceedings to prevail the party bringing the action merely has to demonstrate on the

evidence that they are right on the balance of probabilities i.e. 51 plays 49.

Philosophy

Plato recorded the trial, condemnation and execution of Socrates in a series of dialogues,

Socrates himself left no written work.

1 Law in Economy and Society, Max Weber

7

In the dialogue with Crito; after Socrate’s trial a group of his friends, led by Crito, devised a

plan for Socrates to escape, and avoid execution, but Socrates would not join in the plan. He

argued that: life was only worth living and striving for if it was a good life. A good life meant

obedience to the laws of Athens. Even if he had been wronged, and he had; he could not

reply with a wrong. He had been condemned by due process and he must remain obedient to

the laws.

Socrates dreamt of the laws of Athens addressing him and concludes: the Laws are more

honorable than one's parents, for they too beget, educate, and nurture their citizens. He has

no choice but to obey the law. You might think about this when you think about why people

obey laws

Nature of law

Read Chapter 1 of Uff, J. (2002), Construction Law, 9th

Edition, Sweet and Maxwell.

He tells that English law is stratified in a number of ways.

Exercise: Distinguish between Criminal and Civil Law?

Exercise: Describe how the law differs from technology

The courts in England and Wales

Visit the courts service to see the structure of the courts

http://www.hmcourts-service.gov.uk/aboutus/structure/index.htm

in particular the Technology and Construction Court

http://www.hmcourts-service.gov.uk/infoabout/tcc/index.htm

Describe the matters which are generally brought before the Technology and Construction

Court

8

Self-Appraisal Questions

1) Am I able to demonstrate that I can now meet the objectives set out at the start of this

section

Looking at my responses to the exercises, can I:

2) Explain the relevance of the law to projects and professionals

3) Understand the complex nature of the law

4) Describe the stratification of English Law

5) Distinguish between Criminal and Civil Law

6) Explain the structure of the courts in England and Wales

i) in particular the Technology and Construction Court

Readings and other resources

http://www.out-law.com/ is a useful first stop and you should visit. OUT-LAW has 7,000

pages of free legal news and guidance.

http://www.accesstolaw.com/site/default.asp?s=79 identifies many other useful urls

9

2. Contract

Introduction

This section deals with an introduction to the law of contract. You are asked to do several

things: complete the Blackboard section [including brief exercises]; read the workbook; read

some material from the book which supports this section and visit some websites.

There is excellent material in the textbook which supports this section: Uff, J. , Construction

Law,. You should read pages 154-248 which describe general principles of contracts in

conjunction with this section. The intention here is not to repeat the material in the textbook

but to provide some additional material; and sometimes an alternative analysis.

Contracts are an essential part of every engineering project; a plethora of contractual

arrangements exist: between main contractor and sub-contractor; between client and main

contractor and between suppliers and contractors. It is essential that engineering professionals

understand the principles behind these contracts. However please note: Engineering projects

operate within legal frameworks and jurisdictions; this module describes the legal frameworks

under generic headings and also provides some analysis of the jurisdiction in England and

Wales. Many countries share similarities with law of England and Wales, but many do not.

It may be that the country in which you are studying has a different legal system or that a

particular area of the law is different; you should always consider the effect of jurisdiction.

This section provides an analysis of the way in which contracts can be formed; how they

might be vitiated; how they can be discharged and what the implications of a breach might be.

The course you are following attracts students from many disciplines and from many nations

and it would be impossible to consider all the aspects of all engineering and every engineer in

each country. However the issues facing the parties to engineering contracts are generic; and

by considering certain of these issues in differing countries you will be able to analyse the

effect of risk and contract conditions; no matter what the contract or how the risk is allocated.

10

Section Aim and Objectives

The section might be described via an overall aim and measurable objectives.

To consider the law of contract and its relevance to engineering projects and engineering

professionals.

Within the overall aim the following measurable objectives are set

The student will be able to:

Explain the essential requirements for a binding contract

Discuss the factors which vitiate the formation of a contract

Identify the ways in which contract may be discharged:

o by performance

o frustration

o breach

Discuss the common remedies available in the event of breach of contract

o termination

o damages

11

INTRODUCTION

The law of contract is concerned with the rights and obligations governing persons who have

entered into a consensual relationship. The subject is vast, with many highly sophisticated, but

often bewildering rules.

Case Law via the citation of authorities is given to illustrate where a principle has been

applied by the courts, and as a useful reference point, not to burden the student with the task

of reading the cases.

Contracts can be defined in many ways; two definitions are based on:

Promise

Agreement

A promise based definition is:

Contract; a promise or set of promises which the law will enforce

The promise-based definition of contract focuses on the individual promises undertaken by

the parties and the reason to hold the parties to those promises to the contract (using the

doctrine of consideration).

An agreement-based definition is:

Contract; an agreement giving rise to obligations which are enforced or recognised

by law

The agreement-based definition concentrates on the entire package of obligations and rights

that parties are understood to have agreed as governing the relationship between themselves.

Modern practice amongst lawyers as well as businessmen is to talk of contracts as agreements

rather than promises.

In England and Wales, people are given considerable freedom to make legally enforceable

agreements (or to refrain from making agreements). People can make contracts about almost

anything, provided: they are capable of entering into a contract and do not agree to anything

which is either illegal or contrary to public policy or is simply impossible.

12

THE ESSENTIAL REQUIREMENTS FOR A CONTRACT

This section considers:

The essential requirements for a binding contract

The nature of an offer

The distinction between offer and invitation to treat

When an offer can be terminated

The mechanisms for creating a contract

2.1. Contract Formation

Contracts can generally be made informally (there are some exceptions) and an oral contract

is as good as a written one, parties’ conduct itself can give rise to a contract. The lack of

writing may cause problems in proving a contract exists. To avoid such problems, either party

may stipulate that any agreement must be in writing, such a stipulation will generally be

effective.

Some types of contract, including contracts for the transfer of interests in land, contracts of

guarantee, consumer credit agreements and arbitration agreements, are required by statute to

be in writing, or be evidenced in writing and/or require the signature of the person to be

bound.

There are various classifications of contracts. Bilateral and unilateral contracts, executory or

executed contracts.

Bilateral contracts contain obligations on both parties, for instance, in a contract for the sale of

a car for an amount the buyer is obliged to pay the price to the seller and the seller is obliged

to deliver the car to the buyer.

Unilateral contracts contain obligations on only one party, for instance, a contract for

rewarding a person who finds a lost pet, the finder is not obliged to find the pet but if he does

the owner is obliged to pay the reward. These are sometimes called “if” contracts.

Contracts may be executory or executed. In executory contracts there are obligations to be

performed under the contract, in executed contracts the obligations have already been

performed but there may be continuing secondary obligations: for instance upon the sale of a

car there will be a promise that the car is of satisfactory quality.

2.2. Essential Requirements For A Binding Contract (Legal Requirements For A

Contract)

There are three essential requirements for a legally enforceable contract.

the parties must intend to create a legal relationship between themselves.

the parties must have reached an agreement in the eyes of the law (in

accordance with the rules of offer and acceptance).

13

there must be “consideration” for the agreement (unless the agreement is made

by Deed).

Each of those requirements needs to be examined carefully because there are some detailed

technical rules in respect of those requirements. Before embarking upon that exercise it is

useful to consider the practical significance of these rules. In practice one of the most

common disputes, particularly in the construction industry is the basic question whether a

contract exists between the parties. Usually in such situations, one or other party is trying to

assert that there is or is not a contract, in order to secure a benefit or avoid a liability. This is

well illustrated by the case: British Steel Corp v Cleveland Bridge [1984] 1 All ER 504. In

that case the Defendants were contractors for a building in Dammam, Saudi Arabia, which

was to have a steel space-frame roof. They contacted the Plaintiffs to supply some special

cast steel nodes for the roof and issued a letter of intent. As the work was urgent, the

Plaintiffs started immediately and in fact completed and delivered all 137 nodes while

arguments over price and other terms were still unresolved. The Defendants had paid

nothing, so Plaintiffs sued for payment. Defendants responded by counterclaiming for loss,

which they alleged they had suffered as a result of late delivery of the nodes and delivery out

of sequence. The Court held that there was no concluded contract, since there was still

disagreement on the essential terms. (However Plaintiffs were entitled to payment of

£200,000 for work done, but that was on a restitutionary or quasi-contractual basis.)

Defendants counterclaim for £800,000 for late delivery and delivery out of sequence could

only succeed on the basis of breach of contract and, as there was no concluded contract, the

counterclaim failed.

2.3. Intention to create legal relations

The law accepts that certain types of agreement are not intended to be legally binding. For the

most social and domestic arrangements fall into this category. A friend’s promise to buy the

next round of drinks is not intended to end up in Court when he fails to do so. A “car pool”

between various parents taking their children to school is not intended to be legally binding.

Such obligations are moral or honourable only. This is not to say however that families cannot

enter into arrangements but that there is a presumption that the agreement is not to have legal

force.

In commercial relationships the presumption goes the other way so that the courts have shown

reluctance to accept arguments that there is no such intention in the absence of clear

statements to the contrary, for instance by stating that the agreement was “an honourable

pledge” not a legal agreement.

The most common and effective phrase is “subject to contract”. These words in a preliminary

offer or acceptance show a lack of intention to create legal relations: Fraser Williams v

Prudential Holborn (1993) 64 BLR 1. The heading ‘letter of intent’, on the other hand, does

not necessarily carry such a connotation and it will depend upon the precise terms of such a

letter.

The courts normally approach the questions of the parties’ intention to create legal relations

by applying an objective test which has been explained in Chitty on Contracts 27th

Edition

(1994) paragraph 2-001 at pp89-90.: “Once the parties have to all outward appearances

14

agreed in the same terms on the same subject matter then neither can generally rely on some

unexpressed qualification or reservation to show that he had not in fact agreed to the terms to

which he had appeared to agree. Such subjective reservations of one party therefore do not

prevent the formation of a contract.”

2.4. Agreement in the eyes of the law

The parties must have reached agreement or consensus ad idem (“a meeting of minds”).

Caution is required with this expression because it is not necessary for the parties actually to

have reached agreement in fact. The courts are not concerned to investigate what the parties

actually intended or what was in their minds (because it is impossible to judge such a thing

accurately). Instead the courts judge from an objective approach whether there was a

manifestation of agreement by what the parties have said, written and done. It is perfectly

possible that judged objectively, parties who did not intend to agree at all or did not think that

they had agreed, seem objectively to have made a contract and they will in law be stuck with

it. On the other hand there may be parties who consider that they did agree and had made a

contract but objectively viewed in law they have not. More common is the situation where

one party thinks there is a contract and the other does not consider that there is. Because this

causes difficulties, the Courts are astute to make sure that contracts are not “imposed” upon

parties unless they meet very stringent objective criteria.

For an agreement in the eyes of the law there must be from an objective standpoint consensus

on all the essential terms and conditions of the agreement. It is important that those terms are

certain and not vague. So if there is agreement on a number of points but other important ones

have not been objectively agreed, the court will say there was no contract.

In practice the courts will judge whether there is agreement which is sufficiently certain on all

the essential terms by a well established conventional analysis. This involves looking for an

‘offer’ and an unqualified ‘acceptance’ of that offer.

Sometimes that conventional analysis is difficult to operate in practice particularly in the

construction industry and an alternative (more flexible) approach is needed. If this approach

is to be adopted (and there is no guarantee that the court always will) the court will still look

very carefully to see that there is agreement on all the essential terms and that those terms are

certain. This means that even if the parties’ negotiations are ongoing or left unresolved despite

the work being performed there is a big risk that the court will hold there was no contract at

all.

2.5. The conventional analysis: Offer and Acceptance

An offer is an expression of willingness to be bound in contract as soon as the offer is

accepted. An offer can be made by words or conduct but in order to be capable of acceptance

an offer must be communicated to the offeree. Whether an offer is made is judged objectively

by what the person has said, written or done.

A distinction is made between an offer and a mere ‘invitation to treat’, which cannot be

directly accepted there and then either because it is uncertain or because it is not directed at

the offeree specifically but to the world at large or because there is no intention to be bound

there and then. For example, most advertisements would be held to be mere invitations to

treat even if they contain expressions such as “amazing offer, not to be missed!” because they

15

address the world at large and because it is not intended that there is a contract with everyone

who responds to such an advertisement. Similarly the prices marked on the goods in a

supermarket are mere invitations to treat - the contract is only concluded at the till when the

customer selects the goods he wishes to buy and offers to buy them at that price:

Pharmaceutical Society v Boots Chemist [1953] 1 QB 401.

In Carlill v Carbolic Smoke Ball Co [1892] 2 QB 484 the Defendant had advertised the

carbolic smoke balls for sale, with an offer to pay £100 to anyone who succumbed to

influenza after using one. The advertisement stated that £1,000 had been deposited with

bankers. The plaintiff, Mrs Carlill, bought and used a smoke ball but caught influenza. She

sued for the £100. It was argued by D that the advertisement was not intended to be taken

seriously, but it was held that the statement concerning the deposit with bankers showed

otherwise and P was entitled to the £100.

This case shows that an offer can sometimes (although not usually) be made to a wide or

indeterminate class of people and that the requirement of notification of acceptance can be

waived by the offeror manifesting such an intention. It is also used as an example of a

‘unilateral’ or ‘if’ contract. The offer was to be accepted by a party using the carbolic smoke

ball in accordance with the instructions.

For the most part, invitations to tender will be simply invitations to treat rather than offers

because there is usually nothing certain that can be accepted and it merely indicates an

intention to consider offers from tenderers. Usually the person who puts in the tender will

make the offer but there are no hard and fast rules and each communication will be carefully

scrutinised.

2.6. Acceptance and Counter-Offers

Because an offer is an expression of willingness to be bound on the terms offered immediately

the offer is accepted it follows that a contract will only be formed if there is unqualified

acceptance of the exact terms proposed by the offeror. A mere acknowledgment of the offer,

or a reply by the offeree that he “intends to place an order” will not amount to acceptance.

If a person to whom the offer is addressed does not accept the exact terms but responds by

introducing a new term, or deleting a term will not have given an ‘acceptance’ in law. Any

introduction of a new term or a change to the terms offered is categorised as a counter-offer.

The effect of a counter-offer in law is to kill off the original offer and it then falls to the

original offeror to communicate his acceptance of the counter-offer, if he is willing, or to

reinstate his original offer. The classic example is Hyde v Wrench (1840) 3 Beav 334, where

the defendant offered to sell property to the plaintiff for £1,000. The plaintiff, in reply,

offered £950, but this was refused by the defendant. The plaintiff then purported to accept the

original offer to sell for £1,000, but it was held that his counter-offer had killed the original

offer, which was therefore no longer open for acceptance. In that case the defendant could

have revived his offer, if he had so wished, to sell at £1,000. Alternatively, he could have

treated the plaintiff’s purported acceptance as an offer to buy at £1,000.

In commercial contracts there is usually a course of negotiations constituting a series of offers

and counter-offers usually on each party’s own standard terms and conditions. It is commonly

thought that he who gets in the ‘last shot’ with his terms and conditions wins. This has come

to be known as the “battle of forms”.

16

Where an offer contains alternatives the offeree must state which alternative he is accepting or

else there is no valid acceptance at all. One further possibility is that an offer to sell, say a car

for £5,000 made by X crosses in the post with an offer by Y to buy the same car for £5,000.

The position is that there are two (identical) offers but no acceptance. The parties do not really

know whether they are in fact agreed, and nor would the objective eye of the law standing in

the position of the parties. Accordingly there is no contract without any further contact

between the parties to signal acceptance of one of the offers.

Letters of intent can be an acceptance of a tender but not necessarily. Careful attention needs

to be paid to the exact wording of the letter. If it contains an indication that the letter is

“subject to contract” or that “ there is no contract until a formal contract document has been

signed by the parties” it is unlikely that there is an acceptance at that stage which matures into

a contract unless the parties subsequently agree to change the subject to contract position.

Sometimes though, a letter of intent will be sufficient to amount to an offer which can be

accepted by the other party acting in reliance on the letter of intent thereby creating a contract

in itself. In Turriff Construction v Regalia Knitting Mills (1971) 9 BLR 20, a letter of intent

was held to be a collateral contract to pay for preliminary work and this has been established

in a number of subsequent cases.

The general rule is that acceptance must be communicated to the offeror to be effective.

There can be no contract if a person writes to accept an offer but forgets to send it to the

offeror. The main reason for this is because it would be unfair to bind the offeror when he is

unaware of it. The objective eye of the law looks for the manifestation of acceptance as it has

been communicated to the offeror: from that point the offeror knows (or ought to know ) that

he has bound himself to a contract. It is crucial that acceptance has been received by the

offeror. Acceptance can be communicated by words or conduct, orally or in writing.

The offer may stipulate how an offer is to be accepted and generally the acceptance must

correspond to the stipulation. So if an offer states that acceptance must be in writing an oral

acceptance is unlikely to be a validly communicated acceptance. However the rather stringent

rule has been approached by the court as a means of discerning the object sought to be

achieved by the offeror so that, for example, an offer which required acceptance “by return of

post” was interpreted to mean the time for acceptance rather than a strict requirement to post a

letter. A telex would have sufficed (or in modern times a fax, telephone or email would have

also been acceptable). However where a bank requires completion of a standard application

form for opening a bank account the object is to have a proper record and it is unlikely a

written letter giving the relevant details would suffice. The general practice of the court is that

where the offeror prescribes a particular mode of acceptance but does not stipulate that only

acceptance in that mode shall be binding, acceptance may be communicated in any other

mode not less advantageous to the offeror. The offeror can always waive the stipulation at his

choice.

Silence is not capable of acceptance because silence does not communicate assent or dissent

(or indeed anything). This can sometimes cause some unfortunate results such as in

Felthouse v Bindley (1862) 11 CB 869, P offered to buy a horse from his nephew for £30 15

shillings adding “If I hear no more about him I shall consider the horse is mine at £30 15

shillings”. The nephew intended to sell the horse to his uncle, but did not do or say anything

before an auctioneer sold it by mistake. The uncle sued the auctioneer for the return of the

17

horse because it belonged to him by the ‘contract’. The court found that there had not been a

valid contract between nephew and uncle. This is a good example of how the law in

approaching agreements objectively will often find against parties who actually intended to

reach agreement and probably thought they had. The law requires an outward manifestation of

the agreement by what the parties do or say.

However, in Re Selectmove [1995] 2 All ER 531, the Court of Appeal noted that all the cases

on this topic concerned an offeror seeking to impose on an offeree a term as to acceptance by

silence. The view was expressed that where there was an express or implied undertaking by

the offeree to speak then, in exceptional circumstances, an offer might be accepted by silence

if he did not speak up to decline the offer.

Generally communication of acceptance must reach the offeror to be effective and it takes

effect when and where it reaches the offeror. There are, however, special rules, particularly

regarding letters (this is called the “postal rule”). Acceptance by letter is generally (but not

always necessarily) effected when and where the letter is posted: Henthorn v Fraser [1892] 2

Ch 27. The reason for this favourable concession is because offerees have done everything in

their control to make sure the letter arrives and can reasonably rely upon the letter duly

arriving in the post. But the rule does not apply if, for example, the letter is wrongly addressed

and goes astray as a result, or is handed to the postman instead of being put in an official post

box: re London & Northern Bank [1900] 1 Ch 221. Nor in certain circumstances would it be

reasonable to apply the postal rule where the offeree knew that the postal service is disrupted:

Bal v Van Staden [1902] T.S. 128. It has been said that the postal rule will not be applied

where it would lead to “manifest inconvenience and absurdity”.

Telex acceptance takes effect when it received (where it appears on the offeror’s machine) at

least, if during normal office hours: Brinkibon v Stalag Stahl [1983] 2 AC 34. It is likely that

the court would apply the same rule in respect of e-mails and faxes because unlike posting,

the offeree will know pretty much instantaneously that the communication was not effective

and can try again to communicate. A telephone acceptance is effective when and where it is

heard by the offeror: Gill & Duffus Landauer Ltd v London Export Corp [1982] 2 Lloyd’s

Rep 627.

2.7. Termination of Offer

The general rule is that the offeror can revoke an offer at any time before it is accepted. The

rule applies even though the offeror has promised to keep the offer open for a certain time,

unless the promise to hold the offer open is, itself, not supported by consideration. If the

promise to hold the offer open is supported by consideration (or made under deed), then that

is itself a contract, and withdrawal of the offer would be a breach of that contract. In the

construction field, to overcome the problem, tenderers may be required to submit a ‘bid bond’

to be forfeited if the tenderer withdraws his offer before the stipulated date.

The general rule is that revocation of an offer must be communicated to the offeree to be

effective. The postal rule does not apply to revocation of offers. So if an offer is withdrawn

by a letter which is posted at a time when an acceptance has been sent in the post the offer

cannot be withdrawn because there is already a contract. It is not sufficient for the offeror just

to act inconsistently with the offer, e.g. selling the goods to another person. It is sufficient,

however, if the offeree learns of the inconsistent act through a third party before attempting to

accept: Dickinson v Dodds (1876) 2 Ch D 463.

18

An offer may cease to exist by the lapse of time. Thus, in Ramsgate Victoria Hotel Co v

Montefiore Same (1866) LR 1 Exch 109, it was held that persons who applied for shares were

not bound to take up the shares when the allotment was not made within a reasonable time.

What is a reasonable time in any particular context depends on the facts, for example, the

perishable nature of the goods, or the fluctuations of price in the particular commodity.

2.8. A commercial analysis of agreement (looking at the negotiations as a whole)

The conventional analysis of offer and acceptance seems somewhat artificial to commerce.

The practicalities of modern commerce mean that protracted negotiations take place during

which certain terms are taken as read and other terms will be thrashed out on an ongoing

basis. Sometimes there will be only be a sticking point over one or two terms. The reaching of

an agreement is an evolving process. The terms which have been agreed will usually be found

in various minutes of meetings, letters and heads of agreement and once agreed probably will

not be mentioned again. Such cases do not neatly fit in with the conventional analysis. To

make matters more complicated it is common in the construction industry to get on with the

work even whilst some of the terms contract are thrashed out. For the most part a standard

form of contract will be used which everyone will be broadly familiar with and it is only a

few particular items that need to be agreed and the practical approach is not to let these items

prevent performance of the work to be done under the ‘contract’.

The courts are not consistent in their approach but seem to adopt two guiding principles

which allows a degree of flexibility according to the merits of the case.

The principle that the courts will not make an agreement for the parties.

Alternatively the courts will try to give meaning to the performance of the parties by

holding that there was a contract if they find the parties intended to be bound provided

there is sufficient certainty of all the essential terms.

In some cases, such as British Steel v Cleveland Bridge, described above, the courts appear to

start from an open-minded position as to whether a contract exists. A useful judicial summary

of this approach is provided by HHJ Fox-Andrews in Arbiter Investments Limited v Wiltshier

London Limited (1987) 7 Const LJ 49. If no contract exists and the work has been done the

contractor will get paid on a quantum meruit. It may be that a contractor will prefer to avoid

the contractual provisions for payment i.e. that a quantum meruit is commercially

advantageous.

In other cases, particularly where work has been performed, the courts appear to start from a

presumption that a contract exists. Agreement was inferred by conduct in Brogden v

Metropolitan Railway Co (1877) 2 App Cas 666. D drew up a contract for the supply of coal.

P filled in the blanks and marked it ‘approved’, but there was no formal execution of the

contract. Both parties acted in accordance with its terms. A dispute arose and P denied there

was a contract. The House of Lords held there was a contract which was complete as soon as

the first load of coals was supplied and invoiced, and the invoice was paid at that price.

For agreement to be inferred from conduct, it would seem the conduct must be referable to

some agreement or draft agreement, which was in existence before the conduct started: Fraser

Williams v Prudential Holborn (above). If conduct is potentially referable to an alleged

contract, but could equally be explained on the basis of some other agreement, assent to the

19

alleged contract will not be implied: The ‘Aramis’ [1989] 1 Lloyd’s Rep 213. Per Bingham

LJ, at p224:

“It must, surely, be necessary to identify conduct referable to the contract contended for or, at

the very least, conduct inconsistent with there being no contract made between the parties to

the effect contended for. Put another way, I think it must be fatal to the implication of a

contract if the parties would or might have acted exactly as they did in the absence of a

contract.”

In the Court of Appeal decision in Percy Trentham v Archital Luxfer (1992) 63 BLR 44, the

defendant, a window works specialist supplier and installer, denied that a binding contract had

been concluded, on the grounds that there were conflicting exchanges in the negotiations.

The Court of Appeal held that, particularly as the transaction had been executed, it was

difficult to submit that the contract was void for vagueness or uncertainty. The sub-contract

came into existence “not simply by an exchange of correspondence but partly by reason of

written exchanges, partly by oral discussions and partly by performance of the transactions”.

This should be contrasted with the decision in Galliard Homes (above), where the parties had

shaken hands on a deal and the work had been performed, but it was held that there was no

contract. In Hillas v Arcos (1932) 147 LT 503, where it had been argued that the contract for

the supply of timber was void for uncertainty despite having been operated for a year, Lord

Thankerton commented, at p513:

“I am affected by the consideration that the contract is a commercial one and that the parties

undoubtedly thought that they had concluded a contract.”

But the fact that the parties thought that they had a contract cannot affect the position in law if

they did not reach agreement on all the essential terms. The issue may arise as to when, or

whether, agreement has been reached on essential matters, and this may depend on which

matters are to be regarded as ‘essential’. In Pagnan SpA v Feed Products [1987] 2 Lloyd’s

Rep 601, the intending sellers of a quantity of corn gluten pellets subsequently contended that

a contract negotiated through an intermediary had not been concluded, on the grounds that a

number of matters had not been agreed at the time and negotiations were continuing.

Bingham J held that a contract had been concluded because agreement had reached on all

matters which the parties themselves regarded as essential. The outstanding matters were

regarded by the parties as relatively minor details which could be sorted out once a bargain

had been struck.

It may be that the work is completed before the contract document is completed. In such a

situation the court will look to see whether the contract expressly or by implication has

retrospective effect in respect of work done or goods supplied before the contract was actually

made: Trollope & Colls Ltd v Atomic Power Construction Ltd [1963] 1 W.L.R. 333.

2.9. Subsequent Words or Conduct

Subsequent exchanges, whether words or conduct, will not affect a bargain unless they

amount to a further contract to vary the concluded contract. Once it is shown that there is a

complete contract, further negotiations between the parties cannot, without the consent of

both, get rid of the contract already arrived at: Perry v Suffields [1916] 2 Ch 187. However,

subsequent agreement on the time or price is, however, regarded as binding and superseding

the implied terms of reasonable time or price because there is in such a situation a general

20

power for the parties to agree as contractually binding minor matters left open when the

contract originally came into existence. Alternatively it can be explained on the basis that

such agreement varies the original terms. In construction contracts upon the standard forms it

is usual for contract machinery to deal with agreement on price and time.

2.10. Agreements to Agree are not contracts

A mere agreement to agree is regarded as uncertain and therefore does not create a binding

contract, in the absence of adequate machinery to resolve any lack of agreement. The court

will not make the agreement. The principle has been upheld by the House of Lords in Walford

v Miles [1992] 2 AC 128, where it was held that a lock-in agreement to negotiate was not

binding although an agreement locking-out agreement with anyone else was capable of

binding if it was supported by consideration.

2.11. Contracts made under seal: Deeds

The significance of the seal has largely disappeared, but the idea of a ‘Deed’ as a formal

document has been retained. The formalities required are now specified in the Law of

Property (Miscellaneous Provisions) Act 1989 and the Companies Act 1985, Section 36A

inserted by the Companies Act 1989, s130. As a matter of history, formal contracts required

an instrument executed ‘under seal’ known as a ‘deed’. The conveyance of interests in land

(as distinct from the contract), must be by deed. Construction contracts are still often

executed as deed mainly to obtain the advantage under the Limitation Act 1980 because a

cause of action for a contract by deed is twelve years, compared to six years under a simple

(or ordinary) contract. Also a contract by deed obviates the need for ‘consideration’.

2.12. Consideration

Apart from contracts executed by Deed, the third requirement for a valid contract is

‘consideration’. Consideration is a doctrine which developed when a contract was seen as a

promise or set of promises and consideration was what made a promise given by the promisor

enforceable by the promisee. A promise or a contractual obligation is only binding or

enforceable by the promisee if it is given for valuable consideration: it embraces the concept

of contract as a bargain whereby something is given in return for something else. This is why

lawyers talk of consideration moving from the promisee: it is because the promisee has

provided consideration that he is allowed to enforce the promise. Consideration can be either

the conferring of a benefit on someone else, or the suffering of a benefit by the person

providing the consideration. The House of Lords in Dunlop v Selfridge [1915] AC 847

defined consideration as:

“An act of forbearance of one party, or the promise thereof is the price for which the promise

of the other is bought, and the promise thus given is enforceable.”

Consideration is usually either money or a promise to pay money, but it can also be some

other benefit to the promisor or detriment to the promisee. For example, in Shanklin Pier v

Detel Products [1951] 2 KB 854, it was held that specification by P of D’s paints which were

to be used by the main contractor was sufficient consideration for D’s promise that the paint

was suitable for purpose. It is possible for the promisee in providing consideration to suffer a

detriment without conferring a benefit on the promisor (or alternatively for the promisee to

confer a benefit on a third party as consideration for the promisor’s promise. Whenever you

21

pay for goods by credit card, the supplier of the goods (as promisee) provides consideration

by handing over the goods to the customer (as a third party) pursuant to a promise by the

credit card issuer (the promisor) to pay the amount charged to the card.

The law is not concerned with the sufficiency or adequacy of consideration. This is because

the Courts will not interfere with the bargain made by the parties, which is part of their

freedom to contract for whatever bargain they choose. See for example Midland Bank & Trust

Co. Ltd v Green [1981] AC 513 where a husband sold a farm worth £40,000 to his wife for

£500. While the courts can and do interfere in special circumstances to prevent

unconscionable dealing and may use a panoply of common law and statutory principles to do

so, in general the Court will not judge whether a party has made a good or bad deal or to

decide questions of commercial acumen. The Court is designed to decide the law and the

market place is the best place to decide a bargain. Because the adequacy of consideration is

not investigated the parties have been permitted to give a nominal consideration such as a

‘peppercorn rent’ in contracts for leases or consideration of £1 which is written into many

forms of collateral warranty. Although nominal, consideration must be real in the sense of

being capable of evaluation in the eyes of the law, there must be some extrinsic value in the

consideration. For this reason natural love and affection is not capable of being consideration

in the eyes of the law.

Another important feature of the doctrine of consideration is that “past consideration is

generally no consideration”. Thus, in Roscorla v Thomas [1842] 3 QB 234, after the sale of a

horse had been concluded, the vendor gave a guarantee that it was ‘free from vice’. It

subsequently proved to be lame. It was held that the guarantee was not binding as the promise

was unsupported by consideration. The price paid for the horse was ‘past consideration’. In

IBA v EMI (1980) 14 BLR 1, the rule was confirmed by the House of Lords in the context of a

letter written after the contract had been entered into, warranting the adequacy of a design.

An exception to the rule on past consideration is that if work is carried out at the request of

the eventual promisor with the expectation by both parties that it will be paid for, agreement

on the amount of payment after the work is completed will be a valid promise: re Casey’s

Patents, Stewart v Casey [1892] 1 Ch 104. If there were no agreement in that situation, the

court would fix the amount on a quantum meruit.

2.13. Vitiating Factors In Contract

The factors which vitiate the formation of a contract are mistake and misrepresentation.

2.14. Mistake

Categories of Mistake

The heading ‘Mistake’ refers to situations where one or both parties to a contract is or are

under a misapprehension of present fact or law at the time of contract. The situations can be

divided for the purposes of legal analysis into two categories:

Unilateral Mistake

Where the mistake is such that the parties are at cross-purposes, or where the mistaken belief

of one party is known to the other party.

22

Common Mistake

Where the parties share the same misapprehension: they are both mistaken about the same

thing. This includes cases where one party knows of the mistake but is unaware of, or does

not consider its significance, as in Bell v Lever Bros. [1932] AC 161, described below.

Lawyers disagree over the terminology. While some call the latter category “common

mistake” others call it “mutual mistake” because the mistaken thing is mutual whereas the

supporters of common mistake terminology use “mutual mistake” to describe a sub-division

of former category where the parties are at cross-purposes, so that they both (mutually) make

a mistake but are mistaken in different ways. To confuse the issue further some textbooks use

the term “mistake” to embrace the equitable remedy of ‘rectification’ of a written contract

where it does not accurately record the agreement of the parties.

The doctrine of mistake is found in both common law and equity. At common law a contract

is void ab initio for mistake (i.e. treated as if never came into existence). In equity, the

contract is voidable (i.e. it is susceptible of being rescinded but exists until it is rescinded).

Unilateral Mistake

Where there is unilateral mistake as to a fundamental assumption on which a contract is

based, the contract may be held void on the ground that there never was true agreement. Such

relief will not lightly be granted. At common law only fundamental mistake is material:

Kennedy v Panama Royal Mail Co (1867) LR 2 QB 580. As regards equitable relief,

Baggalay LJ observed in Tamplin v James (1880) 15 Ch D 215 that:

“Where there has been no misrepresentation and where there is no ambiguity in the terms of

the contract, the defendant cannot be allowed to evade the performance of it by the simple

statement that he has made a mistake. Were such to be the law the performance of a contract

could seldom be enforced upon an unwilling party who was also unscrupulous.”

There are four situations where relief has been granted for mistake.

Cross-purposes as to a material fact

Where the parties have been at cross-purposes as to a material fact, as where the contract

referred to goods on board the “Peerless, ex Bombay” and there were two ships of that name

sailing from Bombay: Raffles v Wichelhaus (1864) 2 H & C 906. It was held that the

defendant was not bound to take delivery of the goods.

Mistake as to the identity

Where there has been a mistake as to the identity of the other party contracting and the first

party did not intend to enter, and would not have entered, into a contract with that person. In

Cundy v Lindsay (1878) 3 App Cas 459, a rogue by the name of Blenkarn ordered goods from

the plaintiffs, writing from an address, 37 Wood Street, Cheapside. There was, in fact, a

respectable firm by the name of Blenkiron, trading at another address in Wood Street.

Blenkarn wrote his name so that it would be read as Blenkiron, and the plaintiffs thought they

were dealing with Blenkiron, although they wrote back to 37 Wood Street. There was no

dispute that the contract with Blenkarn was voidable for fraud, but by the time the plaintiffs

23

discovered the fraud, Blenkarn had sold the goods to the defendants. The plaintiffs sued in

the tort of conversion, and the question was whether title in the goods had passed to Blenkarn

so that he could pass good title to the defendants, or whether the contract been void ab initio

for mistake. The judge at first instance held that the plaintiffs had been willing to trade with

the person at 37 Wood Street, so that the contract was not void ab initio, but this was reversed

on appeal. Both the Court of Appeal and the House of Lords held that the plaintiffs intended

to sell to Blenkiron and the acceptance by Blenkarn was void.

Non est factum

Where a party signing a contract document has been misled as to the nature of the document,

in which case the plea of ‘non est factum’ may apply. This defence is rarely used and almost

never successful particularly now there are few illiterate people: see Gallie v Lee [1971] AC

1004 where it was said by Lord Wilberforce “A man cannot escape from the consequences, as

regards innocent third parties, of signing a document if, being a man of ordinary education

and competence, he chooses to sign it without informing himself of its purport and effect.”.

Recently this statement was approved of in Norwich & Peterborough Building Society v Steed

(No 2) [1993] 1 All ER 330.

Mistake as to terms of the contract

The fourth situation, is where there is a clear mistake by the offeror as to the terms of the

contract, and the mistake is known to the other party when he purports to accept. In Hartog v

Colin and Shields [1939] 3 All ER 566, the defendants contracted to sell to the plaintiff

30,000 Argentine hare skins, but by mistake, they offered to sell them at X pence per pound,

when they intended to sell at X pence per piece, there being approximately three pieces per

pound. The defendants satisfied the judge that “the plaintiff could not reasonably have

supposed that the offer contained the offeror’s real intention” and the judge held that no

binding contract was made by the plaintiff’s acceptance. In the law report an Editorial Note

adds a comment: “An intending purchaser is not permitted to ‘snap up’ an offer which he

knows to have been made under a mistake.”

There is a distinction between the various situations of unilateral mistake, as to the relevant

test applicable. Where the mistake is known to one party, the test is subjective as to the belief

of the mistaken person. When the parties are at cross-purposes, the test is objective - what a

reasonable person would have understood from the agreement as expressed.

Common Mistake

The rules relating to unilateral mistake are essentially extensions of the rules on formation of

contract and the need for agreement. Because of the lack of true agreement, the contract will

be rescinded and it is not difficult to say that the contract never really existed.

Where the parties share a common misapprehension, the position is different as there is

clearly agreement. Nevertheless, in very limited situations the courts may hold that a contract

is rendered void by common mistake: either void ab initio at common law, or voidable in

equity.

It is well established that a contract will be void where the subject matter of the contract has

ceased to exist, unknown to the parties, before the time of contract. Thus, in Couturier v

24

Hastie (1856) 5 HL Cas 673, where a cargo of corn, supposed to be in transit, had already

been sold en route after becoming fermented, the contract was held void.

The principle would apply equally in relation to, say, a contract to refurbish a building where

the building had, unknown to the parties, burnt down before the time of contract. This class

of cases is referred to as “res extincta”. Note that if the property burnt down after the contract

the doctrine of frustration rather than mistake would apply. The law of res extincta is codified

by statute in the Sale of Goods Act 1979, s6 in relation to contracts for the sale of goods.

2.15. Misrepresentation

A misrepresentation is a representation, which is statement of fact (past or present), made by

one party (the representor) to another (the representee) or a statement known by the

representor to have been made, which is false and which induces the representee to enter into

the contract with the representor. In that definition there are four important elements which

must be present a statement of fact (past or present); made by the representor to the

representee or which is known to the representor; which is false; and which induces the

representee to enter into the contract with the representor.

The ways in which contracts may be discharged

2.16. Performance and Discharge

Generally a party is expected to perform exactly what he has undertaken to do. Where the

parties have performed their obligations according to what has been agreed not much needs to

be said. In many construction contracts what has been ultimately performed may be slightly or

substantially different from what was originally envisaged and agreed, although the parties

will usually have operated contractual machinery to achieve the end result satisfactorily.

Where the parties have performed the contract fully the obligations are fully executed. As a

matter of legal technicality it is said that the contract obligations are performed and thereby

discharged but the contract itself remains alive (though dormant) for the purposes of

executory secondary promises (for instance for latent defects, warranties as to quality and

fitness etc).

However there are occasions when performance of a contract is not fully completed . In

certain circumstances it may be terminated or discharged before performance is complete,

whereby the contract does come to an end and does not remain alive. A contract may be

discharged by agreement between the parties either by way of variation, rescission, waiver or

even provision for discharge in the terms of the contract itself. (In fact executory secondary

promises for a contract which has been performed can also be discharged by release or accord

and satisfaction.)

This section does not discuss discharge by agreement but there are two other methods by

which a contract may be discharged which are discussed in the remainder of this section. The

first is discharge by frustration. The second is discharge by breach of contract which is best

described as “termination”. We shall examine discharge by breach as one of the remedies

available in certain circumstances for breach of contract. It should be remembered that

“discharge” or “termination” is different from “rescission” or rendering a contract void. In the

former the contract obligations are stopped at the point of termination or discharge so that no

future performance is necessary, or is excused. In the latter, used in the context of the

25

doctrines of mistake and misrepresentation the contract is treated as if it never came into

existence: the contract is re-wound.

Discharge by Frustration

Frustration does not vitiate a contract in the same way as mistake or misrepresentation. The

latter two doctrines are concerned with matters which affect the basis of entering into a

contract (and may be said to vitiate the underlying notion of consent or agreement).

Frustration is a doctrine by which a contract, properly entered into, can be discharged because

something occurs after formation of the contract which renders it physically or commercially

impossible to fulfil the contract or radically changes the performance obligation from that

agreed in the contract.

Prior to 1863 the doctrine of frustration was unknown to English law. Instead the rule was

that once a party had made a contract he was absolutely bound to perform, even if by accident

or disablement he could no longer perform: failure to perform was a breach for which the

other party had his remedies. The reason for this strict rule was that it was open to the parties

to allocate risk for such events in their contract. (There were exceptions in the case of breach

of promise of marriage, or where performance was made illegal subsequent to the contract,

such as dealing with the enemy in time of war). Then in Taylor v Caldwell (1863) 3 B & S

826 the Court gave birth to the doctrine (although it was not called “frustration” until later

cases). The plaintiffs hired a music hall for concerts for 4 nights. Before the first night the

music hall was destroyed by fire. Although the defendants were not liable for damages it was

held to be an implied condition that the music hall would continue in existence for the

contract to be performed and so the plaintiffs were excused from performance.

The doctrine spread quickly beyond situations where the subject matter of the contract

perished. For example the doctrine applied to the “coronation cases” involving cancellation of

bookings because the coronation of King Edward VII was postponed, such as Krell v Henry

[1903] 2 K.B. 740 where the defendant agreed to hire rooms in Pall Mall to see the coronation

processions and subsequently refused to pay the rent and the Court of Appeal upheld his

refusal to do so because viewing the procession was “the foundation of the contract” (even

though it was proved by parol evidence, there being no mention of it in the written contract).

The doctrine can thus apply to cancellation of events (though note that it does not apply where

the cancellation is by one of the parties). The doctrine also spread to apply to cases where

there have been legislative or other legal changes or the exercise of statutory power. In Bailey

v De Crespigny (1869) L.R 4 Q.B. 180 there was a covenant in a lease that the lessor or his

successors would not build on the land. A subsequent statute allowed the compulsory

purchase of land by railway companies and the land in question was compulsorily purchased

and a station built on the land. The problem was that the lessor would be responsible for the

acts of his “assignee” but it was not contemplated by the contract that he might be responsible

for an assignee’s acts arising out of a having a building on the land: it was a different

obligation and so the contract was frustrated. More difficult are situations where delay is

alleged to have been the frustrating event. In order to succeed on a claim that delay had the

effect of frustrating the contract the Courts insist on abnormal delay that could not be

reasonably contemplated at the time of the contract: see Pioneer Shipping Ltd v B.T.P. Tioxide

Ltd (The Nema) [1982] A.C. 724; Sir Lindsay Parkinson & Co. Ltd v Commissioner of Works

[1949] 2 K.B. 632.

26

Commercial contracts usually attempt to limit the risk of unforeseen events that could

otherwise amount to frustration through “force majeure” clauses which appear in some

standard forms of construction contract. To a large extent this restricts the application of

frustration where the frustrating event is provided for and risk allocated accordingly.

Where a contract is frustrated the parties can where the circumstances permit, re-negotiate to

achieve the ultimate objective. But the courts are wary of permitting the doctrine of frustration

to be used by parties as a means of getting out of a bad bargain and re-negotiating.

Consequences of Frustration

Where a contract is frustrated, the parties are discharged from future performance, but accrued

rights and liabilities stand. At common law, this could work harshly either way, as it

depended whether or not entitlement to payment had accrued. For example, in Appleby v

Myers (1867) LR 2 CP 651, on a contract for the refurbishment of a theatre, the contract was

frustrated when the building burnt down. The contractor was not entitled to any payment,

despite the work having largely been completed, because it was an entire contract so

entitlement to payment did not accrue until it was complete.

The contract may itself provide for payment, etc in the event of frustration, in which case the

common law and statutory rules are overridden and the Law Reform (Frustrated Contracts)

Act 1943 Act insofar as it applies will only apply consistently with those provision: see

Section 2 (3) of the Act.

Breach Of Contract And Remedies

This section considers remedies for breach of contract. Where there has been mistake,

misrepresentation or frustration (which are not categorised as breaches of contract) the

remedies are given above and are not repeated. There are several potential remedies that a

party has against a party who is in breach, depending upon the circumstances, this section will

concentrate on the two most common remedies available in the majority of cases which are:

termination by way of accepting the other party’s repudiatory breach of contract

damages for breach of contract

It is worth mentioning that in addition to these remedies, in certain circumstances, a party can

seek equitable remedy of injunction to restrain a breach of contract (particularly in cases

where copyright or a patent is being infringed or there is a breach of confidentiality) or

specific performance of a contractual obligation but more often than not the Court will hold

that damages are an adequate remedy so that the equitable remedies need not be awarded.

In addition there may be extra-contractual remedies (which apply where there is no contract,

or where the basis of a claim is independent or separate from the contract). The most obvious

of these remedies is payment for work done on a quantum meruit with which the construction

industry is familiar. Sometimes it is more advantageous to argue that there is no contract

because the amount awarded on a quantum meruit can be greater and in addition any right of

set-off under the contract will not apply (because there is no contract). In addition, there are

proprietary claims for instance retention of title to goods in default of payment although these

are often not effective.

27

Termination

Termination of a contract is discharging the parties from further obligation to each other, can

take place in a number of circumstances.

There are a variety of circumstances in which termination of the contract is the appropriate

remedy.

Where the other party shows by words or conduct before or at the time for

performance of his obligations that he does not intend, or is unable, to perform them at

all it is said that he has renounced the contract. If this occurs before the time to start

performance has arrived, it is said to be ‘anticipatory breach’. If it is not plain that he

does not intend to perform all of the obligations but only some, it is not a question of

renunciation although the failure to perform may well constitute repudiation for which

the innocent party may terminate the contract.

Where the parties have agreed, whether by express words or implication of law, that

any failure by one party to perform a particular primary obligation (a condition)

should entitle the other party to regard the contract as discharged, irrespective of the

gravity of the event that has in fact resulted from the breach. This is called ‘breach of

condition’ and is to be distinguished from a breach of warranty (where termination is

not available, only damages

Where the other party fails to perform a primary obligation (an innominate term)

which has the effect of depriving the other party of substantially the whole benefit

which it was the intention of the parties that he should obtain from the contract. This

is sometimes called “fundamental breach”; it is sometimes said that the “breach goes

to the root of the contract” and stems from the Hong Kong Fir Shipping case.

The effects of termination

Where a contract is treated as discharged, the effect is that primary obligations as to future

performance are terminated. A secondary obligation is substituted in their place, by

implication of law, that the party in default should pay monetary compensation to the other

party for the loss sustained by him in consequence of the non-performance of the future

obligations. The secondary obligations substituted by implication of law may be modified by

the contract itself. As regards the primary obligations already performed, any rights and

liabilities which have already accrued (such as instalment payments for work done), are not

affected by the termination.

Damages for breach of contract

The most common remedy for breach of contract is “Damages” which is an award of

monetary compensation to be paid to the plaintiff/claimant by the defendant (or, on a

counterclaim, by the plaintiff/claimant to the defendant), which is enforceable through the

courts in the same way as a judgment order for a debt. An award of damages entails a

decision on the principle of liability together with a decision on the amount or ‘quantum’ of

damages. The process also involves various intervening issues including causation,

remoteness, measure of damages and mitigation.

28

In the construction industry, the use of standard forms will provide contractual machinery for

breach of contract by either the Contractor (via Liquidated and Ascertained Damages) or by

the Employer via the clauses which deal with claims for loss and expense (see for example

clause 26 of JCT80). These would ordinarily give rights to a party to claim damages for

breach of contract. The distinction between payments within the contract, and damages for

breach of contract should be strictly observed. That is not to say that the contractual

machinery precludes the common law remedy of damages: such contractual rights are usually

additional to, not substitutes for the common law remedy of damages: Modern Engineering v

Gilbert-Ash [1974] A.C. 689 (HL). However, it is open to the parties to exclude by contract

terms, the common law remedy but the terms will be very strictly construed by the courts who

will not permit common law rights to be ousted easily.

The basis of assessment of damages for breach of contract was stated by Parke B in Robinson

v Harman (1848) 1 Ex 855:

“Where a party sustains a loss by reason of a breach of contract, he is, so far as money can

do it, to be placed in the same situation as if the contract had been formed.”

This should be contrasted with ‘Damages’ that can be awarded in tort, where the object is to

put the party in the same position as if the tort had not been committed: it is the tort measure

of damages that applies to misrepresentation. This can lead to a different result, although in

some cases, damages in contract may be assessed on a ‘no transaction basis’ with the same

result.

An award of damages is meant to compensate a party for his loss. If there is a breach of

contract which results in no actual loss an award of nominal damages is appropriate rather

than substantial damages. Unlike tort, where damages are an essential element of the cause of

action, in contract a party has a cause of action when there is a breach of contract, and does

not have to show he has suffered a loss although if he wants substantial damages he must

demonstrate his losses otherwise he will only get nominal damages. An employee who,

without good reason, is sacked on the spot and escorted off the premises without being

permitted to work out his notice but in receipt of his wages in lieu of the notice period can

claim breach of contract (wrongful dismissal). However because he has been paid up to the

end of the notice period he has suffered no loss and would not be entitled at common law to

substantial damages but only notional or nominal damages.

Sometimes the person suffering the substantial loss may not be a contracting party who thus

does not have a remedy by way of a claim for breach of contract (a privity problem) whereas

the innocent contracting party who would have such a claim does not suffer any loss. The

general rule is that the contracting party can only recover in a breach of contract claim the loss

that he suffered: he cannot recover losses suffered by someone else who is affected as a result

of that breach of contract.

Causation

The general principle is that a defendant is liable to the plaintiff for loss or damage caused by

his breach of contract. The issue of causation is difficult and the Courts have avoided laying

down any formal tests, preferring the Court’s common sense and the facts to guide them in

deciding whether the defendant’s breach is a sufficiently substantial cause of the claimant’s

29

loss. In practice, a person may suffer loss for a whole host of reasons and it may be that the

defendant’s breach of contract triggers off a chain of events or reasons which result in the

claimant suffering loss. Some of those events may be reasonably unforeseeable at the time of

the contract (or indeed at the time of breach) and the extent and type of loss might not be

reasonably contemplated. Or another way of looking at it is to say that the defendant’s breach

has merely provided the opportunity or occasion for loss to occur as a result of some other

force or event.

Remoteness of damage

Remoteness of damage is a legal test used for deciding which types of loss are recoverable as

the result of a breach of contract which has caused the claimant’s loss. (This must be

distinguished from “measure of damages” or “quantification” which it an assessment of the

amount of damages not the type of loss which is recoverable). There are three landmark cases

which set out the principle and they are discussed below. The combined effect of those cases

the rule is neatly summarised by Chitty, 28th

Edition, para. 27-042, page 1291 as follows:

“A type or kind of loss is not too remote a consequence of a breach of contract if, at the time

of contracting (and on the assumption that the parties actually foresaw the breach in

question) it was within their reasonable contemplation as a not unlikely result of that

breach.”

Note that the test is judged by what the parties could be expected to foresee at the time of

contracting and not at the time of breach.

In Hadley v Baxendale (1854) 9 Exch 341, the plaintiffs were millers at Gloucester. Their

mill shaft broke and they sent it by the defendant, a common carrier, to the makers at

Greenwich to provide a pattern for a replacement. In breach of contract, the defendant

delayed the delivery of the mill shaft and the mill was kept idle longer than necessary. The

plaintiffs sued the defendant carrier for loss of profits they would have made had the mill

started again without the delay. However the defendant was only told “the article to be

carried was the broken shaft of a mill and that the plaintiffs were the millers of the mill”. The

classic statement of the rule on remoteness was made by Alderson B:

“Where two parties have made a contract which one of them has broken, the damages which

the other party ought to receive in respect of such breach of contract should be such as may

fairly and reasonably be considered either arising naturally, i.e. according to the usual

course of things, from such breach of contract itself, or such as may reasonably be supposed

to have been in the contemplation of both parties, at the time they made the contract, as the

probable result of it.”

The two ‘limbs’ of the rule in Hadley v Baxendale are commonly referred to as ‘general’ and

‘special’ damages. General damage is that which arises naturally as a result (e.g. if the roof of

a house caves in the damage which arises naturally is the direct damage to the house and its

contents and the cost of repair/replacement and also the cost to the occupants of the house

whose roof has caved in such as the cost of having to move to temporary accommodation or

eating out because the kitchen is unusable). As for special damage, the plaintiff must prove

that any special damages claimed may reasonably be supposed to have been in the

contemplation of the defendant at the time of contract. If the cabbie in an earlier example had

been told that the businessman had to catch the flight in order to complete a deal which

30

needed his signature by a certain imminent deadline, the businessmen could claim as special

damage the loss of the deal which was reasonably contemplated at the time of contract. It is

special to that contract, but would not ordinarily be so. The rule was amplified by the Court

of Appeal in Victoria Laundry (Windsor) Ltd v Newman Industries [1949] 2 KB 528.

It is important to remember that it is the type of damage which would be in the reasonable

contemplation of the parties at the time of contract, not necessarily the extent of the damages.

Measure or assessment of damages

The normal rule is that damages are assessed from the date of the breach of contract, which is

when the loss is said to arise. The precise measure of damages which apply vary depending

on the type of case. There are particular principles that apply in cases involving sale of goods,

carriage of goods, contracts concerning the sale or lease of land, contracts to pay or lend

money.

So far as construction cases are concerned where there is incomplete or defective

performance, the primary measure of damages is the difference between the defendant’s

performance in its defective state and performance in accordance with the contract: see C.R.

Taylor v Hepworths [1977] 1 W.L.R. 659; Dodd Properties v Canterbury City Council [1980]

1 W.L.R. 433 at 465 C.A; Cory & Son v Wingate Investments (1980) 17 B.L.R. 104 at 121

C.A. An alternative method is to allow the claimant to recover the reasonable cost of

completing or rectifying the work: the cost of making good (particularly when the party in

breach is unable or refusing to perform or sometimes when the innocent party prefers to have

the work done by himself or by someone else). This measure is called the cost of

reinstatement. The date of assessment of repair or completion costs will generally be when it

was reasonable for the plaintiff to have the repairs or work of completion carried out having

regard particularly to the date when the defects were discovered or ought reasonably to have

been discovered.

However the reinstatement measure of damages will not always be appropriate and it will

depend upon the circumstances of the case. The case of Ruxley Electronics and Construction

Ltd v Forsyth (1995) 73 BLR 1 serves as a useful reminder that if the cost of remedying the

defect is disproportionate to the benefit achieved the reinstatement costs will not be allowed.

In that case Mr Forsyth wanted a swimming pool with a deep end depth of 7 feet and 6

inches. The contractors built a pool which was not quite deep enough at 6 feet and 9 inches.

When Mr Forsyth refused to pay off the balance of the account, the contractors sued and Mr

Forsyth counterclaimed for the cost of rebuilding the pool to its proper specification (which

meant ripping out the existing one and starting again). Mr Forsyth’s counterclaim was

dismissed by the judge as disproportionate who awarded him damages instead for the loss of

amenity from a deeper pool. The Court of Appeal allowed Mr Forsyth’s appeal but this was

overturned in the House of Lords who held that reinstatement cost was not the appropriate

measure of damages because it was disproportionate, even though an alternative measure,

being diminution in value would have resulted in nominal damages. Although loss of amenity

in this case was available because this was a contract to provide a pleasurable amenity it

would not be available in a commercial construction context. A suggested answer to a

contractor’s claim for payment of the balance of the account is the defence of abatement

(reduction in the amount payable to take account of defects) but this was not argued in that

case.

31

Mitigation of loss

Recovery of damages, as Lord Haldane explained in the leading case on mitigation, British

Westinghouse v Underground Electric Railways [1912] AC 673, is

“qualified by a second[principle], which imposes on a plaintiff the duty of taking all

reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming

any part of the damage which is due to his neglect to take such steps.”

In that case the railway company had purchased generators from Westinghouse, with a

stipulated efficiency rating. The generators when tested had not yielded the stipulated

efficiency. It might have been open to the railway company to claim as damages the

additional fuel costs incurred, but instead they chose to order substitute generators from the

Bush company. They claimed the cost of the new machines as damages, but the new

machines were in fact much more efficient than the efficiency stipulated in the original

contract, so much so that they provided a saving which was sufficient to cover the cost of the

new machines. The House of Lords held that the plaintiff had to account for the saving

achieved by his steps taken in mitigation, and no damages were recoverable.

The duty to mitigate is subject to limits, that is, to take reasonable steps and the innocent party

is not expected to do anything outside the ordinary course of business. The time when a party

should mitigate is when he knows or ought reasonably to have known that there was a breach

(rather than the damage): see the East Ham Corporation case (above).

If the defendant himself offers an opportunity to mitigate the loss, the courts will consider

whether the offer ought to have been accepted on a test of reasonableness: Payzu v Saunders

[1919] 2 KB 581.

If the innocent party takes reasonable steps to mitigate his loss, then the measure of damages

will be his actual loss. Where he has, by mitigating, reduced the loss to nil, he will recover

nothing (except any costs of taking the mitigating steps). If the party has attempted to

mitigate but in taking reasonable steps his attempt has backfired and actually increased the

loss he will be able to recover the greater loss from the defendant: Wilson v United Counties

Bank [1920] A.C. 102, 125; Quinn v Burch Bros. (Builders) Ltd [1966] Q.B.370.

Self-Appraisal Questions

1) Am I able to demonstrate that I can now meet the objectives set out at the start of this

section

Looking at my responses to the exercises can I:

2) Explain the law of contract and its relevance to engineering projects and engineering

professionals

3) Explain the essential requirements for a binding contract

4) Discuss the factors which vitiate the formation of a contract

5) Identify the ways in which contract may be discharged:

6) by performance

32

7) frustration

8) breach

9) Discuss the common remedies available in the event of breach of contract

a) termination

b) damages

33

3. Tort

Introduction

This section deals with an introduction to the law of tort. You are asked to do several things:

complete the Blackboard section [including brief exercises]; read the workbook; read some

material from the book which supports this section and visit some websites.

There is excellent material in the textbook which supports this section:

Uff, J., Construction Law,

You should read pages 429-462 which describe general principles of tort in conjunction with

this section. The intention here is not to repeat the material in the textbook but to provide

some additional material; and sometimes an alternative analysis

Tort is an essential part of every engineering project; while a plethora of contractual

arrangements exist there are relationships without contract and rights and obligations imposed

by the law. It is essential that engineering professionals understand the principles behind tort.

However you are reminded of the statement in the introduction: Engineering projects operate

within legal frameworks and jurisdictions; this module describes the legal frameworks under

generic headings and also provides some analysis of the jurisdiction in England and Wales.

Many countries share similarities with law of England and Wales, but many do not. It may

be that the country in which you have an interest or are studying has a different legal system

or that a particular area of the law is different; you should always consider the effect of

jurisdiction.

This section provides an analysis of the way in which the law of tort imposes rights and

obligations; the major tort for engineering is negligence which requires that a duty of care

exists; that the duty is breached and that damage is caused. A further tort of nuisance is

outlined,

34

Section Aim and Objectives

The section might be described via an overall aim and measurable objectives.

To consider the law of tort and its relevance to engineering projects and engineering

professionals.

Within the overall aim the following measurable objectives are set

The student will be able to:

Describe the development of the law of tort;

Explain the essential requirements for a claim of negligence

o a duty of care;

o a breach of that duty;

o the breach must be the cause of the loss claimed;

o the loss must be foreseeable, i.e. not too remote;

o there must an actual loss or damage;

o the absence of any of the recognised defences.

Explain the tort of nuisance

35

The Law Of Tort

The law of tort imposes rights and obligations on individuals (and corporate entities) towards

fellow individuals and entities, which arise independently of any contract between them.

Those obligations arise as a matter of civil law, either by statute or (in most cases, including

negligence) as a result of the "common law" which evolves from judicial decisions.

Tort law covers a wide spectrum of wrongs including trespass, assault, libel and statutory

torts. Some of these civil wrongs are also criminal offences. However there are a number of

essential differences between a criminal and a civil wrong. In the case of a criminal wrong,

the obligations are said to be owed to the state at large. Any proceedings in respect of the

wrong are generally brought by the state. The sanction in respect of the criminal offence

(which usually has to be proved "beyond reasonable doubt") is punishment in the form of a

criminal sentence (although sometimes the court will also make an order that the criminal pay

compensation to the victim). In the case of a civil wrong, it is the party who has been wronged

who brings proceedings against the "tortfeasor" -in the civil courts. The burden of proof is a

lesser standard of "the balance of probabilities". Usually the wronged party claims damages

for compensation in respect of the loss caused by the wrong. In order to succeed, the wronged

party must prove that the tortfeasor owed him or her a particular "tortious" duty or obligation,

and that this was breached.

This section focuses on the most important of these "torts", at least so far so the engineering

industry is concerned.

These are:

negligence;

nuisance;

In the engineering law context, a contractual relationship will often exist between the party

guilty of the "wrong" and the other (wronged) party. If so, there will often be "concurrent" or

co-existing duties owed by one party to the other in tort and contract. It is where there is no

contract that tort plays a central role.

Negligence

By far the most important tort is that of "negligence". This is a common law based tort. Until

1932, a single tort of negligence did not exist. Liability for negligent conduct was recognised

only in discrete categories where particular circumstances were said to give rise to a "duty of

care". In a landmark decision which is now well known even to most laymen, Donoghue v

Stevenson 1932 AC 562 the famous snail in the gingerbeer, the House of Lords sought to

unify these duties into a single theory of negligence.

It is an essential feature of the law of negligence that liability does not arise for the

consequences of every careless act or omission. The law sets out various requirements which

must be met in order for a claim of negligence to succeed. These are, in summary, as follows:

the defendant must owe the claimant a duty of care;

the defendant must be in breach of that duty;

this breach must be the cause of the loss of which the claimant complains;

36

the claimant's alleged loss must be foreseeable, i.e. not too remote;

the claimant must actually suffer loss or damage;

the defendant must not be able to raise any of the recognised defences.

Duty of Care

There is no single test for establishing whether a duty of care exists. In each case it is

necessary to look at the case law in order to decide whether a particular situation or

relationship gives rise to a duty of care. However, the courts have laid down a number of

principles which provide some guidance in determining whether a duty of care exists.

The starting point is the neighbour principle laid down by Lord Atkins in Donoghue v

Stevenson in the following passage:

"The rule that you are to love your neighbour becomes in law. you must not injure

your neighbour; and the lawyer's question, who is my neighbour? receives a restricted

reply. You must take reasonable care to avoid acts or omissions which you can

reasonably foresee would be likely to injure your neighbour. Who then in law is my

neighbour? The answer seems to be -persons who are so dosely and directly affected

by my act that I ought reasonably to have them in contemplation as being so affected

when I am directing my mind to the acts or omissions which are called in question."

In other words. a duty of care (not to cause personal injury to others) is owed to persons who

you ought to foresee might be injured by your particular acts or omissions. It is as a result of

this passage that "reasonable foreseeability" became known as the touchstone of liability in

negligence. In a later case the House of Lords did attempt to lay down a simple two-stage test

for the existence of all liability in negligence. In Anns v Merton London Borough Council

1978 AC728, Lord Wilberforce said:

"...the question has to be approached in two stages. First one has to ask whether. as

between the alleged wrongdoer and the person who has suffered damage there is

sufficient relationship of proximity or neighbourhood such that. in the reasonable

contemplation of the former. carelessness on his part may be likely to cause damage

to the latter- in which case a prima facie duty of care arises. Secondly, if the first

question is answered affirmatively. it is necessary to consider whether there are any

considerations which ought to negative. or to reduce or limit the scope of the duty or

the class of person to whom it is owed or the damages to which a breach of it may give

rise".

This test essentially amounts to a presumption of liability where the defendant ought to have

foreseen injury to the claimant, unless public policy dictates otherwise. This proposition was

said to have "provided not only a definitive test whether or not a duty of care arose but a

panacea to the various dilemmas of previous years”. It also led to a great increase in the

number successful negligence cases before the court in the years following the decision.

More recently the courts have retreated from this approach. In the case of Murphy v

Brentwood District Council 1991 AC 398, the House of Lords overturned Anns in so far as it

applied to local authority duties. Lord Keith in Murphy expressed the view that Lord

Wilberforce's test should not be treated as being definitive, and emphasised the importance of

finding a relationship of "proximity" .

37

This trend culminated in the formulation of a "three-stage test for establishing a duty of care

in the case of Caparo Industries pIc v Dickman 1990 2AC 605, as follows:

What emerges is that, in addition to the foreseeability of damage, necessary

ingredients in any situation giving rise to a duty of care are that there should exist

between the party owing the duty and the party to whom it is owed a relationship

characterised by the law as one of 'proximity' or 'neighbourhood' and that the

situation should be one in which the court considers it fair, just and reasonable that

the law should impose a duty of a given scope on the one party for the benefit of the

other.

The three stage test is therefore: foreseeability of damage; proximity; and fair, just and

reasonable.

However, such concepts should not be treated as a formula, and are no more than labels under

which the court examines the policy considerations of imposing or refusing liability in a given

case. By policy considerations, we mean considerations of the effect of imposing a duty of

care not just on the parties in question but on all other members of society in the same

position as these parties.

Such policy considerations have particularly exercised the courts in relation to what has

become known as "pure economic loss", or financial loss, as opposed to personal injury losses

or property damage -in respect of which the courts have always been very ready to find the

existence of a duty of care. With pure economic loss, the courts have adopted a more

restrictive approach to ensure that members and groups of society are not flooded with

substantial claims for loss of profits by others ("the floodgates" consideration). Pure economic

loss is discussed in more detail below.

The Defendant Must Be In Breach Of That Duty

The question here is whether the defendant has fallen below the standard of care required in

the circumstances and has thus been negligent. The standard of care is a question of law, but

whether or not that standard has been attained in the particular case is a question of fact for

the judge to decide, having regard to all the circumstances of the case.

In general, the amount of care required by the law is an objective standard and is measured by

the conduct of the notional reasonable man, or the man on the Clapham omnibus. Negligence

is the omission to do something which a reasonable man, guided upon those considerations

which ordinarily regulate the conduct of human affairs, would do: or doing something which

a prudent and reasonable man would not do.

If a defendant holds himself out as possessing a special skill over and above that of reasonable

people, he or she will be judged by the degree of skill normally shown by those with that

special skill.

The standard relates to the type of activity in which the defendant is engaged rather than to the

category to which the defendant belongs, and the law does not take account of the personal

characteristics of the defendant. This gives priority to the reasonable expectations of the

claimant over those of the defendant.

38

However, the standard may be modified by:

the special circumstances of the case, for example, the fact that the defendant is acting

in an emergency situation;

the categorisation of the activity -where work is to be done which requires special

skill, the standard of care required is the degree of care normally shown by a specialist

in that kind of work;

the particular class of society to which the defendant belongs -a child will be judged

by the objective standard expected of a child of that age and not by the standard of an

adult.

The court also undertakes some cost and benefit analysis and takes into account the following

matters:

Magnitude of the Risk

The greater the risk, the more care should be taken.

Likelihood of Injury

This is matter to be taken into account in determining the degree of duty required: People

must guard against reasonable probabilities but they are not bound to guard against fantastic

possibilities. This is to be judged by reference to the state of knowledge that could be

attributed to the defendant at the time of the occurrence.

Gravity of the Consequences

The graver the consequences will be of a failure to take care, the greater the degree of care

which must be taken.

Cost and Practicability of Overcoming Risk

In every case of foreseeable risk, it is a matter of balancing the risk against the measures

necessary to eliminate it.

In Overseas Tankship (UK) Ltd v The Miller Steamship Go Pty (The Wagon Mound (No 2)

1961 AC 388: ...a reasonable man would only neglect a [small] risk if he had some valid

reason for doing so, e.g. that it would involve considerable expense to eliminate the risk. He

would weigh the risk against the difficulty of eliminating.

However, the cost of eliminating the risk does not necessarily allow the defendant Ito

dispense with remedial measures: A slight risk may be run if the cost of remedying it is

unreasonably and disproportionately high, but the greater the risk, before remedial measures

can be dispensed with, the greater must be the cost of remedying it.

Common practice by persons habitually engaged in a particular operation is strong evidence

of what is reasonable care in the performance of that operation. Where there is debate as to

the proper practice, it will generally be sufficient for the defendant to show that he acted in

39

accordance with the way that a responsible body of those in his field would regard as

reasonable.

The Breach Must Be The Cause Of The Loss Of Which The Claimant Complains

The question is whether the defendant's act is recognised in law as having caused the

claimant's loss.

In determining this, the first stage is to apply what is usually known as the "but-for" test: if,

"but for" the defendant's negligence, the claimant would not have suffered the loss, causation

is prima facie (that is, on the face of it, or presumptively) established. This is illustrated by the

case of Bamett v Chelsea and Kensington Hospital Management 169 1QB 428. The claimant's

husband felt very ill after drinking some tea and had gone to a casualty department. The duty

doctor refused to see him and Mr Bamett subsequently died from arsenic poisoning. It was

held that the doctor's negligent refusal to see him did not cause his death even if the doctor

had seen Mr Bamett it would have been too late to effectively treat him and he would have

died in any event.

The but for test does not work where more than one set of conditions combines to bring about

a result -so called cases of "multiple causation". Where a tort was sufficient in its own right to

bring about the result, but there was an additional event which would also have been

sufficient to produce the result, the application of the but-for test produces the absurd result

that neither event caused the loss. In the case of Performance Cars v Abraham 1962 1 QB 33,

the claimant's car was damaged first in a collision caused by the negligence of the first

defendant (D1) and a few days later in a collision caused by the negligent driving of the

second defendant (D2). Each collision on its own would have necessitated a re-spray of the

car. In an action for negligence for the cost of the re-spray against D1, the Court of Appeal

held that D2 was not liable on the grounds that he had not caused the loss -the need for the re-

spray arose from the first collision and this pre-empted the second.

In Baker v Willoughby 1970 AC 469, the claimant was first run down by the defendant's

negligent driving, and then shot in the same leg during a burglary attempt, and the leg had to

be amputated. The House of Lords rejected the argument that the defendant should only be

liable for the loss suffered prior to the second incident -the first injury was still a cause of the

injury and therefore was not obliterated by the shooting.

The Claimant's Alleged Loss Must Be Foreseeable, i.e. Not Too Remote

Foreseeability of damage is relevant in deciding whether a duty of care exists and is also

relevant in deciding whether the damage suffered by the plaintiff is of a sort that the law will

recognise and give its protection to.

In order to recover, the plaintiff must show that the injury he or she has suffered was a

reasonably foreseeable consequence of the defendant's negligence. This is a question of law.

It is not necessary to show that the manner in which the injury was caused was foreseeable,

nor that the extent of the damage was foreseeable, only that the type of damage was. This has

sometimes led to the court making fine distinctions between the type and extent of loss in

order to compensate a "deserving” claimant.

40

The "thin skull” rule is an exception to the general rule of foreseeability and provides that the

defendant takes the claimant as he finds him. If the claimant suffers a foreseeable injury as a

result of the defendant's negligence, and this triggers an unexpectedly serious reaction

because of some pre-existing susceptibility of the claimant, the defendant is liable for this

notwithstanding the fact that the consequence was unforeseeable. For example, in Smith v

Leech Brain & Co 1962 2 QB 405, the defendant was held liable for the death of the

claimant's husband when a negligently inflicted burn on his lip resulted in his death from

cancer, because he was suffering from a pre-malignant cancer which was caused to develop

by the burn. This rule is sometimes treated as an aspect of the rule that only type and not

extent of damage need be foreseeable, but it is probably better to treat the rules separately.

The defendant is liable if he could reasonably foresee the likelihood of loss as a possibility.

The Claimant Must Actually Suffer Loss Or Damage

The principal purpose of an award of damages in tort is to put the claimant, as far as possible,

in the position he would have been in had the tort not been committed. In other words, the

overriding principle of the law of damages is that the claimant should be fully compensated

for the loss he or she has suffered.

Occasionally, the courts award damages which go beyond that which is required to

compensate the claimant; for example where the defendant has acted in deliberate breach of

his duties on the basis that this will involve him making a profit which is greater than a

compensatory measure of damages ("exemplary damages"). Such awards are relatively rare.

Conversely, where the claimant has suffered no actual loss but has had his legal rights

infringed, a court may award nominal damages in recognition of the infringement.

An example of recoverable non-pecuniary loss is pain and suffering caused by a personal

injury, but damages for disappointment and distress are not normally recoverable in either

contract or tort. However, where a claimant suffers anxiety and mental distress which is

directly consequent on physical inconvenience caused by having to live in a house whilst

disruptive repairs are carried out, or having to move out whilst such repairs are undertaken,

damages may be recoverable - although any such claim is likely to be small, say, in the region

of £750, depending on the gravity.

Defences

The recognised defences to a negligence action include:

voluntary assumption of risk;

contributory negligence;

exclusions of liability;

limitation of actions.

The first, where it applies, is a complete defence, in that it extinguishes any liability of the

party in default. Contributory negligence, on the other hand, is a partial defence, since it gives

rise only to a discount on the amount of damages recoverable by the wronged party. Liability

on the part of the tortfeasor remains, albeit that the damages which he is liable to pay are

reduced by a proportion depending on the extent of the contributory negligence.

41

Voluntary Assumption Of Risk

A person may voluntarily assume the risk of harm by agreeing in advance not to sue should

the harm materialise. Such agreement may be express or implied. Express agreement usually

arises where the defendant excludes or limits his liability by means of a contractual term or

notice. In order for this defence to operate, the claimant must:

act freely and voluntarily;

have full knowledge of the risk; and

accept that he, not the defendant, undertakes responsibility for the risk.

The concept of voluntariness is given a narrow definition, and it seems that where the

claimant exposes himself to a risk in order to avert injury to him or to others, he will not be

barred from recovery. On the other hand, a claimant who has exposed himself to risk without

good reason (i.e. by agreeing to be a passenger in an aeroplane piloted by a person the

claimant knows to be drunk), will be held to have voluntarily exposed himself to the risk and

the defendant will be able to avail himself of this defence. Knowledge of the defendant's

inebriation will not necessarily be sufficient for a claim of voi/enti non fit injuria to succeed,

but knowledge that the defendant is so drunk as to be unable to attempt to exercise care will

be.

Contributory Negligence

Under the Law Reform (Contributory Negligence ) Act 1945, the court has the power, under

section 1(1), to reduce an award of damages to "such an extent as the court thinks just and

equitable, having regard to the claimant's share in the responsibility for the damage". Under

the Act, a claimant cannot be 100% contributory negligent. If it is found that the sole cause of

the claimant's injury is his own fault, causation is not established and therefore no action in

negligence is made out.

The question is not one of whether the claimant owed the defendant a duty of care, but of

whether the claimant has taken due care for his own safety. This is assessed objectively, and

the same factors as apply in considering whether the defendant owes a duty of care are

applied. It is important to realise that contributory negligence will operate where the claimant

contributes to his own injury -even where the defendant is solely responsible for the incident

which gives rise to such injury.

There must be a causal link between the claimant's conduct and the harm suffered, and the

question of causation is dealt with in the same way as in the context of assessing liability for

negligence on the part of the defendant.

Exclusion Of Liability

At common law, in order to exclude or limit liability for negligence, a defendant could enter

into an express contract with the claimant excluding or limiting liability for negligence, or

give the claimant sufficient notice that the claimant entered onto his land subject to his

agreeing to exempt the defendant from any liability in respect of his occupation of the land, or

issue a disclaimer making it clear that he undertook no responsibility for information or

advice offered to the claimant.

42

The Unfair Contract Terms Act 1977 ("UCTA") greatly restricts the defendant's ability to opt

out of liability in all three cases.

In general, a third party cannot rely on an exclusion clause which would be operative as

between the parties to a contract. There is no doctrine of "vicarious immunity" in English law,

in other words, an exclusion clause contained within a contract cannot assist an employee or

agent who acts under the contract.

Limitation

The Limitation Period is the period of time within which a claimant must bring his or her

action (which is normally done by issuing a claim form under Part 7 of the Civil Procedure

Rules 1998, or by giving notice of reference of a dispute of arbitration).

The relevant periods are largely contained in the Limitation Act 1980. The limitation period

for most torts, including negligence, is six years. Where a claim is for damages for personal

injury, however, the period is three years. In contract, the limitation period is six years.

The period of limitation begins when the cause of action accrues. In tort, where the tort is only

actionable upon proof of damage, the cause of action accrues when damage occurs. In

contrast, in contractual actions, the cause of action occurs from the date of breach of contract.

In tort claims, it may be difficult to ascertain when the damage occurred. For example, where

a building has been constructed defectively, it may be thought that damage occurs when the

defect manifests itself in a manner that can be reasonably discovered. However, in Pirelli

General Cable Works v Oscar Faber and Partners 1983 2 AC 1 the House of Lords held that

the cause of action for negligent advice in relation to the design of a building, was held to

accrue when cracks first appeared in the chimney, as opposed to when the damage was

actually reasonably discoverable. This is to some extent altered by the Latent Damage Act

1986, which inserted section 14A into the Limitation Act. Section 14A provides that, in

actions for negligence, the limitation period is either six years from the accrual of the action,

or three years from when the claimant had (or is deemed to have had) knowledge of certain

material facts ("date of knowledge"). Essentially, the date of knowledge is the date when the

claimant knew or ought to have known:

that the relevant damage was sufficiently serious to justify proceedings;

that the damage was attributable in whole or in part to the act or omission which is

said to constitute negligence; and

the identity of the defendant.

As stated above, the limitation period for personal injury actions is three years. However, an

alternative period is provided by section 14 of the Limitation Act 1980, which provides that

time starts running when the claimant has actual or "constructive" knowledge (the latter being

when the claimant ought to have known) of the following facts:

that the injury in question was significant;

that the injury was attributable in whole or in part to the act or omission which is said

to constitute negligence, nuisance or breach of duty;

the identity of the defendant.

43

The court also has discretion to allow an action to proceed notwithstanding the expiry of the

limitation period under section 33, if it considers it equitable to do so.

Where a person to whom aright accrues is, at the date of accrual, under a disability, i.e. an

infant or of unsound mind, the action may be brought within the applicable period starting

from the date at which the disability ceases, or when he dies - whichever is the sooner.

The Restrictive Approach Of The Courts To Recovery For Pure Economic Loss

Pure economic loss is loss which does not directly flow from damage to the plaintiff's own

person or to the claimant's own other property. In general, economic loss is not recoverable in

an action for negligence, at least not as readily recoverable as personal injury or property

damage losses.

The most straightforward application of the rule concerns the situation where the defendant's

alleged negligence causes damage to property which does not belong to the claimant, but

which, because of an interest he has in that property, causes him loss. For example, where the

defendant negligently cuts through an electric cable which does not belong to the claimant,

but which the claimant uses in order to run his metal processing plant, the claimant will not be

able to claim for the lost profits caused by closing his business for the day, but will be able to

claim for damage caused to the metal being processed at the time the electricity was cut off,

as this is economic loss stemming directly from damage to the claimant's property.

A slightly more difficult example of the rule concerns defective products and buildings. The

courts have held that, where a product/building is defective, and the only loss occasioned is

the cost of repairing/replacing that property when the defect is discovered, this is

irrecoverable pure economic loss. The manufacturer, builder or designer of the product or

building will not be liable unless the defect causes damage to other property, or personal

injury. This rule was applied in Murphy v Brentwood District Council 1991 1 AC 398, in

which the claimant suffered loss because the foundations of his house were defective, causing

subsidence and cracking. It was held that the loss on the subsequent sale of the house was not

recoverable since it was occasioned by a defective product (the building itself) and not by

damage to other property or personal injury.

The courts are reluctant to allow recovery for pure economic loss, largely, it seems, because:

"the links between negligence and pure economic loss are primarily human in creation and

can form a complex web through which economic loss can ripple out from the one negligent

act. Establishing foreseeability of loss, and, more particularly, proximity or relationship, in

such a context is afar more difficult task [than in cases of physical damage]".

The law has developed in a slightly haphazard way, with the court developing differing rules

depending on how the loss was caused. In particular, a line has been drawn hitherto between

loss caused by negligent statements, and loss caused by negligent services.

It seems that the following general principles governing a claim for pure economic loss may

be derived from the case law. A claim may succeed:

where the claimant person is in a direct contractual or quasi contractual relationship

with the defendant;

44

where the defendant has made a negligent statement to or for the benefit of a person

that it knows may rely on the statement to their detriment and where that person does

place reliance on the defendant's statement and suffers loss;

where the defendant is or should be aware that the service it is providing is for the

direct benefit of a third party who is likely to suffer economic loss if the service is not

performed properly.

Nuisance

The law of nuisance is concerned with conflicting rights and interests over land. An action in

nuisance in the building context is most likely to occur in relation to the noise, dust and debris

created by building work.

This section will deal with:

the difference between material injury and personal discomfort;

the type of interference actionable;

who can sue;

the relevance of motive;

the relevance of the public interest;

the relevance of planning permission;

general points.

The Difference Between Material Injury and Personal Discomfort

In St Helen's Smelting Co v Tipping 1865 1 HL 642 vapours from the defendant's smelting

works damaged trees and shrubs on the plaintiff's land. The defendant argued that since

almost the whole neighbourhood was devoted to copper smelting or similar, there should be

no finding against them. It was held that there was a difference between "material injury to

property" and "sensible personal discomfort" .Lord Westbury LC said:

If a man lives in a street where there are numerous shops, and a shop is opened next

door to him, which is carried on in a fair and reasonable way, he has no ground for

complaint because to him individually there may arise much discomfort from the trade

carried out in that shop. But when an occupation is carried on by one person in the

neighbourhood of another, and the result of that trade...is a material injury to

property then there unquestionably arises a very different consideration.

In other words, locality is only relevant where the injury suffered is physical.

Type Of Interference Actionable

An important recent decision in this area is that of the House of Lords, in Hunter v Canary

Wharf 1 All ER 482, in which several local residents complained that the erection of canary

wharf interfered with their television reception. The Law Lords held that interference with

television reception was, in principle, actionable, but that it wasn't in this case. The general

approach was that more than the mere presence of a building was necessary. However care is

required when assuming that the presence of a building can never found an action in nuisance.

In a New Zealand case, Bank of New Zealand v Greenwood [1984] 1 NZLR 525, the

reflection of sunlight from a glass building dazzled the plaintiffs living in neighbouring

45

buildings and was held to be an actionable nuisance. The House of Lords, in Canary Wharf,

held that this was correct on its facts, but was an unusual case, since the sunlight was not

merely reflected, but deflected in such way as to cause dazzling glare to shine directly into

neighbouring building. The building was not, therefore, merely "in the way".

Who Can Sue?

In order to bring an action in nuisance, the claimant must have an interest in land. The exact

nature of the interest in land required is unclear, but it seems that the claimant needs exclusive

possession, or must be the owner or have a reversionary interest in the land.

Motive

The defendant's motivation for acting as he did is relevant to the question of whether his or

her actions constitute actionable nuisance. In Christie v Dave 1893 1 Ch316, the defendant

was disturbed by the plaintiff's musical activities occurring in the adjoining house,

particularly the singing (which it was claimed was hard to distinguish from the howling of a

dog). The defendant wrote to the plaintiff but his complaints were ignored. He took to

banging on the wall, beating on trays and whistling whenever he heard music from next door.

It was held that this constituted nuisance on the basis that the defendant had acted maliciously

for the purpose of annoying the plaintiff.

In Hollywood Silver Fox v Emmet 1936 2 KB 468t, the defendant threatened to fire his gun

during the fox breeding season -saying "I guarantee you will not raise a single cub" if the farm

continued to advertise its breeding activities which the defendant feared would put off

potential purchasers of his land. The farm continued to advertise the breeding and the

defendant carried out his threat with the result that all the vixens ate their cubs and others did

not mate. It was held that the defendant's malice made the disturbance actionable as a

nuisance. Motive is only irrelevant if the defendant has an absolute right to do what he did, for

example, to abstract water percolating under his land.

Relevance Of The Public Interest

Although the issue is unclear, it appears that it is now decided that the public interest is

irrelevant in the decision of whether something is actionable as a nuisance, but it may be

relevant to the question of whether an injunction is granted in the claimant's favour to prevent

the defendant from acting in the manner said to constitute a nuisance, or whether the claimant

is awarded damages instead.

In Miller v Jackson 1977QB 960 , the Claimant complained that on a number or occasions

cricket balls from the adjacent ground had landed in their garden, causing some property

damage. Lord Denning thought the private interest in the privacy of home and garden should

not be subordinated to the public interest in cricket, but in any event he thought no nuisance

had been committed, because there was no unreasonable use of land. The judge thought that

although there was a nuisance, on the facts the inhabitants of the village's enjoyment should

be given priority, and said that the plaintiffs must or ought to have realised the possibility of

cricket balls coming into the garden before they bought the house. The latter factor, often

referred to as "coming to the nuisance", was relevant to the issue of whether an injunction

should be granted, but not to whether there was a nuisance at all.

Planning Permission

46

In Wheeler v JJ Saunders Ltd 1995 3 WLR 460, the plaintiffs bought a house and

outbuildings, having obtained planning permission to convert the outbuildings into holiday

cottages. An adjacent farm (not owned by plaintiff) was let to the first defendants, who

obtained planning permission to build houses for pig breeding, one of which was only 11

metres from the house. An issue arose re access and rights of way and about nuisance and the

defendants argued that since they obtained planning permission for the pig houses, any smell

from the pigs in them could not amount to nuisance. The Court of Appeal concurred with the

view of Cummings-Bruce LJ in Allen v Gulf Oil Refinery 1981 AC 1001 who said: "the

planning authority has no jurisdiction to authorise a nuisance save (if at all) in so far as it had

statutory power to permit the change of the character of the neighbourhood".

It was further held that planning permission and subsequent change of neighbourhood was

only relevant in so far as the nuisance flowed inevitably from the authorised planning

permission.

General Points

A defendant who does not himself create the nuisance, will be liable if he knows or ought to

know of its existence and has allowed it to continue. Nuisance is not actionable without proof

of damage.

An action in nuisance in the building context is most likely to occur in relation to the noise,

dust and debris created by building work.

Self-Appraisal Questions

1) Am I able to demonstrate that I can now meet the objectives set out at the start of this

section

Looking at my responses to the exercises can I:

2) Explain the law of tort and its relevance to engineering projects and engineering

professionals.

3) Describe the development of the law of tort;

4) Explain the essential requirements for a claim of negligence

a) a duty of care;

b) a breach of that duty;

c) the breach must be the cause of the loss claimed;

d) the loss must be foreseeable, i.e. not too remote;

e) there must an actual loss or damage;

f) the absence of any of the recognised defences.

5) Explain the tort of nuisance

47

4. Standard Forms of Contract

This section deals with an introduction to the standard forms of contract available for

engineering projects. You are asked to do several things: complete the Blackboard section

[including brief exercises]; read the workbook; read some material from the book which

supports this section and visit some websites.

There is much material in the textbook which supports this section:

Uff, J. Construction Law,

You should read Chapters 11, 12 and 13 of the textbook in conjunction with this section.

Standard forms of contract are a feature of commercial life; they are the standardised terms

and conditions which businesspeople use instead of drafting a bespoke contract each and

every time a contract between parties is required.

This section considers the concepts of standard forms and the next section considers: The Key

Areas of Standard Forms and the Role of Management in Standard Forms

This section considers what constitutes a standard form; why standard forms are used; the

problems with standard forms; the content of standard forms. This lays the foundation for the

next section which discusses the use of standard forms via key areas. The areas are:

Site Possession

Commencement

Progress

Completion

Variations

Extension of time

Programming

Liquidated and Ascertained Damages

Finally the next section considers the role of management and contract administration; via the

Engineering and Construction Contract.

48

Section Aim and Objectives

The section might be described via an overall aim and measurable objectives.

The section aim is:

To examine the application and use of standard forms of contract on engineering

projects.

Within the overall aim the following measurable objectives are set

The student will be able to:

Explain the need for standard forms;

Discuss what constitutes a standard form;

Explain why standard forms are used;

Understand the problems with standard forms;

Describe the content of standard forms

49

4.1. The Concepts of Standard Forms

This part introduces the concepts of standard forms and the reasons for their development and

use.

Introduction

Standard forms of contract does not mean the standard terms and conditions of a particular

party which are tailored to suit but rather the standardised terms and conditions which

businesspeople in particular commercial fields use instead of, or sometimes in conjunction

with, their own special terms and conditions. Standard forms are widespread in engineering;

indeed, there are so many available that it might be argued that they are not standard; printed

might be a better term.

The use of a standardised form is not unique to the engineering industry, although the industry

has a good deal more variety and sophistication than other commercial sectors due to:

the complexity of the contractual chains set up in the industry

the diverse needs of a particular type of project

the industry’s readiness to use standard forms.

In the construction industry there are long established standard forms to govern relationships

between employers and contractors with regard to building and civil engineering works. In

particular in contracts with local authorities governments and government bodies. There are

also standard forms of contract to govern relationships between contractors and sub-

contractors. These documents are the product of the applied expertise of all sectors of the

construction industry, working through bodies such as, in the UK, Joint Contracts Tribunal

(“JCT”) or the Institution of Civil Engineers (“ICE”). As well as traditional standard forms,

there are new forms e.g. the Engineering and Construction Contract (ECC) as a suitable all-

purpose standard form. Different standard forms continue to be published in successive

editions by a variety of professional bodies and organisations.

The parties to a contract do not have to use standard forms and they are free to contract on

whatever terms they agree. Frequently, parties amend the standard forms to suit their own

particular needs or to allocate risk in respect of particular circumstances. Sometimes an

attempt is made by a party to have the best bits of a standard form but leave out the rest and to

use that in conjunction with its own usual written terms of business. The results are not

always successful.

Why Standard Forms are used

There are a number of benefits to using a standard form. Standard forms avoid the need to

“reinvent the wheel” every time a contract is drawn up, and also saves the cost of lawyers or

contract drafters.

Standard forms are usually a response to widespread practice in the construction industry as to

how things are and should be done. By using a standard form the parties know the package of

obligations that they are using are common and familiar not just to themselves but to the other

party and affords confidence to the parties that the project will be run in a way they are used

50

to. By using standard forms general rules and principles become generally transparent.

Speed and timing play their part. Projects are run to tight timetables and budgets. Instead of

drafting out conditions wasting valuable time and money, the parties can be getting on with

the job. Standard forms of contract are partly used by way of shorthand so that parties can

progress with the job as soon as possible without having to set out the contract in a formalised

way.

A particular benefit is the provision of detailed and sophisticated contractual machinery

permitting the project to be an evolving process: things crop up during progress which require

some flexibility yet sufficient certainty. The contractual machinery makes the contract a

dynamic and practical agreement rather than a historical and rigid document.

Some problems with using Standard Forms

Standard forms are frequently amended by standardised updating of certain clauses or whole

new editions which may (or may not) change the obligations of the parties without them

realising. It cannot be assumed that the previous edition with which a party is familiar is the

same as the newer edition or vice versa. Parties are wise to brush up on the terms of the forms

actually being used on a particular contract from time to time.

Though the standard forms are generally transparent, they are far from perfect models: there

are inconsistencies and ambiguities that only become apparent when tested by an event which

causes a problem. This is a problem which is inherent in any attempt to make a contract where

“one size fits all”. Contract terms do not receive sufficient attention from parties to see

whether it suits their needs and it is only when a problem arises that they dust off the contract

documents.

Adapting a standard form for personal use has great potential for things to go wrong. The

terms of the contract are supposed to mesh together and the contract is to be construed as a

whole. Simply removing clauses (or parts of clauses) which a party does not like, or replacing

them with something alien, is likely to have a knock-on effect on other provisions in the

contract. Usually only when things go wrong that the party realises the full effect of the

adaptations made.

It is all too easy for a party using a standard form to adopt a commercial approach which may

be more practical and lax than the contract actually permits and if this is experience generally,

soon the principles of the standard form become replaced with general notions of “how I’ve

always worked on a project like this”. There is a danger that there is a gulf between what the

contract says and what the parties do and the perception that the contractual issues are left to

the lawyers at a later date.

There is, of course, an obvious tension between working on a project with a legalistic

approach with reference to the contract and the commercial practicalities of getting on with

the job at hand with co-operation from all parties and without unnecessary provocation.

The Main Standard Forms

In the UK the documents are the product of the applied expertise of certain sectors of the

construction industry, working through bodies such as the Joint Contracts Tribunal ("JCT”) or

51

of particular bodies such as the Institute of Civil Engineers ("ICE"), the Royal Institute of

British Architects ("RIBA") and the Association of Consulting Engineers ("ACE"). A simple

divide used to be that the JCT produced the forms for the building sector and the ICE for the

civil engineering sector. This has been eroded by the Engineering and Construction Contract

which is discussed later.

The forms establish common ground rules that assist contractors and consultants in preparing

their prices/fees and assist architects/engineers in monitoring performance of the works.

The JCT Standard Form

The first building contracts which were produced for general use appeared in 1909. A later

edition appeared in 1931. These forms stated that they had been prepared by a committee of

the RIBA with assistance from the RIBA's legal advisors. There are many provisions in the

present forms, which can be seen historically to have been derived from these earlier forms.

Responsibility passed from the exclusive hands of the RIBA to the JCT when it was formed in

the 1930s. JCT is not a tribunal but a standing committee, consisting of representatives of

the:

Royal Institute of British Architects;

Building Employers Confederation;

Royal Institution of Chartered Surveyors;

Association of County Councils;

Association of Metropolitan Authorities;

Association of District Councils;

Confederation of Associations of Specialist Engineering Contractors;

Federation of Associations of Specialists and Sub-Contractors;

Association of Consulting Engineers;

British Property Federation and the Scottish Building Contract Committee.

The first JCT form in 1939 has been replaced by further editions in 1963, 1980 and 1998 and

further forms have been provided for use in different procurement methods, e.g. the standard

form with contractor's design in 1981 (for design and build) and the standard form of

management and works contracts in 1987 (for management contracting).

Forms for use in so-called Minor Works (suitable for works of a relatively simple nature,

where no architect is engaged and the value is below a certain financial threshold) and a so-

called Intermediate Form of Contract (suitable for works of a slightly more complex nature,

with an architect supervising the design and again recommended for a certain value of work)

were published in 1980 and 1984 respectively. In 1987, the JCT produced a standard form of

management contract. In 1989 the JCT produced a standard form for term maintenance work.

In 1967 the JCT produced a form for cost-plus work, the Prime Cost standard form. All these

standard forms were updated by standard amendments issued by the JCT.

Content Of Standard Forms

In the UK, most standard forms comprise the following:

a set of articles of agreement for execution by the parties, incorporating all other

contract documents by reference;

52

a set of conditions of contract;

one or more appendices requiring insertion of particulars relevant to the parties, the

works and the contract sum.

Key Features of a Construction Contract

The key considerations in any construction contract will be the cost of the works, the quality

of the works and the time within which the works can be completed. Added to these will be

the need for flexibility, allowing the employer to change the brief in relation to the works

without unduly affecting their cost or quality or the time required for their completion.

One of the key features which distinguishes construction contracts from other forms of

commercial agreement is the facility for the employer to vary the works or for changes to

occur due to circumstances arising during execution of the works. The complex mechanisms

laid down to govern these matters under the majority of the standard forms are valuable

protections to the employer as well as the contractor insofar as they permit variations that

would otherwise be beyond the scope of the contract and limit the grounds upon which the

contractor may claim additional time and cost.

An understanding of construction contracts requires close attention to the mechanisms for

changes in the works, for the extension of time allowed for their completion and for variation

of the contract sum. Relevant considerations will include not only the substance of each

party's rights and obligations but also the formalities that must be observed in order for the

contractual mechanisms to take effect as intended. The standard forms address these issues in

different ways, in some instances illustrating a contrast between the nature of building works

and civil engineering works and in others simply reflecting different traditions that have been

established in different sectors of the construction industry.

Self-Appraisal Questions

Am I able to demonstrate that I can now meet the objectives set out at the start of this section

1) Examine the application and use of standard forms of contract on engineering projects.

Looking at my responses to the exercises, can I:

2) Explain the need for standard forms;

3) Discuss what constitutes a standard form;

4) Explain why standard forms are used;

5) Understand the problems with standard forms;

6) Describe the content of standard forms

53

5. The Key Areas Of Standard Forms

This part discusses the use of standard forms via key areas. The areas are:

Site Possession

Commencement

Progress

Completion

Variations

Extension of time

Programming

Liquidated and Ascertained Damages

54

Section Aim and Objectives

The section might be described via an overall aim and measurable objectives.

The section aim is:

To examine the key areas of standard contract on engineering projects.

Within the overall aim the following measurable objectives are set

The student will be able to:

Describe the procedures and practice in standard forms in the areas of:

o Site Possession;

o Commencement;

o Progress;

o Completion;

o Variation;

o Extension of time;

o Programming;

o Liquidated and Ascertained Damages.

Discuss the relationship between management and standard forms using the example

of the Engineering and Engineering Contract

Discuss the development of the Engineering and Construction Contract;

Evaluate the link between standard forms of contract and the management of

construction projects;

Describe how the Engineering and Construction Contract improves process and

procedure in the areas of:

Flexibility;

Clarity and Simplicity

Stimulus to Good Management

Site Possession

For any proposed construction, building or civil engineering, the employer will need to make

available a site upon or within which those works are to be undertaken. This site need not be

owned by the employer, and often is not, but the employer should be in a position to make the

site freely available to the contractor in accordance with the terms of the construction

contract. Failure to give possession of the site affects not only the time agreed for completion

of the works but also the cost of those works, and may even relieve the contractor of any

obligation to perform the works.

Possession of the site is a fundamental right of the contractor. In order to perform its

contractual obligations effectively, a contractor must have access to and control over the site

where the works are to be performed. An employer who fails to grant possession of the site, or

who unlawfully ejects the contractor from the site prior to completion of the works, will

repudiate the construction contract.

55

The contractor's right to possession of the site is made explicit in most standard forms (e.g.

JCT 98 Clause 23), but even in the absence of an express provision, an equivalent term will

be implied: Hounslow London Borough Council v Twickenham Garden Developments Ltd

(1971).

The contractor is regarded as having a contractual licence for the duration of the works and

interference by the employer with the contractor's possession of the site will therefore be

regarded as a denial of possession.

Access to the Site

The employer's obligation to grant possession of the site should be distinguished from any

obligation and ability to ensure that the contractor has free and uninhibited access to the site.

Although the extent of the employer's obligation to provide access will depend on the terms of

the contract, it is likely to be a limited obligation in view of the difficulty for the employer in

guaranteeing non-interference by third parties over whom the employer has no control.

Many standard forms include provisions whereby any interference by the employer in the

contractor's right of ingress to or egress from the site will entitle the contractor to claim an

extension of time for completion of the works, to claim loss and/or expense incurred by the

contractor as a result of the interference and even to terminate its employment under the

contract (see e.g. JCT 98 Clauses 25.4.12, 26.2.6 and 28.2.2.4).

Termination of Right to Possession

The contractor's right to possession of the site generally comes to an end on completion

(practical completion) of the works, subject to a subsequent right of access to enable the

contractor to perform its obligations under the contract as to rectification of defects (e.g. JCT

98 Clause 23.3.1). After completion the contractor has no right to return to site to remedy any

defects. Most contracts use the date of practical completion as the starting point for

contractual limitation clauses e.g. "No claim may be commenced in respect of any right of

action (whether in contract, tort (including negligence) or otherwise under or in connection

with this agreement after the expiration of six [or twelve if the agreement is executed as a

deed] years from the date of Practical Completion."

Provisions in certain standard forms allow the employer to take early hand over of one or

more parts of the works in advance of completion of the whole of the works, either by

agreement at the time when a particular part of the works is completed or by operation of an

agreed sequence for completion of successive sections of the works on dates specified in the

contract (e.g. JCT 98 Clause 18; JCT 98 Sectional Completion Supplement). In such cases,

one or more parts of the site upon which the relevant parts of the works are located will also

be subject to early hand over, and the contractor's right to possession of those parts of the site

will end accordingly.

Termination of Employment

In the event of termination of the contractor's employment on the project for whatever reason

prior to completion of the works, the construction contract will normally require the

contractor to vacate the site in an orderly manner, on the express or implied understanding

that such termination will bring to an end the contractor's right of possession. In certain

56

instances, a contractor disputing an employer's right to terminate may be unwilling to vacate

the site and the employer may be unable to obtain an injunction evicting the contractor from

the site until a decision has been made on the validity of the termination: Hounslow London

Borough Council v Twickenham Garden Developments Ltd [1971] Ch 233.

Commencement

Construction contracts are constrained by time; it is one of the scarce resources, this has led to

the inclusion of detailed provisions in the standard forms governing the dates by which the

employer and the contractor agree that the works must be completed and the remedies

available to the employer in the event of any delay. It is also important for both parties to

establish when the contractor should commence performance of the works, and from the

contractor's point of view to ensure that commencement of the works is not impeded in any

way, for example by the employer failing to grant possession of the site.

Some standard forms indicate a specific date for commencement of the works (e.g. JCT 98

Clause 23.1). In all cases the contractor's obligation to commence the works will be subject to

the express and implied rights governing possession of the site. If the contract is silent as to

the commencement date, then there will be an implied term that the contractor will be given

possession of the site in order to permit commencement of the works within a reasonable time

of signing the contract. What constitutes a reasonable time is a question of fact, but it must be

sufficient to enable the contractor to complete the works by the contractual completion date.

Progress of the Works

At common law the general principle is that, in the absence of other contract terms, an

obligation on the contractor to complete its works does not require the contractor to proceed at

a regular or certain pace. It is up to the contractor how to proceed, as long as completion is

achieved by the due completion date. Programming is the province of the contractor.

Such a state of affairs may not, however, be acceptable to building owners who employ

contractors. It is therefore not surprising to find in standard form building contracts express

terms governing the manner in which the contractor should proceed with the works having

been given possession of the site.

Clause 23.1 of JCT 98 provides that: “On the Date of Possession, possession of the site shall

be give to the Contractor who shall thereupon begin the works and regularly and diligently

proceed with the same and shall complete the same on or before the Completion Date."

In the case of West Faulkner Associates v London Borough of Newham (1994) 71 BLR 1 the

judge said: "Taken together, the obligation upon the contractor is essentially to proceed

continuously, industriously and efficiently with appropriate physical resources so as to

progress the works steadily towards completion substantially in accordance with the

contractual requirements as to time, sequence and quality of work..."

Completion

Common features of standard form contracts are:

57

An imposition of an absolute obligation upon the contractor to complete the contract works

within an agreed period;

Elaborate terms which deal specifically with:

The date for completion;

The circumstances in which an extension of time for the completion of the works will

be granted;

The contractual and financial consequences of failing to meet the contractually agreed

date for completion of the works.

Given that standard forms place great emphasis on the contractor's timely completion of the

works, and impose financial consequences for failing to meet the date for completion, it is

obviously important to understand how they define completion. Completion, once it is

achieved, has many consequences under the standard forms:

Some retention money is released;

The defects liability or maintenance period starts;

Liquidated and ascertained damages cannot be claimed for any period after completion;

Extensions of time cannot extend beyond completion;

The licence under which the contractor occupied the site comes to an end

The works are then at the employer's risk and the employer (unless already done so) should

insure the completed works.

Definitions of Completion

The date by which the contract works are to be completed is usually set down in the appendix

to each standard form as is the date for commencement. Sometimes (e.g. in certain sub-

contract forms) the completion obligation is expressed as a period of time from

commencement, where the date for commencement is not predetermined. More commonly,

completion and commencement dates are expressly agreed. Since late completion of the

works by the contractor may lead to incurring liquidated and ascertained damages under the

terms of the contract, or alternatively, incurring damages for breach of such a contract, it is

important for both parties to be able to ascertain when the works have actually been

completed to the standard required by the contract. The level of completion demanded by

each standard form and the mechanisms by which it is to be assessed and certified differ.

Several of the more common formulations are discussed below:

The JCT 98 Standard Form

Clause 17.1 defines the appropriate standard of completion: "When in the opinion of the

Architect/the Contract Administrator Practical Completion of the works is achieved, he shall

forthwith issue a certificate to that effect and Practical Completion of the works shall be

deemed for all purposes of this Contract to have taken place on the day named in such a

certificate."

Thus, the works are to be "Practically Complete" in the opinion of the Architect or the

Contract Administrator. There is no elaboration within the JCT 98 of what is meant by

"Practical Completion". Although the House of Lords has had two opportunities of

considering the meaning of the term in the cases of Jarvis & Sons v Westminster Corporation

[1970] 1 WLR 637 and P&M Kaye v Hosier& Dickinson [1972] 1 WLR 146, its precise

scope is still far from clear. It has been said that "Practical Completion is perhaps easier to

recognise than define" (Keating on Building Contracts 6th Edition, page 590).

58

These two cases might be summarised via:

The works cannot be practically complete whilst patent defects of any significance in

their construction are apparent;

Latent defects within the work will not prevent the valid issue of a certificate of

Practical Completion;

Minor items of "snagging" will not prevent the certification of Practical Completion;

Practical Completion is the completion of all construction work that has to be done

Practical Completion means completion for all practical purposes. Thus, without its windows

and doors, a house construction is not practically complete. Practical Completion does not

usually mean 100% completion free of all defects; this is because the contract lays down

provision for putting right defects in the defects liability period which follows Practical

Completion. Ultimately it will be a matter of fact and degree as to when works are practically

complete. If major defects which affect the practical use and occupation of the works are

apparent prior to Practical Completion, then, usually, Practical Completion cannot arise until

such defects are rectified.

The GC/Works/1 (1998) Conditions of Contract

The approach to completion in GC Works/1 (1998) is unlike that in JCT 98. The GC Works/1

forms do not define a standard of completion to be achieved by the contractor prior to

certification by the Contract Administrator. The obligation upon the contractor is merely to

complete the works, remove the rubbish at the site and deliver up the works to the satisfaction

of the Superintending Officer ("the SO"). It may well be that completion of the works under

this form of contract would be construed as meaning substantial completion. This approach is

supported by the fact that there is a post-completion period in which the contractor is required

to put right defects. On any count, the "satisfaction" of the SO is subject ultimately to review

and revision by the arbitrator.

The IFC 1998 Conditions of Contract

Like JCT 98, the Intermediate Form of Contract conditions adopt the concept of Practical

Completion but does not mention any definition. Clause 2.9 of the IFC98 states: "When in the

opinion of the Architect/Contract Administrator Practical Completion of the works is

achieved he shall forthwith issue a certificate to that effect. Practical Completion of the works

shall be deemed for all purposes of this Contract to have taken place on the day named in such

certificate."

The certification of Practical Completion under the IFC98 form fixes the date of completion

"for all purposes of this Contract".

Procedures

Some of the standard forms lay down a procedure for the Completion Certificate to be issued.

For instance, the JCT 98 conditions require the contractor to give notice, dependent upon

59

which the Architect may or may not issue the requisite certificate. If the procedure is not

followed, there may be different consequences. If the employer takes possession, in effect

completion will be considered to have occurred for the purpose of stopping the imposition of

liquidated damages. If the employer does not take possession, the arbitration clauses may be

drawn sufficiently wide to leave it to the arbitrator to determine objectively when completion

in fact occurred.

60

Variations

A construction contract should identify clearly the scope of the works which the contractor is

required to undertake. The accuracy with which the works can be described is, however,

closely linked to the extent to which the design for the works has been developed at the time

when the employer and the contractor enter into the contract. Where any significant design

detail is absent in the contract, then the contractor may not be bound to implement that design

detail unless the contract contains a right to vary the design. The contractor may be able to

claim additional time and/or payment on the basis that such design detail constitutes a

variation to the scope of the works.

The scope of the works governed by a construction contract will generally be described in

detail in Bills of Quantities, specifications and drawings, with further general references in the

standard forms. Certain standard forms oblige the contractor to undertake only the works

specifically described in the contract documents (e.g. JCT 98 Clause 14.1 ), thereby

modifying the general principle that the contractor must do everything necessary to complete

the works.

In the absence of express contract terms to the contrary, a contractor is under no implied

obligation to carry out work additional to or different from that described in the contract.

Accordingly, if the employer wishes to alter the nature or scope of the works beyond the

scope of the contract in any way, in the absence of such express terms, the contract itself must

be varied by agreement or a new contract must be entered into. The corollary of this is that, in

the absence of an express contractual mechanism, a contractor who carries out additional or

different work has no automatic entitlement to be paid for such additional or different work:

Wilmot v Smith (1828) 3 C&P 453.

So long as work falls within the description provided in the contract, it will not give rise to an

entitlement to extra payment. For example, in the case of Sharpe v San Paulo Railway

Company (1873) 8 Ch App 597, a contractor who had agreed to build a railway in Brazil for a

fixed sum was entitled to no variation and no additional payment when redesign became

necessary due to problems encountered during the course of the works.

The majority of the standard forms contain detailed provisions governing variations, without

the need for an amendment to the contract itself. Frequently the Architect is empowered, on

behalf of the employer, to order variations to the works and to evaluate an appropriate change

in the contract sum.

Additional Work which is not a Variation

Where work has been done that falls outside the scope of a contract variation clause, or where

the requirements of that clause (such as an order in writing) have not been fulfilled, the fact

that the employer has received the benefit of the work does not in itself render liability for

payment for it. However, an employer who actually wished extra or different work to be done,

and who obtained the benefit of that work, cannot then rely on the absence of a written order

to avoid payment. If it can be established that work outside the scope of a contract variation

clause should nevertheless be aid for, then in the absence of evidence as to an agreed basis for

payment the contractor will be entitled to be paid a reasonable sum, which need not

necessarily conform to the rates agreed in compiling the contract sum

61

Extensions Of Time

Standard form construction contracts oblige the contractor to complete the works by a

particular date and provide for the employer to levy liquidated and ascertained damages

against the contractor should there be a failure to complete the works within such time.

However, construction projects are a dynamic process with a high probability of change

between start and finish. For instance, the employer may vary requirements to request

something different which may take longer to procure and complete. There may be other

factors that delay or hinder the contractor from completing the works on time, e.g. fires,

floods, events of force majeure, late instructions, incomplete design information, unforeseen

ground conditions etc. Without an extension of time mechanism, the contractual time limit

would become inoperable, perhaps through no fault of the contractor.

Whilst time is important to employers under standard form construction contracts, such forms

do not specify that time is of the essence. To do so would make time a fundamental term or

condition of the contract such that the contractor's inability to meet the condition would give

the employer a right to determine the contract. Such determination is, however, not an

adequate remedy; the project will be delayed even more by determination. Thus, in

construction contracts, time is dealt with as a contractual term (a warranty and not a

condition) and provisions are included to permit contractual time limits to be extended.

Functions of the Extension of Time Clause

The main functions of the extension of time clauses are:

To provide necessary flexibility by adjusting the date by which the works are to be

completed in certain defined circumstances, i.e. where the contractor is not responsible

for the delay (known as culpable delay);

By allowing the contract period to be extended following the occurrence of certain

events which may otherwise constitute a breach of contract by the employer, thereby

setting time at large and disabling the application of the liquidated damages

provisions. Extension of time clauses keep the liquidated damages provisions alive;

To revise the contractor's contractual obligation to complete by a certain date.

Acts of Prevention

Extensions of time are normally to be granted for two categories of events: matters which are

wholly outside the control of both parties (for instance exceptionally adverse weather) and

delay-causing factors which albeit outside the control of the contractor are dictated by the

employer (for instance the ordering of variations). If the contract did not contain extension of

time clauses, the contractor would bear the risk of all of the first category of delays. The

second category, however, would put time at large and invalidate the liquidated damages

clauses in the contract. This conclusion follows from a long line of legal authorities which

establish that "acts of prevention" by the employer, whether authorised by or in breach of the

contract, generally put time at large and prevent the imposition of any liquidated damages. In

the absence of an appropriately worded extension of time clause, acts of prevention could

include breaches of contract or even ordering variations on the part of the employer.

Accordingly, to avoid this draconian result, the standard forms whilst allowing extensions for

62

events within the first category (which removes certain elements of uncertainty in the

contracting process) also have to legislate for certain events which would otherwise be

considered as "acts of prevention".

Programming

At common law the general principle is that, in the absence of other contract terms, an

obligation on the contractor to complete its works does not require the contractor to proceed at

a regular or certain pace. It is up to the contractor how to proceed, as long as completion is

achieved by the due completion date. Programming is the province of the contractor.

The status of any programme for the execution of the contract works is dependent upon the

role assigned to such a programme within the individual standard form used. The scope and

form of a contractor's programme for the works is similarly varied and ranges from a detailed

daily analysis of the project to the broadest of outline schemes.

The Status of Contractor's Programmes under the Standard Forms

Only the GC/Works/1 (1998) expressly allows for the contractor's programme to become a

contract document, and thereby defines the sequence in which the works have to be executed

by the contractor. Other standard forms do not give such prominence to the contractor's

programme; the result is that the contractor is under an obligation only to commence the

works by the specified date, to proceed "regularly and diligently" (where the contract terms

expressly so provide) and to complete by the agreed date. As such, the method and sequence

of working adopted is at the contractor's discretion.

Even the ECC does not expressly incorporate the contractor's programme into the contract.

Indeed, the ECC goes to great lengths to provide for the contractor to produce a programme

and obtain approval to it but the contractor is not expressly required to carry out works in

compliance with such programme.

The Practical Effect of Programmes

In practice, a programme provides the contractor with a useful framework from which to

mastermind the execution of the works, and frequent references are made to it by both

contractor and contract administrator throughout the duration of the works. Indeed in London

Borough of Merton v Leach Ltd (1985) 32 BLR 57 a contractor's programme which set down

the dates by which the contractor would require information from the Architect in order to

proceed with the works was held to constitute a notice to the Architect of such a need in

accordance with the requirements of Clause 25.4.6 of the JCT 80 conditions; that clause

entitled the contractor to an extension of time for delays caused by the late receipt of

information requested in writing. However, only programmes which accurately represent the

contractor's performance of the works are thought to be able to fulfil such notice functions. If

the contractor is in delay with the works it may well be that the programme no longer

provides the necessary notice for such information, since under the programme, information

would be requested far in advance of when it was actually needed by the contractor.

It is not uncommon for contractors to construct programmes which show an earlier date for

completion than that actually stated in the contract (such programmes are often referred to as

"accelerated programmes"). The effect of such programmes was considered in the case of

63

Glenlion Construction v Guinness Trust (1987) 39 BLR 89. Here the contractor produced an

accelerated programme which allowed for the completion of the works some weeks earlier

than that formally provided in the contract. In fact, the contractor was delayed in execution of

the Works (though not beyond the contractual completion date) and sought to claim an

extension of time for the period in which according to the contractor’s own programme the

contractor had been delayed on the basis of, amongst other things, late receipt of information.

The court refused to allow such an extension and held it was unjust unilaterally to impose a

new date on the employer. Whilst the contractor may not have received information at the

time required by the accelerated programme, this was not the test by which such provision

was to be judged. The provision of information was to be assessed in relation to the

contractual completion date agreed by both parties.

Whatever the effect of a contractor's programme throughout the duration of the works, there is

no doubt that such a programme can be an extremely useful to the contractor when making

extension of time and loss and expense claims. It is often persuasive evidence of the planned

programme for the works by which any alleged delay event or material disruption to their

regular progress can be judged.

If consciously or otherwise the programme is incorporated into the contract as a contract

document, the practical and legal effect can be serious. If the contractor is prevented from

commencing or completing any individual operation identified on the programme at or

within or by the times therein set out, that could give rise to a claim against the employer for

breach of contract.

In some contracts, the standard forms are amended to incorporate complex programmes which

identify access and completion times for individual operations. Whilst understandable for

operation reasons, notably in sub-contracts, such incorporation can give rise to serious claims.

The practical effects and consequences of a programme can be summarised as follows:

Provides a useful tool (both to the contractor and to the employer) which to measure

progress and any delays;

If the programme is delivered early enough in the contract, it a useful indication as to

the dates by which important information and instructions should be released to the

contractor;

In the case of some contracts, it will enable the phased hand over of the site to be

prepared for properly.

The Society of Construction Law has considered the issue of programmes and delay. The

result is a protocol which exists to provide guidance to all parties to the construction process

when dealing with time/delay matters. It recognises that transparency of information and

methodology is central to both dispute prevention and dispute resolution.

You can view the protocol and download a copy at:

http://www.eotprotocol.com/

Liquidated and Ascertained Damages (LADs)

64

The relationship between the standard form clauses dealing with completion, extensions of

time and LADs is crucial to the understanding of time related clauses in such forms.

The contractor is under an obligation to complete the works by a given date, but the rigours of

such an obligation are mitigated by the clauses which provide for extensions of time for such

completion. However, if the contractor fails to complete the works by the due date (as

extended), the employer has the right to deduct liquidated damages, at the rate set down in the

contract from any sum due to the contractor. It is not necessary for the employer to prove

actual loss suffered.

LADs clauses have a number of distinct functions:

1. They provide an easy means of recompense for the employer if the contractor is in

culpable delay (and in so doing, encourage the contractor to complete the works on time);

2. Their use brings certainty to the tender process, enabling the tenderer to price a known

risk and produce a reliable price for the works rather than have to price for an

unquantifiable contingency if general damages for delay were allowed;

3. The employer is better able to compare and evaluate tenders which have (at least to this

extent) priced a contingency (delay) in a uniform way;

4. They allow the contractor to assess potential liabilities to the employer by reason of

failure to complete on time at the outset of the works, thereby permitting the contractor to

choose between incurring the cost of accelerating works as against the cost of forfeiting

liquidated damages;

5. They are frequently used as a commercial cap on the financial liabilities of the contractor

for delay, comprising a purposeful under-liquidation of loss on projects where the actual

losses would otherwise be such as to deter realistic tenders; and

6. They permit the parties to agree on a sum payable as damages for delay where the task of

precise pre-estimation (let alone proof of actual loss if damages were left unliquidated)

would be impossible or extremely impractical to achieve.

LADs clauses in construction contracts relate solely to the contractor's completion obligation;

they do not prevent the employer from recovering damages for other breaches of contract by

the contractor. However, insofar as they do relate to the contractor's completion obligations,

they are to provide "an exhaustive remedy as to damages which are or are not to be paid by

the contractor”.

The function of an award of damages under English law is compensatory and not punitive.

Thus, damages are intended to compensate a party for the actual loss suffered. The same

principles apply to LADs provisions under standard form contracts. The rule is that the sum

specified under the LADs clause must be (at most) a genuine pre-estimate of the loss which

the employer is likely to suffer in the event of a delay to the completion of the works. If the

sum set down constitutes a "penalty" (i.e. is a sum substantially greater than a genuine pre-

estimate of loss), the LADs provisions in the contract will be unenforceable and the

employer's only remedy lies at common law, i.e. will have to prove actual loss as general

damages for delay to the works. Liquidated damages clauses are construed strictly so that any

ambiguity in the drafting or doubt as to its application will be construed against the employer.

Penalty Clauses

65

In English law, whilst LADs are enforceable, penalty clauses are not. How then to distinguish

the two? The most important principles to be applied in determining the true nature of any

liquidated damages clause are derived from the House of Lords' judgment in Dunlop v New

Garage Co Ltd [1915] AC 79 and are as follows:

the name given to the clause in question is relevant but not conclusive;

the true nature of the clause is a question of construction and depends upon the

individual circumstances and terms of each contract;

the sum will be held to be a penalty if it is "extravagant and unconscionable in amount

in comparison with the greatest loss that could conceivably be proved to have

followed from the breach", and/or if the sum is so large that it can be considered as

being held "in terrorem" over the contractor; and

a clause can properly be construed as one setting down liquidated damages

notwithstanding the fact that the consequences of any breach are such as to make

precise pre-estimation of damages almost impossible.

Standard Forms and LADs

Whilst the standard form sub-contracts do not generally include a provision for deduction of

LADs, most standard forms of main contract make provision for payment or deduction of

LADs for non-completion of the contract works by the required date.

Certain standard forms, notably JCT 98 and IFC 98, make the levying of LADs against the

contractor subject to:

The issue of a certificate of non-completion of the works; and

A written notice from the employer informing the contractor of intention to deduct the

specified sums.

66

Background

The Engineering and Construction Contract (ECC) was developed from its predecessor the

New Engineering Contract (NEC) to meet the current and future needs for a form of contract

to be used in engineering and construction generally. There was a general feeling that while

management processes and procedures had developed strongly standard forms of contract had

remained rooted in outdated and outmoded management; put simply management had moved

on and this was not reflected in standard forms.

The objectives for the design of the ECC were to make improvements under three main

headings:

Flexibility;

Clarity and Simplicity

Stimulus to Good Management

Flexibility

The ECC is intended to be used for engineering or construction work containing any or all of

the traditional disciplines such as civil; electrical; mechanical and building work. It is

intended to be used whether the Contractor has some design responsibility, full design

responsibility or no design responsibility. Again put simply the ECC allows for all

procurement routes; it provides all the normal options for types of contract such as:

competitive tender; where the Contractor is committed to offered prices;

target contracts;

cost reimbursable contracts and management contracts.

All the commonly used standard conditions of contract from the various sectors of

engineering and construction were reviewed in the course of designing the ECC. Some of

their provisions which were peculiar to particular sectors were omitted where they can be

accommodated in the specification. Where they are essential, they are included in the ECC

itself. For example, the need to make full provision for off-site manufacture and testing of

work which is characteristic of mechanical and electrical contracts has been accommodated in

the ECC. In order to achieve uniformity across these sectors, some changes of terminology

have been necessary. An obvious example is that the word 'equipment' is used for what, in the

building and civil engineering sectors, has hitherto been called 'plant'. The word 'plant' is used

in the ECC as it is customarily used in all the other sectors of engineering. Some familiar

phrases, such as 'temporary works’, have disappeared in the interest of flexibility and

uniformity.

Clarity and Simplicity

Although a legal document, the ECC is written in ordinary language. This makes it easily

understood by people whose first language is not English, and can be translated into other

languages easily. As far as possible it uses only words which are in common use. Long

sentences are not used.

ECC is arranged and organised in a structure which helps its users to gain familiarity with its

contents. More importantly, the actions by the parties which follow from use of the ECC are

defined precisely so that there should be few disputes about who is to do what and how.

67

The design of the ECC is based upon flow charts of the procedures which are to be followed

by the parties to the contract. One of the benefits of using this approach to drafting is that

opportunities are taken for simplifying the structure of the contract as well as making sure that

the procedures are not open-ended or conflicting. For example, almost all circumstances

which may give rise to additional payment to the Contractor are identified as compensation

events. The procedure for dealing with these events is mainly set out in the core clauses. This

includes review of both the cost and time implications of the events. This is in contrast to

traditional forms of contract in which the procedure for compensation is different depending

upon the nature of each event.

The terminology compensation events rather than the emotive word claim which is normally

used reflects the theme of co-operation between the parties. It is hoped that any disputes

which do arise will concern amounts of compensation rather that is an entitlement exists.

The initial impact of reading the ECC may not convey its full simplicity, in part because a

number of newly defined expressions are used. The quantity of text used is very much less

than existing standard forms and the amount of text needed to give effect to the options is

small. For example, there is only one clause which is used in the target contract option

uniquely. This means that the simple arrangement of the ECC makes it necessary only to add

one clause to convert another option into a target contract.

The number of clauses used is less than in many standard forms. This is because, for

simplicity of use, the average amount of text in clauses is very heavily reduced. As a

symptom of this simplicity, it should be noted that the ECC neither requires nor contains any

cross-references between clauses.

It is a fundamental objective of the ECC that its use should minimise the incidence of

disputes. To this end, words like 'fair', 'reasonable' and 'opinion' have been used to the

minimum. This does not mean that the flexibility of administering the contract has been

reduced. For example, in most instances where the Project Manager is required to make a

decision, the basis of the decision is set down in the contract. This will significantly reduce

the amount of uncertainty about the outcome of the contract. This benefits the Contractor

without constraining the freedom of action of the Project Manager acting on behalf of the

Employer.

Stimulus to Good Management

This is the most important characteristic of the ECC. Every procedure has been designed so

that its implementation should contribute to rather than detract from the effectiveness of

management of the work. This aspect of ECC is founded upon the proposition that foresighted

co-operative management of the interactions between the parties can shrink the risks inherent

in construction work. Developments in project management techniques and their

implementation over the past 20 years have moved faster than the evolution of traditional

forms of contract. With the ECC it is now possible to build arrangements for the different

parties to contribute to the management of a project upon improved practices and to motivate

all of the parties, by means of the contract, to apply such practices to their work.

The two principles on which the ECC is based and which impact upon this objective are

foresight applied collaboratively mitigates problems and shrinks risk, and

68

clear division of function and responsibility helps accountability and motivates people to play

their part.

A further important theme is that people will be motivated to play their part in collaborative

management if it is in their commercial and professional interest to do so. Reliance need not

be placed upon exhortation either within the contract or outside it.

Uncertainty about what is to be done and about how the unexpected arising in the course of

construction will affect what has to be done are inevitable in construction projects. The ECC

allocates the risks arising in these ways clearly between the parties. However, its main task is

to reduce the incidence of each of those risks by application of collaborative foresight. In this

way, it aims to improve the outcome of projects generally for parties whose interests might

seem to be opposed.

All the procedures in the ECC are designed to stimulate good management. Examples of these

are:

The early warning procedure

The way in which compensation events are dealt with.

Compensation events are events which can lead to an extra payment to the Contractor or a

delay to the completion date, or which may affect the performance of the completed project.

A principle of the ECC is that the Project Manager, acting on behalf of the Employer and in

communication with the Project Manager, should be presented with options for dealing with

the problem which allow informed choice directed by the interests of the Employer. The

Contractor should be indifferent to the choice made. To achieve this, the valuation of

compensation events is based upon a forecast of the impact which the change or problem will

have upon the actual cost to the Contractor of carrying out the work as forecast at the time

that the event is assessed. Where alternative ways of dealing with the problem are possible,

the Contractor prepares quotations for the different ways in which the problem can be tackled.

The Project Manager selects one on the basis of which will most serve the interests of the

Employer. In some cases this will be the lowest cost solution, in others it might be the least

delay solution.

The change to the prices for the work is based upon the quotation. Subsequently, the

Contractor is at risk if the forecast of cost impact turns out to be wrong, but the Employer has

a firm commitment. The risk to the Contractor if this method of pricing is conceptually

similar to the risk taken by pricing work at tender. It is a lesser risk because the Contractor is

able to forecast costs very much more accurately at the time that the problem is identified than

the Contractor would have been able to do at the tender stage.

This arrangement stimulates foresight and enables the Employer to make rational decisions

about changes to the work with reasonable certainty of their cost and time implications, and to

put a risk on the Contractor which is entirely tolerable but which motivates to manage the new

situation efficiently. An important by-product is that few issues relating to valuation of the

work or extensions of time are left to be settled after the event.

This is a good example of how the procedures in the ECC have been designed to stimulate

good management and to shrink risk.

69

A typical aspect of this characteristic is the way in which the ECC makes use of the

programme for design, construction and installation. Many of the detailed procedures rely

upon the fact that an up-to-date and realistic programme maintained by the Contactor is used

in joint decision-making between the Contractor and the Project Manager. The use of the

programme (which includes method and resource statements) is defined in some detail. In

such a way that the Contractor is motivated to keep it up-to-date and realistic, not simply

exhorted or compelled to do so.

The Structure of the ECC

The documents which make up the ECC are:

the core clauses

the optional clauses

the Schedule of Cost Components

the Contract Data.

The core and optional terms

The conditions of contract themselves comprise the core clauses, which are used unaltered for

all projects, and the optional clauses. The six main options cover the six basic types of

contract such as conventional pricing with bill of quantities, target cost and management

contracts. One of these six options must be chosen and the block of clauses which apply must

be included in the contract. The secondary options provide for such things as the use of

multiple currencies, retention, bonds and price adjustment. In its simplest form, the ECC can

be used without any of these secondary options. At the other extreme, most of them can be

used, although it is unlikely that this would ever be necessary and there are some

combinations of secondary options which will never be used. For example, unless the

Contractor is to be made an advance payment, the option for an advanced payment bond

would not be used. Many of the clauses in the options are common to more than one option.

The Schedule of Cost Components

The Schedule of Cost Components is a complete identification of components of cost which is

not varied from one contract to another. It is used to avoid uncertainty where actual cost has

to be assessed in connection with any of the procedures of the contract itself. This occurs, for

example, in cost reimbursable contracts.

The Contract Data are filled in for each project and this identifies such things as the

completion dates, the contract-specific documents (e.g. specifications and drawings), interest

rates, price adjustment indices to be used (if any) and many other things.

Versions of the ECC are published separately for each main option.

Roles and Duties

The ECC sets out the responsibilities and roles of the following parties:

Employer,

Project Manager,

Supervisor,

70

Contractor,

Subcontractor,

Supplier,

Adjudicator,

Arbitrator.

The unfamiliar names on this list are Project Manager, Supervisor and Adjudicator. A

separate function of Employer's designer is assumed but not mentioned in the contract. The

role played by the Engineer in other standard forms is effectively divided between the Project

Manager, the Supervisor, the Employer's designer and the Adjudicator.

The role of the Project Manager is to manage the project on behalf of the Employer. The role

is defined in the contract in terms of the actions and decisions to be taken. The Project

Manager is expected to carry out this role unequivocally as Employer's Project Manager and

with the intention of achieving the objectives of the Employer for the complete project. The

Project Manager is constrained from acting unreasonably in this role by statements in the

contract governing how decisions should be made but not what decision should be made. If

the Contractor believes that any of the Project Manager's actions or decisions are not in

accordance with the contract, these may be referred to the Adjudicator. The Adjudicator

carries out the function formerly carried out in many contracts by the Engineer in a quasi-

arbitral role, although the procedure is simplified.

The Supervisor acts for the Employer in maintaining quality control, again within the limits of

authority set down in the contract. The role is like that of the Resident Engineer although

different in some significant respects. Note that the term Resident Engineer might be related

to an Architect on site.

Self-Appraisal Questions

1) Am I able to demonstrate that I can now meet the objectives set out at the start of this

section

Looking at my responses to the exercises, can I:

1. Describe the procedures and practice in standard forms in the areas of:

1.1. Site Possession;

1.2. Commencement;

1.3. Progress;

1.4. Completion;

1.5. Variation;

1.6. Extension of time;

1.7. Programming;

1.8. Liquidated and Ascertained Damages.

2. Discuss the relationship between management and standard forms using the example of

the Engineering and Engineering Contract

71

6. Health and Safety

Health and Safety

This section deals with Health and Safety. You are asked to do several things: complete the

Blackboard section [including brief exercises]; read the workbook; read some material from

books in the library and visit some websites.

Introduction

There is excellent material in the textbook which supports this section: Uff, J Construction

Law,. You should read pages 491-505 which describe general principles of health and safety

with this section. The intention here is not to repeat the material in the textbook but to

provide some additional material; and sometimes an alternative analysis.

The course you are following attracts students of many disciplines [civil, mechanical and

aerospace] and from many nations and it would be impossible to consider all the aspects of

health and safety in the UK let alone in each country. However the health and safety issues

facing the parties to engineering are generic; and by considering certain of these issues you

will be able to analyse the effect of health and safety law.

You might remember that I made a distinction between civil and criminal law; and that mostly

we were considering civil wrongs. Health and Safety law is an example where criminal law

dominates and you might return to the distinction between civil wrongs and criminal wrongs

that you considered in Section 1.

72

Section Aim and Objectives

The section might be described via an overall aim and measurable objectives.

To consider the law associated with health and safety and its relevance to engineering

projects and engineering professionals.

Within the overall aim the following measurable objectives are set

The student will be able to:

Discuss the need for regulation in markets;

Describe the history of health and safety legislation in the UK

Consider 4 specific areas:

Health and safety at work act 1974;

Construction (Design and Management) Regulations [CDM];

Work in confined spaces

Corporate Manslaughter.

Introduction

One definition of law is that it regulates activity. Commercial law regulates commercial

activity: Article I, §8, Clause 3 of the U.S. Constitution provides that:

"The Congress shall have power . . . To regulate commerce

This is known as the Commerce Clause

http://itlaw.wikia.com/wiki/Commerce_Clause

Free marketers propose that the market will regulate and that no other regulation is necessary

but most accept that a mixed approach is required. The free market cannot be left to its own

devices and that some regulation is required. This regulation might protect the vulnerable.

Health and Safety legislation protects the vulnerable but has come to be seen by some as the

epitome of over-protection. “Health and Safety gone mad”.

Without health and safety legislation vulnerable people are left unprotected; it is worth

remembering that various legislations were required to prevent the worst excesses of the

industrial legislation [in 1788, the Act for the Better Regulation of Chimney Sweepers and

their Apprentices limited a sweeper to six apprentices who must be at least 8 years old].

Consider the various Factories Acts at:http://en.wikipedia.org/wiki/Factory_Acts

Some health and safety legislation

Examples of legislation seeking to provide some form of protection to workers include:

1802 Health & Morals of Apprentices Act. First attempt to regulate pauper children in the

textile industry

73

1819 Factory Act. No children under nine years old to work in cotton mills. Children under

nine years in other factories to work an 11 hour maximum day

1833 Althorp's Factory Act. Limited hours to be worked by children. Established four factory

inspectors

1842 Mines Act. Employment of all women (and children under 10 years of age) prohibited

underground

1901 Minimum working age set at 12 years. Trade Boards introduced to set minimum wages

in specific industries

1937 Factory Act. Limited workers under 16 years of age to a 44 hour week

1974 Health and Safety at Work Act. Health and safety legislation extended to all workplaces.

Provisions extended to off-shore gas and oil workers from 1975

Health and safety in engineering

It would impossible to cover all the aspects of health and safety in engineering because of the

broad nature of engineering, just look at the information under engineering at HSE

http://www.hse.gov.uk/fod/engid.htm.

I am going to consider 4 areas: health and safety at work act 1974; Construction (Design and

Management) Regulations [CDM]; work in confined spaces and Corporate Manslaughter.

Education of engineers

Consider the conclusions of the report into undergraduate education:

http://www.hse.gov.uk/engineering/engineer.pdf

The Health and Safety at Work Act

The Health and Safety at Work etc Act 1974 , also referred to as HASAW or HSW, is the

primary piece of legislation covering occupational health and safety in the United Kingdom.

The Health and Safety Executive is responsible for enforcing the Act and a number of other

Acts and Statutory Instruments relevant to the working environment.

The full text of the Act can be downloaded free of charge from:

http://www.hse.gov.uk/legislation/hswa.pdf

Statutory instruments are the secondary types of legislation made under specific Acts of

Parliament, in this case The Health and Safety at Work etc Act 1974 . The secondary

legislation is made up of Statutory Instuments (SIs), often referred to as ‘regulations’. It is

enforced by HSE and Local Authorities (LAs). HSE and LAs work locally, regionally and

nationallly, to common objectives and standards. These cover a wide range of subjects, from

control of asbestos at work, diving, escape and rescue from mines, ionising radiation and

working at height. A full list is available at

http://www.hse.gov.uk/legislation/statinstruments.htm.

Construction (Design and Management) Regulations [CDM]

74

The latest version is The Construction (Design and Management) Regulations 2007. Since

coming into force in 1995 the CDM regs have had a major impact on all major construction

work. Download a complete copy at: http://www.opsi.gov.uk/si/si2007/uksi_20070320_en_1

The CDM 2007 Regulations apply to most common building, civil engineering and

engineering construction work. The legislation demands that someone CDM Cordinator or

Principal Contractor must notify HSE of the site if the construction work is expected to either:

last longer than 30 days; or

involve more than 500 person days of construction work;

Work in Confined Spaces

This is an example of situations where people will often rush into complete work unaware of

the dangers. A number of people are killed or seriously injured in the UK each year in

confined spaces. These occur across a wide range of industries, from those involving complex

plant through simple storage vessels. Those killed include not only people working in the

confined spaces but those who try to rescue them without proper training or equipment. For

example domestic drainage manholes or inspection chambers are often too small to allow

access i.e. work must be done from above ground. Many people when faced with a manhole

which allows access to the system fail to see the danger and enter; never enter an enclosed or

confined space without appropriate training..

HSE define a confined space. A confined space is a place which is substantially enclosed

(though not always entirely), and where serious injury can occur from hazardous substances

or conditions within the space or nearby (e.g. lack of oxygen).

Under HASAW employers are responsible for ensuring the safety of their employees and

others. This responsibility is reinforced by regulations.

The Confined Spaces Regulations 1997 apply where the assessment identifies risks of serious

injury from work in confined spaces. The regulations contain the following key duties:

avoid entry to confined spaces, e.g. by doing the work from the outside;

if entry to a confined space is unavoidable, follow a safe system of work; and

put in place adequate emergency arrangements before the work start

http://www.hse.gov.uk/pubns/indg258.pdf

Corporate Manslaughter

Corporate Manslaughter and Corporate Homicide Act 2007

There was considerable disquiet at the perceived lack of action against corporations when

serious accidents had occurred. The law until 2007 required that a ‘controlling mind’ [ a

director or senior manager] be guilty of manslaughter. In practice, particularly in

prosecutions of large companies, it can be very difficult to prove a link between a death and

the ‘controlling mind’. One of the most notorious prosecutions to fail in this respect was that

of P&O European Ferries following the sinking of the Herald of Free Enterprise.

75

The Corporate Manslaughter and Corporate Homicide Act 2007 is a landmark in law. For the

first time, companies and organisations can be found guilty of corporate manslaughter as a

result of serious management failures resulting in a gross breach of a duty of care.

The Act, which came into force in 2008, clarifies the criminal liabilities of companies

including large organisations where serious failures in the management of health and safety

result in a fatality. The Act introduces a new offence, across the UK, for prosecuting

companies and other organisations where there has been a gross failing, throughout the

organisation, in the management of health and safety with fatal consequences.

http://www.justice.gov.uk/publications/corporatemanslaughter2007.htm

http://www.corporatemanslaughter.net/Index.php

Self-Appraisal Questions

1) Am I able to demonstrate that I can now meet the objectives set out at the start of this

section

2) Looking at my responses to the exercises, can I:

3) Discuss the need for regulation in markets;

4) Describe the history of health and safety legislation in the UK

5) Consider 4 specific areas:

a) Health and safety at work act 1974;

b) Construction (Design and Management) Regulations [CDM];

c) Work in confined spaces

d) Corporate Manslaughter.

76

7. Risk

Risk in Contracts

This section deals with Risks in Contracts. You are asked to do several things: complete the

Blackboard section [including brief exercises]; read the workbook; read some material from

books in the library and visit some websites.

Introduction

Contracts allocate risks; there is no direct material in the textbook which supports the module.

The intention here is to introduce risk in contracts; I do that via a classification of risk

allocation in contracts. The classification is 3 broad types of contract:

Lump Sum

Measure and value [remeasurement]

Cost reimbursement [cost plus]

You might need to reconsider sections 4 and 5: The Concepts of Standard Forms of Contract

and The Key Area of Standard Forms; the role of Management in Standard Forms.

This section is not about: Risk Theory; Stratification of Risk or Risk Management it is about

risk in contracts. I say this because all these terms are widely used in engineering, any search

engine will produce these and many others. In particular Risk Management is a distinct

engineering specialism.

77

Section Aim and Objectives

The section might be described via an overall aim and measurable objectives.

Aim: To consider the concept of risk in contract

Within the overall aim the following measurable objectives are set

The student will be able to:

Explain the allocation of risk in contracts

Understand the complex nature of risk theory; the stratification of risk and other risk

related topics

Distinguish between Risk Management and Risk in contracts

Explain the classification of contracts into:

o Lump Sum

o Measure and Value

o Cost reimbursement

The Concept of Risk

Most explanations differentiate between Risk and Uncertainty; they differentiate between risk

and uncertainty as:

Risk = quantifiable = insurable

Uncertainty = unquantifiable = not insurable

A further explanation in terms of probability goes:

Risk = Probability of event x Magnitude of loss/gain whereas in uncertainty it is not possible

to attach probability

While the future is largely unknown, businesses make decisions on the basis of expectations

about the future and this involves taking risks.

Risk and Uncertainty defined: there are lots of definitions. A useful combination of the many

definitions suggests that risk and uncertainty characterise situations where the actual

outcome for a particular event or activity is likely to deviate from the estimate or forecast

value. Of course this works two ways; actual outcome might be better than forecast or worse.

Some talk of Upside & Downside Risk. Risks works in two ways; the outcome my better or

worse than expected. These are known as upside and downside risks

78

Risk Theory

Risk theory is a theory of decision-making under probabilistic uncertainty, from a

mathematical point of view it is a branch of probability theory. Risk Theory applications

cover all aspects of life, but are perhaps most advanced in Finance [e.g. banking, insurance,

managing market and credit risks, investments and business risks]. This section is not about

risk theory, or Stratification of risk, or risk management; it is about risk in contracts.

Stratification of risk

Risk stratification is a statistical process used by clinicians by which quality of care can be

assessed. This section is not about Stratification of risk or risk theory or risk management; it

is about risk in contracts.

Risk Management

This is the biggest category of what this section is not about. Risk Management is a widely

used technique, across all engineering disciplines, directed towards the assessing, mitigating

(to an acceptable level) and monitoring of risks.

Spend some time at the risk wiki seeing what this section is not about.

http://en.wikipedia.org/wiki/Risk_management

Contracts and Risk

Contracts allocate risks; some of these come from experience. For example: Rain in

Manchester: experience tells us that it will rain in Manchester; rain delays outdoor activities.

What do construction contracts say about weather conditions? The standard form of building

contract talks about exceptionally adverse weather. If exceptionally adverse weather occurs

the contract provides that the contractor is allowed extra time to complete i.e. he gets an

extension of time which removes his liability to pay Liquidated and Ascertained Damages

[LADs]. Remember most contracts for project based engineering provide that the contractor

will execute the works for an agreed amount in a stated time. [I agree to build that office

block/bridge/aircraft/nuclear submarine for £x million in y weeks].

Classification of risk

One way of classifying risk allocation in contracts is to talk of 3 broad types of contract:

Lump Sum

Measure and value

Cost Reimbursement

Lump Sum

Here the work [the object of the contract] is fully defined and capable of quantification. The

contractor can assess the risk [including the contract conditions] and provide a lump sum

quote in advance. Typically most new building projects are capable of being let on a lump

sum basis. The Standard Form of Building Contract is an example of a lump sum contract.

Measure and Value [re-measurement]

79

Here the work is fully defined BUT is not capable of quantification in advance. The

contractor can assess the risk [including the contract conditions] but cannot provide a lump

sum quote in advance, since the quantity may change; he can however provide a list, or

schedule, of rates for the work defined. This list of rates can be used to measure and value the

work when completed. Typically Civil Engineering projects are let on a re-measurement

basis. For example tunnelling projects require re-measurement. Civil Engineering contract

[ICE 6th

Edition] is an example of a Measure and Value contract.

Cost Reimbursement [cost plus]

Sometimes the work is incapable of definition or quantification in advance. No contractor can

assess the risk. What to do in such circumstances? And they are not uncommon One

solution is to get the contractor to complete the work and to pay for the work on a cost

reimbursement basis; i.e. the contractor’s costs as they occur. Sometimes arrangements are

made to pay direct costs plus a fee [either a fixed fee or a percentage] this explains the

alternative name: cost plus. Cost Plus [a fee] the fee might be fixed [£X, or it might be a

percentage of the cost]. Examples of work that can neither be let on a lump sum or a measure

and value basis; and therefore require cost reimbursement include: repairs and maintenance or

new work where the object is technically innovative. An example: many of the university

buildings [and generally] have dangerous asbestos content; any repair and maintenance work

will expose the asbestos but the amount and how it can be treated cannot be judged until it is

exposed. The only way to let contracts is to get on with the work and to pay the contractor.

As to technically innovative work; examples include matters of national security and defence

e.g. The EuroFighter project.

Exercise: visit the Eurofighter wiki and write brief notes [100 words] about the cost increases.

http://en.wikipedia.org/wiki/Eurofighter_Typhoon

Exercise: I propose the following example of projects which fit into my classification of:

lump sum; re-measurement and cost re-imbursement:

A new luxury house for me designed by an architect – Lump Sum

A new drainage project – Re-measurement

Asbestos removal from the ceiling of my office - Cost re-imbursement.

Because

The house is designed and the quantities can be calculated;

The drains are designed but the quantities are uncertain;

The extent of the asbestos is unknown it was included when the Pariser Building was

built in the 1960’s and there are no records

Give 3 examples of your own with reasons.

80

Self-Appraisal Questions

1) Am I able to demonstrate that I can now meet the objectives set out at the start of this

section

Looking at my responses to the exercises, can I:

2) Consider the concept of risk in contract

3) Explain the allocation of risk in contracts

4) Understand the complex nature of risk theory, the stratification of risk and other risk

related topics

5) Distinguish between Risk Management and Risk in contracts

6) Explain the classification of contracts into:

a) Lump Sum

b) Measure and Value

c) Cost reimbursement

81

8. Conflict Theory

Conflict, Dispute and Conflict Theory

Introduction

This section deals with Conflict, Dispute and Conflict Theory.

There is a general feeling that conflict is a bad thing and should be avoided. Two of the

influential thinkers who first proposed that this view of conflict was simplistic are: Mary

Parker Follett and John Dewey. Any kind of search on either will bring dividends: Follett

suggested a distinction between functional and dysfunctional conflict; Dewey said:

Conflict is the gadfly of thought. It stirs us to observation and memory. It instigates

to invention. It shocks us out of sheeplike passivity, and sets us at noting and

contriving.

Exercise: Use a search engine to find quotations from Mary Parker Follett and John Dewey;

write brief notes on your favourite [with your reasons.

Exercise: Conflict and dispute are inevitable on commercial projects; therefore conflict

management is more important than dispute resolution. Write brief notes [100 words] .

The terms conflict and dispute are often interchanged; serious authors [e.g. Brown and

Marriot (1994) achieve it in the first paragraph] consider The Office of Government

Commerce: Dispute Resolution Guidance approach at http://www.ogc.gov.uk.

This section considers the role of conflict theory in explaining commercial conflict

management and dispute resolution.

Aim and Objectives

The section might be described via an overall aim and measurable objectives.

The section aim is

To consider the difference between conflict and dispute

Within the overall aim the following measurable objectives are set:

Explain the difference between conflict and dispute

Discuss the origins of Conflict Theory

Discuss the application of Conflict Theory to commercial conflict management and

dispute resolution.

Conflict and Dispute are difficult words; they are often interchanged. Some theorist take

conflict as the stronger term [i.e. dispute is all around but only occasionally does conflict

break out] and some take completely the opposite view [i.e. conflict is all around but only

occasionally does dispute break out]. This workbook takes the position that conflict is

necessary and inevitable but that disputes are to be avoided.

82

There exists enormous interest in commercial disputes amongst the professions, industry and

academia. The interest is mostly with the techniques used to resolve disputes; there exists

little by way of research into conflict and dispute.

Conflict and Dispute

Disputes are time consuming, expensive and unpleasant. They can destroy client/supplier

relationships which have been painstakingly built up over long periods of time. Disputes can

add substantially to the cost of a project even making a project unsuccessful, unfeasible or

nullifying any benefits. Disputes need to be avoided; if the dispute cannot be avoided then

they should be resolved as efficiently as possible to manage the ‘Problem’, negotiate a

‘Settlement’, help ‘Preserve Relationships’ and maintain ‘Value for Money’.

Is there a difference between conflict and disputes?

Many people would not recognize a distinct difference between the terms conflict and dispute.

Certainly most people would not concern themselves with any definition. Academics, and

others, would usually make definition their starting point. Definition provides structure and

structure may allow explanation and understanding.

Conflict and dispute studies do form academic disciplines. Any attempt here to summarise

the various strands of academic disciplines would be doomed to failure and debate on

definition. In an attempt to avoid this, it is suggested the following are some of the areas of

conflict and dispute studies:

Peace and Conflict Studies

Conflict Management as an Organisation Management Science

Conflict Management and Dispute Resolution

Much useful material is available on the Internet try:

http://www.cgpacs.uci.edu/

Many scholars do draw a distinction between the two terms.

Functional and dysfunctional conflict

Early conflict theory marked all conflict as a bad thing that should be avoided. Amongst the

first to question this was Mary Parker Follett; she said that effective conflict management

ought not to conceive conflict as a wasteful outbreak of incompatibilities, but a normal

process whereby socially valuable differences register themselves for the enrichment for all

concerned. Three methods: domination; compromise and integration were advanced for

dealing with conflict of which only integration was strongly advocated.

Domination, whereby there is a victory of one side over the other (a win-lose

situation).

Compromise, whereby each side gives up something in the process (a lose-lose

situation).

Integration, whereby each side refocuses their efforts so that neither side loses

anything and in fact each gains (a win-win situation).

83

Follett believed that domination should be avoided at all costs. Although application of this

strategy requires little effort on the part of the parties and their agents, the long-term side

effects can be devastating. Compromise carries with it the assumption that both parties will

be happy because each will gain something, but each loses something as well and this in turn

creates the potential for further conflict. Integration was favoured simply because if both

parties can become satisfied there will remain no issue or problem – obviously an ideal

situation not easily attained.

Often the following terms are used in discussing conflict:

Win-lose

Win-win

Lose-lose

No win no lose

Win-lose is often overused as a strategy for solving conflicts. It assumes the use of mental or

physical power to bring about compliance; a lose-lose approach will also leave no one entirely

happy. Compromise, side payments and submission of the issue to a neutral third party, as in

the arbitration procedure, constitute examples of this latter approach. The win-win approach

is now becoming more popular although it is still misunderstood by many parties and their

agents. This method yields solutions satisfactory to all in that each party to the conflict wins

something, and the conflict is therefore resolved constructively. It could be suggested that

important conflicts tend to be best managed with positive-sum (win-win) strategies, while

more trivial issues merit no more than zero-sum (win-lose/lose-lose) strategies, with most

situations calling for contingency or mixed modes (no win-no lose). Zero-sum and other

terms are borrowed from game theory; we will return to game theory later.

A further distinction between conflict and dispute that is particularly useful is the distinction

made by Burton (1993) which distinguishes the two based on time and issues in contention.

Disputes, Burton suggests, are short-term disagreements that are relatively easy to resolve.

Long-term, deep-rooted problems that involve seemingly non-negotiable issues and are

resistant to resolution are what Burton refers to as conflicts. Though both types of

disagreement can occur independently of one another, they may also be connected. In fact,

one way to think about the difference between them is that short-term disputes may exist

within a larger, longer conflict. A similar concept would be the notion of battles, which occur

within the broader context of a war. Other theorists talk of strategy and tactics; tactics win the

battle but strategy wins the war.

From this analysis of conflict and dispute it can be argued that conflict is necessary and

inevitable but that disputes are to be avoided. The school of Western thought which maintains

that conflict (but not dispute) is inevitable (see deBono, 1985). Conflict is part of Western

societies and idioms; there is a Western dialectic argument idiom to use the academic jargon.

Conflict is part of dynamic capitalism and an integral part of commercialism; conflict might

be seen as the functional and necessary part. Dispute on the other hand only develops when

conflict is not (or cannot be) managed; dispute is the unnecessary or dysfunctional element

and logically there should be two areas for consideration:

84

Conflict Management: Here the emphasis is on the axiom that it must be in all

parties interests to avoid disputes by managing conflict in such a way that disputes do

not arise; this is sometimes described as dispute avoidance.

Dispute Resolution: Notwithstanding the emphasis on the desire to avoid

dispute, there must be occasions where the parties have legitimate disputes and that

the techniques of dispute resolution are employed to bring about the conclusion or

resolution of the dispute.

The distinction between conflict and dispute is shown diagrammatically in Figure 1.

Conflict Management

Fig 1

Figure 1: Conflict Continuum

Conflict Theory

A theory of conflict does exist; it was founded by Karl Marx. Marx expresses the theory in

terms of a class struggle; the struggle between classes. Others took the theory forward

[notably Max Weber]. A glance at the conflict literature shows there is a great diversity of

conflict knowledge; from the everyday knowledge we all have to the sophisticated theoretical

writings of sociologists. The problem is how to present this broad range of knowledge in an

understandable manner. One way of dealing with this is to consider that the theories apply to

many different conflicts; even that they apply to all conflicts. Sociological theories apply to

commercial conflict. In addition the theories should be presented in a simple way. One

famous definition of economics is that it is a study of the allocation of scarce resources which

have alternative uses. Conflict theory might be expressed in a similar way; conflict is

CONFLICT

DISPUTE

Conflict

Avoidance Informal Negotiate Discussion

ADR Arbitrate Litigate

Adjudicate

Other

Action

Violence

85

inevitable as organisations seek to redistribute scarce resources. This is a classic Marxist

view.

Wikipedia provides a useful examination of Conflict Theory

http://en.wikipedia.org/wiki/Conflict_theory

Exercise: The Wikipedia entry is heavily focussed on social conflicts; you should consider

how the entry might be edited for conflicts between organisation as opposed to conflict

between classes. In particular, draft sections on:

Basic conflicts;

Modes of conflict;

Assumptions.

Self-Appraisal Questions

1. Am I able to demonstrate that I can now meet the objectives set out at the start of this

section.

Looking at my responses to the exercises:

2. Have I explained and understood the difference between conflict and dispute. In line

with the measurable objectives set, can I:

a. Explain the difference between conflict and dispute

b. Discuss the origins of Conflict Theory

c. Discuss the application of Conflict Theory to commercial conflict management

and dispute resolution.

3. Discuss the application of Conflict Theory to commercial conflict management and

dispute resolution

86

9. Comparison Of Dispute Resolution Techniques

Introduction

This section introduces the difference between conflict, disputes and the concepts of conflict

management and dispute resolution. A continuum of conflict and disputes and the techniques

of dispute resolution are outlined. The techniques predominantly practised tion Adjudication;

Arbitration and Mediation are introduced, and a comparative analysis is made.

At the end of this section you will be able to:

Discuss the stages of dispute resolution

Evaluate the process and strategies of:

o Construction Adjudication;

o Arbitration;

o Mediation.

Compare and contrast the key dispute resolution techniques of Construction Adjudication,

Arbitration, Mediation with Litigation in the areas of:

o Formality

o Speed

o Flexibility

o Cost

o Confidentiality

o Relationships

o Control and Choice

o Solutions

87

Conflict management and dispute resolution techniques

The range of conflict management and dispute resolution techniques include:

Conflict avoidance: a variety of techniques some used consciously and some subliminal to

avoid the escalation from normal conflict into dispute. Examples might include: risk

management to ensure that risks are identified; analysed and managed; procurement strategies

to ensure that risks are appropriately allocated and contractual arrangements to allow sensible

administration.

Negotiation: this is easily the most common form of dispute resolution, carried out in many

forms every day by just about everybody. In negotiation the parties themselves attempt to

settle their differences using a range of techniques from concession and compromise to coerce

and confront.

Mediation: a private and non-binding form of dispute resolution where an independent third

party [neutral] facilitates the parties reaching their own agreement to settle a dispute.

Mediation is often a structured process where the settlement becomes a legally binding

contract.

Conciliation: a process of mediation where the neutral proposes a solution. In the same way

that we distinguished between a continuum of conflict and dispute; a continuum of mediation

and conciliation shows mediation at one facilitative end and conciliation at the other

evaluative end of the continuum.

Med-arb: is a combination of mediation and arbitration where the parties agree to mediate

but if that fails to achieve a settlement the dispute is referred to arbitration. The same person

may act as mediator and arbitrator in this type of arrangement.

Dispute Resolution Adviser (DRA): The concept of DRA is the use of an independent

intervener. This independent intervener is paid for equally by the employer and the contractor

to settle disputes as they emerged; rather than wait until the end of the contract.

Dispute Review Boards (and Dispute Review Panel): Dispute Review Board is a process

where an independent board evaluate disputes.

Neutral evaluation: a private and non-binding technique where a third party neutral (often

legally qualified, gives an opinion on the likely outcome at trail as a basis for settlement

discussions.

Expert Determination (Submission to Expert, Reference to an Expert, Expert

Adjudication): these are long-established procedures in English law and have been used

across a number of industries. Examples include - accountants valuing shares in limited

companies, valuers fixing the price of goods, actuaries carrying out valuations for pension

schemes, certifiers of liability for on-demand performance bonds, and Adjudicators who are

said to be acting “as expert and not as arbitrator”.

Mini-Trial (or Executive Tribunal): This is a voluntary non-binding process. The parties

involved present their respective cases to a panel comprised of senior members of their

organisation. The panel is assisted by a neutral facilitator and has decision making authority.

88

After hearing presentations from both sides, the panel ask clarifying questions and then the

facilitator assists the senior party representatives in their attempt to negotiate a settlement.

Adjudication: this refers to Statutory Adjudication in Construction Disputes as set out in the

Housing Grants, Construction Regeneration Act 1996. Here decisions of an adjudicator are

binding on the parties at least until a further process is invoked (Arbitration or Litigation).

Arbitration: a formal, private and binding process where disputes are resolved by an award

of independent tribunal [third party or parties, the arbitrator or arbitrators]. The tribunal is

either agreed by the parties or nominated by a further independent body: e.g. a court or a

professional institution The Chartered Institute of Arbitrators.

Litigation: the formal process whereby claims are taken through court and conducted in

public; judgements are binding on the parties subject to rights of appeal.

This is by no means an exhaustive or exclusive list; you will undoubtedly find others, the

references in the reading list contain many other examples. Indeed one definition of ADR is

Appropriate Dispute Resolution and there may be a ‘killer application’ yet to be devised. You

will see from Figure 1 that at the dispute end of the continuum lies violence, hopefully we

will not have to consider this option.

89

The Stages of Conflict Management and Dispute Resolution

The stages of conflict management and dispute resolution are usefully described in a

document produced by the Office of Government Commerce: Dispute Resolution Guidance

which can be viewed and downloaded from the internet at http://www.ogc.gov.uk. The stages

are:

Stage 1: Negotiation

Stage2: Non Binding Techniques and Processes

Stage 3: Binding Techniques and Processes

The Principal Stages and The Dispute Resolution Options are shown below

Principal Stages of Conflict Management and Dispute Resolution

90

Stage 1 Stage 3 Stage 2

Negotiation

Mediation

Conciliation

Neutral Evaluation

DRA’s etc

Adjudication

Expert

Determination

Arbitration

Litigation

91

METHOD COMMON

LAW/

STATUTE

BASIS

FREQUENCY

OF USE

SPEED COST CONFIDENTIALITY BINDING ADVERSARIAL SPECIAL

FEATURES

Stage 1

Negotiation No Very Common Ubiquitous

Varies Low Yes No No Can continue throughout the

dispute

Stage 2

Mediation No Common Fast Low Yes No (unless agreed) No

Conciliation No Fairly Common Fast Low Yes No (unless agreed) No Often included with

mediation

Neutral Evaluation No Infrequent Fast Low Yes No No

Adjudication Yes Common Fast Low Yes Yes (until completion or

Arb/Lit)

Yes Statutory adjudication is

construction

specific

Stage 3

Arbitration Yes Common Contingent Contingent Yes Yes Yes

Expert

Determination

No Fairly Common Fast Moderate Yes Yes Yes

Litigation Yes Common Slow High No Yes Yes

Stage 1

Negotiation No Very Common

Ubiquitous

Varies Low Yes No No Can continue

throughout the

dispute

Stage 2

Mediation No Common Fast Low Yes No (unless agreed) No

Conciliation No Fairly Common Fast Low Yes No (unless agreed) No Often included with

mediation

Neutral Evaluation No Infrequent Fast Low Yes No No

Adjudication Yes Common Fast Low Yes Yes Yes construction

specific

Stage 3

Arbitration Yes Common Contingent Contingent Yes Yes Yes

Expert

Determination

No Fairly Common Fast Moderate Yes Yes Yes

Litigation Yes Common Slow High No Yes Yes

92

Three ‘core’ processes of dispute resolution and a spectrum of dispute resolution

It is useful to consider the problem from a different angle, Authors talks of three core

techniques, which may be employed in the resolution of disputes. Firstly, negotiation, which

refers to the problem solving efforts of the parties. Second, third party intervention, which

does not lead to a binding decision being imposed on the parties, finally the adjudicative

process, the ultimate outcome of which is an imposed binding decision. Such an approach

has been adopted by Green and Mackie (1995), who refer to the “three pillars” of dispute

resolution. The discrete techniques may be introduced under one of the three pillars,

depending upon the main characteristics of the particular technique; see Figure 5 below:

Figure 5: 'The Dispute Resolution Landscape'

Negotiation Mediation Adjudication

Facilitative Evaluative mediation mediation

Mini-trial or executive tribunal

Med-Arb Consensus- building

Variations on 'neutral expert’ types of process

Conciliation Litigation Arbitration

Expert determination Adjudication Ombudsmen

Dispute Review Boards

Neutral fact-finding Expert appraisal

Early neutral evaluation

Source: Mackie, K. Miles, D. and Marsh, W. (1995)

Arguably, all dispute resolution techniques are built upon three basic principal methods:

negotiation, mediation/conciliation, and some form of adjudicative umpiring process.

93

Outline Of The 3 Dispute Resolution Techniques

This section provides an outline of the 3 dispute resolution techniques predominantly offered.

Construction Adjudication

Arbitration

Mediation

What follows is a simple introduction to each technique, followed by a comparison.

94

Construction Adjudication (under the Housing Grants Construction and Regeneration

Act 1996)

The Housing Grants Construction and Regeneration Act received Royal Assent on 24th July

1994. Those parts relating to construction (Part II of the Act) commenced on 1 May 1998.

The Act sets out a framework for a system of adjudication; all construction contracts must

meet minimum criteria and if they fail the Scheme for Construction Contracts will apply.

Statutory Adjudication - The Process

Under Part II of the Housing Grants, Construction and Regeneration Act 1996 a party to a

construction contract is unilaterally given the right to refer a dispute arising under the contract

to adjudication. The Act only applies to "construction contracts" which fall within the

detailed definition of Section 104 For example, "architectural design, surveying work or to

provide advice on building, engineering, interior or exterior decoration or the laying out of

landscape in relation to construction operations" are included within the scope of the Act,

whilst contracts of employment are expressly excluded. In addition, a construction contract is

defined to include an agreement to carry out "construction operations". Construction

operations are further defined in Section 105 to include a wide variety of general construction

related work together with a list of notable exceptions. A further notable exception is a

construction contract with a residential occupier. The provisions only apply where the

construction contract is in writing.

Section 108 sets out the minimum requirements for an adjudication procedure. These may be

summarised as follows:

Notices: A party to a construction contract must have the right to give a notice at any time of

his intention to refer a particular dispute to the adjudicator.

Appointment: A method of securing the appointment of an adjudicator and furnishing him

with details of the dispute within seven days of the notice is mandatory.

Time scales: The adjudicator is then required to reach a decision within 28 days of this

referral. It will not be possible to agree in advance of any dispute that additional time may be

taken for the adjudication. There are only two exceptions to this rule. First the adjudicator

may extend the period of 28 days by a further 14 days if the party referring the dispute

consents. Second, a longer period can be agreed by consent of all the parties. Such

agreement can only be reached after the dispute has been referred

Act impartially: The adjudicator is required to act impartially.

Act inquisitorially: The Act requires that the adjudicator "takes the initiative in ascertaining

facts and the law". This gives the adjudicator power to investigate the issue in whatever

manner he or she deems appropriate given the short time scale available.

Binding nature: The decision of the adjudicator is binding until the dispute is finally

determined by legal proceedings, by arbitration or by agreement. Phillip Capper (1997)

suggests that "the 'until' formulation gives an unfortunate interim air to the decision almost

inviting the view that it ought to be reopened at a later stage" The Act does, however, go on

to say that the parties may agree to accept the decision of the adjudicator as finally

determining the dispute.

Immunity: The adjudicator cannot be held liable for anything done or omitted in the

discharge of his function as an adjudicator unless acting in bad faith. This protection is

extended to any employee or agent of the adjudicator.

95

In addition to this basic procedural framework the Act further requires that any construction

contract complies with the provisions of the scheme for construction contracts.

96

Arbitration

Arbitration is a process, subject to statutory controls, whereby formal disputes are determined

by a private tribunal of the parties’ choosing. According to Stephenson, Lord Justice Sir

Robert Raymond provided a definition some 250 years ago which is still considered valid

today (Stephenson, D. A: 1998)

"An arbitrator is a private extraordinary judge between party and party, chosen by their

mutual consent to determine controversies between them, and arbitrators are so called because

they have an arbitrary power; for if they observe the submission and keep within due bounds,

their sentences are definite from which there lies no appeal."

The Arbitration Act 1996

The Aim of the Arbitration Act

Five main objectives underlie the Act:

1. To ensure that arbitration is fair, cost-effective and rapid.

2. To promote party autonomy, in other words to respect the parties choice.

3. To ensure that the courts’ supportive powers are available at the appropriate

times.

4. To ensure that the language used is user friendly and clearly accessible.

5. To follow the model law wherever possible.

The first of these objectives is included in section one of the Act:

"The provisions of this part are founded on the following principles, and shall be construed

accordingly -

a) The objective of arbitration is to obtain the fair resolution of disputes by an

impartial tribunal without unnecessary delay or expense;

b) The Parties should be free to agree how their disputes are resolved, subject

only to such safeguards as are necessary in the public interest;

c) In matters governed by this part of the Act the court should not intervene

except as provided by this part."

Mediation

Mediation is a way of settling disputes in which a third party, known as a mediator, helps

both sides to come to an agreement which each considers acceptable. Mediation can be

‘evaluative’, where the mediator gives an assessment of the legal strength of a case, or

‘facilitative’, where the mediator concentrates on assisting the parties to define the issues.

When a mediation is successful and an agreement is reached, it is written down and forms a

legally binding contract, unless the parties state otherwise.

The Chartered Institute teaches a facilitative model in its training courses on the basis that this

is considered the most successful of the techniques. Any settlement, which occurs, is the

parties' own and the analogy of chemical catalysts is often made. A catalyst makes a reaction

take place between two or more chemicals; the catalyst is not affected or changed by the

reaction. Sometimes the reaction will take place without the catalyst and the effect is to speed

97

reaction and sometimes the reaction will not take place without the catalyst. The analogies

with mediation are obvious.

Mediation is the most widely used and accepted ADR technique. Whilst there is no

prescriptive mediation process, the typical stages in a mediation might be:

1. A brief written summary of the matter in dispute is presented in advance to the

mediator;

2. The parties meet with a mediator for an initial joint meeting including perhaps

a brief oral presentation by the parties;

3. Caucus sessions, where the mediator has private meetings with the party in

turn. During the caucuses the mediator often shuttles backwards and forwards to

clarify issues and search for settlement possibilities. This process is often termed

shuttle diplomacy;

4. Plenary sessions are called to either continue negotiations directly, to conclude

agreement, or where the process is unsuccessful to conclude a mediation.

Most mediators agree to a contingency approach to mediation; that is there is no set procedure

but the procedure is tailored to suit the parties and the dispute in question. This often means

that mediation is conducted without joint meetings and the mediators play a variety of roles.

The mediator may act as a mere facilitator, there purely to assist communications.

Alternatively the mediator acts as a deal maker, to assist the parties in finding overlap in their

bargaining positions or encouraging concession and compromise. Perhaps the mediator acts

more as a problem solver assisting the parties in designing and searching for creative

solutions. The mediator may act as transformer transforming the dispute by allowing the

parties a fresh in-sight into the issues and their positions. The final role of the mediator maybe

as an adjudicator or assessor to provide the parties with an appraisal of the merits of the cases

on a legal, technical or even common sense standpoint.

98

Comparison of Litigation, with Construction Adjudication, Arbitration and Mediation

It is useful to compare and contrast the major dispute resolution techniques in areas where the

characteristics of each technique are highlighted. Litigation, Construction Adjudication,

Arbitration and Mediation are compared in the areas of:

Formality

Speed

Flexibility

Cost

Confidentiality

Relationships

Control and Choice

Solutions

Formality

Mediation is an informal process; the parties may agree to certain mediation rules but they are

at liberty to amend any rules. There is no requirement to produce specified information

before the mediation can commence neither is there are requirement to spend resources filing

and serving documents. Mediation in informal and uncomplicated.

Adjudication is an informal process and the procedure is, within the bounds of natural justice,

at the discretion of the adjudicator.

Arbitration has been criticised for mimicking litigation; many steps have been taken to redress

this and arbitrations are less formal, nevertheless arbitration may be considered formal and

complicated when compared with mediation.

Litigation is, properly, a highly formalised process with specialised rules; non-compliance

may prevent litigation proceeding. Resources have to be committed in filing and serving

documents. Litigation is a highly formal and complicated process.

Speed

In mediation the timing is within the control of the parties; subject to the availability of

suitable and acceptable mediators mediation may take place as quickly as the parties desire.

The length of the mediation is similarly in the control of the parties; they can agree to stay as

long, or as briefly, as required. The great majority of mediations are restricted to one working

day or less.

Adjudication operates under very tight timescales laid down by the Act; see above the

maximum time from notice to decision is 35 days which may be extended by agreement to 49

days.

Speed is often claimed as a feature of Arbitration; however the reality is that the availability

of all the parties involved, not least the arbitrators, dictate that the process is often protracted.

99

Litigation is often an infuriatingly slow process; in many jurisdictions advisors talk in terms

of years rather than months as the timescale for trial dates. Although many great strides have

been taken in many countries to address this, in the UK the Civil Procedure Rules following

the Woolf Review of Civil Justice is a particular example, time continues to be an issue.

Flexibility

Mediation is a flexible process; all arrangements can be changed if necessary if it becomes

apparent that this is necessary. Arbitration can share much of this flexibility and the 1996

Arbitration Act has given arbitrators wide ranging powers to achieve flexibility. Adjudicators

too have much scope for flexibility

Litigation is an inflexible process, specific steps must be taken to initiate and progress

matters.

Cost

Mediation is an inexpensive process; this is achieved and facilitated by the informality and

speed of the process. The amount of lawyer involvement can be reduced if the parties agree

and in many cases the cost of preparing for mediation is marginal to the other preparation.

The parties can share the mediator’s costs and the cost of the venue in an agreed fashion.

Adjudication can be an inexpensive process as a result of the tight timescales.

Arbitration can certainly help in reducing costs and dealing with a dispute in a proportionate

manner. In comparison to litigation it must be remembered that while the state pays for the

judge, and rooms in many cases, in arbitration the parties must pay the arbitrators costs.

Litigation is an expensive process, this is dictated by the formality and slowness of the

process. There are many, many examples of the disproportionate costs of litigation amongst

the most famous is the Dickens example of Jaryndyce v Jarndyce where the parties disputing

a will expended the entire legacy in legal costs when they disputed the terms of the will!

Confidentiality

Here things are clear; in adjudication, arbitration and mediation all matters are confidential.

This is an important issue for commercial disputes where the parties often wish to avoid

publicity and to keep commercial confidentialities. There is an issue often where arbitration

awards are the subject of appeal or referral to the courts; then all matters will become public.

Litigation is a public matter and though civil commercial litigation seldom attract tabloid

press interest; it is clear that litigation can expose confidential issues.

Relationships

Again a clear difference. Mediation is a non-adversarial process while litigation and

arbitration are both adversarial. Adjudication may avoid the dysfunctional aspects of

adversarialism.

In mediation the parties do not seek to convince the neutral that they are in the right; or that

others are in the wrong. The emphasis of facilitative mediation is on the parties’ interests as

100

opposed to parties’ rights. As a result mediation need not affect working relationships in an

adverse manner. Often mediation can improve relationships as parties achieve an improved

understanding of underlying interests and concerns.

Litigation and Arbitration on the other hand are not conducive to even maintaining

relationships let alone improving them. Opposing parties aim to convince the tribunal that the

law and the facts support their argument to the detriment of the other side; this seldom helps

relationships and often destroys them.

Adjudication allows the power imbalance in relationships to be dealt with in that weaker sub-

contractors have a clear route to deal with more powerful contractors.

Control and Choice

In mediation the control of the dispute always remains with the parties and the choice is

theirs. Who will be the mediator; where will the mediation take place; when will it take

place; and who will attend. Mediation is a voluntary process and the parties remain in

control. This control means that the parties have to ‘buy in’ to the settlement and any

resolution becomes their own settlement.

Litigation, Adjudication and Arbitration hands over the dispute to the lawyers and the judge

or arbitrator or adjudicator. The process passes control and choice in a similar fashion.

Solutions

The essential difference is that mediation allows for creative solutions to disputes; during a

mediation a wide range of issues can be addressed or uncovered. These issues can include

past unresolved matters and even future intentions. The solutions to the issues can take many

forms, and are not restricted to payment of money, they can be as creative as the parties to the

dispute. Mediated agreements have included:

Apologies

Future Business Arrangements

Revamped Commercial Arrangements

Litigation and Arbitration cannot allow for creative solutions but must be limited to legal

remedies available.

Adjudication is similarly restricted by legal remedies but does allow prompt solutions which

permit the project to be completed.

The comparison is shown in outline in Table 1

101

Dispute

Technique

Mediation Adjudication Litigation Arbitration

Area

Formality Informal Informal Formal Formal

Speed Fast Fast Slow Contingent

Flexibility Good Good Poor Contingent

Cost Inexpensive Inexpensive Expensive Contingent

Confidentiality Yes Yes No Yes

Adversarial No Contingent Yes Yes

Party Control Yes No No No

Party Choice Yes No No Contingent

Creative Solutions Yes No No No

Table 1: Litigation Compared With Construction Adjudication, Arbitration and

Mediation

Self-Appraisal Questions

1) Am I able to demonstrate that I can now meet the objectives set out at the start of this

section

Looking at my responses to the exercises, can I:

2) Evaluate the process and strategies of:

(1) Construction Adjudication;

(2) Arbitration;

(3) Mediation.

3) Compare and contrast the key dispute resolution techniques of Construction Adjudication,

Arbitration, Mediation with Litigation in the areas of:

4) Formality

5) Speed

6) Flexibility

7) Cost

8) Confidentiality

9) Relationships

(1) Control and Choice

(2) Solutions

102

10. Negotiation

This section introduces some of the theories of negotiation, mainly principled versus

positional negotiation; once again it is useful to think in terms of a continuum. Negotiation is

a continuum with positional negotiation and principled negotiation at either ends of the

continuum.

At the end of this section you will be able to:

Differentiate between the theories of negotiation:

o Positional

o Integrative

o Principled

Identify key factors in negotiation

o Positional Bargaining/Negotiation

o Principled Bargaining/Negotiation

Evaluate methods for closing the deal

o Getting to Yes

o Negotiation Tactics/Strategy

Introduction

A character in Molière; Monsieur Jordain was delighted to learn that he had been speaking

prose all his life; he thought that prose was something special. Equally most people negotiate

throughout their lives without realising that they are negotiating and without any training.

There are three commonly perceived attributes that most men claim to do, and do well,

without any training:

Drive

Make Love

Negotiate

It appears strange that most countries require men to pass a test only to be allowed to drive,

the others need no training and no licence!

This section considers some aspects of negotiation; unfortunately, or predictably, negotiation

suffers the same fashions and fads as many management areas. Be wary of the fads and

fashions; or in academic terms demonstrate organised scepticism. A glossary is provided.

The internet revolution has touched negotiation; for a useful starting point for web-based

negotiation try:

http://www.haas.berkeley.edu/Courses/BA252-1/home.html

The most used buzz words are BATNA and WATNA.

103

Glossary of Negotiation Terms

Anchoring and Adjustment: An opening position, from which a negotiator incrementally

moves away from (gains or losses) during a negotiation. The choice of an anchor may be

based on faulty or incomplete information, and can potentially be misleading.

Agenda: A plan for how a negotiation will progress.

Aspiration Point: Optimal settlement point that a negotiator hopes to achieve.

Bargaining Zone: The gap between the respective resistance points of each party.

BATNA (Best Alternative To a Negotiated Agreement): This is your back-up plan.

Consistency Principle: The need to appear consistent in beliefs, feelings and behaviours.

Distributive Negotiation: A negotiation technique and/or type that seeks to gain at the

opponent's loss. Any situation in which one person's gain is exactly equal to the opponent's

loss is considered distributive.

Dyadic Negotiation: A negotiation between two persons, as opposed to negotiations in which

more parties are involved.

Expanding the Pie: Finding resources to include in a negotiation that fulfil

both party's needs.

Golden Bridge: A strategy by which a negotiator makes his or her opponent's positive

decision as easy as possible.

Kinesics: The study of body movements, including posture.

Inaction Anxiety: Self-imposed pressure to achieve an agreement at any cost. Often leads a

negotiator to strike a deal when s/he should have walked away and chosen his/her BATNA.

Integrative Negotiation: A negotiation technique and/or type that seeks to expand the pie,

finding a win-win settlements. In an integrative negotiation, one person's gain is not

necessarily another person's loss.

Interests: The concerns underlying a position.

Issues: Negotiable items that will be included in the formal agreement.

Limited Authority: A negotiating gambit whereby a negotiator says he cannot make a decision

and must resort to a higher authority.

Linkage Effect: When one deal point of a negotiation is attached to another.

Negotiating Gambit: A strategy in negotiating that should be avoided because it damages

relationships.

104

Negotiating Roles: Different people in a negotiating team can have different roles such as

primary negotiator, Kinesics and paralanguage expert, etc.

Non-verbal cues: Body language that gives away how a person is feeling and what s/he is

thinking. This is closely related to kinesics.

Package: An offer which has many elements.

Paralanguage: Variations in speech : pitch, loudness, tempo, tone, duration, laughing , crying

-- how things are said.

PATNA (Probable Alternative To a Negotiated Agreement)

Position: Statement of what a person/party wants in a negotiation.

Positional negotiation: Positional negotiation strategy is, essentially, a manipulative approach

designed to intimidate the other party to lose confidence in their own case and to accept

demands.

Principled negotiation: this grew from alternatives to positional negotiation, a famous book

Getting to Yes, Fisher and Ury sets out a concept of "Principled Negotiation" with the main

points being:

Separate the People from the Problem

Focus on Interests, Not Positions

Invent Options for Mutual Gain

Select from Among Options by Using Objective Criteria

Reciprocity Principle: Occurs when a negotiating party feels obligated to return in kind what

the other side has offered or given them. This principle might result in on side making a

concession because the other side has done the same.

Resistance Point (RP): The point beyond which a person/party will not go. The lower limit of

the range of acceptable negotiation outcomes.

WATNA (Worst Alternative To a Negotiated Agreement)

Winner's Curse: Occurs when your aspiration point is too low. You accept a deal, and

wonder whether your opponent would have given you a better deal had you been more

persistent.

105

Negotiation Theory and Skills

It is common for theorists talk of two negotiation theories or strategic approaches to

negotiation:

Positional negotiation; and

Principled negotiation.

The terms positional and principled negotiating are not exclusive and in other reading material

you may find them replaced with any of the following:

Positional = competitive; compromise; Principled = interest-based; co-operative; collaborative

Also note that negotiations may be divided into two types:

Dispute negotiation, focused on resolving past facts; and

Transaction negotiation, focused on reaching agreement for the future.

While it is often helpful to appreciate this difference between dispute negotiation and

transaction negotiation, it is also beneficial to appreciate that many negotiation situations

involve the resolution of both past issues as well as planning future relations. The theories

and strategic approaches are generic and can be applied to either disputes or transactions.

Mediation often involves past dispute negotiation linked to future transactions.

Distinguish Strategic Approach from Personality

There may be some correlation between negotiation approaches and personality style, but the

two do not necessarily go together. A positional negotiator may be very pleasant to work with

in terms of demeanour, but can utilize extremely competitive tactics. Negotiator's pleasantries

may themselves be part of an overall manipulative approach. A principled negotiator may be

rather difficult or awkward in terms of personality, yet effectively utilize interest-based,

problem-solving strategies in negotiation.

It is often argued that the most effective negotiators will have a wide array of negotiation

skills, both positional (competitive) and principled (problem-solving), and will effectively

mix and match these approaches depending upon what the negotiator believes will work best

with a particular "negotiating partner" depending on the specific issue being negotiated and

depending on the nature of the overall negotiating relationship (one-time transaction or

continuing relations). This approach might be likened to the contingency approach to

mediation described in Section 4.

Another view of negotiation is that certain strategies and behaviours are intended to create

value (integrative and principled approaches) whereas other strategies and behaviours are

intended to claim value (principled and competitive approaches).

106

The Positional Approach

Positional negotiation strategy is, essentially, a manipulative approach designed to intimidate

the other party such that they lose confidence in their own case and are pressurised to accept

the other side’s demands. This approach is characterized by the following:

High opening demands;

Threats, Tension and Pressure;

Stretching the facts;

Sticking to positions;

Being tight lipped;

Desire to outdo, outmanoeuvre the other side; and

Desire for clear victory.

When a Positional negotiator is asked how they will know that they have reached a good

agreement, they may reply that the agreement is better than fair.

What is positional negotiating?

A positional approach involves adopting a position and aiming to negotiate an agreement

whilst remaining as close to that position as possible. Most people are familiar with positional

negotiating but it allows for only limited and fairly predictable negotiating. Negotiators

adopting a positional style will assume that only one party can emerge from the negotiation a

clear winner. This is often termed the "WIN/LOSE" approach. Positional negotiating is

characterised by:

Extreme opening positions

Emphasis on rights

Aggression

Predictable negotiating positions

Assumptions of the Positional Approach

There are certain assumptions, that lie behind the Positional approach to negotiation. This

"distributive" world view includes the following assumptions:

Negotiation is the division of limited resources;

One side's gain is the other's side's loss; and

A deal today will not materially affect choices available tomorrow.

Risks of the Positional Approach

While Positional negotiation tactics are often effective in "claiming" already defined value,

there are also certain risks. Foremost among these risks are damage to the negotiating

relationship and a lessened overall likelihood of reaching agreement. The disadvantages of the

Positional style include:

Confrontation leads to rigidity;

There is limited analysis of merits of dispute and relevant criteria for resolving

issues;

107

There is limited development of solution alternatives;

Difficulty in predicting the outcome of the competitive approach or control the

process;

Competitors are generally blind to joint gains;

Competitors threaten their future relations;

Competitors are more likely to have impasse and increased costs.

The Integrative Approach and The Harvard Negotiation Project

Before considering Principled Negotiation it is worth examining integrative negotiation and

the Harvard Negotiation Project (HNP) since Principled Negotiation is a result of both

integrative negotiation and the (HNP).

The integrative, collaborative or problem-solving approach to negotiation has been described

as "enlightened self-interest," rather than the "egocentric variety." This approach consists of

joint problem-solving, where gains are not necessarily viewed as at the expense of the other

party.

Assumptions of the Integrative Approach

There is a different view behind the integrative approach to negotiation. The primary

assumptions of the integrative approach are the following:

Some common interests exist between parties;

Negotiation is benefited by a full discussion of each participant's perspective

and interests; and

We live in an integrated and complex world and our problems can be best

resolved through application of our best intelligence and creativity.

Risks of the Integrative Approach

Risks of the integrative approach are based upon the common sense observation that "it takes

two to collaborate." If one party is unwilling to participate in integrative, problem solving

negotiation, the more collaborative negotiator may put themselves at risk in the following

ways:

The negotiator will be forced to either "give in" or adopt a competitive stance;

The negotiator may see themselves as a failure if they do not reach

agreement; and

The negotiator lays themselves open by honestly disclosing information that is

not reciprocated.

The Harvard Negotiation Project

The Harvard Negotiation Project's mission is to improve the theory, teaching, and practice of

negotiation and dispute resolution, so that people can deal more constructively with conflicts

ranging from the interpersonal to the international.

108

The Project, or HNP as it is commonly known, was created in 1979 and was one of the

founding organizations of the Program on Negotiation consortium. The work of HNP

routinely moves back and forth between the worlds of theory and practice to develop ideas

that practitioners find useful and scholars sound. In general, HNP's work can be grouped into

four categories: theory building; education and training; real-world intervention; and written

materials for practitioners. A sampling of HNP activities in each category follows.

Theory Building

HNP is perhaps best known for the development of the theory of "principled negotiation," as

presented in Getting to YES: Negotiating Agreement Without Giving In, by Roger Fisher, Bill

Ury, and Bruce Patton. First published in 1981, and revised and expanded in a tenth

anniversary edition (Penguin 1991), Getting to YES outlines a commonsense approach to

negotiation that has been read by millions of people in 25 different languages. In clear,

straightforward writing, Getting to YES shows negotiators how to separate relationship issues

from substance and deal with the latter by focusing on interests, not positions; inventing

options for mutual gain; and using independent standards of fairness to avoid a bitter contest

of will.

Real-World Intervention

HNP frequently tests its theories in practice, often in the heat of some of the world's most

intransigent conflicts. From South Africa to Latin America, the Middle east to the Balkans,

HNP works with individuals and governments on initiatives ranging from injecting a single

idea at a crucial time to initiating and framing an entire process for dealing with a conflict.

Recently an HNP technique called "facilitated joint brainstorming" was tested with a high-

level but unofficial group from Ecuador and Peru to generate new options that both sides

could jointly present to their superiors. The conference led to a peace initiative that ultimately

settled a highly contentious border dispute that had persisted for 50 years and resulted in

numerous armed conflicts.

Of course you can find more at http://www.pon.harvard.edu/

Principled Negotiation

Principled negotiation was a product of HNP and grew from the alternatives to positional

bargaining offered by the integrative approach. In their book, Getting to Yes, Fisher and Ury

set forth their concept of Principled Negotiation. A brief summary of the main points of

principled negotiation includes:

Separate the People from the Problem

Focus on Interests, Not Positions

Invent Options for Mutual Gain

Select from Among Options by Using Objective Criteria

Separate the People from the Problem

Fisher and Ury suggest that we are all people first and that there are always substantive and

relational issues in negotiation and mediation. They describe means of dealing with relational

109

issues, including considering each party's perception (for example by reversing roles);

seeking to make negotiation proposals consistent with the other party's interests; making

emotions explicit and legitimate; and through active listening.

Focus on Interests, Not Positions

Positions may be thought of as one dimensional points in a space of infinite possible

solutions. Positions are symbolic representations of a participant's underlying interests. To

find out interests, you may ask questions like: "What is motivating you here?" "What are you

trying to satisfy" or "What would you like to accomplish?" You may also ask: "If you had

what you are asking for (your position), what would that experientially get you - what

interests would that satisfy?"

In negotiation, there are multiple, shared, compatible, and conflicting interests. Identifying

shared and compatible interests as "common ground" or "points of agreement" is helpful in

establishing a foundation for additional negotiation discussions. Principles can often be

extrapolated from "points of agreement" to resolve other issues. Also note that focusing on

interests tends to direct the discussion to the present and future, and away from the difficulties

of the past. If we have learned anything about the past, it is that "we can not change it." The

past may help us to identify problems needing solution, but, other than that, it does not tend to

yield the best solutions for the future.

Invent Options for Mutual Gain

Before seeking to reach agreement on solutions for the future, Fisher and Ury suggest that

multiple solution options be developed prior to evaluation of those options. The typical way

of doing this is called brainstorming. In brainstorming, the parties, with or without the

mediator's participation, generate many possible solution before deciding which of those best

fulfil the parties' joint interests. In developing options, parties look for mutual gains.

Select from Among Options by Using Objective Criteria

Using objective criteria (standards independent of the will of any party) is where the label

"principled negotiation" comes from. Fisher and Ury suggest that solution selection be done

according to concepts, standards or principles that the parties believe in and are not under the

control of any single party. Fisher and Ury recommend that selections be based upon such

objective criteria as precedent, tradition, a course of dealing, outside recommendations, or the

flip of a coin.

The advantages of principled negotiating

The main advantages of principled negotiation are that it:

Maintains relationships

Achieves satisfactory / efficient agreements

Is Flexible

Can redress power imbalances

Principled negotiation can be seen unlikely to provoke the aggression that may be shown in

positional negotiating; the emphasis is on mutually beneficial agreements and there is no need

110

for undue competitiveness. Parties can negotiate in an atmosphere conducive to ending on

good terms with each other.

Principled negotiating can achieves satisfactory and efficient agreements since the parties are

not limited to the narrow confines of rights based arguments. The agreement can meet as

many of the parties needs as they have been prepared to reveal.

The nature of principled negotiating means that there can be flexibility over what and who is

included in the negotiation..

Where a significant power imbalance exists, principled negotiating may establish that

interests of the powerful party make their dependence upon the less powerful party

surprisingly strong.

The disadvantages of principled negotiating

Of course there exists potential for disadvantage. Principled negotiating can take time to reach

a settlement. The ultimate result should justify the time spent but parties engaged in

principled negotiating may need to be prepared to exercise patience. Principled negotiating is

often far more complex than its positional counterpart. More effort will be required of parties

both in preparing for and during the negotiation. It may take a number of attempts before

people feel comfortable negotiating in this way, especially for those people who regard

themselves as having a good track record with their positional bargaining approach. Since it

can take longer and is likely to demand, overall, more man hours, it may be seen as being the

more expensive option. However, the cost should be looked at in the context of the whole

negotiation and, we have seen that the end result should be a much better agreement than

would otherwise have been achieved.

Some Issues in Principled Negotiating

What if the other party is more powerful? - Developing a BATNA

In the event that the other party has some negotiating advantage, Fisher and Ury suggest that

the answer is to improve the quality of your "best alternative to a negotiated agreement" (your

BATNA). For example, if you are negotiating for a job and want to make a case for a higher

wage, you improve your negotiating power by having another job offer available, or at least as

a possibility.

What if They Won't Play or Use Dirty Tricks

Fisher and Ury's answer to the resistant competitive negotiator is to "insist" on principled

negotiation in a way that is most acceptable to the competitor. The principled negotiator might

ask about the competitor's concerns, show he or she understands these concerns, and, in

return, ask the competitor to recognize all concerns. Following the exploration of all interests,

Fisher and Ury suggest inducing the competitive negotiator to brainstorm options and to think

in terms of objective criteria for decision-making.

Another way of thinking about encouraging principled or integrative bargaining is to think in

terms of matching, pacing, leading and modelling. To get a negotiator to shift orientations, it

is critical that they first experience themselves as fully heard in terms of content, intensity and

111

emotion. By so matching and pacing with a negotiator (asking a few clarifying questions), the

negotiator will become more open to your lead and modelling of productive means of

negotiating.

Converting Positions to Interests to Positive Intentions

Negotiating parties tend to come to negotiation with well-rehearsed positional statements

about the truth of the situation. As wise negotiators, we know that we want to assist all parties

to get below their positions to achieve a full understanding of their respective interests. If you

view negotiating parties as, essentially, survivors, wanting to improve their situations, you

may be able to assist negotiating parties to recognize that even the most difficult interests, like

revenge and anger, can be understood in terms of positive intentions, such as a desire for

acknowledgment and respect. So reframed, the mediation effort can become a joint search for

mutually acceptable solutions to the parties identified positive intentions. This reframing of

the entire mediation effort can dramatically shift the entire atmosphere of your negotiation.

Some Negotiation Basics and Negotiation Tactics

Important areas in negotiation and negotiation tactics include:

Negotiation Power

Preparation for Negotiation

Opening Offers

Stages of Negotiation

Negotiation Power

Negotiation power might be defined as an ability of the negotiator to influence the behaviour

of another. Commentators have observed a variety of aspects and qualities of negotiation

power. It is important to take note of these various aspects and qualities of negotiating power:

a number of aspects and qualities of negotiating power that have been identified include:

Negotiating power is relative between the parties;

Negotiating power changes over time;

Negotiating power is always limited;

Negotiating power can be either real or apparent;

The exercise of negotiation power has both benefits and costs;

Negotiating power relates to the ability to punish or benefit;

Negotiating power is enhanced by legal support, personal knowledge, skill,

resources and hard work;

Negotiating power is increased by the ability to endure uncertainty and by

commitment;

Negotiating power is enhanced by a good negotiating relationship;

Negotiating power depends on the perceived BATNA; and

Negotiating power exists to the extent that it is accepted

Preparation

There are only three things which matter in negotiation: preparation, preparation and

preparation.

112

To facilitate that preparation a framework of questions which skilled negotiators ask includes:

What are the (hypothesised) causes of conflict?

What range of interventions may be helpful?

What are the Parties Needs, Concerns and Goals

o What are each party's needs, concerns and goals?

o Which of these need urgent attention?

o Rank needs, concerns and goals from “vital” to “desirable”,

o What needs, concerns, and goals are apparently shared; independent; or

in conflict?

o What is WATNA; BATNA and PATNA for each party?

Facts

o What are the alleged facts?

o What is the evidence supposedly supporting the alleged facts?

o What facts are agreed upon?

o What degree of clarity on agreed, disputed and missing facts is

necessary for advice/negotiations to begin?

Rules and Objective Criteria

o What range of rules and precedents may apply to this situation ?

o What are the standard arguments to and fro arising from these

o precedents?

Outcomes

o What range of outcomes are possible -best to worst? Lateral thinking?

o What is client's targeted or preferred outcome?

o What outcomes will be resisted (the resistance point)?

Dynamics

o Who should engage in preliminary meetings (for example, lawyers,

parties, experts)?

o Who should be present at the negotiation; who should not be present?

o What is known about the preferred negotiation style of all parties

involved?

o What authority to settle does each party have? What influential people

exist in the background?

o What are past patterns of interaction? What fears exist about a

negotiation meeting?

o What documents need to be prepared/submitted/read by whom? By

what deadlines'?

o To what extent can complex alleged facts, evidence, arguments pro and

con, precedents, interests and needs and agreements be summarised visually?

Opening Offers

113

Two vital and interrelated questions for practising negotiators and for students seeking to

understand, systematise and measure negotiator behaviour are: Who should make the first

offer? And What form should the first offer take?

Who should make the first offer

Anecdotally, many negotiators predictably try to avoid making the first offer; or begin with

offers or respond to offers with an exaggerated ambit claim. This is a natural feature of

positional negotiation and is greatly alleviated by principled negotiation

What form should the first offer take

There are three classic ways to open negotiations:

soft high (the maximalist opening);

firm reasonable (the "equitable" opening);

problem solving.

Each opening has a number of predictable and well documented advantages and

disadvantages. It is essential that skilled negotiators:

know how to open by anyone of these three methods.

even thought they may have a preferred style, are able to use all three openings

with confidence.

practise in damage-free simulations using alternative methods.

negotiate with the "opposition", before the first offers are made, about which

of the three forms of opening is most appropriate. (This may require considerable

education of "the opposition".)

be able to articulate openly the well-known advantages and disadvantages of

each form of opening.

openly or by known coded messages identify to the other side which of the

three openings appears to have been used. For example, negotiators use a number of

codes to indicate a high soft opening:

On the current facts, our client would be prepared to settle for...

Our client is claiming ...

Stages of Negotiation

Studies of negotiation behaviour suggest that there are predictable stages through which most

negotiations pass. Although there are many variables which affect the timing of each stage.

Thee four stages are summarised as:

Stage One: Orientation and positioning

Working relationship established

Initial negotiating positions adopted

Stage Two: Argument, compromise and search for alternative solutions

Argument and persuasion

Search for alternative solutions

114

Concession making

Stage Three: Emergence and crisis;

Pressure for agreement or deadlock builds

Crisis occurs

Stage Four: Agreement or final breakdown

Deadlock or basic agreement occurs

Wrap up details

These four observed stages are worthy of further thought:

What factors speed up or slow down the stages?

How can the third (crisis) stage be managed?

What management styles appear to be more or less effective?

Online Negotiation

As one might expect there are opportunities presented by the use of negotiation via the

Internet. There are many companies offering their services as intermediaries and their servers

as space for negotiation; these are often secure negotiation rooms e.g.

http://www.browndavisclark.bigstep.com/aboutus.html

http://www.coolsolar.com/en/negotiation/default.asp

Online teaching of negotiation is also widely available try:

http://www.haas.berkeley.edu/Courses/BA252-1/home.html

Self-Appraisal Questions

1) Am I able to demonstrate that I can now meet the objectives set out at the start of this

section

2) Looking at my responses to the exercises, can I:

3) Differentiate between the theories of negotiation:

i) Positional

ii) Integrative

iii) Principled

4) Identify key factors in negotiation

i) Positional Bargaining/Negotiation

ii) Principled Bargaining/Negotiation

5) Evaluate methods for closing the deal

i) Getting to Yes

ii) Negotiation Tactics/Strategy

115

11. Mediation Principles

Introduction

This section introduces the history of mediation and the types of mediation commonly

encountered. These are Facilitative; Evaluative; Settlement and Transformative. The styles

are compared and again the concept of a continuum is used to explain the different styles and

models of mediation. The position of the Chartered Institute of Arbitrators is explained: a

facilitative model of Mediation in favoured since this is the most successful and robust of the

mediation types and mediators trained and experienced in facilitative models can apply other

techniques and models on an ad-hoc basis. The use of mediation styles and models must be

contingent on the dispute.

At the end of this section you will be able to:

Explain the different mediation styles and models

o Facilitative

o Evaluative

o Settlement

o Transformative

Discuss the arguments for and against the different mediation styles and

models

o Facilitative

o Evaluative

o Settlement

o Transformative

Evaluate the use of the different mediation styles and models

o Facilitative

o Evaluative

o Settlement

o Transformative

o Discuss the contingent model of the mediation

Mediation History and Types

Early mediation theory recognised only one type of mediation. The mediator or neutral,

whilst remaining in control of the process, merely facilitated the parties’ negotiation in an

attempt to assist the parties to create their own solution. This became known as Facilitative

(or Interest Based) Mediation.

Following from facilitative mediations some parties, and some mediators, recognised that in

certain situations there would have to be consideration of parties’ rights and that parties

unable to reach a facilitated solution would require some help via an evaluation. This

developed Evaluative (or Rights Based) mediation. In a similar vein a Settlement Based

mediation model developed.

In the 1990’s mediation developed further the initial facilitation when mediators and theorists

developed a school of Transformative Mediation. Here the mediator by empowering the

parties allows all parties or their relationships to be transformed during the mediation.

116

The Chartered Institute of Arbitrators teaches a facilitative model of Mediation in training

courses for mediators. It is the opinion of the ADR committee, and this is supported by

mediation research, that the facilitative model is the most successful and robust of the

mediation types. Further mediators trained and experienced in facilitative models can apply

other techniques and models on an ad-hoc basis. The experience of the Chartered Institute is

that mediators trained in settlement models and evaluative models are not as able to apply

facilitative models. Therefore; facilitation first and then the mediator may choose to proceed

with other techniques and types

Facilitative Mediation (Interest Based)

In facilitative mediation, the mediator structures a process to assist the parties in reaching a

mutually agreeable resolution. The mediator asks questions; validates and normalizes parties'

points of view; searches for interests underneath the positions taken by parties; and assists the

parties in finding and analyzing options for resolution.

The facilitative mediator does not make recommendations to the parties, give advice or

opinion as to the outcome of the case, or predict what a tribunal would do in the case. The

mediator is in charge of the process, while the parties are in charge of the outcome.

Facilitative mediators want to ensure that parties come to agreements based on information

and understanding. They hold joint sessions with all parties present so that the parties can hear

each other's points of view, but hold private meeting (caucuses) regularly with the parties

where they explore options and test the parties’ positions. Facilitative mediators seek for the

parties to have the major influence on decisions made, rather than the parties’ advisors; legal

or otherwise.

Evaluative Mediation (Rights Based)

In evaluative mediation the mediator assists the parties in reaching resolution by pointing out

the weaknesses of their cases, and predicting what a tribunal would be likely to do. Based on

the parties’ rights an evaluative mediator makes formal or informal recommendations to the

parties as to the outcome of the issues. Evaluative mediators are concerned with the rights of

the parties rather than needs and interests, and evaluate based on concepts of fairness.

Evaluative mediators meet most often in separate meetings with the parties and their advisors,

practicing "shuttle diplomacy". They help the parties and advisors evaluate their legal position

and the costs versus the benefits of pursuing a legal resolution rather than settling in

mediation. The evaluative mediator structures the process, and directly influences the

outcome of mediation.

Settlement Mediation

Settlement mediation (compromise mediation) takes as its main objective encouragement of

incremental bargaining, towards a compromise a central point between the parties positional

demands. Mediators employing the settlement model control both the parties and the process;

the mediator seeks to determine the parties’ bottom line. Then through persuasive

interventions the mediator moves the parties off their initial positions to a compromise point.

Transformative Mediation

117

Transformative mediation is the newest concept based on the values of "empowerment" of

each of the parties as much as possible, and "recognition" by each of the parties of the other

parties' needs, interests, values and points of view. The potential for transformative mediation

is that any or all parties or their relationships may be transformed during the mediation.

Transformative mediators meet with parties together, since only they can give each other

"recognition".

In some ways, the values of transformative mediation continue and expand those of early

facilitative mediation, in its interest in empowering parties and transformation. Modern

transformative mediators want to continue that process by allowing and supporting the parties

in mediation to determine the direction of their own process. In transformative mediation, the

parties structure both the process and the outcome of mediation, and the mediator follows

their lead.

Arguments for and Against

Proponents say facilitative and transformative mediation empower parties, help the parties

take responsibility for their own disputes and the resolution of the disputes. Critics say that

facilitative and transformative mediation takes too long, and too often ends without

agreement. There are legitimate worries that outcomes can be contrary to standards of fairness

and that mediators in these approaches cannot protect the weaker party.

Proponents of transformative mediation say that facilitative and evaluative mediators put too

much pressure on clients to reach a resolution. They believe that the clients should decide

whether they really want a resolution, not the mediator.

Proponents of evaluative mediation say that clients want an answer when they are unable to

reach agreement, and they want to know that their answer is fair. Critics of evaluative

mediation say that its popularity is due to the lawyers and advisors who choose evaluative

mediation because they are familiar with the process. They believe that the clients would not

choose evaluative mediation if given enough information to make a choice. They also worry

that the evaluative mediator may not be correct in the evaluation of the case.

Mediators tend to feel strongly about these styles of mediation and there is a healthy and

useful debate. The opinion of The Chartered Institute of Arbitrators is reiterated: facilitation

is a robust and effective model and from that basis mediators can proceed on a contingency

basis. There is no one model rather a selection of techniques which can be employed

depending on the circumstances. There appear to be more concerns about evaluative and

transformative mediation than facilitative mediation. Facilitative mediation appears

acceptable to almost everyone, although some find it less useful or more time consuming.

However, much criticism has been levelled against evaluative mediation as being coercive,

top-down, heavy-handed and not impartial. Transformative mediation is criticized for being

too idealistic, not focused enough, and not useful for business or court matters.

Another concern is that many lawyers and clients do not know what they may get when they

end up in a mediator’s office. Some people feel that mediators ought to disclose prior to

clients appearing in their offices, or at least prior to their committing to mediation, which style

or styles they use. Other mediators want the flexibility to decide which approach to use once

they understand the needs of the particular case.

118

Styles versus. Continuum

Fig 1 shows conflict and dispute in terms of a continuum and this is used again to differentiate

between conciliation and mediation. Again the differences in mediation styles and models

might be seen as more a continuum than distinct differences, from least interventionist to

most interventionist. It would seem that in general mediators are on a continuum from

transformative to facilitative to evaluative mediation, but are not squarely within one camp or

another.

The Mediation Process

Civil And Commercial Mediation

Background

This section provides a history of ADR and introduces civil and commercial mediation. This

workbook is concerned with Civil and Commercial Mediation and procedures that are

generally thought to be recent and alternative forms of dispute resolution. As with many

developments there are problems with definition, the workbook defines ADR, distinguishes

between conflict and dispute and outlines the history of ADR.

At the end of this section you will be able to:

Describe and explain the history of ADR

Describe the process of mediation

Discuss the frequently asked questions (FAQs) about mediation

Discuss how to work with a mediator

Definitions

There are many definitions of ADR

Alternative Dispute Resolution

Amicable Dispute Resolution

Appropriate Dispute Resolution

Another Disappointing Result

Another Damn Rip-Off

In the UK because of the long history of arbitration; the term ADR has normally been taken to

those techniques alternative to litigation and arbitration i.e. arbitration is not ADR. This has

caused confusion since arbitration in the USA is considered ADR! The water has been further

muddied by the Lord Chancellor's Department Current Consultation Paper Alternative

Dispute Resolution - a Discussion Paper which states:

119

The phrase Alternative Dispute Resolution now covers a variety of processes that

provide an alternative to litigation through the courts, and can be used to resolve

disputes where those involved would be unlikely to resort to the courts.

ADR processes include arbitration, early neutral evaluation, expert determination, mediation,

and conciliation. A description of how these processes work is included at the glossary. At

least for some, negotiation within the processes of litigation forms part of the ADR repertoire,

with important links to existing litigation practice.

Other more formal mechanisms for resolving disputes such as the private sector ombudsman

schemes, utility regulators, trade association arbitration schemes in certain trade sectors, and

even tribunals can also provide alternatives to the courts in some circumstances.

The various processes have very different characteristics. It can, sometimes be unhelpful and

confusing to group them together under one heading. A useful distinction is that between

processes in which a neutral third party makes a decision and those where the neutral offers

an opinion, and/or seeks to bring to the parties to an agreement. Here the term "alternative

adjudication" is used to encompass decision-making processes other than litigation through

the courts, such as arbitration, and expert determination, ombudsmen and regulators.

"Assisted settlement" is used to encompass processes designed to help the parties come to an

agreement, such as mediation, conciliation, and early neutral evaluation. Of course, it is

possible to have hybrid processes. "Med-arb", for example, describes a process where there is

an initial agreement to mediate the dispute and, if that fails to achieve settlement, to submit

outstanding issues to arbitration. In addition, some ombudsman schemes incorporate

mediation into their procedures.

In this context, the word "alternative" conveys only that these are methods of dispute

resolution which are not those in general use in litigation (which is why, for some, negotiation

does not fall within the ADR territory). It does not imply that the use of ADR techniques is in

some way second-best to going to court. A case has been made for referring instead to

appropriate dispute resolution, to reflect the arguments that some ADR techniques are better

suited to the needs of some cases or litigants than court proceedings. The term "Alternative

Dispute Resolution" is, however, probably now so well established that there is little prospect

of changing it.

Of course some of the procedures now considered as ADR are considered elsewhere in this

course; and discussing what constitutes ADR is one of life’s more meaningless and pointless

activities. This workbook is mainly concerned with Commercial Mediation but the next

Section also considers:

Med-Arb

Mini-trial (Executive Tribunal)

Early Neutral Evaluation

Expert Determination

Dispute Review Boards

Dispute Review Advisers

History Of ADR

120

There exists a widely held belief that ADR is a recent development, and that the techniques

referred to as ADR came from the USA. An interesting variant, variously quoted, is that

society and culture may affect dispute resolution; the most common manifestation of this

being that ‘Eastern’ cultures are less attracted to confrontation and therefore ADR came form

the East. Evidence for the first belief is contained in just about every section of Fenn and

Gameson (1992) and the second belief is widely alluded to in the same book.

Of course the widely held belief that ADR is a modern development is simplistic but the fact

that the American Bar Association (ABA) noted in 1985 a dearth of scholarship on the

historical aspects of ADR (See Sanchez 1996), indicates that a revival in interest in ADR took

place in the mid 1980’s. This is often the date ascribed by many of the ADR advocates when

recounting the widely held belief on the development of ADR.

From the ABA note of the lack of research into the history of ADR came a research

programme. That research considered dispute processing in Anglo-Saxon England, one of the

earliest stages on English legal history. The central findings of the research are that the

Anglo-Saxons used an array of dispute resolution processes. The array included processes,

which might be compared with:

Negotiation

Adjudication

Arbitration

Mediation

Further these processes were available to the parties during the life of an action on a dispute-

processing continuum. The processes and the inter-relationships of the dispute-processing

continuum were aimed at fostering respect for the legal processes and effecting the peaceful

and enduring resolution of disputes and promoting the reconciliation of the parties.

It could be argued that the recent interest in ADR shares many of these sentiments. Perhaps

not the fostering of respect for the law and legal processes since business, commerce and

industry have become more sophisticated. Many people would argue that commercial people

have no interest in the majesty of the legal process; their concern is for the effective resolution

of disputes; both peaceful and enduring. At the heart of the ADR philosophy has been the

reconciliation of the parties in order that they might have continuity in their commercial

affairs.

ADR is not a recent development and although it suits many people to claim truth in the

‘widely held belief’ the history of ADR can be reliably traced to 5th

Century England.

Commercial Mediation

Facilitative mediators are reluctant to provide decisions or recommendations, indeed some

mediators will not. Mediation lies at the facilitative end of the spectrum. Any settlement,

which occurs, is the parties' own and the analogy of chemical catalysts is often made. A

catalyst makes a reaction take place between two or more chemicals; the catalyst is not

affected or changed by the reaction. Sometimes the reaction will take place without the

catalyst and the effect is to speed up and sometimes the reaction will not take place without

the catalyst. The analogies with mediation are obvious.

121

Mediation is the most widely used and accepted ADR technique. Whilst there is no

prescriptive mediation process, the typical stages in a mediation might be:

A brief written summary of the matter in dispute is presented in advance to the

mediator;

The parties meet with a mediator for an initial joint meeting including perhaps

a brief oral presentation by the parties;

Caucus sessions, where the mediator has private meetings with the party in

turn. During the caucuses the mediator often shuttles backwards and forwards to

clarify issues and search for settlement possibilities. This process is often termed

shuttle diplomacy;

Plenary sessions are called to either continue negotiations directly, to conclude

agreement, or where the process is unsuccessful to conclude a mediation.

Most mediators agree to a contingency approach to mediation; that is there is no set procedure

but the procedure is tailored to suit the parties and the dispute in question. This often means

that mediation is conducted without joint meetings and the mediators play a variety of roles.

The mediator may act as a mere facilitator, there purely to assist communications.

Alternatively the mediator acts as a deal maker, to assist the parties in finding overlap in their

bargaining positions or encouraging concession and compromise. Perhaps the mediator acts

more as a problem solver assisting the parties in designing and searching for creative

solutions. The mediator may act as transformer transforming the dispute by allowing the

parties a fresh in-sight into the issues and their positions. The final role of the mediator maybe

as an adjudicator or assessor to provide the parties with an appraisal of the merits of the cases

on a legal, technical or even common sense standpoint.

Frequently Asked Questions: Mediation

How does it work?

Mediation involves a third party neutral taking the role of facilitator, evaluator or transformer

in helping parties to reach a settlement to a dispute

What is the process at a mediation?

There is no set procedure but the typical stages in a mediation could be:

A brief written summary of the dispute submitted in advance by the parties to

the mediator ;

An initial joint meeting where the parties make an oral presentation;

The mediator holds private meetings with the parties; this is often likened to

shuttle diplomacy with a mediator shuttling back and forward to clarify issues and

clarify settlement possibilities. Sometimes these sessions are known as caucuses;

Further joint meetings either to continue negotiations directly or draw up an

agreement or to conclude the mediation.

122

What is the role of the mediator?

Mediators play a variety of roles:

Facilitator - assisting communications and negotiations;

Dealmaker - assisting the parties by comparing bargaining positions or outlining

concessions;

Problem solver - assisting the parties by suggesting creative alternatives, options and

solutions;

Transformer - transforming the dispute by allowing the parties to develop a fresh in-

sight into the issues and their positions.

Evaluator - an adjudicator or an assessor providing the parties with an evaluation

either: legal; technical; or commercial, by way of an appraisal of their cases and

positions.

Does the mediator produce an enforceable award?

Most mediators act as facilitator and any settlement is the parties' own settlement, it is unusual

for mediators to produce awards. The process is thought to be non-binding, consensual and

non-adjudicative.

How can it work if it is not enforceable?

Mediation works because the presence of an independent third party neutral helps all parties

concentrate on reaching a settlement. Once a settlement is agreed it can be converted into an

enforceable contract like any other settlement agreement. Mediators can help in the process

of formalizing in the settlement.

How are mediators trained?

A variety of organizations provide training for mediators. The leaders in commercial

mediation are:

International: The Chartered Institute of Arbitrators www.arbitrators.org and the Centre for

Effective Dispute Resolution (CEDR)

USA: the American Arbitration Association

Formal training for mediators has historically been a two-stage process. The first stage is an

academic treatment of mediation practice and procedure followed by assessment during role-

play and scenarios. After successful completion of the first stage mediators then go on to

undertake a pupillage, where they take part in a number of mediation under the supervision of

an experience mediator. The pupil mediators are again assessed by the experienced mediators

for entry on to a panel of mediators when they can then take referrals in their own right.

Who are the mediators?

123

One school of thought says that good mediators are trained in dispute resolution, and

therefore need not necessarily know or understand the details of the dispute. Proponents of

this school point to America where undergraduate and postgraduate courses in dispute

resolution and in mediation exists. In the UK most mediators are drawn from a broad range of

disciplines and will have received a special training in mediation. Mediators can therefore

bring with them the specialisms of architecture, construction, the law, surveying etc to help

with construction disputes.

What about confidentiality?

It is normal for mediation providers and the mediators to require the parties and the mediator

to sign a confidentiality agreement. This ensures the process is treated as a without prejudice

negotiation on a strictly confidential basis. The mediator cannot be called afterwards to give

evidence of what took place. Where parties are particularly concerned about confidentiality in

joint meetings, the mediation can be conducted by means of separate meetings between the

mediator and each party.

An example of the confidentiality clause common in mediation agreements is shown below:

The mediation is to be conducted on a confidential basis and on a without prejudice

basis unless and until, and to the extent that, the parties otherwise jointly agree.2

Proposing mediation indicates a negotiating weakness?

Proposing mediation is not a sign of weakness but a suggestion of confidence on the

proposing party's ability to put their cards on the table and negotiate a positive commercial

solution. The effect a neutral third party mediator has on dispute negotiations is often

underestimated. However the initiation of getting mediation going can be difficult because

parties are often unfamiliar with mediation. This can be alleviated by including mediation

clauses in commercial contracts, and or allowing the first approach for mediation to come

from an ADR provider.

When is the best time to suggest mediation?

As there is no single process of mediation there is no single correct time in the dispute to

suggest mediation. However the earlier the process can begin the more likely the parties are to

achieve savings in costs and time; and notably the less likely is that the parties will have

become entrenched in their positions and into the adversity of dispute. It might be appropriate

to delay suggesting mediation where one party suspects that the other party is not seriously

interested in reaching a solution, or if a party still needs time to gather information for its

case. The following points are worth considering

A mediator may be able to help the parties in managing the information

gathering and case evaluation process;

2 JCT 98, PN 28/95.

124

Mediation does not ordinarily involve the examination or cross-

examination of witnesses, but takes an overall commercial approach given the

need to arrive settlement;

Mediation can be used not only for the initial attempt settlement but it

can be tried again later when circumstances change;

There are few risks in attempting mediation and the parties can always

abandon the process if it proves unproductive;

Most mediations, and most mediators, will only last a day at very most

three days to assess settlement possibilities.

How much does mediation costs?

How long is a piece of string. The service of trained experience mediators can be secured

from the leading ADR providers at reasonable commercial costs (starting at £50 per party per

hour). It is normal that the parties bear their own costs of the mediation proceedings and

share the fees of the mediator. There are often few additional costs in preparing for mediation,

and mediation can assists in the information gathering process so that any costs are marginal.

The benefits of mediation

The benefits of mediation are often summarised under the six C's

Consensual - parties agree to seek business solutions assisted by their advisers and a neutral

mediator.

Control - the parties agree a timetable, procedure, and the agenda. The outcome is a

contractual agreement or consent award.

Cost savings - the emphasis is on key issues not on exhausting every avenue to substantiate a

case or to refute the other side's evidence before the tribunal.

Continuing business relations - the emphasis is on the communication of interests between the

parties, on solving the problem, and on commercial business solutions.

Confidentiality - ADR meetings are private, and should be used to explore creative solutions

and agree pragmatic settlements.

Creative - in ADR commercial and business solutions are not limited by legal rules. Current

and future interests and any other aspects can be explored to achieve a solution.

How to work with a mediator

Prepare

Prepare your case in sufficient detail to allow you to negotiate effectively while concentrating

on essentials. Mediation is not a binding adjudicative process, you do not need to explore

every eventuality in case it might be relevant.

125

Summarise the core issues

Prepare a brief written summary of the dispute and your case, summarised the core issues and

evidence. Include documents which are essential to the case, if there are tricky legal or

technical question as part of the dispute agree upon an independent assessment by a third

party. The Mediator a can help in appointing the independent assessor, or by using the parties'

expert reports point the parties towards a settlement.

Recognise the various roles mediators may have to play

Mediators play a variety of roles to assist the parties:

Facilitator - there to purely assist communication;

Deal maker - helping parties find overlap in their bargaining positions or

encouraging concessions;

Problem solver - assisting in the search for creative options;

Transformer - to transform the dispute and open up creative avenues for

settlement;

Adjudicator assessor - providing the parties with legal technical appraisal of

the merits of their case.

It is important to the parties work closely with a mediator in private sessions in order to make

best use of the mediator's skills.

Confidentiality

Indicate clearly which information you expect a mediator to keep confidential in discussions

with other party. The mediator will normally assume that communications in a caucus; are

confidential unless otherwise indicated.

Limit those attending

Limit the numbers of staff and representatives attending the mediation; to those decision-

makers and professional advisers who can contribute to the settlement of the dispute. If

evidence or input from others is required, particularly experts, they can be brought in as and

when necessary.

Complex issues

If the case involves many parties or complex technical and legal issues, considering agreeing

with the other party to the use co-mediators or to an assessor working with mediator.

Flexibility

Be prepared to be flexible. The mediation will only reach a settlement if the parties bring a

genuine willingness on for new solutions take and give concessions, in the interests of

achieving a settlement. Argue your best case to protect your rights but do so with an open

mind and a view towards pragmatic alternatives by a mediated settlement. If you're looking

for a third party to adjudicate or give an award you should not be in mediation.

126

Self-Appraisal Questions

1) Am I able to demonstrate that I can now meet the objectives set out at the start of this

section

Looking at my responses to the exercises, can I:

2) Explain the different mediation styles and models

i) Facilitative

ii) Evaluative

iii) Settlement

iv) Transformative

3) Discuss the arguments for and against the different mediation styles and models

i) Facilitative

ii) Evaluative

iii) Settlement

iv) Transformative

4) Evaluate the use of the different mediation styles and models

i) Facilitative

ii) Evaluative

iii) Settlement

iv) Transformative

v) Discuss the contingent model of the mediation