1

AN EXAMINATION OF THE REMEDIES IN CONSTRUCTION CONTRACT LITIGATION: A REVIEW OF THE

COURTS AWARDED RELIEFS.

BY

Flora Ogbuitepu1

Nowhere is the confusion between moral and legal ideas more manifest than in the law of contract...The duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it - and nothing else.
Justice Oliver Wendell Holmes2 Introduction It is not in doubt that the building and construction industry is naturally prone to risks in all aspects as it entails risk taking, risk sharing and risk allocation.3 Thus, it becomes of paramount importance for all key players in the construction industry to exercise a certain degree of care when playing their role in the construction of a building. However, this does not always seem to be the case as certain players in the construction industry such as the contractor may act in an unreasonable manner. Instances of unreasonable manner ranges from failure of the contractor to complete the work he contracted to do, failure to carry out his work in a good and workmanlike manner, failure to eliminate defective works, failure to proceed regularly and meticulously and failure to perform works in accordance with the contract.4

Flora Ogbuitepu is a senior Associate at www.topeadeabyollp.com Construction Lawtoday by Joshua Glazov http://www.constructionlawtoday.com/articles/quotes/ ( accessed on 2nd July 2012 ). 3 Construction litigation http://www.wos-law.com/lawyer-attorney-1934598.html ( accessed on 2nd July 2012) 4 Tay Lee Yong (2006) Determination of contract in construction industry Master Thesis Universiti Teknologi Malaysia, Faculty of Built Environment.
1 2

2013 Tope Adebayo LLP

There is also the case of certain professionals such as the Architects producing a defective design or the Engineers (including but not limited to the structural engineer and geotechnical engineer) failure to carry out the necessary investigation with a view to determining the site conditions for the building project. The aforementioned omission or careless abandonment in the execution of a building project can lead to a fundamental defect in the building as well as financial loss to the employer. Generally, both the contractor and the owner make certain assumptions when entering into a construction contract. The contractor enters into the contract with the belief that the plans and specifications are accurate and complete and that the owner on his part has accomplished all that is necessary to enable the construction of the building. 5 The owner on his part assumes that the contractor and other professionals are qualified to carry out the work precisely and on schedule and that the price proposed is the entire sum the owner would have to pay for the project.6 Therefore, this paper seeks to examine the remedies available to a party especially the employer who has been aggrieved by the omission whether directly or indirectly of the contractors, the professionals and other key players in the construction industry. The paper takes a peep at reliefs awarded by courts in construction litigation with a view to assessing its adequacy and finally makes suggestions on other ways of compensating an employer in cases of breach of construction contracts. The Paper is divided into four sections; the first section identifies the key players in the construction industry and discusses their role in the construction industry. The second section examines their liabilities in the event of breach of their contract. The third section analyzes the remedies available in law to an employer and other key players in the construction
5

chain who are aggrieved by the conduct of the contractor and the

Rules of Engagement for Construction Claims by Philip Barnard, PE http://www.interfaceconsulting.com/attachments/files/210/Rules%20of%20Engagement%20for%20Construction%20Claims% 20Part%20One.pdf. 6 As above.

2013 Tope Adebayo LLP

engineers as well as the architect. Finally, the fourth section by way of conclusion opines on the practicality of the remedies in the light of the harsh conditions in the Nigerian legal system. Key Players in the Building and Construction Industry/Law In the main, building contract provides that work must be completed to the approval of the architect or engineer or any other professional. Although the principal parties to a construction contract are the employer and the contractor, there are other key players whose existence substantially shapes the legal relationship between the employer and the contractor.7 This section shall briefly examine below the key players in the building and construction industry.

The Employer
The employer or the building owner simply refers to the person or company for whose benefit the work is being carried out. The rights and duties of the employer can be inherited by subsequent purchasers of the property.

The Contractor
A contractor is specifically known as a building contractor who has the enormous duty of planning, developing and coordinating activities in the building of structures.8 Infact, he is the person who supervises the construction and ensures that all essential actions are taken to produce the completed finished product.9 The contractor is therefore responsible for the procurement of building materials for the construction project; the contractor would thus be doing itself a favour if it keeps track of all costs emanating from the building project.10 The contractor must acquire all mandatory licenses and permits

Stephen Furst , Keating on Construction Contracts, Eighth Edition London Sweet & Maxwell (2006). P.2. The Duties and Responsibilities of a Building Contractor, Exporsys Inc. http://www.exforsys.com( accessed on 5th July 2012). 9 As above. 10 Philip Barnard, PE, Rules of Engagement for Construction Claims http://www.interface-consulting.com.
7 8

2013 Tope Adebayo LLP

from the relevant authorities so that the construction project can be commenced.11 The contactor has an obligation to conduct research on the relevant laws and regulations which guide the construction process.12 This is in view of the fact that there are numerous laws and regulations governing the construction industry and a contractor has a duty to carry out its work in accordance with the law in order to avoid the consequences which non-compliance can attract which would in turn slow the work. Further, a contractor must have a budget for his building project as well as have the ability to strictly abide by its budget due to the importance of budgeting in building projects. The essence of making a budget necessitates the contractor to envisage a fixed time for the conclusion of the construction works. A contractor who keeps precise and judicious documentation of the entire detrimental construction quandary will find it easier to mitigate construction claims against it.13 A contractor must be alert enough to notice when a construction issue outside the expected occurs and must be smart enough to notify the employer in order to avert liabilities which would otherwise accrue to it, especially when the construction issue falls outside the scope of the responsibility of the contractor.14 In sum, the significance attached to the functions of a contractor cannot be over emphasized due to the fact that a building contractor (In this context a main contractor) virtually deals with everything in the construction of buildings including on site and off site emergencies.

Architect
Keating defines an Architect as one who possesses sufficient knowledge and skill with regards to aesthetic as well as practical considerations which facilitates him to originate, design and plan as well as arrange for and supervises the erection of such buildings or other works calling for skill and design in planning as he might in the course of his business be reasonably required to carry out.15 Primarily, an architects duty is to prepare
As above. As above 13 As above. 14 As above. 15 Stephen Furst (n 7 above) p.410.
11 12

2013 Tope Adebayo LLP

plans and specifications as well as ensure that the execution of works is done in accordance with the contract.16 He must also supervise the execution of works on behalf of the employer and is therefore an agent of the employer as he owes the employer a duty of professional care.17 Nevertheless, this position is not all encompassing as his authority as an agent is a question in each case.18 It must be pointed out that an architect may be called upon to make a decision in a fair and unbiased manner as it pertains to issues arising under the contract of construction. At this juncture it becomes imperative to state that the relationship of an architect as an agent of the employer is governed by the law of agency and as such an architect must act strictly in accordance with the employers instructions. 19 The architect in his capacity as the employers agent has no obligation to act fairly between the parties to the construction contract because his/her duty is only owed to the employer.20 It goes without saying that an Architect must at all times apply enormous care in the execution of its work within the scope of the authority given to it by the employer in order to avoid possible conflicts of interests as well as disputes between him/her and the employer. Apart from performing his/her duty as an agent of the employer an architect has another category of duty which touches on its professionalism. Thus, an Architect as a certifier has two major duties which must be delicately balanced in order to avoid the pitfall of conflicts. The first duty of the certifier is to act in accordance with the employers instructions while the second duty is only invoked when the certifier has to act in matters requiring his/her professional expertise in which case the certifier has to act in accordance with his/her judgment. The duties of the certifier were reiterated in the case of Burden Limited v. Swansea Corporation,21 where Lord Radcliffe stated:
it is obvious that his general function is to act on behalf of the owner, and he is the owners agent to give the required instructions to the contractor. He is placed in office
Stephen Furst (n 7 above) p.3. As above. 18 Stephen Furst (n 7 above) p.416. 19Collyer Bristow, The Employers agent http://www.collyerbristow.com/Fileserver.aspx?oID=1206&lID=0 (accessed on 18 July 2012). 20 As above. 21 (1957) 1 WLR 1167 at 1172.
16 17

2013 Tope Adebayo LLP

6 to protect the owners interests. But in those parts of his duties which relate to the giving of certificates for payment, I think that he stands apart from the owner and enjoys to some extent an independent authority of his own.

However, the enumerated duties of an architect as a certifier are not absolute as an architect maybe disqualified to act as a certifier on the grounds of fraud, dishonesty, collusion and refusal to act independently.22 Hudson in his book titled Hudsons Building Contracts,23 enumerated the duties of an architect as: advisory role and consultation with the employer in relation to and restriction on the use of the land desired to be built on; examination of the site, subsoil and surroundings; preparation of sketch plans and specification while taking into consideration all the conditions which exist and to submit same to the employer for authorization; modification or amendments of sketch plans as he may be requested; consult with and advise the employer as to procuring tenders and the necessity of employing a quantity surveyor; supply the builder with copies of contract drawings and specification; supervise the work and ensure that the contractor performs the contract and in the case of a serious breach advise the employer and finally to perform all duties as may be specified in any contract with his employer.

Engineer
In building and construction contracts, the term engineer has been taken to mean either a structural engineer or a civil engineer. However, this assertion is not absolute as there are other types of engineers that are involved in the construction of buildings in the construction industry. For instance, there is the Geo Technical Engineer who is responsible for investigation of the ground and the preparation of geotechnical design.

22 23

Collyer Bristow(n 20 above). Hudson, Hudsons Building Contracts(1926) ed. Hudson.

2013 Tope Adebayo LLP

It must be pointed out at this juncture that an engineer has duties which are similar to the duties of the Architect which has been enumerated above and for the avoidance of repetition, it shall not be discussed. In conventional contracts in the construction industry, an engineer is saddled with double responsibility which can sometimes brew disputes or conflict of interests in the performance of same.24 Thus, an engineer can also act as an agent to the employer and as a professional in which case he would be required to act independently and fairly. In sum, an engineer has an enormous role in the supervision of the contract as well as a duty to provide directions to the contractor through valuing the work, issuing certificates (in this case he becomes a certifier) and payment schedules.25

Quantity Surveyor
A quantity surveyor has the major function of taking out the measurements and quantities from plans for the sole purpose of enabling the builders to calculate the budget for which they would construct a building.26 A quantity surveyor also has other functions such as preparation of bills of quantities, bills of valuation and taking measurements for the sole purpose of certificates. In other words, the quantity surveyor must value the work done before an architect can issue the certificate which would prompt the payment of the contractor. In cases where the building project is small, a quantity surveyor can act as a project manager that is if the architect was employed solely for the preparation of design.27 It must be pointed out that a quantity surveyor may be employed by the employer in which case he owes a duty of care to the employer or he may be employed by the contractor where quantities do not form part of the contract in order to take out

24

Malcolm Abernethey, Contractor Vol 31, No.6 July 2007 The Role of the Engineer

http://www.contrafedpublishing.co.nz/Technical/The+role+of+the+engineer.html As above. Stephen Furst,(n 7 above) p.461. 27 Blake-Turner & Co Solicitors: The Role and Obligations of Surveyors in Construction Projects. http://www.blaketurner.com
25 26

2013 Tope Adebayo LLP

quantities for the purpose of tender. Finally, some contracts require the quantity surveyor to take decisions fairly and proficiently. It must be noted that the enumerated key players are not exhaustive, as there are other players in the construction industry whose roles are subsumed in the major key players role as they can be engaged by the above mentioned key players or they can be engaged as sub contractors.

Liabilities of key players in the Construction Industry Firstly, it is remarkable to state that even an employer have liabilities in the building and construction industry. Where an employer repudiates a building contract it awarded to a contractor, the employer shall be liable to pay damages to the contractor notwithstanding the fact that no work has been carried out by the contractor. This assertion is based on the assumption that the contractor in tendering for the work analyzed the scope of the work by reference to documentation and/or inspection of the works, identified his basic costs of carrying out the work, included a margin for overheads and for profit in his tender and finally the contractor foregone other profitable work in tendering for the given works.28 An employer shall also be liable to pay damages to the contractor, where the employer repudiates the contract despite the fact that the contractor has to a degree performed some of the work.29 Further, when an employers breach does not amount to the repudiation of the contract and does not thwart the completion of the project, the employer shall still be liable to pay damages to the contractor. More so, an employers conduct which leads to the delay of the completion of the building project would also attract penalties in the form of extra cost.30

Chitty on Contracts, Vol II Specific Contracts, Sweet & Maxwell 2004. 725. Halsbury Laws of England, (building and construction contracts). Fourth Edition p.174. 30 Owners Liability under construction contract : http://jordanramis.com/articles/article0058.html (accessed on 23rd July 2012).
28 29

2013 Tope Adebayo LLP

Secondly, a contractor has a major obligation and several other duties which would attract liabilities in the event of breach. Liabilities of the contractor would arise where the contractor fails to build at all or fails to complete the work it was contracted to do, failure of the contractor to complete the work in accordance with the specifications in the contract, defective works, the use of defective materials and sometimes the use of defective design (this apply mostly to cases of build and design contracts).The contractor shall also be held liable where the contractor without reason falls short in completing the work within the designated time scale provided for by the contract.31 Thirdly, when an Architect breaches the duties he owes to the employer he shall be liable in action for damages to the employer and in cases where the breach is so fundamental that it results in loss to the employer he will not be able to recover his fees. 32 Finally, other professionals such as the surveyor and the engineer can be held liable for breach of their professional duty in contract as well as in tort to the employer. Remedies available to the Employer arising from the breach of the contractor

It should be noted at the outset that nothing is of greater value or greater detriment in litigating such issues than a well-drafted construction contract.
Lorence H. Slutzky33 It is a well known fact that contracts have existed for such a very long time, it therefore goes without saying that there were codes which governed responsibility for defects as well as the amount to be paid in damages. One of such codes is the code of Hammurabi34 which states the measure of damages a building owner shall be entitled to for defective works of the contractor. The code of Hammurabi provides:

Chitty on Contracts, Vol II Specific Contracts, Sweet & Maxwell 2004. 728. Stephen Furst,(n 7 above)p. 446. 33 Joshua Glazov, Construction Law today http://www.constructionlawtoday.com/articles/quotes/ 34 The Babylonian Law code was enacted by the 6th Babylonian Kind Hammurabi, it consists of 282 laws which includes contract and liability of a builder.
31 32

2013 Tope Adebayo LLP

10 If a builder builds a house for a man and does not make its construction meet the requirements and a wall falls in, that builder shall strengthen the wall at his own expense If a builder builds a house for a man and does not make its construction firm and the houses which he has built collapses and causes death of the owner of the house that builder shall be put to death. If the son of the owner dies, the son of the builder shall be killed.

At a glance, it can be rightly stated that the measure of damages awarded against the contractor in favour of the employer in the code of Hammurabi is harsh and barbaric, but as the centuries went by the British Lords came up with better ways of measuring damages to be awarded against a contractor. These ways have in turn been translated into principles of law in construction contracts. It must be noted here that the general principle in awarding damages in the law of contract also applies to construction contracts, consequently damages is awarded with a view to putting the employer in the position that he would have been had the contract not been breached by the contractor or any other professional in the construction industry. Thus, the normal measure of damages in the case of defective building is the cost of reinstatement. This principle of law was applied by the House of Lords in the case of East Ham Corp v. Bernard Sunley,35 where the claimants had acted reasonably in effecting the repairs to the defective building and was awarded the cost of reinstatement by the House of Lords as at the time the defects were discovered. There are therefore a plethora of cases on the entitlement of the employer to the cost of reinstatement in the case of a defective building constructed by the contractor. It is of importance to state that the cost of reinstatement can also be awarded by the courts, even when in actual fact the employer has not effected the reinstatement as at the time an action is commenced for the cost of reinstatement of the defective works. This was the position of the court in the case of Cory & Son v. Wingate Investments,36 where the court granted as damages the cost of reinstatement at the time when the claimants claim was heard and when prices had risen even though the

35 36

1966 A.C. 406. 1980 17 B.L.R. 104 CA.

2013 Tope Adebayo LLP

11

claimants were unable to effect reinstatement at the time of commencing the suit due to their failure to obtain assurances from the defendants for repayment. The cost of reinstatement will also be reasonable even where it produces a better building and no allowance is made on ground of betterment, but where the employer selects to build a higher standard than is reasonably expected, there will be a reduction on account of betterment.37 There have been series of claims in construction litigation as it relates to damages (consequential losses) in the English legal system such as physical damage caused by the defective state of the building, recovery for legal fees acquired in futile attempts to sell the defective house,38 and professional fees of quantity surveyor supervising the remedial work.39 However, the case of Johnston v. W.H Brown Construction (Dundee) Ltd 40 reveals the inadequacy in the reliefs being awarded to employers in the event of the construction of a defective work by the contractor. In Johnstons case, the court refused to award the cost of an architects report investigating the defects and the cost of the solicitors advice on the contractual aspects of the defects and also for management costs, it held that none of the enumerated items constitute consequential losses. The court was of the view that the management costs as it relates to the interference with claimants business due to the defective work was not proved and the cost of taking legal and technical advice in the preparation of a claim is not recoverable as damages. The writer is of the opinion, that the judgment in Johnstons case nearly defeats the purpose of awarding damages as a relief in construction contracts. This is in view of the fact that an employer can incur a large debt or some form of losses in a bid to recover the cost of reinstatement of the building. It only stands to reason that if an employer cannot claim that money which it would not have ordinarily spent save for the defective work, then the whole essence of consequential losses would be defeated. Nevertheless, there might still be some ray of hope for an employer who seeks to claim expenses
Halsburys Laws of England, Fourth Edition, P.172. Rawlings v. Rentokil Laboratories(1972) E.G.D.744. 39 Gemma Ltd v. Gimson (2005)97 Con. L.R.165. 40 (2000) B.L.R 243.
37 38

2013 Tope Adebayo LLP

12

incurred in employing the services of professionals as a result of the breach of contract by the contractor under the concept of remoteness of damages in the law of contract. This is in view of the position of the law in remoteness of damages that an employer may claim expenditure incurred after and as a result of the breach of the contract.41 The whole process of commencing construction litigation can be quite expensive and cumbersome, hence some form of compensation should be paid to the employer who would not have found himself in that position but for the breach of the contractor. It is therefore advisable to have it expressly stated in construction contract that the defaulting party who breaches the contract shall pay the other party for expenses incurred in procuring professionals to prove its case in order to satisfy the condition in the concept of remoteness of damage that the loss is not too remote a consequence of the breach, if at the time of contracting it was within the parties reasonable contemplation as a not unlikely result of that breach. If the sole aim of reinstating a party to a contract is to restore that party to the position he would have been if no breach had occurred, then the cost of taking technical and legal advice in the preparation of the claim for recovery of the cost of reinstatement must also be taken into consideration otherwise the compensation to the employer would be inadequate. The courts have a power to enlarge the scope of reliefs as the purpose of damages which is to compensate the claimant and not to punish the defendant will not be lost in awarding damages in the form of professional fees for professional and technical advice and even for the preparation of certain documents which will be used to prove the entitlement of the claimant, this position is supported by the fact that the application of the test of remoteness of damage to a particular set of facts depends largely on judicial discretion.

41

In Chitty on contracts vol.1, 29th Ed @ page 1464 and 1486, it was stated under the concept of remoteness of damages that a claimant may recover as damages the reasonable costs incurred by him in mitigating the loss caused by the breach or in otherwise dealing with the consequences of breach. Another rule w3hich is applicable to the discussion at hand is the recovery that can be made in mitigation of damages. A claimant may recover damages for loss or expense incurred by him in reasonably attempting to mitigate his loss following the defendants breach, even when the mitigating steps were unsuccessful or in fact led to greater loss.

2013 Tope Adebayo LLP

13

In cases, where the contractor fails to build at all or in part, the normal measure of damages that would be awarded to the employer is the cost of completing the building less the contract price and additionally the value of the use of the premises lost by the reason of delay.42 It must be noted that this principle is subject to the principle of mitigation. Thus, in Mertens v. Home Freeholds Co, 43 Lord Sterndale stated:
The building owner must set to work to build his house at a reasonable time and in a reasonable manner, and is not entitled to delay for several years and then, if prices have gone up, charge the defaulting builder with the increased price.

It can be argued that there seems to be no case law in relation consequential losses that can arise from the failure of the contractor to complete the work, thus employers can rely on the general principles of contract damages in claiming for consequential losses. 44 Further, where a contractor fails to complete the building at the time specified by its contract with the employer, the standard measure of damages shall be the value of the use of the building during the delay such as the rental value. There seems to be no case law in relation to this principle. However, there are a number of cases as it relates to the claim of consequential losses resulting from the delay of the contractor to complete the work within the specified time. One of such cases is Bridge UK.Com Ltd v. Abbey Pynford Plc,45 where the defendant/builder ran into difficulties which resulted in its inability to complete the work at the designated time, the claimant claimed and recovered for its loss of profit on printing work which it had sent out to other companies amongst others. Another burning issue which must be delved into in the award of damages in building and construction contracts is the award of damages for anguish, inconvenience and disappointment. The courts are unable to reach a position on the award of damages for the contractors breach which deprives the employer to live or use the building for t he

Harvey Mcgregor, Mcgregor on Damages. Eighteenth Edition (2009) p. 985. (1921) 2 K .B 526 CA. 44 Harvey Mcgregor, (n 42 above) p. 987. 45 (2007) EWHC 728 TCC.
42

43

2013 Tope Adebayo LLP

14

particular purpose for which it was constructed. There have been diverging positions over the years on when damages should be awarded for inconvenience, discomfort, loss of amenity and loss of expectations. In the case of Ruxley Electronics v. Forsyth,46 it was stated that damages may be awarded, although at a nominal amount to the claimant for loss of expectation of performance, satisfaction of a personal preference or a pleasurable amenity. In sum, the compensatory principle is aimed at restoring an employer to the position he would have been, had the breach not occurred. It is therefore contended that an employer must not only be awarded damages for the visible loss to the building which he has suffered, but must also be awarded damages for consequential losses, nonpecuniary losses and future losses which the breach of the contractor would trigger. This is more so due to the fact that in the pursuit of his claim, the employer may not be able to recover his loss immediately due to the period of time involved in the conduct of a trial in many jurisdictions. Remedies available to the Employer arising from the breach of the Architect As earlier stated an employer can also claim for damages from the Architect where the Architect is in breach of its duties to the employer. Although, there is no hard and fast rule on the exact standard of damages to be claimed in each case pertaining to the breach of its specific duties, it can be gathered from case laws the standard of damages that might be awarded against the Architect by the courts. In Earls Terrace Properties Ltd v. Nilsson Design Ltd,47 the claimants successfully claimed for their loss on account of their fund being held within the development project against the Architect whose insufficient design resulted in defective installations which required remedial work, thereby delaying the completion of the buildings.

46 47

(1996) A.C 344. (2004) B.L.R 273

2013 Tope Adebayo LLP

15

Remedies available to the contractor arising from the breach of the Employer Generally, where an employer halts the completion or hinders the completion of his building by the builder, the measure of damages the contractor is entitled to is the contract price minus the cost which the contractor would have had to bear in completing the work.48 There seems to be no case law on the standard measure of damages as well as the consequential losses that can be incurred from the employers breach. In cases, where an employers conduct hinders the completion of the work within the designated time scale, the contractor would be entitled to such losses which it would not have incurred but for the delay. The extra costs for wages during the delay; increased cost of labour or materials when work is eventually resumed and cost for the corrosion of work materials during the delay all falls under the categories of losses which the contractor can claim. It appears from the above that more often than not, the contractor is found guilty of breaching its duties or the terms of the contract with the employer. Perharps, this can be the explanation for the absence or scarcity of case laws on the measure of damages a contractor is entitled to receive from the employer based on the employers breach of contract. Conclusion In conclusion, it can be gathered from the foregoing discussion, that all parties to a construction contract can at one time or another breach the terms of contract either by not carrying out the work in accordance with the specifications or by any other means. But in most cases, the employer has been the victim of breach in the construction industry. It is pertinent to state that after the breach is the measure of damages to be awarded to the innocent party. The propriety of the damages to be awarded depends on the circumstances of each case; however certain award of damages has been viewed as
48

Halsbury Laws of England fourth edition, p.173

2013 Tope Adebayo LLP

16

inadequate especially when it relates to the employer. This is in view of the fact that the employer has expended his resources in ensuring that the construction process is brought to life and must therefore be fully compensated by one way or the other in the event of a breach especially where such breach is so fundamental that it requires a total demolition of the building or it results in a protracted delay in the completion of the works. Finally, in a country like Nigeria, where the process of obtaining compensation from the courts takes a very long period of time, future losses occasioned by the loss which redress is being sought for should be claimed from the contractor or any other professional who has breached the contract in order to make up for the time lost in the pursuit of damages. Thus, based on the principle of remoteness of damages which is to the effect that a type or kind of loss is not too remote a consequence of a breach of contract if, at the time of contracting it was within the parties reasonable contemplation as a not unlikely result of that breach.

2013 Tope Adebayo LLP