Legal developments in construction law: October 2024
1. An agreement to agree is unenforceable – or is it?
An agreement to agree is not enforceable. For example, in a sale of goods contract, price is an essential ingredient, and if still to be agreed between the parties, then there is no contract. Because, however, the courts lean in favour of giving effect to parties’ bargains, a body of principles has evolved to determine whether there really is an unenforceable “agreement to agree.” In summary:
- Each case must be decided on its own facts and on the construction of its own agreement. Subject to that:
- Where no contract exists, the use of an expression such as "to be agreed" in relation to an essential term is likely to prevent any contract coming into existence, on the ground of uncertainty.
- Similarly, where no contract exists, the absence of agreement on essential terms of the agreement may prevent any contract coming into existence, again on the ground of uncertainty;
- However, particularly in commercial dealings between parties familiar with the trade in question, and particularly where they have acted in the belief that they had a binding contract, the courts are willing to imply terms, where possible, to enable the contract to be carried out;
- Where a contract has come into existence, even the expression "to be agreed" in relation to future executory obligations is not necessarily fatal to its continued existence;
- particularly in the case of contracts for future performance over a period, where the parties may desire or need to leave matters to be adjusted in the working out of their contract, the courts will assist the parties to do so, so as to preserve rather than destroy bargains; what can be made certain is itself certain.
- This is particularly the case where one party has either already had the advantage of some performance which reflects the parties’ agreement on a long term relationship, or has had to make an investment premised on that agreement;
- for these purposes, an express stipulation for a reasonable or fair measure or price will be a sufficient criterion for the courts to act on. But even in the absence of express language, the courts are prepared to imply an obligation in terms of what is reasonable;
- Such implications are reflected, but not exhausted by, the statutory provision for the implication of a reasonable price in the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982;
- the presence of an arbitration clause may assist the courts to hold a contract to be sufficiently certain, or to be capable of being rendered so, presumably as indicating a commercial and contractual mechanism, which can be operated with the assistance of experts in the field, by which the parties, in the absence of agreement, may resolve their dispute.
KSY Juice Blends UK Ltd v Citrosuco GmbH [2024] EWHC 2098
2. Could an expert determination clause be a one-stop dispute resolution process?
In Fiona Trust and Holding Corpn v Privalov Lord Hoffmann said that the construction of an arbitration clause should start on the assumption that the parties, as rational business people, were likely to have intended that any dispute arising out of their contractual relationship should be decided by the same tribunal. An arbitration clause should therefore be construed in accordance with that presumption, unless the language made clear that certain questions were to be excluded from the arbitrator's jurisdiction. But did that presumption apply to an expert determination clause that said that any dispute or difference between the parties as to any matter under or in connection with their contract should be submitted for expert determination?
In Dandara South East Ltd v Medway Preservation Ltd the court ruled that the natural reading of the clause was that it was an all-embracing provision, requiring all disputes concerning the contract to be subject to expert determination. This would include a dispute as to whether the contract had been validly terminated, or whether one party was in continuing breach. It acknowledged, however, that this was unusual as expert determination clauses are generally limited to certain matters considered particularly suitable for resolution by this method.
The court also considered that, as a matter of construction, in circumstances where it had found that the parties had created a one-stop shop in the form of the expert determination clause, as with arbitration clauses, the clause was separable from the contract, at least for the purposes of determining a dispute as to whether it had been terminated by a supervening event.
Dandara South East Ltd v Medway Preservation Ltd & Anor [2024] EWHC 2318 (Ch)
3. 26 years on: how adjudication enforcement works – in just a few lines
26 years after the Construction Act requirements were first imposed on "construction contracts" a few lines sum up just how, after the hundreds of cases in between, adjudication enforcement works. In CNO Plant Hire Ltd v Caldwell Construction Ltd the court set out this summary:
- Where a valid payment application has been made, an employer who does not issue a valid payment notice or pay less notice must pay the 'notified sum' in accordance with section 111 of the Act;
- failure to pay the notified sum entitles the contractor to seek payment of the sum by obtaining an adjudication award;
- unless otherwise directed by the adjudicator, the parties are required to comply with the decision immediately;
- the courts take a robust approach to enforcement, regardless of errors of procedure, fact or law, unless in excess of jurisdiction or breach of natural justice;
- when a party is required to pay a 'notified sum', that party may embark upon a true valuation of the work done, but only after it has complied with the immediate payment obligation under section 111 of the Act.
And what about set off?
Adjudicators' decisions which direct the payment of money by one party to another are generally to be enforced summarily and expeditiously with no set off or withholding against payment of that amount generally permitted. There are, however, at least three limited exceptions to this:
- a first, "relatively rare", exception will be where there is a specified contractual right to set off;
- a second exception may arise where it follows logically from an adjudicator's decision that the adjudicator is permitting a set off to be made against the sum otherwise decided to be payable;
- a third exception may arise in an appropriate case, at the discretion of the court, where there are two valid and enforceable adjudication decisions involving the same parties whose effect is that monies are owed by each party to the other.
CNO Plant Hire Ltd v Caldwell Construction Ltd [2024] EWHC 2188
4. Government crackdown on late payments
The government has announced new measures to deal with late payments:
- a new Fair Payment Code;
- a consultation to consider policy measures that could help address poor payment practices;
- new legislation to require all large businesses to include payment reporting in their annual reports; and increased enforcement of the existing late payment performance reporting regulations.
The Department for Business and Trade has also updated its guidance on the statutory duty of companies and limited liability partnerships to report on payment practices and performance.
and
5. Government to include retention clause information in payment reporting requirements
The Department for Business and Trade has also laid before Parliament draft regulations that extend the payment reporting requirements to include information on retention clauses.
See: https://www.legislation.gov.uk/ukdsi/2024/9780348263978/contents
6. More JCT 2024 Contracts
JCT has released the 2024 Edition of the Repair and Maintenance Contract (RM 2024).
See: Repair and Maintenance Contract (RM 2024) (jctltd.co.uk)
Also released in October are:
- Major Project Construction Contract 2024 (MP 2024)
- Major Project Construction Contract Guide 2024 (MP/G 2024)
- Major Project Sub-Contract 2024 (MPSub 2024)
- Major Project Sub-Contract Guide 2024 (MPSub/G 2024)
- Prime Cost Building Contract 2024 (PCC 2024)
- Prime Cost Building Contract Guide 2024 (PCC/G 2024)
- JCT – Constructing Excellence Contract 2024 (CE 2024)
- JCT – Constructing Excellence Contract Guide 2024 (CE/G 2024)
- JCT – Constructing Excellence Contract Project Team Agreement 2024 (CE/P 2024)
7. Government brownfield passport proposals
The government has issued a working paper proposing options for a form of brownfield passport, which would be more specific about the development that should be regarded as acceptable on brownfield sites, with the default answer to suitable proposals being a straightforward “yes”. This is not a formal consultation but is instead intended to inform discussions with the sector, to determine whether and how to take these proposals forward.
There is no formal deadline, and the government is to confirm next steps on these proposals in due course.
See: https://www.gov.uk/government/publications/planning-reform-working-paper-brownfield-passport
8. Consultation on new Decent Homes Standard for rented sectors
The government is to consult, as soon as possible, on a new Decent Homes Standard for the rented sectors. It is also to bring forward other measures, including, this autumn, legislation for Awaab’s Law (requiring landlords to fix reported health and safety hazards within a strict timeframe) in the social rented sector, and further plans for high quality housebuilding through the revised National Planning Policy Framework, following the NPPF consultation.
See: https://www.gov.uk/government/news/measures-to-ensure-decent-homes-for-all
9. BSR issues HRBs FAQ guide and video
The Building Safety Regulator has produced a frequently asked questions guide on how the Building Control Authority works, and what the BSR expects from industry.This includes information on submitting high-quality applications.
See: Read and download the FAQ guide
a vlog from Neil-Hope Collins, Policy Lead for HRB Building Control Authority at HSE, explaining some of the important changes in building control for higher-risk buildings, at: Watch the vlog
The content of our publications and/or events provide information on legal issues and developments of interest to our clients and friends. They are not intended to provide legal advice or be a substitute for obtaining legal advice for your specific matter. You should not act upon any such information without first obtaining your own legal advice. Please also read the Mayer Brown legal publications Disclaimer.
