Question 2
ABC’s liability
It was ABC’s obligation to ensure that its action of making the designs was executed professionally and to ensure that it delivers design plans which were fit for purpose.
Reasonable care and skill
The Supply of Goods and Services Act 1982 provides under section 13 that any person who supplies any products or services must do so with such standard of care and skill that a reasonable man would. Such reasonable care and skill also includes the statutory responsibility to make certain that the design fits the purpose for which it is being sought as provided under the Supply of Goods and Services Act. Therefore, ABC had a statutory duty to take action with reasonable care and skill when drafting the designs for the warehouse.
In Lanphier vs. Phipos (1838), the court demonstrated the extent of the obligation which applied to ABC. In this case, the court found that where one engages in a certain profession, he undertakes to use his professional knowledge in the application of that skill to a reasonable and competent degree. In the absence of such, the action amounts to professional negligence. ABC was, therefore, under an obligation to exercise professional care and skill sufficient to facilitate the construction of a warehouse.
The outcome of the forensic report indicated that the building collapsed because of the defects in the design. Therefore, this leads to the conclusion that ABC did not conduct itself according to the standard of reasonable care and skill required of a reasonable professional. This constitutes a breach of statutory duty, and therefore, ABC is liable for any loss which would be occasioned by constructing the warehouse using the design plans.
Fitness for purpose
In addition to reasonable care and skill, the determination of Greaves & Co (Contractor) Ltd v Baynham Meikle [1975] applies with regard to the terms of the contract. In this case, the court found that the requirement for fitness for purpose was an implied warranty under the contract. It was further noted that it was an intention which was shared by the parties that the end product designed would meet the need of a warehouse. Similarly, the holding in United States v. Spearin (1918), which established the Spearin doctrine, is applicable to this case. Under this doctrine, a warranty is implied in a contract to the effect that the designs are accurately designed and fit for use for construction, such that if utilized as required, it will result in a building that is good enough for use upon completion. The same case applies to ABC where there was an implied warranty that ABC’s design plans would bring about a building that would suit the intended use of a warehouse. This was not the case, as the warehouse collapsed because of the defects in the building plans; therefore, they were not fit for purpose, imputing liability against ABC.
Duty to warn
The site engineer noted that Buildfast was using a different construction method from the one that was required. As per the holding in the case of Oldschool v Gleeson [1976], the site engineer did not owe a duty to instruct Buildfast on how to do the construction. However, the site engineer had a duty to warn Buildfast of the deviation from the design, and the possible consequences of non-conformity to it. In addition, he had a duty to warn ABC of this deviation from the design plans. This position was explained in the case of New Islington (2006), where it was held that failure by the site engineer to communicate to his employer of the deviation from the method which was recommended amounted to negligence on the part of the site engineer. As such, the project manager in this case owed a duty to ABC to make sure that the recommended method of working is used by Build Fast throughout the duration of the construction. This was held in Britfield Properties v Newton in which it was found that the designer is under a continuing duty to ensure that defects which arise while the construction is ongoing are corrected.
Liability against Buildfast
Reasonable care and skill
Buildfast had the duty to exercise all reasonable care and skill in performing their obligations as required by Section 3 of the Supply of Goods and Services Act. In addition, they were required to act in such a way that a reasonable professional would in the circumstances. They were therefore required to point out any defects they detected in the design plans to ABC as soon as they noted the defect (Lanphier vs. Phipos). Therefore, Buildfast was also liable for negligence.
Breach of warranty
OK Contractors opted to use a different method of construction from what was indicated in the design plans. This constitutes a breach of the warranty to construct according to design plans. The case of Bettine v Gye (1876) describes the nature of the breach of warranty. However, the forensic report revealed that the warehouse collapsed because of the design of the building, and not because of the method of working employed by Buildfast. Liability can only arise where a breach of the terms causes the other party to suffer loss or damage. In this case, therefore, there is no liability attaching to Buildfast for breach of warranty.
Conclusion
Both ABC and Buildfast have conducted themselves in a manner to attract liability against themselves. The designers failed to a reasonable standard of skill and care in the drawings used by Build Fast. This consequently resulted in cracks in the warehouse and ultimately led to its collapse. Buildfast, on the other hand, failed to notify ABC of the defect in the design plans and for breach of warranty to build according to the design plans.
Question 3:
A letter of intent is a document indicating an intention by one party to enter into an agreement with another party, whereby the terms thereof have not been finalized.(Bailey, 2016). According to Ramsey (2009), a letter of intent is an interim or preliminary contract under which the parties demonstrate the intention that the party embarking on construction works shall be compensated for the work done as described under the LOI , regardless of whether or not the contract negotiations are finalized. The purpose of a letter of intent is to enable the contractor to enter into the intended site and commence construction or other works that are required to start the project before the finalization of a formal contract.
A valid letter of intent has three characteristics. These are basic agreement on terms, intention to enter into a binding legal contract, and the amount agreed for the works to be executed under the letter. The court in Serck Controls Ltd vs. Drake & Scull Engineering Ltd [2000] stated that where a party takes action in the execution of the requirements contained in a letter of intent, rights and obligations are created, regardless of whether the contract is ultimately executed or formalized.
In addition, Bailey (2009) observes that a valid LOI should indicate the scope of activities that the contractor is to undertake. This position is illustrated by the case of Cunningham vs. Collett & Farmer [2006], in which it was stated that it serves no purpose to issue a LOI that does not outline the works to be undertaken, as well as the conditions under which such works will be done. In the present case, the terms under the LOI were that OK Contractors was to order for material which does not exceed the amount of $ 1.0 million. Therefore, the LOI had clearly outlined the parameters of operation. In addition, as held in Arcadis Consulting (UK) Limited v AMEC (BSC) Limited [2018], where works have been carried out, a reasonable man would come to the conclusion that there was a contract.
Thus, the LOI and the action of commencing construction by OK Contractors were sufficient to create a valid contract between the parties. This is because the LOI clearly laid down the terms and obligations of the parties, the works to be performed by OK, as well as the amount to be paid for the works. There was also the objective to enter into a formal contract after negotiations were complete
Claim for $ 2.5 Million
Buildfast exceeded the amount prescribed in the LOI. In a case where there is no agreed scale of payment of works done nor how an assessment of the same is to be conducted, according to the case of Monk Construction Ltd vs. Norwich Union Life Assurance Society [1992], payment will be determined by applying the principle of quantum meruit. However, the present case is one in which there was an agreement as to the amount payable under the LOI. Applying the determination of the court in Diamond Build Limited v Clapham Park Homes Limited [2008], OK Contractors cannot demand the full $ 2.5 Million. It is evident that both parties were aware of the $1 Million cap indicated by the LOI, and it was upon OK Contractors to inform the employer when the cap of $ 1 Million was reached. Anything beyond $ 1.0million can, therefore, not be claimed by OK Contractors.
TOTAL WORD COUNT: 1526
References
Statute
Supply of Goods and Services Act 1982
Case Law
Arcadis Consulting (UK) Limited v AMEC (BSC) Limited [2018] EWCA 2222
Cunningham vs. Collett & Farmer [2006] EWHC 1771
Lanphier vs. Phipos (1838) 8 Car & P 475
Greaves & Co (Contractor) Ltd v Baynham Meikle [1975] 3 All ER 99
Oldschool v Gleeson [1976] 4 BLR 103
Bettine v Gye (1876) 1 QBD 183
Diamond Build Limited v Clapham Park Homes Limited [2008] EWHC 1439 (TCC)
Monk Construction Ltd vs. Norwich Union Life Assurance Society [1992] 62 BLR 107
New Islington [2006] EWHC 3156
Serck Controls Ltd vs. Drake & Scull Engineering Ltd [2000] 73 Con LR 100
United States v. Spearin, 248 U.S. 132 (1918)
Books and Articles
Bailey, J. (2016). Construction law. Volume II. Routledge
Merkin, R. S., Severine. (2019). Poole’s Casebook On Contract Law. [S.L.], Oxford Univ Press.
Ramsey, V. (2009). Construction law handbook 2009. London, Thomas Telford Limited.
Summerlin and Ogborn (2006). Construction Defects. Construction Law Attorneys, Thomson Business.
Van Der Puil, J., & Weele, A. J. V. (2014). International Contracting: Contract Management In Complex Construction Projects.London Imperial College.