CONCLUSIONES Y REFLEXIONES FINALES

 Chapter 2: The laws of contract and tort

. The civil legal obligations of an architect

This book is primarily concerned with the civil obligations that the law imposes on architects and which govern architects’ relationships with their clients, fellow professionals, funders, end users of projects and members of the public. It should be borne in mind that an architect may also be subject to the criminal law in the event that their actions (or omissions) cause a harm for which the criminal law imposes a sanction. For example, if an architect designs a building so poorly that it collapses, the architect may be sued by the client for the losses the client incurs as a result; but if someone was inside the building when it collapsed and that person lost their life, the architect may also be prosecuted for manslaughter and subject to a fine or imprisonment.

.. Laws of contract and tort

The law of contract and the law of tort are the main bodies of rules in English law relating to civil, as opposed to criminal, obligations. The basis on which the law imposes an obligation in contract is conceptually different from the basis on which the law of tort imposes an obligation, and it is simpler to analyse these two areas of law separately. However, depending upon the facts of the case, English law provides that the two sets of obligations may overlap significantly. This overlap is likely to be particularly relevant in relation to professional negligence. Negligence is the most common form of tort, although there are many other types – breach of statutory duty, for example, or nuisance. Negligence is a key area of interest for architects, especially because different limitation periods will apply in relation to legal actions in contract and those in tort, as discussed below. An architect’s professional appointment is likely to require them to exercise reasonable skill and care in producing their design; if the architect fails to meet that standard, they will be in breach of contract. But if the architect fails to use reasonable skill and care in their design work, they will also have acted negligently.

Both contract and tort law set down standards of behaviour with which parties must comply. Behaviour is regulated by the provision of legal remedies for the victim of a civil wrong; the award of damages for breach of contract is an example of such a remedy.

The law of contract concerns self-imposed obligations, created by an agreement between the parties which the law recognises as binding on them. In contrast, the law of tort concerns obligations that are imposed by the law on one party because of the existence of a duty of care not to harm another party, whether or not the parties have agreed that the duty

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of care exists and even if there is no pre-existing link between the parties at all.

. The law of contract .. What makes a contract?

A contract is an agreement recognised by law as binding on the parties to it. The parties are said to be ‘privy’ to the contract, and the terms of the agreement are binding on them alone and not on third parties; the contract cannot generally be enforced by or against someone who is not a party to it. This doctrine of ‘privity of contract’ is subject to some qualifications – for example, the effects of the Contracts (Rights of Third Parties) Act , as discussed in Chapter  – but remains a key difference between the way contract law and tort law operate.

The history of contract law is predominantly judge-made and, as explored in Chapter , the modern law in this area has, to a degree, developed to create confidence within, and been informed by the practice of, the business community. It is only relatively recently that Parliament has taken a more active role in helping to shape the principles of contract law.

How do the judges decide whether or not a contract exists?

There is no prescribed form for a contract. A contract may be made between two parties, or more parties may be involved. It may be written or purely oral. In practice, it can be difficult to prove before a court what was orally agreed in the event of a dispute, because it will typically be the word of one party against that of the other; but the old Samuel Goldwyn maxim that ‘an oral contract is only as good as the paper it’s written on’

does not necessarily hold true, particularly with the English courts taking an increasingly investigative role when looking into the circumstances around a potential contract. However, certain elements must be present in the agreement to make it into a legally binding and enforceable contract.

In reality the behaviour of parties during the negotiation of a contract tends to be complex; as a result the courts have developed certain ‘control mechanisms’. These are used to break down the complex interplay between the parties into simpler concepts, in order to allow the court to do justice in individual cases when the existence or meaning of a contract is in dispute:

t
There must have been agreement between the parties.

t
The parties must have intended that their agreement should be legally binding.

 Chapter 2: The laws of contract and tort

t
Some consideration must have passed from the party receiving the benefit of the contract, in exchange for receiving that benefit (except for contracts made ‘under seal’).

These control mechanisms were refined in the golden age of English contract law, the th century, and are still used by the courts to legitimise decisions today.

.. Was there consideration and an intention to create legal relations?

The doctrine of consideration started as pure common sense; a court sought to understand why a party may have wanted to enter into a binding contract to provide particular goods or services. What bargain was made between the parties? If there was a sensible, understandable reason why the promise to provide goods or services was made, then it would be enforced. Over time a body of case law developed as to which reasons were good, enforceable reasons and which were not. Obviously the exchange of money was and remains a valid reason, so for example a collateral warranty will typically include a variation on the phrase:

Now in consideration of the payment of  by the beneficiary to the architect, it is agreed as follows … .

For there to be an actionable contract binding the parties, there must also be evidence that the parties intended to create legal relations. The court in the case of Tesco Stores Limited v Costain Construction Limited and Others (at paragraph ) said:

It is … a strong strand in the policy guiding the development of the law over the years that the question whether or not a contract has been made should depend, fundamentally, upon the intention of the parties to the supposed contract, objectively ascertained, to make an agreement by which they intend to be legally bound.

The courts adopt an objective approach for purely practical reasons. The orderly conduct of business affairs depends upon people being taken to mean what they say, rather than being able to avoid the consequences of what they say in reliance upon unexpressed reservations. If objectively a party conducts itself in its speech, writing or behaviour in such a way as to indicate that it intends to take on by agreement legally binding obligations, then the law will enforce upon them the objective consequences of their conduct. In so doing, the law is not seeking to disregard what their actual intentions were, but only to limit the scope of the enquiry to the objective signs of their actual intentions; this was another conclusion reached by the court in the Tesco judgment referred to above.

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.. Was there an offer? Was it accepted?

Artificial it may be – as mentioned above, the interaction between contracting parties is very often so much more complex – but the notions of ‘offer’ and ‘acceptance’ are of the highest importance in determining whether there is in fact a concluded contract.

When analysing the offer and the acceptance a court is looking at whether the parties should be taken objectively to have been in agreement. As with the doctrine of intention to create legal relations, the court is not concerned with the actual subjective positions of the contracting parties, to the extent that those are different from the impression given objectively.

The lesson for any party, including an architect, engaging in commercial negotiations is clear – make sure that the written evidence documenting the relationship, including the written contract or appointment, properly reflects the relationship you intended to create.

For the courts, both the offer and acceptance have to be clear and unequivocal. A party cannot accept an offer by saying or doing nothing – that is not enough evidence for a court to judge objectively – and nor is it possible to accept an offer that is different from the one made. For example, if you offer to provide design services for , and the client says they accept your terms provided you reduce your fee to ,, there is no agreement – only a counter-offer.

To add another layer of complexity, in the event of a dispute a court must not only decide objectively whether there has been an offer and an acceptance, it must also decide precisely what has been offered and what has been accepted. How does a court decide what the substance of the agreement is?

.. How does a court interpret a contract?

What are the principles on which a court acts when trying to interpret the meaning of a contract? The general rule is that the court is limited to interpreting the expressed intention of the parties through the words actually used in the contract. If you wish to be able to rely on a particular provision, or a particular point you raised during negotiations, you must ensure it is incorporated into the final agreed contract or appointment.

The court may look at the surrounding ‘factual matrix’ to give colour to the words of the contract and shed light on the objective aim of the parties in making the contract; but the court cannot try to interpret the clear words of the contract as if the court were the parties acting in that factual matrix. The factual matrix that a court can take into account is

 Chapter 2: The laws of contract and tort

basically everything apart from the things that were said by the parties during the pre-contract negotiations, so it would include, for example, evidence of the business requirements of the parties at the time of the contract, which may show why the parties would have wanted to enter into a contract on particular terms.

The court will use all the background factual information which would affect the way in which an objective, reasonable person would understand the language of the contract; but it cannot, in interpreting a contract, ordinarily use evidence of the actual stated positions of the parties in pre-contract negotiations. This is known as the ‘exclusionary rule’ and was reaffirmed by the House of Lords in the case of Chartbrook Ltd v Persimmon Homes Ltd, one of its final judgments before transforming into the Supreme Court. What the parties actually say pre-contract, and their subjective statements of intent for the contract, are not taken into account because they cannot help the court to assess the language of the contract objectively.

A court has the power to imply terms into a contract

If it is apparent to a court that, having reviewed the background factual matrix, something went wrong with the language of the contract, then the court will in such circumstances be prepared to rewrite the contract to properly reflect the terms of the offer and acceptance which the court has objectively identified. The Chartbrook case was tightly focused on the commercial effect of the contract as drafted. However much ‘red ink’ was required to make the words of the contract make commercial sense, in the context of what the parties were objectively trying to achieve as discerned from the factual background, the court was willing to make those changes – but only once the court concluded from the circumstances of the contract that the parties intended to include the additional words, but for whatever reason did not.

You should not rely on a court to make your contracts or appointments make sense – it is far better to draft the contract in the first place so that it properly reflects the deal you have made.

As discussed in Chapter , additional contract terms may also be implied by statute, such as those providing the right to refer disputes to adjudication under the  and  Construction Acts. If the parties intend that statutory implied terms are not to apply in their contract, those terms must usually be expressly deleted; however, a number of statutory provisions cannot be contracted out of, such as those in the Construction Acts.

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There are limits on what the parties may agree: exclusion clauses

Parliament is also active, in certain circumstances, in protecting contracting parties from themselves, or from the adverse effects of agreeing onerous contractual provisions due to the unequal bargaining positions of the parties. Statutory provisions, enforced by the courts, do not allow certain terms to be agreed between the parties to a contract in certain circumstances. A party in a dominant bargaining position may wish to include terms in the contract which exclude or limit their liability in the event of them being in breach of contract. An architect may be affected by such concerns if their client is seeking to impose onerous terms on them; or it may be that it is the architect who has the dominant position and is seeking to limit or exclude their liability to the client, particularly to a consumer (as opposed to a commercial) client.

The two important pieces of legislation in this area are the Unfair Contract Terms Act  (‘UCTA ’) and the Unfair Terms in Consumer Contracts Regulations  (‘UTCCR ’). UTCCR  applies exclusively to relationships between commercial providers of goods and services and their consumer clients. As will be seen later in the context of the RIBA Standard Conditions of Appointment  ( revision) – ‘the RIBA Standard Conditions’ – clauses which are potentially unfair and which have not been individually negotiated or fully explained to a consumer client will fall foul of UTCCR , and the architect will not be able to rely upon them.

UCTA  prevents parties from contractually excluding liability for death or personal injury resulting from negligence; and goes on to provide that liability in negligence for other loss and damage may be restricted or excluded only if the clause in question satisfies the test of ‘reasonableness’

in all the circumstances, as set out in the Act. Exclusions or limitations of liability for breach of contract must also satisfy the test of reasonableness, if the contract involves one party contracting as a consumer, or if the contract is made on one party’s standard written terms of business.

Again, this could affect an architect contracting on the basis of a standard form of appointment. For example, the  case of Langstane Housing Association v Riverside Construction Aberdeen Ltd and Others concerned arguments by a client that a net contribution clause (a limitation of the consultant’s liability which reverses the common law position and makes it harder for the client to recover its losses) was not fair and reasonable for the purposes of UCTA . The court decided that in the circumstances a net contribution clause was fair and reasonable, but the credibility of this decision is undermined by the fact that the court also said that it did not consider a net contribution clause to be a restriction of liability to which

 Chapter 2: The laws of contract and tort

UCTA  would apply. It is safest to assume that the law in this area is not settled and net contribution clauses and other limitations on liability may still be vulnerable to UCTA-based arguments raised by clients in certain circumstances.

.. Letters of appointment, letters of intent and other ‘informal’

contracts

An architect may come across a letter of intent on a project if they are asked to administer a building contract based on one. An architect may also be appointed on an informal basis, such as a letter of appointment, which, for want of a better description, amounts to a letter of intent. In this section any such informal contract or appointment based on a letter or an exchange of letters or e-mails will be described as a ‘letter of intent’;

using the term ‘informal contract’ would just create confusion because, as will be seen below, not every such agreement is going to amount to a legally enforceable contract.

When a new job is secured it is always tempting, especially in a difficult financial climate, to dive into the project and neglect the appointment paperwork. You might proceed on the basis of an exchange of e-mails, an oral instruction in a meeting or a letter of intent. But first things first – is it really so vital to begin work before concluding the building contract or your own professional appointment? In the majority of cases where letters of intent are used, the truth is that the perceived benefit of an early start is outweighed, in the long term, by the risks of proceeding without properly settled contract and appointment terms. In the context of a building contract, if the contractor is working on the basis of an open-ended letter of intent, and being paid, the incentive to agree a formal building contract diminishes with each passing week.

The phrase ‘letter of intent’ is not a term of art and does not have a fixed meaning. It covers a broad range of agreements between parties, with varying degrees of ‘formality’, covering a spectrum from ‘definitely not a contract’ at one end to ‘definitely a binding contract’ at the other end, and all points of ‘maybe’ in between. Its meaning and effects depend upon all the circumstances of each particular case. Letters of intent are not a special case; a court will use the same principles to decide whether a letter of intent is in fact a binding contract (and if so, what the binding obligations require the parties to do) as it would use for any document.

The primary disadvantage of letters of intent is their unpredictability; it

The primary disadvantage of letters of intent is their unpredictability; it