The politics of trust

The Society of Construction Law has unveiled this year’s winners of the Hudson Prize. The £1000 award for legal presentations goes to Deborah Brown of solicitor Barlow Lyde & Gilbert, and £500 goes to Michael Barlow of MacRoberts.

Barlow’s paper, When is a Building Contract not an Ordinary Building Contract?, reminded me of a story in which a judge says to a barrister: “Mr Bloggins, you have told me the law but until you tell me the merits, your case makes no sense.” The barrister replies: “My Lord, I have given you the law; it is only if I give you the merits that the law makes no sense.” In this regard, Barlow’s proposition has all the merits but he is searching to find some law that makes sense.

He describes a familiar situation: a client takes over a new building, but a little later discovers a serious fault. It calls the main contractor, only to find that it has gone out of business. But the client knows the true culprit is a subcontractor that is alive and well. The snag is that the client has no contractual link with the subcontractor, so it seeks help from its lawyer.

The Contracts (Rights of Third Parties Act) 1999 may help; otherwise, the search will be on to see whether the subcontractor can be sued outside of contract for negligence. Barlow’s paper explores this difficult area for law, which will help find a remedy from a badly performing subcontractor. The law calls this type of remedy “pure economic loss”. It insists that the injured party will be able to get a solution only via the immediate contracting party – the main contractor. But what happens if the chain is broken?

Barlow cites Henderson vs Merritt, in which the House of Lords said such losses were not “ordinarily” recoverable outside of contract. He scrutinises the word “ordinarily” and asks whether a building contract is out of the ordinary. Is there a special relationship between client and main contractor, and between everyone involved?

He points to Junior Books vs Veitchi 15 years ago, in which the senior court said there was a relationship outside of the contract between subcontractor and client that was so near to a contract as to give it a special relationship or duty of care to avoid pure economic loss.

Barlow missed a point that may have won him first prize: a special relationship might arise from partnering to lift a building contract out of the ordinary, giving a client legal standing.

A special relationship might arise from partnering to lift a building contract out of the ordinary, giving a client legal standing

Deborah Brown carried off first prize for her paper about partnering, After the Divorce – Problems with Partnering Agreements. Partnering agreements always strike me as mission statements, the sort you see screwed to the wall of an American oil corporation, trumpeting mutual co-operation. The reality is that, if the other bloke puts a foot wrong, the corporate biggy will screw him to the wall too.

This partnering bugle call has reached the UK. Brown homes in on events at the Birse and St David site at Cardiff Bay. In their joint mission statement, they agreed to “produce an exceptional quality development within an agreed time frame, at least cost, enhancing our reputations through mutual co-operation and trust”.

Once the mission statement was screwed to the wall, Birse and St David behaved as usual. They couldn’t agree the proposed JCT contract; a letter of intent was drafted; they fell out; Birse abandoned site and sued for a wodge of money. St David said the JCT contract had come into effect and that Birse had no right to leave.

The judge had to decide first whether or not the whole contract had arisen. He looked at the mission statement and declared that “people who have agreed to proceed on the basis of mutual co-operation and trust are hardly likely to adopt a rigid attitude as to the formation of a contract”.

I imagine that the judge was establishing the intentions of the parties from a piece of evidence about the surrounding circumstances. In her paper, Brown asks whether partnering agreements can signal to a court that contracting parties have devised a special relationship, implying a duty of good faith. And can such agreements persuade a court to interpret a contract differently? Interesting, too, is her examination of partnering statements on exclusion or limiting clauses and the test of reasonableness in the Unfair Contract Terms Act.

This prize-winning paper is an excellent starting point for construction management and law students looking for a dissertation topic, although they must be wary of the judge’s remarks in Birse. He was probably only putting commercial negotiations in context.