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    CONTRACT MANAGEMENT

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    147 views100 pages

    Clac 040 - Claims, Disputes

    Uploaded by

    Hussein Othman
    CONTRACT MANAGEMENT

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
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    IQ) THE AMERICAN UNIVERSITY IN CAIRO Bp oLath 445s, 0H) deol dt ‘School of Sciences and Engineering polally Luaigil Aus Engineering and Science Services Agely yuan beat Professional Program Contractual & Legal Aspects in the Construction Industry cLAc Claims & Disputes im the Construction Industry CLAC - 040 Instructor: DR. SHERIF EL-HAGGAN Partner: Contract Administration & Arbitration Bureau (CAB) Felon/Tutor, Chartered Institute of Arbitrators, Landon Reviewer/Tutor, FDIC Contracts Committee Ponel of Arbitrators, Mistry of Justice, Egypt Acbirator, Coro Reganal Centre for International Commercial Arbitration Vice Presiden, Aretration Committee, Egyption Notonal Comittee of the IOC in Paris AUC New Cairo + AUC Avenue + P.O. Box 74 + New Cairo 11835, Egypt + tel 20,2.2615.2669/2675 + fax 20.2.2797.4973 AUC Tobirir Square * 113 Kase El Aini Street + P.O. Box 2511 + Cairo 11511, Egypt tel 20.2.2797,5321/5628 + fax 20.2.2792.3352/2795.7565 YoY YAY C8YF Qusld © Ta Yao FMA tive Yer Way rvorsryae ve + gpg NM Sagsall All © VEG yo + Akay deat Sah USL VST IVAY OFTY/OUTA Gohl + gpg NEN Spall # YONG go agiatll pall Lb 11 ‘Claims Should Not, rn Made Or Taken Personal Ad | ey Are sire Or. Sherif EL-Haggan - CLAC O40 CONTENTS INTRODUCTION: DEFINITION & CLASSIFICATION... DEFINITION. CLASSIFICATION AND LEGAL BASIS OF CLAIMS. (CHAPTER 1: GENERATION OF CLAIM! GENERAL. (GERMINATION ... CLASSIFICATION BY SUBJECT ‘NOTIFICATION. ESTABLISHMENT. EXAMINATION. CHAPTER 2: CLAIMS CONCERNING THE EXISTENCE OF A\CONTRACT. GENERAL. RECOGNITION OF A VALID CONTRACT. CONSIDERATION, AGREEMENT... (OFFER AND ACCEPTANCE.. CERTAINTY. FORMALITIES. LETTERS OF INTENT.. “THE CONTRACT MUST BE LEGASAND POSSIBLE. CASE 2.1 CLAIM BASED ON PROVISION CONTAINED IN COVERING LETTER TO TENDER CASE 2.2 CLAIM BASED ON QUALIFIED ACCEPTANCE. CASE 2.3 CLAIM ARISING OUT OF LETTER OF INTENT... CASE 2.4 CLAIM BASED ON DEFECT IN FORMAL AGREEMENT... CHAPTER 3: CLAIMS ARISING FROM DOCUMENTATION. ERRORS AND DISCREPANCIES AD HOC CONDITIONS... CHAPTER 3 — APPENDIX, CASE 3.1; CLAIM IN RESPECT OF ERRORS IN BILL OF QUANTITIES... CHAPTER 4: CLAIMS ARISING IN CONNECTION WITH EXECUSION OF THE WORK. CONTRACTOR TO SATISFY HIMSELF WORK TO BE TO THE SATISFACTION OF ENGINEE! DAMAGE TO THE WORKS. ISSUE OF FURTHER DRAWINGS AND INSTRUCTIONS . NOMINATED SUB-CONTRACTS.. DEFECTS... ce Dr. Sherif EL-Haggan - CLAC 040 CHAPTER 5: CLAIMS CONCERNING PAYMENT PROVISIONS. GENERAL... VALUATION OF CONTRACT WORK. VALUATION OF VARIED WORK... CASE 5.1 CLAIM FOR ADJUSTMENT IN RESPECT OF INCREASED Suan (CASE 5.2 CLAIM IN RESPECT OF EXTRA TIME FOR EXTRA WOR! (CHAPTER 6: CLAIMS CONCERNING TIM) GENERAL. EVALUATION OF DELAY CLAIMS... DISRUPTION...... CASE 6.1 CLAL (CASE 6.2 CLAIM FOR DELAY ARISING OUT OF ERROR IN DESIGN. (CHAPTER 7: CLAIMS ARISING FROM DEFAULT, DETERMINATION. LIQUIDATED DAMAGES. DETERMINATION (FORFEITURE). FRUSTRATION WAR CLAUSES, : CASE 7.1 CLA RECOVERY OF LIQUIDATED DAMAC CHAPTER 8: PRESENTATION OF A CLAIM PRESENTATION OF A CLAIM WRONGLY DEDUCTED. 091 Dr. Sherif EL-Haggan - CLAC O40 ¢ INTRODUCTION: DEFINITION & CLASSIFICATION Too many of us in the construction industry know from our own experience that claims occur, they cause budgetary difficulties to employers. They cause financial difficulties, it would be restriction of cash flow, loss of liquidity to contractors. It was said that “. ‘0. the benefit of the whole industry if the impact of claims was reduced”. ‘What causes them? Are they avoidable or unavoidable? It has been said that ‘Claims are a fact of life’ and ‘Claims are here to stay’. If they are unavoidable, then at least we should equip ourselves to deal with them efficiently and expeditiously and minimise the cost in terms of both money and staff resources. So far as avoidability is concerned, this must lie primarily in the produetion) of the design and the contract documents. The counterpart is of course a properly piepared tender on the part of the contractor. In addition to proper documentation arid tendering, administration of the contract during construction must be properly observed by both sides. Jatt _g-—Zp We should recongnise the conde Advantages to,the employer that risks should be shared and not all thrust’ upon! the c contractor.“ Contract conditions have changed over the years in this matter of allocating rfslis‘and it is no longer appropriate to apply the mental attitude of half a century ago (when the contractor was expected to take all risks) othe situation today. * If the burden of claims Nes rediced, then employers and contractors must benefit ‘significantly. Not only are there the direct and obvious benefits of saving money and staff resources, there are also the side-effect benefits on the work itself as regards quality, efficiency, and, not least, the climate in which it is carried out. We should recognise that in the nature of the construction industry some events and situations are unavoidable and unforeseeable. Therefore there is no reason why claims should arouse such emotions and irrational antipathy for engineers or employers. There is no necessity for engineers to feel personally insulted that a contractor should presume to enter a claim. Also, there is no necessity for contractors to regard engineers as being of questionable legitimacy if they say ‘No’ to a badly constructed or ill-founded claim. The engineer would be wise to encourage the contractor to keep him informed of anything which is happening or has happened involving the possibility of additional CLAC O40 - Dr. Sherif EL-Haggen expense. In some cases work in hand may be concerned or affected and the engineer may be able to fake remedial action (if he or the employer is at fault) of avoiding or mitigating action (if the cause is one for which the employer has accepted the risk). Justification or lack of it should not be confused with whether a contractor may claim; to attempt to do that would be to prejudge the issue. Definition ‘A claim is defined in The Oxford Companion to Law as a general term for the assertion _of_a right 1o_money, propery, or 10 a remedy. A counterclaim is defined as an assertion made by a respondent which can be examined and disposed of in an action originally initiated by the claimant party. It is mot_necessarily a defence, but a substantive claim against the claimant which could have grounded an independent action, For the purposes of this material, i.e. CLAC 040, both claims and counterclaims will be referred to as claims. Claims in constrictién contracts may be defined as follows: j i. a demand, a request or application for something or notification of presumed entitlement to which, | |} ii. a contractor considers, Melieves lor ¢ontends (rightly or wrongly at that stage) he is entitled but in r@pett of Wwhickt iii, agreement has noyYet Heeh reached. || / Clas Pope eh : Essentially, other than i unget sthtutory law, claims in construction contracts may ation and legal bd is of claims ' —e based on any one of four leégaljand one non-legal concepts. They, therefore, must be categorised on that basis accordance with the following five categories: (a) The first category relates to a claim under the contract based on the grounds that should-a certain-event occur; thena-claimant would be entitled toa remedy. specified under a particular provision of the contract. Such an event may be one of two types: First, it may be a specified event under the contract, which may or may not occur, where in certain defined circumstances the employer or the contractor is entitled to claim a designated remedy, For example, the contractor is entitled to claim an additional payment under the Red Book for tests in accordance with the provisions of sub-clause 36. Secondly, the specified event may be a breach of a particular stipulation in the contract entitling a claimant to a designated remedy if the provisions of such stipulation are not, or only partially, complied with. For instance, it is stipulated in the Red Book that failure by the contractor to complete the works on a CLAC 040 - Dr. Sherif EL-Haggan specified date would entitle the employer to deduct liquidated damages at a specified rate. If the claim is successful, the particular provision in the contract would apply and the remedy could be in the form of a payment of a sum of money, an extension of time, or a combination of the two. (b) The second category relates to a claim arising out of the contract based on the grounds that a term of the contract had been breached but where the remedy is not designated. If the claim is valid, the remedy lies under the provisions of the applicable law of the contract. Generally, the remedy would be sought through arbitration or litigation unless the claim is settled amicably. The remedy in this case may extend to consequential damages. Furthermore, if the breach is of a serious nature, the party against whom the breach is committed may consider it to be repudiation of the contract by the party in’ breath. (@ M1 third category relates to a claim-under the law of tort of the applicable law of the contract, based on the grounds of a specific legal rule or principle. If the claim is successful, the remedyyliesyn general i in a ‘just and equitable’ award depending upon the particule rapist ot ofthe case and the provisions of the applicable law of the epftract! { | | (a) The fourth category deplts a tlalm wilere no contract exists between the patties, or, if one existed, is deémed to be void. It is based on the principle that an individual has the right tobe paid a reasonable remuneration for work done. This is referred to in somé legal systems as quantum meruit or ‘as much as one has earned’. If the claim is’Successful, payment is assessed on the Basis ofa Teasonable recompense of the cost of the work carried out by the contractor and may include an element of profit. (©) Finally there is the ex gratia claim (out of kindness) where there is no legal basis but rather some commercial sense in making a settlement. In the remaining part of this material, only the first two types of claim are considered in detail, i.e. those which are made under the contract. However, an effort will be made to deal briefly with the other categories in an attempt to link CLAC 040 with Egyptian laws. Claims will very often arise in a construction contract because it is perhaps the only contract where the price of the end result is defined before the process of ‘production’ even starts. Accordingly, in the competitive atmosphere of tendering CLAC O40 - Dr. Sherif EL-Haggan which accompanies such a contract, little or no margins are left for future unknowns in a long and complex period of construction. Furthermore, as the rates and prices have to be based on certain assumptions which are, in tun, based on the provisions of the Conditions of Contract any change between what was assumed and what actually happens may form a seed for a claim. Based on the above, claims fall into three main categori Contractual Claims These claims concern matters which have a basis in the contract itself where particular provision can be quoted as giving rise to entitlement and are dealt with under the contract by the engineer. Extra-contractual Claims These are claims having no basis in the contragt but where entitlement stems from the Jaw. Claims of this type must in principle-be pursyéd itjarbitration or in litigation. f \ } { | ay BY | / I , CLAC O40 - Dr. Sherif EL-Heggan CHAPTER 1: GENERATION OF CLAIMS General Germination Notification Presentation Establishment Examination General ‘The contract is drawn to define what is required to bedone in return for what payment; the duties and responsibilities to be undertakenyby each party and what is to happen _should they fail to honor them. In so far as they efihition of the requirement is not complete, the contract gives the engineer ¢érail} powers (and corresponding responsibilities) to supply further information auidyalso to vary the work to be done. Risks are allocated between the parfies and 1 titpé ig’ stipulated in which the whole is to be completed. fat tqALLy The contract is drawn in the/light of events and circumstances in prospect and (apart from the drawings) words aré used|to express them. Generally it is the words used that matter - not those which rhighit Kave-Been or could have been or even should have been used. Courts are inclined to take the words used at their face value, to assume that if used they were intended, that the same word has the same meaning throughout and that if different words are used then different things are meant. There are, however, two kinds of problem that can and do arise. The first is where one party or the other contends that although the words, taken literally, seem to apply to the events or circumstances encountered, these were not the events and circumstances within the contemplation of the parties at the outset. The other is where events and circumstances arise which clearly have to be dealt with but the contract contains no words to indicate what should happen, who should do what or, more usually, who should bear the cost. An example of the first is to be found in the clauses of the Standard Forms authorising variations. The wording appears to be so wide that an engineer could require almost anything to be done as a variation. But is that the case? Was that what CLAC 040 - Dr. Sherif EL-Haggan the parties intended or, if they did not, is that what the words now require? There are cases to indicate that words will not always be applied literally. The second is to be found in the practice that has developed of implying a term to supply the deficiency. Originally the courts would not permit this but gradually they have and even now the matter is in the course of development. From a hard 'no go’ position the courts would now write in a term which in their opinion had been _g-SES> ‘impliedly agreed’ between the parties but not expressed. From this developed the maxim that the implication had to be necessary, not merely reasonable; something necessary for business efficiency. < Germination) _Early recognition of a claim or potential claim may-make it possible to deal with it in its embryo stage and so avoid the massive docunient that might otherwise land on one's desk at a later stage of the job, together with gll the problems that then go with it, Of course, with the best will in the baa sf stale of affairs cannot always be avoided. There will probably always'be. inttaétal lop a compounded of physical difficulties, documents defecti event in question, and diffictl rarely appear suddenly way one pide Warniig which itis up to us to recognise. Claims situations tend td {foe be idee into the routine which is much more concemed with getting te’ ‘wofk| completed and paying some money on account. Claims arise from events ‘but it is not always possible upon the happening of a given event to recognise at oncé“tfiat a claim has been born to identify its grounds and evaluate it. It may perhaps aid recognition if one could categorise the seemingly unrelated matters which are the subject of claims. Classification by Subject Claims may also be classified according to their subject-matter. The categories need to be Sassen os ; be basic, logical and generally applicable. It is submitted that the following, or any combination of them, meet those requirements: I. Concerning the existence or applicability of the contract. I. Concerning contract documentation. TI. Concerning the execution of the work. TV. Concerning payment. V. Concerning prolongation (delay and disruption). VL. Concerning default determination, forfeiture, etc. CLAC O40 - Dr. Sherif EL-Haggan 10 Notification General If some event occurs which gives rise to cost or expense beyond what was expected, then, it is likely to be the contractor who first appreciates the possibility. It is therefore not unreasonable to expect him to take the initiative and inform the engineer. If that is right then it is unfair and unreasonable to complain if the contractor gives such notice; it is wrong to condemn him for being ‘claims conscious’ or on that evidence alone to suspect his motives. Earthworks If troubles arise in connection with earthworks and material being excavated is found to be unsuitable for constructing embankments as expected and specified, it may not be immediately apparent to the contractor that“he’ should notify the engineer's representative that some action under Clause 12 of the ICE Conditions is warranted. It may not be immediately apparent to the enginéer/s representative that there is anything more than inclement weather causing {rouble gr that wHlat he thought was ineptitude on the part of the contractor's staff could possibly be'al'dgsign’ fault in seeking to use this material at all. The main preocoupafion of both sides is to get the job built; difficulties are an inherent risk of the cghstruetioyé industry and it may well be some time before the contractor realises the full’implications f-the situation and thinks in terms of a ‘claim’ and therefore the flegessity of aj ndtice under such as Clause 12 of the ICE Conditions. In such circt mp ances when yas the event causing the claim happened? In one sense it has ‘happened’ when the excavation in question started, but in terms of a claim it cannot be said td-have happened until one side or the other (usually the contractor) has become aware of the situation or could reasonably be expected to have become aware oF it as being something possibly warranting a claim. In this case one is referring to physical circumstances which are making themselves apparent in the course of the work. More plant, more men, lack of progress, different methods; any or all of these can call attention to the fact that there is trouble and should be alerting someone to correlate these with the contractor's liability under the contract and from that to a view that there may be an entitlement to additional payment. Delay Delay in construction contracts is not an uncommon occurrence. Failure to issue a drawing after it has been requested, failure to nominate a sub-contractor by the required date, the impact of a variation order altering work actually in progress - all these are relatively obvious. But it must not be forgotten that it is necessary to translate instances of delay into terms of (a) whose responsibility they are and (b) their impact on the work, before one can determine whether a claim is likely to be involved or not. CLAC 040 - Dr. Sherif EL-Heggan If the delay in question has been caused by the employer, then it may well give rise to an entitlement. If such delay lies on the critical path then the contractor could be entitled to an extension of time as well. If, however, it has been caused by such as exceptionally inclement weather, then the contractor may be entitled to an extension of time but to no pament| Then again it is not unusual to find one cause overlapping another and the problem then arises as to which supervenes. The matter is one which requires constant attention by both sides. Each must be aware of the rights and liabilities of the other. ICE 5 is reasonable in requiring ‘notice in writing ... as soon as reasonably possible after the events giving rise to the claim’. JCT 80 (Clause 26.1.1) requires that ". . the contractor's application shall be made as soon as it has become, or should reasonably have become apparent ... that the regular progress ... has been ... affected.' [Compare with FIDIC 4" Edition, 1987 (The Red Book) & FIDIC Construction I" Edition, 1999 (New Red Book). f inl Thus, the conditions of contract all seettTto seed fais) that a claim situation does not occur at a clearly defined point in time andijis not! always instantly recognised. Notices of intention to claim are amongst the méy otter notiogs required from the contractor. Engineers should encourage, Soff caiiné That is not the same thing as encouraging the making of specious of ill folded claims, but whenever there is the possibility of a claim the ¢ngineer Inust be informed if they are to take remedial action (if that is possible and thé fault lie$ with them or their employer, or if it is a matter of design), or they may be able’ ‘take“avoiding action in such as the case of unsuitable ground conditions where this nofthe contractor's responsibility. Where a contractor fails to give notice because the matter has not become apparent earlier, then the conditions must be'examined to’establish whether or not he is entitled to claim. The general case is that he would be. Time limits Some contracts contain provisions to the effect that all claims must be submitted by such and such a date (sometimes the end of the maintenance period) otherwise they will not be admitted. There seems to be some doubt about whether such clauses are legally enforceable. If they are included, the contractor would be wise to comply with them if possible. For claims not based on provisions within the contract, ie. for damages in breach, there is no time limit on notification beyond that imposed by the Law. m (Discuss with lawyers attending) CLAC 040 - Dr. Sherif EL-Haggan 12 It is, however, clearly in everybody's interests that claims be dealt with sooner rather than later. With the passage of time facts become more difficult to establish and their effect on work long completed more so. As a generalisation it may be said that a contractor can legally recover only what he can prove,| This is certainly the case in arbitration"and litigation and is presumably the policy"behind ICE Clause 52(4)(e) which spells out the danger which a contractor runs by reason of delay: ‘If the contractor fails to comply with any of the provisions of the Clause in respect of any claims . . . he shall be entitled to payment in respect thereof only to the extent that the Engineer has not been prevented from or substantially prejudiced by such failure in investigating the said claim’. Further, the contractor can presumably make good use of any monies to which he is entitled; also an employer will not feel kindly disposed towards a contractor who delays informing him that he may be liable to make further and possibly substantial payments at some unknown future date. Establishment It is for the contractor to state the reason why he Aoaipers himself entitled, and to how much, Should a dispute ever get to arbitration then ¢here is no question but that the claimant must prepare his points of clair’ and! state the\amount he is seeking. There is no difference in initiating a claim, nor should there bg be, for the contractor is the only one who can know the effect ot inane upott him and certainly no one else can know the financial consequeneés| [i { | { Although it is undoubtedly the ded bald "for the contractor 10 state why he considers himself entitled, ahd to quote conditions of contract where appropriate in support of his contentions al | Claims usually arise sonic or circumstances where one party is alleged to have done something to thé-deitiment of the other, or has failed to do something he has under- taken to do. The Conditions of Contract attempt to anticipate such events and circumstances in one or other of their clauses and it is one (or more) of these that needs to be quoted in support of any claim. Examination It is necessary to be objective, to attempt to prove or disprove factually the assertions or allegations made. It is necessary to check facts, starting with the documents which constitute the contract. One is entitled to assume nothing. Check the facts. It is often possible to reach agreement between the two sides as to certain facts (weather, number of men, working or idle plant, hours worked, etc.). CLAC O40 - Dr. Sherif EL-Haggan CHAPTER 2: CLAIMS CONCERNING THE EXISTENCE OF A CONTRACT General Examples Recognition of a valid contract Capacity Agency Intention to create legal relations Consideration Agreement Offer and acceptance Offers Revocation Acceptance Counter-offers- : Acceptance subject to condition Certainty KEN Formalities Letters of intent General Claims are mostly con with entitlements and liabilities arising under, or as a result of, a contract. It is, hoWvever! a prerequisite for such claims that the contract has come into existence andlis I aia The existence of a valid contract may be disputed. Possible scenarias include: (a) Anemployer issues iTétter of intent and denies that a binding contract exists. (b) An employer denies the existence of a variation or supplementary contract to ( make additional payment. (©) A contractor denies that a variation or supplementary contract is binding, ‘Variation’ is used in this context to mean the variation of an existing contract by means of a further contract. This is distinct from a variation ‘under the contract’ which leaves the original contract intact. Definition ‘A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law recognizes a ‘A contract is essentially an agreement between two or more parties to do or to refrain from doing something. In the simplest terms a contract is a mutual exchange of CLAC O40 - Dr. Sherif EL-Haggan promises. The seller promises to supply goods or services and the buyer promises to pay. Neither party is forced into the contract by threat or pressure from the other side, a contract not freely entered into would be voidable. Once in contract, performance relies upon the willingness of the two sides, failing which the courts will decide a remedy. Examples If a contract is held invalid, entitlements or rights dependent on the contract are lost but alternative entitlements may arise in quasi-contract or under an implied substitute contract, Where a variation is held invalid, the original contract will be revived. The possibilities are.best illustrated by some reported cases, mostly concerning building and civil engineering works. ~ se HOA 1. Courtney & Fairbairn vy Tolaini Bros — A bane contractor entered into negotiations with a land-owner regarding a proposed development comprising a motel, hotel and filling station. The builder wrote offering to introduce the owner to various sources of finance, onthe bass that finance weie forthcoming from those sources, he would be employed to carry out the fons work, The leter proposed that the owner should: / [ i i || V “be prepared to instruct yout ltl deolal to negotiate fair and reasonable contract sums in respect of each ofith¢ three! proiects/as they arise. (These would incidentally be based upon agreed estimates pf thenet cost of work and general overheads with a margin for profit of 5%) ¥ ‘whieh, Tam sure you will agree, is indeed reasonable ...’. The owner replied agreeing 16 the terms specified in the letter but, after finance had been successfully introduced, negotiations as to the net cost of work and general overheads broke down. The owner employed another contractor to do the work, but still used the finance introduced by the plaintiffs. The plaintiffs claimed the loss of profits which they would have made if they had been employed as builders, but the Court of Appeal held that there was no binding contract. It was a mere agreement to agree and the plaintiff therefore had no remedy. 2. Brogden v Metropolitan Railway Co— The defendant railway company had draw. up a contract for the supply of coal by the plaintiff. They sent it to the plaintiff, who filled in blanks in the document, but there was no formal execution of the contract. Both parties proceeded to act in accordance with its terms as Tegards performance and payment. A dispute arose and the defendants then denied there was a binding contract. The House of Lords held that there was a binding contract, which had been complete CLAC O40 - Dr. Sherif EL-Haggan as soon as the first load of coals was supplied and invoiced, and the invoice was paid at that price. 3. Peter Lind v Mersey Docks and Harbour Board— Lind had submitted two tenders for the construction of a container freight terminal, one at a fixed price, one with a variation of price clause, both open for 6 months. After 5 months, Lind wrote asking to increase their fixed price tender, but the Board wrote back that they ‘accepted your “tender’. Lind began work but refused to sign a formal contract. After the 6 months tender validity period had expired, the Board wrote again, this time stating that they were arranging for a formal contract to be drawn up on the fixed price basis. Lind continued working but refused to Sign. It was held that there was no binding contract and Lind were entitled to recover payment on a quantum meruit basis, The first acceptance did not conclude a contract a8 ft did not specify which tender was accepted. Cooke J stated ‘It seems to me that an acceptance, jtrorder to be unequivocal, must be P unequivocal to the business man as well as to thelawyer” The second letter was not a ( valid acceptance as the fixed price offer had already expired. The starting of work did not constitute ace soca esos pe nm somes on new rates. / 4. British Steel Corporation v eee Bridge were contractors for a building with a space-frane rdof in Dakniats. They contacted BSC to supply the special cast steel nodes requifed a he ued {etidr6f intent, As the work was urgent, BSC started immediately arid jit fin lt etedrand delivered all 137 nodes while negotiations on the terms : oa 'wéte’still continuing. Agreement on terms was never reached. BSC sued forlapproxiniately £200,000 as the value of the nodes supplied, but Cleveland B| ae eh wér-claimed for £800,000 for damages due to late delivery and delivery out of seguine. It was held that there was no contract. BSC were entitled to the £200,000 (which was the figure in the inchoate contract) on the basis of quasi-contract; but the counter-claim for damages for late delivery and c delivery out of sequence depended on the existence of a contract and therefore failed. ‘An ‘inchoate’ contract is one where the process leading to agreement has been started but not completed. It is accordingly not binding in law. (ieconisen of a Valid Contract The question whether a contract exists is effectively a question whether the court would recognize the transaction as a contract. The law is not concerned with the name given by the parties to their transaction: it might be called an agreement, a subcontract, a guarantee, a supplementary agreement, an insurance policy, and still be a contract. It might be called a contract, but be invalid. CLAC O40 - Dr. Sherif EL-Hoggan Except in specific situations, the law does not require any formalities for a binding contract. Generally, there are just three essential requirements for a binding contract: intention to create legal relations, consideration and agreement. Capacity For a contract to be binding, the parties must each have the ‘capacity’ to contract. There are, for example, legal rules concerning the contracting capacity of drunks, lunatics and infants. The capacity to contract is fundamental. Capacity is concerned with the legality whilst authority is concerned with permission. In business an individual may have the legal capacity to contract but not the authority of his employer. 7 } Agency AS 5 / An agent is a person with the power to’ Gan all position of another person known as his ‘principal’. This powey'to-bind th the i I derives from ‘authority’, conferred by the principal on thé: gent Where an agent has authority to enter into a contract on behalf of his prinéipal and contract is“made by the agent acting within his authority, the principal is tl enjbo ty the contract and, except in certain situations, eT pi | ae the agent drops out of the picture, || | Authority may be sit

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