Physical Damages & Economic Loss

Whereas , the existence of a duty of care not to cause economic loss requires special analysis, it may be that the criteria applicable to cases of physical damage and to cases of economic loss are the same,viz., that the damage should be reasonably foreseeable, that the relationship between the parties should be sufficiently proximate and that it should be fair, just and reasonable to impose a duty of care.( Marc Rich vs Bishop Rock Marine (1994) 1 W.L.R. 1071 (C.A.).

Liability for Physical Damages

In the absence of a contractual duty or a special relationship of proximity, a builder owes no duty of care in tort in respect of the quality of his work. (D. & F. Estates vs Church Commissioners (1989) A.C. 177 (H.L.); Murphy vs Brentwood District Council (1991) 1 A.C. 398 at 480 (H.L.). The principle does not extend to bring home liability towards an occupier who knows the full extend of the defect yet continues to occupy the building. A landlord who is responsible for the design and construction of a house let by him is under a duty to take reasonable care that the house is free from defects likely to cause injury to any person whom he ought reasonably to have in contemplation as likely to be affected by the defects. (Rimmer vs Liverpool City Council (1985) Q.B. 1 (C.A.).

“ Knowledge of the existence of a danger does not always enable a person to avoid the danger. In simple case it does. In other cases, especially where building are concerned, it would be absurdly unrealistic to suggest that a person can always take steps to avoid a danger once he knows of its existence, and that if he does not do so he is the author of his own misfortune…Knowledge, or opportunity for inspection, does not by itself always negative a duty of care or break the chain of causation. Whether it does depends on all the circumstances. It will only do so when it is reasonable to expect the plaintiff to remove or avoid the danger and unreasonable foe him to run the risk of being injured by the danger. (Sir Donald Nicolls V.-C. in Target vs Torfaen Borough Council (1992) 3 All E.R. 27 at 37 (C.A.).

Personal Injury

A contractor will be liable if a plaintiff suffers personal injury because of the contractor’s negligence. Where contractors carrying out reconstruction works obstructed the normal approach to a house so that it was impassable, they were held liable when a visitor was injured while using a dangerous alternative route suggested by the contractors’ workmen.(A.C. Billings Ltd. Vs Riden (1958) A.C. 240 (H.L.); George Hawkins vs Chrysler (U.K.) (1986) 38 B.L.R. 36 (C.A.).

Physical Damage to Property

“In most claims in respect pf physical damage to property the question of the existence of a duty of care does not give rise to any problem because it is self-evident that such a duty exist and the contrary view is unarguable. (Lord Brandon in Mobil Oil Hong Kong United Dockyards (1991) 1 Lloyd’s Rep. 309 at 328 (P.C.).

Negligent instructions

An architect or engineer who issues instructions which he knows or ought to know are likely to cause injury to person or property may be liable in negligence if injury results.(Clay vs A.J. Crump & Sons (1964) 1 Q.B. 533 (C.A.)

Economic Loss

Economic loss is monetary loss and pure economic loss is monetary loss unrelated to physical injury to person or “other” property.

‘ the affliction of physical injury to person or property of another universally requires to be justified. The causing of economic loss does not. If it is to be categorized as wrongful it is necessary to find some factor beyond the mere occurrence of the loss and the fact that its occurrence could be foreseen. (Lord Oliver in Murphy vs Brentwood District Council (1991) 1 A.C. 398 at 487 (H.L.).

Pure economic loss may be recoverable against a party who owes the loser a relevant contractual duty. “ But it is not recoverable in tort in the absence of a special relationship of proximity imposing on the tortfeasor a duty of care to safeguard the plaintiff from economic loss.”(Lord Bridge in Murphy vsBrentwood District Council (1991) 1 A.C. 398 at 475 (H.L.)

The loss sustained by a building owner from an ordinary building defect is the cost of rectifying the defect.

Consequential Economic Loss

Economic loss which is consequential upon actionable physical damage to person or property is sometimes recoverable. Consequential economic loss is habitually awarded in personal injury case ,e.g. for future loss of earnings. It has also been awarded in commercial cases , but there is no clear principle to determine when such losses are recoverable and when it is not.

Liability for negligence of sub-contractors

A main contractor is not generally liable, other than in contract, for the negligence of his sub-contractors. But, “ if in the course of supervision the main contractor in fact comes to know that the sub-contractor’s work is being done in a defective and foreseeably dangerous way and if he condones that negligence on the part of the sub-contractor, he will no doubt make himself potentially liable for the consequences as a joint tortfeasor.(Lambert vs Lewis (1982) A.C. 225 at 278 (H.L.).

Professional negligence

Breach of a professional person’s obligations to his client is habitually referred to as professional negligence. It has now been held that persons who perform services of a professional or quasi-professional nature possessing a special expertise may assume responsibility giving rise to a tortious liability irrespective of whether there is a contractual relationship between the parties, so that the plaintiff may choose between concurrent remedies in contract or tort. (Henderson vs Merrett Syndicates Ltd. (1994) 3 W.L.R. 761 (H.L.).

This understanding of the law has been applied by Official Referees to architects and engineers. (Wessex Regional Health Authority vs H.L.M. Design (1994) 10 Const.L.J. 165 at 186).

Everyone who enters into a contract assumes responsibilities and the essence of the law under discussion is that concurrent duties in tort are also co-existence with those in contract.

Repudiation of Contract

Repudiation generally

The word “Repudiation” is most conveniently term to describe circumstances where “ one party so acts or so express himself as to show that he does not mean to accept the obligation of a contract any further.

Every breach of contract entitles the other party to damages to compensate for the loss sustained in consequences of the breach. But with the exceptions and subject to express contractual rights of determination, breach of contract by one party does not discharge the other party from performance of his unperformed obligations. (Photo Production vs Securicor (1980) A.C. 827 at 849 (H.L.).

There are 2 circumstances in which breach of contract by one party entitles the other to elect to put an end to all remaining primary obligations of both parties. These are:

1. Where the contracting parties have agreed, whether by express words or implication of law that any breach of the contractual term in question shall entitle the other party to elect to put an end to all remaining primary obligations of both parties, i.e. where there is a breach of condition;
2. Where the event resulting from the breach of contract has the effect of depriving the other party of substantially the whole benefit, which it was the intention of the parties that should obtain from the contract, i.e. where there is a “fundamental breach”.

Operation of the election to put an end to all remaining primary obligations of both parties is variously referred to as the “determination” or “rescission” of the contract or as “treating the contract as repudiated” or “accepting the repudiation” of the contract breaker.


Acceptance of repudiation

Repudiation by one party standing alone does not terminate the contract. It takes two to end it, by repudiation on the one side, and acceptance of the repudiation on the other. The innocent party must make it plain that “ in view of the wrongful act of the party who has repudiated he claims to treat the contract as an end (i.e. rescind a contract). Acceptance of repudiation by the employer does not affect the contractor’s accrued rights to the payment of installments of the contract price unless the contract otherwise provides. (Hyundai Industries vs Papadopoulos (1980) 1 W.L.R. 1129 (H.L.)

“The contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired… the contract is discharged so far as it is executory only."”(Dixon J. in McDonald vs Dennys lascelles Ltd> (1933) 48 C.L.R. 457 at 476.

But advance payment may be recoverable if the contractor has provided no consideration in the nature of part performance. (Rover International vs Cannon Film (1989) W.L.R. 912 at 932 (C.A.)

A full arbitration clause will normally continue to apply to disputes arising upon the acceptance of repudiation.(Heyman vs Darwin (1942)A.C. 356 (H.L.)


Repudiation and contractual determination clause

A party who purports to operate a contractual determination clause when he is not entitled to do so either factually or legally is likely to repudiate the contract.(AchitecturaInstallation Services vs James Gibbons (1989) 16 L.R. 68 at 73. This is because a party who acts upon a contractual determination clause usually refuses or ceases to perform his own obligations. If this is not in accordance with the contract, he will usually himself be in fundamental breach.

Contractual determination clause do not exclude common law remedies available upon repudiation unless the agreement expressly provides that the contractual rights are to be exclusive remedy for the breach in question.(Modern Engineering(Bristol) vs Gilbert-Ash(1974 A.C. 689 (H.L.)


Repudiation by contractor

Refusal or abandonment. An absolute refusal to carry out the work or an abandonment of the work before it is substantially completed, without any lawful excuse, is a repudiation. (Mersey Steel & Iron Co. vs naylor (1884) 9 App. Cas. 434(H.L.); Marshall vs mackintosh (1898) 78 L.T. 750 ; Hoeing vs Isaacs (1952) 2 All E.R. 176 (C.A.).


Defects

A breach consisting of mere negligent omissions or bad workmanship where the work is substantially completed does not go to the root of the contract in the ordinary lump sum contract, and is therefore not a repudiation.(Hoeing vs Isaacs (1952) 2 All E.R. 176 (C.A.)

Omissions and bad work that occur during the course of the work cannot be considered as repudiation if they are not such as to prevent substantial completion. There is a repudiation where, having regard to the construction of the contract and all the facts and circumstances, the gravity of the breaches is such as to show that the contractor does not intend to or cannot substantially perform his obligation under the contract. (Swisse Atlantique vs N.V. Rotterdamsche Kolen Centrale (1967) 1 A.C. 361 at 422(H.L.)


Delay

Delay on the part of the contractor where time is not of the essence of the contract does not amount to a repudiation unless it is such as to show that he will not, or cannot, carry out the contract. In Hill vs London Borough of Camden, it was held on the facts that a contractor, who has reduce his workforce to such an extent that it might have been said that they were not proceeding “ regularly and dilligently” within the meaning of clause 25 of the JCT Form, had not by such conduct repudiated the contract.

In most cases it is desirable to give notice that continuance of the delay will be treated as repudiation before purporting to accept the repudiation by dismissing the contractor.

When time is the essence either by the terms of the contract, or as a result of a notice making it of the essence, and the contractor fails to complete to time the employer is entitled to treat the contract as at an end and to dismiss the contractor from the site.(Rickards vs Oppenheim (1950) 1 K.B. 616 at 628 (C.A.)


Repudiation by employer

Refusal. An absolute refusal by the employer to carry out his part of the contract, whether made before the works commenced or while they are being carried out is a repudiation of the contract.(Hochster vs de la tour(1853) 2 E & B 678; Steel & Iron Co. Ltd. Vs Naylor (1884) 9 App.Cas.434(H.L.)


Rendering completion impossible

It is, in general, a repudiation if the employer wrongfully by his own acts, and without lawful excuses, renders completion impossible. ( Stirling vs Maitland (1864) 5 B.& S. 840 and 852


Possession of site

The employer repudiates the contract if he fails to give possession of the site at all, or without lawful excuse ejects the contractor from the site before completion. (Felton vs Wharnie (1906) H.B.C. (4th edition), Vol 2, p.398(C.A.)


Order not to complete

A clear unjustified order not to complete the works is a repudiation.(Cort vs Ambergate Railway (1851) 17 Q.B. 127.


Under-certification

It has been settled that the architect is the employer’s agent when giving his certificate. (Sutcliffe vs Thackrah (1974) A.C. 727(H.L.). It has been held that an employer cannot stand by and take advantage of his architect applying a wrong principle in certifying.(Panamera,etc vs Frederick Leyland & Co. Ltd. (1947) A.C. 428 (H.L.)


No general right to suspend work

Although particular contracts may give the contractor express rights if certificates are not paid, there is no general right to suspend work if payment is wrongly withheld. (Lubenham vs South Pembrokeshire D.C. (1986) 33 B.L.R. 39 at 70 (C.A.). This is consistent with the principle that, except where there is a breach of condition or fundamental breach of contract, breach of contract by one party does not discharge the other party from performance of his unperformed obligation. (Wells vs Army & Navy Co-op Soceity (1902) 86 L.T. 764.)


Party cannot rely on own wrong

It applies to a party seeking to obtain a benefit under a continuing contract on account of his own breach as much as to a party who relies on his own breach to avoid a contract and thereby escape his obligation.

A similar principle is applied to the construction of contracts which provide that, upon the happening of certain events, either party may declare the contract void provided that he has himself in breach of a duty owed to the other party been the means of bringing about the event; for example, an insolvent contractor cannot rely on his own insolvency to escape from the contract. ( New Zealand Shipping Co. vs Ateliers,etc.,de France (1919) A.C. 1 at 13 (H.L.)

Negligence & Economic Duress

To establish a claim in negligence, a plaintiff must show that the defendant owes him a duty of care and that there has been a breach of that duty causing actionable damages.(Grant vs Australian Knitting Mills 91936) A.C. 85 at 103 (P.C.).

Definition of the circumstances in which a defendant owes a duty of care and that there has been a breach of that duty causing actionable damages. Whatever the nature of the harm sustained, the court asks whether the damage was reasonably foreseeable and considers the nature of the relationship between the parties and whether in all the circumstances it is fair, just and reasonable to impose a duty of care.(Marc rich vs Bishop Rock Marine (1994) 1 W.L.R. 1071 C.A.)

Generally, the damages necessary to sustain a claim in negligence must be actual physical injury to person or property other than property which is the product of the negligence itself. Normally, a plaintiff claiming in negligence cannot recover economic loss. Economic loss is only recoverable where there is a special relationship amounting to reliance by the plaintiff on the defendant or where the economic loss is truly consequential upon actual physical injury to person or property. Since damages is an essential ingredient of the cause of action of negligence, the limitation period will not start to run until the damages has occurred. (Pirelli vs Faber & partners (1983) 2 A.C. 1 (H.L.).

An agreement made under duress in the form of illegitimate economic pressure which amounts to a coercion of will and which vitiates consent may be voidable.

(See: Occidental Worldwide Investment vs Skibs A/S Avanti (1976) 1 Lloyd’s Rep. 293; North Ocean Shipping vs Hyundai Construction (1979) Q.B. 705).

“It must be shown that the payment made or the contract entered into was not a voluntary act”

(See: Lord Scarman in Pao On vs Lau Yiu Long (1980) A.C. 614 at 636 (P.C.).

It must also be shown that the pressure exerted was ill legitimate.

(see:Universe Tankships vs International Transport Worker Federation (1983) 1 A.C. 366 at 384,400 H.L.).

Sufficiently coercive threat to break a contract may amount to economic duress. This occur typically where a party to an existing contract compels by coercion uncovenanted additional payment by threatening not to perform the contract if his demand is not met.

In a building contract, if for example a sub-contractor has undertaken work at fixed price and, before he has completed the work, he declines to continue with it unless the contractor agrees to pay an increased price. Such an agreement could be voidable for economic duress if the sub-contractor was held guilty of securing the contractor’s promise by taking unfair advantage of the difficulties he would cause if he did not complete the work.

(see: William vs Roffey bros. 91991) 1 Q.B. 1 at 13 (C.A.)

Frustrated Contract & Impossibility

Impossibility at time of contract

Actual physical impossibility of performing the contract, whatever means are employed which exist at the time of entering into the contract is, subject to express terms or warranties an excuse for non-performance. But the contractor is liable in damages if he has warranted the possibility of the work or if he has positively and absolutely contracted to do the work.

(Taylor vs Caldwell (1863) 3 B & S 826;Clifford vs Watts (1870) L.R. 5 C.P. 577 at 588; Jones vs St.John’s College, Oxford (1870) L.R. 6 Q.B. 115).


Frustration Generally

Very rarely after the contract has been lawfully entered into and is in course of operation there may arise some intervening event or change of circumstances of so catastrophic or fundamental a nature as to determine the contract prematurely by the operation of the doctrine of frustration.

(Cricklewood Property & Investment trust Ltd. vs. Leighton’s Investment Trust Ltd. (1945) A.C. 221 at 228 H.L.)

The formulation in “Davis Contractors vs Fareham (1956) A.C. 696(H.L.) is now usually regarded as the “classic statement of the doctrine”.

It was there said that frustration: “ occurs wherever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non heac in foedera veni. It was not this that I promised to do”

(Lord Radcliffe in Davis Contractors Ltd. Vs Fareham U.D.C. (1956) A.C. 696nat 729 (H.L.); Amalgamated Investment Ltd. Vs John Walker Ltd. 91977) 1 W.L.R. 164 (C.A.).

Contractual Representation

Many disputes arise as to the effect of inaccurate statements. In the tender documents, statements of fact such as quantities of work involved, nature of the site or the methods by which the work can be carried out, intended to be acted upon by the contractor are term Representation.

If a statement has been expressly made a term of a contract, e.g. a report about soil conditions is incorporated into the contract and expressly warranted to be true, the plaintiff remedy, if its inaccuracy causes him losses, is to claim damages for the breach of the contract. If such a statement does not form part of the contract, and did not act as an inducement to the contractor to enter into the contract, it is of no legal effect.

Misrepresentation

An untrue representation is a misrepresentation. A misrepresentation, which induces the making of a contract and causes loss, may result in legal liability:

i. If it is made fraudulently, or
ii. If it is an actionable negligent misstatement, or
iii. Under the misrepresentation Act 1967, or
iv. If it is or become a collateral warranty.

Additionally innocent misrepresentation may in certain circumstances entitle the other party to an order rescinding the contract to elect to rescind it.

Mere Puff

A puff is a statement, which by its nature, and in the context in which it is made, is not intended to have legal effect – a statement that any ordinary reasonable man would take “with a large pinch of salt”. An announcement by a builder that he is the best builder in town is likely to be a mere “puff”.

Honest opinion

A mere statement of honest opinion not impliedly involving a statement of fact is not actionable. Circumstances which can impliedly give rise to a statement of opinion involving a statement of fact include those where facts are not equally known to both sides, where a statement of opinion by one who knows the facts best very often involves a statement by him of material effect. A misstatement of material fact is one of the elements in a claim for, or based on misrepresentation.


Fraudulent misrepresentation

In the leading case of Derry vs Peek (1889) 14App.Cas.337(H.L.); Lord Herschell said: “ fraud is proved when it is shown that a false representation has been made (1) knowingly, (2) without belief in its truth, or (3) recklessly, careless whether it is true or false. To prevent a false statement being fraudulent there must always be an honest belief in its truth…if fraud be proved, the motive of the person guilty of it is immaterial; not that there was no intention to cheat or injure the person to whom the statement is made. Fraud in this sense always involves dishonesty even if the motive is not personal gain. (Ibid; Armstrong vs Strain (1952) 1 K.B. 232 (C.A.).

Lord Lore burn said: “ no one can escape liability for his own fraudulent statements by inserting in a contract a clause that the other party shall not rely upon them. I will not say that a man himself innocent may not under any circumstances, however peculiar, guard himself by apt and express clause from liability for the fraud of his own agents. It suffices to say that in an opinion the clause before us do not admit of such a construction. (1907) A.C. 351 at 353 (H.L.).

The plaintiff must always prove that the fraudulent misrepresentation was an inducement, but the defendant cannot succeed in his defense by showing that there were other more weighty causes which contributed to the plaintiff’s decision, “ for in this field the court does not allow an examination into the relative importance of contributory causes. (Barton vs Armstrong (1976) A.C. 104 at 118(P.C.). A person liable for deceit whether personally or vicariously is not entitled to deny by a plea of contributory negligence that his deceit was the sole effective cause of the damage suffered by his victim. (Alliance & Leicester Building Society vs Edgestop Ltd. (1993) 1 W.L.R.1462.


Remedies for Fraud

Where the contractor has been induced to enter into the contract by a fraudulent misrepresentation he can on discovering the fraud avoid the contract and treat it as at an end, or he can affirm the contract and complete. In either event he can recover damages in an action for the tort of deceit. (Archer vs Brown (1985) Q.B. 401; Chitty on Contract (27th ed.), vol.1, 6-026et seq. Where losses are made in the course of running a business, the assessment of damages for deceit can include both the actual losses incurred and loss of profit that could have reasonably been anticipated.

Legal Aspects for Construction of Contracts

CONSTRUING A CONTRACT

The process by which the courts arrive at the meaning of words in a contract is term as construing a contract, and the process by which the meaning, as determined by the court, the construction of the contract.

“The object sought to be achieved in construing any commercial contract is to ascertain…what each party would have led the other reasonably to assume were the acts that he was promising to do or to refrain from doing by the words in which the promises on his part were expressed.” (Lord Diplock in Pioneer Shipping vs B.T.P. Tioxide (1982)A.C724 at 736(H.L.)

EXPRESSED INTENTION

In construing a contract the court applies the rule of law that, “while it seeks to give effect to the intention of the parties,(it) must give effect to that intention as expressed, that is, it must ascertain the meaning of the words actually used.

(Inland Revenue Commissioners vs Raphael (1935) A.C. 96 at 142 (H.L.);

For the purpose of construction “intention” does not mean motive, purpose, desire or a state of mind but intention as expressed, and the common law adopts an objective standard of construction excluding general evidence of actual intention of the parties. It permits evidence of the circumstances in which the contractual document was made, of the special meaning of words, of custom and certain other matters to assist the court in arriving at the expressed intention of the parties, nevertheless the fundamental rule is that the words must speak for themselves. The parties cannot come to the court to give evidence of what they intended to say.


EXTRINSIC EVIDENCE

It follows that the principle just stated that, for a written contract, no evidence outside the document itself, i.e. extrinsic evidence, may normally be adduced to contradict, vary, add to or subtract from the written terms.

BLANKS

Where a complete blank is left in a material part of the contract evidence is not admissible to fill it. Thus where the date of completion was omitted, and to insert it would result in the imposition of an onerous obligation under a liquidated damages clause, the court refused to admit evidence that each party has been told of the date.

DELETIONS FROM PRINTED DOCUMENTS

The court is entitled to look at the deleted words to see if any assistance can be derived from them in solving an ambiguity in words retained, and that a word or phrase in the deleted part of a clause may throw light on the meaning of the same word or phrase in what remains of the clause. But by deleting a provision parties are not to be deemed to have agreed the converse. It is further been held that there is no difference here between a deletion and an omission.

(Diplock J.in Louis Dreyfus vs Parnaso Cia. Naviera (1959) 1 Q.B.498 at 513.;Lloyd J. Mineralimportexport vs Eastern Mediterranean Maritime (1980) 2 Lloyd’s Rep.572 at 575.


AGREED FACTUAL ASSUMPTION

When parties have acted in a transaction upon an agreed assumption that a particular state of facts between them is to be accepted as true, each is to be regarded as estopped as against the other from questioning as regards that transaction the truth of the facts so assume. Evidence to establish the agreed assumption is admissible which, it is suggested, might conceivably include evidence of facts occurring after the making of the contract in so far as they go to establish the existence at the time the contract was made of the agreed assumption.

ATTACKING THE CONTRACT

A contract is void or voidable because of misrepresentation, fraud, mistake, illegality, duress, minority or made by a mentally disordered person or that the contract has been varied, rescinded, or is subject to an estoppel.

( Norton on Deeds (2nd ed.),p.151;Chitty(27h ed.),vol.1,8-64.

CONTRACT ONLY PARTLY IN WRITING

Different considerations apply when the contract is in truth, not exclusively in writing, but partly in writing and partly oral and/or by conduct.

(Evans & Sons vs Andrea Merzario (1976) 1 W.L.R. 1078 at 1081 C.A.)

(NOTE: The majority of the court of appeal did not agree wholly with the approach of Lord Denning and dealt with the case as a contract partly in writing, partly oral and partly by conduct).

In such a case the court admits evidence of the oral part of the contract and/or the conduct and construes the contract according to all its terms gathered from the documents, words and conduct comprising the contract.

TERMS OF ART

This is used to describe words or phrases which have acquired a precise legal meaning ordinarily applied by the courts, but:

“ where a word or phrase which is a ‘term of art ‘ is used by an author who is not a lawyer, particularly in a document which he does not anticipate may have to be construed by a lawyer, he may have meant by it something different from its meaning when used by a lawyer as a Term of Art."
(DiplockL.J.in Sydall vs Casting Ltd. (1976)1Q.B.302 at 314 C.A.)


REASONABLE MEANING

“ When the terms of a contract are ambiguous and one construction would lead to an unreasonable result, the court will be unwilling to adopt that construction.
(Lord Esher M.R. in Dodd vs Churton (1897)1 Q.B.562 at 566 (C.A.)

If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to the business common sense.(Antaios Compania vs Salen A.B. (1985)A.C.191 at 201(H.L.);


CONTRACT READ AS A WHOLE

The contract must be construed as a whole, effect being given, so far as practical, to each of its provisions.
Lord Atkinson in Brodie vs Cardiff Corp.(1919)A.C.337 at 355(H.L.)

Construing a contract may involve two stages; first, the court may have to determine which documents are contractual, secondly, having decided which document forms part of the contract, it must give effect to all the terms and endeavour to reconcile inconsistencies by the rules of construction.


EJUSDEM GENERIES RULE

This rule is that there are words of a particular class followed by general words, the general words are treated as referring to matters of the same class. In a clause permitting an Extension of Time to be granted to the contractor, if the words were “delayed by reason of any alteration or addition…or in case of combination of workmen, or strikes, or by default of the sub-contractors… or other causes beyond the contractor’s control, the “other causes” were limited to those ejusdem generies with the causes particularized, and did not therefore include the employer’s own default in failing to give possession of site. (Wells vsArmy & Navy Co-op, Soceity (1902) H.B.C. (4th ed., 1914) vol.2, p.353 at 357(C.A.) Where the words “et cetera” were inserted between words describing a particular class and general words it was held that their meaning was too vague to prevent the operation of the rule.
(Herman vs Morris (1919) 35 T.L.R.574 C.A.)

CONTRA PROFERENTEM RULE

This expression means “ against the profferer “ i.e. against the person who drafted or tendered the document. Where there is a clause enabling the architect to extend the Time for Completion and the employer sought to rely on the clause to enable him to claim liquidated damages, it was held for various reasons that the employer could not rely on it. It was said that in case those reasons were wrong, then in any event the employer could not rely on the clause for it was ambiguous and would therefore be given the construction favorable to the contractor.
Miller vs L.C.C. (1934) 50 T.L.R. 479 at 482.)

Of a form of contract devised by the employer, it was said “the liquidated damages and the extension of Time clause in printed forms of contract must be construed strictly Contra Proferentem.”

(Salmon L.J. in Peak Construction (Liverpool) Ltd vs McKinney Foundations Ltd (1970) 1B.L.R.111 at 121;)

RECITALS

A recital is an introductory part of a document, usually beginning with the word “Whereas…” which indicates what the parties want to effect by their contract. Recitals often intentionally or in effect contain definitions or description of the subject matter of the succeeding contract.

IMPLIED TERMS

There is a distinction between construction, which is determining the meaning of words, which are in the contract, and implication, which is (in effect) supplying words, which are not in the contract. There are three different senses in which the expression “implied terms” is used. The first is a term, which does not depend on the actual intention of the parties but on a rule of law such as the implied terms in a contract for the sales of goods. This is discussed under “ Statutory Implication”. The second is where the law in some circumstances holds that a contract is dissolved if there is a vital change on conditions. The third is where a term is sought to be implied based on an intention imputed to the parties from their actual circumstances. This sense is under “ Necessary Implication”.


NECESSARY IMPLICATION

Within the spectrum, two broad areas or categories may be discerned. The first appears where the parties have drawn up a detailed contract but it is necessary to insert a term to make it work. This is sometimes term “ The Moorcock approach”. The second is where in all contracts of certain type, such as building contracts, the law implies certain usual terms unless the parties have shown an intention to exclude or modify them.


i) Implication to make contract work

The court does not make or improve contracts. Its:
“Function is to interpret and apply the contract which the parties have made for themselves. The clear terms must be applied even if the court thinks some other terms would have been more suitable.

“It must have been a term necessary to give business efficacy to the contract, a term which, though tacit, formed part of the contract which the parties made for themselves.”
(Lord Pearson in Trollope & Colls Ltd vs North West metropolitan Regional Hospital Board (1973) 1 W.L.R. 601 at 609 (H.L.)

The test of implication, therefore is necessary- “ such obligation should be read into the contract as the nature of the contract itself implicitly require, no more, no less.” The term sought to implied must be one without which the whole transaction would become “ inefficacious, futile and absurd”.


ii) Implication of “usual “ terms – employer

Where there is a comprehensive written contract such as the standard form of Building contract there may be very little room for the implication of any terms, for if the parties have dealt expressly with a matter in the contract, no term dealing with the same can be implied. (Lynch vs Thorne (1956) 1 W.L.R. 303 (C.A.); Jones vs St.John’s College, Oxford (1870) L.R.6Q.B. 115 at 126;

CO-OPERATION

Where an architect is to supervise the work the employer must appoint an architect.
Where a certifier fails to apply the terms of a contract properly to the detriment of the contractor and where the contract does not contain a relevant arbitration clause, it is ordinarily an implied term on the part of the employer that he will require the certifier to perform his duties properly.

If to the employer’s knowledge the architect persists in applying the contract wrongly in regard to those matters where the architect must act fairly between the parties, he must dismiss him and appoint another.

If it is established that an employer knew perfectly well that his architect was failing to certify in accordance with the contract, it is thought that he would not be allowed to shelter behind the arbitration clause.

The implied term of co-operation extends to those which the architect must do enable the contractor to carry out the works and the employer is liable for any breach of this duty by the architect.
(London borough of Merton vs Leach (1985) 32B.L.R. 51 at 81; Neodox vs Swinton and Pendlebury B.C. (1958) 5 B.L.R. 38 at 41).

In Neodox vs. Swinton and Pendlebury B.C., it was said that what was reasonable did not depend solely upon the convenience and financial interest of the contractor. It depended also on the point of view of the engineer and his staff and the employer. It is thought that it may not be appropriate to consider reasonableness from the point of view of the architect or engineer or the employer where the order of the works is a matter solely for the contractor. The prime consideration is, it is suggested, and that instruction should be given at such time and in such manner as not to hinder or prevent the contractor from performing his duties under the contract.
(Glenlion Construction vs The Guinness Trust (1987) 39 B.L.R. 89 at 103.Jardine Engineering vs Shimizu (1992) 63 B.L.R. 96 (Hong Kong High court).

Since the principal relevant contractor’s duty is to complete within the stipulated time, the obligation of the architect or engineer to furnish drawings and instructions could validly be performed within a reasonable time of the conclusion of the contract.

The contractor cannot unilaterally determine what is a reasonable time, and a contractor does not prove a claim based on late instructions merely by establishing non-compliance with requests for instructions or a schedule of dates for instructions, which he has sent to the architect. Agreement by the architect with such a schedule, or even acquiescence, may, it is submitted, be relevant evidence on the question what is reasonable. The critical question will be to determine on all facts when the contractor really needs the instructions.


NOT TO PREVENT COMPLETION

In general… a term is necessarily implied in any contract, the other terms of which do not repel the implication, that neither party shall prevent the other from performing it. The particular implied term relied on should be expressly pleaded, and “ except possible in the rare cases where the wrongful act alleged is independent of the contract, it is circumlocution to add a general allegation of prevention.
(Devlin J. in Mona, etc, Ltd. Vs Rhodesia Rys.Ltd (1949) 2 All E.R. 1014 at 1016;Thompson vs ASDA-MFI Plc. (1988) Ch. 241 considering Cheal vs A.P.E.X. (1983) 1 A.C. 180 at 189).

Unjustified interference by the employer in the supply of goods necessary for the contract is a breach of the implied term, notwithstanding that the suppliers has no contract direct with the contractor.
(Arrow (Automation) Ltd. Vs Red Chainbelt Inc. (1971) 1 W.L.R. 1676 at 1680 C.A.)

CONSTRUCTION OF DEEDS

Deeds are construed in the same way as other documents save that where one party wishes to deny the truth of a statement in the deed he may be estopped (i.e. prevented) from doing so by the application of a further rule known as estoppel by deed. This is a rule of evidence founded on the principle that a solemn and unambiguous statement or engagement in a deed must be taken as binding between parties and privies and therefore as not admitting any contradictory proof.
(LordMaugham in greer vs Kettle (1938) A.C. 156 at 171 H.L.)

Statement of facts in the recital is subject to the rule. Statement in the deed may bind all or only one or some of the parties according to the construction of the deed. The estoppel does not operate where the deed was fraudulent or, in general, where it is illegal, nor where there the party seeking to set up the estoppel caused the misstatement of fact to appear in the deed.

NEGLIGENCE LIABILITY

Negligence means the breach of a contractual obligation to take responsible care or to exercise reasonable skill or breach of an equivalent common law duty. The requirement of reasonableness in relation to a contract term is:

“ …That the term shall have been fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.”

In relation to a non-contractual notice, the requirement of reasonableness is:

“…That it should be fair and reasonable to allow reliance on it, having regard to all the circumstances obtaining when the liability arose or (but for the notice) would have arisen.” It is for this that a contract term or notice satisfies the requirement of reasonableness to show that it does.

The Highland Tower case

Professional Negligence & Liability:

EXTRACT FROM HIGHLAND TOWER’S CASE
[Abdul Aziz Hussin AMN]
abdaziz@usm.my

IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR
(CIVIL DIVISION)
CIVIL SUIT NO: S5 – 21 – 174 – 1996.

BETWEEN
Steven Phoa Cheng Loon & 72 Ors……………..Plaintiffs
AND
Highland Properties Sdn. Bhd & 9 Ors………….Defendants


Unqualified person….

“If a man is unqualified but holds himself out to be possessing a skill, he will be judged by the standards of a reasonably competent qualified person” – [see Jackson & Power on Professional Negligence, 4th edition @ 86 where the case of Cardy v Taylor (1994) 38 Con. L.R. 79, is cited in support].

Liability of an architects

As an architect, his duty is primarily to his client because he has a contractual relationship with him. But in law, an architect is also liable to anyone who is sufficiently proximate and who suffers loss or damage by reason of his negligence – [see Halsbury’s Laws of England, 4th edition, volume 4(2) @ paragraph 525].

As expressed by Justice Windeyer in Voli v Inglewood Shire Council (1963) ALR 657 to be:

“An architect undertaking any work in the way of his profession accepts the ordinary liabilities of any man who follows a skilled calling. He is bound to exercise due care, skill and diligence. He is not required to have an extraordinary degree of skill or the highest professional attainments. But he must bring to the task he undertakes the competence and skill that is usual among architects practicing their profession. And he must use due care. If he fails in these matters and the person who employed him thereby suffers damage, he is liable to that person. This liability can be said to arise either from the breach of his contract or in tort”.

Negligence

And as declared by Lord Finlay L.C. in the well-known case of Greenock Corpn. V. Caledonian Rly. Co., and Greenock Corpn. V Glasgow & South Western Rly. Co., (1917) A.C. 556,[ which is quoted by Abdul Hamid F.J. (as he then was) in the Federal Court case of Seong Fatt Sawmills Sdn. Bhd. V Dunlop Malaysia Industries Sdn. Bhd. (1984) 1 MLJ 286 @ 291]:

“It is the duty of anyone who interferes with the course of the stream to see that the work which he substitutes for the channel provided by nature are adequate to carry off the water brought even by extraordinary rainfall, and if damage results from the deficiency of the substitute which he has provided for the natural channel he will be liable.”

“The river” & “watercourse” belongs to whom?

Section 49 of the National Land Code (NLC), section 3 of the Water Act 1920 and section 53 and 54 of the Street, D & B Act are cited together with the case of Azizah Zainal Abidin & Ors. V Dato Bandar Kuala Lumpur (1995) 5CLJ 565. He explains that “river” under the definition section (section 5) of the NLC includes streams and watercourses and any deviation thereof. The ownership of these belongs to the Ruler of the State in which the streams or watercourses are located – see section 49 NLC and section 3 of the Water Act.

And “watercourses” under section 53 and 54 of the Street, D & B Act as defined in the case of Azizah Zainal Abidi & Ors v Dato Bandar Kuala Lumpur (supra) include streams and rivers.

Nuisance

Lee Hun Hoe CJ Borneo in the Supreme Court case of Government of Malaysia & Anor. V Akasah bin Ahad (1986) 1 MLJ 396 where he says:

“It is the contention of the defendants that they are not liable for nuisance under section 7 of the Government Proceedings Ordinance, 1956. We are not concern with public nuisance which is covered by section 8. Clearly, section 7 permits a person to sue the Government for negligence or trespass. However, the liability of the Government in tort is set out in section 5, which reads:

“5 Subject to the provisions of this Ordinance, the Government shall be liable for any wrongful act done or any neglect or default committed by any public officer in the same manner and to the same extent as that in which a principal, being a private person, is liable for any wrongful act done, or any neglect or default committed by this agent, and for the purposes of this section and without prejudice to the generality thereof, any public officer acting or purporting in good faith to be acting in pursuance of a duty imposed by law shall be deemed to be the agent of and to be acting under the instructions of the Government’.

This section is wide enough to cover private nuisance. It make the Government liable in tort in respect of any breach attaching at common law to the ownership, occupation or control of property as though it were a private person. The effect of this section is to render the Government liable to nuisance in respect of property it occupies or owns. This refers only to duties existing at common law. From liabilities imposed upon owners or occupiers by the status the Government remains immune unless the statute imposing the liabilities itself applies to the Government.”

Negligence—who liable for, … and nuisance too!

As a general rule, it is true that an employer of an independent contractor is not liable for the fault or negligence of such a contractor. But there are exceptions. One such exception relates non-delegable duty. This covers “all cases involving extra hazardous acts or omissions, or situations created by them, which all involve special danger to others” – Supreme Court decision in Datuk Bandar Dewan Bandaraya v Ong Kok Peng & Ano. (1993) 2 MLJ 234 @ 239. It is my view that to carry out development work on any land for that matter is normal and not hazardous, but when the land to be developed is perched high on a hill with a populated community below, then the situation is different – an extra hazardous situation will be created if such development work is carried out. This is even more serious if the hill is to be stripped bare of vegetation and its natural water courses unattended. Worse, if there is to be a diversion of watercourses downhill. The extra hazard here is the surcharge of water and silt deposits to cause drains to clog resulting in overflow that may consequent in slope failure downhill to affect lives and properties. The factual situation in our present case is the very case in point. Thus, under such circumstances, these defendants are not exempted from the liabilities for the acts of their independent contractors.

This proposition is not limited to a claim of negligence. It similarly applies to nuisance as is noted in the case of Matania v The National provisional Bank Ltd. & Anor. (1963) 2 All ER 633. In this case the complaint by the plaintiff was dust and noise caused by the building operations of the defendants. The Court decided that although one of the defendants had employed an independent contract, this defendant is still liable in damages for nuisance caused because the very nature of the work carried out involved a risk of damage to the plaintiff.

Mr. Piers Ashworth QC, sitting as a deputy judge of the High Court, in Home Brewery plc v William Davis & CO (Loughborough) LTD (1987) All ER 637:

“There can be no doubt that an occupier of land has no right to discharge onto his neighbor’s land water that he has artificially brought onto his land (Baird v Williamson (1863) 143 er 83) or water that has come naturally onto his land but which he has artificially, or even unintentionally, accumulated there (Whalley v Lanchashire & Yorkshire Rly CO (1884) 13 QBD 131) or which by artificial erection on his land he has caused to flow onto his neighbor’s land in a manner in which it would not, but for such erection, have done (Hurdman v North Eastern Rly. (1874-80) All ER Rep 735). If an occupier does any of these things he is liable to an action at the suit of his neighbor. Furthermore if he brings water onto his land and accumulates it on his land he may well be liable to his neighbor if that water escapes, even though he has no wish to discharge it and has taken every precaution against discharging it (Rylands v Fletcher (1868) LR 3 HL 330).”

Pride of Derby & Derbyshire Angling Association LTD v British Celanese Ltd. (1952) 1 All ER 1326 which decided that a:

“riparian right is a claim by a riparian proprietor of land to the enjoyment of a natural stream flowing through his land. If water is polluted and his enjoyment in the natural flow of the stream is affected thereby, he may have a course of action against the polluters”.


Negligence

The liability of negligence as defined by Lord Atkin in case of Donoughue v Stevenson (1932) A.C. 562 is: that every man must take reasonable care to avoid acts or omissions which he can reasonably foresee would be likely to injure his neighbor, i.e. those persons who are so closely and directly affected by his act that he ought reasonably to have them in contemplation as being so affected when he is directing his mind to the acts or omissions which are called to question, and this results in damage to the neighbor. By this, suffice to say, at this stage, that the important elements for the plaintiffs to prove in this cause of action are: causation and foreseeability.

Nuisance

In general, nuisance is a condition or activity which unduly interferes with the use or enjoyment of one’s land. There is public nuisance and private nuisance. In this case we are only concern with private nuisance which is often described as “unlawful interference with a person’s use or enjoyment of land, or some right over, or in connection with it”, and this takes three forms. The first: is encroachment on a neighbor’s land. The second: is direct physical injury to the neighbor’s land. And the third: is interference with the enjoyment of the neighbor’s land – see Winfield and Jolowicz, on Tort, 15th edition @ 494.

But not all types of nuisance are actionable. Whether a nuisance is actionable depends on a variety of considerations: the character of the defendant’s conduct, the act complained of, the effect of the complained act and such likes. And all these are to be balanced off against the conflicting interests of the parties; that of an occupier in using his land as he thinks fit with that of his neighbor for the quiet enjoyment of his land.

In deciding the defendant’s conduct, the test is reasonableness i.e. “according to the ordinary usage of mankind living in ….a particular society” – see Sedleigh-Denfield v O’Callaghan (1940) A.C. 880 @ 903. This factor of “reasonableness” of the defendant’s conduct is different from that in negligence. Here it signifies what is legally right between the parties taking account “all the circumstances of the particular case; the time and place of its commission, the seriousness of the harm, the manner of committing it, whether it was done maliciously or in the reasonable exercise of rights; and the effect of the commission, that is transitory or permanent, occasional or continuous; so that it is a question of fact whether or not a nuisance has been committed” – Winfield & Jelowicz on Tort, 15th edition @ 497-8.

Thus “if the defendant is a reasonable user, he would not be liable for consequent harm to his neighbor’s enjoyment of his land; but if the user is not reasonable, the defendant will be liable, even though he may have exercised reasonable care and skill to avoid it.” – Lord Goff in Cambridge Water Co. Ltd. v Eastern Counties Leather pls (1994) 1 All ER 53 @ 70.

Of late another factor is added to this test. It is expounded by the House of Lords in the same case of Cambridge Water CO Ltd. Lord Goff introduced it in this way:

“We are concern with the liability of a person where a nuisance has been created by one for whose action he is responsible. Here, as I have said, it is still the law that the fact that the defendant has taken all reasonable care will not of itself exonerate him from liability, the relevant control mechanism being founded within the principle of reasonable user. But it by no means follows that the defendant should be held liable for damage of a type which he could not reasonably foresee; and the development of the law of negligence in the last sixty years points strongly towards the requirement that such foreseeability should be a prerequisite of liability in damages for nuisance, as it is of liability in negligence. For if a plaintiff in ordinary circumstances only able to claim damages in respect of personal injuries where he can prove foreseeability on the part of the defendant, it is difficult to see why, in common justice, he should be in a strong position to claim damages for interference with the enjoyment of his land where the defendant was unable to foresee such damage.”


Negligence
The Liability under Rylands v Fletcher

The rule expounded by Blackburn J. in the case of Rylands v Fletcher is: “that the person who for his own purpose brings onto his land and collects and keeps there anything to do with mischief if it escapes must keep it at his peril, and, if he does not do so, is prima facie answerable for all the damage which is the natural consequence of its escape.” When such a situation is found to exist, then there is no necessity for the plaintiff to prove the negligent act of the defendant; this is a case of strict liability.

However this rule has undergone changes in recent years in the common law practicing countries. Starting with England, the house of Lords, in Cambridge Water CO LTD v Eastern Counties Leather pls (1994) All ER 53 has added to this principle the necessity to prove that the defendant could have reasonably foresee the thing might, if escape, cause damage to the plaintiff. Then in Australia, in the case of Burnie Port Authority v General Jones Pty LTD 120 ALR 42, the High Court after describing this rule as having “all its difficulties, uncertainty, qualifications and exception” completely discarded it as an independent cause of action, and incorporated it into the law of negligence. I tend to favor this Australian approach since after the case of Cambridge Water CO the requirement of foreseeability has deprived this independent cause of action of its attractiveness. Since foreseeability is required to be proved, it might as well be absorbed into the liability of negligence