UK: Are Contract Terms Really Binding? Part 2 of 2

Alternatively, Article 2.2 of the DOM/1 Articles of Agreement fulfils the first function in that it provides:

"The documents set out in clause 1 above (or referred to in such documents) contain all the terms and conditions of this Sub-Contract between the parties and nothing contained in any other document shall form a term or condition or otherwise be incorporated into this Sub-Contract."

1. Where the clause is simply a "no-reliance" clause, it would appear to fall outside the Acts. In Watford Electronics Ltd v Sanderson CFL Ltd [2001] BLR 143, 155 Chadwick LJ stated that such a clause was not an exclusion clause to which section 3 of the MRA 1967 applied because it does not exclude the liability as such; it simply prevents the facts which give rise to the liability from arising. However, note the statement of Bridge LJ in Cremdean Properties Ltd v Nash [1977] 2 EGLR 80, 82:

   "But I would go further and say that if the ingenuity of a draftsman could devise language which would have that effect, I am extremely doubtful whether the court would allow it to operate so as to defeat section 3. Supposing the vendor included a clause which the purchaser was required to, and did, agree to in some such terms as "notwithstanding any statement of fact included in these particulars the vendor shall be conclusively deemed to have made no representation within the meaning of the Misrepresentation Act 1967," I should have thought that that was only a form of words the intended and actual effect of which was to exclude or restrict liability, and I should not have thought that the courts would have been ready to allow such ingenuity in forms of language to defeat the plain purpose at which section 3 is aimed."

2. However, where the clause expressly excludes liability for misrepresentation, it will fall within the ambit of the Acts: see, for example, Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573 and Zanzibar v British Aerospace (Lancaster House) Ltd [2000] 1 WLR 2333.

1. The practical effect of the clause was that the Claimant would not be paid until the Defendant had been paid;

2. The Defendant’s argument that because the clause used the phrase "the amounts… to which the employer is entitled to be paid" and not "the amounts which the employer is paid" it was not a true pay when paid clause was dismissed out of hand;

3. The parties had used a pay when paid clause because the contract in question was based on a PFI contract form, which is outside the scope of the HGCRA 1996.

The decision demonstrates that the Courts will look not just at the express words of a clause to determine whether it is a pay when paid clause, but also at its actual effect.

1. A pay when paid clause is not of itself unreasonable pursuant to UCTA, but will be subjected to the normal test of reasonableness: Durabella Ltd v J Jarvis & Sons Ltd (2001) 83 Con LR 145;

2. Obviously the Regulations will not apply to contractor/sub-contractor situations;

3. A pay when paid clause of this type would be unlikely to be onerous, so requiring a "red hand". This is because it would be not be an unusual or unexpected clause between contractors and sub-contractors.

1. Where a construction contract is for more than 45 days, there is an entitlement to stage payments (section 109);

2. Every construction contract must specify an adequate mechanism for payment under the contract and that, no later than 5 days after the due date, a notice of the amount to be paid is issued (section 110);

3. A contractual sum may only be withheld when a withholding notice has been issued, failing which there is a right to suspension for non-payment (section 111 and 112);

1. Those which expressly deny the right to stage payments in contracts for a duration of over 45 days;

2. Those which specify a payment mechanism which is not "adequate". To be "adequate", a payment clause should enable parties to work out which sums are due and when. If this is not possible, on the grounds that the clause only partially satisfies the requirements of adequacy or is unclear, the Scheme will apply;

3. Those which specify that a notice of payment is to be issued later than 5 days after the due date;

4. Those which allow for the withholding of sums in any event;

1. In Alfred McAlpine Capital Projects Limited v Tilebox Limited [2005] BLR 271 Jackson J found that the maximum foreseeable loss was £35,000 to £40,000 per week, so that even at its highest Tilebox’s foreseeable losses would not equate to the liquidated damages of £45,000 per week. Even so, the sum was a genuine pre-estimate because:
   1. £45,000 was at or just above the top of the range of foreseeable losses;

   2. It is relevant that a genuine attempt was made to calculate the losses which would occur;

   3. The difficulties associated with estimating future loss made it sensible for the parties to have agreed a rate;

   4. The Courts are predisposed to uphold liquidated damages clauses;

   5. During pre-contract negotiations, the level of liquidated damages was the subject of specific debate.

2. On the other hand, in Jeancharm Ltd (t/a Beaver International) v Barnet Football Club Ltd [2003] EWCA Civ 58 it was held that an increased rate of interest might constitute a valid clause where such an increase represents a genuine pre-estimate of damage. Here, an interest rate of 5% per week (amounting to an annual interest rate of 260%) was clearly a penalty.

1. Those which are contrary to the HGCRA 1996;

2. Those which are contrary to the Regulations and/or onerous (i.e. in contracts between residential occupiers and construction professionals).

1. Epping Electrical Company Limited v Briggs and Forrester (Plumbing Services) Limited [2007] EWHC 4 (TCC). Here, a contract which incorporated the CIC procedure was found to be at odds with sections 108(2)(c) and (d) of the HGCRA 1996, because clause 25 provided that an adjudicator’s decision would still be effective even if reached outside the 28-day time limit.

2. Aveat Heating Limited v Jerram Falkus Construction Limited [2007] EWHC 131 (TCC). Again, an adjudication clause allowed an adjudicator’s decision to be valid even if issued after the specified time. HHJ Havery confirmed his earlier decision, finding that the whole adjudication mechanism was tainted and was to be replaced by the Scheme. In particular, he rejected the Claimant’s argument that because the terms were drawn up by the employer, and because the contractor initiated adjudication, it cannot be right that the employer can say that the procedure he stipulated is not in accordance with the Act.

1. Picardi v Cuniberti and Cuniberti [2003] 1 BLR 487 HHJ Toulmin made a number of obiter comments as to the effects of the Regulations on a RIBA standard adjudication clause, and also explored their relationship with Lord Denning’s "red hand" common law principle. In particular:
   1. The requirement that an onerous term be brought to the other contracting party’s attention provides wider protection than the Regulations, which only provide a remedy where the terms of the contract cause a significant imbalance in the parties’ rights. As the HGCRA1996 does not apply to residential occupiers by virtue of section 106, an adjudication clause is an unusual provision;

   2. The "red hand" principle itself relates to the principle that it is unfair to impose on another party terms which are onerous and have not been agreed (i.e. protecting freedom of contract). With the Regulations, the parties have contracted on these terms, but there remains the question of whether there is an imbalance;

   3. The terms in the Regulations "grey list" are useful examples of unfair terms, but the terms in question must still be looked at to see if they cause a significant imbalance in the parties’ rights;

   4. An adjudication procedure may hinder the consumer’s right to legal action because of the expense involved;

   5. In any event, the RIBA guidance clearly requires these members to individually negotiate these clauses.

2. Lovell Projects Limited v Legg and Carver [2003] 1 BLR 452

   It was held that:

   1. The adjudication terms did not cause an imbalance because there was no limit on the disputes which could be the subject of an adjudication under the contract;

   2. The requirement of good faith had not been breached because the terms were clearly and openly set out;

   3. There was no question of unfair dealing or of exploitation of the consumer’s lack of knowledge. In fact, the consumer had engaged an architect, had insisted on this standard form and had consulted their solicitors;

   4. It was not difficult to distinguish from decisions such as Picardi v Cuniberti because the Regulations must necessarily be applied on a case by case basis.

3. Bryen & Langley Ltd v Boston [2005] 1 BLR 510 (see also [2005] 1 BLR 28 for first instance decision)

   In agreeing with the judge at first instance that the dispute resolution clause was not unfair within the meaning of the Regulations, the Court of Appeal found it to be relevant that the consumer had invited tenders on these standard terms, so that it was impossible to say that the contractor had shown bad faith or had dealt unfairly.

   Although the Court of Appeal did not look at this point, the first instance judge found that the mere exclusion of residential occupiers from the HGCRA 1996 did not have any bearing on the question of unfairness, and that the adjudication procedure which was impartial and approved by Parliament could not be said to be inherently unfair.

4. Allen Wilson Shopfitters v Anthony Buckingham [2005] EWHC 1165 (TCC) Again, it was the fact that the consumer had proffered the allegedly unfair term which was decisive (note the reference to an earlier case decided on the same basis, Westminster Building Company Limited v Beckingham [2004] BLR 163).

1. The Claimant housebuyers were consumers even though they had been represented by a solicitor, and the fact that they received legal advice did not reduce the Defendants’ obligations to them as consumers. In any event, the solicitor only acted as a conveyancer;

2. An arbitration agreement may cause a significant imbalance in the parties’ rights, although the "grey list" was only an indicative list and did not create rebuttable presumptions of unfairness;

3. The arbitration clause only concerned matters covered by the NHBC agreement so that the purchasers would have to pursue two sets of proceedings to have all their complaints heard;

4. There was no evidence of inequitable dealing by the seller, but the agreement had not been negotiated and was effectively imposed on the Claimants.