Contract Law Dictates For Development Corporation

Delay Damages and Obligations

Describe about the Contract Law Dictates for Development Corporation.

The general principle of contract law dictates that when parties enter into a contract they are obligated and bound to effectively perform the contract within the agreed terms and conditions in the contract. It is worth noting that construction contracts have gained local notoriety in litigation because of delays that are always accompanied by excuses from the contractors. It is thus submitted that failure to perform a contract within the stipulated and agreed schedule attracts significant liability as was seen in Jerry Bennett Masonry, Inc. v. Crossland Constr.Co. (2005), where a subcontractor did not adequately provide for labor for a construction thereby causing a delay in the construction and the courts upheld delay damages against the company.

Marina Construction Limited was notified of all the structural defects with the building in the contract as stated in the facts and therefore the delay was one that ought to have been foreseen before agreeing to the terms of the contract and formation of the contract. The delay can thus be termed as one that is an inexcusable delay which is defined as a delay caused by the fault or neglect of the contractor and the owner is entitled to a claim for damages. (Nathan, Lee, and Henry, 2014)

Marina Construction Limited (MCL) is under a contractual obligation to perform the contract according to the agreed terms. However, in cases of delay in the performance of contracts the Western Australia Supreme court has held that a detailed notice of any such delay must be served to the other party. (CMA Assets Pty Ltd v John Holland Pty Ltd, 2015) It is not in dispute that MCL provided a notice to the principal in this case albeit it was orally made, the notice can be held to have been given out of time.

In Australian Development Corporation (ADC) v White Constructions (1996) it was held that a notice of extension of time must be given within reasonable time to allow the principal take any remedial action or adjustments as to any adjustments. The notice by MCL was only served after the article in the newspaper was posted yet it was within the knowledge of the directors that they could not complete the contract as stipulated in the contract. It is imperative to note that a notice is required even where the contract has not provided for an extension clause.

Liquidated Damage Clauses and Recovery of Actual Damages

The university can claim liquidated damages if the contract had a liquidated damage clause. (J-Corp Pty Ltd v Mladenis (J-Corp), 2010)  The liquidated damage clause will spare the university tedious endeavors calculating the amount of damages compensable. (Boucaut Bay Co Ltd v Commonwealth, 1927) On the other hand, the absence of a liquidated damage clause in a contract will not entitle the contractor to escape liability for delay damages to the contractor. The university can thus recover actual damages without the liquidated damage clause that includes lost profits from the admission of the students and rental charges and interests.  The South Carolina Supreme Court affirmed that loss profits can be awarded where the owner undertakes to prove with a reasonable degree of certainty the amount of loss profits. (South Carolina Federal Savings Bank v. Thornton-Crosby, 1992)

In regards to the $500,000 that the university had paid to MCl, the university can claim for the restitution of the funds that serves to protect it from unjust enrichment. Conversely, the courts have held in Fibrosa Spolka Akcyjna v Fairburn Lawson Combe Barbour Ltd (1943) that a party that had pre-paid some amounts of money for the performance of the contract could recover it after the contract had been frustrated. It is in fact submitted that the amount paid by the university should not have been given to MCL as this was rewarding them for their breach.

2. Tom, Jane & Co (“TJC”) Firm was under the obligation to perform their duties in a professional manner. In the conduct of their duties and activities, the firm ought to have in mind the ripple effects of their actions on the persons they are serving. The famous dicta by Lord Atkin usefully asserts that one should take reasonable care to avoid acts or omissions that are likely to injure a neighbor and further defines a neighbor as one who is like to be affected by the consequences of one’s acts or omissions.( Donoghue v. Stevenson, 1932).  Moreover, the Civil liability Act 2002 recognizes the tort of professional negligence.

It is submitted to TJC that their acts and omissions have invited the tort of negligence precipitated by their omissions that displayed any degree of complacency and ineptitude in their audit business. For an act or omission to amount to negligence there are three essential elements that the plaintiff, in this case, will have to prove for the action to be successful. (Grant v Australian Knitting Mills, 1936) It is essential that a duty of care owed to the claimant who is the consumer must exist and consequently a breach of that duty. In addition, there must also be shown that indeed there was damage or injury caused as a consequence of the breach of that duty.

Duty of Care and Negligence

The neighbor principle has since widened the scope of the duty of care and it must not necessarily be a consumable product but the duty of care also extends to instances where one relies on information or advice from someone with a specific skill and knowledge. It follows that where such information is given negligently a tort of negligence action can arise. (L Shaddock & Associates Pty Ltd v Parramatta City Council, 1981)

TJC has a duty of care to its client’s sunflower bank limited and they are expected to perform there duties with skill and competence. They have a duty to exercise reasonable skill and care whereby the standard of skill expected is of an ordinary skilled person practicing the same discipline. (Bolam v Friern Hospital Management Committee, 1957). It is imperative to note that the test for test for determining the standard of care will be that of an ordinary skill person highlighted above, in the same practice. This test is commonly referred to as the ‘bolam’ test.

A modern litmus that would determine the duty of care was espoused in Caparo Industries v Dickman (1990) where a tripartite approach is given by the court. First, it was established that the damages and consequence of the acts of the defendants must be reasonably foreseeable. (Kent v Griffiths, 2000) It is hence submitted that the fraud that TJC failed to detect was an omission which was foreseeable since there are several cases of fraud in the banking industry and practitioners should have an open eye on every issue.

Secondly, it must be established that there was a legal relationship between the parties that can  be regarded as a relationship of proximity that will expect a duty of care from the other party. (Home Office v Dorset Yacht Club, 1970) It goes without saying that a relationship of proximity is easily established between TJC which was an auditing firm and its clients sunflower bank. The duty of care is established because sunflower bank depended on the services of TJC. Thirdly, whether taking all circumstances into consideration it would be just reasonable and fair for the law to impose a duty. (Capital v Hampshire County Council ,1997) In TJC the court will not have to struggle with imposing any duty on TJC as the relationship between TJC and Sunflower bank is one that is created by a legal contract.

Elements of Negligence

Negligence occurs where the standard expected of a person falls below that of an ordinary skilled reasonable man. (Roe v Minister of Health, 1954). In deciding whether there has been a breach of the duty of care owed the courts will be guided and persuaded by four factors. First, the court will look at the degree of risk involved where it weighs the likelihood of the harm occurring. In Haley v London Electricity Board (1964) the court held that there was a commonly known risk that ought to have been foreseen. As noted above, the risk of fraud in banking is one that has gained prominence in this era and experts and professionals should put all measures to ensure that any such frauds are avoidable before they transpire.

Secondly, the court will also look at the seriousness of the harm or damage suffered. It has been observed that at times the gravity of harm or damaged suffered is so is so low that courts will throw out such claims that seek to waste the courts time. (Paris v Stepney Borough Council, 1951) The gravity of the harm and loss suffered due the actions TJC cannot be downplayed by the court. The loss of $10 million is so grave and is likely to attract the attention of any ordinary court.

Thirdly, the court will consider whether it would be reasonably practicable to take any precautions to avoid the harm or loss. (Latimer v AEC Ltd, 1952) The standard here will be that of a reasonably skilled person in the same practice. Fourthly, the courts will ask if the defendant’s action was of any useful social purpose. (Watt v Hertfordshire County Council, 1954). Infallibly, the actions of TJC served no useful purpose.

Proof of breach

If Sunflower bank is to bring a claim of negligence then as the plaintiffs they have to provide evidence that will connote that the defendant failed to exercise reasonable skill and care. Nevertheless where such evidence is not available and the facts of the case clearly speak for themselves the maxim of res ipsor loquitor will apply. (Scott v London & St Katherine Dock Co, 1865)

It is submitted that Sunflower bank must show that the loss of the money would not have occurred but for the defendants negligent omissions. This is referred to the ‘But for test’ that seeks to establish the causal link between the damage and the defendant. The test was authored in Barnett v Chelsea & Kensington Hospital (1968) where it was held that damage may at times occur not as a consequence of an act or omission of the defendant but the damage would have occurred anyway even if the or act omission did not transpire. It is advised that this argument resonates more with the defendant’s case and can be used as a defense.

It has been argued that a foreseeable harm may at times occur in an unforeseeable manner which is an argument that TJC may borrow but such an argument does not hold water and liability will still attach as was held in Hughes v Lord Advocate (1963). However, a defendant will not be liable for a tort of negligence where the plaintiff has a weakness or a predisposition to such loss or damage. (Smith v Leech Brain & Co, 1961)

The foregoing submissions are brought to the attention of TJC and the three essential elements are fundamental for any claim of negligence to succeed. It is of particular significance to note that a claim of negligence is a civil action and the standard of proof is not equated to a criminal action which is beyond reasonable doubt. The standard of proof here is lower and is held to be on a balance of probability. TJC will not incur liability for negligence if they acted professionally and in a manner that has a general acceptance across Australia. (Civil Liability Act 2002 S 50(1)  

3. It is apt to underscore the fact that the law of agency imposes a fiduciary duty on the agent. Succinctly, the agent is authorized by the principal to act on his behalf and this raises a legal relationship. The agency agreement between Will and farm fresh crystalizes their legal relationship. It should be borne in mind that an agent is authorized to do that which is authorized by the Principal or that which he can reasonably infer that the principal would desire him to perform. (International Harvester Company of Australia Pty Ltd v Carrigan’s Hazledene  Pastoral Co ,1958)

From the onset it is submitted that pursuant to the agency agreement entered between farm fresh and Will, Will has an actual express authority to act on behalf of the principal. The authority is complete because it follows consent from the principal and there had been a written agreement that Will shall earn a 5% interest in the work that he will undertake on behalf of the principal. (Equiticorp Finance v BNZ(1993) Agency must not necessarily derive from consent of the principle but the law can infer that that an agency agreement existed where the parties were acting as such with the third party and the third party knew that the agent was acting for a known principal.. (Branwhite v Worcester Works Finance Ltd, 1969)

It can be argued that Will had actual implied authority which while he was performing the transaction with the third party as he did not have express authority ,however, drawing from the following elements of an actual implied authority his acts were valid. First the agent was acting following the usual manner in which he performs his duties on behalf of the principal. This is referred to as the usual authority of an agent and it can be said that Will was acting in the usual way and his actions were incidental to the other acts that he has been performing for the principal. ( Hely-Hutchinson v Brayhead Ltd 1968) Second, the acts of the agent had gained the force of a custom and thus it is referred to as a customary authority.

The leading case in the entire of the facts in issue and one that perhaps goes furthest is (Freeman & Lockyer v Buckhurst Park Properties (Mangal) (1964). In this case, H and K formed a company to develop property and the articles of the company gave provisions for managing directors but they had not been appointed. K went ahead and engaged a company to take on some constructions but later on the company claimed that k did not have authority. It was held that the K had ostensible authority to act. The courts have also espoused that the person who is held to have ostensible authority must also have an actual express authority to act. (Crabtree-Vickers Pty Ltd v Australian Direct Mail 1975) Will had ostensible authority to act because it was the usual way of business as the principal had not objected to his actions thereby the third party continued to transact with him and furthermore he had express authority derived from the agency agreement.

A more persuasive position is that, despite the fact that Will had no express authority to transact with Dairy to Go, his actions were ratified by the principal. For ratification to be held have been undertaken the following must be proven; First, the agent whose act is sought to be ratified must have been acting on behalf of the principle. (Howard Smith & Co Ltd v Varawa, 1910) This was well within the knowledge of Dairy to go and the business had gone on for a considerable period of months. Secondly, the principal must have been disclosed at the time of ratification. (Trident v McNeice Bros Pty Ltd, 1988)  Dairy to go knew the principle because they were aware that Will was an agent of Farm fresh.

The silence of the principal does not amount to ignorance nor does it mean that he has not ratified the act. It has been held that the principal can also ratify an action by silence or inaction. (Klement v Pencoal, 2000) This argument can be borrowed and applied by the principal of Farm fresh as he can say that he was aware of the business between his agent and Dairy to go and that is why he allowed it to continue up to then. This argument crystallizes the point that indeed there was a valid and enforceable contract between Farm fresh and Dairy to Go.

Undoubtedly the evidence that has been demonstrated above manifestly shows that the contract that was undertaken between Dairy to Go and Farm fresh is one that legally binds both parties and is enforceable. Indeed it has been proven that Will had authority to act on behalf of the principal albeit his authority was not expressly authorized by the principal. It is submitted that an agent can not act on his own behalf if the third party is aware of the principal. (Irvine v Union Bank of Australia, 1877) To this extent, it can also be argued that Will is entitled to earn the 5%interest because as noted above there has been a mountain of evidence to show that indeed an agency relationship existed and that Will’s principle is mandated to honor the agency contract. On the hand, the principal lacks a sufficient ground to terminate the agency contract because Will acted in a manner that was recognized by law so no penalties can be imposed on him.

The law is the art of goodness and equity, but it is the inherent nature of justice that it will not make parties in a case equally exuberant at the end of the day. However, in the eyes of the law justice is deemed to be fairness. My reference to the above has been accentuated by the fact that the contractor in question one has to agree to suffer the loss a circumstance that the construction company does not sit well with but ‘the law is ass ‘as the positivist school of thought will put it. The research on this question has compelled me to learn that the law of contract requires that contracts are entirely honored. In addition, the construction professionals should be careful to undertake the contract as agreed. What was intriguing more is the fact that the contractors have to pay liquidated damages.

I have had the privilege to bring to my attention from the research on this question that preferably, construction contracts must entail a liquidated damage clause that serves to prevent tedious endeavors trying to calculate the amount of damages to be paid. (Kean and Caletka, 2008) Nevertheless, the absence of a liquidated damages clause is not an implication that the owner cannot apply for liquidated damages. Suffice to say, contactors should follow the proper procedure where they have foreseen an expected delay and since the law is dynamic the contract can be extended but it is very unfortunate that the law does not favor the circumstances of the contractor’s case in question which is has a devastating effect on them.

In regards to question two the research involved was quite educative and one that its importance I cannot undermine. Professionals have a duty of care to people who their acts or omissions are like to affect and they are required to reasonably foresee such acts or omissions so as not to cause any harm. (Donoghue v. Stevenson, 1932)   The famous dictum of Lord Artkin is one that sinks deep into my heart as an aspiring profession. 

It is prudent that I mention that this research had a wealth of case law that was interesting and whose importance to my career I cannot undermine. The case laws that I have used exemplifies that the standard of skill and care required of the profession will not be measured beyond that of an ordinary skilled man in the same practice. It is worth mentioning that a breach duty of care is followed by award of damages to the party which indeed has a deterrent effect to professionals thereby sending a sound and striking message that those who are reckless in their duties will come face to face with the sharp claws of the application of the law of Negligence.

Question three, on the other hand, bestows upon me sufficient knowledge to be able to track the path of the law of agency with competency. The authority that is vested on the agent by the principle is a fundamental one and the agents should be careful not to exceed their authority. In undertaking this question it was brought to my knowledge that an agent should only proceed with an act in which the principal himself is competent to undertake. It was rather interesting to note that despite Will’s lack of express authority, the law derives other authorities that approved the actions of Will. Conversely, the ratification of previously unauthorized is a principle that I carried home and could not negate its importance. Indeed a principal can ‘right the wrongs’ of the agent but only to the extent that the actions are not illegal.

The ability of the law to fit the circumstances in favor of Will and Farm Fresh was in my view enticing. The flexibility of the law in this research is unimaginable. I was compelled to learn that actual implied authority if different from apparent authority. Implied authority is inferred from the usual conduct of the business and actions that are incidental to the normal conduct of the agent that is allowed by expressed authority. On the other hand, apparent authority is a conduct by the principal that has led the third to believe that the agent is acting on his behalf. 

References

Australian Development Corporation (ADC) v White Constructions (1996) 12 BCL 317. 2.

Barnett v Chelsea & Kensington Hospital (1968)3 All ER 1068

Bolam v Friern Hospital Management Committee (1957) 1 WLR 582

Boucaut Bay Co Ltd v Commonwealth (1927) 40 CLR 98

Branwhite v Worcester Works Finance Ltd (1969) 1 AC 552.

Caparo Industries v Dickman (1990) 2 AC 605

Capital v Hampshire County Council (1997)QB 1004

Civil Liability Act 2002

CMA Assets Pty Ltd v John Holland Pty Ltd (2015)WASC217

Crabtree-Vickers Pty Ltd v Australian Direct Mail (1975)133 CLR 72.

Donoghue v. Stevenson (1932)UKHL 100

Equiticorp Finance v BNZ  (1993) 32 NSWLR 50

Fibrosa Spolka Akcyjna v Fairburn Lawson Combe Barbour Ltd (1943) AC 32

Freeman & Lockyer v Bucklehurst Park Properties (Mangal) Pty Ltd (1964)2 QB 480

Grant v Australian Knitting Mills (1936 )A.C. 562

Haley v London Electricity Board (1964) 3 WLR 479,

Hely Hutchinson v Brayhead Limited (1968) 1 QB 549

Home Office v Dorset Yacht Club (1970) AC 1004

Howard Smith and Co Limited v Varawa – (1910) HCA 30

Hughes v Lord Advocate (1963) A.C. 837 (H.L.).

International Harvester Company of Australia Pty Ltd v Carrigan’s Hazledene  Pastoral Co (1958) 100 CLR 644

Irvine v Union Bank of Australia (1877) 2 App Cas 366

J-Corp Pty Ltd v Mladenis (J-Corp) (2010) 26 BCL 106

Jerry Bennett Masonry Inc. v. Crossland Constr.Co. (2005) 171 S.W.3d 81

Keane,  P.J.  and  A.F.  Caletka, ( 2008) Delay  Analysis  in  Construction  Contracts

Kent v Griffiths  (2000)2 WLR 1158

Klement v Pencoal [2000] QCA 152

L Shaddock & Associates Pty Ltd v Parramatta City Council [1981] HCA 59

Latimer v AEC Ltd (1952) 2 All ER 449

Nathan C, Lee C  and Henry P,( 2014) Resolving Problems and Disputes on Construction.

Roe v Minister of Health [1954] 2 All ER 131

South Carolina Federal Savings Bank v. Thornton-Crosby (1992) SC 423 S.E.2d 114

Trident v McNeice Bros Pty Ltd (1988) HCA 44

Paris v Stepney Borough Council (1951) 1 All ER 42,

Watt v Hertfordshire County Council (1954) 1 WLR 835