Introduction
The primary principle in contract law is that agreements must be of a legal nature. The basic idea revolves around the belief that the law cannot sanction illegal actions. Concisely, contracts should be based on aspects that are enforceable by courts. Further, if a provision in a contract violates the laws of the place, then such a contract would become void.
Based on the contract law literature, some contracts may be invalid due to a lack of intent to establish a legal effect. This leads to three types of invalid contracts, unenforceable, void, and voidable. An unenforceable contract reflects an agreement that is valid but lacks certain aspects that are necessary for the contract formation process. A contract is void when it totally lacks any legal effect from the very beginning. On the other hand, a contract is voidable if one or two parties fail/s to ratify an agreement. At a different level, it is noticeable that disputes are inherent in contracts. Disputes may arise based on a breach of contract or disagreements among parties. When one party breaches a contract, damages are awarded to compensate the other party for the loss incurred.
The case
It is indicated in the case that an employer has requested a contractor to send a proposal to build a factory. The contractor responded to the request by sending a quotation that the request was accepted under the FIDIC 1999 red book terms. However, the employer accepted the proposal given some modifications (20.1).
Two weeks later, the two parties entered a contract stating that:
- total project cost,
- duration of the contract,
- subject matter, and the statement were agreed on the basis of the FIDIC terms.
From the illustration above, the employer has shown an intention of creating a contract by extending an offer to the contractor. After going through the offer, the contractor sees the need to introduce some amendments. Thus, the initial offer is rejected as a new one is formed which the employer accepts. Concisely, the contractor presents a counteroffer that the employer accepts. Hence, the terms of the counteroffer take effect.
On 1 January 2012, under instructions from the engineer, the contractor replaced the bus duct with cable electrical conduits. This move was prompted by the rejection of the approval authority based on standard requirements. Two weeks preceding the development, the contractor notifies the engineer that such a move would lead to additional costs in addition to a delay in completion time. On 29 January 2012, the contractor presented the ultimate claim clarifying the claim particulars. A day later, the contractor sent an invoice after the installation of the busduct material. The engineer refused to pay to cite that clause 20.1 was flouted.
Based on the above instance, the prevailing circumstances set by local authorities forced the contractor to change the electrical conduits. The contractor takes sound measures by informing the engineer of the development and later furnishes the latter with the claim details. However, the engineer rejects the proposal citing the provisions of clause 20.1 of the contract. This is an error since the clause actually empowers the contractor in this regard.
Under the 20.1 clause of the contract, a contractor has the opportunity to seek an extension of time for completion, additional payment, or both. However, the contractor needs to inform the engineer by describing the events necessitating such amendments. This should be done the soonest possible time and must not exceed twenty-eight days after the emergence of the issue in question. Failure to comply with these requirements renders this provision void. Based on this, no extension on time is given. In addition, no additional payment is due. This implies that the employer is not liable for any liability that arises after the provisions of this clause are flouted. Based on the information provided in the case, the contractor has met all these requirements and thus the engineer has no basis for refusing to settle the extra costs.
Assuming that the above clause does not apply then its sub-clause takes effect. This sub-clause allows more flexible terms. This is clear based on the notion that a contractor has up to forty-two days to present a claim although supporting documents must be produced. On this, evidence, the contractor has acted within all the contract provisions. The other party acts outside the contract provisions.
Reviewing the case under common law
Under the provisions of contract law, an agreement is made either orally or by writing. The people involved must be adults. In addition, the individuals in a contractual agreement pursue enforceable pacts mainly of a business nature. In the case under review, the employer has entered a contract with the contractor, as has the contractor with the engineer.
Further, under the common law, creating an enforceable contract requires the fulfilment of certain conditions. As an illustration, the offer must come from one party (the offeror) requesting another party (the offeree) to do something.[1] To complete the contract, the offeree has to accept the offer. In case of rejection of the offer then no contract is formed. However, the contract only takes effect after some payment (consideration) is made. Under common law, it is possible that the offeree tables a counter-offer. This is possible if the offeree wants to accept the offer on different terms. An acceptance of the counteroffer is necessary if the contract is to take effect. Given the above establishment, it is evident that the contractor and the employer have entered a contract based on the acceptance of the counter-offer the contractor offers the employer.
McKendrick observes that there are essential elements that underpin contracts under common law.[2] The bottom-line is that parties can enter a contract over any aspect as long as it is legal. Normally, the contract contents initially sets out the parties entering the contract. Further, the contract gives details regarding the particulars of the agreement. Moreover, the contract gives details regarding the costs and the time of payment. It is worth noting that sometimes circumstances may affect the costs and time agreements of a contract. As such, provisional clauses such as majeure clauses are inserted into contracts to offer regulation.
Based on the above realization, the 20.1 clause reflects the provision that contracts always allow for additional clauses to govern the execution of contractual agreements. Given the clause, the contractor reserves the right to seek extension on time and additional resources towards the completion of the task. The engineer refused to pay additional costs claiming that clause 20.1 was flouted. This is questionable since the clause allows for variation of time and costs. It is clear that the contractor has acted as per the provisions of the contract and should thus prevail based on the circumstances.
Breach of contract under common law arises when a party contravenes the set provisions. A contract is flouted in several ways. By way of illustration, failure to pay the agreed fee or to complete a task in the given time paves way for a breach of contract. In case of delay, the aggrieved party has a right to seek remedial action. In practice, damages present the most common form of remedy available to victims of a breach of contract. This point further demonstrates that the contractor had not breached any provision. Thus, the contractor was in order by passing the additional costs to the engineer. This also demonstrates why the contractor should prevail in the case.
Reviewing the case under UAE Provisions
If circumstances give rise to a claim that has an ongoing effect, the full claim should be considered as interim. Secondly, the contractor is expected to send subsequent claims to the engineer each month. In addition, the contractor is required to submit the final claim within twenty-eight days or any agreed period after the circumstantial events. After receiving the claim, the engineer may approve or disprove the demands. Although the FIDIC code allows a period of forty-two days or any agreed period, Article 474 of the UAE code allows for fifteen years. Since this point illustrates that the engineer reserves the right to approve or disprove additional claims, it is clear that the contractor has no realistic chance to prevail.
Terterov observes that under the UAE provisions, the subject should be clearly described.[3] In addition, particulars, manner of performance, period of performance, and consideration should be specific. Under Article 875, if the employer indicates that the contractor is the one to provide construction materials, liability for quality rests with the latter as set in the contract or as by the current legal provisions. Article 876 presents the implied terms. Under this article, the contractor is expected to provide additional equipment or tools at his/her own expense unless an agreement is in place to the contrary. If this Article applies, then the contractor would be required to foot additional expenses. As such, the engineer would prevail since it is upon the contractor to clear any additional requirements in task execution.
It is evident that the UAE provisions do not present a wide departure from common law in regards to contract formation principles. Based on Article 876, the contractor should provide additional tools for the task under execution and incur any additional costs. Focussing on the case under review, the contractor replaces busduct with cable electrical conduits leading to additional costs. The contractor attempts to transfer the additional costs to the engineer, an aspect that the latter rejects. Based on the provisions of Article 876, the contractor should bear the additional costs. Put differently, the engineer is right in rejecting the proposal by the contractor.
Under the guidelines set in Article 877, the contractor is expected to complete the task in accordance with the initial conditions set in the contract. In instances where the task is done in a defective manner or in breach of contract, the employer may seek termination of the contract. However, the employer reserves the right to direct the contractor to repair areas seen as defective or engage another contractor. Damages are issued against a contractor if the circumstances leading to breach of contract were preventable. This implies that unforeseen circumstances do not allow for liability on the part of the contractor.
Conclusion
Sometimes controversy surrounds contract execution. However, legal provisions play an important role in solving such issues. Although the rules do not vary widely, differences are visible. As illustrated, under common law, a contractor has the opportunity to pass additional costs to the employer after issuing a clarification of the claim. However, under UAE law, the contractor bears any additional costs. Based on this, I conclude that under common law, the contractor prevails in the case while under UAE law, the employer prevails.
Bibliography
McKendrick, E, Contract Law – Text, Cases and Materials, Oxford University Press, London, pp. 171.
Terterov, M, Doing Business with the United Arab Emirates, GMB Publishing Ltd, London, 2006, pp. 100-10.
Wilmot E, et al, 2009, Contract Law, Third Edition, Oxford University Press, pp. 34.