The cost of coronavirus confusion

On 23rd March, the Prime Minister addressed the nation. We were told to stay at home in order to save lives and protect the NHS.

Legislation quickly followed, in particular the Coronavirus Act 2020 and especially the Health Protection (Coronavirus, Restrictions) (England) Regulations, 2020. Leaving your house became a criminal offence (Regulation 6) unless you had a “reasonable excuse”, which included going to work, if you could not do that work at home.

Whole swathes of normal life closed down, and building sites became even more challenging than normal because of the social distance guidelines pouring from central government, backed by the HSE, whose duty is to keep operatives safe on site.

Building managers and executives also had to consider the threats to their own health, and to their families, as well as keeping their employees safe from risk of infection.

Compensation for delays

In a recent article the Civil Engineers Contractors’ Association (NE) stated that at present, some contractors are on site working without confirmation as to whether they will get paid for delays and inefficiencies caused by continuing to work through the COVID-19 pandemic.

If a contractor gives a Compensation Event Notice but the Client hasn’t responded yet, it has to keep on progressing with works to avoid being in breach of contract –working at risk that the CE Notice will be not be accepted.

If the Compensation Event Notice is rejected, the contractor must continue to work and seek recovery through dispute resolution methods –risking both continued cost, reduced income with dispute resolution costs on top.

Even if the Compensation Event Notice is accepted, the contractor doesn’t know how it will be valued. If it disagrees with the client's assessment, there is still a cash flow issue plus a potential dispute, and the time and cost associated with dispute resolution.

Even before the contractor decides whether to resolve its problem by negotiating, or adjudication, or less confrontationally bringing in a mediator or an independent expert, it needs first to understand whether the law gives it any rights or entitlement to compensation.

Can the client just sit back and watch the contractor struggle, or does it have obligations to extend time, give helpful variations, or pay for increased costs and disruption?

Before the contractor even writes its notices or opens negotiations, it needs to understand how the law may be able to help. There are a number of legal approaches to solving these problems.

The concept of Frustration

This works to release both parties from further performance if the object of the contract cannot realistically be achieved. An example would be a contract to build on land on a cliff top that then falls into the sea.

Impossibility

Similar to Frustration, the concept of Impossibility also releases the parties from further performance.

Force Majeure

Where an unforeseen problem arises that fundamentally changes the difficulty of the task. This concept only deploys where the contract terms expressly make provision. In a nutshell, the NEC does so, but the JCT forms are more problematic. Where it applies it is a powerful remedy which can potentially enable the recovery both of time and money.

Implied terms

Where a contract cannot work without a term which should obviously have been included, then the court will ask “is this term necessary for business efficacy?” If yes, the contractor has a remedy.

Many contracts, drawn up by the client or its representatives, will contain a great deal about what the contractor must do or not do, but very little about the client’s obviously necessary duties, e.g. to give site possession. In such a case the court might find that possession was an implied term.

Contractual interpretation

The fundamental approach of the courts now is to find the meaning of the wording of the contract which best makes sense – an approach based consciously upon the idea of “business common sense”, and which also considers what must have been the purpose or intention of the parties when they did the deal.

These are complex subjects, which have been developed in many legal precedents.

For more information or to discuss any issues facing your business please contact Susan Howe on 0191 211 7777 or email [email protected]