REUTERS | Navesh Chitrakar

Christmas quiz 2012

Is your Christmas tree a complex structure? Are there three wise men on your dispute board? Berwin Leighton Paisner’s Christmas quiz is back to test your legal knowledge with a stocking full of construction teasers, one for every day of Christmas.

For answers to all the questions, see our answers document.

Claims in tort

Question 1

An employer engages a building contractor to construct a new building for it. It is a traditional procurement (not design and build) and there is nothing in the building contract, or otherwise, to suggest that it is anything other than a straightforward build. The building contractor is not a specialist contractor.

The building contains a latent defect that renders it dangerous to persons or other property. The employer will need to carry out remedial works to rectify the defect. Any action under the building contract is time barred. Assume that an action in tort is not time barred.

Which of the following statements are true?

(a) The building contractor owes a duty of care in tort in relation to defects that cause either personal injury or physical damage to property other than the property itself.

(b) The building contractor does not owe a duty of care in tort not to cause economic loss to the employer.

(c) The building contractor does owe a duty of care in tort not to cause economic loss to the employer.

(d) A building contractor cannot owe concurrent duties of care in contract and tort.

For the answer to question 1, see our answers document.

Liquidated damages

Completion of a project is delayed by a fire for which the contractor is contractually responsible. The employer suffers losses as a result of the delay. The building contract provides that the works are to be completed by the Completion Date and that liquidated damages “shall be the only monies due from the Contractor for such default [that is, delay to the Completion Date]” and “the payment or deduction of such damages shall not relieve the Contractor from its obligation to complete the Works or from any of its obligations and liabilities under the Contract and shall be without prejudice to any other right or remedy of the Employer.”

Question 2

The employer argues that the words in bold entitle it to unliquidated damages for delay where the delay was not caused simply by a breach of the requirement to complete the works by the Completion Date, but was caused by breach of the building contractor’s other obligations under the building contract. Is the employer correct?

For the answer to question 2, see our answers document.

Question 3

Can the employer recover the cost of reasonable steps taken to mitigate the delay?

For the answer to question 3, see our answers document.

Insurance

Question 4

True or false?

(a) For a contract of insurance to be valid the policyholder must have an interest in the insured item that is recognised at law whereby he benefits from its safety, well-being or freedom from liability and would be prejudiced by its damage or the existence of liability.

(b) A client can make a claim on its architect’s professional indemnity policy for damage to the works caused by a design defect.

(c) A contractor’s all risks insurance policy covers material damage caused by any risk whatsoever (hence “all risks”).

(d) Subrogation is the right of an insurer who has indemnified a policyholder to take over any legal rights the policyholder may have had in respect of that particular claim.

For the answer to question 4, see our answers document.

Question 5

True or false?

(a) Liability insurance covers the insured against third party claims, subject to specified terms and conditions.

(b) A liability policy often includes a cross liability clause which provides that the insurer will indemnify one insured against a claim brought by another insured against it.

(c) A professional indemnity policy will only respond if it was in place when the professional services were performed.

(d) The wording of a “typical” public liability policy will also cover the insured’s contractual liability to compensate a third party for “pure” economic loss.

For the answer to question 5, see our answers document.

Adjudication

Question 6

This question considers enforcing an adjudicator’s decision.

Which of the following statements are true?

(a) An adjudicator is not entitled to be paid if a court finds he is in breach of the rules of natural justice and doesn’t enforce his decision.

(b) An adjudicator can recover his fees from a responding party to the adjudication that has reserved its position on jurisdiction and refused to sign the adjudicator’s terms of appointment, if it participates in the adjudication.

For the answer to question 6, see our answers document.

Question 7

This question considers severing an adjudicator’s decision.

Can an adjudicator’s decision can be severed where one dispute or difference has been referred and additional questions are brought in and adjudicated upon?

For the answer to question 7, see our answers document.

Core construction crackers

Question 8

This question considers an obligation to proceed regularly and diligently with the works.

True or false?

(a) In absence of an express obligation to do so, there is an implied obligation on contractors or sub-contractors to proceed regularly and diligently with the works.

(b) If the building contract provides that the employer is entitled to terminate the contract because the contractor has failed to proceed regularly and diligently with the works, this equates to an automatic, freestanding contractual obligation to proceed regularly and diligently.

For the answer to question 8, see our answers document.

Question 9

This question considers entire agreement clauses.

“This Agreement and the Schedules shall together represent the entire understanding and constitute the whole agreement between the parties in relation to its subject matter and supersede any previous discussions, correspondence, representations or agreement between the parties with respect thereto notwithstanding the existence of any provision of any such prior agreement that any rights or provisions of such prior agreement shall survive its termination. This clause does not exclude liability of either party for fraudulent misrepresentation.”

True or false?

(a) The effect of this clause is that pre-contractual representations do not form part of the contract.

(b) The effect of this clause is that liability for misrepresentation by either party is excluded.

(c) An entire agreement clause must include an express carve out for fraud.

For the answer to question 9, see our answers document.

Question 10

This question considers the Unfair Contract Terms Act 1977 (UCTA 1977).

True or false?

(a) A person cannot, by reference to any contract term, exclude or restrict his liability for negligence.

(b) As between contracting parties (where neither is acting as consumer) a party cannot by reference to any contract term when himself in breach of contract, exclude or restrict his liability in respect of the breach as against the other party, except in so far as the contract term satisfies the requirement of reasonableness.

For the answer to question 10, see our answers document.

Bonds and guarantees

Question 11

What is the “Marubeni presumption”?

For the answer to question 11, see our answers document.

Question 12

Will using the words “on demand” be determinative that an instrument is a primary on-demand bond as opposed to a secondary guarantee?

For the answer to question 12, see our answers document.

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