REUTERS | Vasily Fedosenko

Christmas quiz 2015

Should Santa pay his Christmas parking fine? Do you know your stockings from your extensions? Our Christmas quiz is back, so go ahead and test your legal knowledge.

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

Question 1 (penalty clauses)

The long-awaited Supreme Court decision in Cavendish Square Holding BV v El Makdessi and ParkingEye Ltd v Beavis [2015] UKSC 67 considered the rule against penalties, but what did their Lordships actually decide?

Which of the following statements is true? (One or more statements may be correct.)

(a) Liquidated damages clauses are not always concerned with the recovery of compensation for losses flowing directly and measurably from the specific breach with which they are concerned.

(b) Lord Dunedin’s four tests in Dunlop are no longer relevant in determining whether a provision is penal and unenforceable and should not be relied upon.

(c) The nature and extent of the innocent party’s interest in the performance of the relevant obligation is key to determining whether a particular provision is or is not penal.

(d) A provision that is not a pre-estimate of loss is automatically penal.

(e) The rule against penalties does not apply to primary obligations.

(f) Deck the halls with boughs of holly, Fa la la la la, la la la la.

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

Question 2 (implied terms)

Which of the following statements is true? (One or more statements may be correct.)

A court will imply a term into a contract:

(a) If the term to be implied would spell out in express words what the instrument would reasonably be understood to mean read against the relevant background.

(b) If the term to be implied is capable of clear expression, does not contradict any express term and if, without it, the contract would lack commercial or practical coherence.

(c) If the term to be implied would have been agreed by the parties if it had been suggested to them.

(d) If there are seven swans a swimming.

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

Questions 3 (pay less notices and adjudication)

An employer fails to issue a pay less notice in time in relation to a final payment and the contractor refers the dispute to adjudication. The adjudicator decides that the employer is contractually obliged to pay the notified sum, which is the amount set out in the contractor’s final account, in absence of a valid pay less notice.

Which of the following statements is true? (One or more statements may be correct.)

As a consequence:

(a) The employer is deemed to have agreed the amount stated by the contractor to be due.

(b) The employer must pay the notified sum but can commence a second adjudication seeking a determination of the valuation issue, namely the true value of the final account.

(c) The second adjudicator will not have jurisdiction to decide the dispute because it is the “same or substantially the same” dispute as that already decided in the first adjudication.

(d) In the meadow we can build a snowman.

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

Question 4 (contribution claims)

Mr Contractor (C) enters into a collateral warranty with Mrs Tenant (T). It provides that no proceedings will be commenced against C after the expiry of twelve years from the date of practical completion (the Expiry Date). Section 1(3) of the Civil Liability (Contribution) Act 1978 provides that:

“[a] person shall be liable to make contribution… notwithstanding that he has ceased to be liable in respect of the damage in question since the time when the damage occurred, unless he ceased to be liable by virtue of the expiry of a period of limitation or prescription which extinguished the right on which the claim against him in respect of the damage was based.”

Which of the following statements is true? (One or more statements may be correct.)

This means that:

(a) A third party cannot bring a claim for contribution against C after the Expiry Date because the right upon which the claim against C was based has been extinguished (because the contractual limitation period has expired).

(b) A third party cannot bring a claim for contribution against C after the Expiry Date because the term “no proceedings will be commenced” in the contract between T and C means that no proceedings can be brought against C by anyone. There is an obvious need for finality in construction projects and for there to be a definitive cut-off when a contractor is no longer at risk.

(c) A third party can bring a claim for contribution against C after the Expiry Date because the effect of the contractual limitation period having expired is that T is barred from bringing proceedings, but the underlying substantive right is not extinguished.

(d) It came upon the midnight clear.

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

Question 5 (FIDIC)

Under FIDIC Red Book, if the Employer considers that it is entitled to any payment or an extension of the defects notification period it must notify the Contractor as soon as practicable after becoming aware of the event or circumstance giving rise to the claim (clause 2.5). If the Contractor considers it is entitled to claim additional time or money period it must notify the Employer as soon as practicable, and not later than 28 days, after it became aware, or should have become aware, of the event or circumstance giving rise to the claim. Any claim to time or money will be lost if no notice is given within the specified time limit (clause 20.1).

Which of the following statements is true? (One or more statements may be correct.)

(a) Clause 20.1 is a condition precedent and potentially provides the Employer with a complete defence to any claim for time or money by the Contractor not started within the required time frame.

(b) Clause 2.5 is a condition precedent and potentially provides the Contractor with a complete defence to any claim for payment of an extension to the defects notification period by the Employer not started within the required time frame.

(c) Clause 2.5 is not a condition precedent as it does not state the precise time within which the notice is to be served nor does it make it clear that unless the notice is served within that time the Employer will lose its rights to make a claim (Bremer Handelsgesellschaft mbH v Vanden Avenne Izegem nv [1978] 2 Lloyd’s Rep. 109 (HL)).

(d) Christmas comes but once a year.

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

Question 6 (contract interpretation)

Which of the following statements is true? (One or more statements may be correct.)

When interpreting a contractual provision, a court will:

(a) Always apply the principle of commercial common sense if the contract is a commercial contract so that the contract is read in a way that makes the most commercial sense.

(b) Take account of the subjective intention of the parties if the meaning of the relevant provision is ambiguous and cannot otherwise be resolved by normal rules of construction.

(c) Look at the natural meaning of the language first as most likely being reflective of the parties’ objective intentions and only consider the principle of commercial common sense if the meaning of the relevant provision is ambiguous.

(d) Go tell it on the mountain.

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

Question 7 (adjudication and limitation periods)

A contractor (C) entered into a contract with a sub-contractor (SC). A dispute arose between the parties which was referred to adjudication. The parties’ contract incorporated the adjudication provisions of the Scheme for Construction Contracts 1998. The adjudicator decided in favour of C awarding it substantial damages which were paid by SC to C. Three years after the adjudication had taken place, and after expiry of the limitation periods applicable to C’s claims in contract and tort, SC commenced proceedings to recover the amount it had paid to C under the adjudicator’s decision.

Which of the following statements is true? (One or more statements may be correct.)

(a) There is an implied term that the paying party in an adjudication is entitled to have the adjudicator’s decision finally determined by legal proceedings and, if or to the extent that the dispute was finally determined in its favour, to have that money repaid to it.

(b) There is an implied term that the paying party in an adjudication has a directly enforceable right to recover any overpayment to which the adjudicator’s decision can be shown to have led, once there has been a final determination of the dispute.

(c) No term needs to be implied into the contract in these circumstances as it is not necessary to give business efficacy to the contract.

(d) A paying party has six years from the date of payment to seek final determination and recover any overpayment.

(e) Hark the herald angels sing.

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

Practical Law Jancyn Gardiner

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