chapter  10
10 Pages

What are the basic principles for choosing astandard form of building contract?

Q. What does the term ‘a standard form of contract’mean? There has been much argument by the advocates of one form of contract that that particular form is the standard form, all others are the client’s own and will be interpreted contra proferentem. The Shorter Oxford English Dictionary gives the meaning of ‘standard’ as an authoritative or recognized exemplar of correctness, perfection or some definite degree of any quality. Standard forms of contract are generally of two kinds, building contracts tend to fall between the two. The first, of very ancient origins, are those which set out the terms on which mercantile transactions of common occurrence are to be carried out. The standard clauses in these contracts have been settled over the years by negotiation by representatives of the commercial interests involved and have been widely adopted because experience has shown that they facilitate the conduct of trade. Contracts of these kinds affect not only the actual parties to them, but also others who may have a commercial interest in the transactions to which they relate. If fairness or reasonableness were relevant to their enforceability, the fact that they are widely used by parties whose bargaining power is fairly matched would raise a strong presumption that their terms are fair and reasonable. The same presumption, however, does not apply to the second kind of standard form of contract; this is of comparatively modern origin. It is the result of the concentration of particular kinds of business in relatively few hands. The terms of this kind of standard form of contract have not been the subject of negotiation between the parties to it, or approved by any organization representing the interests of the weaker party. They have been dictated by that party whose bargaining power either exercised alone or in conjunction with others providing similar goods or services enables him to say, ‘If you want these goods or services at all, these are the only terms on which they are obtainable. Take it or leave it.’ Where the contract is of the latter kind, the court has to consider all its provisions to see whether the bargain made was fair-i.e. whether the restrictions were both reasonably necessary for the protection of the legitimate interests of the promisee and commensurate with the benefits secured to the promisor under the contract. Q. What type of clauses can be included in a standard form of contract? Common forms of clauses may be included within a standard contract which has been evolved by negotiation between bodies concerned to protect the rights of their members and which are

regarded as representing what the consenus of opinion in the trade or profession regards as fair and reasonable. Though those clauses may be of long standing, that fact alone does not entitle them to the automatic accolade of fairness and reasonableness. Furthermore, it is virtually impossible for there to be an equal base between a number of parties to a contract, though some degree of balance may be sought by limiting the number of representatives from each body involved in the negotiations, as happens, for example, at JCT. Rather the result is a contract to which the parties agree equally, but the obligations of each which are created by the contract are not all equal. Q. To what extent are clauses in a standard form of contract binding ? The parties who enter into a contract, whether or not it is a standard form of whatever kind, will be bound by its terms unless it falls under the provisions of the Unfair Contract Terms Act 1977. The basic principle is that the court does not make a contract for the parties. The court will not even improve the contract which the parties have made for themselves, however desirable the improvement might be. The court’s function is to interpret and apply the contract which the parties have made for themselves. If the express terms are perfectly clear and free from ambiguity, there is no choice to be made between different possible meanings. The clear terms must be applied, even if the courts think some other term would have been more suitable. An unexpressed term can be implied if, and only if, the court finds that the parties must have intended that term to form part of their contract. Q. Do valid standard forms of building contracts have a policy or philosophy? The philosophy which lies behind the terms of some building contracts is that the established contractor should bear the risks of building operations rather than the client who may be building for the first time, because the former has more experience than the latter, and is therefore better able to foresee any risks and allow for them. That philosophy or policy of the contract is to be discerned from the terms of the contract alone. The building contracts produced by the JCT, PSA, ACA, FAS, ICE and FIDIC are all in one respect or another standard forms. The question of whether or not a contract is validly a standard form may be of less importance than the question of whether or not the clauses it contains are valid. Invalidity may be dependent on whether or not unfair advantage has been taken of one party by another. In other words, the public interest requires, in the interest both of the public and of the individual, that everyone should be free so far as practicable to earn a livelihood and to give to the public the fruits of his particular abilities. The main question to be considered is whether and how far the operation of the terms of an agreement is likely to conflict with this objective. In refusing to enforce provisions of a contract whereby one party agrees for the benefit of the other party to exploit or refrain from exploiting his own earning power, the public policy which the courts implement is not a nineteenth-century economic theory about the benefit to the general public of freedom of trade, but the protection of those whose bargaining power is weak against being forced by those whose bargaining power is stronger to enter into bargains that are unconscionable. Q. To what extent are clauses in the standard form of contract influenced by judgments of the court? The JCT contracts have been amended many times to take account of courts’ decisions. Occasionally the tribunal has not changed a clause. An illustration of the former is clause 2.2.1 of JCT 80 (Private with Approximate Quantities), as amended, which states, ‘Nothing contained in the Contract Bills shall override or modify the application or interpretation of that which is

contained in the Articles of Agreement, the Conditions or the Appendix’. That clause was substituted for the former clause 12 in JCT 63 which stated, ‘Nothing contained in the Contract Bills must override, modify or affect in any way whatsoever the application or interpretation of these Conditions’. Clause 2.2.1 was modified from clause 12 as a result of the findings in English Industrial Estates Corporation v. George Wimpey & Co. Ltd [1973] 1 Lloyds Rep. 118. The courts felt that they had the right to look at any special terms written into the bills ‘to follow exactly what was going on’, even though they were prohibited from allowing the ad hoc terms found in the bills from effectively governing the Conditions. By way of contrast, the JCT in considering clause 16.1 of JCT 80 decided not to introduce terms which would override difficulties where suppliers retain their title in materials until payment by the client under clause 30. The reasons which the JCT gave for not changing clause 16.1 were that the administration involved would be considerable and costly. Tenders might be increased to cover the risk that some materials may fail to qualify for payment before incorporation into the works, the period of risk running mainly from the date of payment by the client to the date of their incorporation into the works by the contractor. Furthermore, the risks of repossession or claims by sellers generally arise only if the contractor becomes insolvent. Also contracts of sale frequently permit the contractor to pass on his title in the goods to the client, so defeating any alleged right to repossess. Q. How do you construe a standard form of contract? A contract, even though it be in a standard form, should be construed in the context of the scheme for which it is used. The facts and circumstances which surround any contract are many and varied, together they are unique to it. This is in spite of the fact that other contracts may be used to help in understanding a particular point which is not especially clear. To some extent, decisions on one contract may help by way of analogy and illustration in the decision of another contract; but, however similar the contracts may appear, the decision as to each must depend on the consideration of the language of the particular contract, read in the light of material circumstances of the parties in view of which the contract is made. It must be remembered that the court, while it seeks to give effect to the intention of the parties, must give effect to that intention as expressed, that is it must ascertain the meaning of the words actually used; and the words actually used must be construed with reference to the facts known to the parties and in contemplation of which the parties must be deemed to have used them. Such facts may be proved by extrinsic evidence or appear in recitals. Again, the meaning of the words used must be ascertained by considering the whole context of the document and so as to harmonize as far as possible all the parts: particular words may appear to have been used in a special sense, or in a special meaning adapted by the parties themselves as shown by the whole document. Terms may be implied by custom and on similar grounds. Q. How are clauses in a standard form of contract interpreted? To arrive at the meaning of the clauses within standard forms of contract, regard must be paid to precedent, particularly where a previous decision on a similar point has the weight of long standing, and indeed other contracts may be used by way of illustration to help construe a particular term. As a general principle, a court in construing a document may not break away from previous decisions, even if in the first instance it would have taken a different view, because all the

documents made after the meaning of one has been judicially determined are taken to have been made on the faith of the rule laid down.