The Law of Construction Disputes

Cyril Chern

• Publisher: Informa Law from Routledge
• Year: 2019
• ISBN:
  9780429648687
• Edition: 3
• Topic: Jura
• Subtopic: Baurecht

Now in a fully updated third edition, The Law of Construction Disputes is a leading source of authoritative and detailed information on the whole area of construction law including contracts and their performance, third parties, pursuing claims and dispute resolution. It covers the construction dispute process by analysing the main areas from which disputes arise, up to date case law, and how to effectively deal with construction project disputes once they have arisen. Now including references to the new FIDIC contracts, which were released in 2017, this edition expands on advanced practitioner issues, as well as the emerging law of construction disputes on an international basis and gives the practitioner all the case law needed in one concise volume.

The book examines the methods and methodology of construction law, not only for a common law context, but also under other legal systems. Readers will be guided through the various international contract formats governing construction, alongside applicable case law. Additionally, they will be shown the correct contract provisions and forms used to prevent disputes from escalating in order to reach successful conclusions without litigation.

Including expert advice and many relevant reference materials, this book is an extremely helpful guide to legal practitioners and construction professionals.

CHAPTER 1

Introduction to construction disputes

Applicable principles of law

Construction by its very nature is a complex undertaking involving numerous trades and disciplines all working under what is usually a “tight budget” and with time constraints for completion – all of which lead to the possibility of conflict and disputes arising as to time, quality, delay, and a myriad other complications. The law relating to these “construction disputes” or, as more commonly known in England and Wales, “construction law”, arises from the fact that this particular field of endeavour tends to generate a large volume of disputes arising from the actual Works themselves, the performance of the professionals prior to the Works (e.g. architects, engineers, surveyors and then the contractor) and its interactions with both these professionals and the employer.

The underlying basis for this is that all construction works are created by contract, some verbal, some written and some implied. In turn these contracts are grounded in the law of the country in which the contract is executed (or the country agreed upon by the parties) and which ultimately governs its execution. For example, the FIDIC¹ contracts state specifically that: “The Contract shall be governed by the law of the country (or other jurisdiction) stated in the Appendix to Tender”. The major legal systems worldwide that govern contracts are the common law, civil law and additionally that of Sharia law.

Common law

Common law refers to law derived from the courts and is to be differentiated from statutory law or regulatory law. In most common law countries there are “statutes” which are enacted by the legislature and/or “regulations” which are enacted by the executive branch through various departments or agencies, which are invested with power from a legislature. The common law, however, comes from actual court decisions over hundreds of years or from quasi-judicial tribunals. It is these court decisions, without the benefit of any express statutory authority, which form the basis for the contract law upon which the enforcement of construction disputes rely.

In England and Wales, in Commonwealth countries and in most states of the United States of America, the basic law of contracts does not exist in statute, but only in common law that is modifiable by statute, e.g. the Uniform Commercial Code in the United States. In almost all areas of the law, statutes can state the general principles but any distinctions or definitions exist only in the common law. The “actual” law on a subject is thus the result of what is known as stare decisis (stare decisis et non quieta movere), which literally means “stand by decisions and do not move that which is quiet”, and under the common law one is bound by precedential decisions on the topic.

1 The International Federation of Consulting Engineers.

History²

Prior to the existence of the common law concept in England, i.e. before William the Conqueror, society both in England and throughout much of Europe, in particular the Germanic peoples, was subject to varied local customs that generally were unwritten, were not uniform and were enforced arbitrarily.

In 1154, during the reign of Henry II, the common law system in England was institutionalised into “a unified system of law” which was “common” to the country through incorporating and elevating local custom to the national level, which ended local control, eliminated arbitrary remedies and reinstated a system which resolved claims by evaluating common local knowledge.

Judges would be sent from the King’s central court to hear the various disputes throughout the country. These judges would then resolve disputes on an ad hoc basis according to what they interpreted the local customs to be. They would then return to London and would discuss their cases and the decisions they made with the other judges and before recording their decisions. Over time the rule mentioned earlier of stare decisis developed, where a judge would be bound to follow the decision of an earlier judge and would be required to adopt the earlier judge’s interpretation of the law and apply the same principles promulgated by that earlier judge, if the two cases had similar facts. By this system of precedent, decisions became useable and with it the pre-Norman system of disparate local customs was replaced by a consistent system of laws that was common throughout the whole country, hence the name, “common law”.

Stare decisis

The rule of stare decisis has two components. The first is that a decision made by a superior court is binding on a lower court. This is known as “binding precedent” or “binding authority”. Under the English system precedent is usually created by the decision of a higher court, such as the House of Lords, which has now become the Supreme Court of the United Kingdom after taking over the judicial functions of the House of Lords in 2009. This differs from civil law and pluralist systems, such as Scots law, where precedent is not binding but instead case law will be taken into account by the courts in rendering their decisions. The second component is that a court should not overturn its own precedents unless there is a strong reason to do so and should be guided by principles from lateral and lower courts as required under the circumstances. This also leads to what is known as “persuasive precedent”, which, while not binding on the particular court, is “advisory” in nature and something that can be ignored if necessary.

2 See Cyril Chern, Chern on Dispute Boards: Practice and Procedure, 4th edn, Informa Publishing, London, 2019.

In the common law system, there are various levels of courts usually commencing with the trial courts, whose decisions can be reviewed by the intermediate appellate courts and thereafter by a supreme court, such as in the UK. The inferior courts, i.e. the trial courts, are where the matters commence and they are bound to obey precedents established by the appellate court for their jurisdiction and all Supreme Court precedent. It is interesting to note where arbitrations and adjudications fit into this picture. In most international adjudications, e.g. FIDIC contract-related, there is recourse to arbitration for an “appeal”-type process and from there to the “trial” court level and upwards from that point. As will be seen in later chapters, arbitrators may or may not be required to follow the law but for purposes of this chapter the “chain” of stare decisis would be from the Supreme Court down to the appellate court to the trial court to arbitration and then to adjudication.

One succinct explanation of this principle was set out in a North American case, where the Supreme Court of California³ wrote:

“[u]nder the doctrine of stare decisis, all tribunals exercising inferior jurisdiction are required to follow decisions of courts exercising superior jurisdiction. Otherwise, the doctrine of stare decisis makes no sense. The decisions of this court are binding upon and must be followed by all the state courts of California. Decisions of every division of the District Courts of Appeal are binding upon all the justice and municipal courts and upon all the superior courts of this state, and this is so whether or not the superior court is acting as a trial or appellate court. Courts exercising inferior jurisdiction must accept the law declared by courts of superior jurisdiction. It is not their function to attempt to overrule decisions of a higher court.”

While discussing this principle it is interesting to note that there are slight modifications in the various jurisdictions; however, generally this method of “filtering down” decisions from the Supreme Court is referred to as “vertical stare decisis”.⁴

This concept of vertical stare decisis, based upon the idea that a judge, for reasons of commercial and social stability, should be bound by judges of higher courts, has another facet and that is that a judge should also respect the decisions of earlier judges of similar or of a coordinate level. This is known as “horizontal stare decisis”.⁵

In the UK, the House of Lords was the court of last appeal before it evolved into the Supreme Court of the UK and until London Street Tramways v London County Council⁶ it was not strictly bound always to follow its own decisions. In that case the Earl of Halsbury LC wrote:

“… it has now been admitted that there is upon this very question a decision of this House … My Lords, for my own part I am prepared to say that I adhere in terms to what has been said by Lord Campbell and assented to by Lord Wensleydale, Lord Cranworth, Lord Chelmsford and others, that a decision of this House once given upon a point of law is conclusive upon this House afterwards, and that it is impossible to raise that question again as if it was res integra and could be reargued, and so the House be asked to reverse its own decision. That is a principle which has been, I believe, without any real decision to the contrary, established now for some centuries, and I am therefore of opinion that in this case it is not competent for us to rehear and for counsel to reargue a question which has been recently decided.”

3 Auto Equity Sales, Inc v Superior Court, 57 Cal 2d 450 (1962).

4 It is interesting to note that in the United States there are in effect two separate common law legal systems – the state system and the federal system. However, in the federal system the division between federal and local law can cause interesting problems to develop regarding stare decisis as state courts in the United States are not considered inferior to federal courts but rather constitute a parallel court system. There, state courts must follow decisions of the United States Supreme Court on issues of federal law, and Federal Courts must follow decisions of the highest courts of each state on issues of that state’s law. However, decisions of the intermediate Federal Appellate Courts (i.e. the Federal Circuit Courts) are not binding on any state courts, and vice versa. In practice, however, judges in one system will usually choose to follow relevant case law in the other system to prevent divergent results. Also, it should be noted that while the United States follows the English common law, one state, Louisiana, follows the civil law, having derived its original system from the Napoleonic Code.

5 Again with reference to the English common law as practised in the United States, there the Federal Court system and the intermediate appellate courts are divided into “circuits”. Each panel of judges on the Court of Appeals for a circuit is bound to obey the prior appellate decisions of the same circuit. Precedents of a United States court of appeals may be overruled only by the court en banc, i.e. a session of all the active appellate judges of the circuit, or by the US Supreme Court.

6 [1898] AC 375.

After this case, once the Lords had given a ruling on a point of law, the matter was closed unless and until Parliament made a change by statute. This rather strict view was modified after the Practice Statement of 1966, which allowed the House of Lords to adapt English law to meet changing social conditions. Although the House of Lords would treat its decisions as normally binding, it would depart from these when it appeared right to do so. It should be noted, however, that despite this the Practice Statement has been seldom applied by the House of Lords and then usually ...