Introduction.
Contract law is the framework for interpersonal agreements and commercial transactions in the United Kingdom, as in most countries worldwide. A contract is a written or verbal agreement that legally establishes the rights and obligations of parties involved in a transaction or relationship. In the UK, a contract is binding only if it meets the following key requirements: offer, acceptance, consideration, the intention to create legal relations, and capacity. In construction, the fundamental principles of contract law intertwine with performance indicators, certain clauses, and nuanced legal interpretations. The case between Harvey and Specter Ltd and Pearson Ltd illustrates the array of challenges that may arise during contractual agreements, denoting the importance of contract law in dispute resolution and ensuring contractual integrity. The case reveals the significance of scrutinizing contract law within the context of the construction industry, where various aspects, including quality standards, variations in scope, performance delays, and other unforeseen circumstances, may affect the nature of the contractual relationship.
Offer.
In the case between Harvey and Specter Ltd and Pearson Ltd, an offer is presented by the former to the latter for the construction of the luxury apartment complex. In UK contract law, an offer expresses willingness to enter a contract on specified terms. The offeror (Harvey and Specter Ltd) presents an offer to the offeree (Pearson Ltd) with the intention of getting into an agreement once accepted. While presenting the offer, Harvey and Specter Ltd have specified the contract terms, including the completion time, cost, and quality standards. If there are ambiguities or issues in the terms presented, disputes may emerge, leading to disagreements regarding the scope of the contract.
Acceptance.
Acceptance should be unconditional and in line with the terms presented in the offer. According to McConnell (2020, p. 482), an acceptance refers to a final and unequivocal expression of assent to the terms presented with the offer. For an offer to be valid, there has to be an objective manifestation by the offeree to be bound by the terms of the offer. However, disputes may arise if Pearson Ltd seeks to include different terms to the one initially offered by Harvey and Specter Ltd. In such a case, whether a valid acceptance occurred may be argued and whether Harvey and Specter Ltd was willing to accommodate the new terms presented by Pearson Ltd.
Consideration.
Consideration in the case is explicitly stated. According to Bossu et al. (2020), consideration refers to something of value given to the offeree in exchange for contractual promises. The offeree is only entitled to consideration once they meet the offeror’s terms. Consideration can take various forms, including money, a promise to perform a certain task, or a promise to refrain from doing something. In the context of the case, consideration is presented by Harvey and Specter Ltd in the form of a monetary payment of £ 20 million. If either party claims a lack of consideration, disputes are likely to emerge, or disagreements regarding changes to the project require additional costs to be sufficiently addressed in the initial agreement.
Intention to Create Legal Relations.
The intention by both parties to enter into a legally binding relations has to be present for a contract to exist. The intention to create legal relations is described as the intention to enter a binding agreement (Bossu et al., 2020). The assumption in the context of the case is that both companies intend to be legally bound by the contract’s terms. Disputes are only likely to emerge if one of the parties argues that the right protocols were not followed or certain requisites lacked to suggest the intention to form a binding contract.
Capacity.
It is expected that both Harvey and Specter Ltd and Pearson Ltd have the legal capacity to enter into a contract. In the event that one party alleges that the other is incapable, disputes are likely to arise (Djurovic and Janssen, 2018). An example of incapacity would be a situation where Harvey and Specter Ltd find out that Pearson Ltd needs to have the appropriate expertise or equipment to undertake the project successfully. Another instance is if Pearson Ltd claims that they were under duress or under the influence while entering into the contract with Harvey and Specter Ltd. There are a number of instances where a legal person may be deemed to be lacking legal capacity. According to Djurovic and Janssen (2018), a legal person is said to lack legal capacity if they are bankrupt, minors, operating under a mental disability, companies that are yet to be formed, and companies that have been dissolved (Djurovic and Janssen, 2018). It should also not go without stating that some individuals in legal entities lack the power to legally bind their companies (Djurovic and Janssen, 2018). Thus, a dispute may arise if either of the parties alleges that the individual involved in the contract formation was not legally empowered to bind their company.
Impact of Ambiguous Terms in Project Management Decisions.
When a term is subject to have more than one interpretation, or when a term has two conflicting provisions, it may be rendered ambiguous under contract law. Due to their unclear nature, ambiguous terms have the ability to lead to complexities in project management decisions, which could, in turn, cause disputes. In the context of the case, there are ambiguous terms used regarding the quality of materials to be used in the construction project. The results of these unclear terms could be significant as they may be misinterpreted by contractors, leading to the wrong selection of material, quantity, and costs. The smoothness of the project can be negatively affected, causing disputes between the parties because of issues such as delays and even compromise of the final quality.
In the UK, the court uses a variety of principles to interpret ambiguous terms. These principles are intended to help the court ascertain each party’s intentions and help resolve the dispute. One of these principles applied in English law is the “contra proferentem” rule, which seeks to describe two connected rules of contractual formation (McCunn, 2019). According to McCunn (2019), the “contra proferentem’ rule states that ambiguous terms are interpreted against the party who drafted the contract. The “contra proferentem” rule seeks to encourage clarity and precision during contract construction (McCunn, 2019). Thus, in regard to the construction industry, the court is likely to rule against a contractor if their ambiguous language is the reason for ambiguity regarding material quality. For instance, in the case of Harvey and Specter Ltd and Pearson Ltd, the court is likely to rule against the former as it is the one that formulated the contract.
Aside from the “contra proferentem” rule, another principle used by the UK courts to interpret ambiguous terms is objective intention. Kreitner (2021, p. 440) describes objective intention as the situation whereby a reasonable bystander may consider that the parties involved had a relevant intention to be bound under a contract. In the case of TS Flexible Systems Ltd v Molkerei Alois Muller and Co KG (2010), Lord Clarke stated that when terms communicated during contract formation lead to the conclusion that both parties intended to create legal relations, then their subjective state of mind is not considered (Bake, Akka and Glass, 2018). Objective intention does, however, come with certain exceptions. When one party actually knows that the other party does not have the intention to be bound, the use of objective tests is not permitted to interpret the ambiguity in the case.
An example of a case where objective intention was used to guide the court’s interpretation of ambiguous terms was Chartbook Ltd vs. Persimmon Homes Ltd (2009). In this case, it was emphasized by the House of Lords that contracts should not be rewritten because of ambiguity but instead be interpreted based on the understanding of a reasonable person (McLauchlan, 2019). Some of the main reasons for the decision arrived at by the House of Lords are to maintain the project’s integrity, safeguard involved parties against unfair advantages, and support industry standards (McLauchlan, 2019). The process of interpreting objective intention can be lengthy and costly, thus impacting the project’s timelines.
There are instances where the court is compelled to look beyond objective intention and “contra proferentem” due to certain circumstances. One of these instances is when a mistake is made during contract formation such that it fails to reflect a party’s true intentions (McLauchlan, 2019). In such a case, the court is likely to rectify the contract so that it aligns with the actual agreement between the parties. Rectification can only occur in the event that there is clear evidence to suggest the written contract is not the true reflection of what the parties intended (McLauchlan, 2019). Therefore, in the case of Harvey and Specter Ltd and Pearson Ltd, rectification can be applied if there were errors in the contract terms or if there needed to be a better understanding of the scope. For instance, if there is evidence to suggest that there was a clerical error in documenting the quality of materials to be used, rectification could be applied to amend the terms. Additionally, if there is evidence of a misunderstanding of the scope, the court could also pursue rectification to align the written terms with the actual intentions of the parties involved.
Aside from rectification, estoppel can also be applied when the court needs to look beyond objective intention and “contra proferentem” to interpret ambiguous terms. Estoppel refers to a principle applied to safeguard parties’ justice where one party reasonably relies on the actions or representations of others (Fischer, 2018, p. 7). For instance, if one party relies on the words of the other to their detriment, the court is likely to apply estoppel in order to prevent the latter from acting contrary to the initial agreement. In the case of Harvey and Specter Ltd and Pearson Ltd, estoppel can be applied to prevent Harvey and Specter Ltd from acting contrary to the initially agreed terms. Thus, estoppel might prevent Harvey and Specter Ltd from imposing penalties on Pearson Ltd for the usage of wrong quality materials in the project (Fischer, 2018, p. 15). Depending on the nature of the evidence presented, the court might use any of the aforementioned principles to interpret the unclear contract terms.
Breach of Contract.
A breach of contract refers to a legal cause of action that occurs when one or more parties fail to honour a binding agreement (Jastrzębski et al., 2023, p. 4). A breach is said to have occurred if a party fails to partially or fully fail to perform their contractual obligations. There are four main types of contract breaches: minor, material, fundamental and anticipatory. A minor breach, also known as an immaterial breach, is used to describe the existing partial misses or alterations despite adhering to important aspects of the contract. Conversely, a material breach is more serious than a minor breach as it involves the complete failure to undertake a certain element of a contract, and the results contribute to serious consequences. A fundamental breach is more severe in nature as it is capable of rendering the contract invalid or unenforceable. Fundamental breaches occur when a party fails to perform a contract at all. As the name suggests, an anticipatory breach occurs when a party pre-empts that they will be unable to perform a certain part of the contract before being agreed upon.
In order to determine whether the delays in construction constitute a breach of contract, it is important to establish which type of breach the delays could fall under. As the contract stipulates the completion time, a breach of contract would likely occur if Pearson Ltd extended the construction period beyond the 24-month agreed upon period. In this case, the results of the delay due to the discovery of Japanese Knotweed and a shortage of skilled labour could be significant as they will likely lead to the completion of the construction project beyond the agreed-upon period. Thus, a material breach is the one that most likely occurs in the case due to the nature of the consequences. In order to sue for the material breach, Harvey and Specter Ltd should prove that they suffered a loss and that Pearson Ltd failed to perform their contractual obligations satisfactorily.
In their lawsuit, Harvey and Specter Ltd there three main causes of action Harvey and Specter Ltd can take. One of these causes of action is to seek damages as remedies for the losses incurred due to the delays in the start and completion of the project. If Harvey and Specter Ltd. can prove a material breach has occurred, it could seek damages that cover the additional expenses incurred as a result of the extended period of construction or the financial losses it may have incurred due to the delay in completion.
A more lenient remedy would be to seek a court order for specific performance. Knapp et al. (2023) describe specific performance as a form of remedy that is used when monetary compensation is deemed not enough. By seeking specific performance, Harvey and Specter Ltd can compel Pearson Ltd to complete the construction project within the required time frame or within an extended but reasonable time frame.
A more severe remedy would be to terminate the contract. Termination is an option considered when the serious consequences of the material breach affect the benefit Harvey and Specter Ltd would receive from the performance of the contract (Knapp et al., 2023). If they can prove the existence of a material breach, Harvey and Specter Ltd have the right to terminate the contract and seek compensation for the damages suffered as a result.
While Pearson Ltd could be sued for breach, it has two defence options at its disposal. One of these defence options is the existence of a force majeure clause. According to English law, force majeure refers to a clause that defines a wider set of unforeseen circumstances that come into play when a party fails to perform its contractual obligations. The force majeure clause allows the party to be excused, and the consequences of the failure are ignored following the occurrence of such events. If Harvey and Specter Ltd and Pearson Ltd included a force majeure clause in their agreement, the latter may argue that the delays in completion were beyond their reasonable control following the discovery of Japanese Knotweed in the construction site.
Another option available for the defence of Pearson Ltd is to prove that Harvey and Specter Ltd contributed to the delays. Pearson Ltd can demonstrate the existence of efforts to mitigate the impact of delays, such as scheduling an ongoing hiring process. At the same time, the company can prove that Harvey and Specter Ltd contributed to the delays by various means such as including inappropriate methods of obtaining the materials of construction. For instance, Harvey and Specter Ltd might have insisted on the construction materials being obtained from foreign countries. If Pearson Ltd can prove the contributions of Harvey and Spector Ltd to the overall delay in the construction completion, it can protect itself from the lawsuit and its consequences.
Methods of Resolution.
One method of conflict resolution that the parties could resort to before considering litigation is mediation. According to Goldberg et al. (2020), mediation involves the use of a third party, also known as a mediator, to facilitate constructive conversation between the parties involved in the conflict. Ultimately, the parties involved are responsible for deciding the final outcome and not the mediator. The role of a mediator is to help the participants communicate their concerns and interests to help reach agreeable solutions. The main benefit of using mediation for conflict resolution is that it is cost-effective and less time-consuming compared to methods such as litigation (Goldberg et al., 2020). With the lengthy court proceedings as well as the associated costs eliminated, mediation is quicker than litigation, allowing parties to reach a conclusion as early as possible. Confidentiality is also the other benefit of mediation as it allows parties to openly discuss their issues without fear of being publicly disclosed. Confidentiality allows the parties to safeguard their reputations which could be damaged if litigation is considered.
However, mediation also has weaknesses that could be detrimental to the success of the construction project. One of these weaknesses is its non-binding nature. Unless both parties agree to formalize the agreements of mediation into a binding agreement, it is not legally binding (McCorkle and Reese, 2018). Hence, mediation, in some instances, may not guarantee compliance from either party involved. In addition, it is difficult to uphold the principles of fairness during mediation as there might be an imbalance of power between the parties (McCorkle and Reese, 2018). Different from litigation, where a number of legal principles are adhered to, mediation lacks definitive legal interpretations which makes it difficult to ascertain fairness (McCorkle and Reese, 2018). Lastly, there is no enforceability when using mediation in the event that one of the parties fails to comply with the mediated agreement (McCorkle and Reese, 2018). The lack of enforceability opens the door for future issues between the parties.
Conclusion.
Harvey Specter Ltd v Pearson Ltd reveals the complexities involved in interpreting ambiguous terms in contract law, establishing whether there is a breach of contract and selecting alternative methods other than litigation. When interpreting ambiguous terms, the UK law provides principles that the court of law could follow in order to uphold justice. These principles vary in nature and can be applied depending on the amount of evidence presented by the parties. In addition, as revealed, establishing whether a breach of contract has occurred requires proof of the existence of a contract, proof that there have been damages leading to a loss and proof that one party failed to perform its contractual obligations satisfactorily. Both parties have legal principles that they can use in their defence to prove their innocence. While litigation is often selected for its ability to promote fairness and justice, most individuals may choose to ignore it due to its lengthy procedures. One alternative that can be used instead of litigation is mediation, which is less time-consuming and confidential in nature. However, mediation also has weaknesses, such as the lack of enforceability, which may limit its effectiveness.
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