Why would I get a lawyer involved before I have a problem? So you prevent the problem to start with!
“Prevention is better than a cure”-Old Proverb
The importance of having any written agreement formalised in a contract is highly advised. Whether in the construction industry (or other industry), a formal contract sets out what your right and obligations are. The best times to formalise these terms is when everyone is on good terms. It means that if there is a breakdown in the relationship, the agreement that can be enforced is one that was negotiated in good times and in the spirit of what was fair and equitable. Therefore, it is very important that you understand the process and document all negotiations, so that the contract reflects the agreement and protects your rights.
“Good contract review is cheaper than litigation”-Rachel Carter, Principal Solicitor
Any unresolved dispute diminishes resources and time and has the potential to damage the parties’ relationship and reputation. Any litigation or dispute costs time, stress and money – resources better spent on your business. These disputes have an overwhelming effect on the building project and if not resolved, will likely end up in front of an adjudicator or in Court.
Going back to basic – always look at the contract. While there are laws in place, the contract is usually specific to the project. The words used in the contract will be scrutinised and too often valid arguments are made void due to being poorly drafted, ambiguous or unclear. The worst we see are “scope of works” sections left completely blank. We are left asking “what were you meant to build?”. Not a place you or your lawyer wants to be in.
“Hoping for the best, prepared for the worst, and unsurprised by anything in between.”-Maya Angelou
In 2011, Diveva entered a contract with the Council for asphalt work. The contract included an option clause which stated, ‘with a future twelve (12) month option available’.
The Council claimed that Diveva had failed to comply with certain specifications under the contract. The claim remained unresolved when the Council notified Diveva that they would not be exercising the option period and advertised for future works for tenders. Diveva, in reliance on the contract, exercised the option period and did not partake in any tendering process. However, the Council did not enter into a further contract with Diveva. Diveva then sued the Council for breach of contract.
The Council claimed that an option period could only be exercised unilaterally by the Council. However, the Court ultimately disagreed with this statement. The Court had to determine in whose favour the option worked and there was no clear term in the contract. Therefore, the Court looked at the language used throughout the entire contract. The determination was that the use of the word ‘option’ was a commercial inducement to Diveva at the time that it tendered for the original contract.
The Court stated in its judgement:
“…The 2011 agreement conferred an option upon Diveva which it could exercise unilaterally to extend the agreement for a further 12-month period. That conclusion was essentially based on the text of the agreement.’
The Court held in Diveva’s favour and they were awarded damages for loss of profits and loss of opportunity.
The Council appealed this decision stating that the option clause could only be exercised at the very least by mutual agreement or by the Council unilaterally. The appeal was ultimately dismissed and the Court in its judgement stated when interpreting the real meaning of the contract, they rely on the parties’ intent and purpose and the words used.
It was found by the Court that there was as in inference throughout the contract that the Council would offer work to successful tenderers. The use of the words ‘available’ and ‘option’ throughout the contract and tender request deemed the option capable of being exercised unilaterally by Diveva. It was further noted that the allegations of Diveva’s breach did not preclude them from validly exercising the option period. Despite the disputed works, the Court considered that there was a strong prospect that the option would have been exercised, given the parties track record, previous dealings, and knowledge of the Council’s further work.
As the option clause did not stipulate the parties respective right to exercise, the court was required to ascertain the true meaning on the contract by analysing the language and intent of the parties. This could have been avoided if the contract were drafted in a manner that was clear and unambiguous by stating how the option clause could be exercised.
Poorly drafted contracts can have detrimental results and adversely affect the subsequent building projects. It is important that the contract is drafted in a way that cannot be misconstrued, and that you are aware of your rights and obligations.