Legal developments in Construction Law

Who do you think you are contracting with?

A company director of an offshore company dealt with the appointment of an architect for works to the company’s London property. He signed the architect’s fee proposal letter “Confirmed: KEL Holdings Limited.”, followed by his signature, and underneath that: “RJF Brothers. Director”. The architect subsequently emailed the director, identifying the company as its client, but the director did not reply. The architect later obtained an adjudication award against the company for its fees but the company challenged jurisdiction, one ground being that the contract was not with the company but with the director personally.

In Hamid v Francis Bradshaw Partnership the Court of Appeal set out some applicable general principles. In summary, the Court said that:

• extrinsic evidence is admissible to resolve an issue as to the identity of a party in a deed or contract;
• the court’s approach is objective;
• if the extrinsic evidence establishes that a party has been misdescribed, the court may correct that error as a matter of construction without any need for formal rectification;
• where the issue is whether a party signed a document as principal or as agent, the parol evidence rule is not automatically relaxed. The person who signed is the contracting party unless the document makes clear that they signed as agent for a sufficiently identified principal or as the officer of a sufficiently identified company, or extrinsic evidence establishes that both parties knew the relevant party was signing as agent or company officer.

The court ruled that there was a contract, on the terms of the fee proposal between the architect and the company. There were background facts but they did not provide conclusive evidence of the contractual arrangements. Invoices had been sent to the director directly, but that was not determinative because it could be relied upon by both parties. The issue of who paid the fees was not conclusive because it was common ground that the fees were paid in part directly by the director and in part directly by the company. The fact that the property was intended to be occupied by the director, when finally completed, did not indicate one way or the other who was the contracting party and the fact that the director had entered into contracts directly in his personal capacity with others was not conclusive as to this particular contractual arrangement.

All of those matters, in any event, would not override the very clear effect of the written contract and the confirmatory email. The clear indication by the signature of the director on the fee proposal letter was that the intention must have been for him to sign as a director of the company as the other contracting party. Conspicuous by its absence was any attempt by him to respond to the email in which the architect expressly confirmed that the contracting party and client was the company, as opposed to the director personally. Donald Insall Associates Ltd v Kew Holdings Ltd [2019]EWHC 384

“Relational contracts” –what are they and why do we need to know?
 

What is a “relational contract”? Is it a legal concept, and, if it is, what is its significance? In Bates & Ors v Post Office Ltd Mr Justice Fraser reviewed the case law and ruled that, in his judgment, the concept of relational contracts is an established one in English law. He considered that there is a species of contracts, most usefully termed “relational contracts”, in which an obligation of good faith (also termed “fair dealing” in some cases) is implied. Whether any contract is “relational” is heavily dependent upon context, as well as the terms. The circumstances of the relationship,defined by the terms of the agreement, set in its commercial context, and considered at the time of contracting, decide whether a contract is “relational”.

So what are the specific characteristics of a “relational contract”? The judge reviewed the case law and identified these characteristics as relevant:

• there must be no specific express contract terms preventing a duty of good faith being implied;
• the contract will be a long-term one, a long-term relationship being the mutual intention;
• the parties must intend their respective roles to be performed with integrity, and fidelity to their bargain;
• the parties will be committed to collaborating in the contract’s performance;
• their venture’s spirits and objectives may not be capable of exhaustive expression in a written contract;
• they will each repose trust and confidence in one another, but of a different kind to that involved in fiduciary relationships;
• the contract will involve a high degree of communication, co-operation and predictable performance based on mutual trust and confidence, and expectations of loyalty;
• there may be a degree of significant investment by one party (or both) in the venture, which may, in some cases, be more accurately described as a substantial financial commitment;
• the exclusivity of the relationship may also be present.
   

Written by Alistair Graham