Law and Contract for

Construction and Build

Environment
QS-18
A.M.ABRAR
BTEC HND in Quantity Surveying & Construction Economics
04/QS/18
 Law and Contract for Construction and Build Environment

Table of Contents
Table of figures ................................................................................................................................................... 3

Introduction......................................................................................................................................................... 4

Acknowledgement .............................................................................................................................................. 5

Task 1.1............................................................................................................................................................... 6

Built Environment .......................................................................................................................................... 6

Introduction................................................................................................................................................. 6

Modern built environment .......................................................................................................................... 6

Public health ............................................................................................................................................... 6

Landscape architecture ............................................................................................................................... 7

Built environment law .................................................................................................................................... 8

Task 1.2............................................................................................................................................................... 9

Legal Structure in Sri Lanka ........................................................................................................................... 9

Judiciary of Sri Lanka ................................................................................................................................. 9

Introduction................................................................................................................................................. 9

Courts ........................................................................................................................................................ 10

Supreme Court .......................................................................................................................................... 10

Court of Appeal ........................................................................................................................................ 10

High Courts ............................................................................................................................................... 10

District Courts ........................................................................................................................................... 10

First Instance Courts ................................................................................................................................. 11

Magistrate's Courts ................................................................................................................................... 11

Primary Courts .......................................................................................................................................... 12

Labor Courts ............................................................................................................................................. 12

Other courts and tribunals ......................................................................................................................... 12

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Military courts .......................................................................................................................................... 12

Coroners' courts ........................................................................................................................................ 12

Judges ....................................................................................................................................................... 13

Task 1.3............................................................................................................................................................. 14

The general principle .................................................................................................................................... 14

Terms implied by common law ................................................................................................................ 14

Construction law services ......................................................................................................................... 15

Task 1.4............................................................................................................................................................. 17

Task 3................................................................................................................................................................ 22

Task 1.1......................................................................................................................................................... 22

Legislation and guidance .......................................................................................................................... 22

Task 1.2......................................................................................................................................................... 24

European contract law options.................................................................................................................. 24

Conclusion ........................................................................................................................................................ 27

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Table of figures

Figure 1- Supreme_Court_Colombo .................................................................................................................. 9

Figure 2 - Judges of the court of appeal of Sri Lanka ...................................................................................... 13
Figure 3 - construction project .......................................................................................................................... 16
Figure 4- Nuisance in construction ................................................................................................................... 18
Figure 5 - Making nuisance in construction ..................................................................................................... 21

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Introduction

This assignment is telling about the Sri Lankan Court structure and the procedure of Sri Lankan law and also
related to constructions law also part of the law. We need to know our law and also want to follow in a goon
manor. If we don’t know the law we can’t survive. Law governs much of what everyone does, day in and day
out. It tell us what our rights and duties are. It allows us to assert rights that we have. It lets us know the
consequences of not doing what we are supposed to do. Without law, we do not have civilization; we have
chaos. Law is meant to protect people and property from harm. It is designed to either remove people from
society who have harmed people and property or to make them monetarily responsible for the harm. If we had
no law, people could steal from us, hurt us, damage our property, or do any number of other acts that society
has agreed it does not find acceptable. Conversely, we could steal from others or harm them without laws to
discourage us from doing so. There is no reason to think that, without law, people would all behave nicely and
reasonably. With law, we clearly know what we are responsible for doing and what will happen to us if we
violate a law. Without law, people could and would do whatever they wished.

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Acknowledgement

I am using this opportunity to express my gratitude to everyone who supported me throughout the assignment
successfully of this Law project. I am thankful for their aspiring guidance, invaluably constructive criticism
and friendly advice during the project work. I am sincerely grateful to them for sharing their truthful and
illuminating views on a number of issues related to the project.
I express my warm thanks to my lectures Mrs.Chamuthrika for their support and guidance at BCAS.
I would also like to thank my project external guide my parents, friends, relatives and my brother and all the
people who provided me with the facilities being required and conductive conditions for my Law project.

Thank you,
Abrar

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Task 1.1
Built Environment
Introduction
The human-made surroundings that provide the setting for human activity, ranging in scale from buildings to
parks. It has been defined as "the human-made space in which people live, work, and recreate on a day-to-day
basis. The "built environment encompasses places and spaces created or modified by people including
buildings, parks, and transportation systems.

Modern built environment

Currently, built environments are typically used to describe the interdisciplinary field that addresses the design,
construction, management, and use of these man-made surroundings as an interrelated whole as well as their
relationship to human activities over time (rather than a particular element in isolation or at a single moment
in time). The field is generally not regarded as a traditional profession or academic discipline in its own right,
instead drawing upon areas such as economics, law, public policy, public health, management, geography,
design, engineering, technology, and environmental sustainability. Within the field of public health, built
environments are referred to as building or renovating areas in an effort to improve the community's well-being
through construction of “aesthetically, health improved, and environmentally improved landscapes and living
structures”. For example: community forest user group in Nepal is multidimensional institution, which serves
goods and services to the communities through natural resource management

Public health
In public health, built environment refers to physical environments that are designed with health and wellness
as integral parts of the communities. Research has indicated that the way neighborhoods are created can affect
both the physical activity and mental health of the communities’ residents. Studies have shown that built
environments that were expressly designed to improve physical activity are linked to higher rates of physical
activity, which in turn, positively affects health.

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Landscape architecture
Landscape architecture is the design of outdoor areas, landmarks, and structures to achieve environmental,
social-behavioral, or aesthetic outcomes. It involves the systematic investigation of existing social, ecological,
and soil conditions and processes in the landscape, and the design of interventions that will produce the desired
outcome. The scope of the profession includes landscape design; site planning; storm water management;
erosion control; environmental restoration; parks and recreation planning; visual resource management; green
infrastructure planning and provision; and private estate and residence landscape master planning and design;
all at varying scales of design, planning and management. A practitioner in the profession of landscape
architecture is called a landscape architect.

The variety of the professional tasks that landscape architects collaborate on is very broad, but some examples
of project types include:
 Parks of General design and public infrastructure
 Sustainable development
 Storm water management including rain gardens, green roofs, groundwater recharge, Green
infrastructure, and constructed wetlands.
 Landscape design for educational function and site design for public institutions and government
facilities

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Built environment law

Construction Law may be defined as the law that regulates built environment in relation to construction
activities. This law also deals with physical planning techniques and protection of natural environment. Law
governing in built environment in Sri Lanka is largely based on legislation. Main physical planning legislations
in Sri Lanka are Urban Development Authority (UDA) Law No. 41 of 1978, Town and Country Planning
Ordinance No. 16 of 1946, Municipal Council Ordinance and Urban Council Ordinance of 1947, Pradeshiya
Sabhas Act of 1987, and their amendments. Provisions of these legislation are controlling construction
activities in their regions. National Environment Act of 1980 controls EIA and EPL relating to the construction
industry. The Sri Lanka Parliament enacted two legislations after the tsunami namely Tsunami (Special
Provisions) Act No. 16 of 2005 and Disaster Management Act No. 13 of 2005 for the rehabilitation activities.
These two Acts have mentioned planning and recovery techniques and elements of disaster management law.
In the post tsunami Reconstruction work, the government has given high priority to rebuild human settlements.
However there are some discrepancies in these legislation and are not accepted in sustainability concepts.
Hence, the aim of this research is to compare existing Construction Law and Disaster Management Law relating
to the construction industry in Sri Lanka and recommend improvements to the Construction Law practices in
order to make sustainability concepts more effective. Through a literature review of recent court cases, this
research has analyzed the basic concepts and discrepancies of the above Mentioned law in Sri Lanka.

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Task 1.2
Legal Structure in Sri Lanka
Judiciary of Sri Lanka
The Judiciary of Sri Lanka are the civil and criminal courts responsible for the administration of justice in Sri
Lanka. The Constitution of Sri Lanka defines courts as independent institutions within the traditional
framework of checks and balances. They apply Sri Lankan Law which is an amalgam of English common law,
Roman-Dutch civil law and Customary Law; and are established under the Judicature Act No 02 of 1978 of
the Parliament of Sri Lanka.

The judiciary consist of the Supreme Court, the Court of Appeal, the High Court, the District Court, the
Magistrate's Court, and Primary Court. Although provisions are there for trials for serious offences to be held
before a jury, at present all cases are heard before professional judges.

Introduction
The current system of courts are defined by the Judicature Act No 02 of 1978. However, the modern form of
European form of justice originated during the Dutch colonial occupation of the coastal areas of Sri Lanka in
the nineteenth century. Local forms of civil and criminal law as well as system of courts, existed for centuries
prior to the European colonization.

Figure 1- Supreme_Court_Colombo

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Courts
 The Supreme Court
 The court of Appeal
 The high Court
 The District Court
 The Magistrate Court
 The Primary Court
 The Judicial services Commission
Supreme Court
The Supreme Court of Sri Lanka is the highest judicial instance and final court of appeal.[1][2] It is composed
of the Chief Justice and not less than six and not more than ten Puisne Justices. Judges are appointed by the
President with the nomination of the Parliamentary Council and serve for a lifetime period (65). The Supreme
Court is the final appellate Court and has jurisdiction in constitutional.

Court of Appeal
The Court of Appeal hears all appeals from the High Court and courts of first instance. The court is composed
of the President of the Court and not less than six and not more than eleven other Judges.

High Courts
The High Court is the only court in the island which exercises the jurisdiction of the court of first instance and
the appellate jurisdiction with both civil and criminal jurisdiction.

District Courts
District Courts are lower courts, headed by a District Judge who is vested with original civil jurisdiction.

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First Instance Courts

Magistrate's Courts
Magistrate's Courts are lower court headed by a Magistrate who is vested with original criminal jurisdiction.
Originally known as Police Magistrate's Courts, current Magistrate's Courts are established under the
Judicature Act, No. 2 of 1978 to each judicial division in Sri Lanka. The Minister in charge of the subject of
Justice in consultation with the Chief Justice and the President of the Court of Appeal would define the
territorial limits of each judicial division. At present there are 72 judicial districts in Sri Lanka.
It has jurisdiction of; criminal cases filed under the penal code and other laws within its jurisdiction. First
mortem examinations. Post mortem examinations. Issue of Warrants of Judicial orders to arrest and produce
suspected persons. Issue of search warrants. Ordering persons to enter into bonds of good conduct and
preventive jurisdiction on public nuisance.

Every Magistrate's Court is vested with original criminal jurisdiction (other than in respect of offences upon
indictment in the High Court), and is ordinarily empowered to impose sentences up to a fine of Rs. 1,500 and/or
2 years rigorous/simple imprisonment unless power is vested in the Magistrate's Court to impose higher
penalties by special provision. Appeals from convictions, sentences or orders of Magistrate's Courts within a
Province lie to the High Court of the Province. In judicial divisions which does not have Primary Courts,
Magistrate's Courts exercise the jurisdiction of the Primary Courts.

Appointment and removal of Magistrates All Magistrates are appointed by the Judicial Service Commission,
which has power of dismissal and disciplinary control of the Magistrates. Additional Magistrates would be
appointed to a Magistrate's Court. Magistrates would be seconded to Municipal Magistrate Courts. The Chief
Magistrates Court in Colombo is the senior of the Magistrates Courts in the judicial division of Colombo.
Unofficial magistrates In remote areas where there are only one Magistrate and/or Additional Magistrate,
unofficial magistrates (known as Acting Magistrates) would be appointed to site on behalf of the magistrate in
his/her absence and postpone hearings to a later date.

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Primary Courts
The Primary Courts in are lower courts and are the courts of first instance. The Primary Courts in Sri Lanka is
a lower court and are the courts of first instance. There are seven Primary Courts, located in Anamaduwa,
Angunukolapelessa, Kandy, Mallakam, Pilessa, Wellawaya and Wennappuwa. In the other divisions, the
Magistrate's Courts exercise the jurisdiction of the Primary Courts. The Primary Courts have criminal and civil
Jurisdiction.

Labor Courts
Labor Tribunals are tribunals formed under the Industrial Disputes Act No.62 of 1957, to handle labor disputes
and termination of employment.

Other courts and tribunals

Military courts
Military courts in Sri Lanka are court Martials (the General Court Martial, Field General Court Martial and
District Court Martial) convened under the Army Act, the Navy Act or the Air Force Act.

Coroners' courts
The Ministry of Justice appoints Inquirers into Sudden Deaths under the Code of Criminal Procedure to carry
out an inquest into the death of a sudden, unexpected and suspicious nature. Some large cities such as Colombo
and Kandy have a City Coroners' Court attached to the main city hospital, with a Coroner and Additional
Coroner.

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Judges

Appointment
The Chief Justice and Justices of the Supreme Court and Court of Appeal are appointed by the President of Sri
Lanka with the nomination of the Parliamentary Council. Judges of the High Court are appointed by the
President on the advice of the Judicial Service Commission. However the President is not bound to accept the
nomination of the Parliamentary Council or follow the advice of the Judicial Service Commission and may
decide to appoint any other individual. Traditionally judges are Attorneys at law, while retired judges of the
Supreme Court and the Court of Appeal does not practice law after retirement. Judicial appointments in the
past have been thought to be politically motivated. Appointments to the lower courts such as District Courts
and First Instance Courts are made by the Judicial Service Commission from the Judicial Service.

The Minister of Justice appoints unofficial magistrates from attorneys with fifteen years or more practice in a
magistrate court to serve as the acting magistrate in the absence of the local magistrate. The Minister may
appoint lay persons as Justice of the Peace, traditionally empowered to mediate disputes and keep the peace.
Today the powers of the position is limited to administer oaths, affirmations and attesting documents.

Figure 2 - Judges of the court of appeal of Sri Lanka

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Task 1.3
Contractual terms are also implied into the contract by statute and by common law (court rulings) – an issue
not always taken into account by the parties.
Recent years have seen a number of important court rulings on the issue of implied terms, and when a term
will be implied into a construction contract.

The general principle

A term will not necessarily be implied into every contract: the court’s current approach is that a term will not
be implied into a contract simply to make the contract reasonable, or to deal with inconsistencies. Even where
unambiguous words within a contract create a commercially absurd outcome, the court will not imply terms
into it to change such an outcome. In a 2004 case, for instance, an arbitrator would not imply a payment term
into the contract which would have cost the contractor millions1.
However, the court will imply a term in circumstances where it is so obvious that it goes without saying that it
should be implied, or in order to give ‘business efficacy’ to the contract.

Terms implied by common law

Terms that may be implied into a construction contract include:

• A duty to cooperate: the employer must do what is necessary to ensure completion of the contract, by
reference to the express contract terms;
• A duty to give up possession of the site within a reasonable time: this only applies in certain types of contract
(eg. not maintenance or refurbishment);
• An obligation not to hinder/prevent the contractor: the contractor must not be prevented from performing its
obligations under the contract in a regular and ordinary manner;
• An obligation to exercise a discretion honestly, in good faith: the discretion must however be exercised for
its proper purpose, and not arbitrarily or capriciously
Note that these terms can be excluded either expressly, or by any admissible surrounding circumstances.
The fact that terms can be implied by common law is a salutary reminder of the need for careful negotiation
and drafting before a construction contract is executed. However, the range of implied terms which are capable

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of being implied are limited, and the court will not imply a term outside these limits – even if the outcome is a
commercial disaster. The parties should always be mindful of the terms capable of being implied by both
common law and statute, and to consider whether any should (or can) be expressly excluded. Contractual terms,
including exclusion terms, must be clear and unambiguous to minimize the risk of a dispute arising later.
Take specialist legal advice as early as possible.
If you have any concerns about the terms capable of being implied into a construction contract, the experienced
commercial solicitors at Herrington Carmichael will provide specialist advice and representation. If you are
considering a new construction or other commercial contract, contact us for advice on the terms. We have
years of experience advising on all types of commercial contracts and can advise on your contract – and the
terms which will be implied into the contract.

Legal agreements on construction projects are often lengthy and complex with many different agreements
requirements to ensure a successful working relationship between the parties.

Construction law services

 Advice on all standard form construction contracts (including JCT and NEC)
 Construction contract preparation
 Contractor or sub-contractor advice
 Construction disputes
 Consultant terms and conditions
 Collateral Warranties
 Development procurement options (design and build contracts, standard build contracts)
 Development agreements
 Joint venture construction agreements
 Letters of intent
 Security documentation – Advice for funders

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All construction or development projects of any size will invariably involve a number of different parties with
numerous different legal agreements. It is crucial for the smooth running of a project to get an early grasp on
what will be required, what basis the parties will be contracting with one another and what level of contractual
protection there is.
Whether you are starting out in the construction industry and require strategic legal advice on the various
procurement options, or you are an experienced property developer seeking legal advice on complex
developments, we have the experience and knowledge to help.
We have a wealth of experience across our team in advising employers, contractors, sub-contractors or
consultants, in all aspects of construction projects. We also frequently advise funders on their construction
related security documentation when lending on a construction project.
Depending on which position you have adopted in the construction project, it is important to consider what
contractual protections you will require.

Figure 3 - construction project

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Task 1.4

Tort is a collection of civil law remedies entitling a person to recover damages for loss and injury which have
been caused by the actions, omissions or statements of another person in such circumstances that the latter was
in breach of a duty or obligation imposed at law.
In tort, duties and obligations are created by the courts applying common law, which has, on the basis of
previous authority fallen into three distinct categories:
 Negligence.
 Nuisance.
 Trespass.
The tort of negligence is concerned with a breach of a duty to take care. In order to succeed in an action
for negligence, a plaintiff must prove:
 The defendant owed to the plaintiff a legal duty of care, and,
 The defendant was in breach of duty, and,
 The plaintiff has suffered damage as a result of that breach.
The legal duty of care referred to is one that arises independently of a contractual obligation and, indeed, in the
absence of a contract. Over many years the courts have produced a long series of decisions to assist in deciding
whether or not, on particular facts, a duty of care arises.
Some of the key cases are listed below.
 Donoghue v Stevenson (1932).
 Hedley Byrne & Co Ltd v Heller & Partners Ltd (1963, 1964).
 Dutton v Bognor Regis UDC and Another (1972).
 Anns v Merton London Borough Council (1977, 1978).
 Junior Books Ltd v Veitchi Co Ltd (1982).
 Governors of the Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd (1984).
 Muirhead v Industrial Tank Specialists Ltd (1985, 1986).
 Leigh & Sillivan Ltd v Aliakmon Shipping Co Ltd (1986).

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Figure 4- Nuisance in construction

Introduction
Nuisance is unreasonable interference with another party’s use of land. Nuisance can be public, private or
statutory.
Public nuisance
Public nuisance affects classes of people and can constitute a criminal offence. For example obstructing
the highway or pollution of water supplies.
Private nuisance
Private nuisance affects a specific person’s right to use or enjoy land. A person does not have to have a
proprietary interest in land to suffer nuisance (Ref Khorasandjian v Bush 1993).
Private nuisance might be caused by:
 Encroachment onto land, for example by trees.
 Damage to land or buildings.

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 Interference with a party’s enjoyment of the land, for example by generating excessive noise or smells.
For nuisance to be actionable, there must be actual or prospective damage, although this damage need not be
physical, and might be demonstrated by encroachment or unreasonable material interference.
This is a matter of balance and degree, depending on how unreasonable the infringement is, the duration of
the nuisance and the timing or repetition of the nuisance. This in turn can depend on circumstance, such as the
character of a particular location and the types of activities that are carried out there. Activities that
constitute nuisance in one location might be acceptable in another.
In Sturges v Bridgman (1879), Thesiger LJ stated, ‘what would be a nuisance in Belgrave Square would not
necessarily be so in Bermondsey’.
The courts will also consider the intention of the defendant and whether there was any
malice. Liability for nuisance requires that damage is foreseeable, although this does not necessarily
constitute negligence.
Action may result in damages, abatement or injunctions.
Statutory nuisance
Under Part III of the Environmental Protection Act 1990 certain matters may constitute statutory nuisances:
 Noise.
 Artificial light.
 Insects.
 Smoke.
 Dust.
 Premises.
 Fumes or gases.
 Accumulation or deposit.
 Animals kept in such a place or manner as to be prejudicial to health or a nuisance.
 Any other matter declared by any enactment to be a statutory nuisance.
Where a local authority establishes any one of these issues constitutes a nuisance (i.e. it is unreasonably
interfering with the use or enjoyment of someone’s premises) or is prejudicial to health, they must generally
serve an abatement notice on the person responsible. Failure to comply with the notice could result
prosecution.

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Construction works are a potential cause of nuisance. However, construction is a necessary activity and in the
case of Andreae v. Selfridge & Co. Limited (1958) Sir Wilfred Green MR suggested that ‘...in respect of
operations of this character, such as demolition and building, if they are reasonably carried on and all proper
and reasonable steps are taken to ensure that no undue inconvenience is caused to neighbors, whether
from noise, dust, or other reasons, the neighbors must put up with it.’

Reasonable precautions that might be taken to reduce or avoid nuisance in construction might include:

 Keeping neighbors informed.

 Providing a help line so that problems can be reported.
 Only working at reasonable times and restricting noisy activities to particular periods.
 Storing fine materials under cover.
 Damping fine materials and roadways.
 Minimizing demolition or crushing dust.
 Washing down vehicles.
 Taking care when deciding transport routes.
 Providing hard-surfaced roadways.
 Proper waste management and avoiding burning waste materials.
 Limiting vibration.
 Using well-maintained, quiet machinery.
 Careful sub-contractor management.

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In its widest legal sense, trespass is the interference of a person’s right to the security of their
body, property or land.
Trespass in construction usually refers to intrusion upon land in the possession of another person
without permission or right (this is as opposed to trespass to the person).
Trespass can be by a person on the land, or by placing or leaving something on (or over) the land, although
if materials pass onto the other persons land as a consequence of some action for which the defendant has a
right, then this is a nuisance rather than trespass.
Trespass includes items such as cranes or scaffolding that might over sail adjacent property.
The tort of trespass is actionable even if no damage is suffered. Trespass can be restrained by injunction, and
if losses are caused, damages are recoverable.
Construction often necessitate accessing the land of a neighbor. This must be done with permission (unless a
right exists) which will usually be in the form of a temporary license, perhaps in return for payment. However,
even where someone is lawfully on land, they may still commit trespass if they exceed their rights or
the permission that has been granted.
There will only be a criminal liability if there are aggravating circumstances such as criminal damage.
NB: The Party Wall Act allows access to adjoining property for the purposes of carrying out works under
the Act whether or not the adjoining owner gives permission, however they must be given 14 day notice.

Figure 5 - Making nuisance in construction

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Task 3
Task 1.1
There are 4 main stages to employment relations:
 Pre contractual.
 Formation of relationship - contract agreement
 Employment period.
 Termination of relationship.

Legislation and guidance

Guidance notes assist practices to keep up to date with changing regulations

 RIBA employment policy
 Employment Rights act 1996
 Employment Act 2008
 Equality Act 2010 applies to all.
 Health and safety regulations.
Nature of relationship
Employee
 'Contract of employment' directly with employer
 Rights under Employment Rights Act 1996 apply.
Benefits:
 Long term relationship of mutual trust and respect.
 Holiday pay.
 Regular agreed pay.
 Sick leave pay.
 Access to pension scheme.
 Time off to help dependents (emergency only, e.g. death of dependent, child care) without pay.

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Temporary employee
Similar to an employee, but:
 Fixed term contract with an end date.
 Can apply for full time status after 4 consecutive renewals of the same contract.
 Objective justification for employer to decline.
Part-time employee
 Working week/hours defined.
 Entitled to the same benefits as employee.
 Employer legally required to consider request - they are not obliged to agree but must
have sound business reason for not.
Agency Staff
 Tripartite relation with agency (employer) and end user.
 Contract between agency and employer.
 Benefits are dealt with by agency.
 Can be terminated by end user on short notice.
Agency Workers Regulations 2010:
 Principal of equal treatment
 Right to the same basic working and employment conditions as if engaged directly by hirer.
Onshore employment intermediaries act 2014:
 Treated as employee for tax purposes. This prevents the end user exploiting as means to avoid paying
NI & tax.
Consultants
 Usually engaged for specific project.
 No benefits as they are seen as a supplier.
Dismissal
Fair reasons for dismissal S98 (ERA 1996):
 Breach of disciplinary codes.
 Redundancy.
 Capability.
Procedures for fair dismissal are outlined in the Employment Act 2008.

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Task 1.2

The European Commission considers that differences between national contract laws may entail additional
transaction costs and legal uncertainty for businesses in the European internal market that, in turn, could lead
to businesses being reluctant to engage in cross-border transactions. Therefore, in July 2010, the Commission
published a Green Paper setting out its policy options for progress towards a European Contract Law for
consumers and businesses.

European contract law options

The Commission put forward seven options, ranging from the expert group’s findings that could be used by
legislators as a source of inspiration when drafting legislation (but which would have no formal authority or
status), to a Regulation establishing a European Civil Code that would replace national laws and cover not only
contract law but the law of general obligations. The middle ground, option 4, provides for an optional European
contract law instrument giving parties a choice between two regimes of domestic contract law. It would work
by inserting a set of self-standing contract law rules into Member States’ national law, which the contracting
parties could choose as the governing law of their contract instead of the national law of one of them.
In April 2011, the European Parliament committee voted in favor of option 4, commenting that an optional
instrument would have the effect of providing a single body of law that could do much to improve the
functioning of the European internal market. The committee also noted a need to provide standard terms and
conditions of trade for businesses based upon this optional instrument.

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UK government and Law Society response

The idea of an optional European contract law instrument has not been well received in the UK. The UK
government raised concerns that it would have an impact on the current commercial position of English law
(which it states is the preferred choice of global and inter-EU commercial contract law). The government
commented that if this commercial position is unsettled, any business that the UK loses would most likely not
be displaced to elsewhere in the EU. The government also raised concerns regarding the interface such an
optional instrument would have with other areas of law (for example, tort) stating that it would seem impossible
for any new instrument to cover all possible areas of dispute (and that as a result, any instrument would need
to refer back to national law in any event).
The Law Society actively opposes introducing a European contract law instrument and disagrees that diverging
national laws impede cross-border trade. It believes that many barriers to cross-border trade are practical and
procedural, adding that the concerns businesses have in entering the markets of other Member States relate to
differing court processes, means of seeking redress and difficulties relating to enforcement procedures.
The Law Society further comments that an optional instrument would lack any established jurisprudence and
that it would not be possible to ensure consistent interpretation of the new instrument across the courts of
Member States, meaning that divergences would continue.

Feasibility study: a complete set of rules

The expert group’s feasibility study is a complete set of contract law rules covering those issues that are
relevant in a contractual relationship, including:
 The meaning of certain concepts (such as damages) and general principles of contract law that parties
should observe (like good faith and fair dealing).
 How agreements are concluded and the right to withdraw from an agreement.
 How contract terms should be interpreted and what constitutes an unfair (and therefore invalid) term.
 The obligations and remedies of parties to sales and services contracts.
 Damages, interest, restitution and prescription.

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Impact on UK construction contracts

In considering what impact these rules could have on construction contracts, it is worth looking at the proposed
rule relating to the basis of payment for non-performance. The rule states that where a contract provides that a
debtor who fails to perform an obligation is to pay a specified sum to the creditor for non-performance, the
creditor is entitled to that sum irrespective of the actual loss. That sum may be reduced to a reasonable amount
where it is grossly excessive compared to the loss resulting from the non-performance and other circumstances.
This is in stark contrast to the English law on liquidated damages clauses, which are frequently used in
construction contracts. Such clauses provide an employer with an easily-quantified contractual remedy to cover
the losses sustained in the event of the contractor’s delay.
Under English law, such amounts must reflect a genuine pre-estimate of the employer’s loss (the assessment
takes place at the time the contract was entered into). If a court finds it is not a genuine pre-estimate, the
provision is unenforceable and loss has to be proved in the usual way. No principle of court adjustment exists
in English law, enabling a court to reduce an agreed basis or amount to a level deemed appropriate in the
circumstances. Adopting the payment for non-performance rule would be a significant change.
More generally, an optional European contract law would have an impact on the UK construction industry, in
terms of employers and contractors from different Member States looking to enter into a construction contract
having a “third” common regime that they could choose to govern their contract in place of one or
other’s national laws.
I would be surprised if employers and contractors would readily choose such a “third” option to govern their
contract. Parties confronted by a choice of law are generally prepared to contract under English law and many
of the industry standard form contracts used on major construction projects are drafted on the basis of an
English law approach. Parties from other Member States seeking to contract with a UK party are familiar with
the principles of English contract law and are comfortable entering into contracts on that basis. If implemented,
I would therefore question whether an optional European contract law would be chosen as the law to govern
contracts in the construction industry in the UK.
Finally, on a multi-party, multi-contract project, involving contracts between UK parties and contracts between
a UK party and parties from other Member States, it is essential that the governing law provisions are consistent
across all of the contracts. In view of this, I think that English law will continue to apply as the law of choice
for these projects.

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Conclusion

Having said all that, it is important to understand that the law must be seen to be applied equally and reliably
to all, to presidents as well as to laborers, to the rich as well as to the poor. If it is not applied equally and
consistently to all, it becomes ineffective, and the entire society is harmed. The law is something that we need
to be able to count on, we have privacy rights because of law. We are entitled to state our opinions without
the government stopping us because of the law. Many of us now have health insurance because of a law. We
can rely on the safety of food because food safety is subject to the law, and advertisers cannot lie to us because
of the law, too. The list of ways in which law affects our lives is endless. So that we know what is expected
of us and so that we know what will happen if we do not obey the law.

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