A
WRITE-UP
ON
REMEDIES FOR BREACH OF BUILDUNG CONTRACT
IN
NIGERIA
COMPILED BY
AKINTUNDE OLUSEYE M. ARC/05/5591
AWOSOLA AKINTAYO A. ARC/05/5597
COURSE:
CONTRACTLAW
(ARC 510)
SUBMITTED TO:
Prof. OGUNSOTE
DEPARTMENTOF ARCHITECTURE
SCHOOL OF ENVIRONMENTAL TECHNOLOGY
FEDERAL UNIVERSITY OF TECHNOLOGY, AKURE
NOVEMBER 2009.
Table of content
1.0Introduction
2.0Breach and Remedies; The General Practice
2.1Damages
2.2Specific performance
2.3Rescission and Restitution
2.4Injunction
2.5Remedies Based on Quasi contract
3.0Limitation of actions
4.0Remedies to Breach of Building Contract in Nigeria
4.1Arbitration
4.2Mediation
References.
1.0 INTRODUCTION
Contractinlaw, isanagreement that creates an obligation binding upon the parties thereto. The essential of a valid contract however includes:
(1)Mutual assent (that is offer and acceptance)
(2)Legal consideration (that is intention to create a legal relation), which in most instances need not be pecuniary
(3) Contractual capacity (that is parties who have legal capacity to make a contract)
(4) Absence of mistake, misrepresentation, fraud or duress; and
(5) A subject matter that is not illegal or against public policy.
However, upon the adequacy and appropriateness of the formation of a contract which often is a consequence ofstrict adherence to the stated essentials, the agreement, promise or set of promises in turn evolves to be seen in the eyes of law as one, for the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty.
Arguably, contracts are more often discharged by performance, however, certain exceptions exist, example of which is inherent in contracts ending-up in disputes circumstances on account of acontracting party failing to perform an absolute duty owed under a contract without been discharged from or excused of such contractual obligation (covenant)to which his or her consent must have earlier been granted.In such and perhaps similar scenarios, where contractual obligations are not respected, the delinquent party is said to be in "breach of contract". However, abreach of contract also called a default could then simply be thought of as one party's failure, without a legally valid excuse, to live up to any of his or her responsibilities under a contract. A breach can occur by:
- Failure to perform as promised
- Making it impossible for the other party to perform;
- Repudiation of the contract/anticipatory breach (that is, announcing intent not to perform).
In the event of a breach, schemes abound availing the non-breaching party the opportunity of remedy which often is obtained by marshalling the party in default to court and getting the court to right the wrong and as such moderate the situation, as best the court can.However, in common practices, because contract is of the private law origin, the courts will not throw the full brunt of the law against a person found to be in breach of contract. On the other hand, as discussed below, a variety of tools are used by the courts in dealing with breach of contract and ensuring that the person who defaults on a contractual obligation adequately compensates the person who did not receive full contractual benefit. At times, people attempt to resolve their disputes, without going to a court, through various methods called "Alternative Dispute Resolution (ADR). These methods offer to resolve disputes fairly, promptly and cost effectively.
2.0BREACH AND REMEDIES: THEGENERAL PRACTICE
Breach of contract comes in many forms. There is the possibility of a complete breach, where one party completely refuses to deliver on any part of their undertaking. In other situations, a person may do most of what the contract requires but omit or refuse to do a small residual portion. This latter situation is called "substantial performance", also there are instances of inferior performance which of course is tantamount to "material breach". The appropriate remedy to any breach however, would obviously depend on the nature of the breach, terms and condition of contract, and other complexities involved peculiar to the contract.
Prior to a comprehensive discussion on the many remedies to varying breaches, it is pertinent to note that, there exists a certain time limitation on which the enforcement of any contract in the event of a breach relies.It would be of mean sense if legal claims were allowed to exist forever. Signatories die and records are eventually lost.For this reason, any claim for breach of contract must be brought before the court or arbitration within a certain period of time.This is called a "limitation period" and is usually set in a "statute of limitations" in common practices. In the case of non-real estate contracts, the standard limitation is six years from the date the party would have first been entitled to bring action (i.e. the date of breach).Contracts related to real-estate have very special rules governing the time limits of legal action taken upon them and tend to vary from place to place.
There are many ways to remedy a breached contract assuming such has not earlier been waived. Typically, the remedy for abreach of contract is an award of money damages. However, when issues border on unique subject matter, specific performance may be ordered. The following give a list of the most common remedies available in general practice.
- Damages
- Specific Performance
- Rescission and Restitution
- Injunction
- Remedies Based on Quasi Contract
2.1DAMAGES
An innocent party may claim damages from the party in breach in respect of all breaches of contract. The damages may be nominal or substantial. Nominal damages are awarded where the innocent party has suffered no loss as a result of the other's breach and substantial damages are awarded as monetary compensation for loss suffered as a result of the other party's breach.
For an innocent party to obtain substantial damages he must show that he has suffered loss as a result of the breach (remoteness) and the amount of his loss (measure). It is up to the party in breach to argue that the innocent party has failed to mitigate his loss.
There are five different types of damages.
- Remoteness of loss
The innocent party may only recover damages for loss suffered as a result of the breach provided it is not too remote. The aim of damages is to put him in the position he would have been had the contract been properly performed.
The principles of remoteness are given and provide that the following losses are recoverable:
- All loss which flows naturally from the breach.
- All loss which was in the contemplation of the parties at the time the contract was made as probable results of the breach.
If the loss does not fall within the above categories, then it will be too remote and will not be recoverable.
- Compensatory damages
It is given to the party who suffered the breach of contract.Compensatory damage is anaward of money intended to compensate a non-breaching party for the loss of the bargain. They place the non-breaching party in the same positionas if the contract had been fully performed by restoring the “benefit of the bargain.”With compensatory damages there are two kinds of branches, consequential damages and direct damages.
- Advance payments
If a party in breach has made advanced payments under the contract his ability to recover that money depends upon whether that payment constitutes a deposit (that is, a guarantee by him of due performance) or merely a payment of the whole or part of the price in advance.
If it is a deposit (this depends on the intentions of the parties) the general rule is that it cannot be recovered and it will be set off against any damages awarded to the innocent party. Care should always be taken with deposits so that they do not amount to penalties. However it may be possible to recover a deposit if the party has a lien over it.
If the advance payment is not a deposit, the party in breach may recover it, subject to any claim for damages by the innocent party in respect of the breach.
An innocent party may only recover an advance payment if there has been a total failure of consideration. This is a quasi-contractual remedy. If there is only a partial failure of consideration, this remedy is not available
- Exemplary damages
Exemplary damagesare used to make an example of the party at fault to discourage similar crimes. Fines can be multiplied by factors of up to 50 for such damages.
- Nominal damages
These are awarded when the non-breaching party sues the breaching party even though no financial loss has resulted from the breach. They include minimal amounts or momentary implication (often sought to obtain a legal record of who was at fault).
- Punitive damages
These are used to punish the party at fault. These are not usually given regarding contracts but possible in a fraudulent situation.
- Penalty clauses and liquidated damages
It is common for the parties to expressly state in the contract that if the contract is breached, a specified sum will be payable or that goods will be forfeited. Clauses covering these areas are known as liquidated or agreed damages clauses. They frequently appear in commercial contracts, whether individually negotiated or on a party's standard business terms and, most commonly, in relation to late rather than defective performance, particularly in the fields of construction and engineering and supply or sale of goods. Occasionally, they appear in lease agreements imposed by a key or anchor tenant who, for example, needs to be trading from the demised premises by a certain deadline. Such clauses do not usually appear in contracts of employment.
The purposes of such clauses are to make recovery of damages easier, avoiding the problems of proving actual loss; to avoid arguments as to the remoteness of certain types of consequential or indirect losses; and to assure the other party of their intention to be bound by the contract.
The normal rules applicable to the determination of whether a clause operates as liquidated damages or a penalty apply irrespective of the type of contract in question. A distinction must be drawn between clauses which purport to impose a penalty on the defaulting party and clauses which levy liquidated damages from that party. Penalty clauses are generally not enforceable, whereas liquidated damages clauses are.
- Penalty or liquidated damages?
For a liquidated damages clause to be valid the specified sum must be a genuine pre-estimate of the anticipated loss which the claimant would be likely to suffer in the event of a breach of the obligation in question. If the loss is difficult to quantify a "best guess" procedure should be operated, keeping a record of the calculations underlying any elements of the determined figure. Provided the selected figure is not vastly in excess of the greatest loss which could be suffered, the clause is likely to be enforceable. The essence of a penalty is that the money specified is in terrorem of the defaulting party, in other words, it is intended to apply undue force to the other party to perform his side of the contract.
The use of the words "penalty" or "liquidated damages" are not conclusive. It is necessary to examine whether the amount specified is in fact a penalty or liquidated damages. It is for the party in breach to show that the sum is a penalty.
The tests to distinguish penalties from liquidated damages include:
- A clause will be construed as a penalty clause if the sum specified is "extravagant and unconscionable" in comparison with the greatest loss that could possibly have been proved as a result of the breach.
- It is likely to be a penalty if the breach of contract consists of not paying a sum of money and the sum stipulated as damages is greater than the sum which ought to have been paid.
- There is a presumption that if the same sum is stated to apply to different types of breach of contract, some of which are serious and others not, it is likely to be a penalty clause.
- It is not a bar to the operation of a liquidated damages clause that a precise pre-estimation is impossible.
- Measure of damages
This is the method for calculating the damages to which the innocent party is entitled. It covers loss of bargain or expectation loss. The usual aim of the court is to put the innocent party in the position he would have been in had the contract been properly performed.
Generally, there are two main methods of calculating damages:
- The difference between what was contracted for and what was received. This is known as the diminution of value test.
- Whatever it costs to put the plaintiff in the position he would have been in had the defendant fully performed his contractual obligations. This is known as the cost of performance method. The defendant is ordered to pay the cost of fixing the defect, of completing the contract.
2.2SPECIFIC PERFORMANCE
This is an equitable remedy granted at the court's discretion.
Specific performance is a decree by the court to compel a party to perform his contractual obligations. It is usually only ordered where damages are not an adequate remedy but not if a replacement of the subject matter could be obtained even after a long delay. It is a general rule that specific performance will not be ordered if the contract requires performance or constant supervision over a period of time and the obligations in the contract are not clearly defined.
Specific performance is often ordered in relation to building contracts because the contract deals with results rather than the carrying on of an activity over a period of time and it usually defines the work to be completed with certainty. Specific performance is not available for contracts requiring personal services such as employment contracts because such an order would restrict an individual's freedom,
The court has broad discretion to award specific performance and in exercising this discretion it takes into account factors such as:
- Delay in asking for the order
- Whether the person seeking performance is prepared to perform his side of the contract
- Whether the person against whom the order is sought would suffer hardship in performing
- The difference between the benefit the order would give to one party and the cost of performance to the other
- Whether any third party rights would be affected.
- Whether the contract lacks adequate consideration (the rule "equity will not assist a volunteer" applies so that specific performance will not be ordered if the contract is for nominal consideration even if it is under seal
2.3 RESCISSION AND RESTITUTION
Rescission refers to an action to undo a contract. This option of contract breach remedy is available if there has been a material breach of contract, fraud, undue influence and or mistake. Restitution involves returning of goods or property received from the other party in an attempt to rescind a contract. However,if the actual goods or property is not available, a cash equivalent must be made.
2.4 INJUNCTION
Like specific performance, an injunction is an equitable remedy and therefore only granted at the discretion of the court. It is awarded in circumstances where damages would not be an adequate remedy to compensate the claimant because the claimant needs to restrain the defendant from starting or continuing a breach of a negative contractual undertaking (prohibitory injunction) or needs to compel performance of a positive contractual obligation (mandatory injunction).
In exercising its discretion the court will consider the same factors as above for specific performance and will use the balance of convenience test (weighing the benefit to the injured party and the detriment to the other party). An injunction will not be granted if its effect would be to compel a party to do something which he could not have been ordered to do by a decree of specific performance.
In urgent cases a plaintiff may be able to obtain an interim injunction to restrain an act. Special types of injunction may be granted to preserve property and assets pending trial.
2.5 REMEDIES BASED ON QUASI CONTRACT
Quasi-contract creates obligations at common law, distinct from obligations under a contract. It is an area of law in its own right.
Quasi-contractual remedies are sometimes available either as an alternative to a remedy for breach of contract or where there is no remedy for breach of contract. For example, a claim for quantum merits (a reasonable remuneration for work done of goods supplied under a contract which is later discovered to be void).
3.0 LIMITATION OF ACTIONS
An innocent party will lose his right to bring a claim for breach of contract if he delays for a certain length of time.
The Limitation provides statutory limitation periods. Theses do not apply to equitable remedies, however, in practice; equity usually applies the statutory rules.
The Limitation Act 1980 distinguishes between simple contracts and deeds. It provides the following limitation periods:
- For simple contracts, six years from when the cause of action accrued.
- For deeds, twelve years from when the cause of action accrued.
In acquisition agreements (which may be deeds) the seller may want a shorter limitation period (commonly six years from the date of the contract) This shorter period relates to the Inland Revenue's time limit for making tax assessments. Alternatively, the seller may want an even shorter period in relation to non-tax matters.
4.0 REMEDIES OF BREACH OF BUILDING CONTRACT IN NIGERIA
Though not too often,building projects in Nigeria end up in dispute typically between the builder and the client, the main contractor and subcontractors and or between the consultants and the contractor. Disagreements about the cost of construction work, building disputes regarding the quality of the workmanship and differences as to the amount of time taken to finish the work are some of the issues which may arise.
However most building contracts in Nigeria are drafted in conformity with the Joint Contract Tribunal (NJCT)form which stipulates the standard form building contract. The document however suggests various terms and conditions which could be agreed upon by parties to a contract as a means of proffering remedies in the event of a breach. These terms and conditions adopted for remedies in building contracts are however operational and perhaps have their origin in general law practices.
They includes essentially;
- Damages
- Specific performance
- Rescission and Restitution; and
- Injunction
However, the NJCT also suggest alternative means of dispute resolution which if would be adopted must reflect in the contract terms and condition expressly stating the form in which it would assume. This methods however includes Arbitration and Mediation
4.1 ARBITRATION
Arbitration in Nigeria is an alternative dispute resolution technique for the resolution of disputes outside the courts, where parties in a dispute put forward their case to an Arbitrator and by whose decision they agree to be bound. Arbitration is confidential and usually is conducted with the assistance of a lawyer due to its similarity to taking a dispute to Court or as it relates to building contract a certified professional of known competence.
4.2 MEDIATION
Mediation is a voluntary process for the resolution of building and construction disputes in Nigeria where a 3rd party listens to each side of the story and works with the parties to settle the dispute. Mediation is used by parties where they want to settle issues between them to allow them to continue working together.
These alternative methods of dispute resolution offers quick, relatively cost effective, confidential approaches and can be done without the use of a lawyer but a technical expert in most cases.
REFRENCES
Discharge of a Contract: Retrieved from August, 2008.
Ogunsote O.O (2008):Building Law- Lecture notes Fut.Akure. (Unpublished)
Miller and Cross (2002):The legal and E-Commerce Environment Today.: Retrieved from August, 2008.
Ohly and Zivilrecht (2001):”Discharge of Building contract” in Introduction to English Law. Retrieved from August, 2008.
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