It is not simply enough when preparing claims, to allege that A owes B a duty of care. You must first establish and determine the scope of the duty. There are three strands to demonstrating eligibility: causation, foreseeability and remoteness.
There must be a sufficient connection between the breach and the loss in order to recover damages for the breach of a contract. In addition, the damage suffered must be caused by the breach of contract. This is called causation.
It must be established whether the defendant could reasonably have predicted the possibility of the event occurring. This is called foreseeability.
If a defendant could not reasonably have foreseen that damage may arise as a result of their actions at the time of contract formation there may be no liability. This is known as remoteness.
What do I need to demonstrate?
Let’s consider a contractor who encounters adverse physical conditions, perhaps such as difficult ground conditions, which disrupt the work on a project. The contractor considers these issues unforeseeable and gives notice to the engineer.
The ‘adverse’ physical conditions must be clearly described in the notice. The Contractor must also set out the reasons why it considers them to be unforeseeable.
The test of entitlement is foreseeability. Would an experienced contractor have predicted that these physical conditions may have been a possibility when tendering for the project?
It may be that the physical conditions are a feature of the area. For example, in certain territories, there are dolomitic regions that are readily recognisable by geographic and geologic information. In these circumstances, it could be argued that a contractor should know of the existence of the adverse conditions in advance of tendering.
The contractor’s knowledge of possible problems may depend on the information provided by the employer. Did they provide geological and exploratory information about the site? Did they give the tenderers an opportunity to make a visual inspection of the site?
The engineer may have gathered information which included indicators of difficult conditions. If this was provided to tendering contractors it might extinguish the foreseeability test.
But, what if there was no information what would lead an experienced contractor to predict the possibility of difficulties occurring? In these circumstances they should not have to carry the risk.. It may be that a risk remains with the employer. Often the employer has the best opportunity to control or avoid the risk through pre-tender site exploration. It would be remiss and mischievous to suggest that the contractor has similar opportunities to manage and assess risk.
Perhaps the most effective way would be to allow all tendering contractors to dig trial holes and undertake geotechnical investigation. However, in reality, this would be a difficult challenge for employers.
What is the legal basis?
Foreseeability is critical to the construction industry and to the law as a whole. It has a heavy influence on decisions regarding negligence or breach of contract.
When defining the term “foreseeability,” one must start with the standard definition. Black’s Law Dictionary defines the legal term as “a reasonable or likely consequence of an act.”
The Merriam-Webster dictionary indicates that there is a “range” in which foreseeability—” that which can be reasonably anticipated”—exists.
In “Figuring Foreseeability,” David Owen states that although foreseeability is a critical legal concept, its intricacies make it complicated: “…while foreseeability may be the fundamental moral glue of tort, it provides so little decisional guidance that scholars often revile it for being vague, vacuous, and indeterminate” (Owen 2009).
In the construction industry, the definition of foreseeability extends to other legal concepts including duty of care, breach of contract, factual causation, and proximate causation.
Construction professionals can be held liable for damages during a project, delays that occur during a project, and loss of profits and wages that result from one or both of these problems.
But one of the most significant factors that plays a role in the outcome of such court cases is foreseeability. The court will typically look to answer two questions when determining damages that are due:
- Could the contractor foresee that potential damage was likely to occur?
- Should they reasonably have foreseen additional costs during that particular project?
The nature of foreseeability in the courts
Cases that involve foreseeability within the construction industry tend to also include other concepts, including unpaid impact costs, variations/change orders, and delays.
A contractor ordinarily seeks compensation because of the changes that are made to the original design or programme. Changes often cause delays in the completion of projects.
When this happens, a contractor will ask the court to consider the difference between direct and indirect costs. Direct costs are normally fairly straightforward. But when considering indirect costs, for example overheads, the court will need to decide if the costs are too remote.
The court may deny a contractor’s claims if the contractor was not able to prove that he was entitled to the indirect costs that incurred as a result of the delays.
Connecting foreseeability and cumulative impact will be arguable. The court may be apposite in its approach and determine that losses a contractor is arguing for were foreseeable.
Foreseeability and Breach of Contract
A breach of contract occurs in the construction industry when one party does not fulfil its contractual obligations.
Foreseeability plays a role in breach of contract cases because such cases ask the court to determine the defendant’s culpability. In other words – the level of one’s blameworthiness in the act of the offense. Such a determination is often the foundation of negligence law.
In breach of contract cases the judge may ascertain whether the defendant was required to meet a certain standard of care.
Depending on the situation, the defendant is under a duty of care and is expected to exercise that duty according to what any reasonable professional in that field would do.
Hadley v. Baxendale
Whilst not strictly a construction case, Hadley v. Baxendale is a good example of an English contract law case that looks at breach of contract and foreseeability. In the case the claimant, Mr. Hadley was a mill operator who had experienced damage to one of the mill shafts in his building. Hadley made arrangements to have a new mill shaft built by a company called W. Joyce and Co. Hadley needed someone to deliver the broken mill shaft to the company for repair. So he contracted Baxendale to deliver the part.
Hadley insisted that the shaft be brought to the engineer without delay. However, Baxendale was not aware that Hadley’s entire mill was shut down until the shaft could be replaced with a new model. When Baxendale failed to deliver on time, Hadley claimed for five days lost profits and wages as Baxendale was in breach of contract.
The jury awarded Hadley compensation, but Baxendale appealed the ruling.
The court’s determination arose from Baxendale’s breach of contract. However, the court did not award Hadley for the profits and wages he lost during the five days that his mill was shut down.
The court awarded Hadley 25 pounds, which was the reasonable amount for Hadley to receive for the breach of contract.
The court did not award Hadley’s claim because there was no way for Baxendale to foresee that the mill would be shut down due to late delivery of the mill shaft.
Why was it not foreseeable?
Hadley did not communicate this possible issue to Baxendale. Baxendale was not informed that the mill was shut down during the interim. Thus, making foreseeability the foundation for the entire case.
Donoghue v. Stevenson
Another case of precedence is 1932’s Donoghue v. Stevenson. This English tort law case remains the foundation for negligence cases.
Again, not a case dealing strictly with the construction industry specifically, the facts are as follows:
The claimant drank a bottle of ginger beer that had a dead snail in it.
The claimant sued the manufacturer of the ginger beer for breach of contract.
The argument was that it was reasonably foreseeable that if the manufacturer failed to safeguard its product, then the consumers of the product would fall ill or be caused harm in some way.
The claimant was not successful in trying her case. However, the case still set a precedent for manufacturers to be responsible for the products that they make and that those who consume them are “owed a duty of care.”
This duty of care principle does not apply to the world in general, but only to one’s “neighbours.” By “neighbours,” the law means only those people who are reasonably foreseeable to be impacted in some way by one’s behaviour or actions.
Vaughan v Menlove
In cases that concern negligence, the court must evaluate the defendant’s behaviour when compared with that of a reasonable person.
In 1837’s Vaughan v. Menlove, was the case first to address this issue of a “reasonable person.”
Menlove was the defendant and constructed a hay-stack at the edge of his property.
The hay-stack was close to cottages owned by Vaughan, the claimant.
Menlove was warned of the fire hazard and the potential damage that could be caused should the hay-stack ignite.
Menlove ignored these warnings and a fire started in the hay-stack. As a result, Vaughan’s cottages were damaged.
The claimant (Vaughan) accused the defendant of negligence, attempting to hold the defendant responsible for foreseeable damage.
The court found in favour of claimant, proffering the argument that any reasonable person would and could have foreseen the damages that the fire could and did cause.
The court ruled that Menlove was guilty of gross negligence because he had been warned about the possibility of fire and ignored those warnings.
Vaughan v. Menlove remains a formative case in the history of tort law because of the claims that the defence made in an attempt to win its case.
Menlove argued that he was not bound to any duty or to any standard of care. This was due to three reasons:
- There was no contract.
- Vaughan and Menlove were not working for each other in any official/formal capacity.
- There was no legal bearing among the events that transpired.
There was no standard for such liability cases at that time hence why this is a formative piece of law.
Foreseeability and Proximate Causation
There are many international and domestic court cases that deal with foreseeability, breach of contract, and the construction industry. Once the court determines that a defendant is in breach of contract, the court must also recognise a concept known as proximate cause.
Proximate cause features in negligence law to limit the scope of a defendant’s liability. It states that a defendant cannot be held responsible for damages that could, logistically, last forever.
Proximate cause, therefore, is employed by the court to determine the limit of a defendant’s liability due to unforeseen consequences.
Proximate cause does present some problems for a court trying to make a decision about a defendant. Various cases reveal that the defendants are not liable for damages that are too “remote” or speculative.
Wagon Mound
Several cases related to the construction industry demonstrate this delicate balance, including 1966’s Wagon Mound case out of Australia.
In this case, the defendants acted out of negligence when they accidentally allowed an oil spill into the Sydney Harbour.
Though the spill did not damage the claimant’s ships in a significant way, the oil caught fire because of flammable waste in the water. It was this fire that destroyed the claimant’s ships, and not the oil spill itself. The fire also damaged part of the harbour.
The consequences of the oil spill were remote and speculative. The court needed to determine whether the defendants could be held liable.
The court concluded that the operators of the Wagon Mound should have foreseen that an oil spill could potentially cause a fire. Even though this possibility was highly remote it still existed and therefore the defendants were held accountable.
Foreseeability and Duty
Heaven v. Pender
In 1883’s Heaven v. Pender, a case in England, a man who had been hired by a painting contractor had been injured when a stage collapsed. The collapse happened because of faulty ropes provided by the owner of a dry dock company.
There was no contract between the dry dock company and the painting contractor. Even so, the dry dock owner was found negligent in the case.
The court determined that he was in breach of his duty of care to provide reasonably safe materials and ropes that could hold up the staging.
This case provides background into the concept of duty of care. A defendant can only be found responsible for an unreasonable or foreseeable act if that defendant owed what is called a duty of care to the claimant.
In construction cases, however, both duty and foreseeability can become complex issues. This is particularly true when the government plays a role in making changes to a project.
We have seen this in the most recent of times.
Changes to any construction project are expected and customary, yet they can result in unexpected costs, delays, and lost wages and profits.
Berent v. Family Mosaic Housing and London Borough of Islington
Berent v. Family Mosaic Housing and London Borough of Islington shows the connection between delays and foreseeability in a linear manner.
The claimant sued for damages to her property as a result of three trees under the control of the defendant.
The court determined that the claimant’s advisors responded to her claims with delay. This resulted in the defendant not being aware of certain case details.
The court determined that the defendant could not have foreseen that the trees would cause damage to claimant’s property.
In construction matters change orders/variations/etc occur when changes are made to an existing project. Those involved in the project should ensure that there are clauses in the contract that clarify what and how these changes will be accounted for during the project.
Addressing and dealing with variations may become complicated. Particularly when there is no clarity of documentation to provide how to manage them.
Variations can make the existing project different or more difficult than the original works. That is why they can and do cause delays and additional costs.
In recent times we have seen the government impose variation to how works are completed due to the Covid-19 outbreak.
Other Notable Cases
Delays in projects may result in a claim for loss of profits or wages.
The English case of 1949 Victoria Laundry Ltd. v. Newman Industries Ltd determined this issue.
In this case, the defendant was to deliver a boiler to the claimant, a laundering company in Windsor. The boiler arrived five months late. This deprived the claimant of a cleaning contract that would have earned the claimant a certain amount of wages.
The claimant sued the defendant for the lost profits attributable to the late boiler. More significantly, the claimant sued for additional profits that he would have supposedly made through the cleaning contract.
The court ruled only for the ordinary costs, not the extraordinary costs that the cleaning contract would have brought. The court also ruled that there was no way for the defendant to foresee this liability.
Again, in England, 1967’s C Czarnikow Ltd. v. Koufos, concerned a claimed loss of profits and issues of foreseeability.
The claimant was chartering a boat from the defendant that was transporting sugar.
The boat was nine days late in its journey; in those nine days, the price of sugar had dropped, and the claimant claimed loss of profit as a result of the delay.
However, the defendant claimed that he did not know that the claimant would sell the sugar immediately and that the loss was too remote. The court ruled that it was foreseeable that sugar prices could fluctuate, and that the defendant was in breach of contract.
In 1978, the English case Parsons (livestock) Ltd. v. Uttley Ingham and Co. Ltd., deals with the complexity of foreseeability.
The claimant owned a pig farm and had hired defendant to install large storage facilities for animal food. During installation, one of the storage facilities was not sealed correctly and some of the food began to rot. Many pigs ate the food and died as a result. The claimant sued defendant for damages for the loss of the pigs and for any profits lost as a result of their deaths.
The court determined that the losses were not too remote and found in favour of the claimant.
Conclusions and Recommendations
Legal disputes involving foreseeability and the construction industry are inevitable.
It may be that the parties can avoid the complications and conflicts by refining the terms of their contract.
Before the parties draw up, sign, and execute a contract, everyone involved should become directly familiar with the entire project. This includes its intended schedule, the ability of the contractors to meet that schedule and to successfully alter that schedule if necessary, and the possible delays involved in the project.
Contractors ought to insist upon a clause in the contract that enables them to claim damages in case of a delay in the project.
Or in the simplest of terms, the contract must be worded exactly to the specifications of each party.
Foreseeability within the law is an intricate concept that has varying outcomes both in and out of the construction industry.
An event is foreseeable if a reasonable person can predict or foresee the outcome. This is a relative simple construct yet the concept still complicates legal disputes.
Key points to remember when preparing your contract include:
- The contract should clearly state all the parties involved at every stage of the project;
- The contract should make clear the rights and responsibilities of all parties involved;
- It should determine resolutions for breach of the contract;
- The contract should make clear the resolution of conflicts and disputes;
- It should consider all foreseeable costs and fees, including costs of delays, change orders and attorney fees; and
- Parties should beware of possible consequential damages and foreseeable damages.
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