Construction Contracts in UK Law

(2) The hypothetical reasonable reader is not naïve but he is not unduly suspicious. He can read in an implication more readily than a lawyer and may indulge in a certain amount of loose thinking but he must be treated as being a man who is not avid for scandal and someone who does not, and should not, select one bad meaning where other non-defamatory meanings are available. (6) The hypothetical reader is taken to be representative of those who would read the publication in question.

On the Bank's construction the bonds covered each of the situations in which the Buyers were entitled to a return or refund of the advance payments which they had made under the contracts apart from the insolvency of the Builder. No credible commercial reason has been advanced as to why the parties (or the Buyers’ financiers) should have agreed to this. As the judge said, insolvency of the Builder was the situation for which the security of an advance payment bond was most likely to be needed.

Unless the most natural meaning of the words produces a result which is so extreme as to suggest that it was unintended, the Court has no alternative but to give effect it its terms. To do otherwise would be to risk imposing obligations on one or other party which they were never willing to assume and in circumstances which amount to no more than guesswork on the part on the Court.

If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.

Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations.

In Pagnan it was held that, although certain terms of economic significance to the parties were not agreed, neither party intended agreement of those terms to be a precondition to a concluded agreement. The parties regarded them as relatively minor details which could be sorted out without difficulty once a bargain was struck. The parties agreed to bind themselves to agreed terms, leaving certain subsidiary and legally inessential terms to be decided later.

This provides that every written construction contract has to contain the right to refer disputes to adjudication under a procedure which complies with section 108. If the written construction contract itself contains provisions for such a right, those provisions will apply. If and to the extent that it does not, the adjudication provisions of the Scheme for Construction Contracts apply —see section 108(5).