Contract Law for Engineers

Module Code: 6304MECH Industrial Management

Module Code: 6465ELE Engineering Management
Lecturer: Mrs Anna Kaparaki, FHEA, LL.M., MSc, Senior Solicitor
 Offer and Acceptance
• A contract is an agreement between two or more parties, which is enforceable in
law.
• For a contract to be formed, there must be:
➢Offer
➢Acceptance
➢Consideration
➢An intention to create legal relations

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 Offer
• An offer must be:
✓Certain
✓Capable of acceptance
✓Made by the offeror with the intention of being bound upon acceptance
✓Offeror: one who makes an offer to another
✓Offeree: a person to whom an offer to enter into a contract has been made
• An offer can be distinguished from an invitation to treat. A common example of
an invitation to treat is the display of goods in a shop.

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 Termination of Offer
• An offer may be revoked by the offeror at any time prior to acceptance, providing
that the revocation is actually communicated to the offeree.

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 Acceptance
Acceptance is a final and unqualified assent to an offer, whether by conduct or
verbally.
For a contract to be formed, acceptance must be communicated to the offeror.

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 Contract Law - Capacity
• Capacity is the ability to make a rational decision based upon all relevant facts
and considerations.
• A contract will only be enforceable if the contracting parties have capacity to
contract.

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 Minors
• Family Law Reform Act 1969, s. 1 (1): As from the date on which this section
comes into force a person shall attain full age on attaining the age of eighteen
(18) instead of on attaining the age of twenty-one.

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 Persons lacking Mental Capacity

Mental Capacity Act 2005, s. 2(1)

For the purposes of this Act, a person lacks capacity in relation to a matter if at the
material time he is unable to make a decision for himself in relation to the matter
because of an impairment of, or a disturbance in the functioning of, the mind or
brain.

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 Persons lacking Mental Capacity

• Mental Capacity Act 2005, s. 3(1): For the purposes of section 2, a person is
unable to make a decision for himself if he is unable:
• to understand the information relevant to the decision
• to retain that Information
• to use or weigh that information as part of the process of making the
decision; or
• to communicate his decision (whether by talking, using sign language or any
other means)

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 Intoxication
• An intoxicated person lacking mental capacity will only be liable in contract to
pay a "reasonable price" for "necessary goods or services".

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 Intention To Create Legal Relations

• A contract will only be enforceable if the contracting parties intended to be

legally bound.

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 Intention to Create Legal Relations
• When determining the intention of contracting parties the Court will have regard
to all the circumstances of the case, including:
➢The words used by the parties
➢The conduct of the parties and
➢The relationship of the parties
The approach of the Court is objective and it will not be concerned with the state
of mind of each party.
 Consideration
• A contract will only be enforceable if the contracting parties have capacity to give
"consideration" to one another.
• Each party must give or do something for the other; for example, the supply of
goods or services in exchange for payment.

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 Types of Consideration
• Executory consideration is an exchange of promises to perform some act in
future; for example, a promise to supply of goods by one party and a promise to
pay upon receipt by the other.
• Executed consideration occurs where performance of some act constitutes
consideration, as opposed to an exchange of promises; for example, an offer to
pay a reward.

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 Value of Consideration
• Consideration must have some "value”.

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 Contractual Duties
• The performance of an existing contractual duty will not constitute consideration.

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 Terms of the Contract
❖Terms establish rights & duties arising from the contract.
❖Terms may be express or implied.

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 Certainty of Terms
A lack of certainty as to the Terms of a Contract may result in that contract being
held to be invalid.

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 Express Terms

• An express term is a term, which has been clearly incorporated into a contract.
• The contracting parties may disagree as to the construction or interpretation of
that term.

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 Implied Terms
• An implied term is a term which is incorporated into a
contract by:
• Statute or
• The Court.

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 Distinction between
Conditions and Warranties

• A contractual term may be a condition, warranty or innominate term.

• The distinction is important as it impacts on the remedy available for breach of
that term.
• Terms are either conditions, whose breach entitles the plaintiff to repudiation
and damages
• or warranties, whose breach gives entitlement to damages only.

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 Innominate Terms

• Innominate terms are terms that are neither plainly conditions nor warranties.
• one must “wait & see” to find the category to which they belong.

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 Exclusion Clauses

• An exclusion clause is a term of a contract which excludes or limits the liability of

a contracting party either entirely or in part for breach of contract or negligence.
• To be enforceable, an exclusion clause must have been incorporated into the
contract and cover the act or omission complained of.

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 Vitiating Elements

To vitiate: to make legally defective or invalid

Certain conduct may render a contract defective to the extent that it becomes
void, voidable or unenforceable in law.
• Such conduct is said to have "vitiated" the contract or a particular term.

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 Misrepresentation

• A misrepresentation is a false statement of material fact made by one party, the

representor, to another, the representee, with the effect that the representee is
induced to enter into the contract on the basis of the misrepresentation.
• The effect of the misrepresentation is to render the contract voidable.

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 Statement of Material Fact

• To amount to a misrepresentation, a false statement must be of act; not future

intention, opinion or law.

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 Inducement

• Once a false statement of fact has been made, it will only be actionable as a
misrepresentation if the representee was induced to contract in reliance on the
statement.

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 Types of Misrepresentation
• Misrepresentation may take the form of
➢fraudulent misrepresentation
➢common law misrepresentation
➢statutory negligent misrepresentation
➢innocent misrepresentation

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 Types of Misrepresentation
• An innocent misrepresentation is made where the representor honestly believes
the statement to be true, and is not negligent in making the statement.
• The representor must prove that he believed the statement to be true at the time
the statement was made, as well as at the time the parties entered into the
contract, and that he had reasonable grounds for that belief.

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 Rescission (cancellation)

• In the event that an actionable misrepresentation is established, an innocent

party may elect to rescind the contract, either expressly or impliedly by conduct.
• The Common law Remedy of rescission for fraudulent misrepresentation is to
return the parties to the position in which they would have been had the
contract not been entered into.
• The statutory remedy of damages in lieu of rescission exists under the
Misrepresentation Act 1967, s. 2(2).

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 Duress

• A contract will be voidable if any contracting party has been forced by some
improper pressure, or duress, to enter into it.

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 Undue Influence

• A contract may be rescinded by a contracting party if that party was influenced to

enter into it by any other party, such that the innocent party was prevented from
exercising independent judgment.

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 Remedies

• A contract entered into pursuant to some undue influence is voidable by the

innocent party.

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 Mistake

• A contract may be void for mistake where any or all contracting parties enter into
a contract on the basis of some belief that subsequently transpires to be wrong.
• A mistake may be common, mutual or unilateral.
• A common mistake occurs where all parties are mistaken as to the same fact or
facts.
• The mistake may be as to the existence or quality of the subject matter of the
contract, or the ability of the parties to perform the contract.

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 Illegality
• A contract may be rendered unenforceable for illegality.

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 Discharge and Termination of
Contract

• The obligations of a party to a contract may be discharged by performance and a

contract may be terminated by:
➢Agreement
➢Breach of contract
➢Frustration

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 Performance
• Contractual obligations do not last for ever.
• A contracting party will be discharged from his contractual obligations upon
performance of those obligations.

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 Agreement
A party may by agreement with all other contracting parties be discharged from his
contractual obligations.

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 Breach of Contract

• A contracting party may be held in breach of contract for failing or refusing to

perform his contractual obligations.

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 Frustration

• A contract may come to an end for "frustration" if the obligations of the

contracting parties can no longer be performed for some reason outside the
control of the parties.

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 Frustration

• A contract may also be frustrated by some inordinate and unexpected delay.

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 Consequences of Frustration

• A contract which has been frustrated will be deemed to have terminated

automatically upon the occurrence of the frustrating event.

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 Remedies
• A contracting party may be held in breach of contract such that any innocent
party will be entitled to claim a remedy in respect of the breach.
• The remedies which are available depend on the nature of the breach and the
type of term which has been breached.

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 Contract & Tort Remedies
Contract & Tort remedies have differing philosophies:
• Contract remedies try to put the plaintiff in the position he would have been in,
had the contract been fully performed.
• Tort remedies try to restore the plaintiff to his former position.

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 Common Law Remedies
Action for an agreed sum - a common law remedy
Damages – a common law remedy
Avoiding the contract, i.e. cancelling or setting aside the contract.
Repudiation – a common law remedy/available for serious breach only; i.e. breach
of condition or fundamental breach

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 Equitable Remedies
• Common Law remedies are available “as of right”; i.e. they are NOT
discretionary.
• Equitable remedies ARE subject to the Court’s discretion.

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 Equitable Remedies

• The court may in certain circumstances order alternative remedies in equity,

including:
• Injunctive Relief: an injunction is an order compelling the respondent to do
or refrain from doing something.
• Rescission: the effect of rescission is that the parties will be returned to the
position in which they would have been had the contract not been entered
into.
• Specific Performance: being an order compelling the party in default to
perform his obligations under the contract.

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 Essential Elements of Engineering Contract

• Engineering contracts are subject to the same

principles of contract law as any other type of contract.
• For an engineering contract to be formed, there must
be:
• Offer
• Acceptance
• Consideration
• An intention to create legal relations
Legality
Capacity

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Purpose of contract documentation

• The basic aim of any contract is to record accurately

the terms of a business agreement.

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 Industry Forms of Agreement
• The main professional bodies that govern the activities of
engineering/construction consultants produce contracts for the appointment of
their members to provide design and/or consultancy services.
 Professional Bodies
➢Institution of Mechanical Engineers (IMechE): Mechanical Engineers
• https://www.imeche.org/
➢Institution of Engineering and Technology (IET): Electrical Engineers
https://www.theiet.org
➢Institute of Marine Engineering, Science & Technology (IMarEST): Marine
Engineers
https://www.imarest.org/
➢Institution of Chemical Engineers (IChemE): Chemical and Process Engineers and
Material Scientists
 Professional Bodies in the Construction Sector

Institution of Civil Engineers (ICE): Civil Engineers

https://www.ice.org.uk
Royal Institute of British Architects (RIBA): Architects
https://www.architecture.com/
Association for Consultancy and Engineering (ACE): association for the UK’s
professional consultancies and engineering companies operating in the social and
economic infrastructure sectors.
https://www.acenet.co.uk
 Advantages of the use of Industry Standard
Forms

➢Ease
➢Speed
➢Reduction of Costs
 Disadvantages

• Complexity of their terms

• Resistance to change

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 IMechE/IET Model Forms of Contract

• Four (4) Model Forms of Contract:

➢MF/1 (Revision 6) (2014 edition) (MF/1)
• A model form of contract for the design, supply and installation of
electrical, electronic and mechanical plant.
➢MF/2 (Revision 1) (1999 edition) (MF/2)
• A model form of general conditions of contract for use in connection
with home or overseas contracts for the supply of electrical,
electronic or mechanical plant.
 IMechE/IET Model Forms of Contract
➢MF/3 (Revision 1) (2001 edition) (MF/3)
• A model form of general conditions of contract for use in connection
with home contracts for the supply of electrical and mechanical
goods.
➢MF/4 (2003 edition) (MF/4)
• A model form of terms and conditions of engagement for an
engineering consultant, for use in connection with home or overseas
projects.