| Date | 4 March 2008 |
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| Judgment | Strachan and Henshaw -v- Stein Industrie, Court of Appeal 8th December 1997 |
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| The Issue | Whether "exclusive remedy" clauses may act to exclude claims brought outside the express terms of the contract. |
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| Implication |
Where a contract provides express remedies for the normal contractual claims to be expected under a construction agreement, then an exclusive remedy provision may bar other common law rights and remedies of the parties. |
printMost standard forms of construction contract carefully note that the various contract remedies for extension of time and reimbursement of additional costs operate without prejudice to the common law rights and remedies which the parties may possess. It is however quite common in bespoke contracts to provide a clause to the effect that the contractual remedies represent the exclusive rights of the parties. An example where this type of clause is used in a standard form is clause 44.4 of MF/1, the model form of conditions for the supply of electrical or mechanical plant published by the IEE and I Mech E. This clause states "the purchaser and the contractor intend that their respective rights, obligations and liabilities as provided for in the conditions, shall be exhaustive of the rights, obligations and liabilities of each of them to the other arising out of, under or in connection with the contract or the works, whether such rights, obligations and liabilities arise in respect of or in consequence of a breach of contract or of statutory duty or a tortuous or negligent act or omission which gives rise to a remedy at common law". The manner in which such a clause would be interpreted was considered in the recent Court of Appeal decision in the case of Strachan and Henshaw -v- Stein Industrie (UK) Ltd decided on 8th December 1997. An arbitrator had held that unless a claim could be made under the express terms of the contract, clause 44.4 would bar any further entitlement. On appeal to the High Court this decision was overturned on the basis that such a clause, which would have the effect of ousting the jurisdiction of the courts to decide matters in accordance with the general law, could not be upheld. The Court of Appeal overturned this view. Its position was based on a straight forward analysis of the risks that substantial business concerns are to be assumed to have evaluated and undertaken in entering into complex construction agreements. The Court of Appeal was ready to recognise the commercial sense in providing expressly for the claims the parties intended to be allowed, and in simply excluding all possible claims other than those for which specific provision was made in the contract. In support of this view the court acknowledged that the form of contract MF/1 was extensive in its approach to claims. It was noted that there were 33 contractual provisions which covered all the normal contractual claims. If the parties wanted to bar all others, remarked the Judge, why should they not do so? Contractors of course will howl with protest. They will provide extreme examples of a contract which provides no express remedy to the contractor in the event that the employer or its agents fails to deliver to the contractor necessary design information on time. How can an exclusive remedy provision operate in such a situation? The truth of the matter is probably that it would not. The courts will probably be sufficiently robust to recognise that a contract which purported to give an employer such a benefit, consequent upon its own acts of prevention or hindrance, would be construed contrary to that interpretation. Nevertheless an "exclusive remedy" provision makes clear that insofar as the contractor fails for example to adhere to the notification provisions under the express terms of the contract, it may have no common law remedy for such matters. Returning to the case, Strachan were sub-contractors to Stein for erection and commissioning work related to components of a power station being built for National Power. Strachan had approximately 150 workmen on the site and in view of its duty to meet statutory requirements for rest periods, had arranged cabins for teabreaks immediately adjacent to the work site. The main contractor had instructed that these cabins be removed and re-installed a half a mile distant from the work place. This involved substantial "walking time" for the work force which Strachan saw as a productivity loss which they assessed in the approximate value of £1.6m. Strachan argued that the instruction to remove the cabins amounted to a variation for the purpose of clause 27. Clause 27 defined the term "variation" to mean any alteration of the Works, whether by way of addition, modification or omission. In the definitions section of the contract, "Works" were defined to mean all plant to be provided and work to be done by the contractor under the contract. Deciding this point the court held that "work to be done by the contractor under the contract" meant simply what it said and should not be distorted so as to encompass the arrangements made by the contractor to bring its workforce to the work place. Accordingly the contractor would not be entitled to variation order and corresponding payment for the matters complained of. Nor, in consequence to the operation of clause 44.4, could it avail itself of any other rights and remedies.
CJ-9808
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