It is quite common for contractors to start work even without signing a contract beforehand. Sometimes, these are actual works, but other times, they are preparatory works. For actual works, even if the contract is not signed, as long as those works are instructed by the client and/or are for the benefit of the client, the law seems clear that there can be a claim in restitution or quasi-contract.
But what about preparatory works?
In Regalian Properties plc v London Docklands Development Corporation, the contractor submitted a tender for a housing development project, and this tender was accepted “subject to contract”. However, the project was delayed and subsequently abandoned. Before the project was abandoned, there were various requests by the employer for new designs. The contractor sued for £3m paid to their professional consultants for undertaking the tender as well as the design. The claim was rejected by the court, on the basis that these are costs incurred for purposes of negotiations which cannot be recovered when no contract results. The use of the words “subject to contract” means that each party had to bear its own loss if there is no contract.
A similar situation occurred in Marston Construction Co Ltd v Kigass Ltd, but with different results. There, parties agreed that the contractor would be appointed to carry out a design and build contract to re-build a factory that was destroyed in a fire. The employer made it clear that the contract would only be awarded when insurance money is available. However, the insurance pay-out was insufficient, and as a result, the project was abandoned. The contractor sued successfully on the basis that there had been requests made for design work to be carried out, and there was an implied request to carry out preparatory work in general.
How to reconcile these two seemingly contradictory cases?
Perhaps it could be argued that the contractor in Regalian Properties plc was carrying out works with the clear understanding that a contract was not yet concluded, but the contractor in Marston Construction Co Ltd was carrying out works on the understanding that the factory will be re-built and that the contract is as good as concluded provided the insurance moneys came through.
It is a fine distinction to be made, and no doubt the factual matrix of every case will add to the complications. That is simply par for the course where construction disputes are concerned.
Kheng Hoe Advocates is a firm of lawyers based in Kuala Lumpur, and focused on construction disputes throughout Malaysia. For any queries, e-mail firstname.lastname@example.org.