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“But you accepted it the last time”: Can past actions prevent the enforcement of contractual provisions?

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Estoppel. Micheál will explain the equitable doctrine known as Estoppel by Convention and will discuss the consequences plus more

The nature of the construction industry means that progress is not always in a straight line and contractual provisions can often be relaxed, or even ignored, in an attempt to keep the project moving forward.

So, what are the consequences if: payments are made for a late payment application; variations are accepted without daywork sheets being signed; or if a claim is agreed without it being notified in accordance with the contract?

In these instances, if a pattern of these actions can be established, this may prevent the employing party from enforcing the strict contractual provisions – such as the condition precedents often associated with the notifications for claims under a construction contract.

In other words, if a party, through its conduct, has led another party to believe that an action (such as issuing a payment application late) is acceptable, it cannot then challenge a payment application that was submitted late on the basis that it was not submitted in accordance with the timing provisions of the contract.  This is known as estoppel by convention.

Estoppel by Convention 

For estoppel by convention to arise, some conditions must be fulfilled, they are as follows:

  1. A common assumption must be shared between the parties, evidenced in writing or through consistent conduct;
  2. The party relying on the assumption must have altered its behaviour in some way in expectation of reliance on that assumption;
  3. There must be actual reliance on the assumption;
  4. This reliance must have occurred throughout the dealings between the parties (therefore forming a convention) and, because of this reliance ,some detriment must have been suffered by the party relying on the estoppel;
  5. It must then be unconscionable for the party against whom the estoppel was raised to depart from the established convention.

When these conditions are satisfied, the parties can create a convention which binds their future conduct.  As a result, a party may be liable for its failure to act in accordance with the convention that was established by its previous acts and may be prevented (i.e estopped) from enforcing what would otherwise be its contractual rights.

Estoppel by Convention – Construction Caselaw

Estoppel by convention was one of the arguments raised in the well-known TCC case of Leeds City Council v Waco UK Ltd [2015] EWHC 1400 (TCC) (22 May 2015).  In this case, twenty-four applications for payment were made by WACO UK Limited (“WACO”), fifteen of which were issued after the contractual payment claim date but subsequently paid by Leeds County Council (“LCC”).

The judge found that a convention had formed whereby LCC had agreed to accept applications for payment that WACO had issued late, and because of this, LCC would have been unable to reject or challenge any late applications.  Obviously, there would be some limitations to this, for example there is a difference between accepting a payment application a day late and a month late, so the extent of any contractual relaxation will be a limiting factor.

While this finding did not ultimately contribute to the judgement reached, it provides a clear example for when an estoppel by convention argument may arise during a construction contract.

The difficulties for a party seeking to rely on an estoppel by convention argument will be in proving that a common assumption has been shared between the parties.  This is subjective and not always immediately clear.

In the previous payment example above, this may prove simpler when there is a consistent record of payment correspondence between the parties, however, when it comes to more impromptu events such as notifications for additional time and money claims or the agreed valuation of variations, the challenge will be much greater.  As the Judge in WACO stated, One swallow does not make a summer” – so one act is insufficient to establish a course of dealings.

Nonetheless, our advice remains the same: ensure you are adhering to the contractual provisions and keep detailed contemporaneous records under your contract and you will be better placed to fulfil the burden on any contractual claim.

Limitations to Estoppel by Convention

Like any legal doctrine or principle, there are some limitations to the estoppel by convention doctrine that you should be aware of:

a) You will remain liable for any statutory obligations, so failing to enforce a Health and Safety obligation will not entitle a contractor to escape liability;

b) Estoppel cannot be a cause of action, only as a defence, in the payment examples above, this means it can only be used to resist the denial of the application’s validity, not to assert the application is valid (subtle but there is a difference);

c) Estoppels are not eternal, and they can come to an end if it is communicated that the common assumption will be ended; and

d) Non-waiver clauses incorporated into many amended forms of contract will attempt to ensure that no action by a party can constitute a waiver of any such provision or create an estoppel to enforce such provision in the future – although there are ways to argue around this.

As mentioned above, the overriding objective of the doctrine of estoppel by convention is to “mitigate the rigours of strict law” and to provide complete justice when the actions of the parties are fully considered, so despite its limitations, it still remains a viable remedy – particularly for payees under a construction contract.

Summary

In my experience, estoppel by convention is a frequent argument raised in contentious construction disputes, especially in relation to the rejection of claims under notification or time bar provisions.  Often, contemporary records can show that previous non-notified claims were accepted – potentially forming a convention.  This often results in claims being due (whether it be decided by an adjudicator or otherwise) even though such claims were not notified correctly.

The key takeaway is simple: the contractual provisions within your contract can be altered by conduct between parties.  This may be seen as somewhat of a redeeming feature for some, for others this may be a cause for concern.

If a project team member has acted outside of your contract, maintained this position for an extended period of time and is now attempting to revert from that position,  please get in contact with us for some detailed advice on how to deal with your particular situation.

If you have any questions on the matter, please contact Micheál O’Shea at:
micheal.oshea@QuiggGolden.com

 

Don’t forget to follow Quigg Golden on LinkedIn here.

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