The Removal of the Consideration Requirement, and the Consequent Clarification on Duress, for Verbal Modifications to Irish Construction Contracts By Conor Francis Joseph Mooney For the Degree of Doctor of Philosophy Supervised by Mr Raymond Friel Submitted to the University of Limerick, May 2014 !i The Removal of the Consideration Requirement, and the Consequent Clarification on Duress, for Verbal Modifications to Irish Construction Contracts Conor FJ Mooney This thesis studies the consideration requirement for verbally-made contract variations in Irish construction contracts, and proposes how this specific circumstance can be best served by the law of contract. Construction is a complex and uncertain industry; and an effective construction industry is important and necessary for Ireland: it is a key driver of a functioning, developed economy, and it requires a sustainable level of activity to maintain infrastructure and develop new assets, consistent with what is expected of a developed nation. Yet it often involves projects of financial and technical vastness; and operates in an environment of risk, contractual risk allocation and residual uncertainty. The law of contract is essentially applied in the same way by the courts, regardless of whether the transaction is one of a major or minor nature. This contract paradigm is a straightforward and rigid system, which is designed for simple contracts involving equally-met parties, conducting non-complex transactions. Construction is an industry which operates within this contract paradigm, even though construction contracts are rarely as straightforward as those envisaged by the contract paradigm. When agreeing a construction contract, parties attempt to foresee all possible risks which could occur in the transaction, even though, in the case of construction, it is often impossible to foresee all the risks. This thesis studies the nature of the construction industry in general, and the Irish industry in particular; it examines the characteristics of risk and risk allocation in construction contracts, and then, by analysing the consideration requirement for contract modifications, as well as the doctrines of promissory estoppel and duress, looks at the alternatives to contract law requirements for the presence of consideration in situations of verbal modifications to existing, properly-formed construction contracts, where fresh consideration is absent. The thesis recommends that, in order to simplify the process which exists in the Irish construction industry, the consideration requirement be removed solely from this specific circumstance, for the categories of construction activity covered by the Construction Contracts Act 2013, and provided that duress is not present. !ii Declaration I declare that this thesis and the work presented in it are mine alone, and have been generated by me as the result solely of my own original research. Furthermore, I confirm that parts of this work have been published as: Mooney C, ‘Design Management’ in ICE Manual for Project Management (London, Institution of Civil Engineers/Thomas Telford forthcoming). Mooney C and Mooney E, ‘Risk Allocation in Construction Contracts - Irish Public Works,’ (2014) 167 Management Procurement and Law 68. Signed: Date: 25th May, 2014. !iii Acknowledgements I offer my thanks and gratitude to my supervisor Mr Ray Friel, and to Professor Conleth Hussey, Head of Department of Civil Engineering and Materials Science, University of Limerick, for their advice, guidance and direction at key moments during this research. I would also like to especially thank my wife, Emma, together with my parents, for their unfailing support and encouragement. !iv Table of Contents Abstract ………………………………………………………………..………..ii Declaration ……………………………………………………………..………iii Acknowledgements ……………………………………..…………………….. iv Table of Cases ………………………………………..…………………….….. x Table of Statutes …………………………………..…………………….…… xvi List of Abbreviations ………………………………………….………….…. xvii Chapter One: Introduction…..…..……………………………………… 2 1.1. General 1.2. Context for Study 1.3. Development of Primary Research Question 1.4. Outline of Examination of Primary Research Question 1.5. Contribution to Knowledge 1.6. Methodology Chapter Two: The Construction Industry in Ireland …………..…… 16 2.1. Introduction 2.2. What is meant by ‘Construction’? 2.3. Subcontracting in Construction 2.4. Role of Construction in Irish Society 2.4.1. The Irish Construction Industry: 1920 to 1993 2.4.2. The Irish Construction Industry: 1994 to 2006 2.4.3. The Irish Construction Industry: 2007 to 2013 2.4.4. Construction and its role in asset creation 2.5. Project investment appraisal 2.6. Special Characteristics of the Irish Construction Industry 2.7. Conclusions !v Chapter Three: Exploring Risks in Construction Contracts ……….… 54 3.1. Introduction 3.2. Risk Allocation within Construction Contracts 3.2.1. Categories of Construction Risks 3.3. Principal Construction Procurement Routes 3.4. Standard Contract Terms in Construction Contracts 3.4.1. The UK Approach to Public Works Contracts 3.4.2. The Standard Forms of Construction Contract Currently in Use in the UK (other than Public Works) 3.4.3. The Irish Approach to Public Works Contracts 3.4.3.1. Variations under the Irish Public Works Contracts 3.4.4. The Standard Forms of Construction Contract Currently in Use in Ireland (other than Public Works) 3.5. Contract Amendments in Irish Construction Contracts 3.6. Subcontracting in the Irish Construction Industry - Contractual Arrangements 3.7. The Construction Contracts Act 2013 3.8. Conclusions Chapter Four: Enforcement Issues in Construction Contract Variance I - Consideration, Promissory Estoppel and Reliance ……………………… 138 4.1. Introduction 4.2. The pertinence of Williams v Roffey Brothers and Nicholls (Contractors) Ltd to the Irish Construction Industry 4.3. Attributes of Consideration I: The pre-existing contractual duty rule 4.4. Attributes of Consideration II: Consideration must be of some economic value 4.5. Promissory estoppel 4.6. Consideration in the context of contractual modifications !vi 4.6.1. The Canadian View on Consideration in Contractual Modifications, in NAV Canada v. Greater Fredericton Airport Authority Inc. 4.6.1.1. Outline of the Case 4.6.1.2. Robertson, JA on behalf of the New Brunswick Court of Appeal on Consideration 4.7. The use of the concept of “practical benefit,” and the alternative approaches 4.8. Conclusions Chapter Five: Enforcement Issues in Construction Contract Variance II - Voluntariness versus Duress, including Economic Duress ………………. 196 5.1. Introduction 5.2. The Importance of Duress to the Research 5.3. The Illegitimate Pressure Perspective 5.3.1. Determining Illegitimate Pressure - The Nature of the Demand 5.3.2. Determining Illegitimate Pressure - The Nature of the Pressure 5.3.3. The Different Forms of Illegitimate Pressure - Undue Influence and Unconscionable Bargains 5.3.4. The Role of Intention in Determining Illegitimate Pressure 5.3.5. Community Norms and Normal Fortitude 5.4. The Overborne Will Perspective 5.4.1. The Effect of Pressure on an Individual 5.4.2. Criticisms of the Overborne Will Perspective 5.5. Attempts to Examine Duress from an Inequality of Bargaining Power Perspective 5.6. Conclusions !vii Chapter Six: Special Treatment in Law for Construction Contracts …… 258 6.1. Introduction 6.2. Contracts which are treated differently 6.2.1. Employment contracts 6.2.2. Insurance contracts 6.2.3. Contracts for the Sale of Land or an Interest Therein 6.3. Applicability to Irish construction contracts 6.4. Conclusions Chapter Seven: Theoretical Underpinning of Formalist and Realistic Approaches ………………………………………………………………… 272 7.1. Introduction 7.2. The “formalist” and “realist” approaches to supporting commercial intent 7.3. Benefits of the “realist” approach 7.4. The four features required to facilitate competitive exchange amongst parties 7.5. Comparison of the consistency of the formalist and realist views on the four features 7.5.1. Security of transaction 7.5.2. Certainty 7.5.3. Commercial intent primacy 7.5.4. Facilitation of market dealing 7.6. Benefits of the “formalist” approach 7.7. Criticisms of and conclusions on the “formalist” approach 7.8. Criticisms of and conclusions on the “realist” approach 7.9. Conclusions on formalism/realism and proposal on the way ahead !viii Chapter Eight: Proposal Defence, Conclusions & Recommendations……296 8.1. Defence of proposal 8.2. For whom does the removal of the consideration requirement (in this context) ultimately benefit? 8.3. The proposed solution and the common law 8.4. Conclusions of study 8.5. Recommendations 8.6. Limitations of study Bibliography ………………………………………………………………… 322 !ix Table of Cases A Aberblom v Price, Potter, Walker & Co (1881) 7 QBD 129 ACC Bank v Dillon & Ors [2012] IEHC 474 Adam Opel GmbH v Mitras Automotive UK Ltd [2007] EWHC 3252 (QB) Alexander Thorn v. The Mayor and Commonality of London (1876) 1 AppCas 120 Alfred McAlpine Capital Projects v Tilebox Ltd [2005] BLR 271 Allcard v Skinner (1887) 36 ChD 145 CA An Cumann Peile Boitheimeach Teorenta v Albion Properties Ltd & Ors [2008] IEHC 447 Arrale v Costain Civil Engineering Ltd [1976] 1 Lloyd’s Rep 98 Ascon Contracting Ltd v Alfred McAlpine Construction Isle of Man Ltd (2000) 66 ConLR 119 AXA Insurance UK plc v Cunningham Lindsey United Kingdom [2007] EWHC 3023 (TCC) B B. (formerly known as M) v L. [2009] IEHC 623 Bank of Credit and Commerce International SA v Aboody [1990] 1QB 923 Barton v Armstrong [1976] AC 104, [1973]