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Warning: building contracts can seriously damage your life

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legal matters

Building contracts are the stuff of life - professional life that is. I do not chat animatedly over dinner about recent amendments to jct 98, although some do. Professionally I am very keen on building contracts. Personally I dread them. Our weekend cottage is in the throes ofrefurbishment. On any objective scale it is a tiny contract; minor works with a small 'm'. For us, however, the cost is considerable and the anxiety great. Being in the business really does not help. Experience merely alerts you to all the horrors that might be visited upon you: fire, flood, contractor insolvency, negligent certification and latent defects, to name but a few.

That a private individual, paying for building works out of personal income or borrowings, should be wary of a building contract is illustrated by the tragic case of Kathleen Saigol. In 1988 Saigol was a television producer with a good salary and money in the bank. She lived with her two sons in a mansion block in South Kensington. Her flat was worth around £500,000. She proposed, on advice, to spend £130,000 on the flat and then sell it for £750,000. The works were to be financed by a bank loan to be advanced on certified sums, subject to the bank's surveyor's approval. Had all gone according to plan the works would have been completed within 6 months and Mrs Saigol would have sold her flat and paid off the loan from the enhanced equity. Instead, as a result of the gross incompetence of those responsible for the works, her life was ruined. She suffered 11 years of complex, Jarndycian litigation with a total legal bill of £1.6 million. She was made bankrupt and lost her home, her job and her health. The Court of Appeal described the case as a 'tragic saga'.

The main culprit in the tragedy was Mr Johnson, a trainee surveyor employed by Congreve Horner & Co, which was named as supervising officer in the building contract. The judge found Mr Johnson to be 'overbearing, offensive and unhelpful'. Importantly he was not prepared to accept that he lacked the necessary experience to run an unduly complex project singlehandedly. As a result the project soon got into difficulties, as did relations between Mrs Saigol, the contractors and Mr Johnson. Saigol, unwisely but perhaps understandably, refused to pay her contribution to various certificates issued for more than the contractors were entitled to. The last straw was the issue of the certificate of practical completion, when Saigol's flat was, in fact, uninhabitable. This misjudged certificate had profound consequences since the contractors, who were entitled to treat their work as finished, and who had not been paid, left site.

Litigation inevitably followed. In the meantime, Saigol was unable to sell her flat and very soon was unable to service the substantial loan. When some sort of solution was eventually reached, and Saigol re-occupied her flat and placed it on the market disaster struck again. A four tonne chimney stack, which had been part of the works, collapsed, forcing her to vacate her home again. By this time the costs of remedial works, experts fees and legal costs had exhausted Mrs Saigol's capital. She was made bankrupt and obtained legal aid to proceed with her claims in three sets of legal proceedings. In 1998, Technology and Construction Court Judge Thornton qc found in her favour and ordered Congreve Horner to pay the bulk of her damages totalling £740,000. Congreve Horner appealed, primarily on the grounds that they were not liable to pay the considerable interest charges on Mrs Saigol's bank loan, because Mrs Saigol had not, in fact, paid them. Instead her liability had been written off as part of the compromise of her action against the bank. The Court of Appeal held that Congreve Horner's breaches had caused Mrs Saigol to lose her main asset, and her home, and to be placed into bankruptcy. They should not, therefore, be able to rely upon any argument that depended upon the very facts that they had brought about by their own breach of contract.

This terrible tale provides a new perspective on the old adage-let the customer beware!

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