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Section 1 Contract Law

Section 2 Company Law

Section 3 Employment Law

Section 4 Law of Tort


Description:  This unit introduces the fundamentals of Contract Law and the Law of Tort. It also introduces Company and Employment Law.

Author:  Gates MacBain Associates

Section 1  Contract Law

Aims and Objectives

At the end of this section you should be able to 
  • state the requirements of a contract.

Reasons for contracts 
  • To identify the parties involved in the project and to state the basic details 
  • To determine the rights and responsibilities of the parties on issues that could cause problems or additional expense, i.e. variations, extensions of time.

Requirements of a contract 
  • Intention – all parties must have intended to enter a binding contract
  • There is an offer and an acceptance - both parties must have accepted the agreement.
  • Consideration - There must be benefit to both parties - one party has a building build, the other receives money for building it.
  • Capacity - Both parties must be able to enter into the contact - they must be over 18 and of sound mind.
  • Legal -The contract must be legal and be possible to fulfil.

A contract is a promise which is enforceable by law.  It is where one party promises to do something in return for the other party doing something else, thus if I promise to build you an extension and you promise to pay me £10,000 for doing it we have in effect a contract.   A number of requirements exist which must be specific for a contract to be enforceable. 

One essential for a contract is a promise and it is important that we understand a promise, as not all promises give rise to a contract. If we agree to meet for a night out we have an obligation but not a legal duty. If I agree to sell you my car for an agreed sum we have a  legal obligation. 

A legal duty arising from a promise can be eithet bilateral or unilateral. A bilateral contract gives rise to obligations on both sides. So if I sell you my car I have an obligation to transfer title to you, whilst you have an obligation to pay the agreed sum. A unilateral contract, places an obligation on just one side. Thus if I promise to sponcer you to run a marathon there is a legal duty on me to pay the money if you run the race, though there is no legal duty for you to run the race.

If we have a contract we have a duty, a remedy for breach of that duty may be: 
  • specific performance where the court orders that the contract is performed as specified 
  • injuctions – the court prohibits the breaking of the contract or 
  • award of damages which allows the person who suffers loss to claim financial compensation for the loss.

Returning to our extension, if I promise to build you an extension we both need to be certain of exactly what the specification that extension will be, ie will it be a single storey consisting of a single room or will it be two stories consisting of a bathroom with gold plated taps and central heating. A more in-depth understanding can be obtained by reading the appropriate chapter in Law and the Construction Industry and by visiting the Law Teacher website.



  • Owen, A, (1998) Law for the Construction Industry 2nd Ed, Harlow: Pearson Longman

Self-Assessment Task

  • State the factors which are required in order for a contract to come into being and be enforceable.  

Section 2  Company Law

Aims and Objectives

At the end of this section you should be able to:
  • Define the ways that a company can trade.
  • Describe the requirements in order to form a limited liability company and state the advantages of trading as a limited company.
  • State the main aspects of Company law.

This relates to companies though it is important to be aware that not all people trading are in fact companies.

A person who is trading can carry on business in one of three ways.
  • Sole Trader
  • Partnership
  • Limited Company

Sole Trader 

A sole trader is a person who is in business on his/her own. S/he is totally liable for the business and any debts that it incurs, it will also mean that if s/he is off work for any reason there will be no income into the business ( unless s/he is off sick and has an insurance). In order to succeed s/he will need to be hard working and self motivated.

The advantages of being a sole trader are that normally overheads are low and there is a lower requirements for capital. There are a number of tax advantages in that a car, telephone, proportion of council tax, heating etc. come out of the firms profit. 


If two or more people get together with the purpose of carrying on a business they in effect form a partnership.  No particular form is needed for the formation of a partnership, if they are carrying on a business and are sharing profits they will be presumed to be partners.

A partnership has the advantage of allowing a sole trader to expand without having the responsibility of taking on employees. It also has the advantage each time a partner is taken on, for tax purposes, it is as if it were just starting.

Great care must be taken when picking partners as all, unless otherwise agreed, have an equal say in the management of the business.  Each partner is deemed to be an agent of the other partners so any partner can enter the other partners into a contract.

Another problem is that the partners in a partnership are responsible for the debts of the partnership, thus one partner could find that s/he has to pay off all the debts of the other partners.

Limited Company

There are a number of advantages in trading as a Limited Company. The most characteristics feature is that in law it has a separate existence from that of its directors and members, and can, therefore enter into contracts on its own account, even with members of the company. It can, however, only enter into contracts which its Memorandum has given it powers to do. This it does through human agents.

Being a separate personality to its members it is able to sue in its own name, and can, in fact be sued itself, as the company is liable for the torts (wrongs) committed by its servants. It is the company which is liable and not the directors (in certain circumstances both may be liable i.e. if fraud has been committed).

Within the limits of its powers the company can trade like an ordinary individual and can own and dispose of property as it wishes.

The company has perpetual succession in that when a director dies or retires a new one is appointed to take his/her place, thus ensuring the continuance of the company.

The main advantage of a limited company is that the liability of the directors is limited to the face value of the shares they own, and whereas if a sole proprietor were to go bankrupt, creditors could take all his/her personal goods and effects to pay off the debt, if s/he were a director of a company his/her liability would be limited to the face value of his/her shares.

Formation of a Limited Company

In order to obtain limited company status a number of documents must be submitted to the Registrar of Companies. The Registrar will ensure that the purpose of the company is lawful and that the name chosen is acceptable. The name must end in the word Limited.

In a private company, the company must have a minimum of two people, one of whom must be a director.

Types of Companies

There are two types of companies:

1.      Private Companies

This type of company is privately owned by its shareholders. It is not allowed to offer shares to the general public. If the company wishes to raise finance by offering shares they must be offered to existing shareholders, those who originally formed or who already own the company.

2.      Public Companies

These have no restriction on the sale or transfer of shares. They can, therefore, raise money by selling shares through the share markets. The main Market is the Stock Exchange. 


Ultra Vires Doctrin

A company can only carry out business with the powers that it has been formed to carry out.  If it enters a contract to borrow money and it does not have that power the contract is void and cannot be ratified. 

Unincorporated Associations

These differ from corporate bodies in that they do not have a legal personality distinct from the members of the association.  They include Trade Unions and most societies and clubs. The law generally disregards the association and treats it as simply a group of persons who are individually responsible for the associations actions

Once you understand the different ways of trading and the concept of a company you should look at Company Law itself.   

A summary of the Companies Act 2006 can be found at the website listed below. While the Department for Business Enterprise and Regulatory Reform (BERR) website provides a good source of information on the 2006 Companies Act.



  • Owen, S, (1998) Law for the Construction Industry 2nd Ed, Harlow: Pearson Longman

Self-Assessment Task

  • Define the ways that a company can trade.
  • State the advantages of trading as a limited company.
  • Briefly describe the areas that Company law addresses.

Section 3  Employment Law

Aims and Objectives

At the end of this section you should be able to:
  • Define the nature of employment.
  • Produce a contract of employment.
  • Summarise the procedure to dismiss an employee in line with employment legislation.

Nature of Employment

The employment relationship arises when one person (the employee, worker) supplies his skill and labour to another (the employer) in return for payment.  The employment may be of a permanent nature, a short period of time or until a particular piece of work is completed. 

The basis of the relationship is the individual contract entered into between the two parties involved. 

Definition of an employee

There is no generally accepted definition of a contract of employment or of the parties to it. This creates difficulty in determining if a worker is an employee or contractor. A number of tests are used these are:
  • The Control Test -  which looks at the extent of control that an employer has over the manner in which the worker carries out the work
  • The Organisation Test - is the worker an integral part of the organisation.
  • The Multiple Test - looks at both the above.

The Importance of the Distinction

In the construction Industry were a lot of sub-contract labour is used, it is important to determine if the worker is employed or not for the following reasons:
  • An employer is normally liable vicariously for the torts committed by an employee during the course of their employment, but not for the torts of independent contractors.
  • An employee has certain statutory rights such as a minimum period of notice compensation for unfair dismissal and compensation in the event of redundancy.
  • Payments and benefits under National Insurance legislation eg unemployment benefit, industrial injuries scheme.
  • Deduction of tax.
  • Employees have beneficial rights in the event of a business failing.
  • Employers have rights over the inventions of their staff.
  • The duties of an employer to provide safe working conditions are more stringent for employees.
  • Employers pay a training levy based on the number of their employees.

Duties of an Employer

An employer owes the following duties to his employees:
  • To provide reasonably safe premises.  He is not absolutely responsible for the safety of the premise providing he has done what could be reasonably expected of him to make the premises safe.
  • To provide safe equipment, tools and materials. Once again his duty is limited to doing what is reasonable to ensure they are safe.
  • To provide a reasonably safe system of work. The employer's organisation must be efficient and co-ordinated to avoid injuries to people engaged on separate tasks. It must also provide reasonably efficient fellow workers.
  • To employ proper staff.  To treat them with respect and to pay the agreed wages and any necessarily incurred expenses.

Formation of a Contract of Employment

A contract for employment can be either verbal or in writing and is subject to the same requirements as the formation of any contract. Though within 13 weeks the employer must give the employee a written statement of the following matters:
  • identification of the parties and the date employment began
  • the scale or rate of remuneration, or the method of calculating it, and the intervals at which it is paid
  • the terms and conditions relating to the hours of work, entitlement to holidays, incapacity for work and any provisions for sick pay and any pension rights
  • the length of notice the employee is entitled to give and receive to bring the employment to an end or the date when a contract for a fixed term is to expire
  • a person who the employee can apply for the purpose of redress of any grievance relating to the employment, the manner in which application should be made and the procedure to be followed.

Terms of Employment

The rights and duties of the parties to a contract of employment may come from the following sources:
  • Express Terms.  These are specifically included in the agreement between the parties.
  • Implied Terms.  These are implied common law duties, which apply on both employer and employee unless there is an express term to the contrary. An example of an implied term is that the employee will exercise reasonable skill.
  • Statutory Terms.  An example is that the employer must provide the employee with written particulars as to the terms of employment.
  • Collective Agreements.  These are made between an individual employer or an employers' association on the one hand and a trade union on the other. Although not binding on an individual (Privity of Contract) they can become incorporated as the terms of the individual contract, e.g. the rates of pay.

Equality Laws

There are a number of pieces of legislation relating to equality in employment which require that people are not discriminated against for any reason, ones that you should be aware of are:
  • The Equal Pay Act 1970
  • The Sex Discrimination Act 1975
  • The Race Relations Act 1976
  • The Disability Discrimination Act 1995     
  • The Race Relations Amendment Act 2000
  • Religious/Belief Discrimination Regulation 2003
  • The 2003 Sexual Orientation Regulations
  • The Employment Equality (Age) Regulations 2006

More can be found out about these by visiting the links below.

Termination of Employment 

If a contract is for a fixed period of time or a particular piece of work, it will normally end automatically on the expiration of the time, or on the completion of the work. If, however, the person is employed "on the books" it is usual for the employment to be for an indefinite period which continues until some event puts an end to it.

Notice of Termination

If the employment is for an indefinite period, either party may terminate by giving notice to the other, the length of notice is frequently an express term in  the contract. Even in a fixed period contract, there may be a term entitling one or both parties to terminate earlier by notice. If there is no prior agreement on notice period, reasonable notice must be given.

At common law, what is reasonable notice will depend on such matters as trade practice, length of service, the period by which wages or salary is calculated, and the seniority of the position held.

These common law rules are subject to statutory minimum periods, which imposes obligations upon both parties as regard the length of notice to terminate the employment.

These are that an employer must give at least one-week notice if the employee has been employed for four weeks. If he has been employed for two years he will get at least two weeks, thereafter he will receive an additional week for each year up to a maximum of twelve weeks.

An employee is required to give one-week notice to his employer after he has been employed for four weeks.

Notice can be wavered by the parties agreeing that pay in lieu of notice is acceptable.


Employees should be told on joining the company what constitutes an action that can lead to dismissal, who can give warnings and who can dismiss them.

Although by law only one oral and one written warning is required, ACAS advises four stages:
1.Oral warning.
2.Written warning.
3.Final written warning.

Gross misconduct carries instant dismissal.

Warnings must be recorded and confirmed by employee.

If in doubt of the facts of an incident the employee should be suspended on full pay while an investigation is carried out.

Employees must have the right to appeal against a warning that could lead to dismissal. An appeal must not be made to the person who issued the warning or dismissal.

A Grievance procedure should be set up by the company for individuals that it employs. Details on this can be obtained by going to the Employment Matters link and searching on Grievance procedure.

Termination without Notice

The employer may treat the contract as being at an end and dismiss the employee on the spot if the employee is in serious breach of a term (either express or implied) of his contract. The employee will not be entitled to notice, or payment of wages other than the amount due up to the time of the dismissal. The employees conduct must, however, be a serious breach. Occurrences, which may count as justifying instant dismissal, are:
  • Disobedience.  The order must be lawful and one which the employer was competent to give. The disobedience must be serious, and an isolated occurrence may not be enough.
  • Negligence.  One careless act will normally not be sufficient, but repeated negligence might justify summary dismissal, particularly if the employee has been warned in the past. Much will depend on circumstances.
  • Incompetence. When an employee is engaged he expressly or impliedly undertakes that he has the skills and ability to do the job. If the employer later discovers that the ability is lacking, he may immediately dismiss the employee.
  • Misconduct.  This can cover any serious misbehavior, which is inconsistent with the position held, and the proper performance of the employees duties. It can include dishonesty, physical attack on another person, immorality.

Similarly, an employee may leave his job immediately if the employer is in serious breach of any of his duties.

An employer should exercise great care before dismissing an employee or the latter may make a claim for unfair dismissal to an Industrial Tribunal. The Advisory, Conciliation and Arbitration Service (ACAS) which it is advisable to follow lay down a code of discipline practice and procedures.
The Business Link web site provides guidance on dealing with disciplinary problems. 

Current Legislation

In all aspects of law it is imperative that you keep up to date with development and changes in the law as numerous new pieces of legislation are introduced each year and things like the minimum wage must be kept current. A good place to maintain your currency is on the Department for Business Enterprise and Regulatory Reform website which deals with employment matters; this can be accessed by clicking on their link below.



  • Owen, A, (1998) Law for the Construction Industry 2nd Ed, Harlow: Pearson Longman

Self-Assessment Task

  • Produce a guidance sheet laying down the requirements and procedures which must be gone through before dismissing an employee.
  • Produce a contract of employment for a person taking over your job. 
  • Define the ways that a company can trade.
  • State the advantages of trading as a limited company.
  • Briefly describe the areas that Company law addresses.

Section 4  Law of Tort

Aims and Objectives

At the end of this section you should be able to:

  • Define the Law of Tort.

A "tort" is a civil wrong. Such wrongs include trespass, negligence, nuisance and defamation (libel and slander). The law of torts represents the means whereby individuals may protect their private interests and obtain compensation from those who violate them.

The Distinction between Crime and Tort

Serious wrongs are called crimes and are punished by the state.
Lesser wrongs are called torts and are not punished by the state but the injured party must sue in order to be paid damages by the offender.

Scope of Torts
  • Trespass to the person - threatening to punch me if I don't give you a Merit
  • Trespass to goods - not returning the book I lent you after I demanded its return
  • Trespass to Land - entering my property or depositing rubbish on it
  • Nuisance - is also a crime
  • Defamation - lowering the estimation of another in the eyes of society. Libel, a permanent form, ie in writing, Slander, a transient form, ie spoken.
  • Negligence - the breach of a duty to care
  • Deceit or fraud - making a false statement of fact with the intention that it will be acted upon.
  • Injurious falsehood - that the plumber is not qualified
  • Passing off - pretending you did some work in order to obtain work that another should have had.
  • Conspiracy - where two or more people combine in order to cause some harm.
  • Malicious prosecution - instituting criminal proceedings against a person which would damage them in some way. 
  • Malicious inducement of breach of contract - malice must be proved. I induce you to leave your employer and come and work for me so that I can get his contracts and put him out of business.

Remedies for Tort

Remedies for torts are either judicial which are available through the courts or extra-judicial, which an injured person can exercise themselves.


These are damages and injunctions.

Damages may be Nominal which are awarded for a technical infringement where there has been no real damage; or Real ie financial compensation awarded for some real harm suffered by the plaintiff.

Exemplary damages may be award in excess of any material loss to show the court’s sympathy with the plaintiff or to penalise the defendant.

  • Forcible retaking of chattels
  • Force for self defence
  • Force to prevent trespass


Negligence is a tort, it is a breach of duty that a person owes another. It requires that you must take reasonable care to avoid acts or omissions which you can reasonably foresee are likely to injure another person: It imposes a duty of care and relates to three concepts:
  • reasonable foreseeability of harm
  • the claimant and the defendant being in a relationship of proximity
  • it being fair, just and reasonable to impose liability for careless actions.

Negligence is a civil wrong though it can also be a criminal act as well. It can be defined as conduct that falls short of what a reasonable person would do to protect another person from a foreseeable risk of harm.

Breach of duty is not restricted to professionals it applies to all members of society who have a duty to exercise reasonable care toward others and their property. For a breach of duty to be upheld by the courts the danger must be  sufficiently foreseeable according to the standard of knowledge known at the time


There are three types of nuisance all of which can occur during construction work.

1.  Public Nuisance – this is a crime 
2.  Private nuisance – a tort
3.  Statutory nuisance – created by Acts of Parliament

1. Public Nuisance

A public nuisance is an act or omission which materially affects the reasonable comfort and convenience of life of a reasonably large proportion of the population ie a village. The obstruction of the highway or making a highway dangerous is examples as is polluting a public water supply.

As public nuisance is a crime it is no defense to say that there was consent as one can never consent to a crime.

The obstruction of the highway must be permanent or of sufficient duration to be a nuisance, the obstruction for a reasonably short period may not be a nuisance.

Public nuisance may also be committed by someone who occupies premises close to the highway.  If they fail to maintain a wall which collapses and injures someone on the highway they leave themselves open to be sued, regardless of if they knew of the danger or not. This relates to damage occurring due to disrepair not natural causes or other people’s damage.

2. Private Nuisance

A private nuisance is the interference for a substantial length of time by owners or occupiers of land, with the use or enjoyment of neighbouring land. 

Such interference may be caused by noise, smoke, smell, water, gas, fumes, roots or any type of behaviour which causes the neighbour to be unable to use or enjoy his property.


Suing for Nuisance

In order to sue successfully damage or harm must have been caused.  This may take the form of physical damage to the property caused by roots or vibration.  Alternatively, it may interfere with the use or enjoyment of the land, though this must not be trivial  nor must it be occasional.

Construction work can be classed as excessive and unreasonable if the noise and dust adversely affects the trade of another business.

The nuisance must be caused by another person on neighbouring property, not on the plaintiffs own property.


Who can sue?

The plaintiff must prove that he has the right to enjoy the land or an easement over the land. Consequently he must be in possession unless the damage is physical and effects the property in some permanent way in which case someone who is not in possession may sue.

Who can be sued?

The occupier – He is responsible for his own acts and his family, employees, guests, contractors.  The occupier is also responsible for nuisances which were created by previous owners/occupiers.

Creator of the nuisance – He is responsible even if he has left the land.

Persons authorizing a nuisance – If you let a property/land and the tenant creates a nuisance you could be sued. Note the inclusion of a clause in a letting agreement prohibiting nuisance.


Damages – The plaintiff would be entitled to compensation.  This could be awarded even though the plaintiff acquired the property after the nuisance occurred ( In Master v. Brent LBC 1978 the plaintiff purchased a house some time after the council had planted trees, the roots of which caused subsidence, he was able to recover the cost of remedying the damage).

Injunction – This may be permanent or it may require the modification of behaviour e.g. operations to be carried out only between certain hours. They may also be granted but suspended in order to allow the defendant to modify his behaviour. 

Abatement – This allows the a person to abate the nuisance himself e.g by cutting off overhanging branches which impinge on his property.

3. Statutory Nuisance

There are various pieces of legislation which make some behaviour statutory nuisances. 

The main areas are Control of Pollution and the Public Health Acts.

Dealing with noise and noise pollution

You must take reasonably practicable measures to reduce noise exposure by means other than providing ear protection if you or anyone who works for you is exposed to either:
  • a daily personal noise-exposure level of 90 decibels or above, which covers noise exposure over the course of a working day
  • a peak sound pressure of 200 pascals or above, produced by a single loud noise

The most effective way of controlling noise is by removing the source of the noise. This may be achieved by changing working practices or processes to avoid noise risks without making them less efficient. If this isn't practicable, you must take steps to reduce the level of noise by looking at each source of the noise and considering how it can be controlled. 

In order to reduce noise you should consider both engineering and organisational solutions, such as:
  • use dampening to stop machine panels vibrating
  • isolate vibrating machinery
  • reduce fan speeds
  • fit silencers on exhausts
  • enclose machinery parts
  • put up soundproof barriers
  • use insulation to contain sound within buildings where noisy work is carried out
  • change working patterns so that any exposure to high noise levels is for shorter lengths of time
  • position sources of noise further away from workers

You should also consider the impact of noise on people in the vicinity of your activity. For instance, you could position sources of noise away from the boundaries of the premises.

Information on noise and how to reduce it is available from the Health & Safety Executive website. This can be obtained by clicking the Noise link or from the HSE website and then doing a search on any aspect of noise.



  • Owen, A, (1998) Law for the Construction Industry 2nd Ed, Harlow: Pearson Longman

Self-Assessment Task

  • Describe how the Law of tort could affect a construction company.

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