One change too many

Is there any position for the American concepts of “Cardinal Changes” and “the cumulativeimpact doctrine” in English Law? 1

Lewis Cohen and Jonathan Miller2

IntroductionAlmost without exception every form of construction contract allows for variations. English caselaw3 has dealt with this subject in great detail, as can be seen from the lengthy chapters on this area inthe latest editions of Keating on Building Contracts and Hudson’s Building and EngineeringContracts. The need for variations is self-evident. There will always be some form of change in abuilding contract for a variety of reasons; a change of design by the Employer and the need toaccommodate unforeseen ground conditions are two of the more obvious examples.

This paper looks at a specific point where the American legal system has developed beyond Englishcontract law and analyses whether the advances made in American Law can be implied into Englishcontract law. The development in question concerns the effect of a series of changes to any givencontract with the result that the contract becomes fundamentally different from that which the partieshad initially entered into. This development is contained within the two American concepts of“Cardinal Changes” and the “cumulative impact” doctrine.

These two concepts allow a contractor to establish that a series of variations can combine to form abreach of contract so significant that it results in a termination of the contract. This is somethingwhich on first consideration has no place in English Law. This paper will consider whether there isroom for either concept in English Law and if not how this issue is dealt with.

The American PositionThe following definition of Cardinal Changes is taken from a 1978 case and is as follows:

“Under established case law, a cardinal change is a breach. It occurs when the governmenteffects an alteration in the work so drastic that it effectively requires the contractor toperform duties materially different from those originally bargained for. By definition, then,cardinal change is so profound that it is not redressable under the contract, and thusrenders the government in breach.”4

The doctrine started as a principle of United States Federal Law, developed by the caselaw of theUnited States Court of Claims. It was a doctrine developed for a practical purpose:

1 This paper was first published in Construction Law Journal Vol. 18 No. 5 in 20022 Lewis Cohen is a solicitor in the practice of Speechly Bircham and Jonathan Miller is a barrister in the chambers of Desmond de Silva QC(1 Essex Court)3 References to “English Law” are shorthand for the Law of England and Wales but not Scotland and Northern Ireland. 4 Allied Materials & Equip. Co v United States 569 F.2d 562.

(a) US government contracts invariably contain a standard dispute clause providing for adetermination of disputes arising under the contract by an administrative procedure.In normal circumstances, that administrative determination can then only bechallenged by way of judicial review. The usual criteria for such review (fraud,capriciousness, gross error, absence of evidence, mistake of law) are not verydifferent in the United States from those which would apply in England and Wales.

(b) The cardinal change doctrine enabled government contractors to by-pass theadministrative determination-judicial review route and go to a Federal Court for trialon a claim for damages (either before, after or instead of the administrative disputeresolution provided for in the contract).

(c) A further utility of the doctrine became apparent after US government contractsbegan to include standard “termination for convenience” clauses, which have theeffect of excluding government liability for loss of profit by limiting recovery afterrepudiatory breach to a quantum meruit for work done (that is very much a summaryof a complex area). In such circumstances, a contractor could recover loss of profits ifit could bring itself within the cardinal change doctrine.

Although the doctrine evolved as a practical response to the specific provisions of US governmentcontracts, there does not seem to be any conceptual reason why it should not be of more generalapplication. Indeed from discussions with American Lawyers it seems there is anecdotal evidence thatthe doctrine of Cardinal Changes is no longer exclusively applied to cases where it is the USgovernment effecting the alteration and the concept may be applied to construction contracts that donot have a governmental body as a party. There are obvious attractions for use of the doctrine in anysituation where a party seeks to avoid an unwanted and inconvenient dispute resolution clause, or anunwanted and inconvenient limitation on recovery under the contract.

Although the doctrine of Cardinal Changes may not be relevant to any discussion concerning EnglishLaw in its own right, it is needed to assist in understanding the second and potentially more relevantdoctrine known as the “cumulative impact” doctrine. This doctrine is not as clearly defined as thedoctrine of “Cardinal Changes” but in effect the basic idea of the doctrine is as follows:

“The basic idea of this doctrine is that the cumulative impact arising from not one, but manychanges occurring throughout the change order process in combination results in anadverse effect on the construction process and unforeseeable costs. The doctrine,unfortunately, is not well defined by the American courts and tribunals, and some Americancourts and tribunals have held that to prevail with a cumulative impact claim, the claimantmust demonstrate cumulative impact rising to the level of a cardinal change. Thus, while thetwo doctrines may be related, they are not necessarily indistinguishable.”5

The “cumulative impact” doctrine appears to have its origins in decisions of the US Court of Claimswhich emphasised that the issue of a cardinal change was a question of fact and that

“Each case must be analysed on its own facts and in light of its own circumstances, givingjust consideration to the magnitude and quality of the changes ordered and their cumulativeeffect upon the project as a whole.”6

5 This definition has been suggested in correspondence between one of the authors of this paper and a US Construction Lawyer.6 Wunderlich Contracting Co v United States 351 F.2d 956 (a965) at p 966

An example of the potential cumulative impact of many changes, each justifiable under the contract,can be found in the case of Air-A-Plane Corporation v the United States (408 F.2d 1030 (1969),which dealt with the important matter of smoke generators. Air-A-Plane had entered into a fixed pricecontract with the US Army Chemical Corps to make smoke generators to a detailed specification. Thecontract had a “Changes” provision reserving the right to the Government to order changes.

In fact, after the contract was signed over 1000 changes were made, with the effect (it was said) thatproduction was disrupted and the contract took on the aspects of a design or development contractrather than a fixed price supply contract. Air-A-Plane claimed breach of contract by the USgovernment. The Court of Claims decided in a preliminary hearing that the issue was entirelyarguable at trial, although the Court was also clear that it was dealing with a species of cardinalchange, not a separate doctrine.

This paper will not comment in substance on the mechanics of these two American doctrines, butinstead will focus on the way in which English Law deals in practice with the problem thrown up bythese two doctrines and in particular the “cumulative impact” doctrine.

The English PositionThe first point to make (and it is a point which can be stated categorically) is that the concept ofCardinal Changes does not exist in English Law. There is no distinction made between contractualrelations which involve the state and a private entity and those between two private entities. Englishlaw does provide for the situation where a party effects an alteration in the work so drastic that iteffectively requires the contractor to perform duties materially different from those originallybargained for, but there is no distinction with respect to the Government. However, as stated above,the law of the United States does not restrict the doctrines conceptually (nor practically) to relationsbetween the Government and private individuals.

As an aside, there is only one recorded situation under English contract law (that the authors areaware of) where the issue of “cumulative changes” has been approached in any other way. Thisoccurred in the context of employment law and is arguably analogous to the American position. It hasbeen accepted that incremental changes in an employee’s duties, not in themselves necessarilyrepudiatory breaches, can amount in the round to an intention on the part of the employer not to bebound by the contract of employment and therefore amount to a repudiatory breach7.

Before we consider the areas of breach of contracts and the specifics of construction contracts it isworth restating certain basic aspects of the law of contract starting with the law of implied terms.

Implied TermsOne way in which English contract law protects any party to a contract is the mechanism of impliedterms. There a number of these deriving from Common Law or Statute such as “fitness for purpose”and “satisfactory quality”. There are three in particular that are relevant in the context of this paper.

7 Coleman v S & W Baldwin [1977] IRLR 342, a decision of the Employment Appeal Tribunal

There is a principle known as the “Moorcock principle”8 which states that the law raises “animplication from the presumed intention of the parties with the object of giving to the transaction suchefficacy as both parties must have intended that all events it should have”. In brief the law expectsthat parties enter any given contract with the mutual expectation that the contract can be performed.

This principle is taken further in a separate implied term that the parties will co-operate to ensure theperformance of their bargain. This principle will only be implied into a contract where the subjectmatter of the contract requires both parties to co-operate to give efficacy to the contract.9

Furthermore there is also a doctrine that implies a term that a party will not do an act which, if done,would prevent fulfilment of the contract. This is summed up in the 1864 case of Stirling v Maitland10

as follows:“If a party enters into an arrangement which can only take effect by the continuance of acertain existing state of circumstances, there is an implied engagement on his part that heshall do nothing of his own motion to put an end to that state of circumstances under whichalone the arrangement can become operative.”

It must be remembered that the Courts will only imply these terms into any given contract after anexamination of the facts in question and these last two terms will not be implied into every contract.The test the Courts apply is the standard test as to whether it is equitable and reasonable in all thecircumstances.

Performance“The general rule is that a party to a contract must perform exactly what he undertook todo” (Chitty 22-001). This general rule has been moderated by the concepts of partialperformance and substantial performance which are not addressed within this paper.

There is, however, one specific point made in this section by Chitty that is directly relevant to thesubject matter of this paper is contained at paragraph 22-036; ‘Defendant preventing completeperformance’ as follows:

“If the other party to the contract wrongfully prevents the claimant from completing hisperformance, the claimant may either recover damages for breach of contract, oralternatively sue upon a quantum meruit to recover a reasonable remuneration for hispartial performance.”11

The question of what would be the ‘appropriate measure of damages” is discussed further below.

Rescission – Substituted Contracts The next area to consider is that of rescission. Rescission in its most basic form is where neither partyhas performed the whole of his obligations and there is a mutual agreement to rescind the contract.Such a rescission can be express or implied. Chittty sets an explanation of where rescission can be

8 The Moorcock (1889) 14.P.D. 64, 689 Luxor (Eastbourne) Limited v Cooper 1941 AC 108 10 Stirling v Maitland (1864) 5 B. & S. 840, 852.11 Planché v Colborn (1831) 8 Bing. 14

implied where the parties have effected such an alteration of the terms of the contract to substitute anew contract in its place10:

“The question whether a rescission has been effected is frequently one of considerabledifficulty, for it is necessary to distinguish a rescission of the contract from a variationwhich merely qualifies the existing rights and obligations. If a rescission is effected thecontract is extinguished; if only a variation, it continues to exist in an altered form. Thedecision on this point will depend on the intention of the parties to be gathered from anexamination of the terms of the subsequent agreement and from all the surroundingcircumstances. Rescission will be presumed when the parties enter into a new agreementwhich is entirely inconsistent with the old, or, if not entirely inconsistent with it, inconsistentwith it to an extent that goes to the very root of it. The change must be fundamental and the“question is whether the common intention of the parties was to ‘abrogate’, ‘rescind’,‘supersede’, or ‘extinguish’ the old contract by a ‘substitution’ of a ‘completely new’ or‘self-subsisting’ agreement””

There are two very obvious points to make about this paragraph. First the test relies on the parties’intentions and secondly the test is highly subjective. Furthermore the phrase “from all thesurrounding circumstances” is very vague as well as being highly subjective.

VariationsMoving on to the topic of variations, the definition of variations adopted is that employed by Hudson(at 7 – 001). It is a narrow definition and applicable specifically to construction contracts. Avariation according to Hudson is “an alteration in the previously described work and materials to beprovided by the contractor”, a narrow definition distinguished from the wider American concept ofchanges, which allows for modification of the contract price and obligations, neither of which inHudson’s opinion involves any change in the permanent work.

Instead a variation in English law represents an alteration instructed by the Employer or his agent, thecost for which the Employer will be responsible.

This leads Hudson onto a discussion of the word “scope” and “work falling outside the scope”,adopting a wide description of scope as including not just the original contract work but also thelegitimate variations and changes ordered throughout the contract.

Hudson does accept that work might be called a variation to allow an employer to obtain the benefitof a contractor’s prices or his presence on site whilst the work in question could not be regardedcoming within the contemplation of the variations or change clause in question. Hudson quotes a1900 American case which states that the usual “scope” of variation clause:

“…is limited by the subject-matter and intention of the parties when it was made, to suchmodifications of the work contemplated at the time of making the contract as to not radicallychange the nature or cost of the work or materials required. For all other work andmaterials required by the alterations, the contractors may recover the reasonable value,notwithstanding the agreement.”12

12 Smith v Salt Lake City 104 Fed.Rep.457 (1900)

Hudson concurs with this position and sets out six submissions which follow on from this point andare paraphrased for the sake of brevity as follows13:

(i) The contractor will be entitled to refuse to carry out the instruction.(ii) If the request is purportedly given under the variation clause and the contractor

complies without objection, he will be estopped from subsequently claiming anyright to payment other than under the terms of the contract.

(iii) If the request is made without any reference to the variation clause then thecontractor will be entitled to reasonable remuneration on the basis of an impliedreasonable price under a separate contract.

(iv) “On the strict basis of interpretation applied to exclusion clauses, the courts willconstrue restrictive provisions, for example, those requiring written instructions as acondition precedent, as applying only to work ordered within the scope of theclause, so enabling the contractor to recover a reasonable price for work outside itsscope free of any such restrictions”.

(v) If work outside the scope is carried out, then the original pricing mechanism shouldonly be departed from with respect to the work outside the scope and not any part ofthe original contract works.

(vi) “If a claim is advanced to re-price the whole contract because of multiple variationsor changes”, each of which is individually admitted to be within, but in total allegedto be outside, the scope of the clause, this implies that at some stage the contractorwould be entitled to refuse to obey the instructions, and re-pricing of the wholecould only, it is submitted, be justified on the basis akin to frustration of thecontract. This claim does not appear to have succeeded in England or theCommonwealth, and has been rejected in many reported cases in the Court ofClaims in the United States.”

Although these six submissions are largely unsubstantiated by case law and represent editorialopinion, they would appear to be a good summation of the current position in English Law. However,there are the following comments on the second, fourth and sixth principles.

Dealing with the second principle first, it is not certain that a contractor will always be estopped fromclaiming an alternative right to payment after the works have been carried out. It is possible to thinkof examples where due to “efficacy of contract” or undue influence/duress a contractor would carryout works without objecting at the time.

Turning to the fourth principle, it is not totally certain what point Hudson is making but it seems thatunless a variation is ordered within the contractual mechanism provided, the contractor will beentitled to recover a reasonable price for such work outside of any contractual mechanism forpayment (i.e. on a quantum meruit basis).

The sixth principle is important, as this is the clearest commentary available on the Englishperspective on the “cumulative impact” doctrine.

13 The full propositions can be found at paragraph 7.080 at pages 929-930 (Hudson 11th edition)

Hudson then turns explicitly to the question of pricing works outside the scope which is reproducedhere in full:

“It is sufficient to say that, even in a case of a repudiatory breach of contract by the owner,let alone “outside the scope” alterations of the work, a contractor will be unable to makesuch a claim unless he has accepted the repudiation and rescinded the contract, with thepossible exception of rare cases where it is no longer possible to trace, identify and separatethe original and the altered parts of the work. “Scope” arguments, therefore, will at best dono more than enable a contractor either to refuse to carry out the work at all, or to secure avaluation of such work as has been carried out outside the scope of the variation clause atreasonable prices differing, where appropriate, from those obtainable under the clause, andfree also of any other restrictions, including requirements of form, which might have appliedto “within the scope” variations it is submitted”.

A number of examples are cited, one of which is drawn from an American case concerning thecontract for the construction of an aircraft hangar for the US Government13. In this case the Court ofClaims found that the changes were of such a magnitude that they constituted a “Cardinal Change”with the effect that they were not within the scope of the contract and were therefore a breach ofcontract and the contractor was entitled to new prices for the work. Hudson is keen to note thefollowing:

“… no claim was made that the project as a whole required to be revalued or repriced, andthat the finding of “cardinal change” was basically jurisdictional, enabling the Court toaward damages for breach and consequential loss not recoverable under the strict terms ofthe changes clause, and it should be understood in that context.”

The final comment made by Hudson that is applicable in this instance is a practical point. One of themajor obstacles that contractors have to overcome, is that in building and engineering projects whichare of necessity often prototypical, the variation in question is unlikely to constitute a change outsidethe scope of the contract unless and until the contractor takes some form of stand on the matter.

Too often the contractor works to the change, accepts payment and subsequently contends that he isentitled to quantum meruit. Hudson makes the point that for an entitlement for a quantum meruitpayment to arise there must be a new contract and cites Lord Dunedin in The Olanda14as authority:

“As regards quantum meruit where there are two parties who are under contract, quantummeruit must be a new contract, and in order to have a new contract you must get rid of theold one.”

It is suggested that Hudson is too dogmatic on this point. Instead a “variation” that instructs work“outside the scope of the contract” need not necessarily terminate the original contract but may form aseparate contract in addition to the original contract.

The position in Keating is greatly simplified as follows;

13 The Olanda [1919] 2K.B. 728

“Where there is a contract for specified work but the contractor does work outside thecontract at the employer’s request the contractor is entitled to be paid a reasonable sum forthe work outside the contract on the basis of an implied contract.15

Keating notes that Parkinson’s case was only concerned with payment for extra work and was not acase that the entirety of the contract works should have been revalued. Keating cites a Canadian and aScottish case as authority where the Courts have considered a claim that the entire case should havebeen revalued but have rejected the proposition.

The earlier of these two cases is Morrison-Knudson v British Columbia Hydro and Power Authority15.The initial trial judge in this case found that there had been a multitude of breaches which amountedto a fundamental breach of contract. The trial judge therefore found that although the contractorcontinued the work and completed the contract he was entitled to have treated the contract asterminated and was therefore entitled to payment on a quantum meruit basis. This was appealed to theBritish Columbia Court of Appeal. They upheld the appeal on the basis that the contractor hadelected to continue with the contract and therefore payment was limited to recovery under thecontract. The Court found that for quantum meruit to apply the contract must have been rescinded ordischarged so that the mutual obligations had ceased to exist.

As a point of interest this case considers much of the case law generated by the English, Americanand Commonwealth courts and confirms the law as stated throughout this note with respect to subjectssuch as quantum meruit. The case did not have to consider the issue of repudiation of an entirecontract and what damages would flow from such a repudiation as the Court found that there had beenno fundamental breach. There is nothing in the full case note in Construction Law Journal whichsuggests that the court would have departed from the common law principles of repudiation of anentire contract and quantum meruit being the correct measure of damages if the facts had so required.

The second and more recent case is the case of ERDC Construction Ltd v HM Love & Company andothers16. This case was heard by the Scottish Court of Session (equivalent to the English Court ofAppeal). It arose out of an arbitration which was concerned primarily with what constituted theessential nature of a quantum meruit claim. The case follows both Morrison-Knudson and Humberoakclosely. Two findings in particular are of interest. First, the Court of Session determined that a claimfor quantum meruit was a claim which was inconsistent with the continuing existence of a contract.Secondly, where the claimants had not promptly elected to treat the contract as determined they werenot entitled to claim a quantum meruit whether in whole or in part. It is worth noting that one Courtof Session Judge dissented on this point on the basis that repudiation was not needed before the workshad been completed since there might be situations where the effect of the employer’s breach mightnot become known or properly understood until the works have been completed.

Discharge by Frustration

15 Morrison-Knudson v British Columbia Hydro and Power Authority (1978) D.L.R. (3d); also reported at (1991) 7 Const. L. J. 22716 ERDC Construction Ltd v HM Love & Company and Others (1994) 70 B.L.R. 67

The subject of frustration is touched on briefly for the sake of completeness. Although frustration isnot relevant to this discussion it is raised to show that it can be discounted. The standard test forfrustration is laid down in Davis Contractors v Fareham UDC17where it was stated that frustration:

“occurs wherever the law recognises that without default of either party a contractualobligation has become incapable of being performed because the circumstances in whichperformance is called for would render it a thing radically different from that which wasundertaken by the contract. Non haec in foedra veni. It was not this that I promised to do.”

The test for frustration requires that neither party be in default. This is not an easy position to adopt inthe context of the potential frustration arising out of a single instruction or series of instructions.Furthermore, foreseeability will often preclude the possibility of frustration and therefore it is close toimpossible to argue frustration arising out of an instruction purporting to be under a building contract.As a final point on frustration, the phrase “self-induced frustration” is often misapplied incircumstances such as these. Self-induced frustration occurs where a party seeks to rely upon adischarge from contractual obligations where the basis of the discharge is frustration due to his ownconduct.

Discharge by BreachThis section effectively follows on directly from the analysis on variations above. The first and mostimportant point to consider is whether the claim is made under the contract or is for breach ofcontract. Chitty describes this as fundamental and both Chitty and Keating refer to the Humberoak18

case on this point.

Keating also makes the point that many building contracts give contractors contractual rights toadditional payments in circumstances some of which might otherwise be breaches of contract by theemployer. In such circumstances these rights will be in addition to and not in substitution of commonlaw remedies for damages for breach of contract. Keating gives as examples clause 26 JCT – Loss andexpense and Clause 52 ICE – provision for variations.

If the breach gives rise to a claim that can be made under the contract (e.g. liquidated damages for latecompletion) then the contractual mechanism will be utilised. However, breach of contract will createa different mode of claim. The first consideration is what has been breached. Not all breaches willgive rise to a discharge. It is important to determine whether the breach is of a condition or anintermediate term.

A breach of condition will allow the innocent party to consider himself discharged from hiscontractual terms. A breach of an intermediate term may allow an innocent party to treat himself asdischarged. For the breach to allow discharge, the breach must “go to the very root of the contract”.This has also been described as “affecting the very substance of the contract” or “frustrating thecommercial purpose of the venture”.

The current test applied in English law is that laid down by Diplock LJ:

17 Davis Contractors v Fareham UDC [1956] A.C. 696, HL18 McAlpine Humberoak v McDermott International (No1) (1992) 58 BLR 1

“Does the occurrence of the event deprive the party who has further undertakings to performof substantially the whole benefit which it was the intention of the parties as expressed in thecontract that he should obtain as the consideration for performing those undertakings?”19

This leads on to a discussion of non-completion where the cause may be prevention by the employer,breach by the contractor or frustration. Concentrating only on default by the employer, it is clear fromthe above principles that the contractor may be able to treat the contract as discharged by relying onrepudiation by the employer. Keating at 6-89ff lists out examples where the actions of an employeramount to a repudiatory breach of contract. These include:� Refusal to carry out obligations under the contract.� Failure to give possession of the site.� Order not to complete the works.� Employment of additional contractors.� Rendering completion impossible.

Keating does not give an example which is even analogous to issuing instructions outside the scope ofthe works. However, one can easily see an argument that issuing such instructions would fall underthe heading of rendering completion under the contract impossible by issuing instructions to thedegree that if those instructions were followed the contract as originally signed would be renderedimpossible to achieve and therefore the contract has been repudiated.

DamagesThe position on damages seems to be straightforward. If the work as instructed was capable of beingcarried out under the contract, it will be priced under the contract. If the employer preventscompletion then one of two approaches will be adopted (these are not mutually exclusive). First thecontractor will be compensated for the loss of profits and secondly he will be paid for any workcarried out under the “new contract” further to the instruction to carry out work “outside the scope”of the original contract.

McGregor on Damages notes with surprise that there is no English case which deals with the measureof damages where the employer acts in such a way to bar completion (16th edition paragraph 1154 atpage 755). He sets out three different methods for compensating the contractor. These are not detailedhere, but essentially they are three different ways of awarding the contractor the costs incurred to datetogether with an allowance for loss of profits on the residue of the works which he would have carriedout.

Turning to the second limb of damages, quantum meruit has already been touched on above in thesection on variations. Keating suggests that quantum meruit will normally be left to the courts todetermine and that the courts would not be expected to adopt the rates previously utilised in therepudiated contract. Instead, a reasonable sum would be assessed by reference to negotiations as toprice, prices in a related contract, expert evidence on the cost of labour, materials, overheads andprofit. However, in a scenario like this the court will happily adopt the rates from the original contractand ask the contractor to demonstrate why he would be entitled to an uplift.

19 Hongkong Fir Shipping Co. v Kawasaki Kisen Kaisha Ltd [1962] 2 Q.B. 26, 66.

McAlpine HumberoakThis case is not “on all fours” with the American concepts of “Cardinal Changes” and the cumulativeimpact doctrine but does seem to be the nearest that English Law has come to dealing with theseissues. Humberoak concerned a contract between McAlpine and McDermott for the construction byMcAlpine of nine steel pallets to form part of a weather deck for a tension leg platform in theShetland Basin.

From the beginning the job did not go smoothly. McDermoott issued a large number of drawings andMcAlpine issued a large number of technical drawings in reply. McAlpine sued claiming delay andMcDermott counterclaimed alleging defective workmanship. The Judge at first instance (largely of hisown accord) found that the large number of drawings had distorted the substance and identity of thecontract with the result that it was frustrated. This frustration led to a substituted contract andtherefore McAlpine had a reasonable time to complete the works (i.e. time was at large) and theycould do this for a reasonable cost (i.e. quantum meruit).

This was appealed successfully on the facts. The leading judgment was that of Lloyd LJ. He foundthat that the large number of drawings did not constitute a breach by McDermott. He accepted thatthe number of drawings may have allowed McAlpine an extension of time but he did not see that thecontract had been distorted. He found that the contractual machinery had not been displaced and mosttellingly there could not be frustration where the frustration was brought about by reasons of mattersprovided for in the contract itself.

This case establishes 2 principles in English law:(a) that a series of variations will not in itself constitute a breach of contract; and(b) English law recognises neither the concept of Cardinal Changes nor the “cumulative

impact doctrine”.

Although the case turns on its facts the following can be put forward as a summary of the currentposition in English law:� To establish a repudiatory breach of contract a single variation must require the work ordered to

be so far outside of the “scope of the contract” that the change order goes to the route of thecontract and is a fundamental change to the contract.

� A series of variations will not constitute such a fundamental change. A specific variation could.

It is conceivable that a number of variations when taken together could likewise constitute afundamental change but this point has not been advanced in any English case law and whilst notprecluded by Humberoak would effectively be new law.

ConclusionsIt is strongly arguable that the US doctrines of “Cardinal Changes” and the “Cumulative Impacttheory” do not exist in English Law.

However in their place and particularly with respect to the minefield that is the law of “variations”,English Law has developed a complex approach to allow Contractors and Employers a series ofmechanisms for ascertaining their contractual rights and remedies.

Whereas the American Contractor often tenders with cost and time certainty, by the very nature of thetender process in English Law (c.f. “The Pre-Tendering Process Revisited”20) English Contractors aremore often than not subject to the vagaries of applying for variations under their contracts. This ismost crucial when they seek to rely on Employer interference to justify Extensions of TimeApplications which if the fail to achieve will result in the flip side of the coin namely the deduction ofLiquidated Damages.A Contractor faced with a contract in delay (and the Employer and its agents) will need to have a clearunderstanding of the critical time path and the impact of variations on the contract.

As practical advice, Employers must be educated as to the effect that their requirements will haveonce a contract is under way. If their involvement can be construed as interference then they mayallow a Contractor to argue that one (or more but on a separate basis) variation/change instruction wasso far removed from the scope of the contract that it constituted a repudiatory breach of contract.

This would then allow the contractor to argue for payment under a new contract on the basis ofquantum meruit. This will be heavily dependent upon an analysis of the factual matrix and as ageneral rule of thumb it is contended that it will, in most cases be hard to argue that the entire contracthas been repudiated. At best one (or more) variation/change order will be deemed to stand outside thecontract and therefore form a contract by itself with payment on a quantum meruit basis.

The authors of this paper have formulated the following questions to assist the parties in determiningwhere they stand under (or outside!) the contract:� Were any of the instructions outside the scope of the original contract?� Were such instructions acceded to?� Were such instructions performable? � If yes then there was no breach just “extras” under contract – if no what did the contractor do?� What price mechanism was adopted? � If there was a new contract did they price on quantum meruit or did they adopt the pre-existing

pricing mechanism by common dealing?

Lewis Cohen, Solicitor, Construction & Engineering Grouplewis.cohen@speechlys.com

This article was written with Jonathan Miller of 1 Essex Court

20 Cohen & Browning (1998) 14 Const. L. J. 251 - 257