In construction and engineering contracts most people are familiar with the concept, and increasingly, the threat, that the contract may be terminated, less commonly the question arises as to whether the contract may be void or voidable.
If a contract is void or voidable it is generally as a result of circumstances surrounding the establishment of the contract but it is possible that the contract being void or voidable does not come to light until much later in the project.
A contract being void or voidable is not dependant on a breach or failure by one party. Unlike termination it is a mechanism threatening the existence of a contract or obligation, not a mechanism arising under the terms of the contract.
There is a crucial distinction between “void” and “voidable”:
If a contract or obligation is voidable, it remains effective until that contract or obligation is revoked by the innocent party. The innocent party may accept ("authorise") the circumstances giving rise to the right to revoke either expressly (by words or writing) or impliedly by its conduct. If the innocent party does so it will lose its right to revoke the contract or obligation.
If a contract is void then it is simply ineffective. It cannot be enforced. The innocent party cannot choose to accept the circumstances giving rise to the invalidity.
The law provides various circumstances in which an obligation or contract may be void or voidable. If the circumstance affects an obligation forming part of the contract only, the remainder of the contract will remain effective and enforceable. If it affects the entire contract or it can be demonstrated that had the circumstances been apparent at the time of contracting the contract would never have been agreed then the whole contract shall be void or voidable.
A contract or obligation will be void if the subject matter breaches public order or morality. There are some obvious examples of where this might be the case, for example if the subject matter was gambling, but the circumstances which may arise in a construction and engineering context are likely to be a matter of degree and judgement.
If the object of the contract or obligation is impossible then it will be void. However, the law is clear that “impossible” means impossible and not just very difficult or with particularly onerous consequences.
A contract or obligation may be void where the subject of it is not sufficiently and expressly identified in the contract.
A contract or obligation will be voidable where a party has entered into it having made a mistake as to some circumstance which, had the mistake not have been made would have prevented it from entering into the contract or obligation. The party having made the mistake must act in good faith and cannot call for the revocation of the contract or obligation unless it will suffer substantial harm. The law is clear that typographical and arithmetical “mistakes” should just be amended by agreement between the parties. A word of caution - if a party simply misprices the works, this will not create a voidable contract on the basis on mistake. Mispricing is at the risk of the party pricing the contract.
Where a party has entered into a contract or obligation on the basis of a fraudulent misrepresentation it shall be voidable. The fraudulent misrepresentation must have been carried out by the other party to the contract, or, if by a third party, known about by the other party to the contract. The contract or obligation must have been accepted by the innocent party relying on the deception. Deception may arise where one party is intentionally silent about a salient point. It should be noted however, where one party is expressly contracting for a specific risk and has opportunity to price for it, it is unlikely to be considered that the other party has been deceptive in being silent in matters pertaining to that risk.
If a party is coerced into entering into a contact or obligation by the reasonable belief of grievous and imminent danger to life, limb, honour or property to it or others it shall be voidable. Similarly, a contract or obligation will be voidable where the party has entered into it having been exploited by the moral influence of the other.
Any injustice not arising in the circumstances described above is likely to be considered the commercial bargain of the parties and will not result in the contract or an obligation being void or voidable.
In order to rely on this law prompt action is needed. A party has only 3 years, generally from discovery, to seek revocation a contract or obligation on the basis that it is voidable. On the other side, if facing possible revocation, to achieve certainty the defaulting party may serve notice forcing the innocent party to declare within 3 months if it intends to take such action.