Contract Law and the Construction Industry


In Cyprus, contract law is based on the fundamental principle that "promises must be kept" (in Latin: "pacta sunt servanda")

In order for these promises to be kept, the content of the contract must therefore be clear. Where the content of a contract is not clear or cannot be made clear, then the contract is null and void. In Saab & Another v. Holy Monastery Ay. Neophytos (1982), it was decided that where the main terms of the contract are clear or can be ascertained from its entirety, then the contract is valid irrespective of individual ambiguities and that it is the duty of the Court of Justice to save a contract, if that is possible.

The ‘Parol evidence’ rule establishes that the written text of a contract contains the entire agreement between the parties. This Rule (in general) prohibits the introduction of extrinsic evidence (i.e. evidence of written or oral communication between the parties that is not included in the contract) which would modify the terms of a subsequently concluded contract. The introduction of such evidence is only permitted if it is necessary to clarify ambiguity or doubt in order to make obvious the intention of the parties.

The same principle applies in the case of contracts, which are usually in a standard form. Usually, standard form contracts are used for construction contracts, i.e. types of contracts that are not formulated by the parties through negotiations, but which have been prepared by organisations representing either contractors' associations or engineering associations, or common platforms. Negotiations between the parties are limited to only specific terms of the contract to be concluded (e.g. contractor's fee, time of construction, clause in case of delays, etc.)

According to the literature, signing a contract which is in a standard form has some advantages and some disadvantages. In particular, the Construction Contract Law, 3rd edition (John Andriaanse) mentions the following regarding the advantages and disadvantages of a standard construction contract:

“Some advantages are: 1. The standard form is usually negotiated between the different bodies that make up the industry. As a result the risks are spread equitably. 2. Using a standard form avoids the cost and time of individually negotiated contracts. 3. Tender comparisons are made easier since the risk allocation is same for each tenderer. Parties are assumed to understand that risk allocation and their prices are accurately compered.

Some disadvantages are: 1. The forms are cumbersome, complex and often difficult to understand. 2. Because the resulting contract is often a compromise, they are resistant to change. Much-needed changes take a lot of time to bring into effect.“.

It is obvious that the standardization of a construction contract offers some more protection to the contractor, who does not lose valuable time in negotiating it and avoids the possible legal fees that would be incurred in negotiating the contract in question.

But what happens in cases where a disagreement arises between the parties both as to the contractor's fee or the time of completion of the project?   Let us look at two practical examples:


Contractor X is contracting with Owner Y for the construction of his home. No provision for price increases is included in the contract. One month after signing, the price of building iron unexpectedly increases by 30%. The Contractor makes a claim as the Contract Price is increased by £10,000 which is the actual cost of the increase. Is the Contractor entitled to this amount?


Contractor A is contracting with Owner B for the construction of his home. No provision for price increases is included in the contract. One month after signing, the price of building iron unexpectedly decreases by 30%. The actual benefit to the Contractor is £10,000. What must the Owner do?

The answers to the above questions should be provided by the Project Engineer. The role of the Engineer, if we could summarize it in a few sentences, is:

  • To supervise the work.
  • To monitor the progress of the work.
  • To check and certify the (correct) execution of the work for payment purposes.
  • To grant extensions of time and
  • To examine claims for instructions for project modifications.
  • He is not entitled to release any party from the rights and obligations of any party.

In "Construction claims: current practice and case management" by Jeremy Hackett, it refers to:

"Causation must always be the start point in any construction claim, whether the
claim is for time or money, i.e. who has done what (which they ought not to have
done) to whom, and how has it caused the alleged loss? Quantifications of the
alleged loss, time and/or money, comes later.

It is a fundamental principle in common law as practised in England that ‘He who
avers must prove’, i.e. it is the Claimant who must make his case, not the
Defendant, who must prove his non-culpability per se. Because it is a civil, as
opposed to criminal procedure, the burden of proof required is ‘on the balance
of probabilities’, rather than the higher criminal burden of ‘beyond reasonable
doubt’. It is also a fundamental principle that a Defendant is entitled to know
the case being made against him, such that he may meet the case and defend
himself, as allowed by the prescribed procedures.
Thus any claim must, in the first instance, state a case by:
• identifying the contract relied on;
• citing the obligations relied on;
• specifying the alleged breaches in skeletal detail."

Dispute resolution between the contractor and the owner can be achieved by various methods.

STAGE 1:               Negotiations



STAGE 2:               Conciliation

                               Neutral evaluation


                               Expert determination

STAGE 3:              Arbitration

                               Court of Justice

In summary, it is important to mention that due to the complexity of standard contracts (mainly) in Cyprus, many times disputes between the owner and the contractor are brought to the Cyprus Courts either for interpretation of the terms of the contract or for damages due to defective works or disputes regarding the payment for works performed.

The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on your specific matter before acting on any information provided. For further information or advice, please contact Savvas Savvides, Partner at Paphos Office, Tel +357 26930800 or email savvas.savvides@kyprianou.com