Contract/no contract - case with a sting in its tail
ARCADIS CONSULTING v AMEC [2016]
This decision was described as a relatively straightforward 'contract/no contract' case with ‘something of a sting in its tail’. The Court found that despite various terms and conditions being exchanged between the parties as part of discussions in relation to work which was then carried out, only a simple contract existed between the parties under which the consultant’s liability was uncapped.
Facts:
- A sub-contractor who worked on a large car park project engaged a consultant to carry out certain design works in anticipation of a wider framework agreement being entered into between the parties. Ultimately, that framework contract did not materialise.
- The sub-contractor sent the consultant a letter confirming instructions to carry out the work at a specified price. This was then followed by another letter extending the appointment and specifying the agreed price. The correspondence at various points in time referred to three different sets of terms and conditions but seemingly no explicit agreement was ever reached that any of the sets of terms would govern the performance of the work.
- It was alleged that the car park was defective and may need to be demolished and rebuilt. The sub-contractor claimed £40 million against the consultant who denied liability for the defects. However, if it was found liable for all or any of the defects, it argued that its liability was capped at a limit referred to in one of the proposed sets of terms and conditions.
Decision:
The Court had to decide was there was a contract between the parties, and if so, what were its terms?
Was there a contract?
The Court looked at the principles determining whether or not there is a binding contract which were summarised in RTS v Müller (SC) [2010]:
“It depends not upon [the parties’] subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement.”
It then said that in circumstances where works have been carried out, it will usually be “implausible to argue that there was no contract ”. It was not particularly difficult for the Court to find a contract where a letter of intent was not only signed but also acted upon by both parties, even if the parties intended ultimately to conclude a more detailed agreement.
What were the terms of the simple contract?
The Court found that none of the three different sets of terms of business which had been tabled and debated by the parties had in fact formed part of the simple contract. This was because none of them had finally been accepted and agreed by both parties.
Was a cap on liability agreed?
Each set of terms proffered included some sort of limitation on the consultant's liability (albeit in radically different terms). The Court said there was too much uncertainty and too much that was not agreed to conclude, on any objective analysis of the correspondence, that the parties intended to be bound by a liability cap in the way alleged by the consultant. Consequently it was not a term of the simple contract that the consultant’s liability would be limited to a cap.
Points to note:
- This case once again demonstrates the perils of beginning work without agreeing the precise basis upon which it is to be carried out, and as the Court noted in RTS, “the moral was to reach agreement before work began”. This is perhaps easier said than done in the commercial world. Where work does need to commence, careful attention needs to be given to ensure there is sufficient certainty about what terms are to govern.
- The Court commented that it might seem a harsh result for the consultant that there was no limitation on its liability at all, despite the fact that several different limitations had been proposed. However, it said this was the inevitable consequence of the consultant's “dilatory and often unco-operative approach” to the agreement proposed by the sub-contractor and the negotiation of the terms and conditions. The judge went on to say, “this case starkly demonstrates the commercial truism that it is usually better for a party to reach a full agreement (which in this case would almost certainly have included some sort of cap on their liability) through a process of negotiation and give-and-take, rather than to delay and then fail to reach any detailed agreement at all ”.
- The judge said that what is required in law is an objective, final and unqualified expression of agreement. The consultant thanked the sub-contractor for the work instruction but did not use the word 'accept' in relation to any of the sets of terms and conditions at all despite having the opportunity to do so. The judge considered that if the consultant was in fact accepting one or other set of terms and conditions (or even part of a set), it needed to say so clearly and unequivocally, which it had wholly failed to do.
- If it is essential for work to begin before a final contract has been agreed certain points probably need to be agreed at a minimum. From the customer’s perspective it most likely needs to know how it can terminate on short notice without being locked in to an entire project should negotiations not work out. It also needs to know what work will be carried out initially and what it will have to pay for that work and when. Suppliers probably need to know exactly the same but, additionally, they would usually want to expressly cap their liability for this initial work and have some certainty as to the standards by which this initial work will be judged.