12th November 2018

Contract disputes – finding order in chaos

Arcadis is a management consultancy and engineering business, while AMEC is a contractor specialising in the design, manufacture and installation of pre-cast concrete for the construction industry. AMEC had been appointed as sub-contractor for two large projects, and engaged Arcadis to carry out certain works in connection with the projects.

It was envisaged that AMEC and Arcadis would enter into a framework agreement, although this did not materialise. It was alleged, with regard to one of the projects, that Arcadis was responsible for certain defects put at £40m. The substantive issue for the lower court and the Court of Appeal was to determine which terms and conditions applied and, in particular, a term limiting liability.

The Court of Appeal carried out an objective and detailed analysis of the correspondence, including emails and notes of meetings, together with the conduct of the parties. It also noted that numerous discussions and meetings had taken place between the parties over many months.

One of the issues discussed was a cap on Arcadis' liability. Its area director sent an email attaching documents which were proposed for use for design work, including detailed terms and conditions. Thereafter, further correspondence passed between the parties as to the two projects, and the proposed framework agreement. AMEC then instructed Arcadis to commence design and detailing work on one of the projects pending finalisation of the main agreement. The instructions referred to various documents including terms and conditions "... we are currently working under with yourselves".

The correspondence continued but no framework agreement or terms and conditions were ever signed.

The Court of Appeal applied the well-established principles in determining whether there was a binding contract: “… it depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads them 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.”

The Court of Appeal disagreed with the judge in the lower court and found that Arcadis’ terms and conditions were incorporated into the contract between the parties. In particular, a request had been made to start work under the letter of intent, and Arcadis had accepted the offer by its conduct in undertaking the work. Further, it was decided that as AMEC had not rejected Arcadis’ terms, or put forward a counter-offer, it followed that AMEC had unequivocally accepted all of the terms. As a result, AMEC was bound by a term limiting the liability of Arcadis.

In summary, this decision was made on the specific facts and a detailed consideration of the communications between the parties by the courts. However, the decision reinforces the risk to parties of carrying out work under a letter of intent, and failing to enter into the anticipated detailed contract.

For help and advice on dispute resolution issues, please contact David Patterson.

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