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Contract clarity is everything

Words:
Stacy Sinclair

Not setting clear, express terms in your contract could leave you facing the danger of unlimited liability

Time and again we see the aftermath of parties failing to agree and incorporate clear, express terms into their contract. The case of Arcadis Consulting (UK) Ltd v AMEC (BCS) Ltd is one such, which recently made it all the way to the Court of Appeal.

AMEC (formerly CV Buchan Ltd), a specialist concrete subcontractor, engaged Arcadis (formerly Hyder Consulting (UK) Ltd) to carry out design works on a car park in anticipation of a wider agreement between them that did not materialise. The parties had exchanged three sets of terms and conditions, each with different limitations on liability.

It was alleged that the car park was defective and may need to be rebuilt at significant cost. Arcadis denied liability but also said that if it was liable, there was a simple contract in respect of its design works, which capped its liability at £610,000. If Arcadis was wrong about this, its potential liability would be unlimited and could have amounted to some £40 million. 

The first High Court judge held that the parties had agreed a simple contract arising out of a letter dated 6 March 2002 incorporating no set of terms and conditions. He considered the parties had not agreed that Arcadis’ liability was capped. There was too much uncertainty for the court to conclude that the parties intended to be bound by a ­liability cap. Arcadis appealed.

The Court of Appeal disagreed with the High Court. The 6 March 2002 letter of intent was a request to start work on all the terms set out in it. It was an offer of an ‘if’ contract. This was because the letter from AMEC requested Arcadis to carry out a certain performance and promised Arcadis that, if it did so, it would receive a certain performance in return. The letter established a fixed fee of £56,000, which could be revisited.  

If Arcadis was wrong about this, its potential liability would be unlimited and could have amounted to some £40 million

Arcadis accepted that offer. The ‘best evidence’ of this was its conduct in undertaking the work. Given that the letter of 6 March 2002 included that the work was to be carried out: ‘in accordance to…the Terms and Conditions associated that [the parties] are currently working under...’, the court had to determine what, if any, terms and conditions had been incorporated. 

Here the Court of Appeal highlighted the need to distinguish between the interim contract under which the parties were currently working (the Contract) and the Final Contract, which once agreed would supersede the Contract. The parties had chosen ‘to stop the music’ for terms in the interim, but not the final, contract, which superseded it. 

The Court of Appeal judge was clear that the reference to the ‘Terms and Conditions’ related to those the parties had previously exchanged and agreed to work under. On the evidence these were terms which had been agreed on a parallel project and AMEC had sent Arcadis an email saying that ‘[w]e intend to use the documents for the Wellcome Building works subject to your agreement and we will be providing more details shortly’. This was an offer, which was accepted either by Arcadis’ conduct in starting work on 13 November or by a later letter.

The Court of Appeal’s decision, like that of the High Court, was based on an analysis of the documents said to make up the contractual relationship between the parties – an analysis that was only necessary because of the original failure to sign up to a full contract agreement in the first place.

The High Court judge had said this was a classic ‘contract/no contract’ case. One party faced unlimited liability if the terms of the liability cap were not incorporated. It argued its position all the way to the Court of Appeal – the consequence of not having a clear contract with express terms in place. 

In Plain English:
‘If’ contract
A contract, conventionally know as a unilateral contract, under which A requests B to carry out a certain performance and promises B that, if he does so, he will receive a certain performance in return, usually as remuneration for his performance (see British Steel Corp v Cleveland Bridge & Engineering Co Ltd, 1983). 
Put simply an ‘if contract’ means ‘if you do this for us, we will do that for you’. 
It is a standing offer which, if acted upon before it lapses or is lawfully withdrawn, will result in a binding contract.

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