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Finish the contract

Words:
Dr Stacy Sinclair

If you don’t have an agreement you at least need some acceptance before you start work

Does it really matter if you do not have a contract in place? The recent case of Arcadis Consulting (UK) v AMEC (BSC) demonstrates what can be the harsh consequences of not reaching a full agreement prior to undertaking your services.

In the words of the judge, this was a classic ‘contract/no contract’ case. Buchan (now AMEC) was a specialist concrete subcontractor and engaged Hyder (now Arcadis) to carry out design works on a car park. The parties expected a wider, over-arching agreement across a number of projects to be put in place, though in the end after much correspondence, this did not materialise. This was some 15 years ago. Ultimately Hyder carried out its design works and the car park was built. 

Then it was alleged that the car park was defective and may need to be demolished and rebuilt at significant cost. 

Hyder 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. Buchan argued there was no contract because the correspondence envisaged a formal agreement with detailed terms and conditions, which did not happen. 

Previous case law made clear that the fact that a transaction was performed on both sides would usually make it both unrealistic to argue there was no intention to enter into legal relations, and difficult to submit that the contract is void for vagueness or uncertainty. Accordingly, the judge disagreed with Buchan that there was no contract.

Works were performed on the express understanding that, if the anticipated detailed contract did not come to pass, the correspondence would create a legal relationship

This was a case where work was done and paid for on the basis of instructions from Buchan, which Hyder accepted. Works were performed on the express understanding that, if the anticipated detailed contract did not come to pass, the correspondence between the parties would create a legal relationship and ensure that, among other things, Buchan would pay Hyder for its work.

Hyder carried out the design work under an express instruction, which the judge found to evidence a binding, simple contract. 

But it was not straightforward which documents were incorporated into that instruction or simple contract. There were three competing sets of terms and conditions and Hyder had not clearly accepted any of them. It was careful to thank Buchan for the instruction, but did not say that it accepted it (and therefore the terms). The judge noted that there must be a final and unqualified expression of agreement and/or acceptance and that as Hyder did not use the word ‘accept’ at all, it could not be said that there was a clear and unequivocal acceptance of the terms. 

Ultimately, the judge decided that there was too much uncertainty and too much that was not agreed for the court to conclude that the parties intended to be bound by a liability cap, in the way Hyder alleged. He said, ‘…the court is not entitled to rewrite history so as to incorporate into that contract express terms which were not the subject of a clear and binding agreement.’ He found that there was no limitation of Hyder’s liability, despite the fact that every set of proposed terms and conditions included some sort of provision to that effect. While the judge acknowledged that this might be regarded as a harsh result, he felt bound to conclude that: ‘This was the inevitable consequence of Hyder’s dilatory and often unco-operative approach to the proposed protocol agreement and the negotiation of the terms and conditions. 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.


In plain English:

Limitation of liability clause

This is any clause in a contract which restricts or caps a party’s liability. As seen in Arcadis v AMEC, parties must use clear language if such a clause is to be binding. Here, the judge recalled the words of Lord Justice Briggs in Nobahar-Cookson v The Hut Group (2016): ‘The parties are not lightly to be taken to have intended to cut down the remedies which the law provides for breach of important contractual obligations without using clear words having that effect.’

In the RIBA Standard Conditions of Appointment, Clause 7.2 (Limit of liability) and Clause 7.3 (Net contribution) make the limitation is clear. In light of the case of Ampleforth Abbey Trust v Turner & Townsend (2012) parties should take care to avoid inconsistent insurance and limits on liability clauses. In Ampleforth, when the liability cap was significantly lower than the amount of professional indemnity insurance which T&T was obliged to provide, the court found that the liability cap was not reasonable and Ampleforth Abbey Trust was entitled to benefit from the insurance it had in effect paid for.

Stacy Sinclair is an associate at Fenwick Elliott


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