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England and Wales High Court (Technology and Construction Court) Decisions
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Cite as:  EWHC 2509 (TCC)
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QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Rolls Building, Fetter Lane, London, EC4A 1NL
B e f o r e :
| Arcadis Consulting (UK) Limited
(formerly called Hyder Consulting (UK) Limited)
|- and -
|AMEC (BSC) LIMITED
(formerly called CV Buchan Limited)
(instructed by Herbert Smith Freehills LLP) for the Claimant
Mr Simon Hughes QC and Mr Calum Lamont
(instructed by DAC Beachcroft LLP) for the Defendant
Hearing dates: 10, 11, and 12 October 2016
Crown Copyright ©
The Hon. Mr Justice Coulson:
2. THE RELEVANT FACTS/DOCUMENTS
"Please find attached the updated documents we propose to use for design work. The Terms and Conditions document is merely tidied up as I understand. The Protocol document is intended to be the instrument that creates the Agreement. It will be necessary to agree particular schedules for each contract in addition to these and further minor amendments may still be required. We intend to use the documents for the Wellcome Building works subject to your agreement and we will be providing more details shortly. Accordingly I would be grateful if you could make any comments you may have as soon as possible as we are about to start your works on the above basis on this contract."
(a) The Protocol Agreement, which was in the form of an umbrella agreement, which envisaged separate schedules and work instructions for each specific contract, but which envisaged that each separate contract would be carried out pursuant to the same general terms and conditions. Clause 2.1 of the Protocol Agreement envisaged that all these documents would then form a suite of contract documents, with a stated order of precedence. Clause 5.3 required a £5 million level of PI insurance cover.
(b) The schedules to the Protocol Agreement, which included a template work instruction and a work instruction acceptance.
(c) The detailed terms and conditions, which would themselves form a schedule to the Protocol Agreement. Condition 2A was entitled 'Limit of Liability' and stated:"The Consultant's liability for defective work under the Agreement shall be limited to whichever is the lesser of the following:(a) The reasonable direct costs of repair, renewal and/or reinstatement of any part or part of the Sub-Contract Works to the extent that the Client incurs such costs and/or is or becomes liable either directly or by way of financial contribution for such costs; or(b) The sum stated in Schedule 1."
This was the proposed liability cap in its original form.
(d) Clause 7 of the terms and conditions required insurance in the form and to the level set out in Schedule 6 (which was blank in the version sent out on 8 November).
(e) Schedule 1, at paragraph M, stated that "the limit, if any, on the Consultant's liability for defects in the design (as referred to in Clause 2A) is…" There was a space in which the relevant figure could then be entered. In the version that was sent, that was of course blank.
(f) Schedule 2 was to be a detailed description of the services to be performed by Hyder under the specific work instruction. Schedule 3 dealt with fees.
"I understand that discussions between David Shotliff and Stewart Tyler on the Design Services Agreement are well advanced. However, it may still take a little time before this Agreement is formally signed. In the meantime I should be grateful if you would confirm that you would underwrite our fees for the design and drawing work and in order that there is a basis for these, propose the following schedule of rates…"
"Your work done under this instruction is to be on the basis of our instructions from Wates and the conditions and terms detailed in the Protocol Agreement, Design Consultancy Terms and Conditions in your possession at present.
It is our intention to enter these Agreements with yourselves in their present form with such minor amendments as maybe mutually agreed and to award you the Design Works on the Wellcome Building Precast Concrete Package in the sum of £55,000 as previously agreed.
Pending formalisation of these Agreements, we will pay you for work done under this instruction up to a maximum £10,000.
Once the Agreements are executed their terms and conditions shall supersede this letter and shall govern any work done retrospectively."
"We are currently preparing our tender for a precast concrete frame and associated works at the above contract and would be pleased to receive your keenest fixed price quotation for the supply of design services as detailed herein…"
The letter said that the works were to be priced on the basis that the quotation was compliant with the "Proposed Design Agreement".
"(1) Agreement on the terms and conditions of our appointment for provision of the services
(2) Agreement of commencement date and the design programme
(4) Any variations or additional services required to be charged on a time basis at rates to be agreed…"
"We have requested a completed Sub-Contract and will advise in due course of any changes to the Schedules arising.
A PI insurance requirement of £5m is identified.
Whilst the terms of the Warranty have yet to be agreed, we have attached a Franklin Andrews Consultant / Employer warranty document which we are advised will be applicable. We are, however, unable to confirm this at this stage, as sub-contract details have still to be finalised.
In the meantime, you are to continue with work on the basis of the foregoing and our instructions from Wates. Pending finalisation of the Agreement, we will pay you for work done under this and our previous instruction to £40,000."
"I think Clause 24 of the T's and C's needs amending. Suggest the following:
'the Consultant's Liability for defective design and excluding amounts for which the Consultant is liable under the terms of the PI insurances provided under the Agreement is limited to the sums stated in Schedule 1'."
"It was noted that the formal detail design commencement date and Frozen Scheme date are both 11 February 2002 and that you wished to commence on that date. I confirm that the start has been made but should be grateful for a formal letter of instruction and limitation of expenditure subject to preparation and signature of the services agreement in due course."
"Hampshire Centre – Castlepoint Car Park
We have received an initial letter of intent for this project. The letter includes an instruction to commence work.
Accordingly, we confirm our instructions to yourselves to commence design and detailing work on this project.
Your work is to be carried out in accordance to the Protocol Agreement and Terms and Conditions associated that we are currently working under with yourselves, the Design Scope and Deliverables document for Castlepoint Car Park previously provided (copy attached) and your quotation of 28 November 2001 in the sum of £285,000.
We also require you to carry out further works as instructed by ourselves under the same terms and conditions.
Pending finalisation of the Agreement and our directions on this project, we will pay you for work done under our instructions up to a maximum of £56,000.
Once the Agreement is executed and the Schedules for this project completed, their terms and conditions shall supersede this letter and shall govern any work done retrospectively.
Please note where there will be requirements to enter into design warranties on this contract."
The Design Scope and Deliverables document which was attached was supposed to be in the same form as the one provided at the kick-off meeting, which effectively reinstated the original scope of work. Although Hyder originally stated that that was indeed so (see paragraph 37 below), I was told that there may be some doubt about that. At all events, I consider that issue to be irrelevant to the dispute before me.
We wish to formally confirm the basis of our design and detailing work placed with yourselves.
We consider that the Protocol Agreement, Terms and Conditions, Contract Schedules and Instructions documents should apply to all work executed for ourselves. Copies of the documents are enclosed. There are some minor amendments, in particular to the limitation of liability clause. We believe that they should be acceptable to yourselves.
We trust that you will be able to agree to execution of the Protocol Agreement and would appreciate your confirmation.
We consider that a PI insurance level of £5m will generally be suitable but may require a £10m cover if contracts entered into so require.
We do not anticipate any requirement for Performance Bonds for presently anticipated work."
"The limit, if any, on the Consultant's liability (as referred to in Clause 2A) is £610,515 – 10% of sub-contract package for uninsured losses."
"2A LIMIT OF LIABILITY
(a) The Consultant's liability in respect of his design shall be no greater than the Client's liability under the Sub-Contract.
(b) The Consultant shall be liable for the reasonable direct costs of repair, renewal and/or reinstatement of any part or parts of the Sub-Contract Works to the extent that the Client incurs such costs and is or becomes liable either directly or by way of financial contribution for such cost due to a breach by the Consultant of his obligations under this Agreement.
(c) Where the Consultant is in breach of this Agreement, otherwise than for a failure to use reasonable skill, care and diligence and the Client incurs any costs, losses, expenses or damages other than those indicated in (b) above, the liability of the Consultant shall be limited to the sum stated in Schedule 1."
"... (1) Appointment and instructions to proceed. We have today received a letter of instruction from David Shotliff, for which I thank you …"
It appeared to be common ground between the parties at trial that this was a reference to the first letter of 6 March 2002.
"Thank you for your letter dated 6th March 2002 instructing us to commence design and detailing work.
Since our original offer dated 28 November 2001, there has been further discussion on the extent of services required and a revised offer, excluding the design element, was made in our letter dated 1st February 2002. It was subsequently decided by C V Buchan that design services were required and a revised Design Scope and Deliverables schedule was issued to us, at the "kick-off" meeting held on 7th February, as per the schedule attached to your letter. Following the meeting, we wrote to you on the 12th February 2002, copy of letter attached, setting out the main points arising. You will note from this that there are variations to our original offer and these have still to be agreed for incorporation into our formal agreement.
There have also been discussions and correspondence with Kevin Wrigglesworth regarding additional work that we are doing on the general layout and issues delaying the design and detailing but believe that these can be dealt with under the terms of our Protocol Agreement."
"6th August 2002
For the attention of Mr S Birch
AMEC Design Agreement
We acknowledge receipt of your letter of 2 August 2002 regarding the terms and conditions of the above.
The basis of the Design Agreement was negotiated with your Mr S Tyler in November 2001 when we generally agreed upon terms and conditions and a means of implementing them via the Protocol Agreement.
Hyder letter of 12th December 2001 recognises that the Wellcome Building will be done to the terms and conditions and instruction provided to you on l3 November 2001, although at that time you suggested that the Agreement be specific to the Wellcome Building pending finalisation of some minor details.
We advised you that we wished to maintain an arrangement comprising Protocol and Terms and Conditions and Contract Specific Schedules and issued a set of schedules on January 2002.
We issued our instruction to proceed on the Castlepoint contract on the same basis on 6th March 2002.
The Terms and Conditions document was developed from the standard AMEC Design
Agreement terms after extensive discussion with your Mr Tyler regarding the type and extent of design you would be likely to undertake for ourselves.
These discussions took place in October 2001, culminating in the revised documents being e-mailed to S Tyler on 8th November 2001.
We are not now in a position to negotiate the general terms of agreement between us.
1. A copy of our e-mail of 8th November 2001, enclosed revised documents.
2. Our instruction to carry out design works on the Wellcome Building in accordance with the documents and our design deliverables document.
3. Your response of 12th December 2001 acknowledges that you will work in accordance with the documents on the Wellcome Building.
4. Our letter of 29th January 2002, including the specific project documents for the Wellcome Building.
5. Our programme for Castlepoint Car Park of 28th January 2002 and draft design deliverables.
6. Our Instruction to carry out design work on the Castlepoint Car Park of 6th March 2002.
7. Your acknowledgement of 22nd March 2002.
8. Our letter of 13th March 2002.
9. Relevant project schedules – Wellcome Building.
10. Relevant project schedules – Castlepoint.
We do not expect to be able to re-negotiate terms as your letter of 2nd August 2002 implies. However, we recognise the insurance matters and will agree how to incorporate them into our arrangement.
We also enclose a copy of our limitation of liability clause on the Castlepoint Car Park that we are incorporating into our sub-contract from Kier.
It is now urgent that the matters regarding design are now being resolved. You have already exceeded your current limit of expenditure under our current letter of intent and we will now have to extent this further.
This is clearly unsatisfactory and must be brought to a speedy resolution.
4. WAS THERE A CONTRACT BETWEEN THE PARTIES?
"45. …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 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."
"One must not lose sight of the commercial character of the transaction. It involved the carrying out of work on one side in return for payment by the other side, the performance by both sides being subject to agreed qualifying stipulations. In the negotiations and during the performance of phase 1 of the work all obstacles to the formation of a contract were removed. It is not a case where there was a continuing stipulation that a contract would only come into existence if a written agreement was concluded. Plainly the parties intended to enter into binding contractual relations. The only question is whether they succeeded in doing so…The judge analysed the matter in terms of offer and acceptance. I agree with his conclusion. But I am, in any event, satisfied that in this fully executed transaction a contract came into existence during performance even if it cannot be precisely analysed in terms of offer and acceptance. And it does not matter that a contract came into existence after part of the work had been carried out and paid for."
This case was cited with approval by Lord Clarke RTS, who noted the fact that the transaction was performed on both sides "will often make it unrealistic to argue that there was no intention to enter into legal relations and difficult to submit that the contract is void for vagueness or uncertainty."
5. IF THERE WAS A CONTRACT, WHICH DOCUMENTS COMPRISED OR EVIDENCED THAT CONTRACT?
"The first rule relating to the incorporation of one document's terms into another document is to construe the incorporating clause in order to decide on the width of the incorporation…A second rule, however, is to read the incorporated wording into the host document in extenso to see if, in that setting, some parts of the incorporated wording nevertheless have to be rejected as inconsistent or insensible when read in their new context."
(a) Were Any Terms and Conditions Incorporated Into The Simple Contract?
(b) Incorporation of Schedules 1-4
a) Although Schedule 3 purported to set out the scope of services to be performed by Hyder, in reality it did no such thing. It was setting out the scope of Buchan's work for Kier under their sub-contract, which was entirely different. Thus the incorporation of Schedule 3 into the simple contract would be at odds with the workscope agreed between Buchan and Hyder (which I thought was likely to have been the Scope document sent with the first letter of 6 March, but which may be debated: see paragraph 37).
b) Schedules 1-4 were largely incomplete because documents or terms were yet to be agreed, again suggesting that, at that time, the Schedules would have been too vague and unclear to form part of even a simple contract between the parties. Whilst the principles of construction noted in the 6th edition of The Interpretation of Contracts (Lewison) suggest that a blank or a 'TBA' in a contract document is simply to be ignored, it becomes progressively more unreal for the court to adopt that approach when it means, as here, ignoring the majority of a document, in circumstances where the blanks or uncertainties existed because the relevant terms were still being negotiated.
6. WAS SCHEDULE 1(M) A TERM OF ANY CONTRACT BETWEEN THE PARTIES?
7. WHAT DID SCHEDULE 1(M) MEAN?
(a) I find that there was a simple contract between the parties pursuant to which Hyder would carry out design work and would be paid for that work by Buchan.
(b) I find that that contract did not include any of the three different sets of proposed terms and conditions and did not include Schedule 1 (or any part of it) sent with the second letter of 6 March 2002.
(c) I find that there was no term of the simple contract that Hyder's liability would be limited to £610,515.
Note 1 Hyder can properly be criticised throughout this process for failing to respond promptly to Buchan’s various proposals, and for never being clear about what they accepted and what they rejected, and why. [Back] Note 2 The £610,515 figure seems to be 10% of the value of Buchan’s sub-contract with Kier. Hyder did not know that at the time and would therefore have had no way of working out how this figure had been arrived at. [Back] Note 3 One version of these Schedules, from the Hyder files, had a number of manuscript annotations. Mr Hughes QC relied on them. Mr Taverner QC said they were inadmissible for the purposes of identifying and construing the contract. I agree with Mr Taverner: such notes, which were not shared with the other side, cannot form part of the objective analysis which the court has to undertake. [Back] Note 4 See my comment at footnote 1 [Back]
Note 1 Hyder can properly be criticised throughout this process for failing to respond promptly to Buchan’s various proposals, and for never being clear about what they accepted and what they rejected, and why. [Back]
Note 2 The £610,515 figure seems to be 10% of the value of Buchan’s sub-contract with Kier. Hyder did not know that at the time and would therefore have had no way of working out how this figure had been arrived at. [Back]
Note 3 One version of these Schedules, from the Hyder files, had a number of manuscript annotations. Mr Hughes QC relied on them. Mr Taverner QC said they were inadmissible for the purposes of identifying and construing the contract. I agree with Mr Taverner: such notes, which were not shared with the other side, cannot form part of the objective analysis which the court has to undertake. [Back]
Note 4 See my comment at footnote 1 [Back]