Arcadis Consulting (UK) Ltd v. AMEC (BSC) Ltd [2018] EWCA Civ 2222 is a Court of Appeal decision following the TCC hearing before Coulson J (as he then was) back in October 2016. The case centered on the age old problem of construction operations starting before the parties have concluded a definitive agreement on the terms of the contract. As a result, the Court of Appeal was required to pick through both parties’ dealings in order to determine whether a contract had been formed and, if so, on what terms.
Background - the TCC Judgment
AMEC is a contractor specialising in the design, manufacture and installation of
pre-cast concrete for the construction industry.
Back in 2001 AMEC acted as the specialist concrete sub-contractor on two large projects (the Wellcome Building and the Castlepoint Car Park).
AMEC (formerly known as Buchan) engaged Arcadis (formerly known as Hyder Consulting) to carry out certain design works in connection with the two projects in anticipation of a wider agreement which in the end did not materialise.
One of the projects, the car park, was subsequently alleged to be defective, with the result that it might have needed to have been demolished and re-built. The claim was put at £40m. AMEC, having settled with the main contractor, Kier, was now pursuing Arcadis.
Arcadis denied liability, but in the alternative it argued that if it was liable, then there was a simple contract concerning its design works which included a cap on its liability of £610k.
AMEC argued before Coulson J that the parties’ correspondence demonstrated both were planning to enter into a formal Protocol agreement which would contain the terms and conditions. As the Protocol agreement was never concluded, AMEC asserted there was no contractual relationship.
Against the above proposition was the fact that work was actually carried out by Arcadis and paid for by AMEC. The parties were thus working on the basis that the correspondence would create a legal relationship.
Coulson J held that there was a simple contract formed between the parties.
Having established this he went on to consider which documents had been incorporated into the contract. This was no easy task as there were three competing formulations of the terms and conditions. Each set of terms contained a liability cap.
Added to this conundrum was the fact that Arcadis never once indicated, either verbally or in writing, that it accepted any of the terms produced.
The fact that Arcadis had never accepted any of the terms led Coulson J to determine there was too much uncertainty to say that the parties had agreed to be bound by a liability cap.
The result was catastrophic for Arcadis as it meant there was no limit of liability. Acknowledging this harsh outcome Coulson J remarked:
“this was the inevitable consequence of Hyder’s dilatory and often uncooperative 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 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".
Court of Appeal
The key question for the Court of Appeal was whether the terms and conditions sent by AMEC to Arcadis on 8 November 2001 (“November Terms”) were incorporated by reference into the simple contract.
The November Terms included a clause (Condition 2A) proposing a limit on Arcadis’s liability of £610k.
Dame Elizabeth Gloster giving the lead judgment provided a painstaking analysis dealing with, amongst other things – offer and acceptance, distinguishing between an interim and final contract and contract construction.
Her Ladyship concluded that the November Terms were incorporated by reference into the contract as found by Rix LJ in Tradigrain S.A. v. King Diamond Shipping SA [2000] 2 Lloyd’s Rep 318 at [78]. In this case Rix LJ stated:
“the first rule relating to the incorporation of one document’s terms into another is to construe the incorporating clause in order to decide on the width of incorporation”.
In support of incorporation Her Ladyship relied on a letter from AMEC to Arcadis dated 6 August 2002 which said as follows:
“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 13 November 2001, [emphasis added] although at that time you suggested that the Agreement be specific to the Wellcome Building pending finalisation of some minor details”.
Her Ladyship concluded by reflecting on the harshness of the TCC outcome for Arcadis, saying that was another reason why Coulson J should have reached a different conclusion. She referred to Goff J’s analysis in British Steel Corporation v. Cleveland Bridge & Engineering Co Ltd [1984] 1 All ER 504 and said that:
“if parties are in a stage of negotiation and one party asks the other to begin work “pending” the parties entering into a formal contract, it cannot be inferred from the other party acting on that request that he is assuming any responsibility for his performance, except such responsibility as will be assumed under the terms of the contract that both parties are confident will be shortly finalised”.
“The judge’s [i.e. Coulson J’s] conclusion is what Goff J called an “extraordinary result,” in that the former concluded that, by acting on Buchan’s request in such circumstances, Hyder assumed an unlimited liability for its contractual performance, when it never would have assumed such liability under any contract which it entered into. In my judgment, that is even more extraordinary in the current context, where the parties had specifically agreed that limit of liability in relation to the interim contract. Consequently, I consider the judge [Coulson J] erred in concluding otherwise.”
“For the reasons set out above, I would allow this appeal and hold that any liability of Hyder to Buchan is subject to condition 2A (a) of the November Terms.”
Comment
A close call for Arcadis perhaps, given that uncertainty of contract terms is the foundation for many an expensive dispute. Nevertheless, the judgment is of great value to Arcadis as it means its potential liability (if any) to AMEC has been significantly reduced.
In all these types of cases where work starts long before there is ever a final signed contract they are extremely fact sensitive. This case is no exception and it is a salutary tale of the lawyer’s bonus which can arise from uncertainty but by no means guarantees the desired outcome; it is dangerous to be blasé about documenting negotiations in the hope that the law will ultimately come to the rescue as it did for Arcadis. |
