Got a contract or not? Know your limits!
5 March 2019
Rating system:
Reading time (1-10 minutes): less than 3
Sophistication level (1 (idiot) – 10 (expert)): 5
Entertainment value (1 (turgid) – 10 (side-splitting)): 5
Background
Basic law says that a legal contract comes into place when one party makes an offer which is accepted by the other. The details need to be clear enough to establish the key terms, ie who has to do what and for what. In real life it is not always clear cut when you look at all the toing and froing of correspondence between parties as to when a contract actually comes into place, and what terms and conditions should apply to it. This recent case is a good example.
Recent case
In this recent case (well, recent in the sense that it has just been heard at the Court of Appeal – not recent in the sense that the facts of the case occurred about 15 years ago…) a design consultant company (Hyder) was engaged by a specialist concrete sub-contractor (Buchan) to do work on a car park construction project. Various different draft terms and conditions for this project were circulated by Buchan. The first of these were based on a separate contract which had previously been agreed by the parties for a separate project. All these drafts included some form of clause limiting Hyder’s liability for negligence. But for other reasons Hyder never agreed any of these drafts. Eventually Buchan sent Hyder a separate letter of intent instructing Hyder to begin work, and Hyder started work although it also said without going into detail that it disputed the terms and conditions mentioned in the letter of intent.
The car park was built, and found to be defective. Buchan claimed £40m damages from Hyder. Hyder denied liability, but also argued that under the contract its liability was capped at £610,515.
The High Court had to decide whether there was a binding contract, and if so whether any terms limiting Hyder’s liability formed part of the contract. The court said that there was a simple binding contract, in the sense that the letter of intent was an offer which Hyder accepted by performance. But it said that none of the various terms and conditions which had been circulated formed part of the contract, because Hyder had never agreed them. So Hyder’s liability under the contract was unlimited, even though all the drafts had contained some form of limit on Hyder’s liability! The judge commented that this was ‘the inevitable consequence of Hyder’s dilatory and often uncooperative approach to the … negotiation of the terms and conditions’.
Hyder thought this was terribly unfair and so it appealed.
What did the Court of Appeal say?
The Court of Appeal sided with Hyder.
Firstly, it came to a different conclusion from the High Court as to whether all the correspondence between the parties meant that Hyder had never agreed to accept any of the terms of conditions which had been circulated. Instead, its interpretation of all the correspondence was that in accepting the letter of intent Hyder had actually accepted the very first set of Ts and Cs that had been proposed, which included a cap on liability of £610,515.
But the Court of Appeal also said that as a general principle, since each draft of the Ts and Cs had contained some form of limit on liability it would be wrong to conclude that Hyder had assumed an unlimited liability for its contractual breaches, which it would never have agreed under any final contract.
Conclusion
This is another example of the courts trying to find reasons for coming to what seems to be the fairer decision in the particular circumstances. But it does beg questions as to whether for example if you are going to enter into a contract you can simply say to the other side that you don’t agree with their terms and conditions, and then go ahead and perform the contract, and then when things go wrong later you can cherry pick parts of those terms and conditions which were in your favour.
Obviously the safest thing to do is always to set out and agree things clearly in writing, using a good lawyer! Unless you have your own reasons for wanting things to be muddy.
Case: Arcadis Consulting (UK) Ltd (formerly Hyder Consulting (UK) Ltd) v AMEC (BCS) Ltd (formerly CV Buchan Ltd) [2018] EWCA Civ 2222 (10 October 2018)
