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Contract formation revisited

The Court of Appeal has recently reversed a decision of the High Court, holding that the parties to a construction dispute had agreed terms despite a lack of clarity in their correspondence.

In 2016, in a dispute between C V Buchan Ltd (Buchan) and Hyder Consulting (UK) Ltd (Hyder), the High Court held that no terms and conditions had been agreed between the parties, and that there was no limit to Hyder’s liability for defective performance.

As we reported previously, Buchan, a specialist concrete sub-contractor, had engaged Hyder to carry out certain design works in relation to two construction projects: the Wellcome Building and Castlepoint Car Park. After construction, Castlepoint was found to be defective, and Buchan claimed damages from Hyder in the sum of £40 million. Hyder denied liability for any of the defects but argued that, if it was liable, there was a contract in place under which its liability was capped at £610,515.

Buchan had sent Hyder various versions of draft terms and conditions, each containing different provisions relating to the limit of Hyder’s liability: a first version in November 2001, an amended version in January 2002, and a further amended version in March 2002. Buchan also sent, separately, a letter of intent instructing Hyder to begin work on the Castlepoint project. Hyder disputed the terms and conditions proposed, but did not respond in detail and started work on both projects.

The High Court found that the letter of intent was a form of simple contract, which Hyder accepted by performance, but that no version of the terms and conditions was agreed. It therefore held that Hyder’s liability to Buchan for defective design was unlimited.

The Court of Appeal has now reversed the High Court’s judgment. Reviewing the correspondence between the parties, Dame Elizabeth Gloster rejected the High Court’s distinction between the simple contract and the terms and conditions. On the contrary, she held that in accepting the contract Hyder had also accepted the terms and conditions as originally proposed in November 2001, including the cap on liability of £610,515.

While Gloster LJ’s reasoning was partly derived from her construction of the parties’ correspondence, it was also founded on more general principles. Since each draft of the terms and conditions contained some sort of limit to liability, it would be wrong, she said, to conclude that Hyder assumed an unlimited liability for its contractual performance, to which it would never have agreed under any final contract.

The Court of Appeal’s judgment will generally be welcomed as overturning the harsh consequences of the decision of the High Court. It remains advisable, nonetheless, that contracting parties should confirm their agreements clearly, not least when working under an interim contract that may ultimately be superseded.

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