REUTERS | Issei Kato

Be aware of when you enter into a contract

The importance of three little words that should not be underestimated. I am of course talking about “subject to contract” and how the failure to use them in Malcolm Charles Contracts Ltd v Crispin and another proved to be expensive for one party.

Subject to contract

Subject to contract is a term that we all learn about early on in our careers, especially if we are involved in contract negotiation.

Often, whether the parties have reached an agreement is clear cut. There either is (or is not) a signed contract. Sometimes, whether there is a binding agreement is less clear, especially after a period of negotiation of the contract terms, when the parties may have said or written many things during those negotiations. The practice of including “subject to contract” on correspondence and other documents has developed as a way of rebutting the presumption of contractual intent. In other words, it means the parties have not yet reached agreement and are still in the process of negotiation, or that the agreement the parties have reached is not binding until it is signed.

They are three little words that I suspect Mr and Mrs Crispin wish they had used, as those words would have saved them a considerable amount of money.

Malcolm Charles Contracts Ltd v Crispin and another

This case was all about the enforcement of an adjudicator’s decision, after a full trial before Carr J in the TCC. The central issue in those enforcement proceedings was whether the parties had entered into a contract (a JCT Home Owner/Occupier, 2005 Edition (HO/C 2005)). If they had, then the adjudication scheme operated by RICS, RIBA and the National Specialist Contractors Council (NSCC) applied and the adjudicator’s decision was enforceable. If they hadn’t, as the Crispins argued, then it didn’t and the decision could not be enforced.

I presume the judge felt a full trial was necessary because she needed to hear evidence from the people who had attended at site and had been present at a number of meetings. That is something that can’t really be done on a summary judgment application.

A total of six witnesses were called, including Mr and Mrs Crispin, their former architect, the contractor’s owner and its foreman on the project. The judgment goes into considerable detail about the facts and what each witness recalled about the events in the summer of 2011, when the contract was alleged to have been entered into.

At the end of it all, the judge concluded that, on any objective view, the parties had entered into a contract on the HO/C 2005 form. This meant the parties had an adjudication agreement, which gave the adjudicator jurisdiction to reach his decision. (The adjudicator decided that the contractor was entitled to damages of just under £105,000, representing costs thrown away and loss of profit resulting from the Crispins’ cancellation of the building contract.)

It is a useful case

Although the judgment is concerned with one of the JCT’s residential standard forms of contract, it is very well written and follows the key points logically. I think that it is a very good case for those who want to understand how negotiations can lead to parties reaching a binding contract. For example, at paragraph 59 the judge emphasises the point that the test is purely objective, but that Mr and Mrs Crispin in particular did not refrain from “deposing to their subjective beliefs, opinions and intentions”. The judge made it clear that she regarded those matters as “irrelevant” and applied the objective test “faithfully”. This also happens a great deal in adjudications, where an adjudicator can be provided with numerous witness statements setting out why witnesses consider that an agreement was reached (or not).

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