The Court of Appeal has come to the aid of Arcadis Consulting (UK) Ltd by overturning Coulson J’s judgment in Arcadis Consulting (UK) Ltd v AMEC (BSC) Ltd – a case described by the judge as one “with something of a sting in its tail”. The sting in question was Coulson J’s finding that a contract between Arcadis and AMEC did not incorporate any term that limited Arcadis’ liability. As a result, Arcadis faced a potential loss of £40 million.
Arcadis Consulting (UK) Ltd v AMEC (BSC) Ltd
AMEC was a specialist sub-contractor on two large construction projects: the Wellcome Centre and the Castlepoint car park. AMEC engaged Arcadis to carry out design work on both projects. The parties had planned to enter into a “Protocol Agreement” that would govern all of Arcadis’ works. Before the Protocol Agreement had been finalised, Arcadis got to work on the Castlepoint car park under a letter of instruction that referred to the ongoing negotiations.
Unfortunately, the Protocol Agreement was never finalised and the works were defective. AMEC pursued Arcadis for the defects. Arcadis brought a claim for a declaration that its liability was limited to £610,515.
Coulson J’s first instance decision
Coulson J found that, absent a finalised Protocol Agreement, Arcadis had carried out the works under a “simple contract”. The letter of instruction was, in effect, a letter of intent pending the agreement of a formal contract, which would contain detailed terms. In the judge’s view, Arcadis had performed the works with the comfort that, if the Protocol Agreement did not eventuate, the correspondence would, at least, afford a contractual right for payment. While the parties had exchanged three sets of T&Cs that all limited Arcadis’ liability, no final agreement had been reached and there was no limitation provision on which Arcadis could rely.
The Court of Appeal
Gloster LJ, in a judgment which Holroyde LJ and Underhill LJ agreed, reversed Coulson J’s decision for the following reasons:
- The judge had failed to distinguish between (i) the interim contract under which Arcadis had carried out work and (ii) the intended Protocol Agreement, the terms of which would supersede the interim contract. Contrary to the judge’s decision, the parties did not need to reach agreement on the T&Cs of the Protocol Agreement for them to have a binding agreement on the T&Cs of the interim contract.
- AMEC’s letter of instruction was a request to start work on all of the terms set out in it. Arcadis had accepted AMEC’s request, and formed a contract, by correspondence and/or conduct. Absent any express rejection of the terms or a counter offer, Arcadis had accepted all the terms of the letter of instruction. Coulson J was wrong to find that Arcadis had to mention specific parts of the terms to accept them. The judge had also placed too much emphasis on the absence of the word “accept” from Arcadis’ letters.
- The letter of instruction referred to “the terms and conditions we are currently working under with yourselves”. Gloster LJ rejected the judge’s view that the words “working under” meant “under negotiation”. Instead, Gloster LJ found that the words incorporated the T&Cs Arcadis was already “working under” on the Wellcome Centre. Those terms included a limitation of liability.
- It was not material that different T&Cs had subsequently been exchanged by the parties because those T&Cs were exchanged in the course of negotiations for the Protocol Agreement. The later T&Cs did not supersede the T&Cs incorporated to the distinct and finalised interim contract.
- Citing Goff J in British Steel v Cleveland Bridge, Gloster LJ described Coulson J’s conclusion as an “extraordinary result”. It would be extraordinary for Arcadis to have assumed an unlimited liability under the letter of instruction when it never would have assumed such liability if the Protocol Agreement had been finalised as the parties intended.
The Court of Appeal’s decision is specific to the facts of the case but it does provide some solace to contractors carrying out works while negotiations are ongoing. That said, the cautionary tale of the first instance judgment should not be ignored. Even if parties in negotiations expect a detailed agreement to be reached in the near future, they should be careful to ensure that the terms of any letter of comfort do actually make them comfortable: both in terms of future payment and future liability.