Bite the bullet and get that contract finalised

In legal terms nothing new came out of the recent High Court decision in Arcadia (formerly Hyder Consulting) (Hyder) v AMEC (formerly CV Buchan) (Buchan) [2016] EWHC 2509 (TCC). However, the background facts that emerged in the judgment will, I fear, be all too familiar to many of you. If so, the outcome of the case described below is likely to give you pause for thought.

Back in the early years of this century, Hyder agreed to carry out design works for specialist concrete sub-contractor, Buchan. The initial arrangement was for Hyder to carry out these works in anticipation of entering into a form of framework agreement; allowing Buchan to call off further such works without having to re-negotiate all the terms every time.

Over the following months negotiations on the terms proceeded sporadically. Hyder carried on with their design work on the basis of instructions in the form of basic letters of instruction/intent. The two sides repeatedly exchanged correspondence about the terms and conditions but not much progress was made. No formal agreement was ever reached or entered into.

Scroll forward to recent times. Problems arose with the structures built on the basis of the designs Hyder produced. It appears Hyder were then on the receiving end of a claim for contribution from Buchan towards a settlement they had reached with their client in relation to those problems. The case report suggests the level of the claim amounted to some £40m.

At this point, because there was no formal contract in place, the parties had to apply to the court for a determination. Was there a contract and, if so, what were its terms? Specifically, and unsurprisingly, Hyder wanted to know whether or not any limit had been agreed for its liability.

The passage of time made the job of piecing together what had happened – who had said (or more to the point written) what, to whom and whether or not such exchanges could be interpreted as forming the terms of a contract – difficult for the court. The judge had to consider numerous (not always complete) exchanges of correspondence covering many months and hear the testimony of witnesses on matters that had occurred some 15 years earlier.

In the end, the judge concluded that three different sets of terms and conditions had been proposed (mostly by Buchan) but that none of them had then been followed through sufficiently for them to form the basis of a contract. He was critical of the negotiation process. Particularly of the time Hyder took to respond to Buchan’s proposals and the fact that, when they did respond, their response often gave no clarity about what was acceptable and what was unacceptable in the proposal.

In the end the judge decided that a contract had been formed between the parties. However, the uncertainty about and variety of different sets of terms and conditions that had been exchanged, coupled with the apparent lack of acceptance of any of them, meant that none of them could safely be taken to have been incorporated into that contract. All that the court was therefore able to find was a simple contract, under which Hyder agreed to carry out design work and Buchan would pay them to do so. Unfortunately, for Hyder, this finding did not allow for any term limiting Hyder’s liability to be incorporated.

To add salt to the wound, the judge noted that each of the three sets of terms he found to have been proposed did include some sort of limit on liability but each one was on such radically different terms to the others that no accepted term could be found that could be incorporated into the contract. He recognised that this was a harsh result for Hyder. Nonetheless, he concluded that it was a consequence of the approach they had taken to the negotiations and the resulting failure to reach an agreement on terms.

So, be warned. The consequences of not pushing on through and bottoming out the terms of “that particularly difficult contract” are potentially draconian and they can come back to haunt you years later. Bite the bullet and make sure it happens – every time.

Sarah Phillips  Irwin Mitchell

 

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