Citation: [2018] EWCA Civ 2222
Facts
The respondent (“AMEC”) was the concrete sub-contractor on two large construction projects known as the “Wellcome Building” and “Castlepoint Car Park”. It engaged the appellant (“Arcadis”) to carry out design work on these projects. These works were carried out in anticipation of a wider agreement between the parties (“The Final Contract”) which ultimately did not materialise. Following the completion of the works, a dispute arose due to allegations that the works completed on the Castlepoint Car Park were defective and necessitated the car park being completely rebuilt.
AMEC entered a settlement with the main contractor for the Castlepoint development and subsequently sought damages of £40 million from Arcadis. Arcadis denied liability, alternatively arguing that if it was liable, then that liability ought to be capped at £610,515 in accordance with the contract. AMEC submitted that the contract between the parties had not incorporated any term which limited the liability of Arcadis.
Both parties’ cases hinged on which terms and conditions had been incorporated into their contract. The parties had exchanged a number of different sets of terms and conditions over the course of their negotiations, each of which included a different limitation of liability clause. Two exchanges were of particular relevance.
- The 8th November letter: The first set of Terms and Conditions was exchanged on 8th November 2001 by email from AMEC to Arcadis. The documents attached to this email included a Protocol Agreement, a number of schedules, and Terms and Conditions. In this email, AMEC stated its intention to use these documents for the Wellcome Building subject to the agreement of Arcadis. Condition 2A was a limit of liability clause which stated that liability would be limited to the sum stated in Schedule 1. Schedule 1 was left blank at this stage.
- The 6th March letters: On 6th March 2002, AMEC sent Arcadis two further letters. These contained another set of terms and conditions. Schedule 1 of these new Terms and Conditions specified the limit of liability as £610,515. Arcadis subsequently commenced the works and received payment for the work done.
High Court
In the High Court, the issue was whether a contract had been agreed between the parties, and if so, whether the liability cap specified in the 6th March letter had been incorporated into it.
Coulson J decided that there was a contract between the parties because Arcadis had carried out work pursuant to the instructions in the 6th March letter. However, Coulson J found that the liability cap had not been incorporated into this contract. The Terms and Conditions contained in the 8th November 2001 letter had been superseded by further correspondence negotiating these Terms and Conditions, which the parties never accepted.
Arcadis appealed.
Court of Appeal
The Court of Appeal unanimously allowed the appeal, reversing the decision of the High Court. The liability cap had been incorporated into the contract.
The judge had placed too much emphasis on the absence of a formal acceptance of the relevant Terms and Conditions, and he had failed to draw a distinction between the interim contract under the March letter, and the parties’ intended Final Contract, on which agreement was never reached. As to the interim contract, Arcadis had not rejected any terms or made a counter-offer, rather, it had carried out the work in accordance with the March letter. By its conduct, Arcadis had therefore accepted the offer in the March letter.
The next question was what the Terms and Conditions of the March letter were. The letter itself provided that the work was to be carried in accordance with the “terms and conditions…that we are currently working under with yourselves”. On a proper construction, Gloster LJ found that these words incorporated the terms and conditions of the 8th November letter, which Arcadis were working under in relation to the other construction project – the Wellcome Building. Gloster LJ decided that Arcadis had either accepted the November terms by its conduct in starting work shortly after its letter of response dated 13 November, or by its later response on 12 December, in which Arcadis confirmed that “work continues…under the instruction of your letter”. Taking these two letters together, it was plain that Arcadis had accepted the November Terms and Conditions and was working under them, meaning those were the Terms and Conditions referred to in the March letter, which contained the relevant limit of liability for Arcadis – £610,515.
It was immaterial that subsequent Terms and Conditions had been exchanged by the parties because these were directed towards the Final Contract, not the interim contract. As such, the later Terms and Conditions did not supersede those incorporated into the interim contract.
The full judgment can be accessed here.
