09/05/2018
In the recent case of Cleveland Bridge UK Ltd v Sarens (UK) Ltd [2018] EWHC 751 (TCC), the Technology and Construction Court (TCC) set out the principles to be applied by the court when analysing whether a particular term (or terms) within a construction contract have been agreed.
This decision has implications for those entering into construction contracts. It illustrates that if it is not possible to identify a clear offer and acceptance of a set of terms, but the contract has been performed, the court may take a less strict approach and simply assess what the parties initially agreed upon.
The facts of the case
Cleveland Bridge (CBUK), a sub-contractor on a highways project in Lancashire, appointed Sarens (UK) Ltd as sub-sub-contractor to provide cranes and equipment for the installation of bridges.
The dispute centred upon the question of what, if anything, CBUK and Sarens agreed in their subcontract by way of provision for delay damages and/or liquidated damages. CBUK argued the parties had discussions about the imposition of a 10% cap on liquidated damages but said, broadly, that no agreement was reached. Sarens, on the other hand, contended the parties agreed a term that Sarens' liability for delay damages in general and/or liquidated damages, in particular, would be capped at 10% of the subcontract price, and that a mechanism for the imposition of liquidated damages was also agreed.
The contract in question was not signed by either party.
The principles the court will apply when deciding whether a term has been agreed on, and how to interpret the term
When deciding on the issue of whether a term in a construction contract has been agreed and if so, the interpretation of the term, the TCC held provided the following guidelines:
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the court may need to evaluate the entire course of negotiations to decide whether a particular term forms part of the contract and whether that term has been agreed upon
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the subjective view of the parties as to whether an agreement was reached is of no concern to the court; it will form an objective conclusion as to whether the parties intended to create legal relations
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to reach a conclusion, the court must place itself in the same factual matrix as the parties
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to establish what has been agreed, the court must look at whether an offer capable of acceptance has been made and whether the other party did in fact accept
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an acceptance must be clear and unqualified – this can include conduct if it shows the offeree acted with the intention of accepting the offer
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the court may conclude the contract was formed in a manner totally different from what the parties allege
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events occurring after an agreement was made are admissible to determine whether a particular term was agreed (despite not being admissible to construe the terms of an acknowledged agreement)
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when interpreting a term, the court will look at the language of the contract objectively
The court's decision in Cleveland Bridge UK Ltd v Sarens (UK) Ltd (TCC)
When considering the case of Cleveland Bridge UK Ltd v Sarens (UK) Ltd, Deputy Judge Miss Joanna Smith QC examined a brief timeline of events relating to the disputed term which concerned liability for delayed damaged.
In summary, the key events (all occurring in 2014) were:
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6 June: Following a ‘cursory’ look at the contract provided by CBUK the day before, Sarens said that it would require a 10% cap on liability and for damages to be payable only where negligence was proved
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16 June: Sarens sent a follow-up email, also raising concerns about the price. CBUK responded saying that ‘we really don’t have any disagreement here’
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10 November: Sarens commenced work
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11 November: The third iteration of the contract was provided by CBUK to Sarens, which included a 10% liquidated and ascertained damages cap (LADs cap) (but did not specify the actual rate of LADs)
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17 November: Sarens responded suggesting a rate of 1% per week
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18 November: CBUK propose a rate of 2% per week
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2 December: Sarens said it would accept, subject to a 60–day grace period
Miss Smith QC rejected CBUK’s argument that the follow-up email on 16 June amounted to an offer and this offer was accepted by Sarens starting work on 10 November. It was clear CBUK’s statement that there was “no disagreement” was only referring to price—taking an objective approach as spelt out in the guidelines, the court’s held no reasonable party in Sarens’ shoes would have regarded the email as a final and unqualified statement that everything was agreed, or understood it as an offer to go forward on the basis of the emails of 6 and 16 June with no further discussion.
The court held the contract was actually formed on 11 November with the third iteration which included the LADS cap. Although it was hard to pinpoint when the term had been accepted, the court followed Arcadis Consulting (UK) Ltd v AMEC (BSC) Ltd [2016] EWHC 2509 (TCC) which states if work begins on a project, it is almost impossible to argue a contract has not been created. Although a clear offer and acceptance could not be pinpointed, as the contract had been performed, the court needed to analyse what had in fact been agreed by both parties. In this case, agreement had been reached on all aspects of the contract except for delay damages.
The argument put forth by CBUK that it had varied the contract on 18 November and, because Sarens continued to work, it had accepted this, was also rejected. It was held the continuation of work was not related to the offer and Sarens had responded to the 2 November offer with its own counter-offer.
Fisher Scoggins Waters are experts in construction, manufacturing, and engineering law, based in London. If you would like more information on construction contract disputes, please phone us on 0207 993 6960.