Extra Cost

7/28/2019 Extra Cost

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IN THE SUPREME COURT OF JUDICATUREIN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE QUEEN'S BENCH DIVISION

(MR. JUSTICE DYSON)

Royal Courts of Justice

Strand

London WC2

Thursday, 13th July 2000

B e f o r e:

LORD JUSTICE SWINTON THOMAS

LORD JUSTICE BROOKE

and

LADY JUSTICE HALE

- - - - - -

STENT FOUNDATIONS LIMITED

Appellant

- v -

CARRILLION CONSTRUCTION (CONTRACTS) LIMITED

Respondent

- - - - - -

MR. A. STEYNOR (Instructed by Mr. Alan Foster, Solicitor, Wolverhampton WV1 4HY)appeared on behalf of the Appellant.

MR. M. BOWDERY Q.C. (Instructed by Messrs. Wedlake Bell, London WC2 9HF) appeared onbehalf of the Respondent.

_________


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J U D G M E N T

LORD JUSTICE SWINTON THOMAS:

1. Lady Justice Hale will give the first judgment.

2. LADY JUSTICE HALE:

3. The issue

4. Between the 12th October 1998 and 31st January 1989, the claimant in this action, Stent

Foundations Limited ("Stent"), carried out works at a site at South Quay on the Isle of Dogs. The

site was being developed by Wiggins Waterside Limited ("Wiggins"). The management

contractor was Wimpey Construction Management ("WCM"), a trading arm of Wimpey

Construction Limited, which has since become the defendant Carrillion. The claim is for over294,000 in respect of certain extra costs incurred by the claimant while doing the works. Theissue is whether the work was done pursuant to a contract with WCM or whether it was done

under a letter of intent issued on behalf of Wiggins. The relevance is that Wiggins went intoreceivership after the work was done, whereas the defendant is solvent.

5. A preliminary issue was ordered to be tried raising three questions:

"(1) Whether Stent Foundations Ltd carried out its work pursuant to a contractwith Wimpey Construction Management that came into being (a) as soon as

WCM concluded a contract with Wiggins Waterside Ltd in January 1989 or (b)

on 8 September 1988; alternatively

(2) whether, if no contract was concluded between Stent and WCM at all, WCM

is estopped from so contending."

6. On 10th November 1999 Dyson J, sitting in the Technology and Construction Court, resolved

the question (1)(a) in favour of the claimant. This was the claimants primary case. He gave thedefendant permission to appeal. He resolved the second two questions in favour of the defendant.The claimant has not sought permission to cross-appeal against that.

7. The facts

8. The site was to be developed under a then new-style management contract rather than the

more traditional style of construction contract. The difference between them was helpfullyexplained by his Honour Judge Hicks Q.C. in the case ofCopthorne Hotel (Newcastle) Limited v.Arup Associates (1997) 85 BLR 22, quoted by Judge L.J. at page 51 F:


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"In place of amain contractor with the primary obligation of executing the

works and having liberty to have part carried out bysub-contractors there is amanagement contractor with the primary obligation of ensuring that theworks are executed and a duty to achieve that end by letting out the whole of the

works inpackages towork contractors."

8. Mr Bowdery Q.C, who appears for Stent, helpfully explains further in his skeleton argument

that this gives the developer and his professional team more direct involvement with the

selection and placement of the work packages. It also means that work can begin on somepackages while others are still at the design stage. The management contractor does not carry out

of any of the work itself. Nevertheless, this arrangement retains the traditional structure in that

the expectation of all is that the work packages will be carried out under contracts with the

management contractor rather than directly with the developer.

9. ECH Project Services Limited ("ECHPS") were Wiggins project manager. On 2nd June1998 they invited tenders from Stent and others to carry out piling works on the site. These were

described as "the design and construction of cast in situ reinforced concrete bored pile wall usingtheSecant method or similar". The management contractors were not named in thatdocument, although WCM had already submitted a tender for that contract in May 1988. On 21st

June 1998 Stent submitted their tender for the piling works. There was an accompanying

Explanatory Memorandum, paragraph 1.8 of which read:

"Unless and until a formal agreement is prepared and executed this tendertogether with your acceptance thereof shall constitute a binding contract between

us. In the absence of our written agreement to the contrary, this Explanatory

Memorandum takes precedence to and overrides any conflicting considerations

that may occur in any standard documentation."

10. On 29th June 1988, ECHPS accepted WCMs tender for the management contract. It wasagreed in principle that they would use the JCT 1987 Management Form. Thereafter WCM wereinvolved in all the meetings with the sub-contractors, although the formal management contract

was not executed until 17th January 1989.

11. On 14th July 1988 there was apost-tender interview with Stent. ECHPS and WCM wereboth represented. The minutes, headed "Wimpey Construction Management", record under

"Programme/Method":

12. "2.2 SFL [that is, Stent] confirmed that commencement would take place on 19 September

1988 assuming WCM gave an intent 7 days after receipt of outstanding information from SFL."

13. Under "Contractual/Financial" it said:

"3.1 WCM confirmed that the contract conditions would be 1987 Mancon Works

Contract.


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3.1.1 SFL was not familiar with this contract, and stated that they did not agree

with engineer opening-up clause.

3.1.2 This was checked and did not appear to present a problem. ...

14. "3.6. SFL stated that they would act upon a letter of intent, though stressed that WCM shouldagree to pay cancellation cost if the contract did not proceed."

15. Negotiations continued over cancellation and delay charges. WCM were concerned at the

delay in placing the letter of intent for these piling works. On 9th August 1988 ECHPS wrote to

Stent:

"On behalf of our Clients, Wiggins Waterside Ltd, we are pleased to instruct you

to commence construction of a bored pile retaining wall at the above location,

subject to the following provisions:-

1. You will be required to enter into a sub-contract agreement with a ManagementContractor to be appointed.

2. The form of the contract should be the Standard Form of Works Contract 1987Edition for use in conjunction with The Standard Form of Management Contract

1987 Edition as issued by the Joint Contracts Tribunal for the Standard Form of

Building Contract.

3. The contracts shall be signed under seal."

16. The letter went on to state the particulars as to value, timing, delay and commencement date.

These were not all acceptable to Stent. It concluded:

"Until formal documents are available for signature please accept this letter as our

instruction to proceed.

In the event of the parties failing to enter into a contract, we confirm that you will

be reimbursed with all reasonable costs incurred including overheads and profit

thereon, but no allowance will be made for loss of profit."

17. A "package contract meeting" was held between Stent, ECHPS and WCM on 15th August

1988. The minutes record: "3.0 Package order Stent stated their willingness to accept a letter of

intent from ECHPS and commence work against an order from WCM".

18. Various outstanding items were then discussed and a new start on 17th October 1988 was

agreed. Finally:

"6.0 Letter of Intent


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ECHPS to telephone acceptance of the above ... to Stent by am Wednesday the

17th August and to then immediately reissue the letter of intent from ECHPS."

19. On 16th August 1988, WCM wrote two letters to ECHPS. One expressed concern that tender

enquiries were still being sent out without naming them as management contractors, which

detracted from their authority and placed constraints upon them in resolving problems such ashad arisen with this piling tender. By letter dated 18th August 1998, ECHPS swiftly agreed to

rectify this. The second letter from WCM recommended proceeding on the basis of Stentsoffer as negotiated. Stent needed to know within 48 hours if a plant was to be reserved.

20. On 17th August 1988, therefore, ECHPS sent a second letter of intent. Some details had been

changed, but the passages quoted earlier from the letter of 9th August remained the same, save

that WCM were now named as the management contractor in paragraph 1. Also on 17th August

1988, Stents managing director wrote to the quantity surveyors, E.C. Harris & Partners,enclosing the final form of their offer and again enclosing the Explanatory Memorandum.

21. On 18th August 1988, Stents contracts manager, Mr Stagg, wrote to ECHPS stating thatsubject to three small points the letter of intent was acceptable. ECHPS accepted those threepoints in a letter dated 25th August 1988 which also suggested that cancellation and delay

charges would be applied, based on a start date of 17th August 1988, and ended:

"We note you are proceeding on the basis of our letter of intent and trust this letter

now clarifies your position".

22. On 7th September 1988, Stent sent in their revised cancellation and delay charges. On 8th

September there was a procurement meeting between WCM and Stent at which ECHPS were not

represented. Under "Contractual" the minutes record:

"2.1 Stent will now proceed on the basis of the letter of intent and Stent letterRTS/756/LA of 7th September 1988 to ECH project services.

2.2 JCT Mancon accepted in principle - details to be agreed.

2.3 Bond details to be agreed. Stent will propose a termination date.

2.4 Warranty details to be agreed."

23. That is a reference to the separate bond and warranty required by Wiggins from the works

contractor.

24. On 16th September 1988, ECHPS instructed WCM to take possession of the site that

weekend for limited purposes. It included the following sentence:

"This instruction relates to the deemed to exist management contract for execution

of the construction works, and is issued in anticipation of the terms and conditions

of that contract being finalised during the coming week."


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25. That clearly did not happen, but everything proceeded in any event.

26. On 6th October 1988, ECHPS wrote again confirming that WCM had taken possession of thesite and anticipating that the terms and conditions of the contract would be finalised "during the

next few days". That too did not happen. Negotiation about the details of the management

contract continued.

27. Meanwhile, meetings continued between WCM and Stent. At a pre-construction meeting on

5th October 1988 it was recorded under "Order":

"Yet to be placed. Remains dependant on the placing of the Management order

with WCM. An A.I. [Architects Instruction] and order will then be raised.Work proceeding against the letter of intent from ECHPS dated the 12 August

1988."

28. That is clearly a mistake for 17th August 1988.

29. On 10th October 1988, Stent wrote to ECHPS making it clear that as the works about to startand there had been no positive move towards agreement of a formal subcontract, "we can no

longer accept that there will be no allowance for loss of profit", and reiterating the tender sum.

Minutes of meetings between WCM and Stent continued to record the position that the order wasstill outstanding, awaiting the placement of the management order, and meanwhile work was

proceeding against the letter of intent (see minutes of the progress review meeting of 19th

October 1988 just after work had begun, and again on 23rd November 1988 where "Stent agreed

to continue to progress under a letter of intent").

30. However, what actually happened was what was envisaged would happen under the works

contract rather than under the letter of intent. Interim payments were made by Wiggins to WCMand, after appropriate deductions for their fees and so on, by WCM to Stent. Stent began to

encounter problems, and on 30th November 1988 notified WCM of a claim: "In the absence of a

formal contract document the foregoing is based on our tender submission, but should anunamended JCT Management Contract be agreed, our claim will be recorded and items 2.2 &

4.45..."

31. WCM replied on 6th December that Stent had already been informed that the contract would

be the JCT Works Contract; if they wanted an extension of time they should comply with the

requirements of section 2 of that contract. But at a progress meeting on 7th December 1988

WCM reiterated their inability to enter into a formal contract with Stent until the main contract

had been signed, although they anticipated sending a draft contract before the Christmas break.They never did so, although on 2nd December 1988 they had sent copies of the employer/works

contractor agreement (that is, the warranty) and the performance bond which would be requiredfor Wiggins.

32. The main contract between Wiggins and WCM was signed on 17th January 1989 andbackdated to 1st January 1989. At a meeting with Stent the next day, WCM confirmed that the

works contract could now be "completed/issued". Stent in fact completed their works on 31st


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January 1989. On 20th February 1989 the architects confirmed their instruction to WCM to place

an order with Stent in accordance with the ECHPS letter of 17th August 1988. On 10th March

1989 Stent executed a performance bond in favour of Wiggins on the basis of the management

contract and a works contract. They were not willing to provide an employers warranty in anamended form requested by WCM for Wiggins, but did execute an unamended version of the

standard JCT employer/works contractor agreement and sent it to WCM on 18th April 1989.WCM consulted ECHPS and were told that the unamended version was acceptable. Thatwarranty recites, fifthly, that the management contractor and the works contractor have "entered

into a works contract in the terms of a completed works contract (Works Contract/1)

incorporating the Works Contract conditions (Works Contract/2)".

33. Despite all this, WCM never got round to issuing the order or the contract. According to the

witness statement of their Mr Bevan, this was because the work had been completed in January

and "neither party saw any practical purpose in progressing the terms of the proposed sub-

contract further". Mr Stagg, Stents contracts manager, does not comment upon that in hiswitness statement. He took the view that both parties had proceeded throughout the works on the

basis that the works were being carried out under the works contract conditions.

34. The argument

35. Obviously everyone contemplated that there would be a contract between WCM and Stentfor the performance of the works and a separate performance bond and warranty between

Wiggins and Stent. It is also obvious that in those circumstances the sub-contractor would be

looking to the management contractor for payment and thus for the latter to take the risk of the

developers insolvency.

36. Stent argued before the judge that the essential terms of the contract between them and WCM

had all been agreed. The only condition necessary to bring it into operation was the execution ofthe management contract between Wiggins and WCM. WCM argued that it was also a condition

that the works contract be formally executed. WCM also argued before Dyson J. that all the

essential terms had not been agreed because amendments might have to be made to the standardJCT works contract to take account of amendments to the standard management contract.

37. Dyson J. concluded, first, that all the essential terms had been agreed between them bySeptember 1988. No further negotiations were envisaged as to the terms of the works contract;

nor were any amendments necessary as a result of amendments to the management contract. He

concluded, secondly, that execution of formal sub-contract documentation was not a conditionprecedent to the existence of a binding contract. Documentation was intended to be no more thana clear record of what had been agreed between them. The letter of intent of 17th August 1988

indicated the terms upon which Wiggins would be responsible to Stent until a binding contract

was concluded between WCM and Stent.


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38. The appeal

39. On appeal, WCM accept that sufficient terms had been agreed to constitute a contractbetween WCM and Stent.

40. Mr Steynor, who appears for WCM, no longer seeks to argue that the parties were not adidem. They were agreed on all the essential terms, and any amendments to the works contract

required as a result of the precise terms of the management contract would not in fact have

presented a problem. He also accepts that in many cases parties to a building contract may makean agreement either orally or in correspondence which is simply confirmed in the formal written

contract. But he argues that this was a case in which their agreement was, in effect, subject to

contract.

41. In support of the argument that formality was a condition precedent of a binding contract

between them, Mr Steynor made two main points. First, no negotiations about the precise termsof the works contract could take place until after the terms of the management contract had been

finalised. It would be dangerous for a management contractor to bind itself to a works contractorwithout knowing what those terms were. However, that is no longer the case once he has bound

himself to the employer and knows what the terms of the management contract are, and this isparticularly so if the work has been completed and no problems have arisen with those

contractual terms.

42. Secondly, Mr Steynor argues that it was Stents own understanding that the contract wouldbe embodied in formal documentation, and that this meant that it would indeed be subject to

contract. He relies particularly on the terms of Stents own Explanatory Memorandum whichwas twice sent to ECHPS, and to the minutes of the meetings which continued as late as 23rd

November 1988, to record that Stent was working under the terms of the letter of intent.

However, the Explanatory Memorandum was sent in before the work began, and the minutes ofthe meetings are equally consistent with the condition precedent which the judge did find -- that

a management contract had to be placed before the formal contract between Stent and WCMcame into being.

43. It also seems to me clear that everyone behaved as if the works contract was in place.Payment was made under that contract. The developing dispute about the ground conditions was

being handled by WCM as if it was under that contract.

44. Mr Steynor accepts that it would not usually be possible to argue that there was no contract

once a transaction had been fully performed on both sides (see G. Percy Trentham v. Archital

Luxfer[1993] 1 Lloyds Rep. 25 at page 27 per Steyn L.J.) But in this case there was a letter ofintent between Wiggins and Stent which gave sufficient comfort. He relies in particular on thecase ofJ. Jarvis & Sons PLC v. Galliard Homes Limited, a decision of this court on 12th

November 1999. But the facts and circumstances in theJarvis case were very different from

these. The pre-contractual arrangements were made between the same parties. The letter of intentin that case promised payment upon a quantum meruit basis "in the event that we do not enter

into a formal contract with you". All sorts of matters remained in active dispute and variation as

the work proceeded. Crucially these included whether there was a fixed price contract at all, as


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Galliard wished it to be, or whether, as the contractor contended, a contract for payment on a

quantum meruit basis. Hence, although the Court of Appeal did find that this was indeed subject

to contract, Evans L.J. found it impossible to say that a contract had been concluded at a latermeeting because "first and more importantly it is not possible to be certain what the terms of the

contract were". He did, however, think that the correct legal analysis was that there was a

contract to pay a quantum meruit based on the letter of intent, rather than simply a quasi-contractual obligation so to do once the work had been done.

45. If anything, in this case the history of the letter of intent supports rather than undermines the

claimants case. It clearly contemplates a works contract being made; it promisesreimbursement of costs but not loss of profit if no such contract is made. That was no longer

acceptable to Stent once they started work. They were then paid by WCM according to the

agreed tender sums and not in accordance with the letter of intent. Everything else that happened

after then was in accordance with a contract between WCM and Stent. This includes theprocurement by WCM for Wiggins of the bond and warranty, which would not have been

necessary, or at least as necessary, if, as Mr Steynor contends, the letter of intent had been a

contract between Wiggins and Stent which was still in existence.

46. For my part, therefore, it seems to me quite clear that the learned judge was entirely correct

in this case to hold that this work had been done under a contract between Stent and WCM whichcame into being as soon as WCM concluded a contract with Wiggins in January 1989, and I

would dismiss this appeal.

47. LORD JUSTICE BROOKE: I agree. For a time I was impressed by an argument inwhich Mr Steynor relied on paragraph 35 of Mr Bevans witness statement before the judge,

which reads:"I should like to draw attention to the fact that although the letter of intent says thatthe form of sub-contract shall be the standard form of Works Contract 1987 Edition, the works

contract itself in Works Contract/2 contains alternative clauses or clauses in respect of which a

choice has to be made (for example under clause 4.2 and 4.3 (Price for the Works) clause 4.4-4.16 (Valuation of the Works) clause 4.52 (Fluctuation) clause 6.6 (Insurance for loss and

damage to the Works)). Furthermore, there are clauses in the Works Contract which refer to and

take account of the Management Contract provisions, for example Works Contract/1 Section 1Invitation to Tender and Clauses 1.4, 1.6, 1.8 and 1.11. The management contract itself was not

in an unamended form. None of these issues as to how the Works Contract form was to be

completed in practice were ever addressed or agreed between Stent and Wimpey; the

amendments necessary to the standard form of Works Contract were never discussed."

48. We were supplied just before the hearing with a copy of works contract conditions, Works

Contract/2, which do show that in certain sections one paragraph is to govern if, for instance,Works Contract/1, Section 3, Article 2.1 applies, and another provision is to govern where

Works Contract/1, Section 3, Article 2.2 applies. Those are the first two points which Mr Bevan

took. Again, under the choice of fluctuation provisions, 4.52:


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"Fluctuations shall be dealt with in accordance with whichever of the following

alternatives:

clause 4A, or

clause 4B, or

clause 4C

is stated in Works Contract/1, Section 1, item 9 and Section 2, as being applicable

to the Works Contract,"

49. and the other example given by Mr Bevan is on similar lines.

50. I should make it clear that we were furnished with, for some accidental reason, only one copy

of Works Contract/1, but Mr Steynor did not wish to ensure that each member of the court had it

because he was willing to accept in principle that, since the works had been completed by therelevant time when the management contract came into force, it was really water under the

bridge which of these provisions were chosen. As I have said, the works had by now been

completed and he did not wish us to look at the detail of the points that Mr Bevan had mentionedin his statement.

51. In those circumstances, it appears to me that, although the point did seem to have some meritwhen I first read it, on the facts of this particular case it does not. The choice had become

completely irrelevant by the time the management contract did come to be signed, and for thesereasons and the reasons given by my Lady, I agree that this appeal should be dismissed.

52. LORD JUSTICE SWINTON THOMAS: I also agree.

ORDER: Appeal dismissed with costs; detailed assessment unless agreed.

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