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Pre-contract works covered by terms of subsequent contract, not the sub-contractor’s T&Cs

Construction / 13 April 2021

We probably shouldn’t admit this, but it is rare that a case makes us thrilled at the thought of reading a full 30-page court judgment rather than just the case summary, but this is one of them!

Waksman J in the Technology and Construction Court (TCC) has decided preliminary issues relating to liability under a piling sub-contract where a portion of the works were carried out before a formal sub-contract was entered into.

THE FACTS
Balfour Beatty Regional Construction Ltd (the contractor) engaged Van Elle Ltd (the sub-contractor) to perform piling works at a site in Newcastle upon Tyne.  As is often the case, there was considerable pressure from the site owner to commence the works.  The sub-contractor therefore largely completed part of the works (known as the North Carousel works) following acceptance by the contractor of its quotation based on standard terms and conditions and a letter of intent (LOI) it received from the contractor, but before the parties had entered into a formal sub-contract.

The contractor later claimed damages for breach of contract arising out of alleged defects to the works, pursuant to the terms of the formal sub-contract.  However, the sub-contractor alleged that the North Carousel works were not covered by the formal sub-contract, nor the LOI; but were instead covered by a contract based on its quotation/terms and conditions.  Importantly, those terms and conditions contained several purported limitations of liability.

THE DECISION
Ultimately, the judge agreed with the contractor and held that the formal sub-contract governed all of the works, including the North Carousel works.  He reached that conclusion based on contemporaneous documentary evidence, illustrating for example an intention between the parties that there should be only one contract.  Equally, the correspondence showed that the sub-contractor was not content to proceed just on the basis of the contractor’s acceptance of its quotation and requested several times for a form of “limited order/LOI”.  The LOI (and not the sub-contractor’s quotation) was then referred to in the sub-contractor’s invoices for the North Carousel works.

The judge considered what the parties would have said if asked which document contained the contractor’s commitment to pay for the works, and deduced that it could only be the LOI.

On that basis, the Judge determined that if the LOI, as a contract, included the North Carousel, then there was no basis other than to conclude that the sub-contract also included those works.

The judgment goes on to say that had the sub-contract never been placed, an interesting point might have arisen as to whether the LOI itself was subject to the sub-contractor’s terms and conditions, but did not consider this further.

OUR COMMENTS
Whilst perhaps not an unexpected decision, it does illustrate the court’s approach to projects where work commences before a formal contract is executed and may provide comfort or at least a degree of certainty to parties that find themselves in a similar situation.  Sub-contractors and consultants who are put under pressure to commence work before formal contracts are put in place should therefore bear in mind that any interim contract based on quotations/LOIs are likely to be superseded by any formal contract entered into subsequently.

Finally, while the judge’s conclusion meant that he did not need to consider the limitations of liability in the sub-contractor’s standard terms and conditions, he did make a number of interesting obiter observations.  For example, he suggested that a clause stating that the sub-contractor had “no further liability” beyond repair or replacement of the works may be of limited application, while the other limitations of liability may also have been less effective than the sub-contractor would have hoped.

We frequently assist clients with reviewing standard terms and conditions and/or drafting contractual limitations of liability, which are (generally) more commercially acceptable than those attempted by the sub-contractor in this case.  If you would like our help with this, or indeed to discuss how we can assist in any other way, please do get in touch.

 

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This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. For advice, get in touch with your usual Greenwoods GRM contact or scroll down to complete our enquiry form.

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