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The High Court has recently given judgment in a case where the parties failed to reach agreement on the terms of a commercial contract, with harsh consequences for the party in default.

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Negotiations and the conclusion of a contract

10 February 2017

The High Court has recently given judgment in a case where the parties failed to reach agreement on the terms of a commercial contract.

C V Buchan Limited, a specialist concrete sub-contractor, engaged Hyder Consulting (UK) Limited to carry out certain design works in relation to two construction projects: the Wellcome Building and Castlepoint Car Park.

After construction, Castlepoint Car Park was found to be defective, and Buchan claimed damages from Hyder in the sum of £40 million. Hyder denied liability for any of the defects but argued that, if they were liable, there was a contract in place under which their liability was capped at £610,515.

The issue for the court was whether any binding contract had been agreed and, if so, whether any term limiting Hyder’s liability was included.

Buchan had sent Hyder various versions of draft terms and conditions, each containing different provisions relating to the limit of Hyder’s liability: a first version in November 2001, an amended version in January 2002, and a further amended version in March 2002. Buchan also sent, separately, a letter of intent instructing Hyder to begin work on the Castlepoint project. Hyder disputed the terms and conditions proposed, but did not respond in detail and started work on both projects.

The court held that the letter of intent was a form of simple contract, which Hyder accepted by performance. However, the terms and conditions were not incorporated into the contract, because no version of the terms and conditions was ever accepted by Hyder. Consequently, Hyder’s liability to Buchan for defective design was unlimited.

This was a harsh result for Hyder, since each draft of the terms and conditions contained some sort of limit to their liability, but it ended up with no limit at all. This was, the judge commented, ‘the inevitable consequence of Hyder’s dilatory and often uncooperative approach to the … negotiation of the terms and conditions’.  

The lesson of this case is that if the parties to a contract do not reach agreement as to its terms, the court will not rewrite history so as to incorporate terms that were not agreed. The parties may, to their disadvantage, end up with no detailed agreement at all.

Arcadis Consulting (UK) Ltd (formerly Hyder Consulting (UK) Ltd) v AMEC (BSC) Ltd (formerly C V Buchan Ltd) [2016] EWHC 2509 (TCC).

This article was written by Brendan Biggs.