Importance of agreeing contractual terms up-front
Thu 16 Feb 2017
The recent case of Arcadis Consulting (UK) Ltd (formerly Hyder Consulting (UK) Ltd) v AMEC (BSC) Ltd (formerly C V Buchan Ltd) acts as a further reminder for contracting parties that if they wish to rely upon contractual terms, those terms must be ‘agreed’ by each of the parties.
The key term contested in this case was a financial cap on liability. Such terms are commonly proposed by sub-contractors and consultants, keen to limit their liability to their clients and other third parties.
A specialist concrete sub-contractor (C V Buchan Ltd) engaged Hyder Consulting (UK) Limited to carry out design in relation to two construction projects. Defects were discovered in one of those projects, known as Castlepoint car park, following completion of the works and the sub-contractor claimed damages totalling £40 million from Hyder.
Hyder denied liability for any of the defects but argued that, even if it was liable, the agreed contractual terms capped its liability at the sum of £610,515. The High Court had to decide whether a binding contract had been agreed and, if so, what terms formed that contract.
The court examined various versions of draft terms and conditions which had been issued by the sub-contractor to Hyder between November 2011 and March 2002. Each set of terms and conditions contained different caps on Hyder’s liability. It also examined a letter of intent which was issued to Hyder by the sub-contractor, instructing it to commence design on the Castlepoint car park project.
Coulson J emphasised in his Judgment that although courts would always strive to find a concluded contract in circumstances where work has been performed, it would not incorporate express terms into a contract, which had not actually been agreed by the parties. On the facts it considered that as no version of the terms and conditions was ever accepted by Hyder (it had disputed the terms but had not responded in detail), those terms and conditions did not form part of the contract.
Although each version of the terms and conditions had contained a cap on liability, as Hyder had not accepted any of those terms, it could not rely upon a cap on its liability for defective design.
This case serves as a stark warning to designers keen to limit their contractual liability. It also serves as a reminder to those contracting on construction projects generally as to the importance of agreeing contractual terms at an early stage.