England’s Court of Appeal held that liability cap had been incorporated into the contract

06 March 2019, Construction, by Kwok Kit Cheung,

In Arcadis Consulting (UK) Ltd (formerly called Hyder Consulting (UK) Ltd) v AMEC (BCS) Ltd (formerly called CV Buchan Ltd) [2018] EWCA Civ 2222, England’s Court of Appeal overturned the High Court’s decision and held that terms and conditions had been incorporated into the contract between the parties, including a clause limiting the consultant’s (i.e. Hyder’s) liability for defective work.     

Background

Buchan acted as specialist concrete sub-contractor on two large projects, namely Wellcome Building and Castlepoint Car Park. Buchan engaged Hyder to carry out certain design works in connection with those projects, in anticipation of a wider agreement between the parties. There were discussions between the parties over many months on various topics, including a cap on Hyder’s liability. Some of the most relevant correspondence between the parties is referred to below. 

On 8 November 2001, Buchan sent a number of documents to Hyder by email, including a draft protocol agreement and terms and conditions (which included a condition 2A limiting Hyder’s liability for defective work and to the lesser of reasonable direct costs of repair, renewal and/or reinstatement or a specific sum, which sum had been left blank. The email stated “we intend to use the documents for the Wellcome Building works subject to your agreement…” 

In its letter dated 13 November 2001, Buchan anticipated agreement on the protocol agreement within two weeks and instructed Hyder to start work on the design for the Wellcome Building. It read, “Your work done under this instruction is to be on the basis of our instructions from Wates and the conditions and terms detailed in the Protocol Agreement, Design Consultancy Terms and Conditions in your possession at present… Once the Agreements are executed their terms and conditions shall supersede this letter and shall govern any work done retrospectively.”

On 6 March 2002, Buchan sent two critical letters to Hyder regarding the Castlepoint Car Park project.  In its first 6 March letter it wrote, “….We have received an initial letter of intent for this project. The letter includes an instruction to commence work. Accordingly, we confirm our instructions to yourselves to commence design and detailing work.Your work is to be carried out in accordance to the Protocol Agreement and Terms and Conditions associated that we are currently working under with yourselves… Once the Agreement is executed and the Schedules for this project completed, their terms and conditions shall supersede this letter and shall govern any work done retrospectively.” The second 6 March letter stated “….We consider that the Protocol Agreement, Terms and Conditions , Contract Schedules and Instructions documents should apply to all work executed for ourselves. ….There are some minor amendments, in particular to the limitation of liability clause. We believe that they should be acceptable to yourselves. We trust that you will be able to agree execution of the Protocol Agreement and would appreciate your confirmation.”  One of the schedules attached to the letter proposed a limitation of Hyder’s liability of £610,515.  

In its fax dated 8 March 2002 and letter dated 22 March 2002, Hyder thanked Buchan for the instructions to commence design and detailing work. It was common ground that in that fax and letter, Hyder was referring to the first 6 March letter and not the second 6 March letter. 

High Court decision 

Buchan claimed against Hyder in respect of alleged defects in respect of the Castlepoint project and the High Court held that there was a contract between the parties, created by Buchan’s first 6 March 2002 letter and Hyder’s acceptance of it, either by its subsequent correspondence or its conduct in commencing work. The Court, however, found that no set of terms and conditions had been incorporated into the contract because Hyder had failed to accept those terms clearly and unequivocally. Hence Hyder’s liability was unlimited. 

Court of Appeal decision

Hyder appealed to the Court of Appeal. The central question was whether the terms and conditions sent from Buchan to Hyder on 8 November 2001 (November Terms), referred to above, had been incorporated by reference into the contract. The Court of Appeal held that they had.

The Court of Appeal held that: 

  • As a matter of construction, the first 6 March 2002 letter was a request to start work on all of the terms as set out in that letter of intent. It was an “if” contract because in the letter Buchan requested Hyder to carry out a certain performance and promised Hyder that, if it did so, Hyder would receive a certain performance in return. It was a standing offer, which if acted on before it lapsed or was lawfully withdrawn, would result in a binding contract. 
  • Hyder accepted Buchan’s offer in its 8 March 2002 or 22 March 2002 letter. In any event, Hyder’s conduct in undertaking the work was acceptance by conduct. The judge below had placed too much emphasis on the fact that Hyder did not use the word “accept” in either of its letters and was wrong in law to claim that Hyder had to expressly mention specific parts of the terms in its acceptance in order to indicate it accepted every element of the first 6 March 2002 letter.  
  • The judge below had erred in considering it a necessary precondition for the parties to have previously reached a concluded agreement on a finalized set of terms and conditions (for the purpose of the Protocol Agreement) before the correspondence between the parties could create a legal relationship between them. The legal relationship arose as soon as Hyder accepted Buchan’s offer for consideration in the form of the interim contract.    
  • The law simply requires the assent to be final and unqualified. In this case, there was no evidence of a rejection of any of the terms or a counter-offer. Therefore once the judge had found that there was acceptance by conduct, it followed that Hyder unequivocally accepted all of the terms in that letter. Therefore the Contract included the term that the work was “to be carried out in accordance to … the Terms and Conditions associated that [the parties] are currently working under”. The Court was then bound to determine what, if any, terms and conditions had been incorporated. 
  • The judge below had failed to distinguish between the interim contract under which the parties were currently working and the Final Contract (or protocol), the terms of which would supersede the interim contract once agreed. It was clear that once the final terms had been agreed, they were to supersede the interim terms for the purpose of all projects. 
  • The 8 November 2001 email (referred to above) was an offer of the November Terms. Hyder either accepted the November Terms by its conduct in starting work shortly after 13 November 2001 or via its correspondence with Buchan, which made it clear that that it was the November Terms which had been accepted by Hyder and were being worked under.  It was those terms that were being referred to in the first 6 March 2002 letter and which were incorporated by reference into the contract.  

The judge below had been wrong to conclude that on an objective analysis of the correspondence, the court could not conclude that the parties had an intention of being bound by a term that limited Hyder’s liability. Any liability of Hyder to Buchan was subject to the limitation of liability in the November Terms.  

Comments 

This judgment highlights the dangers of commencing works before contractual terms and conditions are finalized and where an interim arrangement is in place and the need for the utmost care when negotiating contractual terms.