Projects & Construction Law Update - Janary 2019

Please find below Clyde & Co's latest projects and construction law update

Cases

Commencing works without a formal agreement...

Arcadis Consulting (UK) Ltd v AMEC (BCS) Ltd [2018] EWCA 2222

All too often, construction works are commenced without the parties having finalised the terms of their engagement. In this case, the Court of Appeal had to determine whether or not an architect's liability with respect to design was limited, in circumstances where the works had been completed without the parties having finalised a formal agreement to govern the works. The contractor sought approx. £40 million in damages from the architect, so the issue of a liability cap was crucial to the architect's case...

AMEC was engaged as a specialist concrete sub-contractor on two large construction projects. It appointed Arcadis to perform certain design works. After completion, the works relevant to one of the projects were found to be defective - so much so that the structure may need to be demolished and rebuilt. While AMEC settled its dispute with the main contractor, it sought damages of £40 million from Arcadis, alleging that the defects related to design. The Court had to consider (i) whether the parties had been working to an agreed set of terms; and (ii) if those terms included a cap on Arcadis' liability.

Initially, in early 2001 (and prior to the design and works commencing), the parties agreed to work under a framework / protocol agreement, which would be intended to govern all projects for which Arcadis was engaged by AMEC. During negotiations, multiple rounds of correspondence (and draft terms) were exchanged between the parties. However, no agreement governing the works was ever finalised. Despite this, works commenced in March 2002 and were completed by way of extensions to a financial limit put in place around the same time.

In the decision at first instance, Coulson J held that, while a "simple contract" had been formed between the parties, no specific term had been agreed limiting Arcadis' liability for defects. Arcadis appealed and the Court of Appeal overturned the decision of the TCC.

In reviewing the correspondence exchanged between the parties, the Court of Appeal focused on an email dated 8 November 2001 in which AMEC's commercial director sent Arcadis a draft protocol agreement and a detailed set of terms and conditions. Throughout the judgement, these were referred to as the "November terms". Clause 2A of the terms provided a limit to Arcadis' liability, being the lesser of '(a) the reasonable direct costs of repair, renewal and/or reinstatement of any part of the Sub-Contract Works...' and '(b) the sum stated in Schedule 1' (which was unhelpfully left blank).

Other critical correspondence included a further set of terms which were circulated in January 2002. These terms sought to vary the November terms and proposed a limit of liability in the sum of £110,000. Neither party could produce a full set of documents circulated at that time but evidence was produced, in the form of an internal memorandum, showing there were specific discussions regarding the scope of the liability clause. Due to the lack of documentary evidence, and a clear absence of agreement between the parties, the Court found that these terms could not override the November terms.

Correspondence between the parties in March 2002 was also examined. Again, draft terms were issued which sought to make amendments to Clause 2A. However, the Court again decided that none of these further sets of terms exchanged between the parties had been "clearly and unequivocally accepted" by Arcadis. By May 2002, there was still no sign of agreement on the revised Clause 2A, which was further evidence for the Court that the November terms remained unchanged by the negotiations.

Ultimately, the Court agreed with Coulson J that a "simple contract" had been formed between the parties in November 2001 and this was the "interim contract" that the parties were working to. This "interim contract" was unaltered by any of the later draft terms circulated from January-May 2002. Acceptance of the terms was fulfilled by conduct (the works being performed and paid for) and the correspondence between the parties created a legal relationship between them. Most importantly, the Court concluded that the November terms and the originally drafted Clause 2A limiting liability was an agreed term.

In concluding that the November terms had been both offered and accepted, the Judge addressed AMEC's argument that clause 2A(b) of the November terms was incomplete given that the capped sum referred to at Schedule 1 had been left blank in the protocol agreement. The Judge said that although this...