Completing The Contract First: Does It Matter?

It's not unusual for parties to start work without agreeing the formal contract terms first. That can cause a number of potential difficulties, as Lucinda Robinson explains.

Commercial drivers mean work must start. Never mind that terms are not agreed, and a contract has not been signed. How many times have we heard this at the outset of a project? When the parties trust each other, the energy levels are high and financial pressures require a quick start, the practical solution is to sort it out later, agree a letter of intent or make do with an exchange of emails. All will be fine, right?

Wrong. Fast forward a few months, or years, when the project is in delay or the building is defective, trust has broken down and the new commercial imperative is to preserve the intended return on investment or profit, or to minimise a loss, and suddenly everyone wants to understand their rights and obligations. The real issue, perhaps payment, defects or delay, cannot be untangled otherwise. The contract, or lack of one, takes the spotlight.

The first questions are: is there a contract and, if so, on what terms? A leading case on contract formation, RTS Flexible Systems Limited v Molkerei Alois Muller GmbH [2010] UKSC 14 v Muller, confirmed at Supreme Court level that the court will carry out an objective consideration of what the parties have agreed based on their words and conduct. Whilst the courts apply this principle, it remains difficult to ascertain the existence and content of a contract. Even in RTS v Muller it took 3 courts, 9 judges and 3 different decisions to determine there was a contract on MF/1 terms. Plus of course, each case is fact specific.

Courts have grappled with these questions in three cases recently, highlighting yet again the dangers of proceeding without an executed contract.

Williams Tarr Construction Ltd v Anthony Roylance Ltd & Anthony Roylance [2018] EWHC 2339 (TCC)

Williams Tarr Construction ("WTC") claimed against an engineer, Mr Roylance, who had provided some design services in relation to a defective retaining wall.

The court had to decide if Mr Roylance had contracted in his personal capacity or as Anthony Roylance Ltd, if he had designed the wall or just a drain and if the standard of care was reasonable skill and care or fitness for purpose. Contrary to Mr Roylance's belief that he had contracted through his company, it held that Mr Roylance had contracted as himself. None of the documents exchanged suggested that...