Samuel Goldwyn is famously misquoted as having said that a
verbal contract isn't worth the paper it's written on, and there’s much truth
in the saying.
Surprisingly often, solicitors are engaged to advise on
contract terms but, due to commercial pressures or over-eagerness, the parties
go ahead with the work before they’ve agreed all the terms, or they agree the
terms but then don’t sign the contract.
The courts will usually find that there is a contract where there has
been actual performance, but it won’t be a written one, and so the question
arises what are its terms?
In the case of Arcadis
Consulting (UK) Ltd v AMEC (BSC) Ltd [2016] EWHC 2509
Hyder carried out design works for Buchan, the sub-contractor on two large
building projects. Over 15 years later
one of the designs proved to be defective and Buchan claimed £40M of damages
from Hyder, who argued that their liability was subject to an agreed cap of
£610,515. The problem was that the
parties had never reached agreement on the terms of their contract, but had
gone ahead with the work anyway. There
were three competing versions of the terms and conditions, all of which included
a cap on Hyder’s liability, but none of which had been agreed.
The judge held that that:
- there was a simple contract between the parties that Hyder would carry out design work and would be paid for that work by Buchan;
- the contract did not include any of the three different sets of proposed terms and conditions; and
- that there was no limitation on Hyder’s liability - despite the fact that every set of proposed terms and conditions included some sort of provision to that effect.
“This case starkly demonstrates the commercial truism that
it is usually better for a party to reach a full agreement (which in this case
would almost certainly have included some sort of cap on their liability)
through a process of negotiation and give-and-take, rather than to delay and
then fail to reach any detailed agreement at all.”
Where terms have been agreed but the contract just hasn’t
been signed, the court is likely to find that the full unsigned terms apply, so
long as the parties have acted consistently with them (at least up to the point
the dispute arose). But where one or
both parties have made it clear that they do not agree to a term, the court
will not find that they are bound by it just because they have gone ahead with
the transaction. A sneaky negotiator
might therefore think there’s scope to dispute the terms you don’t like and to go
ahead without signing the contract, on the basis that the remaining terms will
apply. The Arcadis case shows the dangers of this: you could end up with none
of the terms applying - including ones in your favour that the other party was
prepared to agree.
