Contract/no contract - case with a sting in its tail


This decision was described as a relatively straightforward 'contract/no contract' case with ‘something of a sting in its tail’. The Court found that despite various terms and conditions being exchanged between the parties as part of discussions in relation to work which was then carried out, only a simple contract existed between the parties under which the consultant’s liability was uncapped.



The Court had to decide was there was a contract between the parties, and if so, what were its terms?

Was there a contract?

The Court looked at the principles determining whether or not there is a binding contract which were summarised in RTS v Müller (SC) [2010]:

“It depends not upon [the parties’] subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement.”

It then said that in circumstances where works have been carried out, it will usually be “implausible to argue that there was no contract ”. It was not particularly difficult for the Court to find a contract where a letter of intent was not only signed but also acted upon by both parties, even if the parties intended ultimately to conclude a more detailed agreement.

What were the terms of the simple contract?

The Court found that none of the three different sets of terms of business which had been tabled and debated by the parties had in fact formed part of the simple contract. This was because none of them had finally been accepted and agreed by both parties.

Was a cap on liability agreed?

Each set of terms proffered included some sort of limitation on the consultant's liability (albeit in radically different terms). The Court said there was too much uncertainty and too much that was not agreed to conclude, on any objective analysis of the correspondence, that the parties intended to be bound by a liability cap in the way alleged by the consultant. Consequently it was not a term of the simple contract that the consultant’s liability would be limited to a cap.

Points to note:

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