Contract formation and limitations of liability
Arcadis Consulting v AMEC (Court of Appeal) [2018]
We previously reported on this case back in December 2016 (see http://www.trglaw.com/news217.html ) when the High Court decided that because of the way in which the contract between the parties had been formed no limitation of liability had been effectively incorporated into the contract. The Court of Appeal has now reconsidered the case.
Facts:
The facts of the case are as reported in our original report. Rather confusingly, Hyder has, since the original judgment, become Arcadis. Essentially a contract had been formed through the issuing of various letters. These letters referred to various different sets of terms and conditions but the High Court decided 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 contract because none of them had finally been accepted and agreed by both parties.
Decision:
The key issue for the court was whether the terms and conditions agreed by the parties in November 2001 in relation to a different project and which Arcadis was already "working under" (November Terms) were incorporated by reference into an interim contract for a new project created by a Letter of Instruction.
The court concluded that on a true construction of the LoI and an objective analysis of the correspondence and the conduct of the parties, the November Terms had been validly incorporated by reference. These included a cap on Arcadis' liability.
AMEC’s Letter of Instruction was a request to start work on all of the terms set out in it. Arcadis had accepted AMEC’s request and a contract was formed by correspondence and/or conduct. Absent any express rejection of the terms or a counter offer, Arcadis had accepted all the terms of the Letter of Instruction. The original judge had placed too much emphasis on the absence of the word “accept” from Arcadis’ letters. All that was required was a ‘final and unqualified expression of assent’ and this was, at the very least, provided by the act of starting work.
The Letter of Instruction referred to “the terms and conditions we are currently working under with yourselves”. The judge held that these words were effective to incorporate the T&Cs Arcadis was already “working under” on the first project. These terms included a limitation of liability. It did not matter that different T&Cs had subsequently been exchanged by the parties because those T&Cs were exchanged in the course of negotiations for a framework or ‘umbrella’ agreement. The later T&Cs did not supersede the T&Cs incorporated into the previously finalised interim contract.
The court made clear that in order to determine the terms of the contract, it has to consider what was communicated between the parties by words or conduct and decide whether that leads objectively to the conclusion that they had [reached agreement].
Points to Note:
This case highlights the danger of commencing a project (or allowing a project to commence) on the basis of terms which are not entirely clear or which are still under negotiation. The problem was exacerbated in this case as ongoing negotiations led to a number of exchanges between the parties relating to different contracts on two different projects as well as a proposed overall ‘framework’ agreement.
It is crucially important to ensure that when incorporating a set of contract terms by reference, you make crystal clear which ones you are referencing.
The Court of Appeal was of the view that it would have been an ‘extraordinary result’ for Arcadis to have accepted no cap on liability for its contractual performance when, given the context and according to the judge, it would never have assumed such liability under any contract which it entered into. This comment makes clear that the courts recognise the importance that commercial suppliers place on limitation clauses and must make it much more difficult, in borderline cases, for any customer seeking to argue that a contract has indeed been formed which does not contain a liability limit.