The appellant (Arcadis) is a consultant engineering business. The respondent (AMEC) is a pre-cast concrete specialist contractor. The parties were already working together in 2001 on a project called the Wellcome Building. In March 2002 Arcadis was engaged to design the concrete structures for a multi-storey car park. The construction was defective and AMEC claimed damages of £40,000,000. Arcadis denied liability and, in the alternative, sought a declaration that any liability was capped under the contract at £610,515.
The parties intended to work on future projects together and to enter into a protocol agreement (the Protocol) that would govern the Wellcome project, the car park project and future projects. Progress on the Protocol was slow and there was pressure to start work on the car park. Arcadis therefore started work under instructions set out in a letter of intent and “the Terms and Conditions associated that [the parties] are currently working under”. This was understood to be the terms (T&Cs) currently governing the Wellcome project. The T&Cs included a liability cap of 10 per cent of the value of AMEC’s sub-contract with the employer.
The T&Cs were intended to be temporary pending finalising the Protocol. The Protocol terms would supersede the T&Cs once agreement was reached. In May 2002 new terms extending the limit of liability were sent to Arcadia. The much increased liability limit was not agreed. The Protocol was never finalised.
The High Court found that the letter of intent was a binding contract evidenced by Arcadis carrying out work and being paid for the work done. However the judge found that the T&Cs, including the liability cap, had not been incorporated but were superseded by the new terms.
The Court of Appeal overturned the High Court decision and found that the letter of intent incorporated the earliest form of the T&Cs. The T&Cs were accepted either by conduct, in starting work, and/or by reference to them in a later letter. The new terms were not agreed and could not supersede the T&Cs.
It sounds simple. The usual contract rules of offer and acceptance applied. To identify the operative contract the court analysed a series of letters and emails in detail: each offer and acceptance spat will turn on the facts. Considering a case like this, it is easy for lawyers to advise consultants and contractors to make sure their contracts are agreed before starting work. The business reality is that this rarely happens. In the real world everyone is in a hurry. If contractors delay to fine tune the contract they risk not being engaged at all. That is why it is common to start work under agreed instructions pending a final agreement. Usually a final agreement is eventually reached. Sadly for AMEC and happily for Arcadis, in this case, no final agreement was ever reached.