| Date | 1 March 2000 |
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| Judgment | Stent Foundation Limited -v- Tarmac Construction (Contracts) Limited TCC 10 November 1999. |
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| The Issue | Formation of Contract. |
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| Implication | A contract may be formed despite the absence formal executed documentation. |
printIn 1988 a commercial property developer called Wiggins Waterside Ltd decided to develop a site at South Quay in London's Docklands. They appointed E C Harris as project managers and quantity surveyors and invited Wimpey Construction Limited, later to become Tarmac Construction, to tender as management contractors for the project. Before the main construction of the building could begin site preparation work had to be carried out and foundations had to be built. A piled retaining structure was to be built around the perimeter of the site and this work was done by Stent Foundations Limited. The parties ended up in court. Stent claimed some £300,000 primarily in respect of a ground conditions claim. The court had to determine whether Stent had carried out its work pursuant to a contract, and if so, whether the contract was with Wiggins or with Wimpey. The relevance of this question lay in the fact that Wiggins went into receivership in 1990. It is common practice in the construction industry to commence substantial works on the basis of a letter of intent. Whether the dealings between the parties will amount to the creation of a contract will depend in all cases upon the relevant facts. In this case the court held that a contract had been formed between Stent and Wimpey as management contractors, despite there having been no formal contract executed between the parties. In June 1988 E C Harris accepted in the form of a 'letter of intent' on behalf of Wiggins, a tender from Stent subject to agreement of the contract programme. By this time Wimpey was the front runner for selection as the management contractor but no management contract had yet been concluded. Nevertheless Wimpey became involved in the negotiations for selection of the works contractors for the various packages including piling works. During these negotiations Wimpey confirmed that notwithstanding a letter of intent having been issued on behalf of the employer, the contract conditions would be between Wimpey and Stent in the form of the JCT 1987 management works contract. E C Harris continued to send communications directly to Stent on behalf of Wiggins, including an instruction requiring Stent to commence construction of the piled retaining wall. It was clarified that works were to proceed on the basis of the letter of intent although there was a requirement to enter into a subcontract with Wimpey in the form of the JCT Works Contract. Stent agreed to progress works on this basis, on the understanding that the contract was to be the JCT Management Form of Contract. At this stage Wimpey still had no contractual relationship with Wiggins. Wimpey also received instructions from E C Harris to commence supervision of the construction works in anticipation that the terms and conditions of a management contract would be finalised in due course. In the event Stent commenced works and interim applications for payment were sent to Wimpey who in turn included these amounts in its own application for interim payment. The claims were duly processed in the manner intended by the JCT Management and Works Contracts. This situation continued throughout completion of the piling works, during which time Wimpey maintained that it was unable to enter into a formal contract with Stent until the main contract had been signed. Practical completion of the piling works was completed without a works contract having been executed, although by this stage the management contract had indeed been concluded. Stent argued in front of Mr Justice Dyson QC that a contract had been concluded with Wimpey. One strand to Stent's argument was that since all applications for payment had been made through Wimpey, and Wimpey had directed and managed the piling works all in accordance with the requirements of a management contract, Wimpey was now estopped from denying that it was responsible for the piling works and contractually obliged to pay for them. Mr Dyson concluded that this argument was without merit. The conduct of Wimpey could be explained on the basis that the parties were acting in anticipation that they would conclude a binding contract that would operate respectively. Such conduct alone was therefore insufficient to establish a binding contract between the parties. Nevertheless Mr Dyson agreed that the existence of a binding contract was not dependent on execution of a formal document. He agreed with Stent that the only condition which remained to be satisfied before a binding contract came into effect was the making of the contract between Wimpey and Wiggins. That condition had been satisfied and none of the other terms which remained to be negotiated were of any substance. Mr Dyson noted that there are circumstances where the parties might make it clear that although they have agreed all the terms necessary for the making of a binding agreement, they do not intend the agreement to become binding until they have gone one step further and embodied it into a formal document. The use of the words "subject to contract" is the best known and most frequently used signal of such an intention. Mr Dyson was however satisfied that this case did not fall into that category. Stent was therefore entitled to a declaration that it had carried out its work pursuant to a contract with Wimpey in the standard JCT Form of Works Contract.
CJ-0008
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