| Date | 15 November 2000 |
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| Judgment | Birse Construction Limited -v- St David Limited TCC 17 August 2000 |
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| The Issue | Formation of contract and remuneration on "Quantum Meruit" basis. |
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| Implication |
General discussions of the principles to be applied in determining whether a contract has been formed. In the case of no concluded contract, a quantum meruit of the works carried out may be adjusted to take into account the consequences of late performance. |
printIn May 1999 I reported the case of Birse Construction -v- St David Limited. The Court had to decide the perennial question as to whether the parties had formed a contract. In arriving at his decision His Honour Judge Humphrey Lloyd QC made some interesting headlines by taking into account the fact that the parties had signed a partnering charter prior to the commencement of works. He commented that "people who have agreed to proceed on the basis of mutual co-operation and trust are hardly likely at the same time to adopt a rigid attitude as to the formation of a contract". This influenced Judge Lloyd to conclude that a contract had indeed been formed between the parties even though the documents had not been formally executed. Accordingly the legal proceedings between the parties were to be set aside in order that the disputes could be addressed in arbitration in accordance with the arbitration agreement contained within the contract. This, of course, was a decision which did not suit Birse. They argued that no contract had been made, and sought to recover payment for the work they had carried out upon a 'quantum meruit' or fair commercial price. Birse contended that by the date upon which it left site, it had executed works for which a fair commercial price was £6.75 million. St David had paid approximately £5.75 million, leaving an outstanding balance of £1 million. Accordingly in November of last year Birse applied to the Court of Appeal for permission to appeal the decision of Judge Lloyd. The Court of Appeal found that there were issues which could not be resolved without a trial and thus held in favour of Birse to set aside the judgment of Judge Lloyd and commit the matter back to the Technology and Construction Court for a full trial. Judgment in that trial was handed down in August of this year and Birse have been successful in establishing that no contract was formed with St David. Thus the matter remains in the court for the determination of a fair commercial price at some later date. Recorder Colin Reese Q.C., sitting as a deputy Judge of the Technology and Construction Court, considered that in examining whether the parties had reached a concluded contract, the most helpful statements of the general principles which needed to be considered were to be found in the judgment in Pagnan S.p.A -v Feed Products Limited (1987). These can be summarised as follows: 1. In order to determine whether a contract has been concluded in the course of correspondence, one must first look at the correspondence as a whole. 2. Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled. That is the ordinary "subject to contract" case. 3. Alternatively they may intend that the contract shall not become binding until some further term or terms have been agreed. 4. Conversely the parties may intend to be bound forthwith, even though there are further terms still to be agreed or some further formality to be fulfilled. 5. If the parties fail to reach agreement on such further terms the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty. 6. It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading since the word "essential" in that context is ambiguous. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant. There is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. In viewing all of the evidence Mr Reese concluded that no contract had been formed. The partnering agreement was not critical to this decision although it was commented that the partnering agreement had perhaps led Birse to act consistently with there being no concluded contract, by not wishing to take up a contractual stance. Moreover the partnering arrangement envisaged complicated sliding scale "gain share" calculations which would require amendment to the standard JCT lump sum agreement, but unsurprisingly these were never formalised. Thus Birse have successfully argued that there was no contract and are therefore entitled to remuneration on a quantum meruit. Whether this may be regarded as progress may be questionable however, taking into account the following comments from the Judge: "In practical terms, in a case such as this, if no contract was concluded, the price for which the building contractor offered to carry out the works might well be thought to indicate the upper limit of the remuneration to which he could reasonably claim to be entitled. It might also be thought that the remuneration to which he is reasonably entitled should be adjusted if, by reason of tardy performance, the employer can demonstrate extra expense or some loss which would not have been incurred or suffered if the works had been completed within an objectively determined reasonable time. And, if that is right, it may perhaps be proper to have regard to any proposed level of liquidated damages which had been clearly and firmly established between the parties during the course of their negotiations when considering the extent of the expense or loss which ought to be recognised".
CJ-0045
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