| Date | 29 November 2000 |
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| Judgment | The Atlas Ceiling & Partition Company Limited -v- Crowngate Estates (Cheltenham) Limited |
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| The Issue | The retrospective effect of contracts and implications for the Construction Act. |
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| Implication |
A contract may be made on the date when outstanding matters of agreement between the parties are resolved and have retrospective effect. This can give rise to a situation where disputes which arise prior to the 1st May 1998 are nevertheless brought within the ambit of the Act. |
printThe construction industry tends to make its contract arrangements more complicated than necessary. Often negotiations between the parties will continue long after work has commenced on site with the execution of formal contract documents only taking place upon conclusion of those negotiations. In some cases the formal execution of a contract never takes place at all. This is against the background that the standard forms of construction contract assume and are drafted on the basis that complete agreement exists between the parties before work commences. Whilst the negotiations between the parties may eventually lead to a concluded agreement, there may occasionally be difficulties in applying that agreement to work done prior to the date of the agreement. In such a case the courts will generally seek to give effect to the parties' intention by construing the final agreement as having retrospective effect. This approach was followed in the 1963 case of Trollop & Colls Ltd -v- Atomic Power Construction Ltd. Considerable changes were made to the scope of the works after the date of a tender submitted by Trollop. This necessitated amendment of the drawings, specification and bills of quantities. Trollop was asked to commence work on the basis of a letter of intent. By the following year the parties had eventually agreed all of the conditions of the contract but no contract was actually signed. Trollop contended that, no contract having been signed, they were entitled to be paid on a 'quantum meruit' and not at the tender prices. The court held that there had been a continuing intention by both parties to make a contract, and that a contract had eventually been formed. The court further held that for the contract to be commercially workable, its provisions for the adjustment of the tender price should apply retrospectively to the changes which had occurred since the date of the tender. Establishing the date of the formation of contract has recently been of particular significance in the context of the HGCR Act, the provisions of which apply only to contracts made after 1st May 1998. In the case of Atlas Ceiling and Partition Company -v- Crowngate Estates these issues had to examined. Atlas had entered into a contract with Crowngate in connection with construction work at the St Paul's medical centre in Cheltenham. The work commenced in January 1998 pursuant to a letter of intent dated 18th December 1997 which provided that in the event that a contract was entered into between the parties "it shall have retrospective effect to include all works carried out under this letter of intent". In April 1998 a standard form of sub-contract was signed by a representative of each party. Disputes arose in connection with the works which were referred to adjudication. The adjudicator gave a decision in favour of Atlas but Crowngate refused to comply arguing that the adjudicator lacked the necessary jurisdiction as a contract had been entered into prior to 1st May 1998. Atlas countered that it had signed the contract at the request of Crowngate but at that date there had remained material matters which had yet to be concluded before the contract could be formed. The court held that the contract had not been made in April 1998 since the parties were lacking in contractual intention. "The parties cannot have entered into a contract because intention is as much a requirement of the entry into a valid contract as is the requisite form". Accordingly the contract was not entered into on the date of signing but when outstanding matters had been resolved. The court held that this had not been concluded until almost 12 months after the Construction Act had come into force. Judge Thornton QC commented that it was perfectly permissible and indeed frequently the case that a contract entered into on day 5 might incorporate within its scope and its contractual obligations work carried out on days 1, 2, 3 and 4. To that extent a contract entered into on day 5 has retrospective effect. It includes works carried out in earlier days. Judge Thornton continued however: "but the effect of that is not to date the contract, and to enter into contract, on day 1. It is still entered into on day 5 despite its pre-existing effect". Accordingly, even though Atlas had commenced works prior to the date of the coming into force of the Act, their contract was one which came under the effect of the Act. Thus it can be seen that in a situation such as this, disputes which arise prior to the 1st May 1998 would nevertheless be brought within the ambit of the Construction Act.
CJ-0047
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