| Date | 1 August 2001 |
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| Judgment | Carillion Construction Ltd (trading as Crown House Engineering) -v- Ballast Plc CA 12 July 2001 |
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| The Issue | Formation of Contract. |
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| Implication |
A letter of intent will normally be insufficient to establish final contractual arrangements. |
printEarly in 1996 Ballast Plc (formerly known as Ballast Wiltshier) entered into a contract to build a new football stadium for Sunderland Football Club. The stadium is now an impressive 50,000 seater with all the facilities nowadays expected by football fans. It has been named the Stadium of Light. This is a name which would not be particularly apt for the contractual arrangements which Ballast entered into for the construction works. Crown House Engineering, part of Carillion, were to be engaged by Ballast to carry out the design and installation of mechanical and electrical services. No formal contract was signed and disputes arose between the parties concerning payments claimed by Crown House. Those disputes resulted in legal proceedings being commenced in late 1998. By July of this year the dispute had reached the Court of Appeal. The mechanical and electrical services involved design and installation works in excess of £2 million and it seems remarkable that no formal contract was entered into. Such loose arrangements are at the heart of many of the commercial problems which blight the construction industry. Indeed the current trend towards partnering type arrangements, whilst obviously bringing substantial benefits, may be encouraging a relaxed attitude towards the placing of clear and definite contracts. Crown House and Ballast had been content to allow that the design work should continue on an informal basis of trust gained from the good relationship formed between them during work on previous contracts. The history of the parties' dealings in connection with the project was perfectly commonplace. Ballast was under a design and build contract arrangement with its client, based on the ICE form. It had sought a quotation from Crown House for electrical and mechanical work and had requested that the quotation should be an unqualified tender. Ballast clarified that it would only accept a quotation to the extent that it was not contrary to or inconsistent with its obligations under the main contract. Despite these clear requirements the tender submitted by Crown House was subject to certain exclusions and subject to its own standard terms and conditions. Some two months later there was a meeting between the parties at which Ballast supplied drawings of a revised structure for the stadium. Crown House were asked to provide a revised price for the mechanical and electrical installations based on those drawings and the Employer's Requirements which had previously been issued. The process of comparing apples with bananas continued. Crown House submitted a revised tender based upon its own specifications. Its tender made clear that only the systems and services described in that specification were included in the tender. Ballast engaged consultants to check the differences between the Employer's Requirements and the sub-contractor's specification and also consulted the employer's representative. Each confirmed that they were not satisfied that the revised specification did meet the Employer's Requirements. Nevertheless, shortly after Ballast wrote a letter of intent to Crown House in which it stated that it was its "intention to enter into sub-contract" for the mechanical and electrical installations, on the basis of the latest revised price. In court, Crown House argued that that letter was an acceptance of its quotation based upon the revised specification. Whatever it was it gave comfort to Crown House, who by that stage had already commenced work on site. Nevertheless the obvious differences between the Employer's Requirements and the revised specifications continued to trouble the parties. A meeting was held to clarify matters and despite the importance of the issues, no joint minute was agreed. Instead minutes of meetings were prepared by Ballast and sent to Crown House. Crown House made no adverse comment. Significantly the minutes recorded that Crown House had agreed that its price complied with the Employer's Requirements. In Court the Judge accepted that the letter of intent constituted an acceptance of Crown House's final revised tender. In the Court of Appeal, Lord Justice Aldous was unhappy with that conclusion. He accepted that a contractual situation had arisen in that the parties had agreed that Crown House would start work and would be paid. However the documents in evidence did not in his opinion establish that the parties had reached the stage at which they intended to enter into a final contract. The letter of intent was drafted in terms which suggested an interim arrangement. It assumed some further act by using the words "it is our intention to enter into a sub-contract". On this finding the Court of Appeal accepted that the contract was made at the subsequent meeting between the parties. The important question now was whether the minutes prepared by Ballast provided sufficient evidence as to the nature of the parties' agreement. The Court of Appeal considered that it was improbable that Crown House would warrant that the works set out in the revised specification were the same in extent as that required by the employer. They knew that they were not. Furthermore it seemed highly unlikely that Crown House would agree to complete all the Employer's Requirements for the price tendered. To agree to different works for the same price without detailed consideration would appear unlikely. In conclusion, although the contract had not been formed by the issue of the letter of intent, neither had there been agreement at the subsequent meeting that Crown House were required to carry out all the Employer's Requirements. The minutes of meeting prepared by Ballast were of insufficient weight to displace the assumed commercial behaviour of the parties.
CJ-0130
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