| Date | 20 September 2006 |
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| Judgment | Skanska Rashleigh Weatherfoil v Somerfield Stores Ltd, 28 April 2006 (TCC) |
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| The Issue | Interpreting the intent of parties to an agreement. |
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| Implication |
In situations where there remains doubt over the precise terms of the contract, or when work commences in the absence of a formalised agreement it will fall to the courts to interpret the intention of the parties when deciding the extent to which any agreement exists between them. |
printIn July 2000 Somerfield Stores Ltd sought tenders to carry out maintenance works at its stores. Skanska was one of the successful tenderers and on 17 August 2000, Somerfield wrote to Skanska confirming the appointment. The letter enclosed a draft Facilities Management Agreement (FMA) which was framed in the following terms: "We wish to appoint you to provide us with the Services … This appointment is, however, strictly subject to contract … Whilst we are negotiating the terms of the Agreement, you will provide the Services under the terms of the Contract from 28 August 2000 ... until 27 October 2000".Skanska returned a signed copy of the letter, confirming acceptance of the letter’s terms and commenced work on the stores. The ‘initial period’ expired on 27 October without any further agreement on the terms of the contract, but Skanska continued to carry out its works. On 21 November Somerfield wrote to Skanska extending the period from 27 October to 26 November 2000 and once again this date passed without agreement. On 22 December 2000 Somerfield wrote to Skanska and extended the initial period until 21 January 2001 the letter also stated that Somerfield was not prepared to give any further extension to this date. This final deadline passed without agreement, but Skanska continued to perform the services contained within the August 2000 letter. By the end of 2002, a dispute had arisen over whether Skanska was entitled to be paid for some 8,090 individual packages of work which Somerfield stated were "timed out" under the terms of the draft Facilities Management Agreement. The case was brought to the Technology and Construction Court before Mr Justice Ramsey where Somerfield argued that all of the terms of the Facilities Management Agreement were incorporated in the agreement, including the "timed out" provisions. Skanska claimed that the terms of the agreement were only incorporated to the extent that it defined the essential services which Skanska was required to provide. Skanska also argued that the agreement expired on 21 January 2001. Mr Justice Ramsey held that the letter of 17 August 2000 only gave rise to an interim arrangement pending the negotiation of an acceptable FMA. He went onto consider the language used in the August letter noting that: “the words of caution [“subject to contract”] within that letter show that the parties, particularly Somerfield, were anxious not to be bound by the full terms of such an agreement until all the necessary matters had been finally negotiated.”In respect of the term "under the terms of the contract" the Judge said that that phrase could not be read as including all the terms of the draft Facilities Management Agreement. However, it could also not be read as including none of those terms. The intention of the parties could not have been to incorporate the terms of the draft agreement attached to the letter, because these were the terms which the parties were negotiating and which were therefore not necessarily acceptable. Therefore, the Judge concluded that the parties intended to incorporate the terms of the FMA only to the extent that they were necessary to define the services which Skanska was to provide. In essence this meant that Somerfield and Skanska had merely agreed what work was to be done during the initial period. The letter was not agreement to the entire contractual framework, only the essential elements to allow Skanska to commence work. As such no binding agreement had been reached about the alleged ‘timing out’ of invoices. The Judge was also asked the question as to whether or not any binding agreement continued beyond 21 January 2001. Skanska submitted that the August 2000 contract expired or lapsed according to its terms on 21 January 2001 and that after that date, the parties did not expressly agree to reactivate the August 2000 contract. It was Somerfield’s position that the agreement remained in place after the expiry of the ‘initial period’. Skanska went on to claim that Somerfield had agreed that Skanska would carry out reactive maintenance in accordance with Somerfield’s faxed requests. It was however Somerfield’s position that Skanska should fulfil its obligations based upon whichever draft of the FMA best suited Somerfield’s commercial interest at any given time. The Judge found that the question was not whether the parties “reactivated” or “resurrected” the expired contract but whether they continued to operate on the basis of that contract after 21 January 2001. In the present case the Judge found the inference was much easier to draw because up until 21 January 2001 the parties were conducting their relations on the basis of the August 2000 Contract and did not change their position after that date. He concluded that: “Once the position is reached, then I consider that the August 2000 Contract will continue unless and until the parties agree on another contractual basis. I do not consider that the position is affected by the fact that one party seeks legal advice as to its position or incorrectly asserts that some other contractual position applies.”In this case it was found that the parties had never agreed all the precise terms of a contract. The process was clearly unresolved. The Court concluded that the binding agreement was limited to the terms necessary to define the services which Skanska were to provide and Somerfield could not rely on the full terms of the draft agreement.
CJ-0637
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