| Date | 25 March 2008 |
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| Judgment | Trollope & Colls and Holland Hannen and Cubitts Ltd -v- Atomic Power Constructions Ltd, QBD 26 October 1962 |
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| The Issue | The effect of a contract entered into after works have been commenced. |
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| Implication |
A contract may apply with retrospective effect to govern and regulate the relationships of the parties. Notwithstanding this, the effective date of the contract is the date the contract was made, not the earlier date upon which works were started, for the purpose of interpreting the scope of the contract. |
printWe sometimes make a terrible hash of the procurement process in the construction industry. It is not uncommon for work to be commenced or goods supplied before a formal contract has been entered into. Subsequently the parties may sign a formal contract after many months of negotiation as to its terms. The effect will be for the conditions embodied in the formal contract to apply retrospectively. Precisely what this means, particularly in regard to changes in the scope of the works or other circumstances which may have occurred since the tender was first submitted, is often uncertain. This whole matter was examined in the leading case of Trollope & Colls Ltd and Holland Hannen and Cubitts Ltd -v- Atomic Power Constructions Ltd in 1963. The Plaintiffs were a partnership who entered into sub-contract with the Defendants who were a consortium of engineering and construction companies engaged in the construction of a nuclear power station for the Central Electricity Generating Board in Wales. Both parties had collaborated in the preparation of a tender by Atomic Power Constructions, it being intended that if the tender were accepted, Atomic Power would be the main contractors, and Trollope would be sub-contractors for the civil engineering part of the works. As part of this process Trollope had submitted a sub-contract tender in the amount of approximately £9m which was incorporated into the main contract tender. In June 1959 the main contractor was advised that it had been awarded the main contract, and accordingly issued a letter of intent to Trollope which included the words "as soon as matters outstanding between us are settled we will enter into a contract agreement with you and in the meantime please accept this letter as an instruction to proceed with the work necessary to permit you to meet the agreed programme". It was not until April of the following year that the conditions of sub-contract were eventually agreed between the parties by which time a substantial part of the work had been carried out, though the greater part still remained to be done. Disputes arose between the parties which ended up in court. Trollope's primary claim was that there had been no contract and that it was free to terminate work at any time and entitled to be paid on a quantum meruit basis for the work that it had done. The Defendant main contractors, Atomic Power, argued that there was from April 1960 a concluded contract between the parties. The court held that a contract had indeed been executed in April 1960, this being a matter to be analysed in accordance with the normal rules for concluding a contract. The principle rules to be analysed were; firstly, there must have been an intention by both parties continuing up to April 1960 to make a contract; secondly, at that date the parties must have been ad idem (of one mind) on all the terms which they regarded as being required in order that a contract should come into existence; thirdly, that no essential term should be omitted which would prevent the contract from being commercially workable; and finally, that there should be an offer and acceptance in the normal manner. What then was to be made of all the work which had been done by the sub-contractors from the June of the previous year? The Judge held that up until April 1960 the sub-contractors had been doing work on a quantum meruit basis as no binding contract had existed between the parties before that date. However, once the contract came into being, it had retrospective effect to govern and regulate the relationships of the parties in respect of their preceeding transactions. It was as if both parties had said at April 1960 "this contract is to be treated as applying, not only to our future relations but also to what has been done by us in the past since the date of the tender in the anticipation of the making of this contract." Thus the scope of works to be carried out under the contract, the terms and conditions for carrying out those works, and the price to be paid, all fell to be determined by a construction (or interpretation) of the agreement concluded in April 1960. The original tender offer was not to be treated as an offer of fixed and immutable work at a fixed and immutable price. That offer was to be adjusted by reference to all the relevant negotiations and exchanges between the parties up to the date of its acceptance in April 1960. Of course the retrospective application of a contract in this manner may give rise to difficulties where things have been done at a time when certain of the terms which ultimately and retrospectively become contractual, were in a state of flux. In other words it might turn out that something done by a party before the making of the contract had been done otherwise than in accordance with a term subsequently agreed. The Judge was very clear as to how to deal with this type of argument. "That is a matter which may have to be taken into account as tending to militate against the implication of such an agreement as to retrospective effect. It would not, however, be sufficient to negative the existence of a contract with retrospective effect if the assent of the parties to such a contract were clearly established."
CJ-9811
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