IN THE SUPREME COURT OF JUDICATURE IN THE COURT OF APPEAL (CIVIL DIVISION) ON APPEAL FROM THE QUEEN'S BENCH DIVISION

(MR. JUSTICE DYSON) Royal Courts of Justice Strand London WC2 Thursday, 13th July 2000 B e f o r e: LORD JUSTICE SWINTON THOMAS LORD JUSTICE BROOKE and LADY JUSTICE HALE -----STENT FOUNDATIONS LIMITED Appellant -vCARRILLION CONSTRUCTION (CONTRACTS) LIMITED Respondent -----MR. A. STEYNOR (Instructed by Mr. Alan Foster, Solicitor, Wolverhampton WV1 4HY) appeared on behalf of the Appellant. MR. M. BOWDERY Q.C. (Instructed by Messrs. Wedlake Bell, London WC2 9HF) appeared on behalf of the Respondent. _________

JUDGMENT

LORD JUSTICE SWINTON THOMAS:

1. Lady Justice Hale will give the first judgment.

2. LADY JUSTICE HALE: 3. The issue 4. Between the 12th October 1998 and 31st January 1989, the claimant in this action, Stent Foundations Limited ("Stent"), carried out works at a site at South Quay on the Isle of Dogs. The site was being developed by Wiggins Waterside Limited ("Wiggins"). The management contractor was Wimpey Construction Management ("WCM"), a trading arm of Wimpey Construction Limited, which has since become the defendant Carrillion. The claim is for over 294,000 in respect of certain extra costs incurred by the claimant while doing the works. The issue is whether the work was done pursuant to a contract with WCM or whether it was done under a letter of intent issued on behalf of Wiggins. The relevance is that Wiggins went into receivership after the work was done, whereas the defendant is solvent. 5. A preliminary issue was ordered to be tried raising three questions: "(1) Whether Stent Foundations Ltd carried out its work pursuant to a contract with Wimpey Construction Management that came into being (a) as soon as WCM concluded a contract with Wiggins Waterside Ltd in January 1989 or (b) on 8 September 1988; alternatively (2) whether, if no contract was concluded between Stent and WCM at all, WCM is estopped from so contending." 6. On 10th November 1999 Dyson J, sitting in the Technology and Construction Court, resolved the question (1)(a) in favour of the claimant. This was the claimants primary case. He gave the defendant permission to appeal. He resolved the second two questions in favour of the defendant. The claimant has not sought permission to cross-appeal against that.

7. The facts 8. The site was to be developed under a then new-style management contract rather than the more traditional style of construction contract. The difference between them was helpfully explained by his Honour Judge Hicks Q.C. in the case of Copthorne Hotel (Newcastle) Limited v. Arup Associates (1997) 85 BLR 22, quoted by Judge L.J. at page 51 F:

"In place of a main contractor with the primary obligation of executing the works and having liberty to have part carried out by sub-contractors there is a management contractor with the primary obligation of ensuring that the works are executed and a duty to achieve that end by letting out the whole of the works in packages to work contractors." 8. Mr Bowdery Q.C, who appears for Stent, helpfully explains further in his skeleton argument that this gives the developer and his professional team more direct involvement with the selection and placement of the work packages. It also means that work can begin on some packages while others are still at the design stage. The management contractor does not carry out of any of the work itself. Nevertheless, this arrangement retains the traditional structure in that the expectation of all is that the work packages will be carried out under contracts with the management contractor rather than directly with the developer. 9. ECH Project Services Limited ("ECHPS") were Wiggins project manager. On 2nd June 1998 they invited tenders from Stent and others to carry out piling works on the site. These were described as "the design and construction of cast in situ reinforced concrete bored pile wall using the Secant method or similar". The management contractors were not named in that document, although WCM had already submitted a tender for that contract in May 1988. On 21st June 1998 Stent submitted their tender for the piling works. There was an accompanying Explanatory Memorandum, paragraph 1.8 of which read: "Unless and until a formal agreement is prepared and executed this tender together with your acceptance thereof shall constitute a binding contract between us. In the absence of our written agreement to the contrary, this Explanatory Memorandum takes precedence to and overrides any conflicting considerations that may occur in any standard documentation." 10. On 29th June 1988, ECHPS accepted WCMs tender for the management contract. It was agreed in principle that they would use the JCT 1987 Management Form. Thereafter WCM were involved in all the meetings with the sub-contractors, although the formal management contract was not executed until 17th January 1989. 11. On 14th July 1988 there was a post-tender interview with Stent. ECHPS and WCM were both represented. The minutes, headed "Wimpey Construction Management", record under "Programme/Method": 12. "2.2 SFL [that is, Stent] confirmed that commencement would take place on 19 September 1988 assuming WCM gave an intent 7 days after receipt of outstanding information from SFL." 13. Under "Contractual/Financial" it said: "3.1 WCM confirmed that the contract conditions would be 1987 Mancon Works Contract.

3.1.1 SFL was not familiar with this contract, and stated that they did not agree with engineer opening-up clause. 3.1.2 This was checked and did not appear to present a problem. ... 14. "3.6. SFL stated that they would act upon a letter of intent, though stressed that WCM should agree to pay cancellation cost if the contract did not proceed." 15. Negotiations continued over cancellation and delay charges. WCM were concerned at the delay in placing the letter of intent for these piling works. On 9th August 1988 ECHPS wrote to Stent: "On behalf of our Clients, Wiggins Waterside Ltd, we are pleased to instruct you to commence construction of a bored pile retaining wall at the above location, subject to the following provisions:1. You will be required to enter into a sub-contract agreement with a Management Contractor to be appointed. 2. The form of the contract should be the Standard Form of Works Contract 1987 Edition for use in conjunction with The Standard Form of Management Contract 1987 Edition as issued by the Joint Contracts Tribunal for the Standard Form of Building Contract. 3. The contracts shall be signed under seal." 16. The letter went on to state the particulars as to value, timing, delay and commencement date. These were not all acceptable to Stent. It concluded: "Until formal documents are available for signature please accept this letter as our instruction to proceed. In the event of the parties failing to enter into a contract, we confirm that you will be reimbursed with all reasonable costs incurred including overheads and profit thereon, but no allowance will be made for loss of profit." 17. A "package contract meeting" was held between Stent, ECHPS and WCM on 15th August 1988. The minutes record: "3.0 Package order Stent stated their willingness to accept a letter of intent from ECHPS and commence work against an order from WCM". 18. Various outstanding items were then discussed and a new start on 17th October 1988 was agreed. Finally: "6.0 Letter of Intent

ECHPS to telephone acceptance of the above ... to Stent by am Wednesday the 17th August and to then immediately reissue the letter of intent from ECHPS." 19. On 16th August 1988, WCM wrote two letters to ECHPS. One expressed concern that tender enquiries were still being sent out without naming them as management contractors, which detracted from their authority and placed constraints upon them in resolving problems such as had arisen with this piling tender. By letter dated 18th August 1998, ECHPS swiftly agreed to rectify this. The second letter from WCM recommended proceeding on the basis of Stents offer as negotiated. Stent needed to know within 48 hours if a plant was to be reserved. 20. On 17th August 1988, therefore, ECHPS sent a second letter of intent. Some details had been changed, but the passages quoted earlier from the letter of 9th August remained the same, save that WCM were now named as the management contractor in paragraph 1. Also on 17th August 1988, Stents managing director wrote to the quantity surveyors, E.C. Harris & Partners, enclosing the final form of their offer and again enclosing the Explanatory Memorandum. 21. On 18th August 1988, Stents contracts manager, Mr Stagg, wrote to ECHPS stating that subject to three small points the letter of intent was acceptable. ECHPS accepted those three points in a letter dated 25th August 1988 which also suggested that cancellation and delay charges would be applied, based on a start date of 17th August 1988, and ended: "We note you are proceeding on the basis of our letter of intent and trust this letter now clarifies your position". 22. On 7th September 1988, Stent sent in their revised cancellation and delay charges. On 8th September there was a procurement meeting between WCM and Stent at which ECHPS were not represented. Under "Contractual" the minutes record: "2.1 Stent will now proceed on the basis of the letter of intent and Stent letter RTS/756/LA of 7th September 1988 to ECH project services. 2.2 JCT Mancon accepted in principle - details to be agreed. 2.3 Bond details to be agreed. Stent will propose a termination date. 2.4 Warranty details to be agreed." 23. That is a reference to the separate bond and warranty required by Wiggins from the works contractor. 24. On 16th September 1988, ECHPS instructed WCM to take possession of the site that weekend for limited purposes. It included the following sentence: "This instruction relates to the deemed to exist management contract for execution of the construction works, and is issued in anticipation of the terms and conditions of that contract being finalised during the coming week."

25. That clearly did not happen, but everything proceeded in any event. 26. On 6th October 1988, ECHPS wrote again confirming that WCM had taken possession of the site and anticipating that the terms and conditions of the contract would be finalised "during the next few days". That too did not happen. Negotiation about the details of the management contract continued. 27. Meanwhile, meetings continued between WCM and Stent. At a pre-construction meeting on 5th October 1988 it was recorded under "Order": "Yet to be placed. Remains dependant on the placing of the Management order with WCM. An A.I. [Architects Instruction] and order will then be raised. Work proceeding against the letter of intent from ECHPS dated the 12 August 1988." 28. That is clearly a mistake for 17th August 1988. 29. On 10th October 1988, Stent wrote to ECHPS making it clear that as the works about to start and there had been no positive move towards agreement of a formal subcontract, "we can no longer accept that there will be no allowance for loss of profit", and reiterating the tender sum. Minutes of meetings between WCM and Stent continued to record the position that the order was still outstanding, awaiting the placement of the management order, and meanwhile work was proceeding against the letter of intent (see minutes of the progress review meeting of 19th October 1988 just after work had begun, and again on 23rd November 1988 where "Stent agreed to continue to progress under a letter of intent"). 30. However, what actually happened was what was envisaged would happen under the works contract rather than under the letter of intent. Interim payments were made by Wiggins to WCM and, after appropriate deductions for their fees and so on, by WCM to Stent. Stent began to encounter problems, and on 30th November 1988 notified WCM of a claim: "In the absence of a formal contract document the foregoing is based on our tender submission, but should an unamended JCT Management Contract be agreed, our claim will be recorded and items 2.2 & 4.45..." 31. WCM replied on 6th December that Stent had already been informed that the contract would be the JCT Works Contract; if they wanted an extension of time they should comply with the requirements of section 2 of that contract. But at a progress meeting on 7th December 1988 WCM reiterated their inability to enter into a formal contract with Stent until the main contract had been signed, although they anticipated sending a draft contract before the Christmas break. They never did so, although on 2nd December 1988 they had sent copies of the employer/works contractor agreement (that is, the warranty) and the performance bond which would be required for Wiggins. 32. The main contract between Wiggins and WCM was signed on 17th January 1989 and backdated to 1st January 1989. At a meeting with Stent the next day, WCM confirmed that the works contract could now be "completed/issued". Stent in fact completed their works on 31st

January 1989. On 20th February 1989 the architects confirmed their instruction to WCM to place an order with Stent in accordance with the ECHPS letter of 17th August 1988. On 10th March 1989 Stent executed a performance bond in favour of Wiggins on the basis of the management contract and a works contract. They were not willing to provide an employers warranty in an amended form requested by WCM for Wiggins, but did execute an unamended version of the standard JCT employer/works contractor agreement and sent it to WCM on 18th April 1989. WCM consulted ECHPS and were told that the unamended version was acceptable. That warranty recites, fifthly, that the management contractor and the works contractor have "entered into a works contract in the terms of a completed works contract (Works Contract/1) incorporating the Works Contract conditions (Works Contract/2)". 33. Despite all this, WCM never got round to issuing the order or the contract. According to the witness statement of their Mr Bevan, this was because the work had been completed in January and "neither party saw any practical purpose in progressing the terms of the proposed subcontract further". Mr Stagg, Stents contracts manager, does not comment upon that in his witness statement. He took the view that both parties had proceeded throughout the works on the basis that the works were being carried out under the works contract conditions.

34. The argument 35. Obviously everyone contemplated that there would be a contract between WCM and Stent for the performance of the works and a separate performance bond and warranty between Wiggins and Stent. It is also obvious that in those circumstances the sub-contractor would be looking to the management contractor for payment and thus for the latter to take the risk of the developers insolvency. 36. Stent argued before the judge that the essential terms of the contract between them and WCM had all been agreed. The only condition necessary to bring it into operation was the execution of the management contract between Wiggins and WCM. WCM argued that it was also a condition that the works contract be formally executed. WCM also argued before Dyson J. that all the essential terms had not been agreed because amendments might have to be made to the standard JCT works contract to take account of amendments to the standard management contract. 37. Dyson J. concluded, first, that all the essential terms had been agreed between them by September 1988. No further negotiations were envisaged as to the terms of the works contract; nor were any amendments necessary as a result of amendments to the management contract. He concluded, secondly, that execution of formal sub-contract documentation was not a condition precedent to the existence of a binding contract. Documentation was intended to be no more than a clear record of what had been agreed between them. The letter of intent of 17th August 1988 indicated the terms upon which Wiggins would be responsible to Stent until a binding contract was concluded between WCM and Stent.

38. The appeal 39. On appeal, WCM accept that sufficient terms had been agreed to constitute a contract between WCM and Stent. 40. Mr Steynor, who appears for WCM, no longer seeks to argue that the parties were not ad idem. They were agreed on all the essential terms, and any amendments to the works contract required as a result of the precise terms of the management contract would not in fact have presented a problem. He also accepts that in many cases parties to a building contract may make an agreement either orally or in correspondence which is simply confirmed in the formal written contract. But he argues that this was a case in which their agreement was, in effect, subject to contract. 41. In support of the argument that formality was a condition precedent of a binding contract between them, Mr Steynor made two main points. First, no negotiations about the precise terms of the works contract could take place until after the terms of the management contract had been finalised. It would be dangerous for a management contractor to bind itself to a works contractor without knowing what those terms were. However, that is no longer the case once he has bound himself to the employer and knows what the terms of the management contract are, and this is particularly so if the work has been completed and no problems have arisen with those contractual terms. 42. Secondly, Mr Steynor argues that it was Stents own understanding that the contract would be embodied in formal documentation, and that this meant that it would indeed be subject to contract. He relies particularly on the terms of Stents own Explanatory Memorandum which was twice sent to ECHPS, and to the minutes of the meetings which continued as late as 23rd November 1988, to record that Stent was working under the terms of the letter of intent. However, the Explanatory Memorandum was sent in before the work began, and the minutes of the meetings are equally consistent with the condition precedent which the judge did find -- that a management contract had to be placed before the formal contract between Stent and WCM came into being. 43. It also seems to me clear that everyone behaved as if the works contract was in place. Payment was made under that contract. The developing dispute about the ground conditions was being handled by WCM as if it was under that contract. 44. Mr Steynor accepts that it would not usually be possible to argue that there was no contract once a transaction had been fully performed on both sides (see G. Percy Trentham v. Archital Luxfer [1993] 1 Lloyds Rep. 25 at page 27 per Steyn L.J.) But in this case there was a letter of intent between Wiggins and Stent which gave sufficient comfort. He relies in particular on the case of J. Jarvis & Sons PLC v. Galliard Homes Limited, a decision of this court on 12th November 1999. But the facts and circumstances in the Jarvis case were very different from these. The pre-contractual arrangements were made between the same parties. The letter of intent in that case promised payment upon a quantum meruit basis "in the event that we do not enter into a formal contract with you". All sorts of matters remained in active dispute and variation as the work proceeded. Crucially these included whether there was a fixed price contract at all, as

Galliard wished it to be, or whether, as the contractor contended, a contract for payment on a quantum meruit basis. Hence, although the Court of Appeal did find that this was indeed subject to contract, Evans L.J. found it impossible to say that a contract had been concluded at a later meeting because "first and more importantly it is not possible to be certain what the terms of the contract were". He did, however, think that the correct legal analysis was that there was a contract to pay a quantum meruit based on the letter of intent, rather than simply a quasicontractual obligation so to do once the work had been done. 45. If anything, in this case the history of the letter of intent supports rather than undermines the claimants case. It clearly contemplates a works contract being made; it promises reimbursement of costs but not loss of profit if no such contract is made. That was no longer acceptable to Stent once they started work. They were then paid by WCM according to the agreed tender sums and not in accordance with the letter of intent. Everything else that happened after then was in accordance with a contract between WCM and Stent. This includes the procurement by WCM for Wiggins of the bond and warranty, which would not have been necessary, or at least as necessary, if, as Mr Steynor contends, the letter of intent had been a contract between Wiggins and Stent which was still in existence. 46. For my part, therefore, it seems to me quite clear that the learned judge was entirely correct in this case to hold that this work had been done under a contract between Stent and WCM which came into being as soon as WCM concluded a contract with Wiggins in January 1989, and I would dismiss this appeal.

47. LORD JUSTICE BROOKE: I agree. For a time I was impressed by an argument in which Mr Steynor relied on paragraph 35 of Mr Bevans witness statement before the judge, which reads:"I should like to draw attention to the fact that although the letter of intent says that the form of sub-contract shall be the standard form of Works Contract 1987 Edition, the works contract itself in Works Contract/2 contains alternative clauses or clauses in respect of which a choice has to be made (for example under clause 4.2 and 4.3 (Price for the Works) clause 4.44.16 (Valuation of the Works) clause 4.52 (Fluctuation) clause 6.6 (Insurance for loss and damage to the Works)). Furthermore, there are clauses in the Works Contract which refer to and take account of the Management Contract provisions, for example Works Contract/1 Section 1 Invitation to Tender and Clauses 1.4, 1.6, 1.8 and 1.11. The management contract itself was not in an unamended form. None of these issues as to how the Works Contract form was to be completed in practice were ever addressed or agreed between Stent and Wimpey; the amendments necessary to the standard form of Works Contract were never discussed." 48. We were supplied just before the hearing with a copy of works contract conditions, Works Contract/2, which do show that in certain sections one paragraph is to govern if, for instance, Works Contract/1, Section 3, Article 2.1 applies, and another provision is to govern where Works Contract/1, Section 3, Article 2.2 applies. Those are the first two points which Mr Bevan took. Again, under the choice of fluctuation provisions, 4.52:

"Fluctuations shall be dealt with in accordance with whichever of the following alternatives: clause 4A, or clause 4B, or clause 4C is stated in Works Contract/1, Section 1, item 9 and Section 2, as being applicable to the Works Contract," 49. and the other example given by Mr Bevan is on similar lines. 50. I should make it clear that we were furnished with, for some accidental reason, only one copy of Works Contract/1, but Mr Steynor did not wish to ensure that each member of the court had it because he was willing to accept in principle that, since the works had been completed by the relevant time when the management contract came into force, it was really water under the bridge which of these provisions were chosen. As I have said, the works had by now been completed and he did not wish us to look at the detail of the points that Mr Bevan had mentioned in his statement. 51. In those circumstances, it appears to me that, although the point did seem to have some merit when I first read it, on the facts of this particular case it does not. The choice had become completely irrelevant by the time the management contract did come to be signed, and for these reasons and the reasons given by my Lady, I agree that this appeal should be dismissed.

52. LORD JUSTICE SWINTON THOMAS: I also agree.

ORDER: Appeal dismissed with costs; detailed assessment unless agreed.