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Achieving Contractual Certainty is Well Worth the Time and Effort
The process of negotiation and give-and-take involved in finalising contracts can be demanding and time-consuming – but one High Court case, involving a £40 million claim in respect of an allegedly defective car park, showed that it is well worth the effort to achieve certainty.
Some years after its construction, the car park was said to be in such a poor state that it would have to be demolished and rebuilt. Company A, a concrete specialist that worked on the project, had settled a claim brought against it by the main site contractor. Company A launched proceedings to recover that loss, plus damages, from company B, a consultancy firm engaged in design aspects of the project.
Company B denied that it bore any responsibility for defects in the car park. It also argued that, under the terms of its contract with company A, its potential liability was capped at a maximum of £610,515. Extensive pre-contract negotiations had produced documents that filled six lever-arched files, but there remained a dispute as to whether any contract had in fact been agreed.
The Court found that a ‘simple contract’ had been created, under which company B would carry out design work and be paid by company A. However, neither the cap, nor any of the other detailed terms and conditions that had been discussed at such length during the negotiations, had been finalised. The cap was not incorporated in the contract and there was thus no limit on company B’s potential liability.
The Court noted that that outcome was the inevitable consequence of company B’s dilatory and often uncooperative approach to negotiating the terms and conditions of the contract. The case starkly illustrated the commercial truism that it is usually better to reach a full agreement by a process of give-and-take, rather than to delay and fail to reach any detailed agreement at all.