The recent Technology and Construction Court (TCC) case of Commercial Management (Investments) Ltd v
Mitchell Design and Construct Ltd and another has emphasised once again why
it is critical to know exactly what legal conditions you are contracting on and
stressed the potential pitfalls of contracting on standard business terms.
The contractor in this case, Mitchell, had been hired to
design and build a warehouse in Kent.
The contractor sub-contracted works to Roger Bullivant Ltd to deal with
vibro-compaction ground treatment works.
It was alleged several years after the project was completed that there
was settlement of the slab underneath the warehouse. The claimant, Commercial Management
(Investment) Ltd, had acquired an interest in the warehouse by that point and brought
court proceedings against the contractor and sub-contractor.
The sub-contractor’s standard terms included a time limit of
one year following practical completion for bringing claims which the
sub-contractor sought to rely on as part of its defence.
First, the TCC had to consider the basis on which the
contractor and sub-contractor had contracted.
When the contractor originally tendered for the works, it indicated that
the sub-contract would be let on the JCT standard sub-contract, but the
sub-contractor had replied with its standard terms, including the time limit
clause. Having confirmed its intention
to engage the sub-contractor, the contractor only sent an order after the
sub-contract works had completed. This
order said that the contract would be in the form of the JCT standard
sub-contract but also had the contractor’s standard terms on the reverse.
This order was then signed by the sub-contractor but
returned with manuscript amendments which included changes to one clause: “The terms of this order and its conditions
shall be deemed to override any terms and conditions of your tender, where
applicable, otherwise, Roger Bullivant Conditions apply.” The order was then counter-signed by the contractor
and a copy returned to the sub-contractor.
The circumstances surrounding this course of events were, however,
disputed.
The TCC considered the preliminary issues relating to these
terms of the sub-contract including whether the handwritten amendments made by
the sub-contractor were added before or after the execution of the
sub-contract. The TCC held that, on the
facts of the case, the handwritten amendments were included before the
sub-contract was executed. By returning
the contractor’s order with the handwritten amendments, the sub-contractor had
made a counter-offer which the contractor had accepted by signing and returning
the document.
The TCC then looked at whether the sub-contractor’s
amendments had included its claim time limit clause and, again on the facts,
concluded that it had not. However, the
court usefully went on to consider what would have happened if their initial
conclusion was incorrect and that the claim time limit clause had been
incorporated. The TCC held that the
clause would have been included in the sub-contractor’s “written standard terms
of business” and would have therefore been subject to the Unfair Contract Terms
Act 1977 (UCTA). Despite being a
negotiation between two businesses of seemingly equal bargaining position, it
concluded that this clause would have been unreasonable for the purpose of the
reasonableness test set out in UCTA and therefore that the sub-contractor would
not have been able to rely on the clause anyway.
Aside from the usual reminder of being sure about the terms
on which you are contracting, this case is a warning in demonstrating how far
standard business terms can be negotiated and yet still be the subject of the
reasonableness test in UCTA. It is an
important point to bear in mind when entering into contract negotiations.
The recent Technology and Construction Court (TCC) case of Commercial Management (Investments) Ltd v
Mitchell Design and Construct Ltd and another has emphasised once again why
it is critical to know exactly what legal conditions you are contracting on and
stressed the potential pitfalls of contracting on standard business terms.