Reminder to have clearly agreed terms before starting work – and check limitation clauses: will they be effective when you need them?

04 May 2021

Author(s):

In the recent case of Balfour Beatty Regional Construction Ltd (BB) v Van Elle Ltd [2021], the question before the Technology and Construction Court (TCC) was whether the sub-contract superseded any prior contractual relationship between the parties, or whether the sub-contract was subject to Van Elle's standard terms and conditions.



Background

BB (known at that time as Mansell Construction Services Ltd) was appointed as main contractor to design and construct a sub-sea cable manufacturing facility at a site in Newcastle owned by Technip Umbilicals Ltd.

BB then engaged the services of Van Elle to carry out piling works between June 2012 and August 2013 for an agreed total price of £1.239 million.

Shortly after installation, excessive settlement was discovered at the piling for the North Carousel; there were two of these structures (carousels) in the project, each to be used for the temporary storage of cables. Balfour Beatty agreed with Technip that BB would remediate the settlement without prejudice to the question of liability. Remediation involved removing the piling work, replacing it and then reinstating the North Carousel and all other works completed by Van Elle. Technip then initiated a claim against BB for business interruption losses.

BB in turn issued a claim against Van Elle to recover the remediation costs and to obtain an indemnity against any liability to Technip for further losses. Van Elle denied liability by arguing that although, following completion of the piling works, in late 2013, the parties signed a formal sub-contract based on a modified version of the 2011 edition of the JCT Design and Build Sub-Contract (the Sub-Contract), the Sub-Contract did not govern the parties' rights and obligations in relation to the North Carousel piling.

Van Elle argued that the contract governing the piling works was a written quotation from Van Elle dated 28 May 2012 (the VE Quotation), which incorporated its standard terms and conditions (VE T&C). The VE T&C provided (it was argued by Van Elle) that any liability to BB would be significantly limited so far as recoverable losses were concerned, if liability was established.

Balfour Betty denied the existence of such a contract and the immediate questions before the court were as follows:

  1. did the BB Letter of Intent/Sub-Contract supersede Van Elle's written quotation incorporating the VE T&C?;
  2. if the VE T&C apply, what is the proper construction of Clause 6.6 if a defect and/or failure is caused by negligence; and
  3. what is the proper construction of Clause 6.7, which purports to limit Van Elle's liability to certain costs?

VE Quotation and the Sub-Contract - issue 1

Mr Justice Waksman found in favour of BB and held that the Sub-Contract governed the claim relating to the North Carousel works.

As the parties both agreed that the Sub-Contract existed as a written agreement, the main consideration for the TCC was whether the agreement included the North Carousel piling works, as Van Elle contended that there already was a contract for those works, which existed prior to, and independently of the Sub-Contract.

In analysing the documents presented to the Court, Mr Justice Waksman noted that, on several occasions, Van Elle requested contractual commitment in the form of a limited order or a letter of intent from BB before the works were commenced. On 1 June 2012, BB sent the Letter of Intent to Van Elle (which itself did not incorporate the VE T&C) and this was accepted by Van Elle in a letter dated 11 June 2012. On this basis, the Judge concluded that, objectively, it was the parties' intention that the Letter of Intent would encompass the North Carousel works, which commenced on 15 June 2012.

Prior to this, in an email dated 28 May 2012, Van Elle had sent a quotation for the North Carousel piling works which it now argued was the contract applicable to the North Carousel works, as this quotation constituted an offer which was accepted by BB's conduct when they allowed Van Elle to commence the works. Mr Justice Waksman concluded that this quotation could not constitute the letter of intent Van Elle required as it emanated from them and not BB.

Although the Judge acknowledged that it was in principle possible for there to have been a separate contract dealing specifically with the North Carousel works, he stated that it was "completely unrealistic, objectively speaking" for this to be the case here. In considering the common intention of the parties and their subsequent conduct, it was noted that the parties intended for the piling works to be governed by one contract.

Obiter views on the limitation clauses in the VE T&C

Based on the conclusion in relation to the first issue, the second and third questions did not require consideration. Mr Justice Waksman did however comment briefly in obiter (on a non-binding basis) on clauses 6.6 and 6.7 of the VE T&C.

Clause 6.6 provides:

"Where any valid claim in respect of the Works and Materials which is based on any defect in the quality of the Works or condition of the materials or the failure to meet specification is notified to the Company in accordance with these conditions the Company shall be entitled to repair the Works or replace the Materials (or such part as the Company shall determine) free of charge or at the Company's sole discretion refund the Customer the invoice price (or a proportionate part thereof) but the Company shall have no further liability to the Customer".

Clause 6.7 provides:

"The liability of the Company for negligence or other default or breach of contract shall (except in the case of death or personal injury) be limited to the cost of replacing piles or carrying out alternative remedial work such as underpinning, the cost of repairing damage to any building to the extent that such damage was solely due to such negligence or breach of contract by the Company and removal and alternative accommodation costs during the carrying out of such remedial work to the extent and for such period as is strictly necessary due to such remedial work rendering the building or part of it in respect of which costs are claimed incapable of beneficial occupation. For the avoidance of doubt the Company shall (save in relation to death or personal injury) have no further liability or other liability under this or any other contract or at common law and in particular (but without prejudice to the generality of the foregoing) the Company shall have no liability for loss of profits, loss of business opportunities, liquidated damages payable to any person or the fact that no such liquidated damages became payable costs due to the delaying of any other construction or other works or any other losses of any kind save as clearly and specifically identified in the first sentence of this condition 6.7."

Mr Justice Waksman's observations included the following.

  • Clauses 6.6 and 6.7 appear to be inconsistent.
  • Clause 6.6 refers to "any valid claim" - this is the same wording used in clause 6.1 providing for a 10 year warranty. It is therefore "strongly arguable" that the ambit of clause 6.6 is limited to warranty claims under Clause 6.1.
  • The construction of clause 6.7 is subject to detailed arguments by the parties on various issues including, as an example, the type of costs covered by the clause e.g. is the "cost of replacing piles or carrying out alternative remedial work such as underpinning" limited to the "direct costs" of replacement piling; or, does it go "very much further", extending to (say) the costs of investigating and designing how to replace the defective piling?

In summary, Mr Justice Waksman's view was that clauses 6.6 and 6.7 were unlikely to be as effective in limiting liability as contended for by Van Elle, if that became relevant.

Commentary

Getting the contract agreed before works are started is a perennial issue in the construction industry with stringent time pressures on project delivery. The background to this decision shows how easy it is to end up with a contractual muddle which is best avoided from any perspective. Here, Mr Justice Waksman's view was that it was objectively intended that BB's Letter of Intent would be replaced by the Sub-Contract in the fullness of time.

Mr Justice Waksman's obiter observations on the potentially restricted effect of the limitation clauses in the VE T&C highlight the need always to have clear and unambiguous wording in these clauses.

If you have any queries on this or any other construction issue, please contact Ashley Pigott.


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