Before: His Honour Judge Fox-Anderson QC
 
 

B E T W E E N

JUDGMENT
 
DATED: 11 March 1994

JUDGE FOX-ANDERSON QC

In this originating application by the Plaintiffs, Drake & Scull Engineering Limited (D&S) they seek three declarations to which I refer shortly.

The application arises out of mechanical and engineering work undertaken between 6 April 1992 and June 1993 by D&S at Fazakerley Hospital, Liverpool at which the Defendants, Higgs & Hill Northern Limited (H&H) were the main contractors. On 6 February 1992 H&H invited D&S to give a quotation for the supply and fix of the mechanical and electrical installations detailed in an attached collation sheet and in accordance with extensive details which were set out in the letter. The collation sheet had some 81 items, but in the event only a few of the first 15 were before me and only some of these were relevant. The main contract was stated to be the JCT Standard Form with Construction Design 1981. D&S gave a price subsequently there was correspondence and there were meetings between the parties or the 12th and 19th March. On the 25th and 27 March H&S wrote important letters to D&S which I shall have to consider later. Mr Shaw of H&H in the letter of 25 March stated:

"We confirm it is our intention to enter into sub-contract with you for design, supply and installation of the M&E works at the above project in the sum of £1,504,128 ... less 2½% Main Contractor's discount.

The formal sub-contract document will be completed and forwarded to you in due course and will comprise of the following:

1. The sub-contract programme is to commence on the 6th April 1992 and to be completed by the 15th March 1993 with an overall duration of 49 weeks inclusive of holidays."

There were then set out nine further documents or categories of documents. Item 2 beings items 1-15 of the collation sheet. The letter concluded:

"We would be obliged if you would forward your proposed daywork rates, labour histogram, tax exemption details and third party and public liability insurance details by return of post.

We trust that you will find the foregoing an equitable basis upon which to proceed with the works and look forward to the timely and successful completion of your works."

There had not been previously an express reference to design. The insurance details required did not include those relating to design.

On 1 April D&S by Mr O'Connell replied to that letter, part of which I should read:

"... 1. The opening paragraph of your letter refers to "design" and we would confirm that we cannot have any responsibility for design other than brackets and the like ...

4. Our proposed daywork rates are as follows:

(a) RICS/HBA/ECA Definition of prime cost of daywork

Labour plus 165%

Materals plus 25%

(b) RICS Schedule of Basic Plant Charges 1991 Plant plus 15%.

In conclusion, we would be grateful for your confirmation that you will indemnify us in respect of any expenditure which we may incur, in the event that for any reason outside our control, the order is not placed with us."

D&S started work on 6 April 1992 with no further communication between the parties having taken place.

On 22 April Mr O'Connell wrote again to H&H saying:-

"... In writing, we would confirm that we are still awaiting the confirmation requested in the final paragraph of our [letter 1st April 1992]. Namely, that you will indemnify us in respect of any expenditure which we may incur in the event that for any reason outside our control your formal order is not placed with us.

Your confirmation of this matter by return would be appreciated."

On 30 April H&S by their Site Manager Mr Wimpenny wrote to Mr Richings, D&S Mechanical Project Manager, a letter headed "Mechanical Steam Main".

"Further to our letter of intent/order dated 25th March 1992 we hereby record that you have commenced your sub-contract work on the above on the 6th April 1992 and will complete the same in accordance with the agreed overall programme of 24 weeks.

This notification is in accordance with your initial subcontractor's meeting had by yourselves on 19th March 1992.

May we take the opportunity to remind you of the sub-contract conditions.

We look forward to your working with us on this contract and that as a specialist sub-contractor you will contribute in ensuring that your sub-contract works are progressed in accordance with our requirements and to a satisfactory conclusion."

On 5 May Mr Richings replied to Mr Wimpenny's letter saying:-

"... Our contract period for the above runs from 6th April 1992 as agreed, and is due for completion end September 1992 as indicated in Programme Reference 183/1049/Prov 1 issued under cover of our letter, reference SR/JAG dated 21st April 1992.

The above indicates overall programme period of 26 weeks, not 24 as referred to in your letter "

In parenthesis it is not suggested that either Mr Wimpenny or Mr Richings had authority to contract. There was in fact no separate agreement in respect of the Steam Main. The programme for the whole of the works had been "agreed' at 49 weeks.

On 6 May Mr O'Connell wrote again to Mr Shaw:-

"We write further to our letters dated 1st April and 22nd April 1992 in which we required confirmation that you would meet our reasonable costs in the event that for any reason outside our control, your order is not placed with us.

We are now at a stage when orders need to be placed, and in order that completion of this project is not jeopardised, please can you confirm your agreement to the above by return, or alternatively, forward your final order."

On 11 May Mr Shaw wrote to Mr O'Connell:-

"We acknowledge receipt of your letters dated 1st and 22nd April and 6th May 1992 in connection with your sub-contract works on the above project and would respond as follows:

1. We confirm that you do not generally have any responsibility for design other than the development of the design indicated in DSSR's drawings to a final functional working system ...

4. We do not accept your proposed daywork rates and would suggest that the percentage additions furnished under cover of your letter dated 1st April 1992 appear high.

We would be obliged if you would reconsider same and notify the writer accordingly.

We would conclude by confirming that we will indemnify you in respect of all reasonable expenditure which [you] may incur [in] the event that for any reason outside of your control the order is not placed with you. The formal sub-contract documents are currently being compiled and will be forwarded in due course. In the meantime we trust that the foregoing will suffice your needs, however, should you wish to discuss the matter further please contact the writer."

No further relevant correspondence passed between the parties until May 1993 nor was there any relevant oral discussions.

Whilst they were working D&S rendered valuations from time to time headed "Contract No. 183/1045" which is not H&H contract number but appears to be that of D&S in which they gave 2½% discount.

In the ensuing months D&S corresponded with H&H in the context of an existing sub-contract. Thus on the 16th November 1993 " … Increasing the contract sum in accordance with the above."

On 21 January 1993 ".... Due to deletion of the provisional sum of BMI and Automatic Controls and the addition of the same as attached details ..."

On 8 April 1993 D&S wrote:-

"Pursuant to clause 6(b) in the conditions of sub-contract we hereby notify you that our M&E works have been delayed and that these delays will result in a corresponding delay to our contract completion date ...

In view of the above we formally request your official extension of our completion date up to 7th March 1993 together with the reimbursement of additional costs incurred."

During the course of work D&S carried out dayworks and sought payment based on a rate of inter alia labour plus 160%. But H&H have not paid any monies for daywork for which a total claim of about 24,000 is made.

On 18 May 1993 Mr Mulla on behalf of H&H wrote D&S in these terms:-

"We have pleasure in enclosing the form of tender and supporting documents in duplicate.

Will you please have one copy of the tender sealed, signed, witnessed and dated on page 3. The seal should be affixed in the presence of two duly authorised directors or a director and secretary of your company. The document must not be altered in any way without further reference to this office. Please initial any alteration indicated.

If you will then return the sealed copy to the undersigned at the Birstall Office [West Yorkshire] we will send you our acceptance duly sealed by this company. The other copy is for your retention."

The form of tender was the same as that sent originally on the 6th February 1992. The supporting documents were the ten categories listed in H&H's letter of the 25th March including the first fifteen items of the collation sheet.

Work was practically completed in July 1993.

H&H have not paid the full amount of D&S valuations. On the 10th June 1993 H&H wrote contending for a right of set-off for £182,495.75 and were threatening to pass on to D&S any liability they had to the employer for liquidated and ascertained damages by reason of D&S's delay. In July 1983 D&S wrote denying liability for any delay and were claiming considerable greater sums than they had been paid.

If there was a sub-contract then D&S will have obligations during the defects liability period. The sub-contract would therefore still be partially exectory, although mainly executed.

I turn to consider the three declarations sought in this originating application dated 5th November 1993:-

(1) All work pertaining to the installation of mechanical and electrical services to the Accident and Emergency Department of Fazakerley Hospital, Liverpool, undertaken by the Plaintiff for and on behalf and/or at the request of the Defendant during 1992 and 1993 was undertaken in the absence of any contract between the parties.

(2) Alternatively that such work was undertaken by the Plaintiff pursuant to a bare contract between the parties whereby the Defendant agreed to indemnify the Plaintiff for all recoverable expenditure in respect of all work undertaken pertaining to the installation of the said mechanical and electrical services.

(3) That in either event the resulting quantum meruit is to be calculated on the basis of the actual cost of such work plus on and off site overheads (including head office overheads) and profit.

I turn now to consider what appears to be the relevant law.

In W J Rossiter v. Miller (1870) 3 App Cas 1124 Lord Blackburn said at p1151:

"So long as they are only in negotiation either party may retreat; and though the parties may have agreed on all the cardinal points of the intended contract, yet, if some particulars essential to the agreement still remain to be settled afterwards, there is no contract. The parties in such a case are still only in negotiation but the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared embodying the terms which shall be signed by the parties, does not, by itself show that they continue in negotiation."

In Hillas & Co Ltd v. Arcos Ltd (1932) 147 LT 503 a contract relating to timber containing an option clause did not specify what kinds or sizes or quantities were to be supplied, nor did it define the dates and ports of shipment and discharge.

Lord Wright at p 514 said:

"The document of the 21st May 1930 cannot be regarded as other than inartistic and may appear repellent to the trained sense of an equity draughtsman.

But it is clear that the parties both intended to make a contract and thought they had done so. Businessmen often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents clearly and broadly without being too astute or subtle in finding defects; but, on the contrary the court seeks to apply the old maxim of English law, verba ita sunt intelligenda ut res magis valeat quam pereat. That maximum, however, does not mean that the court is to make a contract for the parties, or to go outside the words they have used, except In so far as there are appropriate implications or law, as for instance, the implication of what is just and reasonable to be ascertained by the court as a matter of machinery when the contractual intention is clear but the contract is silent on some details."

May v. Butcher Ltd [1934] 2 KB 17 appears as a note to Foley v. Classique Coaches Ltd. This was a case in which the price to be paid was to be the subject of a further agreement between the parties so that there was no concluded contract. The fact that there was an arbitration clause was irrelevant because that was not binding.

Lord Dunedin said at p 21:

"To be a good contract there must be a concluded bargain and a concluded bargain is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties. Because it may leave something which is still to be determined but then that determination must be a determination which does not depend upon the agreement of the parties."

In Scammel (G) and Nephew Ltd v. Ouston [1941] AC 251 it was agreed that the balance of the purchase price or a van could be had on hire purchase terms over a period of two years. It was held that this was too imprecise. Viscount Maugham said:-

"In order to constitute a valid contract the parties must so express themselves that there meaning can be determined with a reasonable degree of certainty. It is plain that unless this can be done it would be impossible to hold that the contracting parties had the same intentions; in other words consensus ad idem would be a matter of mere conjecture. The general rule, however, applies somewhat differently in different cases.

In commercial documents connected with dealings in the trade with which the parties are perfectly familiar the court is very willing, if satisfied that the parties thought they had made a binding contract, to imply terms and in particular terms as to the method of carrying out the contract which would be impossible to supply in other kinds of contract; Hillas & Co v. Arcos Ltd 147 LT 503."

Lord Wright at p 268 said:

"The object of the court is to do justice between the parties and the court would do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to such intention looking at substance and not mere form. It would not be deterred by mere difficulties of interpretation. Difficulty is not synonymous with ambiguity so long as any definite meaning can be extracted. The test of intention is to be found in the words used. If these words considered however broadly and untechnically and with due regard to all the just implications failed to evince any definite meaning on which the court can safely act, the court has no choice but to say that there is no contract. Such a position is not often found."

In Trollope & Colls Ltd v. Atomic Power Construction Ltd [1963] 3 All ER 1035 Megaw J the question was whether there was a contract concluded on a particular date namely 11th April 1960.

Megaw J said:

"In my view, four propositions are apposite in considering whether or not a binding contract came into being.

Proposition (i): there must have been an intention by both parties continuing up to 11th April 1960 to make a contact.

Proposition (ii): at that date, the parties must have been ad idem on all the terms which they then regarded as being required in order that a contract should then come into existence.

Proposition (iii): the terms on which the parties were ad idem must not omit any term which, even though the parties did not realise it, was in fact essential to be agreed, as a term of the contract, if the contract was to be workable as a matter of commercial commonsense. Of course such a term not expressly agreed between the parties, may in certain circumstances be implied by law. Examples are to be found in Foley v. Classique Coaches Ltd [1934] 2 KB 1 and in the decision of the House of Lords in Hillas v. Arcos (1932) 147 LT 503.

Proposition (iv): there must be some manifestation by words, conduct or writing, which indicate with sufficient clarity the acceptance by the offeree of the offer as then made to him, such acceptance complying with any stipulation in the offer itself as to the manner of acceptance. As a part of this proposition, there arises, in this case, what I may describe as 'the subject to contract point'."

At page 20 B Megaw J supported the principle:

"that if the parties have failed to agree upon a term which they have been discussing, even though that term may seem unimportant in the context of the proposed agreement as a whole, and if they had not expressly and/or by implication, dispensed with the necessity for agreement on that term, there would not in law be a binding contract."

However he went on to say at p 20 D:

"If the parties proceed to perform 'the contract'" ('contract' meaning the things to be done under the contemplated agreement) it would only be in the most exceptional circumstances that the court would hold that the parties had not, by implication, dispensed with the necessity to reach an agreement on the previously discussed terms and for making contractual provision in respect of it."

In F.G.Sykes (Wessex) Ltd v. Fine Fare Ltd [1967] 1 Lloyds Rep 53 there was a commercial transaction whereby one party was to breed and provide chicks to nominated growers for purchase as broiler fowls by the other party who was to set up a factory for processing the fowls.

Lord Denning at p57 said:-

"In a commercial agreement the further the parties have a one with their contract, the more ready are the courts to imply any reasonable term so as to give effect to their intention. When much has been done, the courts will do their best not to destroy the bargain. When nothing has been done. it is easier to say that there is no agreement between the parties because the essential terms have not been agreed.

But when an agreement has been acted upon and the parties, as here have been put to great expense in implementing it, we ought to imply all reasonable terms so as to avoid any uncertainties. In this case there is less difficulty than others because there is an arbitration clause, which liberally construed is sufficient to resolve any uncertainties which the parties have left.."

In British Steel Corporation v. Cleveland Bridge and Engineering Company Limited (1984) 24 Build LR 94 construction work had commenced. A letter of intent was sent at the time negotiations were still continuing.

At page 119, Robert Goff J said:

"There can be no hard and fast answer to the question whether a Letter of Intent will give rise to a binding agreement; everything must depend on the circumstances of the particular case. In most cases, where work is done pursuant to a request contained in a Letter of Intent, it will not matter whether a contract did or did not come into existence; because if the party who has acted on the request is simply claiming payment, his claim will usually be based upon a quantum meruit, and it will make no difference whether that claim is contractual or quasi-contractual. Of course, a quantum meruit claim (like the old actions for money had and received and for money paid) straddles the boundaries of what we now call contract and restitution; so the mere framing of a claim on a quantum meruit claim, or a claim for a reasonable sum, does not assist in classifying the claim as contractual or quasi contractual. But where, as here, one party is seeking to claim damages for breach of contract the question whether any contract came into existence is of crucial importance

As a matter of analysis the contract (if any) which may come into existence following a Letter of Intent may take one of two forms - either there may be an ordinary executory contract, under which party assumes reciprocal obligations to the other; or there may be what is sometimes called an 'If' contract i.e. a contract under which A requests B to carry out a certain performance and promises B, that if he does so, he will receive a certain performance in return, usually remuneration for his performance. The latter transaction is really no more than a standing offer which, if acted upon before it lapses, or is lawfully withdrawn, will result in a binding contract.

The former kind of contract was held to exist by Judge Fay QC in Turriff Construction Ltd v. Regalia Knitting Mills Ltd (1971) 9 Build LR 20; this is the type of contract for which Mr Seymour, on behalf of CBE, contended in the present case or course, as I have already said, everything must depend on the facts of the particular case; but certainly on the facts of the present case -and, as I imagine, on the facts of most cases this must be a very difficult submission to maintain. It is only necessary to look at the terms of CBE's Letter of Intent in the present case to appreciate the difficulties. In that letter the request to BSC to proceed immediately with the work was stated to be 'pending the preparation and issuing to you of the official form of sub-contract' being the sub-contract which was plainly in a state of negotiation, not least on the issues of price, delivery dates, and the applicable terms and conditions. In these circumstances, it is very difficult to see how BSC by starting work bound themselves to any contractual performance. No doubt it was envisaged by CBE at the time they sent the letter that negotiations had reached an advanced stage, and that a formal contract would soon be signed; but since the parties were still in a state of negotiation, it is impossible to say with any degree of certainty what the material terms of that contract would be ...

For these reasons, I reject the solution of the 'If' contract. In my judgment, the true analysis of the situation is simply this. Both parties confidently expected a formal contract to eventuate. In these circumstances, to expedite performance under that anticipated contract one requested the other to commence the contract work, and the other complied with that request. If thereafter - as anticipated - a contract was entered into, the work done as requested will be treated as having been performed under that contract; if contrary to that expectation, no contract was entered into, and thus the performance of the work is not referable to any contract of which the terms can be ascertained the law simply imposes an obligation on the party who made the request to pay a reasonable sum for such work as has been done pursuant to that request, such an obligation sounding in quasi-contract, or, as we know say, in restitution. Consistently with that solution, the party making the request may find himself liable to pay for work for which he would not have had to pay for as such if the anticipated contract had come into existence, e.g. preparatory work, which will, if the contract is made, be allocated for in the price of the finished work (cf William Lacey (Hounslow) Ltd v. Davis [1957] 1 WLR 932)."

In Damon Compagnia Naviera SA v. Hapag-Lloyd International SA [1985] 1 WLR 435, Fox LJ said:

"Mr Eder, for Damon, presses upon us two objections to the proposition that a contract was entered into. The first is that no memorandum was ever signed. I would agree with Mr Eder that:

'In each case the court has got to make up its mind on the construction of the documents and on the general surrounding circumstances whether the negotiations were not to have contractual force until a formal document was signed.'

But I see nothing in the present case to lead me to the conclusion that the parties contemplated the execution of the memorandum of agreement as a pre-requisite to the conclusion of a contract. That they contemplated and indeed agreed upon the execution of a written memorandum I accept. But that, of itself, is not conclusive. It is open to the parties to agree to execute a formal document incorporating terms which they had previously agreed. That is a binding contract. In the present case on 8 July 1977 all the terms of the sale were agreed. It seems to me that all the indications are that they were not intended to be subject to the execution of the memorandum."

In the case of CH Rugg & Co Ltd v. Street [1962] 1 Lloyds Rep 364, at page 369 McNair J said:-

"The next point is: is it clear that the negotiations created a binding contract, or were the negotiations all contingent upon the signature by both parties of a formal agreement.

That matter has been considered by me and in the Court of Appeal in two cases which I have been referred to, the first being Sociedade Portuguesa de Navios Tanques Limitada v. Hvalfangerselskapet Polaris A/S [1952] 1 Lloyds Rep 71 and in the Court of Appeal in the same volume at page 407, on which I had occasion to refer to the authorities which I need not now repeat; and again in a rather similar case Zarati Steamship Co Ltd v. Frames Tours Ltd [1955] 2 Lloyds Rep 278, and without repeating what I have said there, it really amounts to this. That in each case the court has got to make up its mind on the construction of the documents and on the general surrounding circumstances whether the negotiations were not to have contractual force until a formal document was signed."

In Love & Stewart Ltd v. Instone & Co Ltd (1917) 33 TLR 475 HL Lord Loreburn at p 476 said:

"He had come to the conclusion that the parties agreed on price and quantity and period of delivery and time of payment, and he thought also on the port of shipment. It seemed also that they intended to make a firm bargain and not to make it conditional upon the completion of the form document. But he had come to the conclusion that they also bargained themselves to have a strike clause, in accordance with a red ink notice which appeared in the Respondent's letters, and was not repudiated by the Appellants. The inclusion of such a term would make no difficulty if it could be said that by usage or by previous dealing or by law these parties, in binding themselves to a strike clause, bound themselves to something certain because id certum est quod certum reddi potest. But no one said, no proof was given that it was so. There might be various kinds of strike clause. No doubt both parties would have agreed as to the strike clause to be inserted in the formal document had the business gone on to completion, but they had not agreed upon such a clause at the time when the business came to be broken off. If, therefore, their Lordships were to say these parties had made a binding contract not subject to the completion of a formal document they must hold that a contract would be binding if the parties were not ad idem with regard to one of the intended terms of it. They were ad idem but there should be such a clause that they were not ad idem as to what it should be The law would not come in and say they must agree on what was reasonable. I would say there was no bargain. That was this case and on that ground the appeal failed."

Lord Parker at p 476 said:

"Further, it was clear that both parties contemplated the execution of a formal contract, and, unless there was some evidence to the contrary the right inference was that this formal contract was to contain a strike and lock-out clause, the terms of which would be agreed between the parties. That alone would show there was no binding agreement had been arrived at."

In British Bank For Foreign Trade Ltd v. Novinex [1949] 1 KB 623, the question arose whether the Plaintiffs were entitled to commission on two transactions relating to the sale of oilskins by company A to the Defendants in advance of which the Defendants had promised to pay commission to the Plaintiffs for an introduction to company A.

The Plaintiffs introduced company A to the Defendants who purchased two parcels of oilskins. The Defendants refused to pay commission as an amount had not been agreed.

Cohen LJ said at p 629:

"I turn to the next question: is this an enforceable statement? A number of authorities have been cited to us, to which I do not propose to refer in detail, because, in my view, the effect of the authorities is stated correctly in the learned judge's judgment where he said:

'The principle to be deduced from the cases is that if there is an essential term which has yet to be agreed and there is no express or implied provision for its solution, the result in point of law is that there is no binding contract. In seeing whether there is an implied provision for its solution, however, there is a difference between an arrangement which is wholly executory on both sides, and one which has been executed on one side or the other In the ordinary way, if there is an arrangement to supply goods at a price "to be agreed" or to perform services on terms "to be agreed" then although while the matter is still executory, there may be no binding contract, nevertheless, if it is executed on one side, that is if the one does his part without having come to an agreement as to the price or the terms then the law will say that there is necessarily implied from the conduct of the parties, a contract that, in default of agreement, a reasonable sum is to be paid.'

With that statement to principle of law I respectfully agree."

In Pagnan SPA v. Feed Products [1987] 2 Lloyds Rep 601 a question arose whether the parties had entered into a binding contract for the sale and purchase of corn gluten feed pellets.

Bingham J said at p 610-12:

"The general principles to be applied in deciding the issue in this case are -to, I think, open to much doubt. The court's task is to review what the parties said and did and from that material to infer whether the parties objective intentions as expressed to each other were to enter into a mutually binding contract. The court is not of course concerned with what the parties may subjectively have intended As Lord Denning M.R. put it in Storer v. Manchester City Council [1974] 1 WLR 1403 at p1408 H:

'In contracts you do not look at the actual intent in a man's mind You look at what he said and did. A contract is formed when there is, to all outward appearances, a contract. A man cannot get out of a contract by saying "I did not intend to contract", if by his words he has done so. His intention is to be found only in the outward expression which his letters convey. If they show a concluded contract this is enough.'"

It is furthermore clear that where exchanges between parties have continued over a period the court must consider all these exchanges in context and not seize upon ore episode in isolation in order to conclude that a contract has been made. There will be some cases where continued negotiations after a contract has allegedly been made will lead to the inference of the parties never in truth intended to bind themselves, as in Hussey v. Horne-Payne (1879) LR 4 App Cas 311. This will the more obviously be so where a term raised by one or other party early in the negotiations had not been the subject of agreement at the time of the alleged contract. Love & Stewart Ltd v. Instone & Co Ltd (1917) 33 TLR 475 is an example of such a case: there, although the parties had agreed that there should be a strike and lock-out clause, they had never agreed what the terms of the clause were to be.

Where the parties have not reached agreement on terms which they regard essential to a binding agreement, it naturally follows that there can be no binding agreement until they do agree on those terms: see Rossiter v. Miller (1878) 3 App Cas 1124 at 1151 per Lord Blackburn. But just as it is open to parties by their words and conduct to make clear that they do not intend to be bound until certain terms are agreed, even if those terms (objectively viewed) are of relatively minor significance, the converse is also true. The parties may by their words and conduct make it clear that they do intend to be bound, even though there are other terms yet to be agreed, even terms which may often or usually be as reed before a binding contract is made: see Love & Stewart supra per Lord Loreburn C at p 476. As Lord Cozens-Hardy MR in Perry v. Suffields [1916] 2 Ch 187 said (at p 192), approving the headnote in Bellamy v. Debenham (1890) 45 Ch.D 181:

"Though when a contract is contained in letters, the whole correspondence should be looked at, yet if once a definite offer has been made, and it has been expected without qualification, and it appears that the letters of offer and acceptance contained all the terms agreed on between the parties, the complete contract thus arrived at cannot be affected by subsequent negotiations. When once it is shown that there is a complete contract, further negotiations between the parties cannot, without the consent of both, get rid of the contract already arrived at."

The parties are to be regarded as masters of their contractual fate. It is their intentions which matter and to which the court must strive to give effect. In this endeavour help is to be gained from the observation of Lord Denning MR in Port Sudan Cotton Co v. Govindaswamy Chettiar [1977] 2 Lloyds Rep 5 (at p 10):

"In considering this question, I do not much like the analysis in the text-books of enquiring whether there was an offer and acceptance, or a counter-offer, and so forth. I prefer to examine the whole of the documents in the case and decide from them whether the parties did reach an agreement upon all material terms in such circumstances that the proper inference is that they agreed to be bound by those terms from that time onwards. That is, I think, the result in Brogden v. Metropolitan Railway Co (1877) 2 App Cas 666 and Hussey v. Horne-Payne (1874) 4 App Cas. 311".

I think, furthermore, that the court must bear constantly in mind the subject matter with which it is dealing. The relevant principles of the law of contract are, no doubt, of universal application, but the proper inference as draw may differ widely according to the facts of the particular case. One case may concern a protracted negotiation, perhaps conducted in writing through lawyers, between parties who have had no dealings of any kind before. Another may concern a series of quick-fire exchanges between professionals, both of them practitioners of the same trade, both having had many previous dealings, and with a wide measure of common experience, knowledge, language and understanding between them. One could not sensibly approach these cases in the same way. Inferences which it would be appropriate to draw in one case might be quite inappropriate in the other. But the court's task remains essentially the same: to discern and give effect to the objective intentions of the parties."

In G. Percy Trentham Ltd v. Archital Luxfer Ltd (1993) 63 Build LR 44, the question for the Court of Appeal was whether the trial judge was correct in holding that the parties had entered into two contracts in respect of Phases 1 and 2. The Defendants carried out the works on both phases in the absence of written subcontracts, stage payments having been made.

Staughton LJ said at p 52:

"Before I turn to the facts it is important to consider briefly the approach to be adopted to the issue of contract formation in this case. It seems to me that four matters are of importance. The first is the fact that English law generally adopts an objective theory of contract formation. That means in practice our law generally ignores the subjective expectations and the unexpressed mental reservations of the parties. Instead the governing criterion is the reasonable expectations of honest men. And in the present case that means that the yardstick is the reasonable expectations of sensible businessmen. Secondly, it is true that the coincidence of offer and acceptance will in the vast majority of cases represent the mechanism of contract formation. It is so in the case of a contract alleged to have been made by an exchange of correspondence. But is not necessarily so in the case of a contract alleged to have come into existence during and as a result of performance. See Brogden v. Metropolitan Railway (1877) 2 App Cas. 666; New Zealand Shipping Co Ltd v. A M Satterthwaite & Co Ltd [1975] AC 154 at p167 D-E; Gibson v. Manchester City Council [1979] 1 WLR 294. The third matter is the impact of the fact that the transaction is executed rather than executory. It is a consideration of the first importance on a number of levels. See British Bank for Foreign Trade Ltd v. Novinex [1949] 1 KB 623 at p 630. The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often make it difficult to submit that the contract is void for vagueness or uncertainty Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or, alternatively, it may make it possible to treat a matter not finalised in negotiations as unessential. In this case fully executed transactions are under consideration. Clearly, similar considerations may sometimes be relevant in partly executed transactions Fourthly, if a contract only comes into existence during and as a result of performance of the transaction it will frequently be possible to hold that the contract impliedly and retrospectively covers pre-contractual performance. See Trollope & Colls Ltd v. Atomic Power Construction Ltd [1963] 1 WLR 333."

In Turriff Construction Ltd v. Regalia Knitting Mills Ltd (1971) 9 Build LR 20 the Defendants sent a letter of intent which concluded by saying: "The whole to be subject to agreement on an acceptable contract." Negotiations for such a contract took place but were fruitless. The Defendants on a preliminary issue were held liable to pay the Plaintiffs for the preparation of the detailed design on the basis of the letter of intent.

It is clear therefore on the authorities that with executed or substantially executed contracts, the court should strive in circumstances as these to find that the work was being done pursuant to a contract.

Mr Martin Collins QC's case is that it is not contended that there was any concluded contract prior to the 11th May 1992 but that by D&S continuing the work after that date and acting as D&S did without further communication, a contract came into being even if is not possible with clarity to identify the particular date.

It is necessary now to go back and consider in greater detail some of the earlier matters.

D&S are a subsidiary of Jamaica Water and Power and as such a JWP company.

The reason why H&H sought a quotation from D&S was that they had tendered to Fairclough building Ltd in respect of the identical work in the previous autumn. Fairclough had in the event been unsuccessful in gaining the main contract.

There is a strong indication that by early February 1992 H&H were under severe time exigencies.

I should read further paragraphs of H&H's letter of the 6th February. I have lettered the paragraphs for convenience:-

"A. The sub-contractor is referred to the principal bills of quantities which are available for inspection by appointment at the above address and is to allow in his tender for all requirements that are applicable to his work whether mentioned in the following extracts or not. NB the word 'contractors' in the Principal Bills of Quantities is to be read as 'sub-contractor' where the context so allows.

B. We enclose for you information one copy of the Bills of Quantities containing the relevant items, which is to be fully priced and extended and should be returned with your quotation.

C. In the event that the successful tenderer be a Subsidiary Company within a group then a guarantee will be required from the Parent Company underwriting the Performance and General Contract/Sub-Contract Liabilities or the Subsidiary Company were the tender to be accepted. The Tenderer should state whether he is a subsidiary of a group and, if so, its full name, address of the Registered Office and its Registration Number.

D. Should you have any queries please contact the writer at the above address who will be pleased to assist you, and if necessary an appointment can be made to view the main Bills of Quantities and such drawings as may be in our possession, as your quotation will be deemed to have included factors resulting from inspection of these drawings, together with a copy of the Parent Company Guarantee required.

E. Please note that Daywork will be calculated in accordance with the 'Definition of the Prime Costs of Daywork carried out under a Building Contract', published by the B.E.C. and R.I.C.S.

F. Your quotation should include 2½% discount and should be returned to reach us no later than first post on the date stated in the covering letter together with a statement of Daywork Rates required in accordance with Clause 2(iv)(c) (i) or (ii)

G. In the event of the acceptance of the sub-contractor's offer and any revised offer resulting from this enquiry, the offer shall be deemed to have been made on the basis of Conditions of the Sub-Contract Ref HHSC, as attached, which conditions shall be the conditions of any resultant sub-contract.

H. Prices for additional periods of hire and rates for daywork are to be quoted. Daywork rates will only be paid when alterations or extras are ordered by us to be carried out on a daywork basis.

I. Kindly return your quotation to this office by 30th February 1992 Should you be unable to submit a quotation, please return all documentation immediately."

As regards paras A and B, D&S never returned a fully priced extended Bill of Quantities with either quotation that they gave nor were they required to do so then or later.

On H&H's case that letter was a sub-contract document and the contents therefore required compliance unless expressly or impliedly waived. Although this matter was not argued before me prima facie the requirements appeared to have been waived.

It must be doubtful however whether in the circumstances H&H ever intended this to be a term of sub-contract.

As regards C, D&S were such a subsidiary. Somewhat obliquely D&S indicated this fact on the quotation but did not give the Parent Company's full name or address or its Registration Number. D&S were never asked to do so in any communication apart from this letter.

Paragraph D on this aspect is somewhat elliptical as it concludes with the words "as the quotation will be deemed to have included factors resulting from inspection of these drawings, together with a copy of the Parent Company Guarantee required."

It is not suggested that there was a copy available for inspection. Probably the requirement was impliedly waived, but the lack of consideration by H&H to which of the requirements in this letter were to be pursued is part of the general unsatisfactory contractual administration shown by them.

The provisions as to Daywork and Daywork Rates in paras E, F and H are to be noted. The importance of a statement of Daywork Rates being provided and provided at the same time as the quotation is emphasised in para E. H&H were not able to identify Clause 2(iv)(c)(i) or (ii).

The requirement as to the 2 1/2% discount contained in para G will be noted. As to para G, H&H's sub-contract conditions are at p 72.

Clause 2 reads:

"The sub-contractor shall be deemed to have knowledge of the terms and conditions of the main contract ... and shall carry out his work under the same terms and conditions where they are applicable."

By Clause 3 the sub-contractor was to comply with all H&H's written instructions.

Clause 6(b) dealt with delay. Clause 9 dealt with payment.

Clause 18 provides:

"Where the sub-contractor designs any part of the works he will be responsible for ensuring that such design is fit for the intended purpose and is co-ordinated with all other works in design and shall indemnify H&H against all losses or damage, consequential or otherwise, caused by such breaches of that condition."

As to para I, H&H brought the date forward to 23 February but it was subsequently put back again to 28 February.

As regards the documents on the collation sheet (Items 1-15) which were to be included as sub-contract documents, I have only been provided with five.

The first is Item 2 - Form of Tender. It is a matter of comment that the work was not in fact put out to tender. This document would appear to be based on one prepared by the Employer which has been altered by H&H to cover the position of sub-contractors. Its format included the following:

"Tender for Subject to the execution of Formal Agreement with the Authority A sub-contract agreement with the main contractor and undertakes as follows: .....

For the sum of .....

We agree that this Tender shall remain open until the expiration of 3 months from the date of this document and shall be conditional upon an agreement being entered into within this period."

The tenderers' signature was required in two places. One was as regards the tender price, the other was as regards certain "declarations". There was no requirement for more than one signatory nor did the document have to be under seal.

The second document is Item 3 - "Contractor's Liability for Design page S/3" which is at p73. Mr Shaw says that this document was included by administrative error.

The third document is item 7 - "Main Contract Preliminary pages 1/1-44". I have been provided with pages 1/1, 1/2, 1/9, 1/10, 1/11, 1/12, 2/11 and 2/12. Preliminaries 1/2 D and E contain provisions regarding "Contractor's Design Liability".

Preliminary 1/9 B sets out the authorities' requirements namely for H&H to provide a comprehensive design and build service.

The fourth was item 9 which was H&H Sub-Contract Conditions to which I have already referred.

The fifth document was item 15 which was H&H's Sub-Contract Design Agreement pages 1-2 inclusive - which is at page 78.

The document recited inter alia:

"That the contractor had entered into an agreement with the sub-contractor (hereinafter called 'the sub-contractor').

The contractor wishes to have a warranty of the design materials and workmanship undertaken or selected by the sub-contractor."

The terms of the agreement were then set out. The agreement was to be under seal. Save in respect of design, it would not appear that the terms added anything to the obligations that the subcontractor would in any event have had to H&H under the subcontract, but of course being under seal the sub-contractor would be liable for twelve and not six years.

As the documents themselves indicated Mr Shaw wanted this document executed at the time but he says that shortly before trial he had learnt that it was inapplicable.

On 28 February D&S by fax gave a "Revised Tender" in the sum of £1.3m "in accordance with the tender documentation dated 6th February 1992".

It is agreed that it was neither "Revised" nor "A Tender" but was a first quotation.

D&S indicated the figures did not include inter alia for the external steam main. On 6 March (p 86) D&S gave three figures; mechanical services £700,000, electrical services £600,000 and "external main" £200,000. They gave in addition certain options. Meetings took place on the 12th and 19 March, the minutes of the former being at p 92 and of the latter in the letter of 27 March.

Since it is not contended that there was any contract prior to 11 May 1992 it is unnecessary to consider all negotiations.

At the meeting on 12 March it was noted that daywork rates would be provided.

On 17 March the overall contract price namely £1,405,128 less 2½% Contractor's Discount was "agreed".

H&H then sent their letter of 25 March part of which I have already read.

I have already dealt fully with the only relevant communications between the parties from then onwards until May 1993.

I am satisfied that by 11 May all the terms save one necessary for a binding sub-contract to come into being were "agreed". That is to say inter alia price, commencement date of the contract, duration of the contract and obligations under the contract. The fact that D&S had no design obligations save for the extremely limited development of design requirement was only reached on 11 May, but it was resolved on that date.

The only matter which was not agreed at that time were daywork rates. It is clear that up to 12 May both parties were regarding agreement on daywork rates as an essential matter. The potential importance of reaching agreement may be guaged from the fact that in the absence of agreement D&S have as yet been unable to recover any payment for the daywork that they have done.

But I have reached the conclusion on the basis of the arguments advanced by Mr Collins QC that if the failure to agree dayworks rates was the only matter which might have prevented the coming into being of a contract, that lacuna would be made good by the implication of a term that D&S should be paid a reasonable rate.

Although H&H's contractual maladministration created a potential for confusion, I think on analysis that that in itself would not have prevented a contract coming into being.

In circumstances where a sub-contractor is asked to tender on the basis that a contract will only come into being when a written contract has been executed and the sub-contractor commences work with all essential terms having been agreed, a court will not ordinarily regard the absence of an executed contract as significant.

Each case must however depend on its own facts. Even without the agreement as to indemnity which was reached between the parties, I would have regarded this as an exceptional case.

I find that the words "subject to the execution of a sub-contract agreement with the main contractor" are not linked to or qualified by the other words in that document which I have emphasised. I find it was with the former words in mind that H&H came to write (1) the first paragraph of their letter of 25 March 1992, (2) the last two paragraphs of their letter of 11 May 1992 and (3)-their letter of 18 May 1993.

But even in the absence of a letter of intent I find, albeit reluctantly, that the agreement reached by the parties in respect of the indemnity makes it impossible to find there was the contract for which H&H contend.

There appears to be no ambiguity. H&H were agreeing an indemnity in respect of "all reasonable expenditure" whereas in the letter of 1 April what D&S sought was an indemnity of "any expenditure". However the word "reasonable" was introduced by D&S in their letter of 6 May 1992 albeit in relation to "costs".

In any even if 11 May letter is to be regarded as a counter-offer that was accepted by D&S in their continuing to work thereafter.

Much reliance was placed by Mr Collins QC on the format of the monthly valuations submitted by D&S. But it has to be borne in mind that this was not something that commenced after 11 May 1992. A valuation (1) in identical form had already been submitted on 28 April 1992 (p 238).

If both parties, five weeks after works have commenced so clearly state that a sub-contract will not come into being until it has been formalised, it is not for a court to interfere and impose its own inclination.

By the expressions "order is not placed", "your formal order is not placed", I am satisfied that in the context of the letters the parties meant until the matter is formalised by the execution of the written sub-contract documents. In the event no "order" was placed.

In these circumstances unless D&S are estopped or otherwise prevented from contending there was no sub-contract, I find that there was no such sub-contract as contended for by H&H, but that there was an agreement which operated at all material times whereby H&H agreed to indemnify D&S in respect of all reasonable expenditure that they might occur.

On the material before me I am unable to reach a conclusion as to what is meant by "all reasonable expenditure".

As was the position in Crown House Engineering v. Amec Project Ltd (1989) 6 Const LJ 141, 48 BLR 32, per Bingham J at pp 57 and 58 of the latter report, a determination of what is meant by these words should be deferred until consideration is given to the quantification of D&S's claim.

Mr Collins QC has argued strongly that if there would otherwise be a finding that there was no contract as contended for by D&S H&H are entitled to rely on representations by conduct or alternatively on convention estoppel to prevent D&S so contending.

However I find that the clear agreement reached on 11 May does not admit of any estoppel consideration.