A contract is not a state of mind

This story will ring a bell with all of you constructors. When I heard about the recent court case Anchor 2020 Ltd vs Midas Construction Ltd, I muttered “Here we go again”. Then “Nothing ever changes”, followed by “Don’t call these building folk silly”. The best line in the case is where the judge says, “The parties were not lawyers and even if they were, their analysis of the true contractual position might not be correct.” 

Another good line is where the judge says of the employer, “I agree that during this cross-examination, he did stick to what he says was his belief that the contract had been made on 21 July, as if it were some kind of mantra. To that extent his evidence was not persuasive. However, ultimately, what he thought as to the existence of the contract, or not, or when it was made, is not in any way determinative. It is a matter for the court to decide objectively.” Not a bad note to put on your shaving mirror. In short, it doesn’t matter a jot what you think the contract says or intends or even whether it exists; no court will take your word for it, nor arbitrator, nor adjudicator. 

Then, another letter of intent; then another  and then another – wait, I’ve lost count. Silly? No, no; it’s the way we have done things year in, year out. That’s what we do

In 2013 Anchor 2020 Ltd got a tender in from Midas Construction Ltd: £18m-plus for a retirement community complex in Yateley, Hampshire. By completion, two-and-a-half years later, the final account was nudging £33m. 

The trouble began before a sod was dug. Having got a tender, there were still some bits and bobs to sort out. Tempting here to say “silly”. Tempting to say: don’t go out for bids until the last inch of bits and bobs and door handles and taps have been decided. But no, no, not silly – it’s the way we do things. And, by the way, it was a design-and-build contract, leaving the contractor with “design development” – that well-worn phrase – still to do. Silly again? No, no: it’s the way we do things. And because bits and bobs still had to be decided and sorted, Anchor and Midas went ahead with – wait for another tempting “silly” – a letter of intent. No, no, not silly; it’s the way we do things.

Then, lo and behold, another letter of intent was done to cover for a larger lump of work, while the contractual content of the putative contract was identified and agreed. Then, another letter of intent; then another  and then another – wait, I’ve lost count. Silly? No, no; it’s the way we have done things year in, year out. That’s what we do.

The employer then put all the documents together, said that here was the agreed contract, and signed it. But when the contractor, who by now had done some £6m worth of building, picked through the bundle, he said: “No, no … there are bits missing.” He didn’t quarrel with what was there; he quarrelled with what was missing. So, the dated lump of papers of 21 July 2014 went unsigned by the contractor, but signed by the employer. Missing among the papers was a thing called a risk register. This billet-doux listed those risks that were to be borne by the design-and-build contractor’s camp and not in the contract sum. Silly to leave it out? No, no; it’s the way we do things in construction.

Meanwhile, Midas just pressed on with building and whistling a happy tune, since there is a real probability that real people who build things don’t give a fig about all this contractual stuff; they build the building anyway. Silly? No, no; it’s the way we do things. Months of toing and froing by men in suits went on and on. Solicitors piled in. The works went on. The solicitor’s letters were called heavy-handed. Eventually, the employer agreed to include the risk register. 

You can guess that pursuant to the everyday pecking order of employer and contractor, the employer was quite brassed off with the Midas folk being sniffy about the content of the contract. All the ingredients are lined up for a really good dispute. As for the risk register, it had a whopping big item missing from the risk list. It is a design-and-build contract, with lots of things yet to be sorted. Can you win the prize for what is missing from the risk list? Missing is a great big lump of cash for the legal costs of the inevitable dispute. Silly to even think of falling out? No, no; it’s the way we do things.

When the pair came to court the judge had to decide whether a contract had come into existence at all. He said it had. And now here comes the law bit. He went to the leading case, RTS vs Molkerei [2010] – it was up there in the Supreme Court – and went to more cases besides. 

He concluded: “The general principles are not in doubt. Whether there is a binding contract between the parties and if so, upon what terms, depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. 

“Even if certain terms of economic or other significance to the parties have not been finalised, objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement.”

A bricklayer in my pub breathed a sigh of relief, saying: “I knew all that – silly me”. 

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple