Ove Arup & Partners International Ltd. & Anor v Mirant Asia-Pacific Construction (Hong Kong) Ltd. & Anor

Contract formation is assessed objectively from all relevant words and conduct. A separate agreement may incorporate clearly identified terms of a model contract even though the principal agreement has not yet been concluded. That incorporation does not, without more, create or acknowledge the principal agreement. Essential terms left unresolved, and conduct not unequivocally referable to the asserted contract, prevent formation by conduct. Related agreements may therefore have different terms. A contractual requirement that a claim be formally made before expiry of a liability period may be satisfied by written correspondence; court proceedings or an arbitration notice are not invariably required.

Mirant and its subsidiary claimed damages from Arup after two power-station foundations failed. The appeal concerned preliminary issues decided by His Honour Judge Toulmin CMG QC in the Technology and Construction Court on 11 June 2003.

The judge held that the design agreement was formed by a letter of intent dated 29 May 1995 and did not incorporate the FIDIC five-year liability period or £4 million liability cap. He also held that the ground-investigation agreement did not incorporate the FIDIC conditions, but that the claim letter would have been formal under the relevant clause if those conditions applied. Arup appealed on the design agreement, the ground-investigation agreement and the adequacy of the claim letter.

May LJ gave the judgment of the court, with Jacob LJ and Auld LJ agreeing.

1. Disposition. The appeal was allowed on issue 4(d), concerning the ground-investigation agreement, and dismissed on issues 2 and 5, concerning the design agreement and the contractual claim requirement.
2. Contract formation. Formation required an objective assessment of all the parties’ exchanges and conduct. Acceptance had to be unequivocal and referable to an offer containing terms essential to the agreement. Silence could contribute when accompanied by a course of conduct, but unexpressed subjective intention did not suffice. The approach in Pagnan v Feed Products Limited [1987] 2 Lloyds LR 601 was applied. Carmichael v National Power plc [1999] 4 All ER 896 confirmed that oral exchanges, conduct and evidence of the parties’ understanding could be relevant, although the evidence remained subject to objective evaluation.
3. Ground investigation. Mr Elliott’s initialling of the proposal beside “OK” created a written agreement. Clause 1 clearly incorporated the Revision B FIDIC terms relevant to that agreement, notwithstanding that the main design agreement had not been concluded on those terms. The clause was not meaningless and did not require a blue-pencil deletion.
4. Design agreement. The ground-investigation agreement did not create or acknowledge a design agreement on Revision B terms. The payment schedule, which the parties treated as important, remained unresolved. No later event or course of conduct was unequivocally referable to a design agreement on those terms. The court declined to infer contractual symmetry merely because the agreements were related. The reasoning in The Pina [1992] 2 Lloyds LR 103 was a helpful illustration.
5. Formal claim. Clause 17 did not require proceedings or an arbitration notice. A claim could be formally made in written correspondence. The letter of 2 May 2001 was sufficient for that purpose.

• Court of Appeal (Civil Division): In [2003] EWCA Civ 1729, the appeal was allowed on issue 4(d) and dismissed on issues 2 and 5.
• Technology and Construction Court: His Honour Judge Toulmin CMG QC decided the preliminary issues on 11 June 2003. He held that the design agreement was on the terms of the letter of intent, that the ground-investigation agreement was not subject to the FIDIC terms, and that the claim letter would have been formally sufficient if those terms applied.