Tesco Stores Ltd. v Costain Construction Ltd & Ors

A letter of intent may create a binding contract, but its effect depends on the parties’ objectively ascertained intention and the words used. A court will not impose a more extensive contract merely because the parties acted as though formal documentation would later be completed.

An estoppel by convention cannot create a contract which the parties did not make, or add terms which they did not agree. A contractor’s tortious duty ordinarily extends to work which it undertook personally, including construction and design decisions actually made by it. A professional’s concurrent duty of care may extend to economic loss where responsibility for the relevant services has been assumed.

Limitation runs from the date on which actionable loss is sustained, not necessarily from a later event which aggravates the loss.

The judgment determined preliminary issues in two related actions arising from a fire which seriously damaged a Tesco supermarket. Tesco claimed against Costain, the original contractor, concerning the construction of the store and later inspections and reports on fire-stopping measures. It also claimed against Peter Hing and Jones, the architects, concerning design and inspection obligations. Costain brought related Part 20 claims against the architects.

The principal issues concerned whether Tesco and Costain had concluded a design-and-build contract on Tesco’s standard terms; the scope of contractual and tortious duties; estoppel and novation; the accrual of causes of action; the effect of a contractual clause concerning execution under seal; and whether either Costain or the architects had inspected the store in 1993.

1. Contract with Costain. Tesco and Costain made a simple contract when Costain countersigned and returned Tesco’s letter of 20 March 1989. The contract required Costain to commence the construction works and provided for payment if the contemplated formal contract was not concluded. The Issue 7 main contract was never made. The parties’ conduct, prior dealings and anticipated formal documentation did not establish a design-and-build contract on Tesco’s standard terms.

2. The contract did not impose a twelve-year limitation period. Its implied terms required Costain to perform construction work it undertook in a good and workmanlike manner and, insofar as Costain itself made a design decision, to ensure that the element designed was reasonably fit for its intended purpose.

3. Estoppel. Estoppel by convention could not be used to establish that an unmade contract had been made, to add unagreed terms to an existing contract, or to create a cause of action. Costain was not estopped from denying the alleged standard-form contract, design-and-build status, a twelve-year limitation period or a novation.

4. Tortious duties. Costain owed Tesco a duty to exercise the care and skill reasonably expected of a competent building contractor in work which Costain itself performed, including construction and design decisions actually made by it. The duty extended to economic loss. The wider duty contended for, which would have made Costain responsible for design work undertaken by others and for the consequences of a fire unrelated to its conduct, was not established.

5. Costain accepted that, by undertaking the 1993 inspection and making the letters of 19 October 1993 and 27 May 1994, it owed a duty to inspect fire barriers with reasonable skill and care and to ensure that the statements in the letters were accurate. The detailed scope of that duty was left for the later trial.

6. Accrual. A cause of action accrued when Tesco sustained real economic loss. For the original construction, that might have been at practical completion if the store was then worth less because of the missing fire protection, or when the cost of providing the protection exceeded its cost at construction. For the inspection reports, accrual occurred when reliance caused the cost of remedial work to increase, not automatically when the fire occurred.

7. PHJ. The architects’ contractual obligations were construed against the background that their designs would be implemented by an experienced contractor. The agreement was not in fact a specialty, but clause 9.1 required the parties to treat the limitation position as though it had been executed under seal, giving a twelve-year period. The alleged additional implied terms were rejected. PHJ had no continuing obligation to review completed design without a reason requiring review and no obligation to inspect concealed work.

8. The evidence established that Costain alone inspected the store in autumn 1993. PHJ assumed no duty of care to Tesco or Costain in 1993 or 1994.