Alstom Signalling Ltd. (t/a Alstom Transport Information Solutions) v Jarvis Facilities Ltd

Where parties have concluded a contract containing an agreement in principle to settle a matter later, failure to agree the detailed machinery does not necessarily make the contract void for uncertainty. This is particularly so where the outstanding matter is subsidiary, the contract has been performed, and the parties have provided a mechanism for resolving disputes or differences.

The court may determine the outstanding machinery by applying an objective standard of fairness and reasonableness. It may consider the commercial background and the parties’ negotiations when resolving the difference, although those materials may be subject to stricter limits when construing the written contract itself.

Alstom engaged Jarvis to carry out substantial subcontract works on the Sunderland Direct Project. The parties operated under unsigned subcontract documents and eventually agreed that the Issue 3 documents governed their relationship retrospectively.

The documents recorded agreement in principle to a pain/gain mechanism, but left its detailed operation unresolved. Alstom sought a declaration that Jarvis had to bear a proportion of the pain suffered by Alstom under its main contract with Railtrack. Alternatively, Alstom sought payment on a quantum meruit basis reflecting that mechanism. The central issues were whether a binding subcontract existed, whether the court could determine the unresolved mechanism, and what relief was available.

1. Formation and contractual effect. The parties concluded a subcontract in the terms of the Issue 3 documents, despite the absence of a signed agreement. The documents contained an unequivocal agreement in principle that Jarvis would participate in pain/gain sharing, although the precise mechanism remained to be agreed.
2. Power to resolve the outstanding difference. The unresolved detail did not prevent the formation or operation of the subcontract. Clause 45.3 empowered the Technology and Construction Court to determine differences as well as disputes. That contractual jurisdiction, together with the parties’ agreement in principle and the completed performance, enabled the court to determine a fair and reasonable mechanism.
3. Applicable approach. The parties were under implied primary obligations to make reasonable endeavours to agree the mechanism. Neither party could defeat the arrangement by refusing to negotiate or by refusing to submit the issue to adjudication or the court. The court was not confined to Alstom’s proposed direct proportion of the main-contract pain or to the documents in the subcontract. When determining the difference, it could consider the background, the development of the negotiations, and the parties’ competing arguments.
4. Existing documents. The subcontract documents showed agreement in principle but no agreement on the detailed mechanism. Alstom’s preferred formula had consistently been rejected by Jarvis and was not imposed. The later compromise between Alstom and Railtrack could not bind or adversely affect Jarvis.
5. Secondary case. The absence of the detailed pain/gain mechanism did not make the subcontract price incomplete or unenforceable. If a quantum meruit became relevant, the agreed rates and prices would be the starting point. The court could consider evidence about the risk-free nature of payment and the effect of Jarvis’s performance on Alstom’s overall financial result.
6. The court invited further submissions or agreement on the mechanism before issuing a final determination and directed that a modified declaration be prepared.

The judgment records that Jarvis had obtained an adjudication decision on the pain/gain issue, but the present proceedings were not a formal appeal from that decision. The High Court determined the contractual issues and invited further submissions on the precise mechanism.