Gurney Consulting Engineers (A Firm) v Pearson Pension Property Fund Ltd & Anor

A contract is not concluded merely because the parties have agreed substantial commercial terms. The court must consider the correspondence and conduct objectively, while recognising that the parties may require execution of a formal document before becoming bound. Where the parties intend a formal agreement to be the contractual instrument, and further terms remain for negotiation, a draft is ordinarily an invitation to treat rather than an offer. An offer contained in an executed draft requires acceptance in the manner contemplated. Performance may be relevant to contract formation, but it does not displace an objectively established intention that no binding agreement exists until formal execution.

The claim concerned consulting engineering services provided by Gurney Consulting Engineers for refurbishment works at property in Beauchamp Place, London. The defendants contended that Gurney’s appointment incorporated the Association of Consulting Engineers’ standard conditions, including an arbitration clause. Gurney contended that negotiations had never produced a concluded contract and sought a declaration that no valid arbitration agreement existed.

The central issue was whether the parties had objectively agreed to be bound before executing a formal ACE agreement, and whether all material terms had been settled. The court considered the written negotiations, disputed telephone conversations, draft contractual documents and subsequent conduct.

1. The court applied the principles summarised by Lloyd LJ in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyds Rep 601. The correspondence had to be read as a whole. The parties could intend not to be bound until a condition was fulfilled, until further terms were agreed, or until a formal document was executed. Conversely, they could intend to be bound immediately despite further matters remaining open. The parties were the masters of their contractual fate.

2. The objective approach described by Steyn LJ in G. Percy Trentham Ltd. v Archital Luxfer Ltd. [1993] 1 Lloyds Rep 25 was also relevant. The court assessed the reasonable expectations of sensible business people, including the significance of performance. Those considerations did not overcome the parties’ demonstrated intention in this case to contract only through formal execution.

3. The defendants’ letter of 13 May 1998 was not an offer capable of acceptance. It contemplated the production of a first draft of an appointment for signature and indicated that further terms might be considered or negotiated. Gurney’s letter of 18 May was a reaction within continuing negotiations, not an acceptance or a fresh offer.

4. The draft ACE memorandum sent on 23 June 1998 was an invitation to treat. It contemplated comments, completion of client details and formal execution. No response accepted it. The later telephone discussion concerned the terms of a document to be formally prepared and executed. Gurney’s signed memorandum sent on 5 November was an offer, but the defendants never executed it. The subsequent termination letter rejected rather than accepted that offer.

5. No contract was concluded. The court granted Gurney’s requested declaration that there was no valid arbitration agreement between Gurney and the defendants. Further submissions were reserved on whether any additional relief was necessary or appropriate.