City Connect Management Ltd v Telia International Carrier UK & Anor

Where negotiations are expressed to be subject to contract, that qualification ordinarily continues unless removed by express agreement or necessary implication. Courts must construe the parties’ communications in their factual matrix, but must distinguish a concluded agreement from negotiations, provisional understandings and assurances. Limited binding agreements may arise during negotiations, although the wider transaction remains subject to contract. Estoppel does not create an obligation where no contract has been concluded. A claim for abortive costs therefore requires proof of a concluded obligation, including any agreed condition governing when payment becomes due.

City Connect claimed £300,000 and associated professional and contractor costs from Telia arising from an abandoned proposed data-centre development at Westferry Road, London. City Connect alleged that Telia had agreed to pay its abortive costs, or was estopped from denying liability. Telia maintained that all negotiations, including the costs arrangements, remained subject to contract and that any proposed liability would arise only if Telia withdrew from a viable project.

The court determined whether a binding agreement had been made, whether any obligation was conditional on Telia’s withdrawal, and whether estoppel by representation or convention supplied an alternative basis for recovery.

1. The claim was dismissed. The court found for Telia on City Connect’s main claim and its ancillary claims for solicitors’ and contractors’ fees.

2. Contractual meaning was to be determined by reference to the principles stated in Prenn v Simmonds [1971] 1 WLR 1381 and Investors Compensation Scheme v West Bromwich Building Society [1998] 1 All ER 98. The relevant background was admissible, but the evidence did not establish a concluded agreement for abortive costs.

3. The qualification “subject to contract” ordinarily remained effective unless removed expressly or by necessary implication: Cohen v Nessdale [1982] 2 All ER 97. The letters of 16 and 29 October 2001 did not create a separate binding agreement, and the meeting of 26 October was not a negotiating meeting between City Connect and Telia.

4. The parties’ subsequent correspondence showed continuing negotiations over the scope and conditions of any undertaking. The agreement recorded on 5 and 7 November 2001 remained subject to contract. A distinct agreement did arise on 23 November 2001 for Telia to pay Hilcourt’s justified accountancy fees up to £15,000 plus VAT, but that limited agreement did not establish liability for City Connect’s wider claim.

5. If any broader obligation had existed, it would have been conditional on Telia withdrawing from the proposed project. The project failed because Hilcourt refused to accept City Connect’s participation, not because of action by Telia. The condition was therefore not satisfied.

6. The court rejected the estoppel claim on the facts. City Connect was not misled into instructing professionals by a representation that Telia would pay all its fees and expenses. The court indicated, obiter, that estoppel does not operate as a sword to create or waive an obligation where there is no contract.

7. The court accepted the general proposition that a contemplated further written agreement does not necessarily prevent an existing agreement from taking effect, as illustrated by Branca v Cabarro [1947] KB 857. That principle did not assist City Connect because no wider concluded agreement was proved.