Hackwood Ltd v Areen Design Services Ltd

A letter of intent may incorporate standard contractual terms even though the parties expect to execute a later formal contract. The question is one of objective construction, assessed by reference to the letter and its surrounding circumstances at the date the interim contract was made. Subsequent conduct is inadmissible where the parties intended the letter to record their agreement.

Incomplete contractual options do not necessarily make an interim agreement too uncertain to enforce. The court should determine the effect of any specified defaults and sever terms that cannot operate because no election was made. An unsuccessful application under section 72 of the Arbitration Act 1996 does not, without more, bar participation in the arbitration.

Hackwood owned a listed property on which Areen Design Services Ltd carried out refurbishment works. The parties began work under a letter of intent referring to the JCT Standard Form Contract with Contractor’s Design 1998 Edition, pending agreement and execution of a formal contract. No formal contract was executed.

After an adjudication, Areen commenced arbitration claiming extensions of time and additional sums. Hackwood applied under section 72 of the Arbitration Act 1996 for declarations that there was no arbitration agreement and that the arbitration was a nullity. Areen cross-applied for a declaration that Hackwood would be debarred from participating if its application failed. The issues were whether the JCT terms and arbitration clause had been incorporated, whether the arbitration was properly constituted, and whether section 72 restricted later participation.

1. Hackwood’s application and Areen’s cross-application were dismissed. Hackwood was party to the arbitration agreement and was not debarred from participating in the arbitration.

2. The 4 June letter created a valid interim contract. On an objective construction, it incorporated the JCT standard terms except where inconsistent with the letter. The reference to the JCT form was effective despite the parties’ continuing negotiations and the use of the future tense. The court followed the approach in James Miller and Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 and Schuler (L) A.G. v Wickman Machine Tool Sales Ltd [1974] AC 235 by excluding subsequent conduct from the construction exercise.

3. The absence of agreed Appendix options did not deprive the interim contract of certainty. Where the JCT form supplied a default, that default applied. Where no default existed, the relevant provision was not incorporated or did not apply. Thus the CIArb president or vice-president was the appointor, the CDM Regulations applied, clause 24 was not incorporated, and the Joint Fire Code did not apply.

4. The reasoning in Amec Capital Projects Limited v Whitefriars City Estate Limited [2003] EWHC 2443 (TCC) did not prevent incorporation. If that decision was intended to establish that the JCT form was unusable in every case where Appendix options were incomplete, the court respectfully disagreed. Its effect depended on the factual context.

5. The arbitrator was validly appointed by CIArb, and the notice of arbitration adequately identified the disputes. Section 72 required an applicant to refrain from participating only until determination of the application. The Act would have used clear words if an unsuccessful applicant were to lose a contractual right to participate. The tribunal therefore had to decide whether participation was appropriate.

6. Hackwood’s election to proceed under section 72 prevented it from seeking determination of the same issues under sections 30 or 32, but did not otherwise bar participation in the arbitration.