Felton Construction Ltd v Liverpool City Council

A binding construction contract may arise despite outstanding detail, provided the parties objectively manifested agreement on sufficiently certain terms. Commercial incompleteness does not itself prevent enforceability, and the court may construe documents, correct errors and apply contractual machinery to give effect to the bargain. Those principles remain subject to the overriding requirement of an offer and acceptance. Where a letter of intent and related tender documents objectively establish the parties, works, price, contractual form and agreed or notified savings, subsequent failure to execute the formal contract does not prevent a binding agreement. Work and variations must then be valued under the incorporated contractual terms, including the relevant JCT provisions.

Felton Construction Ltd claimed further payment from Liverpool City Council for construction works at Stockton Wood Primary School. Felton contended that the parties had not agreed the scope and price with sufficient certainty and that it was therefore entitled to payment on a quantum meruit basis.

The court ordered a trial of preliminary issues concerning the contractual relationship, the valuation terms, estoppel and the existence of an arbitration clause. The dispute centred on the Council’s letter of 25 April 2003 accepting Felton’s tender at a reduced price, Felton’s signed acceptance, the tender documents and subsequent savings and addendum documentation.

1. Contract formation. There was a binding and enforceable contract evidenced by the Council’s letter of 25 April 2003 and Felton’s signed response of 30 April 2003. The parties had objectively agreed the works, price, duration and contractual framework. The absence of a later executed formal contract did not prevent formation.
2. Certainty and construction. The court applied the objective approach to agreement and construction. A contract may be enforceable without meticulous detail, and a difficult clause is not necessarily meaningless. The court may select the interpretation which best matches the parties’ adopted language and may allow contractual machinery to resolve provisional sums, variations and errors. These principles did not displace the basic requirement of offer and acceptance.
3. Agreed savings. The contract price was £2,981,800. The priced Bills of Quantities, tender, drawings, specifications and relevant savings were incorporated. The external works, ironmongery, pin boards and contingency adjustment did not make the agreement void for uncertainty. The ironmongery reduction was a provisional reduction to be dealt with under the contractual provisions for provisional sums and variations.
4. Valuation. The works, including variations, were to be valued under the amended JCT Standard Form, the priced Bills of Quantities, tender drawings and specifications. Provisional sums were omitted from valuations unless work falling within them was instructed by the architect.
5. Other preliminary issues. The estoppel issue was not argued and was unnecessary because the contractual case determined the relationship. The contract included the arbitration provisions in Article 7A and clause 41B of the JCT form, with the appointment machinery identified in clause A20 of the Bills of Quantities.

Felton’s contention that there was no binding contract and that valuation should proceed on a quantum meruit basis was rejected.