Haden Young Ltd v Laing O'Rourke Midlands Ltd

Contract formation is assessed objectively from the parties’ words and conduct viewed as a whole. Parties may intend to be bound while leaving terms for later agreement, but no contract arises where they have treated an unresolved term as essential to formation. Conduct consistent with working towards a future contract does not necessarily amount to acceptance or representation that a contract already exists.

Estoppel cannot create a contractual relationship, supply an essential term, or operate as a substitute for agreement. Where negotiations fail, negligence cannot impose contractual standards concerning price, scope, timing or performance. The performing party may nevertheless recover reasonable remuneration on a quantum meruit.

Haden Young Limited carried out mechanical and electrical works for Laing O’Rourke Midlands Limited on the Arena Coventry project. No formal sub-contract was signed. The parties nevertheless exchanged draft terms, negotiated liability caps and warranties, and performed the works while expecting that a sub-contract would be concluded.

The preliminary issues concerned whether a sub-contract existed, whether Haden Young was estopped or bound in equity, whether it owed contractual-like duties of care, and whether it was entitled to reasonable remuneration. The court also considered the effect of a later Further Services Agreement and its reservation of the parties’ positions on the existence of the earlier sub-contract.

1. No sub-contract. The parties had treated agreement of the consequential-loss cap under the sub-contract and the linked warranty liability cap as essential. Those matters were never agreed. The parties also intended that the sub-contract would be formed only by a signed and executed document. Neither condition was satisfied.

2. The objective approach in Pagnan S.P.A. v Feed Products Limited [1987] 2 Lloyd’s Rep 601 was adopted. The correspondence and conduct must be considered as a whole. The fact that work has begun, or that detailed matters remain unresolved, does not itself determine whether a contract exists. The principles in G Percy Trentham Ltd v Archital Luxfer [1993] 1 Lloyd’s Rep 25 did not make the unresolved liability provisions inessential in this case.

3. There was no acceptance by conduct of Haden Young’s proposed £1.5 million cap. Laing O’Rourke’s communications continued to propose a £7.5 million stepped-down limit, and later negotiations showed that the cap remained unresolved. Conduct which is compatible with an anticipated retrospective contract is insufficiently clear to establish acceptance.

4. Estoppel by representation or convention could not create the missing contract or determine the essential liability terms. Applying SmithKline Beecham v Apotex Europe [2006] 4 All ER 1078, Baird Textiles v Marks & Spencer plc [2002] 1 All ER (Comm) 737 and Stent Foundations Ltd v Carillion Construction (Contracts) Ltd 78 Con LR 188, the parties’ performance was explicable as anticipation of a future contract. Haden Young was not bound in equity.

5. No duty of care could fill the contractual gap by imposing standards for price, scope, timing or performance. Haden Young was entitled to reasonable remuneration for work performed before 19 August 2005 on a quantum meruit, pursuant to Trollope & Colls Ltd v Atomic Power Construction Ltd [1963] 1 W.L.R. 333 and British Steel Corp v Cleveland Bridge and Engineering (1981) 24 BLR 94.

6. Clause 21 of the Further Services Agreement preserved the parties’ positions concerning the earlier works. It did not affect the separate agreement governing the Further Services, nor would the existence of an earlier sub-contract have displaced that agreement, although a damages claim for breach might have remained available.

First-instance determination of agreed preliminary issues in the High Court (Technology and Construction Court). No appellate history is stated in the judgment.