Malcolm Charles Contracts Ltd v Crispin & Anor

A construction contract may be binding before execution of a formal document if the parties’ words and conduct objectively show agreement on the terms essential to the bargain. The parties’ subjective intentions are irrelevant. An agreement may remain binding although drawings or other details are subject to contractual variation procedures. Acceptance may be established by conduct, including handing over possession or keys where that conduct objectively indicates an intention to be bound. A reference to a document as a letter of intent, or its description as pre-contract minutes, does not prevent contractual formation where the surrounding circumstances show that the recorded terms were agreed.

Malcolm Charles Contracts Ltd, a building contractor, sought to enforce an adjudicator’s decision awarding it £104,852.88 for costs and lost profit following the defendants’ cancellation of proposed building works at their property.

The defendants disputed jurisdiction, contending that no contract had been formed and therefore no adjudication agreement existed. The claimant relied principally on an agreement reached at a meeting on 9 August 2011, alternatively on the defendants’ delivery of the property keys on 7 September 2011. The central issue was whether the parties had objectively concluded a contract on the terms of the JCT HOO, including its adjudication provisions.

1. Contract formation. The court applied the objective test stated in RTS v Molkerei Alois [2010] BLR 337: the question was what the parties communicated by words and conduct, and whether that objectively demonstrated an intention to create legal relations and agreement on the essential terms. Subjective beliefs about whether a contract existed were irrelevant.
2. Construction contracts generally require agreement, or an objectively ascertainable mechanism, concerning the scope of work, price or rates, payment arrangements and timing. The absence of final detail does not necessarily prevent formation where the parties have agreed a baseline and a mechanism for dealing with changes, as recognised in ERDC Group Ltd v Brunel University [2006] BLR 255.
3. The court rejected the defendants’ reliance on the fact that formal documents had not been signed. A contract can be conditional on execution of a formal document only where the parties make that intention clear. No such condition was established. The description of the minutes as a letter of intent and as pre-contract minutes did not prevent them recording agreed contractual terms.
4. The court found that, objectively construed, the parties agreed on 9 August 2011 the scope of the works, commencement and completion dates, contract sum, payment and valuation mechanisms, change procedure and the use of the JCT HOO terms. The minutes accurately recorded that agreement. Alternatively, the defendants’ delivery of the keys on 7 September 2011, against the background of the issued contract documents and imminent commencement of works, constituted acceptance by conduct.
5. The JCT HOO terms incorporated an adjudication agreement. The claimant therefore established a binding contract and adjudication agreement. The adjudicator had jurisdiction, and the adjudicator’s decision was enforced.