Commercial Management (Investments) Ltd v Mitchell Design and Construct Ltd & Anor

A party may contract on another party’s written standard terms of business even though only some of those terms are incorporated. A contractual provision overriding terms that are “applicable” is not confined to inconsistent terms; it can override a standard term dealing with the same subject matter. A notice provision requiring claims to be notified within 28 days of a defect becoming capable of being seen, together with a one-year long-stop, was unreasonable under the Unfair Contract Terms Act 1977 for latent defects in ground-treatment work. The court must assess practicability and the parties’ reasonable expectations at the time of contracting.

The claimant had acquired an interest in a warehouse constructed by the first defendant. The second defendant had carried out vibro-compaction and piling works under sub-contracts with the first defendant and had given a warranty benefiting the claimant. The dispute concerned settlement and alleged defects discovered years after completion.

The court tried preliminary issues concerning incorporation of the second defendant’s standard terms, the effect of an amended order clause, the application of the Unfair Contract Terms Act 1977, and the effect of a contractual time-bar on claims by the claimant and the first defendant.

1. Contract formation and incorporation. The order was a counter-offer because it introduced the first defendant’s terms. The second defendant materially amended the reference to the DOM/2 conditions and amended the overriding clause. The first defendant knew of and accepted both amendments. The second defendant’s written standard terms were incorporated only to the extent that the first defendant’s terms did not prevail.
2. Construction of the overriding clause. “Applicable” meant relevant to performance or remedies, and did not require inconsistency with a term in the first defendant’s conditions. The deleted reference to inconsistency could be considered because it remained physically contained in the executed document and assisted construction of otherwise ambiguous retained wording. The first defendant’s indemnity clause and the second defendant’s clause 12(d) concerned the same subject matter to the extent that clause 12(d) imposed time limits on indemnity claims. It therefore overrode clause 12(d) in that respect. The court left open its application to other claims for which the first defendant’s terms made no express provision.
3. UCTA. If clause 12(d) had been incorporated, the contract would have been on the second defendant’s written standard terms for section 3(1) purposes. Incorporation of the whole set of standard terms was unnecessary; incorporation of the relevant standard exclusion or limitation term was sufficient, adopting the reasoning in Pegler Ltd v Wang (UK) Ltd [2000] BLR 218.
4. Reasonableness. The second defendant bore the burden under section 11(5). The 28-day period ran from the appearance of a defect, meaning when it was capable of being seen, rather than when the contractor knew or ought to have known of it. Ground-treatment defects were commonly latent, progressive and concealed, while the contractor was not the building’s user. It was therefore generally impracticable to comply with the notice condition. The bargaining-strength and special-order factors were neutral; there was no inducement; knowledge of the term’s existence did not establish knowledge of its effect; and the practicability factor strongly favoured the first defendant. Clause 12(d) would not have satisfied the requirement of reasonableness.
5. Disposition. The court answered the preliminary issues accordingly. Clause 12(d) provided no defence to the first defendant’s claim or to the claimant’s claim under the warranty, since the claimant could be no better off than the first defendant.