Cleveland Bridge UK Ltd v Sarens (UK) Ltd

A contract may be formed during performance even where the parties’ exchanges cannot be analysed precisely as offer and acceptance. The court must identify objectively the terms on which the parties were ad idem. Acceptance by conduct requires conduct clearly referable to the offer and not reasonably capable of another interpretation. Silence or continued performance will not necessarily amount to acceptance where material terms remain unresolved.

Contractual interpretation is concerned with the objective meaning of the language used, read in its contractual and admissible factual context. Prior negotiations and subjective intentions are excluded. A term is not implied merely because it appears fair or commercially desirable. Where liquidated damages are agreed for completion of a whole subcontract, the provision will not ordinarily extend to separate sectional milestones without contractual language supporting that result.

CBUK engaged Sarens to provide cranes and ancillary equipment for bridge works on the Heysham M6 link road project. The parties exchanged several versions of a subcontract. The documents referred to liquidated damages limited to 10% of the subcontract price, but Sarens sought further agreement on the rate and mechanism for applying them.

Sarens contended that a 10% cap, and subsequently a liquidated damages regime, had been agreed through the parties’ correspondence and Sarens’ continued performance. It also relied on estoppel, course of dealing and alternative contractual constructions. CBUK contended that the subcontract was formed on the terms of the third iteration, except that the liquidated damages provision remained unresolved. The court determined what terms had been agreed and whether any damages regime, cap or estoppel arose.

1. Formation. The third iteration of the subcontract, provided on 11 November 2014, was an offer which was accepted to the extent that the parties were ad idem. Applying the objective approach, and having regard to the work performed by both parties, the subcontract was formed on those terms, subject to paragraph 10 concerning liquidated damages.
2. Unresolved damages provision. Sarens’ emails of 10 and 17 November required an agreed rate or mechanism for applying liquidated damages. CBUK did not accept that qualification. Its email of 18 November proposing 2% per week for five weeks was a counter-offer, not evidence of a concluded agreement. Sarens’ continued work was not clearly referable to acceptance of that counter-offer. The parties therefore never reached a concluded agreement on damages, paragraph 10 was not part of the contract, and no subsequent liquidated damages agreement was made.
3. Alternative construction. If paragraph 10 had formed part of the subcontract, its natural meaning would have limited Sarens’ liability for liquidated damages to 10% of the subcontract price. It would have applied to completion of the subcontract works as a whole, rather than individual bridges or Costain key dates, subject to a failure concerning an individual bridge causing liability for delay to overall completion.
4. Estoppel. The correspondence did not constitute a sufficiently clear representation or shared assumption that the disputed terms had been agreed. Sarens had commenced work before the alleged representations and did not establish detrimental reliance or unconscionability.
5. Counterclaim. The indemnity in clause 1(c) extended in ordinary language to liability to Costain and was not confined to third parties other than the client. A settlement payment was not, as a matter of principle, outside the concepts of liability, claim, damages, costs or expenses. Sarens’ counterclaim was dismissed.

First-instance decision of the High Court (Technology and Construction Court). The judgment records an earlier interlocutory judgment refusing Sarens permission to amend its defence, but that decision concerned the same litigation and was not appealed in the present judgment.