Balfour Beatty Regional Construction Ltd v Van Elle Ltd

A letter of intent may create a binding interim contract covering works identified by the objective contractual context, even where the detailed scope and price derive from earlier documents. A later formal subcontract may retrospectively supersede the interim arrangement and govern work already performed. The court must interpret the contract objectively, considering the available factual matrix, the language used and the commercial consequences. Subsequent conduct may assist in determining whether a contract was formed, although subjective intention generally cannot determine construction. Where a liability limitation distinguishes warranty claims from negligence claims, its scope depends on the language and structure of the provisions. Costs reasonably and properly incurred in replacing defective foundations may in principle extend beyond the immediate cost of the replacement work.

Balfour Beatty Regional Construction Ltd engaged Van Elle Ltd to carry out CFA piling for a construction project. The parties first exchanged quotations and a letter of intent, followed by extensive piling works and a formal subcontract. Settlement was later discovered in piling beneath the North Carousel, giving rise to potential remedial and indemnity claims.

The court was asked to determine whether the North Carousel works were governed by a separate contract formed from Van Elle’s quotation dated 28 May 2012, by the letter of intent, or by the later formal subcontract. It also considered, on a non-binding basis, the proposed scope of Van Elle’s standard liability clauses.

1. Preliminary Issue 1 allowed in favour of BB. The formal subcontract governed the North Carousel piling works. Van Elle’s standard terms and conditions were not incorporated, so Preliminary Issue 2 did not arise for determination.
2. The court applied an objective approach to contractual interpretation. The relevant background included the parties’ common plan for a single subcontract covering all piling, the measured-rate pricing structure, the project and contract references, the invoicing history, and the commercial context. Subjective intentions were generally irrelevant, and the alleged private understanding did not alter the objective meaning of the documents.
3. The 28 May quotation did not create a separate contract for the North Carousel works. Van Elle had sought a written commitment or letter of intent before commencing work. The quotation came from Van Elle, there was no written acceptance by BB, the invoices referred instead to the earlier quotation and letter of intent, and the parties operated under a single contractual and project number.
4. The letter of intent, accepted by Van Elle’s letter of 11 June 2012, constituted the relevant interim contractual commitment. Objectively construed, its reference to the CFA piling works required for the main works included the North Carousel. The financial limit of £363,600 operated as a contractual maximum capable of increase and did not define the works by reference only to the VHAM Building.
5. The later subcontract was intended to be the parties’ single governing contract. Its descriptions of the works, references to associated external works, the retrospective commencement date, manuscript amendments concerning further works and follow-on bills of quantities, and the parties’ continuous invoicing all supported that conclusion. The manuscript amendments qualified the stated price and duration so that they applied only to part of the overall works.
6. The observations concerning clauses 6.6 and 6.7 were expressly non-binding. Clause 6.6 was arguably directed to valid warranty claims, while clause 6.7 was likely directed to negligence claims and certain other contractual breaches. Under limb [a], recoverable replacement costs could in principle include investigation, design and removal works reasonably and properly incurred to enable defective piling to be replaced. Limb [b] was directed in principle to removing and accommodating people, not relocating operational structures. A liability to the employer for costs falling within limb [a] would not necessarily be excluded merely because the main contractor paid those costs by indemnifying the employer.

First-instance decision. The judgment does not state any prior appellate history.