GMC Utilities Group Ltd v Sumitomo Electric Industries Ltd

A binding contract may arise during negotiations marked or begun subject to contract if the parties later expressly or impliedly waive that condition. The court assesses objectively what the parties communicated and whether they intended to be bound on agreed terms.

A later escrow agreement does not necessarily supersede an earlier agreement regulating the parties’ substantive rights. Its provisions may instead operate as an administrative mechanism and be read consistently with the earlier agreement. Where parties agree that court or arbitral proceedings satisfy a contractual condition, validly commenced court proceedings may suffice even if the underlying contract contains an arbitration clause.

GMC, a subcontractor, and SEI, the main contractor, disputed the effect of correspondence dated 8 November 2024 concerning payment of a performance-bond demand into escrow. An escrow agreement was subsequently executed on 19 December 2024.

GMC sought declarations that no binding agreement had been reached, that the later escrow agreement superseded the earlier terms, and that SEI was not entitled to payment. SEI counterclaimed for payment on the basis that GMC had not satisfied the agreed conditions by 7 March 2025. GMC had issued Part 7 proceedings on 5 March 2025. SEI also sought a stay of those proceedings under the arbitration clause in the subcontract.

1. Part 8 claim and counterclaim. The correspondence of 8 November 2024 created a binding agreement. Although negotiations had begun subject to contract, the parties’ subsequent communications objectively showed that the condition had been waived. The absence of a final escrow account on that date did not prevent agreement, and the undertaking to pay into an agreed escrow account was enforceable rather than an unenforceable agreement to agree.
2. The later Escrow Agreement did not supersede the 8 November agreement. Its entire-agreement provision concerned the operation of the escrow account and the relationship with the escrow agent. The earlier agreement was a Supplemental Agreement. The escrow provisions were administrative and could be read consistently with the earlier agreement.
3. The reference in paragraph 6 of the 8 November agreement to commencement of court or arbitral proceedings was satisfied by GMC’s Part 7 proceedings issued on 5 March 2025. The parties were free to select that criterion. The existence of an arbitration clause did not make the court proceedings void from the outset, nor did the agreement require arbitration proceedings to be commenced exclusively.
4. SEI’s entitlement to payment therefore did not arise. GMC’s declarations were declined insofar as they assumed that no court proceedings had been commenced, and SEI’s counterclaim was rejected. The escrow sum remained in the escrow account.
5. GMC’s alternative estoppel case would also have failed because the alleged representation was not sufficiently clear and unqualified and was not objectively intended to be relied upon.
6. Part 7 proceedings. The subcontract’s arbitration clause covered the whole of GMC’s Part 7 claim, including the escrow-related declaration. The Escrow Agreement’s jurisdiction clause did not supersede that arbitration clause. A stay was therefore mandatory under section 9 of the Arbitration Act 1996.
7. Paragraph 6.2 of the witness statement relied on additional declaratory relief not pleaded in the Part 8 claim and was struck out under CPR Rule 3.4(2)(a).