Adjudication
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KEYWORDS: |
Adjudication, Housing Grants Construction and Regeneration Act 1996, formation of contract, incorporation of standard terms, JCT 1998, Unfair Terms in Consumer Contracts Regulations 1999, jurisdiction, Court of Appeal. |
The judgment of the Court of Appeal on 29 July 2005 in Bryen & Langley Limited v Martin Boston [2005] EWCA Civ 973 is of interest because it provides useful guidance on the factors to be considered in deciding whether or not the terms of standard forms have been incorporated into a contract. The judgment also provides a useful summary of the operation of the The Unfair Terms in Consumer Contracts Regulations 1999 particularly in relation to standard terms and adjudication provisions. The judgment also deals with the summary measure of costs in enforcement proceedings, but that is not an issue directly relevant to adjudication and is not set out below.
The issue was whether an adjudicator had jurisdiction to decide on a claim by B&L.
B&L claimed that the building contract with Boston incorporated the Standard Form of Building Contract, 1998 Edition, Private with Quantities incorporating amendments 1 to 3 produced by the Joint Contracts Tribunal Ltd. B&L requested the adjudicator to rule on its claim for £65,995 under the 11th architect's certificate.
Boston argued that the building works were to a dwelling house of which Mr Boston was a residential occupier so that the Housing Grants, Regeneration and Construction Act 1996 did not provide the adjudicator with jurisdiction. He only had jurisdiction if the JCT Form was incorporated into the contract deriving from Article 5 and clause 41A of the incorporated terms. Boston claimed that the contract did not incorporate the JCT Form and so the adjudicator had no jurisdiction.
The adjudicator ruled in B&L's favour on the issue as to his jurisdiction and made the award on 18 June 2003.
Boston did not comply with the award.
On 16 July 2003, B&L sought to enforce the adjudicator's award and on 25 March 2004 applied for summary judgment.
Boston raised two issues
HH Judge Seymour QC held on 4 November 2004 in Bryen & Langley Limited v Martin Boston [2004] EWHC 2450 (TCC) that on the first issue, contrary to the adjudicator's finding, the JCT Form was not incorporated into the building contract and dismissed B&L's application and claim. He also gave obiter consideration to the second issue, under the 1999 Regulations, and declined to accept Boston's argument. B&L appealed.
The argument in both proceedings were on the basis that the first issue turned exclusively on the true interpretation of a letter of 12 June 2001 written to B&L by Roy Welling Associates, Chartered Quantity Surveyors employed by Boston.
Mr Justice Rimer gave leading judgment of the Court of Appeal.
On 12 August 2000 Boston exchanged contracts with Newthorn Properties Limited for the purchase of two flats at 4 and 5 New Cavendish Street, London W1. The plan was to convert them into one flat. The original contractual completion date was 22 September 2000 by which date Newthorn had agreed to bring the flats to the first fit-out stage. Newthorn engaged McCabe Building (UK) Limited to do that work. There were delays resulting in a deferment of completion of the purchase. Boston agreed with Newthorn that he would employ his own builders to commence the later stages of the fit-out work, the plan being that the converted flat would be ready for occupation prior to completion of the purchase.
Boston engaged an architect David Gallagher Associates to oversee the entire building project and Roy Welling Associates to prepare a bill of quantities. Welling prepared the bill of quantities in discussion with Boston and Gallagher and submitted it to seven building companies to tender for the fitting-out works.
The tender invitation issued by Welling included Preliminaries and a Bill of Quantities as to price. The Preliminaries consisted of a list of project particulars including naming the employer as Boston, the architect as David Gallagher Associates and the quantity surveyors as Roy Welling Associates. Item A20, headed "The Contract", provided that the JCT Form would apply, subject to variations there listed. There followed some eight pages in which references to the various parts of the JCT Form were set out and variations specified.
The first part of the JCT Form incorporated seven Recitals followed by seven Articles of Agreement and item A20 identified the variations to the Recitals and the Articles that were to apply. The Articles were followed by a four-page Appendix, which contained various options and alternatives in respect of which choices were to be made, and also had certain blanks which required to be completed (for example, as to the date for completion). Item A20 also described how the Appendix was to be completed, although as regards the completion date it provided, of necessity, that it was "to be advised".
The stipulated variations made it clear that Article 5 was to be left undeleted, being one providing that
"If any dispute of difference arises under this Contract either Party may refer it to adjudication in accordance with clause 41A."
Item A20 also provided that Article 7B was deleted. That provided:
"Where the entry in the Appendix stating that 'Clause 41B applies' has been deleted then, subject to article 5, if any dispute or difference as to any matter or thing of whatsoever nature arising under this Contract or in connection therewith shall arise between the Parties either during the progress or after the completion or abandonment of the Works or after the determination of the employment of the Contractor it shall be determined by legal proceedings."
Clause 41A was the condition under which disputes or differences can be referred to an adjudicator, clause 41A-1 providing that
"Clause 41A applies where, pursuant to article 5, either Party refers any dispute or difference arising under this Contract to adjudication."
Justice Rimer considered that the tender invitation was on the basis of a contract which would incorporate the JCT Form, as varied by the terms of the invitation, including the provisions in it for the reference to an adjudicator of any dispute or difference.
B&L's tender was the lowest of six tenders at £532,404, their time estimate being 16 weeks. On 25 April 2001 Welling wrote to Boston recommending acceptance. At that stage, McCabes were still working on the first fit-out stage, their work being as yet incomplete, as it still was at 31 May. By then, Mr Boston, who had agreed in principle to accept the B&L tender, had asked Mr Welling to see if B&L could complete their work within 12 to 14 weeks, time being regarded by him as of the essence.
Negotiations about price and the works took place between Welling and B&L, in particular at a meeting on 6 June. That led to the agreement of a revised price of £436,923, followed by a fax from B&L to Mr Welling on 11 June confirming the agreed price and adding that
"Obviously if we are instructed to level the floor it will be a variation, and this will result in a 17 week contract period including an extra weeks prelims which we can put in with the cost of the variation."
On 12 June Welling wrote the all-important letter to B&L:
- "Further to our recent meeting, I can now confirm on behalf of our Client, Mr Martin Boston, that it is his intention to proceed with the works with your Company in accordance with your Tender and subsequent amendments as appended in the sum of £436,923 for a Contract Period of 16 weeks, possession 18th June 2001. The Contract has been varied to include the levelling of the floors - the cost of which has yet to be ascertained. Access to the site is immediately available.
- The Contract will be executed under the Standard Form of Contract 1998 Edition, Private with Quantities and, should the project not proceed, your reasonable ascertainable costs will be recoverable from the Client but will not include any loss of profit or overhead recovery.
- The Contract Documents will be drawn up shortly.
- At our meeting on 6th June, Mr Boston offered a Bonus Scheme (details to be agreed) wherein he would offer payment of £2,000 for every week by which the completion date was brought forward.
- We look forward to working with you on this project, and trust that it is successfully concluded on time, within budget, and to the required quality standard."
A copy was provided to Mr Boston. The appended documents referred to in paragraph 1 showed how the revised contract sum had been arrived at. B&L did not countersign the letter or write a reply by way of a formal agreement to it.
Subsequently contract documents were prepared and signed by B&L but not by Boston who made statements to his advisers requesting changes. Various meetings took place and certificates issued. These events are not set out since it was held that Boston's subsequent internal statements to his own advisers were not relevant, let alone decisive, as to whether a contract had been concluded in June 2001. Mr Justice Rimer observed that although these subsequent events might suggest that B&L would have an arguable case that by 2003 Boston was estopped by convention from denying that he was tied to B&L by a contract in JCT Form, that was not the case that B&L sought to make before Judge Seymour.
The last certificate issued by Gallagher, No, 11, was dated 17 July 2002 and recorded the gross value of work completed by B&L as £660,800 and certified the net sum due for payment as being £115,995. Boston's case was that £50,000 had been paid on terms that B&L would complete the outstanding works immediately, and there would also be an attempt by all parties to resolve their differences at a meeting, failing which there would need to be an arbitration. B&L's stance was that, by contrast, the £50,000 had merely been paid on account of the certified sum.
Boston paid nothing further and so in due course B&L referred to the adjudicator their claim for £65,995.
Before Judge Seymour it was common ground between the parties that the letter of 12 June 2001 evidenced the making of a contract between B&L and Boston and the only issue was whether or not that contract incorporated the JCT Form. Judge Seymour held that the letter was in the nature of a preliminary agreement that looked forward to the signing of an agreement in the future that would incorporate the JCT Form. He decided that the letter in terms envisaged that the project might not proceed (see its paragraph 2), which the judge regarded as making little sense if the acceptance of the terms of the letter bound each side to a contract in JCT Form. The judge was also impressed by the point that the details of the bonus scheme remained to be agreed and that the JCT Form contained blanks and options which needed to be completed and exercised before it was in terms sufficiently certain to constitute a contract.
Judge Seymour concluded, therefore, that the contract evidenced by the letter did not constitute a contract in JCT Form, although he made no findings as to the terms of the contract that it did evidence.
Justice Rimer held that the commercial reality was that, by 12 June 2001, the parties had agreed all the terms, including the terms of the JCT Form, and when B&L started work on the property they were doing so on those terms. He held that Judge Semour was in error in his conclusion that the contract the parties concluded in June 2001 did not incorporate the JCT Form. Justice Rimer preferred the view that it did for the reasons advanced by B&L.
The judgment shows three strands of analysis of the terms of the letter of 12 June 2001 based on the factual context in which the letter was written and work commenced.
Boston submitted that whilst the letter amounted to the making by Boston of a contractual offer, which was accepted by B&L's conduct in proceeding with the preparation for the work and the work itself, it was not and could not be a contract in JCT Form. It was a merely a contract whose terms entitled B&L to a proper reward for work carried out. It could not be a contract in JCT Form, because the letter showed that the terms of any such contract still remained to be agreed, namely terms as to the floor levelling and as to the bonus scheme.
Boston submitted that at 12 June, there was still uncertainty as to the contract period: was it 16 or 17 weeks? The standard form of JCT contract required blanks to be completed and options to be exercised. Until all terms were agreed, there could be no final and binding contract.
B&L stated that the tender invitation spelt out in specific terms the provisions of a contract in the JCT Form. That was the basis on which tenders were invited and the specified terms left nothing to be agreed apart from the price and the contract period. By the time of the 12 June letter all terms had been agreed, the two outstanding issues being specified in paragraph 1.
Justice Rimer considered that by 12 June 2001 all the terms of a building contract in JCT Form had been agreed. So far as possible, all relevant blanks and options had been filled and exercised by Welling's initial tender invitation on the basis of which B&L tendered. By 12 June the contract price and period had also been agreed.
Justice Rimer considered that the points about the floor levelling variation and bonus scheme could not be regarded as elements of the building contract that still remained to be negotiated and agreed: they were simply variations to be negotiated under it.
Clarke LJ held that it made no sense to hold that it was simply agreed that B&L were entitled to a proper reward for work carried out. That was to disregard both the context in which the letter of 12 June was written and the terms of the letter itself.
As to context, Clarke LJ considered that before the letter was written the parties had agreed the essential terms of the contract. The tender was on the basis of the detailed invitation to tender and thus on the basis of the terms of the JCT Form as set out in the invitation to tender. The JCT Form could have been filled out to include the detailed nature of the work, the price and the agreed period of 16 weeks. There was nothing further to agree. The commercial reality was that, by 12 June, the parties had agreed all the terms, including the terms of the JCT Form, and when B&L started the specified work in August they accepted the offer contained in the letter on those terms and carried out the work on the basis of them. It made no commercial sense to hold that when they started the specified work they did so on a simple quantum meruit basis. There is nothing in the wording of the letter that suggests that Mr Boston was offering to pay for unspecified (or even specified) work on a quantum meruit basis.
Clarke LJ considered that the first sentence of paragraph 1 of the letter made it clear that it was Boston's intention to proceed with "the works" and to do so "in accordance with your Tender and subsequent amendments as appended [ie to the tender] in the sum of £436,923 for a Contract Period of 16 weeks, possession 18th June 2001". There was no suggestion that it was at any stage the intention of either party that the work would be carried out on any basis other than that in the tender, subject no doubt to any later variations that might be agreed.
Clarke LJ considered that the second sentence of paragraph 1 suggested that the agreement had been reached on a specific basis, subject to a variation in respect of the levelling of the floors which would be costed in the future. Construed in the light of what had gone before, it was agreed in principle that the 16 weeks would be extended to cater for that work.
Clarke LJ considered that paragraph 4 which referred to a bonus scheme was simply a possible variation of the contract to be negotiated under it.
B&L submitted that the letter amounted to a contractual counter-offer which B&L accepted by its conduct in embarking upon the project. The letter expressly envisaged the future signing of a formal contract in JCT Form but pointed out that there was nothing either in that, or in the parties' prior negotiations, to suggest that they were operating on a "subject to contract" basis. The mere fact that the parties envisage the formalisation of their agreement by way of a formal contract did not preclude the conclusion, if the facts justified it, that they were intending an immediate contractual commitment to each other on the terms later to be incorporated into that formal contract.
For that last proposition, B&L relied on the decision of the Court of Appeal in Harvey Shopfitters Ltd v ADI Ltd [2003] EWCA Civ 1757; [2004] 2 All E.R.982.
Justice Rimer observed that the facts in Harvey bore a striking similarity to those of the instant case. The appellant builders had tendered to carry out certain works in accordance with a 1984 JCT form of contract. The employers' architects told the appellants that the tender was acceptable, the appellants started work on 6 July 1998 and on the next day the architects wrote them a letter confirming the employers' intention to enter into a contract with them at the tender price. The letter said the contract documents were being prepared and it also specified the main terms. The letter continued:
"I have been instructed by our client to request that you accept this letter as authority to proceed. If, for any unforeseen reason, the contract should fail to proceed and be formalised, then any reasonable expenditure by you in connection with the above will be reimbursed on a quantum meruit basis. Any such payment would strictly form the limit of our client's commitment and our client would not be subject to any further payment of compensation for damages for breach of contract."
In Harvey the work continued but no formal IFC 84 contract was ever signed. It was common ground that there was nothing left for the parties to agree. The work proceeded to completion and the appellants obtained an adjudicator's award for their final account. The litigation arose because on the appellants' bid to enforce the award they amended to assert for the first time a claim to a quantum meruit. The Recorder rejected the claim, holding that, by the letter of 7 July 1998, the parties had entered into a contract in IFC 84 form. The Court of Appeal dismissed the appeal, Latham LJ saying in paragraph 9:
"The recorder was entitled to conclude, as Dyson J had done in [Stent Foundations Ltd v. Carillion Construction (Contracts) Ltd (2000) 78 Con LR 188], that the mere fact that the letter giving instructions to proceed envisages the execution of further documentation, does not preclude the court from concluding that a binding contract was none the less entered into, provided that all the necessary ingredients of a valid contract are present. ... Having concluded that the parties had agreed to a fixed-sum contract under IFC 84 conditions, it is not surprising that the recorder held that the words in question, construed conjunctively, mean what they say. In other words, the only circumstance in which the appellants were to be entitled to a quantum meruit was if the contract did not proceed and was not finalised. The contract did proceed."
Justice Rimer considered that the instant case was arguably a stronger one than the Harvey case. In Harvey, the quantum meruit entitlement was to exist if "the contract should fail to proceed and be formalised ...". On one view, that could be said to mean that the quantum meruit entitlement was to exist if formal contracts were not signed, which they were not. The Court of Appeal agreed with the recorder that the two conditions in the relevant phrase had to be construed conjunctively and that it was sufficient that the contract had proceeded, even if it had not been formalised (or finalised, as Latham LJ put it).
Justice Rimer held that in the instant case, paragraph 2 of the letter of 12 June was in simpler form. It referred to B&L's right to recover certain costs "should the project not proceed" but neither party suggested that that was a reference to a failure to sign formal contracts. The parties accepted that the "project" did proceed, and that it did so as soon as B&L started work on it in June. The parties agreed that the costs referred to in paragraph 2 were merely costs in respect of any preparatory work carried out by B&L prior to commencement of such work.
Justice Rimmer then examined further the point that particularly impressed Judge Seymour. The point was that the 12 June letter envisaged a formal contract being signed in the future, being a formal contract that would incorporate the JCT Form, and so it was inconsistent to regard the contract created by the letter and its acceptance as itself incorporating that Form.
Justice Rimer held that the mere fact that two parties propose that their agreement should be contained in a formal contract to be drawn and signed in the future did not preclude the conclusion that they had already informally contractually committed themselves on exactly the same terms. If they negotiated on a "subject to contract" basis such a conclusion would be precluded. But otherwise it would not, or at least may not. The Court of Appeal in Harvey was not applying any novel principle of law.
In Rossiter v Miller (1878) 3 App. Cas. 1124, at 1151, Lord Blackburn said:
"So long as they are only in negotiation either party may retract; and though the parties may have agreed on all the cardinal points of the intended contract, yet, if some particulars essential to the agreement still remain to be settled afterwards, there is no contract. The parties, in such a case, are still only in negotiation. But the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does not, by itself, shew that they continue merely in negotiation. It is a matter to be taken into account in construing the evidence and determining whether the parties have really come to a final agreement or not. But as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is completed."
Parker J made a statement to similar effect in Von Hatzfeldt-Wildenburg v. Alexander [1912] 1 Ch. 284, at 288, 289:
"It appears to be well settled by the authorities that if the documents or letters relied on as constituting a contract contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognize a contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal contract can be ignored."
Justice Rimer observed that the decision in Harvey was an example of a case in which the court found that the creation of the further, formal contract was not a condition of the bargain the parties had finally concluded. It was no more than an expression of their desire as to manner in which the transaction upon which they had agreed should go through.
Justice Rimer held that the same conclusion could and should be drawn as to the parties' intentions in the instant case. The commercial reality was that, by 12 June 2001, they had agreed all the terms, including the terms of the JCT Form, and when B&L started work on the property in June they were doing so on those terms.
Clarke LJ considered that paragraph 2 simply provided for the contract to be executed and was a reference to the formal written contract on the JCT Form which the parties had contemplated from the outset would be the basis upon which the work would be carried out.
Clarke LJ considered that paragraph 3 simply confirmed that the contract documents were to be drawn up shortly. It did not follow from the fact that the parties intended to sign a formal contractual document that they had not entered into contractual relations on particular terms. All depended on the circumstances.
Justice Rimer observed that paragraph 2 posed a theoretical obstacle in the path to the conclusion that an acceptance by conduct of the terms of the letter constituted an immediate binding contract in JCT Form. Justice Rimer posed the questions:
B&L submitted that paragraph 2 was focusing merely on that limited period between the writing of the letter and commencement by B&L of work on the property. It was submitted that during that period Boston was impliedly retaining a right to resile, in which event he would compensate B&L for their reasonable costs of any preparatory work they had performed.
Justice Rimer observed that the parties agreed that once B & L started their work, the contract had "proceeded". He held that the the best rationalisation of the latter part of paragraph 2 was that Boston was impliedly reserving a right to resile from the contract until such time as B&L had actually started work. He did not, of course, do so.
Clarke LJ considered that the second part of paragraph 2 was not easy to understand but it plainly contemplated some kind of interim payment if the project did not proceed. The project did proceed and both parties agree that there was a binding contract when work began, so that it was not necessary to decide precisely what the sentence meant. If it were necessary to do so, it meant that Boston was impliedly reserving a right to resile from the contract until such time as B&L had actually started work.
Pill LJ considered that on 12 June, it was known that the fit-out works for which B & L had tendered could not start immediately. B&L were on site doing other work. In those circumstances it was predictable that an arrangement would be made (as in Harvey) as to what was to happen if the contract work did not proceed. Piller LJ held that the effect of the relevant words in paragraph 2 of the letter was to give Mr Boston an option to resile from the contract until B&L had commenced the contract work and, in the event of him doing so, to give limited protection to B&L. They were to recover reasonable costs but not "loss or profit or any overhead recovery". The words did not lead to the conclusion that incorporation of the JCT Form depended on the creation of a further, formal contract.
The Regulations applied to "unfair terms in contracts concluded between a seller or a supplier and a consumer" (Regulation 4(1)), and B&L conceded that a building contractor and an employer such as Boston were a supplier and a consumer for the purposes of the Regulations.
Justice Rimer observed that the Regulations superseded, but were to much the same effect as, an earlier set of 1994 Regulations, and were made in order to give effect to Council Directive 93/13/EEC.
Regulation 5, headed "Unfair Terms", provides, so far as material:
"(1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties? rights and obligations arising under the contract, to the detriment of the consumer.
(2) A term shall always be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term.
(3) Notwithstanding that a specific term or certain aspects of it in a contract has been individually negotiated, these Regulations shall apply to the rest of the contract if an overall assessment of it indicates that it is a pre-formulated standard contract.
(4) It shall be for any seller or supplier who claims that a term was individually negotiated to show that it was.
(5) Schedule 2 to these Regulations contains an indicative and non-exhaustive list of the terms which may be regarded as unfair?."
Regulation 6, headed "Assessment of unfair terms", provides so far as material:
"(1) Without prejudice to regulation 12 [not material for present purposes], the unfairness of a contractual term shall be assessed, taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all other terms of the contract or of another contract on which it is dependent."
Schedule 2 to the Regulations, headed "Indicative and Non-Exhaustive List of Terms which may be Regarded as Unfair", includes terms which have the object or effect of:
"(b) inappropriately excluding or limiting the legal rights of the consumer vis-à-vis the seller or supplier or another party in the event of total or partial non-performance or inadequate performance by the seller or supplier of any of the contractual obligations, including the option of offsetting a debt owed to the seller or supplier against any claim which the consumer may have against him; ...
(i) irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract; ...
(q) excluding or hindering the consumer's right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, unduly restricting the evidence available to him or imposing on him a burden of proof which, according to the applicable law, should lie with another party to the contract."
On the basis that the June 2001 contract did incorporate the JCT Form, Boston submitted that Justice Jackson was wrong to reject the argument that the adjudication provisions in such contract were unfair terms for the purposes of the Unfair Terms in Consumer Contracts Regulations 1999. Boston identified two features of the JCT Form that it submitted was "contrary to the requirement of good faith, [caused] a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of [Mr Boston]" (Regulation 5(1)):
Boston submitted that none of the provisions had been individually negotiated, they were inherently unfair to consumers such as Boston and they were therefore not binding on Boston. If Boston was right in its submission based on the 1999 Regulations, then the consequence was that the adjudication provisions were not binding on Boston (see Regulation 8).
Justice Rimer observed that at the heart of Boston's submission was the proposition that the purpose behind the introduction of such provisions into building contracts was, if only temporarily, to assist the contractor's cashflow at the expense of the employer. Boston referred to May LJ's remarks to this effect in paragraph 2 of his judgment in Pegram Shopfitters Limited v Tally Weijl (UK) Limited [2004] 1 BLR 65. Boston also placed reliance on the obiter conclusions of HH Judge Toulmin CMG QC in paragraphs 129 to 132 of his judgment in Picardi v Cuniberti [2003] 1 BLR 487 to the effect that clauses such those above were unfair and caused a significant relevant imbalance.
However in Lovell Projects Ltd v Legg and Carver [2003] 1 BLR 487, HH Judge Moseley QC explained in paragraph 29 of his judgment why he did not regard the adjudication provisions in the contract before him as causing any significant relevant imbalance; and that in any event a term will only be unfair for the purposes of Regulation 5(1) if the imbalance it caused was "contrary to the requirement of good faith", which in the case before him it was not.
Importantly Justice Rimer did not consider whether or not the above terms caused a "significant imbalance" in the respective rights of B & L and Boston to the detriment of Mr Boston. He considered that such an exercise would answer the issue. Regulation 5(1) provided that a term which has not been individually negotiated will only be relevantly "unfair" if it caused the relevant imbalance "contrary to the requirements of good faith".
Regulation 6(1) required the assessment of the unfairness of a contractual term to take account (inter alia) of "all the circumstances attending the conclusion of the contract ....".
Lord Bingham of Cornhill explained in Director General of Fair Trading v. First National Bank plc [2002] 1 AC 481, at 491, that the
"object of the [1994] Regulations and the Directive is to protect consumers against the inclusion of unfair and prejudicial terms in standard-form contracts into which they enter, ..."
and at page 494 he further explained the requirement of "good faith" in the predecessor of Regulation 5(1) in the 1994 Regulations. He said:
"The requirement of good faith in this context is one of fair and open dealing. Openness requires that the terms should be expressed fully, clearly and legibly, containing no concealed pitfalls or traps. Appropriate prominence should be given to terms which might operate disadvantageously to the customer. Fair dealing requires that a supplier should not, whether deliberately or unconsciously, take advantage of the consumer?s necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position or any factor listed in or analogous to those listed in Schedule 2 to the Regulations. Good faith in this context is not an artificial or technical concept; nor, since Lord Mansfield was its champion, is it a concept wholly unfamiliar to British lawyers. It looks to good standards of commercial morality and practice. Regulation 4(1) [whose terms were essentially the same as those of Regulation 5(1) of the 1999 Regulations] lays down a composite test, covering both the making and the substance of the contract, and must be applied bearing in mind the objective which the Regulations are designed to promote."
Justice Rimer considered that in assessing whether a term that had not been individually negotiated was "unfair" for the purposes of Regulation 5(1) it was necessary to consider not merely the commercial effects of the term on the relative rights of the parties but, in particular, whether the term has been imposed on the consumer in circumstances which justified a conclusion that the supplier has fallen short of the requirements of fair dealing. The situation at which Regulation 5(1) was directed was one in which the supplier, who will normally be presumed to be in the stronger bargaining position, had imposed a standard-form contract on the consumer containing terms which were, or might be said to be, loaded unfairly in favour of the supplier.
Justice Rimer observed that the Picardi case was one in which the terms had been imposed by the claimant architect (in that case, the supplier).
Justice Rimer observed that in the Lovell case the terms had been imposed on the supplier by the employers' (i.e. the consumers') architect, the judge finding not only that they caused no significant imbalance to the employers, but that nor in the circumstances in which the contract came to be made was there any question of any lack of good faith or fair dealing by the supplier contractor.
Justice Rimer observed that HH Judge Thornton QC arrived at a similar result, in like circumstances, in Westminster Building Company Limited v Beckingham [2004] 1 BLR 265.
Justice Rimer considered that Boston faced exactly the same difficulties in relation to the Regulation 5(1) argument as did the consumers in the Lovell and Beckingham cases. The relevant provisions were not imposed upon Boston by B & L, the supplier. It was Boston (the consumer), acting through his agent Welling, who imposed them on the supplier, since they were specified in Welling's original invitation to tender.
Justice Rimer was prepared to assume that, in practice, Boston played no part in the preparation of that invitation and that he did not receive any advice from Welling on the provisions in question; and it was clear that there was no individual negotiation over them with B & L. In principle, however, Boston had the opportunity to influence the terms on which the contractors were being invited to tender, even though he might not have taken it up; and there was therefore at least an argument available to B&L under Regulation 5(2) to the effect that the above terms did not fall within the first nine words of Regulation 5(1) at all. Justice Rimer expressed no view on that last point, on which there had been no argument, and assumed that the terms did so fall.
Justice Rimer held that even so, the argument that there was any lack of good faith or fair dealing by B&L with regard to the ultimate incorporation of these terms into the contract was repugnant to common sense. Boston, by his agent, imposed the above terms on B&L. It was not for B&L to take the matter up with Boston and ensure that he knew what he was doing: they knew that he had the benefit of the services of a professional, Welling, to advise him of the effects of the terms on which he was inviting tenders. Justice Rimer held that there was no lack of openness, fair dealing or good faith in the manner in which the June 2001 contract came to be made.
Justice Rimer held that, like Justice Seymour, Boston's case under the 1999 Regulations was not made out.
It was held that the contract was made on the terms of the JCT Form including the adjudication clause. B&L's appeal was allowed against Judge Seymour's dismissal of its summary judgment application and claim.
The judgment provides useful guidance on the interpretation of "letters of intent" which anticipate formal contract documents being prepared. The interpretation of paragraph 2 of the letter of 12 June 2001 depended significantly on the fact that B&L could not proceed immediately on issue of the letter. It appears that B&L had been on site since June doing so-called shell and preparatory works that were supposed to have been carried out by McCabes. The effect was to defer until 13 August the start date of the fit-out works for which they had tendered. This fact allowed Boston the opportunity to "resile". The instant case differs from Harvey in that the letter in that case was also stated to be an instruction to proceed.
On the matter of the Regulations, the Court of Appeal confirmed that the Regulations do not bite if it is the consumer itself which has imposed the standard terms of the contract containing adjudication and notice of withholding provisions. In that case, in particular where the consumer is advised by professional advisers, there was no lack of good faith on the part of the contractor.