Introduction
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.
Background
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
- whether the
building contract had incorporated the JCT Form; and
- if it did,
whether he was bound by the adjudication provisions. Boston's case was that
they were unenforceable against him by reason of the Unfair Terms in
Consumer Contract Regulations 1999.
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.
The Facts
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.
ISSUE A: Did the contract incorporate the JCT Form?
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.
(i) Outstanding Issues
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.
- Levelling Floors: B&L stated that paragraph 1 referred to the contract having been
"varied to include levelling of the floors - the cost of which has yet
to be ascertained" but that this was not a feature
that still remained to be agreed such as to reduce the state of play to
one in which the parties were still in a mere state of negotiation.
The item was merely a typical variation to the terms of
that contract which would be agreed during its course. That submission
was supported by the fact that B&L's fax of 11 June had
referred to the proposed floor works as being a variation requiring a
17-week contract period. The letter of 12 June still, however, proposed
a 16-week period. It was, therefore, confirming the terms of the basic
contract and treating the floor works as an extra to be negotiated.
- Bonus Scheme: B&L also stated that the bonus scheme
mentioned in paragraph 4 of the letter was not a term of the building
contract that remained to be agreed. The bonus scheme
was no more than a proposal to discuss a variation of a
contract whose terms were by then agreed, a variation in which both
sides had an interest. Justice Rimer added that paragraph 3 of the letter had
just said that "The Contract Documents will be drawn up shortly" and so
could be said to point away from any thought that they could only be drawn
up once the bonus scheme details had been agreed. It could also be said
that it would be odd if Boston were regarding the proposed bonus
scheme as central to the basic building contract. Time was from his
viewpoint of the essence, the letter reflected that B&L was to have
immediate access to the property and it was obvious that he wanted prompt
action.
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.
(ii) Formal Documents
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.
(iii) Provision for Failure to
Proceed
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:
- If each
side was thereupon so bound, in what circumstances was paragraph 2
contemplating that the project might not proceed?
- If a binding contract
was created, then B&L was obliged to do the work, just as Boston
was obliged to pay for it. It might not be a contract in respect of
which specific performance would be available, but a breach by either
side would give rise to a claim for damages. How was paragraph 2 to be
squared with that?
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.
ISSUE B: Unfair Terms in Consumer Contracts
Regulations 1999
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.
(i) 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--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."
(ii) Features Causing
Significant Imbalance
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)):
- Article 5 and and 41A provided for the resolution of disputes by adjudication.
- Clauses 30.1.1.4, 30.1.1.5 provided that unless the employer issues a withholding notice
specifying the amount that it intended to withhold from an amount due
under a certificate, that amount must be paid without deduction.
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".
(iii) 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.
Judgment
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.
Commentary
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.
| 