Binding terms: Arcadis Consulting (UK) Ltd v AMEC (BSC) Ltd [2016]

Can a letter of intent constitute a binding contract?

The facts

AMEC, who acted as the specialist concrete subcontractor, engaged Arcadis to carry out certain design works on a car park in anticipation of a wider agreement between the parties that did not materialise. It was subsequently alleged that the car park was defective and may need to be demolished and rebuilt at significant cost.

Arcadis denied liability, but also said that even if they were found to be liable, there was a contract in respect of the design works that had been agreed, under which Arcadis’ liability was capped at c.£610,000. AMEC argued that there was no contract in place – only letters of intent – and that even if there were a contract, it did not incorporate the limitation of liability provision.

The decision

The Court held that the parties had entered into a binding contract based on the letter of intent. The contract did not incorporate any of the terms and conditions discussed in correspondence as they were never agreed on. As a result, there was no term providing for a cap on Arcadis’ liability. The Court concluded: "I am conscious that, on my analysis, there is no limitation of [Arcadis’] liability, despite the fact that every set of proposed terms and conditions included some sort of provision to that effect (albeit in radically different terms). … This case starkly demonstrates the commercial truism that it is usually better for a party to reach a full agreement (which in this case would almost certainly have included some sort of cap on their liability) through a process of negotiation and give-and-take, rather than to delay and then fail to reach any detailed agreement at all."

Why is this important?

The decision confirms that the Court will not incorporate express terms into a contract which are not the subject of a clear and binding agreement. As a matter of law, the Court could not construe an unequivocal and binding agreement as incorporating any one in particular of the competing versions of the draft agreement.

Any practical tips?

Make sure you reach a full and detailed agreement! Failing to do so can have serious consequences, such as the absence of appropriate protections, including exclusions and caps on liability.