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Subcontract held to govern works commenced before execution

Icons HouseClare Mendelle and James Goldthorpe examine a case which considered which terms governed liability for works carried out prior to the execution of a contract.

Balfour Beatty Regional Construction Limited v Van Elle Limited [2021] EWHC 794 (TCC)

Case Background

Balfour Beatty, the main contractor on a sub-sea cable manufacturing facility in Newcastle, engaged Van Elle as sub-contractor to perform piling works. One section of these works was largely completed by Van Elle after Balfour Beatty had accepted Van Elle’s quotation and issued a letter of intent, but before the parties entered into a subcontract. After the works were completed, defects were discovered which required Balfour Beatty to carry out remediation works.

Balfour Beatty claimed damages for breach of contract against Van Elle but Van Elle argued that the completed works were not covered by the executed subcontract. Instead, they alleged that the works were governed by a contract that was formed when its earlier written quotation was accepted by Balfour Beatty by its conduct. This alleged contract (unlike the subcontract) incorporated Van Elle’s standard terms and conditions, which Van Elle considered significantly limited its liability for losses.

The court had to decide whether the works were governed by the executed subcontract, or by Van Elle’s standard terms and conditions.

Decision and Reasoning

The judge found in favour of Balfour Beatty and held that the subcontract had governed all the works, including those carried out prior to execution.

Having assessed the contemporaneous documentary evidence, he concluded that the parties had intended for there to be only one contract. Crucially, Van Elle had requested a letter of intent on several occasions and was not content to proceed with the works based on the quotation which they later argued formed the basis of a contract. The requested letter of intent included the early works; therefore, the subcontract also included those works.

Commentary

While not a surprising decision, it is helpful for employers who need to commence works under a letter of intent before a contract is finalised as the courts are likely to find that any interim contract is superseded by a subsequent formal contract.

Both employers and contractors should also take note of the judge’s obiter remarks on the efficacy of Van Elle’s standard terms and conditions limiting liability, which he suggested may be a lot less effective than they might hope them to be.

Clare Mendelle is a professional support lawyer and James Goldthorpe a paralegal at Sharpe Pritchard LLP


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