It is trite law that in order to have a building contract you usually need agreement as to parties, workscope, price and time
It is reasonably easy (IMHO) to find correspondence, acts or calls which create the offer and acceptance, consideration and intention needed to create a contract.
Even when those requirements for a contract are met, the courts sometimes decide there is no contract because essential terms were not agreed. [T]he terms on which the parties were [of one mind] must not omit any term which, even though the parties did not realise it, was in fact essential to be agreed in order to make the contract commercially.
Although a simple contract can exist with just the four contents quoted above, a contract cannot exist if terms which one or both of the parties consider to be essential have not been agreed. There is a subtle distinction between (Pagnan):
- essential terms = ‘terms without which the contract cannot be enforced’ ie generally required for this sort of contract
- necessary terms = ‘terms which the partners have agreed to be essential for the formation of a binding contract’ ie specifically required for this particular contract, and
- important terms = terms ‘which the courts regard as important’, ie not not required and if omitted do not prevent a contract.
What is Essential?
You can, by your words and actions, make agreeing a specific term essential to your contract. If you do, you MUST ensure you don’t start work until that term is negotiated and agreed.
A few examples will highlight the dangers:
- Haden Young v Laing O’Rourke: the M&E subcontractor started work but never signed a contract as issues relating to collateral warranties and its limit on liability were not agreed. The court said no contract at all.
- RTS v Molkerei: the engineering contractor started work but never signed a contract as it could not agree limits on liability. The court decided the contract was based on MF/1 and the requirement for signature had been waived.
- Arcadis v Hyder: the consultant to a specialist subcontractor started work but never signed one of the three sets of terms sent as it could not agree a limit on its liability. The court originally said a contract with unlimited liability but the Court of Appeal disagreed and held it was limited (but to a cap, to the reasonable costs of repair and renewal – a real brainteaser!)
- Wells v Devani: the trigger event for payment was not agreed before the services were provided. The court said there was no contract.
Your contract strategy should be decided before you start, and set out the terms that are essential for your company and which must be agreed before you start work. Once you start, anything can happen!
What is essential depends on the parties, the project, the type of contract and so on. That’s why you can’t use the same essential terms for every contract. For example, my book on letters of intent (read more) focuses on the four quoted above, whereas my book on writing your 500-word consultant appointment (read more) focuses first on parties, services, price and expectations.
Cases (in order): Hart Investments Ltd v Fidler  EWHC 2857 (TCC); Trollope & Colls Ltd v Atomic Power  1 WLR 333; Pagnan SPA v Feed Products Ltd  2 Lloyd’s Rep 601, Lloyd LJ at p619. Examples: Haden Young Limited v Laing O’Rourke Midlands Limited  EWHC 1016 (TCC); RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG  UKSC 38; Arcadis Consulting (UK) Ltd v AMEC (BCS) Ltd  EWCA Civ 2222; Wells v Devani  EWCA Civ 1106