Spartafield Ltd v Penten Group Ltd

By this action, the Claimant developer (“Spartafield”) primarily seeks declaratory relief against the Defendant contractor (“Penten”) to the effect that it ultimately entered into a contract on the terms of and subject to the JCT Intermediate Contract with Contractor’s Design 2011. Penten contends that no such contract was concluded but that, instead, the parties continued to operate on a letter of intent which, it is common ground, had already been agreed between the parties. The essential issue, therefore, is whether the contractual letter of intent was ultimately replaced by the conclusion of a subsequent contract on the JCT form.

These proceedings were issued following a decision of an adjudicator who concluded that the parties were operating on a letter of intent and not on the JCT Intermediate Contract with Contractor’s Design. In proceedings to enforce that adjudication decision Coulson J concluded that the parties were bound by that conclusion until it was reviewed in subsequent litigation (Footnote: ¹).

Thereafter, a second adjudicator determined a sum which was due from Spartafield to Penten by reference to the terms of the letter of intent. The current position is that the sum so determined was the subject of summary judgment by way of enforcement but was also subject to a stay of execution. The sum was paid into Court by Spartafield pursuant to an Order of Mr Jonathan Action Davis QC sitting as a Deputy Judge of the High Court in yet further, separate, proceedings to enforce the second decision.

In the present action, Spartafield also seeks to have both adjudication decisions set aside. During closing submissions it was agreed between the parties that I should not deal with the consequential impact of my judgment on the two adjudications. That will be the subject of further argument as necessary in light of this judgment.

In his judgment, Coulson J described the “almost maniacal desire of the parties to issue notices of adjudication against each other” and that “this impulse seems to have overwhelmed every other consideration”. It is fair to say that the proceedings before me were conducted with no less vigour than was apparent to him at that time.

As a condition of obtaining a stay of execution of the second adjudicator’s decision, Spartafield also agreed to issue and pursue the present proceedings with expedition. Subject to what I say below, the parties and their advisors are to be commended for the speed with which they were able to make sure this action was ready for trial. The Claim Form was issued on 19 April 2016. There was then a Case Management Conference. Pleadings were duly served and indeed amended. Disclosure was addressed by requests for categories of documents. Witness statements were served about a week before trial. The trial took place between 4 and 8 July 2016.

It may have been one of the consequences of the speed with which this action came on for trial that the disclosure process came under a degree of strain. Each side made robust criticisms of the other concerning the paucity of documents provided in response to category requests that had been made during the disclosure process. At the start of the trial Mr Darling QC, who appeared for Spartafield, provided further documents not hitherto disclosed which he properly accepted included documents that fell within requested categories. During the trial, I was also asked to rule on the adequacy of disclosure provided by Spartafield. It was necessary for me to make certain orders about documents and for those documents to be produced during the course of the trial. Mr Lewis, who appeared as counsel for Penten, was given time to consider the documents before relevant cross examination was completed. Despite being foreshadowed in general terms, the details of Spartafield’s criticisms of Penten’s disclosure were not debated before me but I am nonetheless aware that such criticisms were being made.

Although originally listed for two days, the trial lasted four days. This was primarily because of the interruptions caused by problems with the disclosure process but also because the original time estimate was, in hindsight, a little optimistic.

Spartafield called three witnesses of fact. Mr Roger Leon is a director of Spartafield and, unsurprisingly, was its principal witness. Spartafield also called Mr Andrew Puncher, who is a director in the firm of architects named as such in the tender documentation. The full title of the firm is Puncher Hamilton Plus Limited but that was invariably shortened by everyone to “PH+” and that is how I shall refer to the firm. Finally, Spartafield called Mr John Shannon who is a quantity surveyor. Mr Shannon was employed to act on behalf of the funders, Handelsbanken, to monitor the project expenditure and, particularly, the payments to Penten.

Penten called two witnesses of fact. Its primary witness was its director, Mr Ranjith Ratnasingham. Penten also called Mr Stephen Brown of WT Partnership who acted as an advising quantity surveyor to Penten.

I am satisfied that all witnesses were trying their honest best to recall the events which took place. In general terms, I found the evidence from each of Spartafield’s witnesses preferable to the evidence from those from Penten. Whilst both company directors were guilty to differing degrees of not meeting a difficult question head-on, I did feel that this was a particular problem in the case of Mr Ratnasingham. His evidence tended towards long speeches which sought to mask and evade the difficulties he faced with documents that were not wholly consistent with the evidence he would wish to give.

In those areas of direct conflict of evidence, I have therefore preferred the evidence of Spartafield to that of Penten.

In light of the documentary and oral evidence I make a series of general findings of fact set out below in Section B. In my findings I have concentrated on the exchanges passing between the parties rather than internal communications staying behind party lines since, as I explain below, those have little bearing on the issues that I have to decide. In Section C, I address the letter of intent. In Section D, I outline the rival positions of the parties in these proceedings. In Section E, I set out the established law. In Section F, I reach my particular conclusions of fact and law in this case in the light of the submissions made. Section G contains a summary of my conclusions and some closing remarks.

On 8 February 2013, various contractors including Penten were invited to tender for a proposed development at 21, Plumbers Row, London, E1. The nature of the works was briefly described as part demolition and part new build of a three storey roof extension to an existing five storey building so as to provide eight no. private residential units and other facilities. There was to be a single storey lift extension, external balconies and terraces. Spartafield was the named Employer. PH+ was identified as the Architect. The QS was to be Stockdale, which was the firm of quantity surveyors who had prepared the tender documents. The form of contract was identified as the JCT Intermediate Building Contract with Contractor’s Design 2011 (“JCT ICD”) to be executed under hand between Employer and Contractor. The tender provided that the Contractor would be deemed to have carefully examined the full text of the Form of Contract and to include the all costs of fulfilling the requirements, obligations and liabilities in connection therewith.

From the draft tender documentation it was apparent that the Contractor would be expected to provide collateral warranties both to purchasers and tenants and to a funder. Those warranties were to be in the standard forms available from the JCT suite of contracts, Cwa/P&T and Cwa/F. In both cases the parties in respect of which the net contribution provision was to apply was left to be confirmed. Pursuant to a bespoke Article 11, the tendering Contractor agreed it would enter into all warranty agreements in the prescribed form within six weeks of the Date for Possession i.e. post contract.

Penten tendered on 15 March 2013. The bid was expressed to be compliant with the tender documents and confirmed that, having read the Conditions of Contract, the specifications and the drawings, Penten was willing to carry out the works for £1,236,083.

By May 2013 Penten had become the preferred tenderer. However, the proposed price was too high for Spartafield. Mr Leon and Mr Ratnasingham met to see where savings could be made. Spartafield’s objective was to reduce the cost to around £1,000,000. The process of seeking to vary the proposed scope to obtain a cost reduction was then embarked upon. This became known by the parties as an exercise in value engineering.

On 22 May 2013 Mr Miller of Penten proposed to Stockdale that a letter of intent be issued to cover the cost of design and pre-construction related activities. The proposed sum for inclusion in the letter was the modest amount of £15,355. Stockdale passed this to Mr Leon, noting that Mr Leon’s preference was not to have a letter of intent.

On 12 June 2013 Mr Miller provided Stockdale with an amended Contract Sum Analysis (“CSA”) which was said to conclude the final items discussed at a recent meeting. His thoughts were that the savings/amendments were comprehensive. The revised sum was £1,150,830.17 and was proposed on the basis of the Preliminaries and General Conditions set out in the tender documents. These Preliminaries and General Conditions cross refer to the proposed contractual Conditions. In fact, despite the CSA being described as final, revised versions of it were subsequently issued on a similar basis.

On 18 July 2013 Mr Leon provided Mr Ratnasingham with a copy of the pro forma collateral warranty for funders, CWa/F 2011, completed for use on another site, and asked for confirmation that it was acceptable. Almost by return Mr Ratnasingham confirmed that he was happy to sign such a warranty in principle subject to the correct particulars being entered and agreement of any optional clauses.

By 19 July 2013 the sum of £1,150,000 had been agreed for the development works at Plumbers Row. On that day Penten sent an email to Spartafield enclosing the latest amended cost plan reflecting that sum, “this being the basis on which the works are due to proceed”. As with all previous iterations, it proceeded on the basis that the Preliminaries and General Conditions were applicable.

By separate email Mr Leon asked PH+ to complete the JCT Contract with Penten and reminded them of the need for a collateral warranty for the funder. He said he was copying the email to Mr Ratnasingham so that he was aware of the intention to instruct his company, rather than providing him with a separate letter of intent.

Later the same day, Mr Ratnasingham emailed Mr Leon referring to the cost plan showing what he described as “the agreed contract sum” and saying that “we have a basis for administering the contract going forward”. Mr Ratnasingham accepted in evidence that the work encompassed within the value of £1,150,000 was clear and that, insofar as there were details to be resolved, he had made allowances for that within that value. There was indeed an agreed contract sum. His email recognised the difficulty that the written specification no longer reflected the scope of work because the parties had since undertaken an exercise in value engineering. He proposed that amendments to the original documents to reflect that could be included in the Contractor’s Proposals which would form part of the contract. The specification could remain as a source document on the basis that the specification in the Contractor’s Proposals would take precedence. His concern was that if a revised specification was to be issued, a new cost plan would be required and that this would take time. In order to proceed with placing orders, Mr Ratnasingham said he needed a formal signed letter of intent. He attached a draft in a form which he said he had used before although it had now been completed for use at Plumbers Row. Of note is that Penten’s draft letter of intent now proposed the authorisation of work up to the full amount of the agreed contract sum of £1,150,000.

Spartafield revised the draft letter of intent by limiting the authorisation of works up to a value of £1,000,000. On 23 July 2013 Mr Leon for Spartafield signed the letter in this form, dated 19 July 2013, and in due course, Mr Ratnasingham counter-signed it for Penten. The terms of the agreed letter of intent were as follows:

“Further to the submission of your cost plan dated 19^th July 2013 we write to confirm that it is our intention to enter into a contract with yourselves for the above works.

This “Letter of Intent” authorises the works as detailed within Penten Group Ltd cost Plan dated 19 July 2013 for the sum of £1,000,000.00 (One Million Pounds) excluding VAT. The start date will be confirmed under separate cover.

Other works may be included within the above and additional expenditure may be authorised, under instruction by ourselves or our Representatives.

You are instructed by this letter to carry out all necessary pre-contract planning, taking dimensions, place on order such materials that you require, plant and sub-contract sufficient to commence the works in an expedient manner.

In addition, you are instructed to seek all necessary licences etc; and put in place all the relevant insurances as required.

In the event of the works not proceeding we hereby also confirm that the reasonable and proven costs incurred by you, under this letter of intent, and up to the date of termination will be reimbursed by you.

If you are agreeable to the contract being entered into on this basis, please countersign and return the copy letter; the countersigned letter will then form a provisional but binding contract as if a contract had been formally executed in accordance with foregoing terms.

Subject to you countersigning and returning this letter, meeting the conditions both set out above and contained in your tender and in the event that a formally executed contract does not come into existence between us then I also agree to reimburse you for any costs due to third parties provided that such costs are substantiated. Such costs will, so far as reasonably possible, be determined by reference to the sums payable under the proposed formal executed contract.

Please therefore acknowledge receipt of this letter and confirm your acceptance of the conditions set out herein by signing and returning the enclosed copy.

The formal contract document will follow in due course”.

On 29 August 2013 PH+, which had been tasked with finalising the contractual documentation, sent Penten a copy of the draft contract conditions for review. Amongst other things, confirmation of the Date for Possession of the site and the Date for Completion of the works was sought. On the same day Mr Ratnasingham confirmed that there would be a contractual start of 9 September 2013 and a completion date of 14 July 2014.

On 9 September 2013 Mr Ratnasingham confirmed to PH+ and Spartafield that, for the purposes of the contract, it had taken possession of the site that day.

On 10 September 2013 Mr Leon made clear to PH+ that the contract documentation would need to be in place before funders would agree to draw down funds. The email was forwarded to Mr Ratnasingham.

On 18 September 2013 the first site meeting took place. Minutes dated 30 September 2013 were subsequently issued. The minutes recall agreement both that the construction phase start date was 9 September 2013 and that the date for completion was 14 July 2014. The contract value of £1,150,000 was also confirmed. Mr Leon stated that no QS was appointed on the project. It was agreed that PH+ would issue construction drawings and a revised specification to clarify the works relating to the agreed Contract Sum. A procedure for valuations was also arranged.

On 23 September 2013 Penten provided to PH+ its written comments on the draft contract. The proposed dates for commencement and completion were those stated previously and were therefore agreed. The comments from Penten included observations on the collateral warranties. Mr Ratnasingham agreed in evidence that, on receiving these written comments, the consultants would have concluded that nearly everything was agreed.

PH+ were reluctant to become involved in dealing with contract finalisation and asked Mr Leon what he wanted to do as Stockdale, the quantity surveyors, had not been retained. Mr Leon replied that he would forward the comments to Mr Shannon who had been appointed as the monitoring surveyor from the bank.

On the same day Penten made its first application for payment, seeking an interim certificate in respect thereof. On 24 September 2013 Mr Leon expressed frustration at receipt of this application in an email sent to PH+ but copied to Penten. He had understood work would have commenced shortly after the letter of intent. He said:

“As I understand it, we have a Letter of Intent signed but I am not sure whether a Contract is in place.”

Penten emailed PH+ on 26 September 2013 to say that it had been working on the project both on site and at the office within two weeks of the letter of intent. Mr Ratnasingham said:

“We have been working on the project for some time now; and most recently under the instruction that is provided within the Letter of Intent, which in our experience is sufficient to serve as a binding contract. The purpose of the application was to recognise the works that had been undertaken up until the date of possession and whilst the terms of the formal contract are being agreed…Until the contract is in place, we believe that the applications will need to be dealt with on a fair and reasonable basis.”

He apologised for the fact that dealing with the contract and related matters had taken longer than he would have wished.

On 9 October 2013 there was a second site meeting. Minutes were issued on 18 October 2013. Penten’s comments on the contract were to be resolved as soon as possible so that the contract could be issued before the next valuation. PH+ had issued the construction drawings and it was in the process of updating the specification. Contrary to prior expectations, Mr Shannon confirmed that the funder did not require a signed contract in place as funds could be released under the letter of intent.

At the fourth site meeting on 8 November 2013, minutes for which were produced on 18 November 2013, Penten agreed to provide further clarification on certain contract queries. Contractual matters were to be resolved as soon as possible. PH+’s work to update the specification so that it reflected the value engineering was ongoing. These points remained unresolved by the time of the next meeting on 28 November 2013.

On 12 December 2013 Mr Ratnasingham attached to an email what he described, and I agree, are minor comments on the contract. Indeed, in evidence Mr Ratnasingham confirmed that by that day nearly everything had been agreed and that his comments were properly to be described as minor. The comments were in response to notes previously provided by Mr Shannon who was, in turn, responding to Penten’s comments which had previously been provided on 23 September 2013. This was reflected in the sixth site meeting on the following day. The minutes, issued on 19 December 2013, record that most of the remaining contractual queries had been resolved. The remaining matters were to be resolved as soon as possible so that a contract could be issued. Details relating to contractor’s warranties were outstanding.

Contractual matters were still unresolved by the time of site meeting no.8 which took place on 27 February 2014. The objective remained to conclude these as soon as possible so that the contract could be issued. PH+ had still not issued the revised specification to include the impact of the value engineering items. By this time, there were some concerns about delays to the works. Mr Shannon asked Penten to issue a rescheduled programme in writing and said that any extensions of time sought should be clarified now to allow an assessment whilst matters were still fresh.

The contractual position had not really advanced much by the time of site meeting no.9 on 14 March 2014 or site meeting no.10 on 1 April 2014.

On 3 April 2014, Mr Leon enquired of Mr Ratnasingham about progress of the work and the fact that there had been substantial delays. Mr Ratnasingham replied that there had been a number of issues and made reference to an “EOT that may be applicable”.

On 24 April 2014 Mr Ratnasingham emailed a managing agent for the proposed development, copying in Mr Leon. He said:

“Our contract period runs to a specific date and any entitlement to an extension of time, the arrangements and other matters etc are once again outside the scope of the discussions that we are able to have with any third party.”

That email contains a clear recognition by Penten that, even though there had been delays to the contract period, those matters would, in due course, be addressed by means of any entitlement to an extension of time. On receiving a copy of this email Mr Leon could not have thought otherwise. It chimed with Mr Ratnasingham’s reference to an extension of time in the email of 3 April described above.

On 28 April 2014 Mr Shannon emailed PH+, Mr Leon and Mr Ratnasingham collectively to say he thought that the only item outstanding for the contract was the question of collateral warranties. In that context he referred to the forms that had been identified in the tender documentation. At the time Penten did not respond to say that any other items (in addition to collateral warranties) were outstanding. That is in accordance with Mr Leon’s evidence, which I accept, that at this time Mr Ratnasingham was saying that he was indeed happy with the situation apart from the collateral warranties. Mr Puncher’s evidence was to similar effect. Thus, at this time, it is clear to me that the parties were proceeding on the common basis that this was indeed the only matter to be resolved. There was no issue between the parties as to price, scope, applicable JCT conditions and time for completion. In respect of the latter, the communication from Mr Ratnasingham only four days earlier had given the clear impression to Mr Leon that he understood that delays to the contract period would be dealt with in due course by any entitlement to extension of time.

There was a meeting on 30 April 2014 attended by Mr Ratnasingham, Mr Brown and Mr Shannon. Mr Brown’s evidence was that, at that meeting, he made it clear that Penten would not sign the contract as long as the issue of the completion date and costs, together with collateral warranties, was unresolved. He relies on an internal note made at the time which says “Contract will not sign”. Mr Brown’s manuscript note does not demonstrate that he actually said “will not sign” publicly at all and, in any event, the comment in the note is not expressly linked to the question of the completion date. I am not persuaded that this comment was made either at all or in sufficiently clear terms. In my view, if that had indeed been Penten’s position, as opposed to the position which Mr Brown would have wished Penten to adopt, it would also have been said unequivocally in writing at the time. It is also of note that Mr Ratnasingham said nothing at all about this meeting in his witness statement. As I have said, only two days earlier Mr Shannon had said in an email that the single matter outstanding was collateral warranties and Mr Ratnasingham had not disagreed with that. I therefore conclude that this meeting did nothing to displace the common position that the only contractual matter which had then to be resolved was that of collateral warranties.

On 1 May 2014 Mr Shannon emailed PH+, Mr Leon and Mr Ratnasingham (together with Mr Brown) on the subject of collateral warranties. The email confirmed that Mr Ratnasingham of Penten had agreed he was happy with the two JCT forms of collateral warranty that had been issued subject to the application of the net contribution clause and the identification of the three consultants to be included in that clause. Again, there was no suggestion that any other matters remained outstanding as regards the building contract. Mr Ratnasingham accepted that Penten did not dissent from the suggestion that this was only this matter which was delaying signature of the contract documents.

Site meeting no.12 took place on 9 May 2014. Minutes were issued on 21 May 2014. Progress in respect of collateral warranties was reported. No particular sticking points were recorded. There remained the frequently repeated request for the contract to be issued before the next valuation. By now, PH+ had finally issued the revised specification to include the agreed value engineering items. Mr Puncher’s evidence was that the revised specification had accurately captured the impact of the agreed value engineering changes. In some cases it had been possible to do this by amending the text of the specification. In other cases it had to be done by the inclusion of product sheets for the revised items with the intention that Penten would thereafter provide drawings which would be approved by PH+.

This was the last site meeting before the formal contract documents were provided to Penten for execution. It is therefore appropriate for me to take stock. The only matter which was outstanding at the start of May 2014 had been the provision of collateral warranties. Drafts of the terms for such warranties had been provided. The principal of net contribution clauses in such warranties had been agreed. The identity of the consultants to be included in such clauses had been established. Mr Ratnasingham was asked in evidence why, if it was truly his position, he did not say that the whole question of whether there was a contract was up in the air because of the delays to the works which had hitherto been experienced. He was unable to give a satisfactory explanation. In my view the reason was because, at this stage, he had positively decided not to make an issue about delays to the works as a reason for holding up contract execution. Viewed objectively, by this point in time, Penten had never linked delays to the works with the question of contract formation.

On 10 May 2014 Mr Brown sent Mr Ratnasingham a draft letter for him to sign. The draft letter emphasised in clear terms that Penten was still working under a letter of intent and stated in terms that Penten would not sign the contract in its present form. The main reason given for the refusal was due to delaying events which had occurred since commencement of the project and the cost consequences of such events. A delay of 20 weeks was identified. Penten never sent this letter. That is because Mr Ratnasingham decided that it was better for Penten to take a more balanced approach.

Nonetheless, word of the approach taken within the draft seems to have got out because, on 19 May 2014, Mr Shannon privately warned Mr Leon that the contract may not get signed because of a potential claim. If he was concerned about this possibility, Mr Leon never let it be known to Penten. Mr Shannon said he would progress the issue concerning collateral warranties.

The advice from Mr Brown, given from time to time both orally and in writing, was that Mr Ratnasingham should refuse to sign the contract until the issue of delay and its associated costs had been resolved. However, Mr Ratnasingham’s open stance with both Spartafield and its consultants was far more constructive and he did not, save in the instances identified below in July 2014, ever connect the two issues.

Site meeting no.13 took place on 27 May 2014. Minutes of this were issued on 28 May 2014. At this meeting it was agreed that AAF would be a named subcontractor for the windows. The balustrade was to be procured separately.

At the same meeting, Penten were provided with hard copy sets of the Contract Documents for execution. Hard copies of the collateral warranty to funders (CWa/F 2011) were also provided, though none in respect of purchasers and tenants. Both of these contractual documents were signed by Mr Leon, probably at the meeting itself. Penten did not agree to sign the documents there and then. Mr Ratnasingham said he would review them and then sign them. I reject his evidence that he was completely taken aback at the production of these documents at the meeting and accept Mr Puncher’s evidence that there was no such expression of surprise. Whilst Mr Ratnasingham may not necessarily have expected the contract documents to be provided on that specific day, it would have come as no surprise to him that such a package had been finalised and was on its way since everything contained within it was apparently agreed except the finalisation of collateral warranties. As Mr Shannon said, it was no secret that they had been prepared. Unsurprisingly, on receiving them Mr Ratnasingham wanted time to check that the hard copy documents provided to him accorded with the terms which were understood to have been agreed and that was the course which was adopted. There was no element of coercion that he had to sign there and then but, if the documents accorded with the agreed terms, then he would have been expected to sign them in due course. Importantly, he did not suggest that he needed to review the documents because certain terms had yet to be agreed and he merely wanted to see what was being proposed in the documents.

The particulars within the JCT Intermediate Building Contract presented for signature had been completed. The Contract Sum was £1,150,000. PH+ was named as contract administrator and architect. There was no identified quantity surveyor. The date for possession was 9 September 2013 and the date for completion was 14 July 2013. All of this accorded with prior agreements which had been reached. The amended specification was in the form which had been provided by PH+ to Penten earlier that month. As I have found, the scope of and price for the work had already been agreed at the time when the letter of intent was issued.

The form of collateral warranty for purchasers and tenants, CWa/P&T 2011, was not provided but it was clear from the Contract Particulars within the JCT ICD form that these were required as had always been the case. The three entities to be named for the purposes of the net contribution clause in such warranties were identified. It was also clear that a funder warranty was required in accordance with CWa/F. This was provided. In the signed version of this form, the three entities for the purposes of net contribution were also identified.

Once again, after the meeting Mr Brown privately advised Mr Ratnasingham that he should not sign the contract without agreeing both to a new completion date and a revised contract sum to take account of the costs of additional delay. By email dated 29 May 2014 he said that a slightly amended form of the letter he had previously drafted should be sent to reflect this stance. Again, Mr Ratnasingham chose not to adopt that position.

Site meeting no.14 took place on 12 June 2014. The minutes issued on 13 June 2014 record that Penten was still to review and sign the contractual documentation. An informal meeting was to be arranged to discuss it. I reject any suggestion that the completion date inserted into the draft contract was mentioned at this site meeting. Mr Shannon was tasked with completion and provision of the collateral warranties for purchaser and tenants (CWa/P&T 2011). Although in the event this was never done, the terms of it had previously been identified and there was no apparent issue with them.

There was a meeting on 20 June 2014 between Penten and Spartafield as had previously been suggested. There were no minutes taken or produced and although Mr Ratnasingham says he made some notes for himself I have not seen them. He barely mentions this meeting in his witness statement. What purports to be a typed record of the meeting (Footnote: ²) was plainly prepared some time afterwards and is not a particularly reliable guide to the content of the discussion that took place. I am satisfied that the topic of delays to the works was discussed by Mr Leon and Mr Ratnasingham and that both parties were aware that the original date for completion was no longer achievable. However, I reject Mr Ratnasingham’s evidence that he said the date originally proposed for completion should not be the date provided for in the written contract (Footnote: ³). On the contrary, at no stage during this meeting did he withdraw Penten’s prior agreement to a completion date of 14 July 2014. I accept his own evidence that at this time he was trying to be collaborative.

Site meeting no.15 took place on 26 June 2014. Minutes were issued on 8 July 2014. Reference was made to the meeting on 20 June. Mr Leon asked Penten to sign the contract documents that week. It was also proposed that Penten would mark up the revised specification which had been prepared by PH+ with the intention of including all the value engineering items, as previously agreed between the parties.

On 10 July 2014, Penten sent a letter to Spartafield. Parts of it were modelled on the draft letter prepared earlier by Mr Brown. The letter expressed concern that the original date for completion no longer represented an achievable date. A delay of 20-weeks was identified. Reasons were given. The letter was not written in terms as a contractual application for an extension of time pursuant to the JCT conditions although, in an email of 15 July 2014, Mr Leon described it as “what appears to be an extension of time claim”. The letter concluded with the following:

“In our letter of 23 September 2013, we confirmed our initial comments on the contract. The latest revision of the contracts were subsequently provided to us on 27 May 2014. We have carried out detailed discussions on the wording of the contract and have confirmed that there are matters included within the contract documents which require amendment. In particular, during our preliminary review of the latest issue if the contracts, we have noted that the Architect’s and M&E specification requires amendment to reflect the VE discussions; and we have been asked to annotate an (sic) return the three volumes of documents (and associated drawings) which requires a great deal of time and coordination. As you are aware we commenced on site under the letter of intent issued by you on 19^th July 2014 (sic). Possession of the site was taken on 9 September 2013. We are equally keen to formalise the contract and are working diligently on reviewing the extensive information that has been presented to us however for the reasons stated above we cannot agree to the contract as presently drafted.” (Emphasis added)

This was the first occasion on which Penten openly said or wrote that it would not sign the documents which had been handed over on 27 May 2014. Mr Puncher’s evidence was that, whilst Penten had been proactive in seeking to move towards signing the contract in May, after that there had been “radio silence” until receipt of this letter. If by that he means that Penten did not in the interim suggest any difficulty with the contract documents then I agree.

Penten rightly points out that this letter was not met with a letter from Spartafield to suggest that a contract was already in existence (which is Spartafield’s primary case). On the other hand, on 14 July 2014 PH+ issued a certificate of non-completion expressly issued under clause 2.22 of the JCT ICD Contract. The issue of that certificate is consistent with the prior existence of a JCT Contract. Penten did not comment on that document to suggest that it had no status as there was no contract in play.

On 14 July 2014 Mr Ratnasingham updated Mr Shannon on the progress he was making reviewing the checking of the specification. Mr Shannon had previously identified this as the only outstanding item on the contract documents. Mr Ratnasingham’s update was that the review of the specification was still being worked on and was foremost in their minds. He did not dissent from the suggestion that this was the only outstanding item but did refer to the letter concerning delays which had been sent on 10 July 2014.

PH+ commented the same day to Mr Ratnasingham that the specification was identical to that contained in the tender save to take account of the value engineering information. This was intended to save Penten the time of reviewing the entire document afresh.

On 15 July 2014 Penten issued a letter responding to the contractual documentation which had been issued in May and provided its comments on the specification. As regards the contractual documentation, Penten proposed “the following comments/amendments (the majority of which we have discussed/agreed previously)”. There were ten such matters. None of them related to collateral warranties which, at one point, had been the only outstanding matter. As regards programme, the letter said:

“We look forward to concluding our discussions regarding the date for completion and other related matters.”

The comments on the specification came by separate email. Penten’s comments consist of brief manuscript observations or deletions on aspects within the specification.

At the following site meeting no.16 which took place on 17 July 2014, the professional team was tasked with reviewing Penten’s mark-up of the specification. Within the minutes issued on 31 July 2014 there remained the request that contract documents be signed prior to the next valuation. The issue of revising the completion date was discussed. PH+ suggested it could be dealt with in one of two ways: by the making of a formal extension of time claim to it as contract administrator or by direct discussion and agreement between Penten and Spartafield. Both of these could be achieved with a concluded contract in place. Penten was to consider its preferred way forward. Thus it certainly did not reject outright the notion that the matter could be dealt with under the contract.

On 14 August 2014 PH+ circulated comments on the Penten material issued on 15 July 2014. The email included, variously, the client’s comments on the specification, PH+’s comments and MNP’s comments on the structural specification. The comments ran to six pages. In Mr Puncher’s evidence he explained how most of the items in the list were disposed of in an uncontroversial way. I accept that evidence.

Site meeting no.18 took place on 16 September 2014. According to the minutes issued on 18 September 2014, from which no-one dissented, Penten confirmed at this meeting that it would sign the contract documents, contract drawings and specification within the next 2 weeks (Footnote: ⁴). Confirmation was also given in respect of the signing of the collateral warranty to the funder. In my view this was material confirmation that there was nothing of substance left for agreement between the parties. The contractual provisions and the warranties had been discussed at length. By this point Penten had had the comments back on the specification for over a month and, although it was still reviewing them, it must have seemed unlikely that there would be any issues in respect of them. The purpose of the exercise was, of course, to make sure that the documents reflected what had already been agreed, rather than to agree afresh the scope of work. I am satisfied that Penten would not have confirmed that it would sign the contract documentation within two weeks unless it was confident that no matters of substance existed between the parties. Moreover, it represented a marked departure from the position adopted by Penten in the letter of 10 July 2014. In that letter Penten had said it would not sign the contract in its then form by reason of the issues surrounding delay. It is likely that its position had been modified because, in the interim, Penten had been offered the option of either applying for an extension of time to be assessed by PH+ or discussion and agreement of a revised date for completion with Spartafield directly. That agreement could have been reached on a commercial basis to reflect any justified additional costs. In those circumstances, it must have seemed no longer necessary to insist that prior agreement be reached as a condition of concluding a contract.

Despite the assurance that the documents would be signed within two weeks, the matter was still outstanding at the next site meeting, no.19, which took place on 15 October 2014. The minutes issued on 22 October 2014 record that Penten’s review of the comments issued by PH+ on 14 August 2014 was ongoing. Penten was still considering its position in respect of the approach to delay.

Mr Ratnasingham met Mr Brown in early November 2014 and by email Mr Brown re-confirmed his advice that Penten should amend the contract and re-issue it with a revised completion date and cost. Spartafield was not aware of this advice. Suffice it to say that, once again, Penten did not follow this advice.

Matters had not moved on by the time of site meeting no.20 on 13 November 2014. As before, if there had been matters of significance perceived by Penten then I would have expected this to have been identified as a sticking point by this time. In addition, the exercise of checking the comments on the specification was only necessary to ensure that it corresponded to the scope of work and price that had already been agreed.

At site meeting no.22, held on 18 December 2014, it was agreed that there would be a contract meeting to be held on 15 January 2015. As regards the issue of delay, Penten finally confirmed that it would be issuing a formal extension of time request. Mr Ratnasingham accepted in evidence that this was the expression used. He said it was merely meant as a general expression but I reject that. The election of that option was consistent with the notion of a concluded contract on the JCT ICD terms. In the event, it never submitted a formal request for an extension of time.

There was a contract meeting on 15 January 2015. There is not much evidence as to what was discussed and it seems there is no written record of it. Mr Puncher’s evidence was that Penten specifically asked that no record be kept. He said in his witness statement that, in contrast to its present position, Penten’s attitude was one in which they recognised they were contractually bound to Spartafield but were seeking to throw themselves at Spartafield’s mercy. Although he was not challenged on this, I consider it probably goes too far. On the other hand, I do believe that if anything of significance and substance in respect of contract formation had been discussed I expect it would have been referred to in email exchanges or other correspondence elsewhere. In my view, at that meeting, Penten did not expressly dissent from the notion that a replacement contract was in place.

Very little of significance to the present issues passed during early 2015.

On 9 March 2015 Penten wrote to Spartafield to say that the costs which it had incurred at 21 Plumbers Row had now exceeded the value authorised by the letter of intent. The letter expressed the wish for a financial conclusion that was mutually beneficial whilst hinting that the earliest achievement of completion could be obtained if there was a satisfactory financial conclusion. As far as I can see this letter was the first time since September 2013 that Penten had openly and unequivocally asserted that the regime under the letter of intent was still in play. At the very least, it was the first time in months that the letter of intent was referred to. By now, Penten considered its best commercial position lay in contending that there was no concluded contract. That was on the basis that, in accordance with its construction of the letter of intent, it could at least recover its incurred costs.

The letter was followed up with a softer email to Mr Leon asking him to discuss the matter. Penten expressed its commitment to closing out the project but stated that it required additional financial support to achieve it.

In evidence, Mr Ratnasingham accepted that, whilst it was generally meeting the cost of its outgoings at this time, it was finding it difficult to do so. Problems had started earlier than March 2015 leading to occasions on which Spartafield had to make direct payments to Penten’s subcontractors. Around this time, those financial problems were continuing to surface. In my view, this explained why Mr Ratnasingham was seeking additional financial support from Spartafield. Mr Ratnasingham conceded that his evidence to the adjudicator that Penten had been (and indeed still was) “entirely solvent” had not been correct. He said he regretted having said this in a witness statement but was unable to provide a satisfactory explanation for having done so.

Mr Leon’s response to the request for more funds had been to ask for a schedule of outstanding work and a realistic cost to complete it.

By now the parties were locked into positions that would eventually crystallise into the multiple disputes that have since arisen between them. Penten began to positively wind down the provision of on site resources without further payment and, contractually, relied on the letter of intent. Spartafield asserted it was only obliged to make payments for works properly certified under the JCT contract and contended that the cessation of work was unlawful.

Thus, by letter dated 16 April 2015, Spartafield asserted the existence of a contract by which Penten was bound to complete the works for a fixed sum, subject only to adjustment in accordance with the terms of that contract. Contractual default notices were served.

Conversely, by letter dated 18 April 2015, Penten asserted that it had previously stated in express terms that it did not accept the terms of the JCT Intermediate Building Contract and was not acting under those terms. The letter offered to enter into a contract in an agreed form but not on the basis of that which had previously been provided. If that was not acceptable, since the authorised value under the letter of intent had been reached, Penten did not regard itself as under any further obligation to carry out the works. A curious feature of this letter is that, notwithstanding this general position, the letter also said:

“All parties have carried out the works applying the amended JCT Conditions.”

This curiosity was not mitigated by the fact that the letter was subsequently re-issued by Penten, sent by email on 27 April 2015 and apparently posted on 24 April 2015, so that it now stated:

“All parties have carried out the works applying the unamended JCT Conditions.”

By letter dated 22 April 2015 Spartafield said that the letter of intent was of no relevance and notified Penten of its intention to claim liquidated damages for delay.

By letter dated 27 April 2015 Spartafield sought to terminate Penten’s contract based on non compliance with the earlier default notices.

I have not, so far, mentioned the question of valuation and payment. Throughout the course of the works to which I have referred Penten made applications for payment which were duly valued, certified and paid although, as is to be expected, there were occasional issues over the amount of the valuations. Most of the valuations were reached by agreement following presentation of the applications and a walk of the site undertaken by Penten and Mr Shannon. The applications were made by reference to the Contract Sum Analysis of 19 July 2013. As I have previously mentioned, the Contract Sum Analysis made reference to the Preliminaries and General Conditions which, themselves, cross referred to the JCT Conditions. In due course, the applications were developed to include reference to variations. This occurred when, on Penten’s case, work was required outside the scope of what had been agreed for the purposes of the Contract Sum Analysis. Penten supported the claims for variations with a pro forma document entitled “Contract Variation” which explained the nature of the varied works in each case and identified a value for “Omits” or “Adds”. As far as I can see there were some 77 no. such variations claimed for. The applications were valued by Mr Shannon after the walk of the site. As I have noted, he was not named as the QS under the JCT form but, on the other hand, no-one else was. He appears to have agreed to and in fact fulfilled that role. Penten was content for him to do so and never complained that he could not do so because he was not named. Each valuation considered the application for payment, derived a gross valuation in respect of the work, including varied work, and made a deduction for retention. The resulting amount was then certified in a pro forma Interim Certificate issued by PH+ as contract administrator. The certificates are described as being issued under the terms of a contract although the nature and date of that contract is nowhere identified.

In my view the way in which the parties operated the payment regime was generally consistent with the terms of the JCT ICD Conditions. Penten has pointed out that the regime was not followed to the letter – for example, applications were not always made on the same monthly dates and were not made in every month. Some of the procedural aspects were different. That may be so but I still consider the overwhelming intention was that this was to be the applicable regime, certainly as regards the amount to be paid. Thus, to take but one example, there can be no sensible basis upon which provision for retention could be justified other than by reference to the application of such conditions. Retention is not a matter of standard industry practice and can only be deducted by express agreement. There is no provision for retention in the Scheme for Construction Contracts which, on Penten’s case, was applicable.

However, the fact that the parties sought to apply the JCT regime for applications for payment, valuation and certification is not a pointer to the existence of a concluded contract on those terms because that regime was operated from the outset when, it is common ground, only the letter of intent applied. Accordingly, how the parties dealt with applications for payment, valuation and certification does not provide the useful indicator on the question of contract formation that it sometimes can. I consider below whether the operation of the JCT approach to payment was also consistent with the terms of the letter of intent.

In addition to those matters, the contract was generally administered by PH+ as would be expected had a JCT Contract already been executed. But again, this had largely been the position from the outset when the parties were indisputably governed by the letter of intent.

There is no doubt that, for at least some time the parties operated under a letter of intent the terms of which I have already recited. There are some cases in which the legal status of a letter of intent is unclear but, in this case, there is no doubt that it was intended to have legal effect as a contract between the parties. It is written in contractual language and is counter-signed by both parties.

If I were to find that the parties’ relationship remained governed throughout by the letter of intent then the proper construction and effect of the terms of that letter would be crucial in any consequential dispute. That is not a sufficient reason for construing all its terms now. However, it is necessary for me to construe parts of the letter now and at this stage in the judgment for one particular purpose. In the present proceedings, the parties were at odds as to whether their conduct in the period after its execution was consistent or inconsistent with the terms of that letter. It would not be possible to conclusively resolve that issue until it had been determined what the letter of intent provided for in that respect. In particular, two particular issues of construction arise:

The letter of intent falls to be construed in accordance with conventional and well understood principles. Most recently these have been summarised by Lord Neuberger in Arnold v Britton [2015] UKSC 36. At paragraph 15 he said:

“When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, para 14. And it does so by focussing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions.”

It is common ground that this letter of intent is not well drafted. I agree with Mr Darling QC that it is an odd document. It appears to be a patchwork of individually familiar provisions that, in combination, do not always sit easily with one another. In those circumstances, what Lord Neuberger said at paragraph 18 of Arnold v Britton is also on point.

“Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning.”

On Penten’s case, either party could have walked away from the project if the only binding agreement between them was that contained in the letter of intent. On its case the letter of intent did not incorporate the JCT ICD conditions. Assuming the works did proceed, the payment provisions were not adequately specified and, therefore, were implied by the Housing Grants, Construction and Regeneration Act 1996 and the connected Scheme for Construction Contracts. Insofar as the letter of intent made reference to the JCT ICD conditions, that was not determinative that they were incorporated as primary obligations as shown by the case of Twintec Ltd v Volkerfitzpatrick Ltd [2014] BLR 150. Instead, it merely meant that Penten was to do whatever was necessary to comply with those terms if it transpired that they were agreed retrospectively.

Spartafield agreed that the letter of intent was not a contract which obliged either party to continue with the project. With some reluctance, Mr Darling QC for Spartafield ultimately submitted that the letter of intent could have incorporated the JCT ICD conditions and, if it did, the Twintec case was distinguishable. The case that the letter of intent was governed by the JCT ICD terms had not been its pleaded case and there was no application to amend to so contend. However, Mr Lewis for Penten properly recognised that I am not constrained to construe the letter of intent in the manner contended for on the pleadings and that it was always a matter of law open to me to reach my own conclusions in respect of it. However, he did submit that the failure by Spartafield to plead such a case was reflective of its lack of merit. Even if the ICD terms were incorporated, they could only be so to an extent that was not inconsistent with the other express provisions of the letter of intent properly construed.

I have concluded that, as was common ground, the letter of intent allowed each party to withdraw from the project at any time until the relationship of the parties was no longer governed by that letter. Penten was not bound to complete the works and Spartafield was not bound to employ Penten to do so. Subject to its terms, the letter of intent regulated the dealings of the parties for so long as they both agreed that Penten should proceed with the works, unless replaced by a new contract.

I also conclude that in respect of any work undertaken by Penten the JCT ICD terms of contract were applicable pending any other finalised agreement to the contrary. In other words, it is my view that, subject to two qualifications, the letter of intent included the JCT ICD Conditions. The two qualifications are:

I reach the conclusion that the JCT ICD Conditions were incorporated for a number of reasons. First, the sum authorised for payment in the letter of intent was based on the works contained in cost plan of 19 July 2013. The cost plan, and Penten’s prior tender from which it had been derived, had been based on an application of the JCT ICD terms. Second, the letter expressly provided that Penten was required to meet the conditions set out in the cost plan and in the tender. As I have said, both were premised on the application of the JCT ICD terms. Third, from first to last it was never in issue that the JCT ICD terms should apply to the works carried out at Plumbers Row. Those terms included the payment provisions dealing with monthly interim payments, variations and retention. Fourth, although the Scheme for Construction Contracts could have filled any void left by the parties, I would regard it as most unlikely that they would have chosen to leave matters of such importance unresolved by the express terms of the contract, namely the letter of intent. It is my view that both parties intended that if works proceeded Penten should be paid in accordance with the regime for payment contained in the JCT ICD terms. Fifth, although the wording of the eighth paragraph of the letter is not wholly clear, at least some of the costs payable to Penten would be determined by reference to the sums payable under the proposed formal executed contract.

I do not consider the Twintec case to be of relevance here. That was a case in which the subcontractor was required to carry out work under a letter of intent but “in accordance with” the DOM/2 form of subcontract. Each case depends on its own terms and that is not the form of language used in the present letter.

It follows from my conclusion that the process of applications for payment, valuation of works and certification of payments in fact operated by the parties in this case after the issue of the letter of intent was equally consistent with the continued existence of the letter of intent as it was with the formation of a subsequent contract also on the JCT ICD terms.

Thus, in the context of the main issue I have to decide, the payment regime adopted by the parties is ultimately a neutral factor.

The letter of intent obviously authorised payment of an amount which constituted a substantial proportion of the contract sum which had, by then, been agreed. It must therefore follow that the parties contemplated that the letter of intent could, if necessary, remain in play for a significant period of time. I consider separately below whether the letter of intent imposed a requirement that any replacement contract had to be the subject of formal execution.

Within this judgment I do not intend to address all the submissions made to me although I make clear that I have carefully considered all of them. What follows is intended as a summary of the principal points.

Spartafield’s principal case is that by 27 May 2014 the parties had agreed all the essential terms and that the hard copy of contractual documentation signed by it and provided to Penten on that day reflected the agreement between the parties. On its case, everything which occurred after that date was consistent with the performance of a contract on those terms. If the date of 27 May 2014 was premature on the evidence, Spartafield would contend for a later date although it accepted that, by March 2015, Penten was unequivocally saying it was unwilling to enter into a contract beyond that already concluded in the letter of intent.

Spartafield advances three other alternative cases. Its secondary case is based on a simple contract, not incorporating the ICD Conditions, but on the basis that all other essential ingredients had been agreed by September 2013, when work started. Its tertiary case is that there was an agreement by performance of the type said to have been identified in G. Percy Trentham. Spartafield’s last pleaded alternative is that a contract was formed by an estoppel by convention, namely that the parties proceeded upon a common assumption that there was a contract binding on them in the form already contended for.

As I have said, Penten’s submissions relied heavily on the existence of the letter of intent. It said that the existence of the letter militated heavily against the submission that the subsequent conduct of the parties was supportive of a fully formed JCT Contract. The fact that works were performed was, at best, neutral. By 27 May 2014, not all the matters which the parties regarded as essential for the conclusion of a subsequent contract had been agreed. Key matters were still being negotiated. The points which ultimately remained unresolved included the completion date, the scope of work by reference to the drawings and specification, the absence of a named QS, scope of design responsibility, collateral warranties and the status of AAF as a named subcontractor. On Penten’s case the matters which remained outstanding at that time were never resolved and were always regarded by the parties as essential for the conclusion of a binding replacement contract.

Penten submits that the fact that the need to conclude the written contract was repeatedly being raised at each site meeting suggested that the parties continued to regard its execution as important. Spartafield could not demonstrate that the conduct of the parties was only consistent with a subsequent contract rather than the letter of intent. Indeed, since the conduct of the parties never changed at any time, it could not be said that performance had ever ceased to be consistent with the letter of intent. On the contrary, the consistency of behaviour was a strong pointer that the letter of intent remained applicable.

Penten also relies on the letter of 10 July 2014 because it was made clear in that letter that Mr Ratnasingham would not sign the contract in its then present form. Mr Lewis submits that Spartafield fails to grapple with this fundamental difficulty. He points out that, on Spartafield’s case, there should have been a contemporaneous assertion that a concluded contract was already in existence but that Spartafield never asserted this either then or later. He points out that there is no reference within any site meeting minutes to the existence of a concluded contract (beyond the letter of intent).

Mr Lewis also drew my attention to Diamond Build Ltd, recognising that every case is fact sensitive and, for that reason, it was not overly helpful. Nonetheless he submitted that there were factual parallels between that case and those in the present proceedings.

Although not emphasised at trial, Penten’s pleaded case, disputed by Spartafield, was that both the letter of intent and the tender documents imposed a conditional requirement for formal execution akin to “subject to contract”. Thus, even if all the essential terms had been agreed for the formation of a contract to replace the letter of intent, formal execution of the contract was something which the parties treated as of significance. The failure to execute the contract meant that no such contract was concluded. At the very least, the requirement that the contract be executed under hand remained applicable throughout and the failure to do so was an indicator that the parties regarded the unresolved matters as ones of substance.

Penten rejects each of Spartafield’s alternative cases for the same reasons as already described. The secondary case is said to be inconsistent with the existence of the letter of intent which governed the position from July 2013. So too is the tertiary case since conduct was consistent with the existence of the letter of intent. The case on estoppel should also fail, noting that a similar contention was rejected in Diamond Build Ltd.

I now turn to the established law as I understand it to be.

The principles for contract formation are well known and conveniently summarised by the Supreme Court in RTS Ltd v Molkerei Alois Muller GmbH & Co [2010] 1 WLR 753 at paragraphs 45 to 56. From those paragraphs, I would initially wish to particularly emphasise paragraphs 45 and 54 which are in the following terms:

“The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement.”

“There is said to be a conflict between the approach of Steyn LJ in the Percy Trentham case [1993] 1 Lloyd's Rep 25 and that of Robert Goff J in the British Steel case [1984] 1 All ER 504 . We do not agree. Each case depends upon its own facts. We do not understand Steyn LJ to be saying that it follows from the fact that the work was performed that the parties must have entered into a contract. On the other hand, it is plainly a very relevant factor pointing in that direction. Whether the court will hold that a binding contract was made depends upon all the circumstances of the case, of which that is but one. The decision in the British Steel case was simply one on the other side of the line. Robert Goff J was struck by the likelihood that parties would agree detailed provisions for matters such as liability for defects and concluded on the facts that no binding agreement had been reached. By contrast, in the Pagnan case [1987] 2 Lloyd's Rep 601 Bingham J and the Court of Appeal reached a different conclusion, albeit in a case of sale not construction.”

As was pointed out in Pagnan SpA v Feed Products [1987] 2 Lloyds Rep 601, it is for the parties to decide whether particular terms were of economic significance and whether the need for agreement on those terms was a precondition to a concluded agreement. At p.619 Lord Justice Lloyd said:

“(1)

In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole … (2) Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled. That is the ordinary ‘subject to contract’ case. (3) Alternatively, they may intend that the contract shall not become binding until some further term or terms have been agreed … (4) Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled … (5) If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty. (6) It is sometimes said that the parties must agree on the essential terms and it is only matters of detail which can be left over. This may be misleading, since the word ‘essential’ in that context is ambiguous. If by ‘essential’ one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by ‘essential’ one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by ‘essential’ one means only a term which the court regards as important as opposed to a term which the court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the judge [at p 611] ‘the masters of their contractual fate’. Of course the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called ‘heads of agreement’.”

Thus it is clear that there is no principle of law that merely because work has been performed there must have been a concluded contract in existence reflecting an obligation to carry out and complete that work. Nonetheless, the Supreme Court makes clear that in most cases, the performance of work is plainly a very relevant factor pointing in the direction of a concluded contract. In the present case Mr Lewis says that the agreed existence of the contractual letter of intent effectively deprives Spartafield of any support from the fact of performance. Something to similar effect was said by the Court of Appeal in Galliard Homes Ltd v J Jarvis & Sons Ltd (1999) 71 Con LR 219. In that case a paragraph within a letter of intent promised payment of fair and reasonable costs on a quantum meruit basis if no formal contract was entered into through no fault of Jarvis. Lindsay J said:

“The presence of the paragraph also in my view denies the usual force to be attributed to the dictum of Steyn LJ in G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Ll Rep 25 at p. 27 that the fact that a transaction is performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations, at all events if the dictum is used to support the existence of some contract other than on a quantum meruit.”

I agree with the submission made by Mr Lewis. It seems to me that if parties have agreed that works may be commenced and paid for under a contractually binding letter of intent, the fact that work was then undertaken and paid for in accordance with the terms of that letter of intent cannot, of itself, be a material factor pointing in the direction of a subsequently concluded contract.

As I have mentioned, at the trial, Mr Lewis for Penten did not specifically contend that this was a “subject to contract” case (or akin to it) although an argument along those lines is pleaded at paragraph 43.4 of the Amended Defence. In case it remains live, I will deal with the point, albeit briefly. There are a number of cases in which a letter of intent had been issued promising the provision in due course of a formally executed contract which never materialised. Some of those cases are conveniently summarised in Bryen & Langley v Martin Boston [2005] BLR 508, CA. In that case, at paragraph 31 Rimer J referred to what Latham LJ had said at paragraph 9 in Harvey Shopfitters Ltd v ADI Ltd [2004] 2 All ER 982:

“This court 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 (formerly Tarmac 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 …”

At paragraphs 36 to 38, Rimer J continued:

“36 There remains the point that particularly impressed the judge, namely 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. That is a view with which it is perhaps quite easy to have instinctive sympathy, but it is one with which, on the facts of the present case, I respectfully disagree. 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 does not preclude the conclusion that they have already informally contractually committed themselves on exactly the same terms. Of course, if they negotiate on a “subject to contract” basis such a conclusion will be precluded. But otherwise it will not, or at least may not. This court 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.”

37 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.”

38 The decision in Harvey is 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. In my judgment, the same conclusion can and should be drawn as to the parties' intentions in the present 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. In my judgment, the judge was in error in his conclusion that the contract the parties concluded in June 2001 did not incorporate the JCT Form. I prefer the view that it did.”

In the context of a “subject to contract” argument it is also relevant to refer again to paragraphs 55 and 56 of RTS:

“We note in passing that the Percy Trentham case was not a “subject to contract” or “subject to written contract” type of case. Nor was the Pagnan case, whereas part of the reasoning in the British Steel case in the passage quoted above was that the negotiations were throughout conducted on the basis that, when reached, the agreement would be incorporated in a formal contract. So too was the reasoning of the Court of Appeal in Galliard Homes Ltd v J Jarvis & Sons Ltd (1999) 71 Con LR 219. In our judgment, in such a case, the question is whether the parties have nevertheless agreed to enter into contractual relations on particular terms notwithstanding their earlier understanding or agreement. Thus, in the Galliard Homes case Lindsay J, giving the only substantive judgment in the Court of Appeal, which also comprised Evans and Schiemann LJJ, at p 236 quoted with approval the statement in Megarry & Wade, The Law of Real Property , 5th ed (1984), pp 568–569 that it is possible for an agreement “subject to contract” or “subject to written contract” to become legally binding if the parties later agree to waive that condition, for they are in effect making a firm contract by reference to the terms of the earlier agreement. Put another way, they are waiving the “subject to [written] contract” term or understanding.

56 Whether in such a case the parties agreed to enter into a binding contract, waiving reliance on the ‘subject to [written] contract’ term or understanding will again depend upon all the circumstances of the case, although the cases show that the court will not lightly so hold.”

Accordingly, it is a question of fact and, if appropriate, construction as to whether the parties ever made formal execution a condition of concluding a contract between them. It is not sufficient that formal execution is contemplated. If formal execution is a stipulation which must be complied with, then effect must be given to that requirement even if all substantive terms have been agreed unless the parties can be shown to have later waived the requirement. If stipulated, the requirement is not easily dispensed with.

In light of the factual findings above, the submissions made by the parties and the law as I have described it, I now set out my own conclusions.

Both parties accepted, as they were bound to do, that I have to determine the question of whether there was a concluded replacement contract by reference to their conduct viewed objectively. Nonetheless, this was a case in which both parties invited me to have regard to evidence of internal communications behind the party lines because they each submitted, albeit in different respects, that such evidence informed the nature of the conduct which has to be objectively viewed. Whilst I see that internal communications could shed some light on how parties express themselves, particularly orally, it seems to me to be of far less significance in a case which primarily depends on written exchanges. What the parties wrote to each other depends on an objective construction of those communications, whatever the authors may privately have meant. In any event, overall, I did not find the internal communications on either side in this case of any great assistance.

From the commencement of works on 9 September 2013 the letter of intent governed the relationship between the parties. The works proceeded on that basis and, on my construction of that letter, Penten accrued a right to be paid for such works in accordance with the JCT ICD conditions.

The letter of intent plainly contemplated the subsequent execution of a formal contract in due course. As I have said, the level of financial authority afforded by the letter also implies that the parties expected it could take some time to reach that point. However, as I have identified above, a different question is whether the parties agreed that no contract other than that provided for by the letter of intent would come into being unless and until a new replacement contract had been the subject of formal execution. In that context, Penten relied on the references within the letter to “a formally executed contract” and a “formal contract document”. In addition, it was pointed out that the tender documentation included draft JCT ICD Conditions, which presuppose formal execution of the documents by signature under hand. In response, Spartafield contended that there was no agreement that any formal contract would be executed by the parties and no agreement that a contract would not be binding unless formally executed. I must therefore resolve that issue.

Although the JCT ICD 2011 form on which tenders were invited plainly envisage that a contract would be subject to execution in writing by the parties to it, there is nothing in its language of the form which indicates that this must be done as a condition of a contract being concluded on those terms. Within the construction industry, the situation is all too familiar of parties concluding a contract based on a standard form of contract such as the present one even though they do not go through the formal process of signing it. I am quite satisfied that it is perfectly possible to contract on the basis of a JCT standard form despite it not being executed in the matter contemplated in the Articles, at least where there is no additional requirement for execution under seal. Examples of this can be found in Harvey Shopfitters and Bryen & Langley, cited above.

Although, as I have said, the letter of intent is not the easiest of documents to construe, I do not consider that it imposes a condition that the contemplated replacement contract must be the subject of formal execution. It plainly envisages there will be a formally executed contract document in due course but it does not, in my view, make the existence of that document a pre-condition to the conclusion of a replacement contract. I reach that conclusion for the following reasons. There are simply no words which could be said to impose such a condition. Words such as “until”, “unless” or “subject to”, the type of language to be expected if a condition is being imposed, have not been deployed. The sixth paragraph provides for payment of reasonable and proven costs “in the event of the works not proceeding” whereas in this case they did proceed. In the eighth paragraph there is a promise to pay substantiated third party costs in the event that a formally executed contract does not come into existence but even that does not say that formal execution is the only way in which a replacement contract between the parties could be established. The final sentence of the letter is merely a statement that the formal contract will follow. That is simply narrative and it falls short of making the formal contract a condition of its existence. If the parties had turned their minds to the position in July 2013 and asked themselves what would happen if they later agreed all the essential terms for a replacement contract (in the Pagnan sense) I do not believe that they would have considered formality of execution should be a pre-requisite of such replacement contract. I can think of no commercial reason why they would have regarded the need for formal execution as a pre-condition to the existence of such replacement contract on those terms, once they had in fact been agreed. In my view, at the time of the letter of intent, the parties saw formal execution simply as a desirable objective so that there would be a clear record of what had been agreed. It was not a condition. Although the subsequent meeting minutes reflected a continued and understandable desire to formally execute contract documents, formal execution was never, at any stage, made a condition.

After the issue of the letter of intent, the process of seeking to finalise the outstanding terms of the contract between the parties commenced.

By mid December 2013 there was little, if anything, left to be discussed. Mr Ratnasingham emailed his comments on the contract to Mr Shannon. There were only three points raised and they were rightly described as minor.

At the start of May 2014 the only item which was outstanding was that of collateral warranties. That item was sufficiently resolved as reflected in the version of the contract documents proffered at the end of May 2014.

Accordingly, in my view, Spartafield is right to point out that by the end of May 2014, the key principles for a contract had been agreed. I detail further below my findings in respect of individual topics covered in the evidence at trial but I can shortly summarise the position as it was at the end of May 2014. It was clearly agreed that the terms of contract would be those contained in the JCT ICD form. The scope of works was that which had been priced in the cost plan agreed immediately prior to the letter of intent. The price for those works was that identified in the cost plan.

As regards timing, the date of commencement and of completion had been agreed as 9 September 2013 and 14 July 2014 respectively. I accept that by the end of May 2014, there was a level of awareness on both sides that delay to completion of the works was becoming an issue. Mr Leon was privately concerned that Penten would be reluctant to sign the written contract for that reason but, at that time, Penten never expressed itself in those terms. Equally Mr Leon never expressed his private concern to Penten. As Spartafield’s witnesses said in evidence, Penten never expressly withdrew its agreement to a completion date of 14 July 2014. It was only later in July, that the substance of the terms was re-visited when Penten began to openly raise the completion date as a significant factor.

The principle of collateral warranties had also been agreed. So, too, had the form of those warranties.

All that remained at the end of May 2014 was (a) to ensure that what had been written down corresponded to that which had been agreed and (b) to continue and refine the negotiations in respect of those matters of detail which had not been resolved but which were not central to the conclusion of a contract in law.

I accept the evidence of Mr Ratnasingham that he needed time to consider the documents that had been handed over at the site meeting in May 2014 in order to ensure that they corresponded to the basis upon which both parties were proceeding to date. However, whilst Penten was entitled to say that it would not execute that written contract until it was satisfied that what had been handed over accorded with that which had been agreed, that did not mean that a legally binding contract could not be formed without it. By now all the terms which the parties regarded as essential had been agreed. The crucial question is whether, by now, the parties had agreed to displace the letter of intent with the replacement contract even though that replacement contract had not yet been formally executed. In my view they had.

Mr Lewis forcefully points out that there was no change in behaviour from this point in time. He says that it was only much later that Spartafield asserted that a replacement contract had come into being at this time but had never said so contemporaneously. Both of these points are true. But, in my view, neither of those points necessarily means that a replacement contract had not been formed by the end of May 2014. Each would have been pointers that a contract had been concluded at this time but their absence does not preclude a finding as to the existence of a contract. Similarly, the fact that negotiations continued after the end of May 2014 does not mean that there was no concluded contract at that point. The conduct of the parties in continuing their negotiations is consistent with the on-going desire to refine those further points of minor detail which had not previously been agreed or to accurately record that which had been agreed.

It follows that, although Penten said on 10 July 2014 that it would not sign the contract documents as presently drafted, it was not legally entitled to withdraw from the replacement contract into which it had already entered. It is true, as Mr Lewis submitted, that Spartafield did not write to express surprise at the refusal to sign the contract upon receipt of this letter. I am satisfied that was because Mr Leon thought it was essentially a platform for an extension of time claim.

If, contrary to my primary findings, there were matters of importance outstanding at the end of May 2014 such that Penten was entitled to adopt the position it did on 10 July 2014, I consider the parties reached a further level of agreement by mid-September 2014. By then, it had become clear once again that the parties had agreed on all essential terms and that there was nothing of actual substance left to agree. In my view, even though the parties had still not actually executed the JCT Contract, there was nothing between them as to the terms of a replacement contract. As I have recorded above, Penten had received the comments on the contractual documentation back from PH+ and had had the opportunity to review them all. The promise that they would be signed within the following two weeks was a clear indication that nothing of substance remained in issue between the parties. All that was outstanding was the process of recording the agreement. Even that was only contemplated to take two weeks.

It is convenient to express my prior conclusions primarily by reference to those individual points said by Penten to have been outstanding whether in May 2014 or subsequently.

These conditions had been the basis upon which the tender had been submitted and had not substantively changed. Of course some of the particulars had to be completed but there can be no doubt that these Conditions applied.

In my view the scope of work had been already agreed between the parties prior to the issue of the letter of intent. A very detailed specification and drawings had been supplied and Penten had provided a compliant tender on the basis of such works. The work that Penten agreed to carry out was that set out in the tender documentation, including the specification and drawings, subject to the value engineering exercise which had subsequently taken place and in respect of which agreement was reached. It was for that work that Penten agreed it would be paid the sum of £1,150,000, the proposed Contract Sum. If there were matters of detail unresolved, allowances had been made. That was the position from 19 July 2013 and remained the position throughout.

Neither the scope itself nor the price attached to it was therefore ever in issue. What remained incomplete was the cumbersome process of having to align the specification and drawings previously provided at tender stage with the detail of subsequent value engineering that had taken place. On 19 July 2013 Penten itself had suggested a shorthand way of dealing with this, namely to simply include a record of the value engineering proposals as part of the contract whilst retaining the original architect’s specification and giving precedence to the former where it conflicted with the latter. That suggestion was not taken up but it clearly demonstrates that Penten would have been happy to proceed contractually on that rudimentary basis. In other words, whilst desirable, provision of a detailed and accurate specification was not necessary in order for the parties to enter into a contract. As Mr Puncher said in evidence, there was always a mismatch between the contract sum analysis and the work described on the drawings but the parties all agreed to proceed on that basis. It obviously made sense to record what was ultimately required in the specification and on the drawings but the process of doing so was not fundamental to the formation of a contract. Initially PH+ and then Penten made an attempt to embark on the detailed process of reconciling the documents. Penten sent the product of that process out on 15 July 2014. PH+ responded on 14 August 2014. The evidence from PH+ was that its response properly reflected the effect of value engineering which had previously been agreed. It is not necessary for me to reach a complete conclusion on that but I largely agree with its general direction. If there were minor matters of detail unresolved they were not in any sense fundamental matters of substance. That is why, on 16 September 2014, Penten was able to confirm that it would sign the contract within a fortnight thereafter. The key point here is that the substantive scope was always agreed. All that remained was for the parties to properly record that agreement. Even the process of recording that detailed agreement was itself close to resolution.

By 19 July 2013 the parties were in agreement that the date for completion of the works was to be 14 July 2014. However, I accept Penten’s submission that until a replacement contract was agreed, any term, including the obligation to complete by a particular date, was a matter open for renegotiation. By no later than the end of May 2014, it was clear to both parties that there were delays on the project and both parties were aware that the works would not in fact be completed by 14 July 2014. However, at this time, neither party was openly suggesting that that fact should preclude the existence of a contract which retained the existing date and allowed for extensions of time to that date to be evaluated (or agreed) in accordance with its terms. That is unsurprising. It is what Mr Ratnasingham had said in April 2014. In evidence, Mr Ratnasingham frankly accepted that it would have made no commercial difference to Penten whether the date for completion stated in the contract was itself changed or whether the date was retained but made subject to an extension. In either case it would not be liable for liquidated damages. The completion date of 14 July 2014 remained agreed at the end of May 2014.

On 10 July 2014 Penten had sent a detailed letter explaining the reasons for the delays. By that letter and the one dated 15 July 2014 Penten made it clear that the date for completion was a matter which had to be discussed and agreed. At that stage Penten said it was not prepared to agree to enter into a contract which provided for a completion by a date that, subject to any extension of time, had already passed. This was the first time that that had been its open position. It was not the position before the contract documents were handed over.

Even then, I conclude that shortly thereafter Penten modified its position. Instead of making the formation of a contract conditional on the agreement of a deferred completion date, I find that Penten agreed that the matter could be resolved either by making an application for an extension of time to be assessed by the contract administrator pursuant to the provisions of the contract or by reaching direct agreement as to an appropriate extension to the contractual date directly with Spartafield. The conditional requirement was therefore not pursued. It was not maintained or repeated in any subsequent correspondence. I am reinforced in my conclusion that Penten abandoned it insistence on prior agreement being a condition because, in December 2014, it expressly agreed to deal with the matter by making an application for an extension of time. That is consistent only with the notion that there was a concluded contract pursuant to which an extension of time could be sought.

Accordingly, the parties were agreed on the date for completion both at the end of May and, again, by the end of September 2014.

It is clear that the JCT ICD Conditions presuppose the formal appointment of a named Quantity Surveyor. Article 4 provides for that person to be identified and there are designated functions for him to perform under the Conditions including, particularly, the role of receiving and valuing applications. The role is not, perhaps, as central to the structure of the contract as that of the Contract Administrator but it is nonetheless an important one if the strict letter of the conditions is to be adhered to.

From an early stage it had became apparent that Spartafield did not intend to use Stockdale as the named Quantity Surveyor. The contractual exchanges in December 2013 record a proposal that Article 4 would either identify PH+ or be left blank. At that time, Mr Ratnasingham’s comments did not dissent from the adoption of either of these alternatives.

The form of contract signed by Spartafield and provided to Penten in May 2014 had left Article 4 blank. As Mr Puncher said, that was consistent with Penten’s prior position. However, on 15 July 2014 Penten proposed that Article 4 should refer either to PH+ or to Mr Shannon’s firm, Shannon & Leach. The latter alternative reflected the de facto position which had been in play since the commencement of works, namely that applications for payment were being made to and valued by Mr Shannon. I accept Mr Shannon’s evidence that this had been openly discussed and that it was agreed he could value the works as between Spartafield and Penten. In any event it is quite clear to me that this procedure caused Penten no practical difficulty at all and, as is clear from its suggestion that he be expressly named, it was quite content for Mr Shannon to continue in that role. The position adopted by PH+ in August 2014 was that Penten had previously agreed to leave Article 4 blank and that there was no particular reason to change this.

In my view, the parties did not regard the formal identification of the quantity surveyor within Article 4 as one of central importance because it was obvious to all concerned that, in practice, Mr Shannon was fulfilling that role. Penten would have gained nothing of substance by having that formally recorded. Penten made its applications for payment to Mr Shannon and he valued them. At no stage was Penten left in a position where it was unable to have its applications valued because there was no-one to carry out that function. The conclusion that his formal identification was not regarded as necessary is reinforced by the fact that Penten had previously been content to leave Article 4 entirely blank.

Therefore, the parties were agreed throughout that it was not necessary to name the quantity surveyor. They were also agreed that in practice Mr Shannon was fulfilling that role.

In my view there never was a real issue about the terms of design responsibility. The parties had agreed the central propositions. Both the JCT ICD Conditions of Contract and the tender documentation completed by Penten proceeded on the footing that the contractor would not be responsible for the design of the works save for those specific elements comprised within the Contractor’s Design Portion (“CDP”). As to those elements, the JCT Conditions make provision for the extent of the contractor’s liability for design. Under that regime the contractor is not liable for those parts of the design which were already included within the Employer’s Requirements but he is liable for those elements of the design which he completes as part of the Contractor’s Proposals (or thereafter). Following the value engineering exercise, Penten was concerned to ensure that it would not acquire design liability for both the structural and M&E design works that had already been undertaken by MNP and ME7 respectively. That is understandable but, as far as I can see, it was never suggested that Penten would be liable for such design work. It was a non-issue.

Accordingly, the principles were a matter of common ground at all material times. All that was required was to properly record it.

Even if I am wrong about that, I am not satisfied that this was regarded by the parties as a matter without which they would be unable to agree a formal replacement contract. Pursuant to an implied term of the letter of intent Penten would always have been liable for the quality of the design work it actually carried out and, conversely, would not have been liable for the quality of design work that others had performed. That is effectively the same position as I have just described.

There was a considerable amount of evidence on this topic. As I have said, by early May 2014, this was the only matter in respect of which final agreement had not been reached and it was identified by the parties in early May as the last remaining matter to be agreed.

Ordinarily I would not regard the failure by the parties to agree the terms of such warranties or to have completed the standard forms as a matter of sufficient importance to preclude the existence of a principal contract. It is not generally regarded as a term which is essential to the proper functioning of a building contract. Moreover, the party that would need to be able to rely on the warranties is the employer. I cannot see why the contractor would regard it as essential for him to reach agreement on the terms of the warranties to be provided. If their terms were not agreed then the position would simply be that warranties would never be signed and the contractor could never incur any liability pursuant to them. The terms of the building contract would be applicable in any event as between the employer and contractor.

However, it does seem that in early May 2014 the parties regarded it as important that the matter of collateral warranties was agreed. In particular, it was identified as the last remaining matter which needed to be resolved.

At tender stage, it was clear that Penten would be required to provide executed collateral warranties in the standard forms provided by the JCT, namely CWa/P&T and CWa/F, in favour of Purchasers and Tenants and Funders respectively. By issuing a compliant tender, Penten was making clear that it had no principled objection to the giving of such warranties. Moreover, since the forms were prescribed, there was precious little scope for debate or discussion about the terms of such warranties. The principle of giving warranties and terms of such warranties were therefore the subject of early agreement. The identification of the beneficiaries of such warranties (other than the funder, who was known) remained to be resolved but their identity is not necessary in order to agree the terms of the warranty that would, in due course, be executed. Article 11 contemplated that they would be executed subsequently. It is correct that no collateral warranty form was ever produced for signature in respect of purchasers and tenants. However, the basic terms for such warranty or warranties had been agreed.

It is fair to say that the parties made relatively heavy weather of implementing this aspect of the matter and did so over rather a long time. There seems to have been some confusion between, on the one hand, identifying the consultants who would be named for the purposes of the net contribution provision and, on the other hand, the further suggestion from Penten that Spartafield should procure separate direct warranties from those consultants.

However, I am clear that ultimately there was nothing of substance between the parties as regards the provision of collateral warranties. By the end of May 2014 Penten had agreed it would provide such warranties both to funder and purchasers and tenants. The form of such warranties had also been agreed. The three consultants to be named for the purposes of net contribution were the same in each case and had been identified and agreed. Even though, as I have said, no form was provided in favour of the purchasers and tenants, that is not unusual. It is often the case that such documents are only commercially material later on and have to be completed when the purchasers or tenants have been identified. What mattered was that Penten had agreed in principle to provide such warranties. None of the contractual matters raised by Penten on 15 July 2014 related to concerns about collateral warranties.

Nonetheless Penten’s case was that, irrespective of the net contribution clause, it was also insisting at various times that the consultants themselves signed equivalent warranties so that Penten would not be the first or only port of call if a claim was ever made by a third party. It was suggested that there was a real difference between, on the one hand, it being sued jointly with a consultant for a particular complaint and, on the other hand, it being sued alone with the benefit of a net contribution clause (Footnote: ⁵). However, I do not accept that Penten ever pressed that additional nuance with any degree of vigour either before the end of May 2014 or thereafter. For example it was not a point raised when Penten first tendered. Nor was it raised later in Mr Ratnasingham’s email of 18 July 2013. Nor was it mentioned in the email of 1 May 2014 recording the call between Mr Ratnasingham and Mr Shannon. Mr Brown was unable to explain why he did not raise it then despite being copied into Mr Shannon’s email. In my view, the reason was because it was not an issue at the time. Nor was it mentioned in the letter of 15 July 2014. I accept Penten insisted upon the identification of consultants for the purposes of the net contribution clause and that, in this context, that was what really mattered to it. But that point had been resolved by early May 2014. The additional benefit that would be obtained by knowing that the consultants themselves had agreed to or had in fact entered into warranties was marginal at best and as far as I can see was probably only emphasised in hindsight. I accept Mr Shannon’s evidence that what was important to the parties was completion of the particulars in respect of the net contribution clause and not the signing of separate warranties by the consultants in favour of third parties.

I therefore conclude that collateral warranties were agreed by the end of May 2014. Thereafter, it took longer than it should have done to put that agreement into practice.

It was common ground by the end of May 2014 that AAF was to be a named subcontractor in respect of the provision of windows and it was identified for that purpose. Penten contends that AAF was also to be a named subcontractor in respect of the provision of balustrades and that Inver Kitchens were to be named subcontractors in respect of the kitchens. I accept the evidence of Mr Puncher that this had not been Penten’s position prior to the end of May 2014. Mr Puncher had said that it was up to Penten who was employed for the balustrades and, in due course, Penten merely chose to use AAF. Nor was there any requirement about the use of Inver Kitchens. Penten had raised the status of these companies back in September 2013 but the position was then clarified. I reject Mr Ratnasingham’s evidence that Mr Crane of PH+ insisted upon the use of AAF. All he did was question why AAF were not being used.

In any event, I do not consider that the question of the status of two subcontractors was regarded by the parties as something which would preclude the conclusion of a binding contract between them. If agreement was not reached, it was still possible for the contract to operate without agreement on that issue and the parties understood that.

I therefore uphold Spartafield’s primary case that the letter of intent was replaced by a new contract incorporating the JCT ICD Conditions and that such contract was agreed at the end of May 2014 or, alternatively, by mid-September 2014. At no stage was it ever made a precondition to the formation of a replacement contract that it should be subject to formal execution. To summarise, the contract which I have found to exist is one made on the basis that:

I do not base my conclusion on the fact that the parties conducted themselves in accordance with the existence of a concluded contract in terms of applications for payment, valuation and certification, although they in fact did so, because I accept that such conduct is equally consistent with the letter of intent which was the regime which had previously been applicable. In that regard, I agree that this conduct was largely neutral.

In light of my primary conclusion it is not strictly necessary for me to deal with the alternative cases. The secondary case does not arise because I have concluded that there was an agreement on the JCT ICD terms. On the evidence I do not see how it is possible to find a half-way house between a replacement contract incorporating the JCT ICD Conditions and the terms of the letter of intent. The premise of the letter of intent was that it would continue to apply unless a replacement contract of the sort then contemplated, namely the JCT ICD terms, was concluded. If I was wrong to conclude that there was an agreement on the JCT ICD terms, then I would not find a simple contract without those terms.

The tertiary case does not arise. But, for the reasons that I have already given, I do not consider this to be a case of a contract by performance of the type identified in G.Percy Trentham. The continued performance of the works was equally consistent with the letter of intent.

Nor do I find that a contract was formed on the basis of an estoppel by convention as pleaded. I would need to be satisfied that there was conduct which was clearly and unequivocally consistent only with there being in place a concluded contract to replace the letter of intent. That is a very difficult submission to sustain because the relevant conduct is equally consistent with the continued application of the letter of intent. If I am wrong in my primary conclusion that there was an agreement on all the relevant terms then I cannot see how that deficiency can be made good by an estoppel. Accordingly, there was no convention. Mr Darling QC was also inclined to accept that he could not use the doctrine of estoppel to create a contract that did not otherwise exist. The potential difficulty in such contention has been the subject of discussion in the textbooks: see for example paragraph 2-056 of Keating on Construction Contracts 10^th edition.

Instead Mr Darling QC ultimately put his case on estoppel as akin to that of waiver in the circumstances identified in paragraph 56 of RTS. In other words, if the contract was concluded “subject to contract”, he would contend that there was an estoppel by convention that the parties were in contract despite it not having been formalised. I have concluded that the contract was not “subject to contract”. If I am wrong about that, I would not have held that there was such a convention on the facts.

For the reasons set out above, I agree it is appropriate to issue a declaration that Spartafield and Penten entered into a contract whereby Penten agreed to carry out the works at 21, Plumbers Row, London E1 1AJ on the basis described above and in substitution for the letter of intent.

I will leave it to counsel to formulate and agree the precise declaration that is sufficient to reflect the terms of that conclusion. In the absence of agreement I will determine any issue arising.

Unless it is otherwise agreed, I will also hear the parties on the consequential relief so far as it impacts on the two adjudications and on other matters including costs.