The case from which this quotation is taken – Tesco Stores Limited vs Costain Construction Limited & Others (2 July 2003) – had more to do with cavity barriers in roofs than with unicorns. Tesco was claiming damages from (among others) Costain, its design-and-build contractor, for allegedly installing insufficient firestopping measures in a store in Redditch, Worcestershire. The supermarket had been badly damaged by a fire in 1990.
His Honour Judge Seymour was making the point that letters of intent are rarely of the pure and simple variety under which the contractor gets paid for work done without incurring contractual obligations. Usually they form part of a contract: either an
“if contract” (if and insofar as the contractor chooses to carry out work, he takes on certain obligations); or a full contract (under which a contractor is obliged to do the relevant work).
Despite the above, Costain kicked off its case by arguing that, although there had been an exchange of letters between the parties, and although it had gone ahead and built the store, there was no contract. Tesco’s lawyers obviously had difficulty treating this argument seriously. Tesco’s position, said the judge, was that “it was so obvious that there was a contract that the contrary could not be advanced by someone in control of his facial muscles”.
Costain had more success with its main argument. This was that, if there was a contract, it was a simple one. In particular, said Costain, it did not incorporate Tesco’s standard terms and conditions, contained in a package of documentation that Tesco had prepared, but had never sent out for signature. That point was all-important: if the standard terms were not incorporated, the action was barred under the
It was so obvious there was a contract that the contrary could not be advanced by anyone in control of their facial muscles
six-year limitation rule; if they were incorporated, there was no time bar, since the documents envisaged a 12-year limitation period.
In rejecting Tesco’s case, the judge was influenced by a number of factors. It was inconceivable, he felt, that Costain had agreed to put itself in a position where it would have taken on responsibilities for the design work of third parties without having signed the novation agreements that would ensure that it had rights against those parties.
But the main point for the judge was that it was not possible for Tesco to identify any point at which Costain had accepted an offer to contract on the standard Tesco terms. The judge held, therefore, that although there was no letter of intent of the pure variety, there was nonetheless a simple form of contract, under which Costain had certain workmanship obligations. Unfortunately for Tesco, that was not the answer that it wanted.
It is reassuring to hear a court restate basic contract principles, and also to confirm that parties cannot be surreptitiously pushed into agreeing terms merely by not writing to deny acceptance of them. The case may be contrasted with Yorkshire Water Services vs Taylor Woodrow, which Robert Akenhead wrote up in Building on 27 June (page 52), where the judge thought it relevant that both parties had acted as though a contract had come into existence. However, in that case, one party had consistently acted so as to suggest that it intended to accept the other’s offer. By contrast, in Tesco, Costain kept asking for the contract documents – including the critical novations – and did not receive them.
Ian Yule is a partner in solicitor Wragge & Co.