New methods, old legal problems

Because partnering in construction is a recent development, there aren't many legal cases illustrating how the various courts will view partnering arrangements, particularly the role they play in establishing a contract between the parties.

One such case was set in motion in 1998 which saw Birse Construction and St David go to the Technology and Construction Court (TCC), up to the Court of Appeal, then back to the TCC. The main thrust of the dispute between the two companies lay in the question of whether a contract had been concluded between them, even though they had drawn up a partnering document.

In April 1997 at the start of their working relationship, a letter of intent was sent which read, in part: "Please accept this notification as a letter of intent to employ your services under a partnership arrangement for the construction of the Adventurers Quay, Cardiff development". Negotiations continued, and it was envisaged that there would be a contractual relationship based on the JCT 80 with a partnering concept somehow attached.

A doomed relationship?
As well as this letter, the two firms held a team building seminar and signed a charter. This included fine aspirational phrases such as: "To produce an exceptional quality development within the agreed time frame, at least cost, enhancing our reputations through mutual co-operation and trust . . . [Under the sub-heading Relationships] To promote an environment of trust, integrity, honesty and openness . . . To promote clear and effective communication . . . [Under the sub-heading General] To complete the entire project by mutual support. To enhance the ethos of partnering. To build long-term profitable relationships with all parties". Needless to say, the relationship was doomed.

Birse left site in August 1998 having carried out works for which St David had paid £5.75 m. Birse contended they were worth (as a fair commercial price) £6.75 m. St David said that a contract had been made, including an arbitration agreement. Birse did not dispute that, if a contract had been made, it included an arbitration agreement, and so, if a contract had been made, the court proceedings should not go ahead. But Birse maintained that there was no contract.

A contract exists
The first judge at the TCC decided, that a contract between the two parties had been concluded.

He commented that: "Although it was clearly envisaged that formal contract documents would be drawn up and executed by both parties, there was never an agreement that there would be no binding contract between the parties unless and until those documents had been prepared and executed. I have little doubt that the parties considered that the partnering arrangement that they had made, as exemplified by the charter, made it unnecessary. People who have agreed to proceed on the basis of mutual co-operation and trust are hardly likely at the same time to adopt a rigid attitude as to the formation of a contract." It's important to note that this judge made his decision based on affidavit evidence – that is without cross-examination of witnesses.

The Court of Appeal had nothing to say about the partnering arrangement. The main decision, by a two to one majority of the Appeal judges, was that there was still an issue as to whether a contract had been concluded between Birse and St David. As a result of this decision, the case went back to the TCC to a different judge – this time for a decision based on full witness and documentary evidence.

An alternative view
Having heard the fuller evidence, the second TCC judge decided that there was no contract. The judge said that, by the last date on which St David contended that the contract was made, all that had been achieved was that the parties had reached "what might well be said to be a practical commercial accord".

St David had told Birse that the contract was not to be taken further for the moment because there was some criticism of the contract arrangements within St David.

Work continued on the site at that time, and the fact that no contract had been signed was expressly acknowledged in minutes of a meeting held in November 1997.

In January 1998, St David gave Birse written notification of an intention to recover costs. Birse objected and St David sent Birse a set of contract documents for execution. Unsurprisingly, Birse did not execute them.

Shortly after this, St David indicated its intention to deduct liquidated damages, and the relationship between the parties declined further. Practical completion was certified in July 1998.

The judge concluded that this was a case where the parties intended that the contract should only be concluded when it had been properly drawn up, agreed by management and signed off or executed.

Given that the parties were "the masters of their contractual fate", St David had put a hold on the conclusion of the contract which had lasted far longer than originally anticipated, and by the time St David lifted the hold, Birse was no longer willing to enter into a contract on the terms put forward by St David. No contract had been concluded between the parties.

Lessons to be learned
Among the lessons to be drawn from this case is that even well intended partners may fall out. If they do and the partnering arrangement itself does not make full provision for any problems which may arise, it will be necessary to look at the contract.

If there is no contract, then the existence of a partnering arrangement will not be of great assistance.

This is not to underestimate the potential value of properly drawn up partnering arrangements. However, proper attention to the pitfalls and the legal realities will be needed, and not just a series of well-meaning mission statement type phrases.