Hadley Design v Westminster Council

Out-Law Guide | 02 Nov 2007 | 8:31 am | 11 min. read

A construction industry case which provides guidance on the meaning of "written standard terms of business" under the Unfair Contract Terms Act 1977.

Hadley Design Associates Limited v Westminster London Borough Council

  • MCLR April 2004
  • [2003] EWHC 1617 (TCC)
  • [2003] All ER (D) 164 (Jul)

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Facts

After the second world war Westminster London Borough Council ("the Council"), the Defendant, caused to be constructed what became known as the Churchill Gardens Estate ("the Estate") which comprised of 37 blocks of flats situated in Pimlico. Over time the blocks of flats deteriorated and by 1984 the original windows had been identified as a matter of concern. The Council decided to engage the services of surveyors or architects to survey the condition of the windows.  The Council invited Hadley Design Associates ("HDA"), the Claimant, to tender for the work by writing to HDA on 10 February 1984.  The letter stated that it was envisaged that the project would span over five years and that any engagement would be in accordance with the Royal Institute of Chartered Surveyors Conditions of Engagement for Building Surveyors (1981 Edition) ("RICS Conditions").

HDA submitted a tender on 5 March 1984, which was accepted by a letter dated 2 April 1984 in which the Council confirmed that the terms of engagement were as set out in its letter dated 10 February 1984.

HDA undertook the survey and prepared a full report identifying a substantial quantity of work as being necessary.  HDA was to supervise the maintenance work to be done and formally contracted with the Council on 1 July 1987 to carry out the works of repair and refurbishment ("the Contract"). The Contract described the services by reference to the Conditions of Engagement for Building Surveying Services published by RICS, as amended by the Council's Conditions of Appointment. However, curiously, the contract did not state that the relevant conditions were incorporated into it.  Nevertheless, a number of the RICS Conditions were varied in the Contract, including clause 1.7 which was entitled "Postponement and determination". The RICS Conditions allowed for the contract to be terminated either by the client or surveyor at any time on the expiry of "reasonable notice". The amendment in the Contract stated "reasonable notice shall be one month".

Works proceeded under the Contract for some time. On 15 February 1996 the City Solicitor on behalf of the Council wrote to HDA informing it that under clause 1.7 of the Contract the Council was terminating the contract with one month's notice. No reasons were given for the termination.  HDA subsequently issued a claim against the Council for wrongful termination of the Contract claiming the loss of profit it would have made had it been permitted to carry out all the full works required under the Contract.

To overcome the differences posed by clause 1.7, at the trial, Mr Burr, on behalf of HDA, relied heavily on what was said at a meeting on 31 July 1986 between Messrs Wickersham and Berry for the Council and Mr Wright for HDA. Mr Burr contended that Mr Wickersham had stated at the meeting, as further clarification of clause 1.7, that the Council would not seek to determine the Contract unless either HDA was in default of the Contract or the Council had run out of money, a situation that was unlikely to happen due to the necessary works being budgeted for.  Mr Burr also relied on similar assurances made during a telephone conversation between Mr Wright and Mr Anthonio for the Council, who at the time was finalising the Contract.

HDA claimed:

  • those assurances amounted to a collateral contract by which the Council agreed that it would only terminate the Contract in the limited circumstances as mentioned above;
  • those assurances were representations made to induce HDA into entering into the Contract and that HDA did in fact rely upon those representations when entering into the Contract, which resulted in the Council being estopped from "resiling from the true effect of the said representation and/or assurances in that it would be unjust and unconscionable for them to do so";
  • it was implied into the Contract to give business efficacy that the Council would not terminate the Contract for any reason unless HDA was in breach of the Contract, and
  • section 3(2)(b) of the Unfair Contract Terms Act 1977 ("UCTA") applied, in that a clause on one party's standard written terms allowing that party to terminate without reason on one month's notice purported to permit partial or different performance from that which HDA expected, and should be treated as invalidating or restricting the operation of the said clause.

Judgment

The majority of the judgment deals with factual findings in relation to the collateral contract, estoppel and implied terms arguments; these are dealt with briefly here. Judge Seymour found that in fact no agreement or representation had been made that clause 1.7 would only operate in the event of HDA's default or if the Council ran out of money. As a result the claims for collateral contract and/or reliance on representations fell away.

Further Judge Seymour rejected the argument of an implied term since it defied the basic principle that an implied term must not contradict any express term of the agreement. Here, a clear right to terminate for convenience in one month's notice existed.

Turning to the UCTA argument, section 3(2)(b) of UCTA applies to contracts made on one party's standard written terms of business.  Judge Seymour therefore considered if the Council had written standard terms of business and if it did, whether the Council had dealt with HDA on those terms. As to whether written standard terms existed, evidence was put before Judge Seymour by Mr Burr that showed that in 1984 the Council had in mind to prepare what was described as "Standard Conditions for Building Surveyors". It was clear from Mr Wickersham's evidence that standard conditions were produced and used by the Council, but it was not clear when this in fact took place. Mr Burr asserted that the modifications to the RICS Conditions included in clause 12 of the Contract were the Council's "Standard Conditions for Building Surveyors". Mr Burr further contended, in the alternative, that the modifications in clause 12 of the Contract were customarily sought by the Council in negotiating any contract incorporating the RICS Conditions and were the same as those in the "Standard Conditions for Building Surveyors". As such Mr Burr contended that this was sufficient for the contract to be on the written standard terms of business of the Council. Judge Seymour rejected the submissions made by Mr Burr stating:

"The concept underlying the provisions of [UCTA] s3, in my judgment, is that there should exist a stock of written, no doubt usually, at any rate, printed, contract conditions which was simply drawn from as a matter of routine and intended to be adopted or imposed without consideration or negotiation specific to the individual case in which they were to be used. That seems to me to be the force of the words "written" and "standard" in the expression "written standard terms of business".

In other words, it is not enough to bring a case within [UCTA] s3 that a party has established terms of business which it prefers to adopt, as for example, a form of draft contract maintained on a computer, or established requirements as to what contracts into which it entered should contain, as, for example, provision for arbitration in the event of dispute. Something more is needed, and on principle that something more, in my judgment, is that the relevant terms should exist in written form prior to the possibility of the making of the relevant agreement arising, thus being "written", and they should be intended to be adopted more or less automatically in all transactions of a particular type without any significant opportunity for negotiation, thus being "standard".

Further, Judge Seymour found that the contract was specifically drafted by the City's solicitor's department.  Rather than the written standard terms of the Council being incorporated by reference or by attachment in an appendix, in this case the amendments desired to the RICS Conditions for the purposes of this contract, were set out in full in the main text of the agreement.

In coming to this conclusion Judge Seymour considered the cases of: (1) Flamar Interocean Ltd v Denmac Ltd [1990] 1 Lloyd's Rep 434, in which Potter J expressed the view that a party does not deal on written standard terms if the terms are subject to negotiation to adapt to the circumstances of the case, and (2) St Albans City and District Council v International Computers Limited [1996] 4 All ER 481. Judge Seymour found that the parties did not contract on the Council's written standard terms of business and accordingly held that section 3 (2)(b) of UCTA did not apply.

Notwithstanding this, Judge Seymour also considered whether, had section 3 of UCTA applied, the provision would have been unreasonable and therefore unenforceable. He found that in the absence of any expert evidence to show that in these circumstances 1 month was unreasonable, the period was not manifestly unreasonable and as such did not render the contract substantially different to that executed.

Commentary

This decision by a Technology and Construction Court judge, albeit in a construction context, will be of significant interest to IT lawyers, and particularly those who have followed the various UCTA issues raised in recent IT cases and as commented on in previous editions of MCLR. Previously, relatively little judicial guidance has been provided on the meaning of written standard terms of business, despite these words having been considered in a number of IT cases before the TCC. We now appear to have some helpful guidance as to how we might identify written standard terms of business. What remains a little less clear, however, is whether the parties to the contract in question are actually "dealing" on the basis of the written standard terms of business at issue, which is the test to be applied pursuant to UCTA.

Prior to this case, in British Fermentation Products Limited v Compare Reavell Limited [1999] 2 ALL ER (Comms) 389, Judge Bowsher in the TCC identified that a standard term is one that is "usually used". Similarly, in Oval (717) v Aegon Insurance Limited 85 BLR 997 Reese QC, sitting as a Recorder found that a standard term must be used on at least one previous occasion.  Judge Seymour appears to accept this position and goes further, such that for there to be written standard terms of business there should exist a stock of written, printed, contract conditions which are simply drawn from as a matter of routine and intended to be adopted or imposed without consideration or negotiation specific to the individual case in which they are to be used.

It is submitted that the Courts are now giving a definition of written standard terms of business along the same lines as how the original Law Commission responsible for UCTA saw the phrase being interpreted.  Although the Law Commission did not wish to lay down a precise definition of a standard form contract, in its report (Law Commission 69, para 151) guidance was given as to what was considered to be written standard terms of business as follows:

"Broadly speaking, standard form contracts are of two different types. One type is exemplified by forms which may be adopted in commercial transactions of a particular type…. such as forms for building and engineering contracts sponsored by the Royal Institute of British Architects, the Institution of Civil Engineers and the Federation of Associations of Specialists and Sub-contractors. Such forms may be drawn up by representative bodies with the intention of taking into account the conflicting interests of the different parties and producing a document acceptable to all. The other type is the form produced by, or on behalf of, one of the parties to an intended transaction for incorporation into a number of contracts of that type without negotiation.  Examples include a multitude of printed documents setting out conditions of various kinds, terms found in catalogues and price lists, and terms set out or referred to in quotations, notices and tickets.  Although it is the second type of standard form contract that has attracted the most criticism, both types have in common the fact that they were not drafted with any particular transaction between particular parties in mind and are often entered into without much, if any, thought being given to the wisdom of the standard terms in the individual circumstances."

It is arguable that this has now been given judicial backing in the current case.

Now that we may more readily identify written standard terms of business, the next question is whether the contracting parties "dealt" on the basis of these written standard terms of business. This is a more difficult question to answer, and has been considered in numerous cases including Cap v Salvage Association, St Albans District Council v ICL, South West Water v ICL, Pegler v Wang, and Watford v Sanderson. In Cap v Salvage Association Judge Thayne Forbes identified six factors to be considered when assessing whether a deal has been concluded on written standard terms of business.  These are:

  • the degree to which the standard terms are considered by the other party as part of the process of agreeing the terms
  • the degree to which the standard terms are imposed by the party putting them forward
  • the relative bargaining power of the parties
  • the degree to which the party putting forward the standard terms is prepared to negotiate the terms generally and the standard terms in particular
  • the extent and nature of any agreed alterations as a result of negotiations
  • the extent and duration of the negotiations

Nourse LJ, in St Albans District Council v ICL, found that the relevant test was whether one of the parties "deals" on the written standard terms of business, i.e. "makes a deal" on that basis. As such, it was not a requirement that the contract had to be concluded in the absence of any negotiation, so long as the deal was on one party's written standard terms of business. This is illustrated in the case of South West Water v ICL. The contract at issue was heavily negotiated between the parties and indeed South West Water rejected ICL's first proposal of a limitation of liability clause.  ICL put forward an alternative limitation clause which was accepted and ICL was found to have dealt on its written standard terms of business.

Judge Seymour declined to give any greater guidance in relation to "dealing" but confirms that it would be a question of fact as to whether the relevant contract was on written standard terms. He went on to state the following:

"If the only agreed contract terms are those of written standard terms of business the conclusion that the parties dealt with on the written standard terms of business by the relevant party may be obvious.  It is unlikely to be enough to avoid that conclusion that apart from the written standard terms of business, some term was specifically negotiated for the purposes of the particular contract.  However, in the context of possibly voluminous documentation of a pre-prepared document setting out written standard terms of business may be so small in relation to the whole, or the modifications to a pre-prepared document setting out written standard terms of business may be so significant, that it may be an abuse of language to describe the resulting contract as a deal on the original standard terms of business of one or other of the parties."

On the facts Judge Seymour found that the Council did not deal on written standard terms of business of the Council.

It is also of interest that Judge Seymour considered whether the provision to terminate on one month's notice was reasonable (in a contract of considerable duration) and found that it was, in the absence of evidence to the contrary. This gives some comfort to contract drafters who want the certainty of knowing that the contract may be brought to an end lawfully by service of notice.  However, what is clear is that when seeking to identify that a termination period is unreasonable, some sort of evidence in support of the unreasonableness of the period needs to be adduced.  For example, here the claimant might have adduced evidence as to the general practice in respect to commissions of this kind in 1987 or in relation to the engagements of buildings surveyors in 1987.