Tesco v Constain - Thomson Reuters

2003 WL 21729349 Page 12003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)Tesco Stores Limited v. Costain ConstructionLimited, Costain Limited, PeterHing and Jones (A Firm), Vale (UK) Limited,Whitelight Industries LimitedCase No: HT-02-07Case No: HT-02-439High Court of Justice Queens Bench DivisionTechnology and Construction CourtQBD (T&CC)Before : His Honour Judge Richard Seymour Q.C.RepresentationDate: 2 July 2003Roger Stewart Q.C. and Graham Chapman(instructed by Reynolds Porter Chamberlain for theClaimant in both actions).Marcus Taverner Q.C. and Simon Hargreaves(instructed by Osborne Clarke for the First andSecond Defendants, Costain Construction Ltd. andCostain Ltd., in both actions).Peter Coulson Q.C. and Derek Holwill (instructedby Henmans for the Third Defendants, Peter Hingand Jones, in Action HT-02-07).The Fourth and Fifth Defendants in Action HT-02-07, Vale (UK) Ltd. and Whitelight Industries Ltd.,did not appear and were not represented.JUDGMENTH.H. Judge Richard Seymour Q. C. :Introduction1. These two related actions, numbered,respectively HT-02-07 ("Action 07") and HT-02-439 ("Action 439"), arise out of a fire ("the Fire")which occurred on 4 August 2001 at a superstore("the Store") at Coldfield Drive, Oakenshaw Wood,Redditch in Worcestershire belonging to theClaimant in each action, Tesco Stores Ltd.("Tesco"). In the Fire the Store was seriouslydamaged. Instead of rebuilding it as it had beenbefore the Fire Tesco chose, no doubt for soundcommercial reasons, to have constructed a largerstore, some 10,000 square feet larger than theStore. The detailed implications of that decision, ifthey need to be considered at all, are for a secondround of the present litigation.2. The Store was originally constructed for Tescobetween about April 1989 and about March 1990by Costain Construction Ltd. ("Costain"). Costainis the First Defendant in each of Action 07 andAction 439. Costain is, and has been at all timesmaterial to Action 07 and Action 439, a member ofa group of companies ("the Costain Group").Another company in the Costain Group is CostainLtd. ("the Other Costain Company"). The OtherCostain Company was, until notice ofdiscontinuance of the claims against it was givenduring the course of the present trial, the SecondDefendant in each of Action 07 and Action 439.There were no other defendants in Action 439.Action 07 was commenced by a claim form issuedon 9 January 2002. I shall come to consider thenature of the claims made in Action 07, but afterthat action was commenced it was decided onbehalf of Tesco that it wished to make additionalclaims against both Costain and the Other CostainCompany. As I shall explain, questions oflimitation are relevant to the claims which Tescoseeks to pursue against Costain and it wasconsidered appropriate in the first instance for theclaims which it was desired to pursue againstCostain and, at that time, the Other CostainCompany in addition to those made in Action 07 tobe made in a new action so that any question oflimitation which arose in relation to the new claimscould be dealt with on its merits, and not beprejudiced by seeking to add the new claims byamendment in Action 07. Action 439 wascommenced by a claim form issued on 13November 2002.3. For practical purposes the Other CostainCompany really only ever had a "walk on" roleboth in Action 07 and in Action 439. What that rolewas alleged to be was set out at paragraph 66 of theRe-Re-Amended Particulars of Claim in Action 07and at paragraph 54 of the Amended Particulars ofClaim in Action 439, which were in identicalterms, namely:--"Costain's Financial Statements, for the yearended 31 December 2000, state that the companysold its business and assets and liabilities toCostain Limited [that is, the Other CostainCompany] with effect from 1 January 1999.Pending proper particulars thereof, Tesco contendsthat consequently Costain Limited is also liable inrespect of Costain's liabilities to Tesco."It is not immediately clear what justification theremight have been thought to be in law for theassertion contained in that paragraph.Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 22003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)4. Messrs. Peter Hing and Jones ("PHJ"), theThird Defendants in Action 07, are a firm ofarchitects. They designed the Store as originallyconstructed.5. In about 2001 Tesco decided to have works("the Alteration Works") carried out at the Store.The contractor engaged to design and to undertakethe Alteration Works was the Fourth Defendant inAction 07, Vale (UK) Ltd. ("Vale").6. Part of the Alteration Works involved theconstruction of an extension at the north-easterncorner of the Store. In this judgment I shall call thework of constructing that extension "the ExtensionWorks".7. The Extension Works were sub-contracted byVale to Leonard Burgess Ltd. ("Burgess").Although, nominally, a party to Part 20 Claims inAction 07, Burgess is in liquidation and has takenno part in those proceedings.8. The performance of the Extension Worksincluded the design, manufacture and erection of asteel structure ("the Structure").9. Burgess sub-sub-contracted to a companycalled Benruss the design and manufacture of theStructure. It sub-sub-contracted the erection of theStructure to Whitelight Industries Ltd.("Whitelight"), which is the Fifth Defendant inAction 07. Whitelight went into liquidation afterthe commencement of Action 07 and thereaftertook no part in the action.10. It seems that during the course of the attemptby Whitelight to erect the Structure it becameapparent that some modification of the steel frameof the existing external wall at the north-easterncorner of the Store was necessary. In particular, itbecame apparent that it would be necessary toundertake works involving cutting into the steel ofthe existing frame ("the Cutting Works"). It seemsthat Whitelight was asked by Burgess to, and did,provide a steel fabricator to undertake the CuttingWorks. While the Cutting Works were in progressthe Fire broke out.11. How it was contended in the circumstanceswhich I have summarised Costain and PHJ wereliable to Tesco in respect of the consequences ofthe Fire was put in paragraph 3 of the CaseSummary for the present trial in this way:--"As against PHJ and Costain, Tesco contendsthat the fire spread, causing very substantialdamage to the Store, was due to the absence ofproper fire stopping measures at the Store. Tescocontends that there was no cavity closure at the topof the external wall enabling the fire to escape intothe eaves and then the roof space, and that therewere long lengths of roof space without cavitybarriers."12. A consideration of exactly how the case ofTesco was put in the Re- Amended Particulars ofClaim in Action 07 against Costain and PHJ andagainst Costain in the Amended Particulars ofClaim in Action 439 suggested that there were anumber of issues which could conveniently be triedas preliminary issues in advance of the main trial.This judgment is concerned with those issues.Before setting out the issues for determination atthis stage of the litigation, it is necessary to explainhow the particular issues which I ordered to betried arose.The Claims against Costain13. In short it was alleged against Costain onbehalf of Tesco, first, that Costain was in breach ofthe contract by which it agreed to design andconstruct the Store in the first place, and negligent,in relation to failing to provide appropriate firestopping and inhibiting measures within the Storeas constructed, and, second, that Costain wasnegligent in relation to the undertaking of aninspection of the Store in about October 1993 toassess the adequacy of the fire stopping andinhibiting measures in place and in reporting on theresults of that inspection. In Action 07 complaintwas made in relation to the report contained in aletter dated 19 October 1993. In Action 439complaint was added in respect of the reportcontained in a letter dated 27 May 1994. In itsAmended Defence in Action 07 Costain denied thatit had concluded any contract with Tesco inrelation to the construction of the Store, although itwas admitted that Costain had in fact built it.Costain further denied that it owed to Tesco theduties of care in respect of the construction of theStore for which Tesco contended. The inspection ofthe Store in October 1993 was admitted, but it wascontended that it had been competently carried outand the results properly reported. Limitationdefences were advanced in respect of all claims.14. The way in which the alleged contractbetween Tesco and Costain in relation to theconstruction of the Store was pleaded in the Re-Amended Particulars of Claim in Action 07 wasthis:--"12. By letters, dated 20 and 23 March 1989,Tesco instructed Costain to design and build theRedditch store in accordance with Tesco's DesignCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 32003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)and Construct Contract Issue No.7 ("TescoContract Issue No. 7"). By letter to Tesco, dated 30March 1989, Costain accepted such instruction.Consequently, and in any event Costain acceptedsuch instruction by commencing work on site on 3April 1989.13. It was agreed between Tesco and Costainthat they would execute, under seal, Tesco's Designand Construct Contract Issue No. 7. It was agreedby Costain that such Tesco Contract Issue No. 7would regulate the contractual relationship betweenthe parties. Further, as the parties accepted that theagreement would be executed under seal it wasunderstood and agreed that there would be a twelveyear limitation period in respect of any breaches ofthat contract. Such agreement is evidenced by thefollowing,a) As confirmed by Costain's internalmemorandum, dated 8 March 1989, it was agreed,at Tesco's offices at Cheshunt, on 7 March 1989,that Tesco intended to award Costain the contractto design and build the Redditch store;b) By a further Costain internalmemorandum, dated 10 March 1989, to Mr. Franksof Costain's legal department, Mr. Joyce stated thatCostain had been confirmed by Tesco as thecontractor for the Redditch Store with theapplicable contract to be Tesco Contract Issue No.7; Mr. Franks was invited to comment on TescoContract Issue No. 7; Costain has not disclosed anyresponse by Mr. Franks to such memorandum; inthe circumstances, it is to be inferred that Mr.Franks agreed the application of Contract Issue No.7, particularly (a) as his earlier memorandum, dated5 October 1988, commenting generally on ContractIssue No. 7 (as a generic document) raised norelevant concerns and (b) in view of thecorrespondence below;c) By its correspondence with BucknallAustin, Costain consistently confirmed itsagreement and intention to execute Tesco ContractIssue No. 7; Tesco will rely on the following lettersfrom Costain to Bucknall Austin in which Costainsought to complete the contractual documentation,namely those dated 16 January 1990, 1 March1990, 26 March 1990, 12 April 1990, 25 May1990, 7 August 1990 (which expressly invited theContract Documents to be submitted for executionby Costain), 24 October 1990, 2 November 1990,12 February 1991, 16 August 1991, 6 January 1992and 24 June 1992;d) Additionally, by its internalmemorandum, dated 8 February 1991, Costain'sMr. Basil recorded the agreement and intention thatthe outstanding contractual documentation shouldbe completed.14. In the event, so far as Tesco is presentlyaware, Costain, despite signing and returningcertain Novation Agreements as provided for bythe Tesco Contract Issue No. 7 by letter toBucknall Austin, dated 16 August 1991, neverexecuted the contract itself.15. By reason of Tesco Contract Issue No. 7and/or the agreement reached between the partiesthat such contract would apply, there were thefollowing express terms of Costain's retainer byTesco,a. Costain would upon, and subject to theconditions set out in Tesco Contract Issue No. 7,carry out and complete the Works (namely, thedesign and construction of the Redditch store) in agood and workmanlike manner and to thesatisfaction of the Employer's Representative sothat the completed Works were reasonably fit fortheir intended use (clause 1 (1));b. Costain warranted to Tesco thatCostain's design and/or the design of those personsemployed or engaged by Costain (including designwork carried out prior to such employment orengagement) would be such that the completedWorks shall be reasonably fit for their intended use(clause 2 (1));c. Costain warranted that the materialsused in the Works shall be reasonably fit for theirintended use; such warranty extending to anysubstitution or variation in the design and/orconstruction of the Works (clause 2 (1)).16. Further, there were the following impliedterms of Costain's retainer, each of which wasimplied by operation of law to give businessefficacy to the retainer and/or to reflect thecommon intention of the parties,a. Costain would, so far as it was able,design (alternatively, be responsible for the designof) the Redditch store so that,i. Its drawings demonstrated compliancewith the relevant statutory requirements, includingBuilding Regulations;ii. The Redditch store would be fit for itspurpose;b. Costain would ensure that the Redditchstore was,i. Constructed in a good and workmanlikemanner and in accordance with good buildingpractice;ii. Constructed in accordance with therelevant statutory requirements, including BuildingRegulations, and so that it would be fit for itspurpose."It is somewhat remarkable that what seemed to berelied upon as evidence of the contract alleged werenot exchanges between Tesco itself and Costain,but rather internal documents of Costain and lettersfrom Costain to Bucknall Austin Plc ("Bucknalls").Bucknalls carried on business as quantity surveyorsand construction cost consultants, and I shall returnto their role in the construction of the Store. It isalso notable, given that there were also claimsCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 42003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)against PHJ in relation to the design of the Store, tothe detail of which I shall come, that the main focusof attention in the express and implied termspleaded was the design, rather than theconstruction, of the Store.15. During the hearing before me Tesco sought,and obtained without objection, consent to amendfurther the Re-Amended Particulars of Claim inAction 07 so as to add new paragraphs 12A and12B as follows:--"12A Further or alternatively, as at the date ofTesco's letter of 20 March 1989, Tesco and Costainhad reached agreement on all essential terms of thecontract other than price. Agreement on price wasreached on or about 28 June 1989. In the premises,a binding contract for the design and constructionof the store on the terms set out in paragraph 12above and paragraphs 15 and16 below wasconcluded between Tesco and Costain on or aboutthat date.12B. If, which is denied, the agreement of theEmployer's Requirements and/or the Contractor'sProposals was essential for a binding contract to beconcluded between Tesco and Costain, then Tescowill contend that such a binding contract wasconcluded upon the agreement of the Employer'sRequirements in or about March/April 1990 and/orupon the agreement of the Contractor's Proposals inor about March 1990."16. The duties of care alleged in respect of thework done by Costain in relation to the Store in1989 and 1990 at paragraph 17 of the Re-AmendedParticulars of Claim were:--"Further or alternatively, in the circumstancespleaded above, Costain owed Tesco duties atcommon law of the same form and scope as thoseset out at paragraphs 15 and 16 above. Further oralternatively Costain owed to Tesco a duty toexercise reasonable skill and care in designing andbuilding the Redditch store."17. Costain's case in relation to the circumstancesin which no contract came to be concluded inrelation to the Store between it and Tesco wasneatly encapsulated in paragraph 16 c of itsAmended Defence in Action 07:--"It is admitted that, in the event that a contractwas concluded, it was intended by Costain thatsuch a contract would include Tesco's StandardTerms and be executed under seal, and that in thosecircumstances a 12 year limitation period wouldapply. As a result of the failure of Tesco to providesuch documents, despite Costain's repeatedrequests (some of which Tesco identify atparagraph 13 c of the Particulars of Claim and towhich Costain will refer at trial) for a complete setof contract documents and which Tesco eitherwould not or could not deliver, no such contractwas concluded."18. So far as any duty of care was concerned,Costain's case, set out at paragraph 20 of itsAmended Defence in Action 07, was:--"a. It is denied that Tesco has properly identifiedthe scope of the common law duty upon which itseeks to rely.b. Without prejudice to (a) above, it is denied, inthe "circumstances pleaded" by Tesco, that Costainowed Tesco duties at common law of the sameform and scope as those set out at paragraphs 15and 16 of the Particulars of Claim for the reasonsgiven above.c. Further and in any event, it is denied thatCostain owed Tesco a duty to exercise reasonableskill and care in designing the Redditch store. Inparticular Costain did not design the Redditchstore, the professionals did, and so Costain couldnot and did not owe any duty in respect of designor the fitness for purpose of the same.d. Yet further, if Costain did owe any tortiousduties with regards to either the construction,design or fitness for purpose of the Redditch store(denied in any event as to design and fitness forpurpose, not admitted as to construction), it isdenied that the scope of the same embraced a dutyof care to save Tesco harmless from loss in respectof damage to the property itself and/or economicloss consequent upon the same.e. Further and in any event, such duty of care inlaw which could be established (which is notadmitted) is limited to a duty to save harmless inrespect of defects not apparent by intermediatesubsequent inspection. No such duty or breach ofthe same is pleaded."19. Tesco's response to that case was set out inparagraph 13 of its Re- Amended Reply toCostain's Defence in Action 07 as follows:--"As to paragraph 20, it is denied that Tesco hasfailed to identify properly the common law duty ofcare relied on. Without prejudice to the foregoing,Tesco pleads further to paragraph 20 as follows:(1) Costain owed to Tesco a concurrentduty of care at common law to exercise reasonableskill and care in and about the performance of itscontractual duties;(2) Such a duty extended to holding Tescoharmless in respect of both damage to the storeitself and economic loss consequent thereon.(3) Further or alternatively, even if, whichis denied, no contract was concluded betweenTesco and Costain, either on the terms of Issue 7 orat all, then Costain nevertheless owed to Tesco aduty at common law to exercise reasonable skilland care in designing and constructing the store.Such a duty extended to holding Tesco harmless inCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 52003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)respect of both damage to the store itself andeconomic loss consequent thereon.(4) By reason of the matters set out atparagraph 11 above, Costain assumedresponsibility towards Tesco for the design andconstruction of the Redditch store.(5) Further or alternatively, by reason ofthe express warranty provided by Costain asparticularized in paragraph 15b of the AmendedParticulars of Claim, Costain owed to Tesco a dutyof the nature and extent set out in sub-paragraphs(1) and (2) above."20. In its Re-Amended Reply to Costain's Defencein Action 07 it was pleaded on behalf of Tesco atparagraphs 5 to 9 inclusive that there had been acourse of dealing between Tesco and Costain in theperiod 1988 to 1991 in the course of which Costainhad constructed a number of stores for Tesco. Itwas contended that in the case of each storeCostain had agreed to undertake the design andconstruction on the terms of Tesco's standard formof design and build contract for the time being inuse. The conclusion contended for at paragraph 10of the Re-Amended Reply was:--"In the premises, and by reason of this course ofdealing between the parties:(1) The agreement between Costain andTesco in relation to the Redditch store was onTesco's standard terms and conditions, either byway of express agreement or by way of implicationby reason of this course of dealing; and(2) The relevant limitation periodapplicable to any contractual claims arising underor out of the contract is 12 years."21. Tesco's Re-Amended Reply to the Defence ofCostain also included this response to Costain'scase as to there being no contract between them inrelation to the Store:--"11. While Tesco admits that its standard termcontract documentation was not executed byCostain in the case of the Redditch store, at allmaterial times Costain evinced an intention tocomplete the documentation and to be bound by itsterms. Tesco relies in particular in this regard on:(1) Paragraph 14a of Costain's Defence.(2) Costain's acceptance of the standardterms and conditions by its conduct in purporting todesign and construct the Redditch store inaccordance with the same. In this regard Tescorelies in particular on the following:(a) Commencing works on site(b) Making payment to PHJ in respect ofarchitectural services provided in relation to theRedditch store by PHJ. For the avoidance of doubt,prior to Costain commencing work on site PHJ hadbeen paid by Tesco.(c) Adopting and complying with thedefects liability period provided for by Tesco'sstandard terms.(d) Purporting to act as though there hadbeen a novation in respect of PHJ's Architect'sAppointment. By way of example, Tesco refers toand relies upon Costain's letter to PHJ dated 18May 1994 in which Costain asserted that PHJ was"the Architect novated to us for the Tesco storebuilt at Redditch in 1989/90" and as such wasrequired to check its drawings and inspect the storeto establish the safety of the structure.(e) Naming Tesco's Design and ConstructContract Issue No. 7 as the main contract in its(Costain's) sub-contracts in respect of the Redditchstore.(f) Undertaking the 1993/4 inspection ofthe store and reporting to Tesco in respect of thesame in circumstances where Costain accepted thatif defects in fire stopping were found it would beliable to remedy the same at no cost to Tesco.Tesco refers to paragraph 21 below in this regard.(3) Further PHJ and the other consultantsrelied upon the existence of a contract betweenTesco and Costain on the terms of Tesco's standardterms edition 7 as the basis upon which they actedin relation to the contract and, in particular,followed the instructions of Costain ....12A. Further or alternatively, Costain is nowestopped from denying that the contract with Tescofor the design and construction of the RedditchStore was on Tesco's standard terms and conditionsby reason of the matters set out:(1) in paragraph 11 above;(2) in Tesco's reply 32 to Costain'sRequests for Further Information dated 15 August2002; and(3) in paragraph 5 of PHJ's Defence toCostain's Part 20 Particulars of Claim."22. Reply 32 to Costain's Request for FurtherInformation dated 15 August 2002 was in theseterms:--"As is more fully particularised in Tesco's Replyto Costain's Defence, Tesco will contend that it isentitled to rely on a 12 year limitation period evenif the contract under seal was not executed byreason of the following:(a) It was a term of the contract enteredinto by Tesco and Costain and/or it was within thecontemplation of the parties that such a contractwould be under seal and that, as a result, a 12 yearlimitation period would apply to any claims arisingout of the contract. In the premises, and for theavoidance of any doubt, the effect of the contractwas that Costain agreed not to raise any point onlimitation provided any claim made by Tesco inrespect of Costain's breach of contract was madewithin 12 years of any such breach.(b) Tesco relied on the matters set out inCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 62003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)32(a) above and by reason of the same Costain isnow estopped from denying that any claim madeby Tesco is statute-barred provided that any suchclaim has been made within 12 years of theoccurrence of the relevant breach of whichcomplaint is made (which it has).(c) Further, and as Costain knew, Tesco'spolicy was to let its construction contracts only onits (Tesco's) standard terms. By way of example,Tesco relies on its letter to Costain EngineeringConstruction Limited dated 11 June 1993."23. In paragraph 5 of PHJ's Defence to Costain'sPart 20 Particulars of Claim it was pleaded that:--"PHJ's case as to the contractual position so faras it related to Tesco, Costain and PHJ is asfollows:(i) Costain was engaged by Tesco asDesign and Build Contractors. PHJ adopts the caseadvanced by Tesco in this regard, and further aversthat by no later than 3.4.90, Tesco and Costain hadagreed upon the terms of a Design and BuildContract, in the form of the documents forwardedby Costain to Bucknall Austin on or about 26.3.90.PHJ rely in support of this averment upon, interalia, Bucknall Austin's letter to Costain dated15.3.90; Costain's letter to Bucknall Austin dated26.3.90, with its enclosures; and Bucknall Austin'sletter to Costain dated 3.4.90.(ii) Further, Tesco, Costain and PHJ eachconducted themselves, at all material times from atleast April 1989 onwards, on the commonassumption that Costain was engaged by Tesco asDesign and Build Contractors; and that PHJ wasengaged as Costain's architect. PHJ will rely insupport of this averment upon, inter alia, thefollowing facts and matters:(a) Tesco, by letter dated 4.5.89, instructedPHJ to submit all accounts to Costain, inaccordance with the Design and Build contractualdocumentation which had passed between Tescoand Costain.(b) Costain duly paid the accountstendered by PHJ.(c) Costain specifically instructed PHJ, byletter dated 11.5.89, as follows:"Any variations to existing drawings,other than those specifically requested by anofficial Tesco instruction, must be issued toourselves in preliminary form, for a cost analysisprior to issue as a construction detail."(d) Costain dealt direct with Tesco overquestions of design which arose from time to time,including, by way of example, the design of thetoilet area, as evidenced by a letter dated 19.5.89from Tesco to Costain; and the design of theCustomer Catering Facility, as evidenced by aletter dated 22.5.89 from Costain to PHJ enclosingTesco's drawing detailing Tesco's instructions inrelation to the said facility;(e) Costain complained, from time to timeabout PHJ's work, as evidenced, for example, byCostain's letters to PHJ of 14.6.89 and 8.8.89.(f) Costain assumed responsibility for themanagement of the site and for the co-ordination ofall activities, including design work. PHJ will relyin this regard upon the Minutes of Site Meetings, towhich PHJ will refer for their full terms and effect.(g) Costain named Tesco's Design andConstruct Contract Issue No. 7 as the main contractin its (Costain's) sub-contracts in respect of theRedditch store.(iii) PHJ believed, at all material times,that Costain had been engaged by Tesco as Designand Build Contractors; and acted, at all materialtimes, in reliance upon this belief. PHJ will rely,inter alia, upon the following facts and matters:(a) That PHJ would otherwise have actedas Employer's representative, and takenresponsibility for the communication of Tesco'srequirements from Tesco to Costain; and wouldhave issued Instructions to Costain, rather thanacting at Costain's direction, as was in fact the case.(b) That PHJ would have assumedresponsibility for the direction and co-ordination ofdesign sub-contractors, rather than Costain, as wasin fact the case.(c) That PHJ would otherwise haveassumed responsibility for the administration of theterms of the contract, including certifyingpayments, assessing and, where justified, grantingextensions of time, certifying Practical or PartialCompletion, and listing defects.(d) That PHJ would otherwise havechaired and minuted Site Meetings, rather thanCostain, as was in fact the case.(e) That PHJ would have held separateDesign Team meetings with Tesco and othermembers of the design team, and not left suchmatters to Costain.(iv) PHJ's belief that Costain had beenengaged by Tesco as Design and Build Contractorswas a belief induced by both Tesco and Costain. Sofar as concerns Costain, PHJ relies in support ofthis contention upon the facts and matters set outabove.(v) In the premises, and whether or notthere was in fact a Design and Build contractconcluded between Costain and Tesco, whether asalleged by Tesco or otherwise, it is averred thatCostain is estopped, by convention and/or conduct,as against PHJ and/or Tesco, from denying that itwas retained by Tesco as a Design and BuildContractor on Tesco's Design and ConstructContract Issue No. 7; alternatively is estopped fromdenying that it undertook the obligations of aDesign and Build contractor in relation to theRedditch store.Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 72003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)(vi) It is further averred that PHJ'scontractual obligations were in fact transferred bynovation from Tesco to Costain, in accordance withthe Design and Build arrangements set out above.In this regard, PHJ says further as follows:(a) PHJ did in fact, on 4.5.90, execute anovation agreement, as had been contemplated inthe letter to PHJ dated 22.2.89, pursuant to whichits contractual obligations were purportedlytransferred from Tesco to Costain. This documentwas not so far as PHJ can now ascertain, everexecuted by either Tesco or Costain.(b) It is, however, PHJ's case that therewas a novation by conduct, in about April 1989, asa result of which PHJ's contractual obligations werein fact transferred from Tesco to Costain.(c) Further or alternatively, it is averredthat Tesco, Costain and PHJ each conductedthemselves, at all material times from April 1989onwards, on the common assumption that there hadbeen such a novation; on the common assumptionthat Costain was engaged by Tesco as Design andBuild Contractors; and on the common assumptionthat PHJ was engaged as Costain's architect. PHJwill rely in support of each of these avermentsupon, inter alia, the facts and matters set out above.(d) In the premises, Tesco and Costain areeach now estopped by convention, or by conduct,from denying that there was such a novation at orabout that time."24. During the course of the hearing before meTesco sought and obtained, again withoutobjection, permission further to amend its Re-Amended Reply to the Defence of Costain and theOther Costain Company in Action 07 so as to addthese paragraphs in relation to the course of dealingupon which Tesco sought to rely:--"4A. Paragraph 12 is denied. It was not anessential pre-requisite or condition precedent ofCostain taking on contractual or any other legalresponsibility for the design or of there being alegally binding contract between Costain andTesco, that Costain were to receive executednovation agreements in respect of the consultants atthe same time as and as part of the execution of theformal contract documents between Costain andTesco. No such precondition was intimated byTesco to Costain, let alone agreed between theparties.4B. Further, and as Costain had demonstrated atother projects where the contract documentationwas executed prior to Costain commencing work atRedditch, Costain was perfectly prepared toexecute the contract documents as between itselfand Tesco in the absence of some or all of thenovation agreements (whether executed or not). Forthe avoidance of doubt, Tesco will contend that thisdemonstrates that the receipt of executed novationscannot have been a precondition for Costainconcluding a binding contract with Tesco underwhich Costain took responsibility for the design ofthe store. In this regard Tesco relies on thefollowing projects:(1) Mold(2) Crick(3) Pontypridd4C. In each of the projects referred to inparagraph 4B above, Costain executed the contractdocuments as between itself and Tesco in theabsence of executed novation agreements in respectof one or more of the consultants.4D. Tesco relies on this course of dealingbetween the parties as demonstrating that there wasno essential pre-requisite or condition precedent ofthe type alleged in paragraph 12."25. It is not material for the purposes of thisjudgment to set out more precisely than I havealready the nature of the alleged breaches ofcontract for which Tesco contended or the nature ofthe alleged negligence on the part of Costain inperforming its obligations as a result of that allegedcontract.26. As I have already indicated, the other matterscomplained of as against Costain on behalf ofTesco, apart from failure to perform properlyobligations allegedly assumed in relation to theconstruction of the Store in the first place, concernthe alleged inspection of the Store by Costain inOctober 1993 and the reports made of the results ofthat inspection. The case as against Costain was putin the Re-Amended Particulars of Claim in Action07 in this way:--"21. On the evening of 17 July 1993, Tesco'sstore in Maidstone, Kent was substantiallydestroyed by fire. The fire had been starteddeliberately by persons unknown in a plastic refusebin outside a newsagents, which was part of thesame shopping complex as the Maidstone store.The fire penetrated the interior of the roof of thenewsagents through the timber soffit, and thenspread through the roof void of the entire complex.22. As a consequence of such fire, Tesco tooksteps to check that the works necessary to inhibitthe spread of fire had been carried out at otherstores constructed to a similar design.23. On 19 October 1993, Costain who knew, as aresult of their extensive links with Tesco, ofTesco's desire to check the extent of fire inhibitingworks at other stores, wrote to Tesco in thefollowing terms in relation to the Redditch store,"Although we did not receive a letterspecific to this store, we have taken it uponourselves to carry out a detailed inspection of firebarriers as per other stores constructed by ourCompany in the Midlands.Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 82003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)We are pleased to report that further tothis inspection we can confirm that fire stoppingworks comply with the requirements of the Designand Statutory Regulations prevailing at the time ofconstruction".24. Costain intended that its letter should berelied upon by Tesco and in particular, intendedand/or foresaw that Tesco would not carry out anyother or further investigation into the adequacy ofthe fire inhibiting works at the Redditch store.25. By letter, dated 28 April 1994, Tescorequested PHJ, as the appointed architect for thedevelopment of the Redditch store, to arrange aninspection, in conjunction with the maincontractors (Costain), in order to determine andreport upon the condition of the fire inhibitingworks at the store.26. By letter to Tesco, dated 3 June 1994, PHJconfirmed that,a. Costain had carried out the relevantinspection in the previous October, as part ofCostain's review of all four Midlands Tescoprojects with which Costain had been involved;b. From discussions with Costain, itappeared that Costain might not have actuallyreturned the report to Tesco in respect of theRedditch store, but Costain had now done so.27. By undertaking the inspection and/or bymaking the statements in its letter dated 19 October1993 against the factual background set out above,Costain undertook towards Tesco a common lawduty of care,a. To undertake a detailed inspection ofthe fire inhibiting works at the Redditch store withreasonable skill and care; and/orb. To exercise reasonable skill and care soas to see that its detailed inspection entailed athorough inspection of all the fire stopping worksat the Redditch store in October 1993;c. To exercise reasonable skill and care soas to see that it had taken all necessary steps toensure that its confirmation, that fire inhibitingworks at the Redditch store complied with therequirements of the Design and StatutoryRegulations prevailing at the time of construction,was accurate; and/ord. To take reasonable skill and care so asto ensure that the statements made in the letter of19 October 1993 were accurate.28. As a consequence of, and in reliance on, thefact that Costain had carried out a detailedinspection of the Redditch store, in or aboutOctober 1993, and the terms of Costain's letter of19 October 1993, Tesco did not itself carry out (orobtain) a detailed inspection of the fire inhibitingworks at the Redditch store, or effect remedialworks."27. In the Amended Particulars of Claim in Action439 the allegations set out in the precedingparagraph were repeated, with the addition,between what was paragraph 25 of the Re-Amended Particulars of Claim in Action 07, butwas paragraph 16 of the Amended Particulars ofClaim in Action 439, and what was paragraph 26 ofthe Re-Amended Particulars of Claim in Action 07,which was paragraph 20 of the AmendedParticulars of Claim in Action 439, of theseparagraphs:--"17. Pursuant to this request, PHJ contactedCostain on or about 16 May 1994 with regard toorganising an inspection of the store. Costainconfirmed to PHJ that it had already inspected thestore and retained a copy of the report in respect ofthe same. In these circumstances PHJ did notarrange for a further inspection of the store to beundertaken.18. By letter to Tesco dated 27 May 1994Costain confirmed to Tesco that,"further to a detailed inspection of thestore last Autumn we can confirm that fire stoppingworks comply with the requirements of the designand statutory regulations prevailing at the time ofconstruction."19. Costain intended that this letter should berelied upon by Tesco whether in addition to orsubstitution of its letter dated 19 October 1993 andin particular, intended and/or foresaw that Tescowould not carry out any other or furtherinvestigation into the adequacy of the fireinhibiting works at the Redditch site and, inparticular, would not require PHJ to undertake aninspection of the store as it had requested it to do inits letter of 28 April 1994."28. Costain admitted in its Amended Defences inAction 07 and Action 439 that the letters dated 19October 1993 and 27 May 1994 had been writtenby it to Tesco and were in the terms alleged onbehalf of Tesco. However, Costain seemed to haveno very positive case as to what inspection wasundertaken before the letter dated 19 October 1993was written. Rather its case as pleaded was that itwas not possible now to say who had carried out aninspection or of what that inspection consisted. Tosupply that deficiency a case was set out as to whatthe inspection most probably amounted to and itwas asserted that it would not have beenpracticable for the person making the inspection tohave damaged the structure of the Store in order toinspect all that which might have been inspectedhad there been no objection to invasiveinvestigation. Moreover, it was contended that itwould have been reasonable for the person makingthe inspection to proceed on the basis that theoriginal drawings of the Store showed what wasrequired under relevant regulations at the time ofconstruction, and thus reasonable for such personCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 92003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)to conclude that the relevant requirements were metif what was shown on the drawings was what wasseen on site, without revisiting the question of whatthe relevant requirements were. Further it wascontended that on the balance of probabilitieswhoever made the inspection on behalf of Costainhad been accompanied by a representative of PHJ.The point was also made that Tesco could not haverelied on the letter dated 19 October 1993 as in itsletter dated 28 April 1994 it requested PHJ toundertake an identical inspection to that uponwhich Costain reported in its letter dated 19October 1993.29. In the Amended Defences of Costain defencesof limitation were raised in relation to all allegedcauses of action which it was contended on behalfof Tesco it had against Costain. That line ofdefence was obvious, and one which it was soughtto forestall in the Re-Amended Particulars of Claimin Action 07 and in the Amended Particulars ofClaim in Action 439. Essentially the points taken inthe Re-Amended Particulars of Claim in Action 07were, first, that the claim for damages for breach ofthe contract for the design and construction of theStore contended for was one to which a twelve yearlimitation period was applicable, and that periodhad not expired by the date of the commencementof Action 07, while for all of the alleged causes ofaction in tort what was contended was that thecause of action did not arise until the date of theFire, or, if it did, Tesco's date of knowledge for thepurposes of HLimitation Act 1980 s. 14A was notuntil after the date of the Fire. The AmendedParticulars of Claim in Action 439 included asection entitled "Costain, Limitation and itsInspection and Report in October 1993". Thatsection was in these terms:--"39. As to Tesco's claim in tort arising fromCostain's inspection and report in October 1993and/or 1994,a. Such cause of action did not accrueuntil loss was suffered by reason of the fire on 4August 2001;b. Alternatively, Tesco's date ofknowledge, for the purposes of Hsection 14A of theLimitation Act 1980, was not until after the fire on4 August 2001.40. By reason of the matters set out inparagraphs 32 to 36 above, Tesco will contend thatno reasonably competent contractor carrying out aninspection in accordance with Tesco's instructionscould have failed to identify and report on thedefects in fire-stopping at the Redditch Store.41. In particular, the defects set out in paragraph36 above were basic and obvious. Those inparagraphs 36a to 36f inclusive would have beenparticularly obvious upon the most cursory ofinspections of the roof. They would have beenobvious to even a relatively junior employee withsome basic training in the Building Regulations andfire protection matters.42. In the premises it is to be inferred that either:a. Costain carried out no inspection at allof the Redditch store and then deliberatelyconcealed this fact from Tesco by its letters dated13 [sic] October 1993 and/or 27 May 1994; orb. Costain did carry out such aninspection, identified some or all of the defectsrelied upon by Tesco but deliberately failed inbreach of duty to report the same to Tesco; orc. Costain carried out a limited inspectionof the store but deliberately concealed the limitednature of its inspection and/or any defects revealedon such an inspection; ord. Carried out an inspection which was socursory that it could not properly be described as a"detailed" inspection.43. The absence of any inspection and/or theabsence of any detailed inspection and/or thedeliberate breach of duty in failing to report toTesco the defects identified by any such inspectionconcealed facts and matters relevant to Tesco'scause of action against Costain in circumstanceswhere they were unlikely to be discovered for sometime. Such facts and matters were:a. The failure of Costain to carry out anyinspection at all of the Redditch store; alternativelyb. The failure of Costain to carry out a"detailed" inspection of the store and/orc. The failure of Costain to report to Tescoeach and every one of the defects that it in factidentified.44. Tesco could not have discovered and did notin fact discover these facts and matters, whether byreasonable diligence or at all, until such time as thefire. For the avoidance of doubt, each of the defectsrelied upon by Tesco would only have beenidentifiable upon an inspection of the roof spaces.Having obtained confirmation from Costain thatsuch an inspection had been carried out and that thefire stopping works at the store were adequate andcomplied with relevant statutory requirements,Tesco had no reason, and did not in fact, undertakeany such inspection of the roof space itself.45. By reason of the foregoing Tesco is entitledto and does rely on Hsection 32 of the LimitationAct 1980 in support of its contention that its causesof action as against Costain did not accrue until thedate of the fire, namely 4 August 2001."The claims against PHJ30. As against PHJ it was alleged in the Re-Amended Particulars of Claim in Action 07 that itentered into an agreement ("the PHJ Agreement")Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 102003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)set out in a letter dated 22 February 1989 writtenby Tesco to PHJ and dated, as executed on behalfof PHJ, 20 March 1989. That was not in dispute,nor were the express terms of the PHJ Agreement.It was common ground that in the circumstancesPHJ owed to Tesco duties of care in tort to carryout its obligations under the PHJ Agreement withthe care and skill to be expected of reasonablycompetent architects.31. While there was agreement as between Tescoand PHJ as to what were the express terms of thePHJ Agreement, that was not the position inrelation to terms which it was contended on behalfof Tesco at paragraph 10 of the Re- AmendedParticulars of Claim in Action 07 were to beimplied into that agreement. The terms contendedfor were said to be implied, "by operation of law togive business efficacy to the retainer and/or toreflect the common intention of the parties", andwere these:--"a. PHJ would, so far as it was able, design theRedditch store so that,i. Its drawings demonstrated compliancewith the relevant statutory requirements, includingBuilding Regulations;b. PHJ would, so far as it was able, inspect thesite during the construction of Redditch store so asto ensure that it was,i. Constructed in accordance with goodbuilding practice;ii. Constructed in accordance with therelevant statutory requirements, including BuildingRegulations."32. The case of PHJ in relation to the termsquoted in the preceding paragraph was set out atparagraph 9 of its Amended Defence and was:--"(i) It is admitted that it was an implied term ofthe contract pursuant to which Tesco retained PHJas aforesaid, that PHJ would act with thereasonable care and skill of a reasonably competentarchitect.(ii) Save as aforesaid, paragraph 10 of the Re-Amended Particulars of Claim is denied. It isaverred that the express terms agreed betweenTesco and PHJ were comprehensive, and that therewas no necessity for the implication of any furtherterms or conditions in order to give businessefficacy to the contract between PHJ and Tescoand/or to reflect the common intention of theparties."33. At paragraph 11A of its Amended Defence itwas explained on behalf of PHJ that:--"If, as alleged by Costain in its Defence herein,but denied by Tesco, there was no contract betweenTesco and Costain which imposed upon Costaindesign and build obligations (whether inaccordance with the Tesco StandardDocumentation for use with the Design and BuildContracts, Issue No. 7, or otherwise) then PHJ'scase is as follows:(i) That, as pleaded above, PHJ was, at allmaterial times, led to believe, by both Tesco and byCostain, that Costain was working for Tescopursuant to a Design and Build contract, and assuch had design obligations to Tesco.(ii) That the nature and extent of PHJ'scontractual obligations to Tesco fall to bedetermined on the basis that the position asbetween Tesco and Costain was as PHJ had beenled to believe, namely that Costain had in factundertaken design and build responsibilities toTesco, whether or not that was in fact the positionand whether or not Costain's contentions herein asto the nature and extent of its contract with Tescoare accepted in whole or in part."34. Anticipating, as in the case of Costain, andagain correctly, as matters turned out, that defencesof limitation would be raised in answer to thecontentions that PHJ had acted in breach of the PHJAgreement and negligently in designing the Store,it was pleaded on behalf of Tesco at paragraphs 56and 57 of the Re-Amended Particulars of Claimthat:--"56. The Architect's Terms and Conditionsexecuted by PHJ, on 20 March 1989, were deemedto have been made under seal. Tesco's claim incontract is thereby brought within the twelve yearlimitation period.57. As to Tesco's claim in tort arising from thedesign, development and inspection of the Redditchstore by PHJ,a. Such cause of action did not accrueuntil loss was suffered by reason of the fire on 4August 2001;b. Alternatively, Tesco's date ofknowledge, for the purposes of Hsection 14A of theLimitation Act 1980, was not until after the fire on4 August 2001."35. The response of PHJ to what was set out atparagraph 56 of the Re-Amended Particulars ofClaim in Action 07 was set out in paragraph 49 ofits Amended Defence in this way:--"With regard to paragraph 56 of the Re-Amended Particulars of Claim, PHJ says asfollows:(i) It is admitted that the Architect's Termsand Conditions, signed by PHJ on 20.3.89contained the following text:"9.1 For all purposes, the Terms andConditions contained in this letter shall be deemedto have been made under seal by the parties."(ii) It is denied that the contract betweenPHJ and Tesco was in fact a specialty within theCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 112003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)meaning of Hsection 8 of the HLimitation Act 1980,and it is accordingly denied that the period oflimitation applicable to Tesco's claims in contractherein is 12 years.(iii) Further and in any event, all of thework carried out by PHJ which it is now contendedby Tesco was carried out in breach of contract wascompleted in 1989 and in any event prior to 8.1.90.Accordingly, even if, which is denied, PHJ was inbreach of contract as alleged, the breach(es) ofcontract alleged occurred more than 12 years priorto the date of issue of these proceedings and arestatute barred even if the applicable period oflimitation is that provided for in Hsection 8 of theLimitation Act 1980."36. Although no claim was made against PHJ onbehalf of Tesco in relation to the alleged inspectionof the Store in 1993 or 1994, such a claim wasmade on behalf of Costain in Part 20 proceedingscommenced against PHJ in each of Action 07 andAction 439. The way in which the claim was put ina combined statement of case in both actions wasthis:--"20A. On 9th September 1993, Costain wrote toPHJ in these terms:"... in anticipation of Tesco's formalinstruction, we confirm our verbal request to yourMr. Heckles for the supply of all drawings relevantto fire protection/prevention works at the Redditchstore."20B. PHJ knew, or ought reasonably to haveknown, that Costain asked for these drawings forthe purposes of carrying out an inspection of theRedditch store. PHJ thereafter supplied thesedrawings knowing that Costain would use them incarrying out an inspection of the Redditch store.20C. In this respect, Costain, as contractor,would have assumed, and was entitled to assume,that the design depicted in the drawings compliedwith the Statutory Regulations prevailing at thetime of construction. PHJ knew, or oughtreasonably to have known, that Costain wouldassume that the drawings complied with theStatutory Regulations prevailing at the time ofconstruction. PHJ did not say at any time prior tothe inspection (or afterwards) that the design of theRedditch store failed to comply with the StatutoryRegulations prevailing at the time of construction.20D. An inspection of the Redditch store tookplace in September/October 1993.20E. Costain avers that, on the balance ofprobabilities, PHJ carried out the inspection of theRedditch Store in September/October 1993 jointlywith Costain and agreed that fire stopping workscomplied with the requirements of the Design andStatutory Regulations prevailing at the time ofconstruction. In support of this proposition Costainwill rely upon the following:a. That Mr. Heckles' recollection at thetime appears to have been that PHJ inspectedjointly with Costain.b. That Mr. Gibson-Leitch's recollection atthe time appears to have been that all fourMidlands Stores were inspected by Costain "witharchitects".c. That it was Tesco's practice to ask thecontractor and the architect to inspect.d, That it was Costain's practice to carryout these inspections jointly with the architect, as itwas on any occasion where queries were raisedwhich would have involved design/regulationissues.e. That Mr. Heckles (in the context ofrecollecting his agreement with the Fire Officer inrelation to New Oscott) recalled that someone fromPHJ had done "a similar exercise with Costains forRedditch" -- which is to say that this person carriedout an inspection jointly with Costain and found tothe same effect i.e. "no problems but properlyprotected as agreed with LA Fire Officer".f. That PHJ were asked to issue therelevant drawings, and did issue (aroundSeptember/October) the relevant drawings, inrelation to the Redditch store.g. That Mr. O'Connor's reference at theend of the note: "P. S. Robert has checked hisdaybook -- his survey was at the end of September"is a reference to "someone from our group" i. e.PHJ inspecting the Redditch store in September1993.h. That PHJ was the designer and Costainthe contractor.20F. On 19th October 1993, Costain wrote toTesco (copied to PHJ) in the following terms:"Although we did not receive a letterspecific to this store, we have taken it uponourselves to carry out a detailed inspection of firebarriers as per other stores constructed by ourCompany in the Midlands. We are pleased to reportthat further to this inspection we can confirm thatfire stopping works comply with the requirementsof the Design and Statutory Regulations prevailingat the time of construction".20I. [sic] On 28th April 1994 Tesco wrote toPHJ in the following terms:"I understand that you were the appointedArchitect for the above Development which hasbeen carried out within the last 6 years. Could youplease arrange to have an inspection carried out byyourselves in conjunction with the main contractorsin order to determine the condition of the firestopping works and if necessary a report should beprovided and returned to myself. If the firestopping works are unsatisfactory then could youplease forward a letter informing us of same, oralternatively, providing a building regulationcompletion certificate as soon as possible."Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 122003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)20J. On 27th May 1994, Costain wrote to Tesco(copied to PHJ) in the following terms:"We are pleased to report that further to adetailed inspection of the [Redditch] store lastautumn, we can confirm that fire stopping workscomply with the requirements of the design andstatutory regulations prevailing at the time ofconstruction."20K. On 3rd June 1994, as alleged at Paragraph20 of the Particulars of Claim, PHJ wrote to Tescoin the following terms:"Thank you for your letter dated 28thApril 1994. We were in fact approached by CostainConstruction last October in respect of this matter,and they have carried out the inspection to whichyou refer, as part of their review of all fourMidlands Tesco projects with which they wereinvolved. From discussion with Costain, itappeared they may not have returned a report toyou in respect of the Redditch project, but theyconfirmed to us that they would do so, and I seethat they have now written. We hope this issatisfactory and closes the matter."20L. PHJ's letter dated 3rd June 1994 implicitlyconfirmed that it was satisfied by its previousinspection with Costain and/or that it was satisfiedthat the drawings which it had supplied to Costainexpressly for the purposes of inspection compliedwith the Statutory Regulations prevailing at thetime of construction. Otherwise, PHJ's letter dated3rd June 1994 was not a proper response to Tesco'sletter dated 28th April 1994.20M. In all the circumstances:a. PHJ owed Tesco a duty of care toinspect the Redditch store with that degree of skilland care to be expected of the reasonablycompetent architect carrying out such aninspection.b. Further and in any event PHJ owedTesco a duty of care to identify any element of thedesign of the Redditch store which did not complywith the Statutory Regulations prevailing at thetime of construction. Costain will contend that thisduty of care arose as early as 9th September 1993,and that it had certainly arisen by 3rd June 1994.c. Yet further and in any event PHJ owedCostain a duty of care to identify any element ofthe design of the Redditch store which did notcomply with the Statutory Regulations prevailing atthe time of construction. Costain will contend thatthis duty of care arose as early as 9th September1993, and that it had certainly arisen by 3rd June1994.20N. PHJ owed these duties because:a. PHJ was aware of the contents of theletters dated 19th October 1993 and 27th May1994;b. PHJ was the architect and designer ofthe works and Costain was the contractor. Tescohad a policy of requiring inspections by botharchitect and contractor for these purposes, andCostain had a policy of inspecting with thearchitect for these purposes;c. Neither Tesco nor PHJ can haveexpected that Costain would have undertaken areview of the design of the Redditch store in orderto ascertain whether the design complied with theStatutory Regulations prevailing at the time ofconstruction;d. PHJ knew having received Tesco'sletter of 28th April 1994 and in the circumstancesabove that Tesco (and, further or in the alternative,Costain) was/were dependent upon PHJ to report ifthe design of the Redditch store was not compliantwith the Statutory Regulations prevailing at thetime of construction.20O. To the extent that Tesco establishes that thedesign of the Redditch store was not compliantwith the Statutory Regulations prevailing at thetime of construction, and to the extent that Tescoestablishes, contrary to Costain's Defences, ifalleged, that Costain is liable for failing to point outsuch non-compliances in its letters dated 19thOctober 1993 or 27th May 1994, then PHJ was inbreach of those duties of care which it owed toTesco identified in paragraphs 20M a. and b.above, and the duty of care which it owed toCostain identified in paragraph 20M c. above, infailing to identify those non- compliances either toCostain or to Tesco direct. Costain and CostainLimited repeat paragraph 4 above and Costain willfurther claim from PHJ damages for breach of theduty of care described in paragraph 20M c. above.20P. Further and in any event, to the extent thatTesco establishes that the construction of theRedditch store was not compliant with theStatutory Regulations prevailing at the time ofconstruction, and to the extent that Tescoestablishes, contrary to Costain's Defences, thatCostain is liable for failing to point out such noncompliancesin its letters dated 19th October 1993or 27th May 1994, then PHJ was in breach of thoseduties of care which it owed to Tesco identified inparagraphs 20M a. and b. above, and the duty ofcare which it owed to Costain identified inparagraph 20M c. above in failing to identify thosenon-compliances either to Costain or to Tescodirect. Costain and Costain Limited repeatparagraph 4 above.20Q. As particulars of breaches of the duties ofcare described at paragraph 20M above, Costainand Costain Limited will refer to and rely upon theallegations herein and such of the allegations madeby Tesco against Costain and PHJ as Tescoestablishes at the trial of this matter."37. The answer of PHJ to the allegations quoted inthe preceding paragraph was set out in paragraphsCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 132003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)13A to 13J of its Amended Defence in the Part 20proceedings. Those paragraphs were in thefollowing terms:--"13A. Paragraph 20A of the Part 20 Particularsof Claim is admitted.13B. Paragraph 20B of the Part 20 Particulars ofClaim is denied.13C. With regard to paragraph 20C of the Part20 Particulars of Claim, PHJ says as follows:(i) It is agreed that PHJ did not informCostain that the design of the Redditch store didnot comply with Statutory Regulations prevailingat the time of construction. It is denied, if the samebe averred, that Costain's request to PHJ, to whichreference is made in paragraph 20A of the Part 20Particulars of Claim, imposed any obligation uponPHJ to consider this question or to advise Costainas to whether or not the design of the Redditchstore complied with Statutory Regulationsprevailing at the time of construction.(ii) It is denied that Costain was entitled toassume that the design depicted in the drawingssupplied by PHJ complied with StatutoryRegulations. Costain undertook an obligation toTesco to confirm that the fire-stopping works at theRedditch store complied with the requirements ofthe Design and Statutory Requirements [sic]prevailing at the time of construction, not toconfirm that the building had been constructed inaccordance with PHJ's drawings. If, which is notadmitted, Costain made any such assumptionCostain thereby took upon itself the risk that thebuilding, as designed, did not comply with therequirements of the Design and StatutoryRequirements [sic] prevailing at the time ofconstruction.(iii) It is denied that PHJ either knew, orought reasonably to have known that Costainwould assume that the design of the Redditch storedepicted in PHJ's drawing complied with StatutoryRegulations prevailing at the time of construction.(iv) Save as aforesaid, paragraph 20C ofthe Part 20 Particulars of Claim is denied.13D. Paragraph 20D of the Part 20 Particulars ofClaim is not admitted.13E. Paragraph 20E of the Part 20 Particulars ofClaim is denied. With regard to the matters reliedupon by Costain, PHJ says as follows, adopting thelettering used in the Part 20 Particulars of Claim.(a) If, which is not admitted, Mr. Heckelsbelieved at any material time that PHJ had, or mayhave, carried out a joint inspection with Costain ofthe fire-stopping works at the Redditch store, Mr.Heckels was mistaken in that belief.(b) If, which is not admitted, Mr. Gibson-Leitch believed at any material time that he hadcarried out an inspection of the fire- stoppingworks at the Redditch store with an architect, theneither the architect in question was not PHJ, or Mr.Gibson-Leitch was mistaken in that belief.(c) This is denied. Tesco did not ask, anddoes not assert that it asked, PHJ or any otherarchitect to carry out an inspection of the firestoppingworks at Redditch.(d) This is denied. Costain did not ask anyarchitect to carry out inspection of the fire-stoppingworks at Redditch.(e) No admissions are made as to thestatement alleged to have been made by Mr.Heckels. The attendance note dated 17.5.94, andmade by a Mr. O'Connor, from which the wordsquoted have been taken, does not, in any event,support the construction which Costain seek toplace upon it, namely that an inspection offirestopping works had been carried out by PHJ atthe Redditch store which disclosed no problems.(f) The facts pleaded are admitted; theinference which Costain seek to draw is denied.PHJ's case is that if Costain had asked, or hadintended to ask, PHJ to conduct a joint inspectionof the Redditch store, the written request of19.10.93 [sic -- in fact the request was dated 9September 1993] for the drawings would have beenthe obvious moment to do so. The fact that Costaindid not make such a request at this time evidencesthat Costain did not intend to, and did not in fact,ever ask PHJ to conduct a joint inspection of theRedditch store.(g) The postscript to Mr. O'Connor's noteis admitted. It is denied that it has the meaningsuggested by Costain.13F. Paragraphs 20F, 20I, 20L and 20K of thePart 20 Particulars of Claim are admitted.13G. Paragraphs 20L and 20M of the Part 20Particulars of Claim are denied.13H. Save that it is admitted that PHJ was awareof the contents of the letters dated 10. [sic in fact19] 10.93 and 27.5.94 and that PHJ was thearchitect involved in the construction of theRedditch store, paragraph 20N of the Part 20Particulars of Claim is denied.13I. Paragraphs 20O and 20P of the Part 20Particulars of Claim are denied.13J. Paragraph 20Q of the Part 20 Particulars ofClaim is noted. PHJ's case as to the allegedbreaches of duty (which are denied) is as set outherein and in its Amended Defence to Tesco's Re-Amended Particulars of Claim, served in ActionNo. HT-02-07."The Preliminary Issues38. The validity of the contentions in the variousstatements of case which I have so far set out inthis judgment plainly needed to be determined atsome stage in this litigation, and it seemedCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 142003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)convenient to deal with them as preliminary issuesin advance of the main trial so that the preparationfor that trial could be more focused. I thereforedirected that the following questions be determinedas preliminary issues:--"1. Did the Claimant ("Tesco") and the FirstDefendant ("Costain") make a contract in 1989under which Costain undertook to carry out anywork or provide any services for Tesco inconnection with the construction of a supermarketand associated buildings at a site at ColdfieldDrive, Oakenshaw Wood, Redditch, Birmingham("the Redditch Site")?2. If the answer to Issue 1 is affirmative:(i) Was it a term of such a contract that thelimitation period in respect of any breaches of theagreement would be twelve years?(ii) How was such a contract made andwhat documents, if any, were incorporated into it?(iii) Were any, and if so which, of theexpress terms pleaded at paragraph 15 of the Re-Amended Particulars of Claim in Action No. HT-02-07 terms of such agreement and, if not, so far asmaterial, what were the express terms?(iv) Were any, and if so which, of theimplied terms pleaded at paragraph 16 of the Re-Amended Particulars of Claim in Action No. HT-02-07 terms of such agreement and, if not, so far asmaterial, what were the implied terms?3. Is Costain estopped, as asserted by Tesco atparagraph 12A of its Amended Reply in Action No.HT-02-07, from denying that "the contract withTesco for the design and construction of theRedditch Store was on Tesco's standard terms andconditions" by reason of the matters set outtherein?4. Is Costain estopped, as against Tesco and/orthe Third Defendant ("PHJ"), from denying that itwas retained as Tesco's design and build contractoras alleged in paragraph 5 of PHJ's Defence toCostain's Part 20 proceedings in Action No. HT-02-07?5. If the answer to Issue 2(i) is negative, isCostain estopped, as asserted by Tesco atparagraph 65(2) of the Amended Reply in ActionHT- 02-07 from "denying any claim made byTesco is statute-barred provided that any suchclaim has been made within 12 years from theoccurrence of the relevant breach of whichcomplaint is made"?6. Is Costain estopped from denying a novationby conduct in April 1989 as alleged at paragraph 5of PHJ's Defence to Costain's Part 20 proceedingsin Action No. HT-02-07?7. Did Costain owe to Tesco any duty of care intort in relation to anything undertaken by Costainin connection with the Redditch Site in 1989?8. If the answer to Issue 7 is affirmative were thenature and extent of such duty of care as set out inparagraph 17 (and 15 and 16) of the Re-AmendedParticulars of Claim and paragraph 13 of the Replyto the Defence of Costain in Action No. HT-02-07;and if not, what were the nature and extent of theduty of care owed by Costain to Tesco?9. Did Costain assume a duty of care to Tesco ofthe nature and extent pleaded at paragraph 27 of theRe-Amended Particulars of Claim in Action No.HT-02-07 as a result of the writing by Costain toTesco of the letter dated 19 October 1993; and, ifnot, what were the nature and extent of the duty ofcare to Tesco (if any) assumed by Costain inwriting the letter dated 19 October 1993?10. Did Costain assume a duty of care to Tescoof the nature and extent of th[at] pleaded atparagraph 21 of the Amended Particulars of Claimin Action No. HT-02-439 as a result of the writingby Costain to Tesco of the letter dated 27 May1994; and, if not, what were the nature and extentof the duty of care to Tesco (if any) assumed byCostain in writing the letter dated 27 May 1994?11. If the answers to Issues 7 and 8 are to theeffect that a duty of care was owed by Costain toTesco which was capable of encompassing one ormore of the losses pleaded at paragraph 65 of theRe-Amended Particulars of Claim in Action No.HT-02-07, and on the assumption that Costain wasin breach of that duty of care as alleged by Tesco inthe said Re-Amended Particulars of Claim, subjectto issues arising under Hsection 14A and section 32of the Limitation Act 1980, did Tesco's cause ofaction in tort in respect thereof accrue as at the dateof the fire, 4 August 2001?12. If the answer to Issue 9 is to the effect that aduty of care was owed by Costain to Tesco whichwas capable of encompassing one or more of thelosses pleaded at paragraph 65 of the Re-AmendedParticulars of Claim in Action No. HT-02-07, andon the assumption that Costain was in breach ofthat duty of care as alleged by Tesco in the said Re-Amended Particulars of Claim, subject to issuesarising under Hsection 14A Hand section 32 of theLimitation Act 1980, did Tesco's cause of action intort in respect thereof only accrue as at the date ofthe fire, 4 August 2001?13. If the answer to Issue 10 is to the effect that aduty of care was owed by Costain to Tesco whichwas capable of encompassing one or more of thelosses pleaded in the Amended Particulars of Claimin Action No. HT-02-439, and on the assumptionthat Costain was in breach of that duty of care asalleged by Tesco in the said Amended Particularsof Claim, subject to issues arising under Hsection14A and section 32 of the Limitation Act 1980, didTesco's cause of action in tort in respect thereofonly accrue as at the date of the fire, 4 August2001?14. On the assumption that Costain is liable toTesco to any extent in respect of the claims madeCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 152003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)in this action, is the Second Defendant ("CostainLimited") liable to Tesco as contended at paragraph66 of the Re-Amended Particulars of Claim inAction No. HT-02-07 and in paragraph 54 of theParticulars of Claim in Action No. HT-02-439?15. If there was no contract as between Tescoand Costain which imposed upon Costain designand build obligations (whether in accordance withthe Tesco Standard Documentation for use with theDesign and Build Contracts, Issue No. 7, orotherwise) do PHJ's contractual obligations toTesco nevertheless fall to be determined on thebasis that the position as between Tesco andCostain was that Costain had undertaken designand build responsibilities to Tesco as alleged inparagraph 11A of PHJ's Amended Defence inAction No. HT-02-07?16. Was the agreement executed by PHJ on 20March 1989 deemed as between the parties to it tobe a specialty for the reason pleaded at paragraph56 of the Re-Amended Particulars of Claim inAction No. HT- 02-07?17. Is the limitation period for the contractualclaims made by Tesco against PHJ in respect ofalleged breaches of the agreement executed by PHJon 20 March 1989, pleaded at paragraph 8 of theRe-Amended Particulars of Claim in Action No.HT-02-07, 12 years or 6 years?18. Were any, and if so which, of the impliedterms pleaded at paragraph 10 of the Re-AmendedParticulars of Claim in Action No. HT- 02-07 termsof the agreement between Tesco and PHJ which ispleaded at paragraph 8 of the Re-AmendedParticulars of Claim?19. If PHJ was in breach of any duty of careowed in tort to Tesco, as alleged in paragraph 54 ofthe Re-Amended Particulars of Claim in ActionNo. HT-02-07, and subject to issues arising underHsection 14A and section 32 of the Limitation Act1980, did Tesco's cause of action in tort in respectthereof only accrue as at the date of the fire, 4August 2001?20. Whether the nature of the obligations set outin paragraphs 9, 10 and 11 of the Re-AmendedParticulars of Claim was such that, in the event thatPHJ was in breach of contract as alleged by Tesco,those breaches of contract occurred at or continueduntil Practical Completion regardless of (1) whenthe allegedly defective design work wasundertaken; and (2) whether, as a matter of fact, thedefects in construction alleged could or could notbe detected upon a reasonable inspection of theRedditch store as at the date of PracticalCompletion?21. Did Costain or PHJ carry out an inspectionof the Redditch store in 1993/1994? If so, which?22. In all the circumstances, what were thenature and extent of any duty of care in tort, if any,assumed by PHJ to Tesco and/or Costain in relationto the Redditch Store in 1993 and1994?23. If PHJ did owe Tesco and/or Costain a dutyof care in relation to the Redditch store in 1993/4,as alleged by Costain in its Amended Particulars ofClaim in Action No. HT-02-07, and on theassumption that PHJ was in breach of that duty ofcare as alleged by Costain, did Costain's cause ofaction in respect thereof accrue in 1993/4 or did itonly accrue at the time of the fire, namely 4 August2001?"39. In the event those preliminary issues gave riseto few disputes of fact. Although a number ofwitnesses were called on behalf of each of theparticipants in the trial of preliminary issues to giveoral evidence, by and large each witness candidlyaccepted that, at this remove in time from theevents of 1988 to 1990 and those of 1993 and 1994,he had no very definite recollection, independent ofcontemporaneous documents of which he had beenshown copies for the purposes of preparing hiswitness statement, of most of the matters uponwhich he had been invited to comment.Tesco Standard Documentation40. It appears that certainly from the latter part ofthe 1980s Tesco had embarked upon a programmeof having constructed for it a considerable numberof new supermarkets all over the United Kingdom,other than in Northern Ireland. The preferred meansof arranging for the construction of a particularsupermarket seems to have been on a "Design andBuild" basis. As operated by Tesco what that basisapparently involved in the first instance was Tescoputting together a team of professionalorganisations appropriate to the task of designingthe supermarket, in particular architects, structuralengineers, and building services engineers, andTesco itself entering into appropriate contracts ofengagement with the relevant organisations.Thereafter Tesco would identify a buildingcontractor to undertake the actual work ofconstruction and enter into a contract (a "MainContract") with that contractor. Under the terms ofthe Main Contract the contractor was obliged toassume liability for the design of the supermarketin question. However, it was contemplated that thecontractor would enter into contracts of novationwith Tesco and each relevant professionalorganisation engaged to design any aspect of thesupermarket under which the benefit and burden ofthe contract originally made between Tesco and theparticular organisation was effectively transferredto the contractor. Separately, so it appears, Tescoengaged quantity surveyors to act in connectionwith the particular project to advise on costs and, toCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 162003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)an extent, to act as agents of Tesco in relation tosuch matters as securing the execution ofappropriate contract documentation.41. To facilitate the method of proceeding which Ihave described in the preceding paragraph Tescocaused to be prepared what was described as"Standard Documentation for use in connectionwith Design and Construct Contracts" ("theStandard Documentation"). The StandardDocumentation comprised:--(i) a form of Main Contract;(ii) a form of sub-contractor agreement for usebetween the chosen contractor and any subcontractorsselected for the purposes of the relevantworks;(iii) a form of "Parent Company Guarantee";(iv) a form of "Consultant Novation Agreement"( a "Novation Agreement");(v) a form of "Architect's Commissioning Letter"(an "Architect's Agreement");(vi) a form of "Structural Engineer'sCommissioning Letter";(vii) a form of "Building Engineering ServicesConsultants Commissioning Letter";(viii) a form of "Landscape ArchitectsCommissioning Letter".42. The Standard Documentation seems to havebeen altered from time to time. The making ofalterations resulted in the production of different"Issues" of the Standard Documentation. For thepurposes of the trial of the preliminary issues Ihave been concerned with "Issue No.6", dated, itseems, April 1987, to which I shall refer in thisjudgment by the name "Issue No. 6", and with"Issue No.7", to which again I shall refer by thatdesignation. Issue No. 7 appears to have beendated, in its final printed form, February 1989. Itseems that prior to appearing in its final printedform Issue No. 7 had been used in draft versionswith different dates.43. The detail of Issue No. 6 is not material forpresent purposes.44. The form of Main Contract included withinIssue No. 7 ("the Issue 7 Main Contract")comprised Articles of Agreement ("the Articles")and attached conditions ("the Conditions").45. The Articles contained, amongst others, theserecitals:--"B. The Contractor has submitted proposals forcarrying out the Works which include a statementand analysis of the sum which he will require forcarrying out that which is necessary to completethe Works in accordance with the Conditions andthe Employer's Enquiry Document. TheContractor's proposals, the Employer's EnquiryDocument and this Agreement shall hereinafter bereferred to as the "Contract Particulars" ....E. The Contract Particulars have been signed andsealed by the parties hereto."The former recital indicated that a contract in theform of the Issue 7 Main Contract was expected toincorporate both "Contractor's proposals"("Contractor's Proposals") and an "Employer'sEnquiry Document" ("Employer's Requirements").The latter recital in the printed form of the Articleswas plainly contemplating a situation which, if itwere accurate in any particular case, would only beso as a result of further action on the part of Tescoand the relevant contractor, namely the actualexecution of an Issue 7 Main Contract under seal.46. The Conditions included:--"1(1) The Contractor will upon and subjectto these Conditions carry out and complete theWorks shown and described or referred to in theContract Particulars in a good and workmanlikemanner and to the satisfaction of the Employer'sRepresentative so that the completed Works arereasonably fit for their intended use ....2(1) Regardless of any warranties given byany other persons in respect of the Works, theContractor warrants to the Employer that his designand the design of those persons employed orengaged by him (including design work carried outprior to such employment or engagement) will besuch that the completed Works shall be reasonablyfit and [sic] for their intended use. The Contractorfurther warrants that the materials used in theWorks shall be reasonably fit for their intended use.This warranty shall extend to any substitutiontaking place pursuant to Clause 1(2) hereof and inrelation to any design work necessitated by avariation pursuant to Clause 7 hereof ...4(1) The Contractor shall observe andperform (including the payment of any sums or theexecution of any works) those obligations andconditions contained in any Agreement(s), betweenthe Employer and any interested third party, so faras they affect the carrying out and the completionof the Works and shall indemnify the Employerfrom and against any damages, costs, losses, fees,expenses or the like arising from any breach of thesame. A copy of the said Agreement(s) is appendedto the Employer's Enquiry Document.(2) The Employer shall procurecompliance by the third party of the obligations onits part contained in the said Agreement(s) so far asthey affect the carrying out and completion of theWorks."Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 172003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)47. The Architect's Agreement included withinIssue No.7 ("the Issue 7 Architect's Agreement")included these provisions:--"You are invited to provide ArchitecturalServices for the above project and to carry out allnecessary duties in connection therewith and as setout hereunder. It is a condition of your appointmentthat at or about the time the Construction Contractis entered into you will execute a NovationAgreement, a draft of which is annexed hereto,when directed by this Company ....1.1 Your appointment and, therefore, theseTerms and Conditions are effective from the dateof this Company's first instructions to you inrespect of this project.1.2 The Architect will up to the time of theexecution of the Novation Agreement act on behalfof this Company in all matters set out or implied inthe Architect's appointment and will obtainapproval in writing before initiating any service orwork stage. Such approval will be obtained from aDirector of this Company or its designatedrepresentatives.1.3 The Architect shall in conformity withthe normal standards of the Architect's professionto be assessed by the Standard of an Architectexperienced in projects of the scale and complexityof this project exercise all reasonable skill, care anddiligence in the discharge of the services agreed tobe performed by him. In connection with theproject the Architect will prior to the execution ofthe Novation Agreement only take instructionsfrom a Director of this Company or its designatedrepresentatives. The Architect will not make at anytime any material alteration, addition or omissionfrom the design unless approved by a Director ofthis Company or its designated representatives ....9.1 For all purposes the Terms andConditions contained in this letter shall be deemedto have been made under Seal by the parties."48. In the Novation Agreement included withinIssue No. 7 ("the Issue 7 Novation Agreement")Tesco was called "the Company", the contractorparty to it was called "the Contractor" and theprofessional organisation party to it was called "theConsultant". The expression "the PrincipalAgreement" was defined as meaning the relevantIssue 7 Main Contract, while the expression "termsof Engagement and Conditions of Appointment"was defined as meaning whatever agreement hadpreviously been made between Tesco and therelevant professional organisation. The Issue 7Novation Agreement included these provisions:--"1. THE Consultant HEREBY UNDERTAKESto perform the obligations under the Terms ofEngagement and Conditions of Appointment forthe Contractor with immediate effect and to bebound by the terms and conditions of the same inevery way as if the Contractor were a party theretoab initio in lieu of the Company.2. THE Consultant:(a) Releases and discharges the Companyfrom the further performance of the Company'sobligations under the Terms of Engagement andConditions of Appointment and from all claims anddemands whatsoever arising out of or in respect ofthe Terms of Engagement and Conditions ofAppointment whether prior to or subsequent to thedate hereof.(b) Is deemed to have notice of the termsand conditions of the Principal Agreement andagrees that the performance of the obligationsunder the Terms of Engagement and Conditions ofAppointment are necessary for the execution andcompletion of the Works under the PrincipalAgreement.Provided that for the avoidance of doubtthis shall not mean that the Consultant undertakesany duty or obligation beyond that of exercisingthat degree of skill, care and diligence so as toconform with the duties set out in the Terms ofEngagement and Conditions of Appointment.3. THE Consultant releases and discharges theCompany from all claims and demands whatsoeverin respect of the said Terms of Engagement andConditions of Appointment and accepts the liabilityof the Contractor upon the said Terms ofEngagement and Conditions of Appointment in lieuof the liability of the Company and the Contractoragrees to be bound by the terms of the said Termsof Engagement and Conditions of Appointment inevery way as if it were named in the said Terms ofEngagement and Conditions of Appointment as aparty thereto in place of the Company ...6. Nothing contained in this Agreement shalloperate to discharge the Consultant from anyliability in respect of duties performed prior to theexecution of this Agreement. The Consultantagrees that in respect of all duties performed by itafter the said date of execution it shall owe thesame duty of care to the Company as agreed in theTerms of Engagement and Conditions ofAppointment concurrent with such duties owed tothe Contractor ....8. For all purposes the Terms and Conditionscontained in this Novation Agreement shall bedeemed to have been made under seal by theparties."The involvement of Costain in the constructionof the Store49. I shall come separately to deal with theinvolvement of PHJ in the design of the Store, butit is material at this stage to notice that thatCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 182003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)involvement commenced some time in 1988. Thatwas a considerable period before the execution ofthe PHJ Agreement. Costain's involvement seemsto have commenced when it was invited, by a letterdated 16 November 1988 written on behalf ofTesco by Bucknalls, to submit a first stage tenderfor the construction of the Store. That was not thefirst time that Costain had been invited to submit atender for the construction of a supermarket forTesco. It was clear from the material put before methat Costain was at that time familiar with Tesco'swishes to use Standard Documentation and to havethe contractor for any supermarket enter into aMain Contract under seal under which thecontractor accepted design responsibilities. It alsoappeared that Costain was in principle prepared todeal with Tesco on the terms desired by Tesco,subject to appropriate back-to-back arrangementsbeing made with the relevant architects and otherprofessional organisations.50. My attention was drawn in particular to theinvolvement of Costain in three projects for Tescoin 1988 and 1989. One project concerned theconstruction of an extension to a warehouse atCrick. In that case it appeared that Costainexecuted a form of the Main Contract included inIssue No. 6 with amendments which includeddeletion of clause 4 (which was not materiallydifferent from clause 4 of the Conditions). Thatform of contract as executed was sent to Messrs.Spicer Partnership ("Spicer"), quantity surveyorsacting on behalf of Tesco in relation to that project,under cover of a letter dated 24 March 1988.Execution seems to have preceded the execution ofnovation agreements with the relevant professionalfirms involved with the design in that case.Novation agreements were executed subsequently,but in the interim no form of agreement wasconcluded as between Tesco and Costain becausethe amendments made by Costain to the form ofagreement which it executed were not acceptable toTesco.51. The second of the three projects to which Ihave referred concerned the construction of anextension to the Tesco supermarket in Pontypridd.Again Spicer acted as quantity surveyors to Tesco.From the terms of a letter dated 25 March 1988written by Costain to Spicer it appears that Costainexecuted and returned to Spicer contract documentsin that case notwithstanding that no novationagreement had been made with Messrs. Ove Arupand Partners ("Arup"), although novationagreements had been made with other professionalorganisations involved.52. The third project to which I have referredconcerned the construction of a supermarket inMold. In that case it appears that Costain executeda form of the Main Contract included within IssueNo. 6 and returned it under cover of a letter dated23 March 1989 to Messrs. Robert H. Gleave andPartners ("Gleave"), the quantity surveyors actingfor Tesco in relation to that project,notwithstanding that the structural engineersinvolved in that project had not at that timeexecuted a novation agreement. The structuralengineers did subsequently execute such anagreement.53. I shall return to what is said to be thesignificance of the events to which I have referredin the previous three paragraphs of this judgment.54. Following the indication on the part of Costainthat it was interested in submitting a tender for theconstruction of the Store tender documents weresent to it by Bucknalls under cover of a letter dated21 November 1988. In that letter it was indicatedthat the intended forms of contract for the projectwere those included within Issue No.6. There werealso sent under cover of that letter Employer'sRequirements, and a form of tender, amongst otherdocuments. The Employer's Requirementsidentified as "Architect" for the purposes of theproject PHJ, as "Quantity Surveyor" Bucknalls, as"Structural Engineer" Ernest Green PartnershipLtd. ("Green") and as "Building Services Engineer"Messrs. Sibley Robinson Partnership ("Sibley").The Employer's Requirements also identified as"Employer's Representative" Mr. Kevin Pleass, aProject Controller. At folio 1/4 the Employer'sRequirements included this:--"C The Quantity Surveyor will be employed bythe Employer throughout the Contract and his feeswill be paid directly by the Employer.Contractor's Design TeamD The Architect, Structural Engineer, BuildingServices Engineer are responsible for the design ofthe project and will, under the terms of theContract, become employed by the Contractorthrough a Consultant Novation Agreement.E Attention is drawn to the fact that the NovationAgreements included are standard for the TescoForm of Contract.F The Contractors design team's remunerationwill be met by the Contractor, as set out in theirrespective Letters of Appointment reproduced inthe Tesco Form of Contract."No copies of any agreements made between Tescoand PHJ, Green or Sibley were attached to theEmployer's Requirements. At folio 1/11 of theEmployer's Requirements was set out a list ofcontractors introduced by the words:--"A It is the Employers policy to use thefollowing approved sub- contractors and suppliersas mentioned in the Policy Memoranda for variousCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 192003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)aspects of the work.B The Contractor is to employ these companiesto execute the work or supply the goods andmaterials mentioned. The appointed firms willbecome domestic sub-contractors and suppliers tothe Main Contractor."55. The other companies invited to tender for theconstruction of the Store included WimpeyConstruction Ltd. ("Wimpey").56. There were various exchanges betweenBucknalls and Costain in the period leading up tothe submission by Costain of the final version of itstender. Tenders on alternative bases were sought.The final version of the tender was submitted on 16December 1988. It was in a standard printed formwhich had been provided by Bucknalls and whichhad been completed on behalf of Costain inmanuscript. The standard printed form commencedwith these words:--"We having read the Conditions of Contract andRepresentative Bills of Quantities delivered to usand having examined the drawings referred to now[sic] therein do hereby offer to execute andcomplete in accordance with the Conditions ofContract the whole of the works described for thesum of"57. By a letter dated 11 January 1989 Bucknallsinformed Costain that its tender had not beensuccessful.58. At some point prior to about the beginning ofMarch 1989 Arup joined the design team for theStore as highway engineer. It seems to have beenintended that Arup would be treated for thepurposes of contractual relationships concerningthe project in the same way as PHJ, Green andSibley.59. It appears that there was a falling out betweenTesco and Wimpey as a result of which Tesco haddecided, at or about the beginning of March 1989,that it wished Costain, rather than Wimpey, toundertake the construction of the Store. From aninternal memorandum written by Mr. H. R.Whatley of Costain, of which a copy was put inevidence, it seems that Tesco's decision wascommunicated to Costain at a meeting held on 7March 1989. In another internal memorandum, thistime dated 10 March 1989, Mr. G. M. Joyce ofCostain indicated to Mr. Clive Franks of theCostain Legal Department that the form of contractproposed to be made between Tesco and Costainwas the Issue 7 Main Contract. Tesco did notcommunicate its intentions in relation to theconstruction of the Store to Costain in writing untilMr. Bruce Fletcher, Head of New Works, wrote aletter dated 20 March 1989, which was in theseterms:--"Tesco RedditchFurther to your first stage tender and subsequentnegotiations with Bucknall Austin Plc, inconnection with the above project, we write toadvise you that it is our intention to enter into aformal contract with your company in accordancewith the Tesco Standard Documentation for usewith Design and Build Contracts, Issue Number 7dated August 1988, the first stage tenderdocumentation and in a satisfactory contract sumbeing agreed between yourselves and the QuantitySurveyors (Bucknall Austin PLC).In consideration of the issuance of this letter, youare to consider your company as part of the designteam and to put in hand all works in accordancewith the instructions of the EmployersRepresentative.The anticipated contract period will be 46calendar weeks commencing on 3rd April 1989with completion on 19th February 1990, subject tothe satisfactory compliance with Local AuthorityPlanning requirement [sic], based on your firststage tender sum of £7,602,781 (Seven million, sixhundred and two thousand seven hundred andeighty one pounds).If we repudiate the terms of this letter, you willbe reimbursed for all reasonable, direct and actualloss (not to include reimbursement for anyconsequential loss or loss of profit) expected fromthe date of this letter up to the date at which youwere advised that Tesco Stores Limited do notpropose to continue with the project.If agreement cannot be reached, between TescoStores Limited and yourselves as to the amount ofreimbursement, your claim shall be referred toBucknall Austin Plc as Tesco Stores Limited'sQuantity Surveyors, for amendment and suchamendment is to be a condition precedent to yourentitlement to payment.If without good cause you withdraw from thisproject or make yourselves unavailable forappointment, you shall not be entitled to paymentfor work done and you shall be liable for all costsand losses incurred by Tesco Stores Limited as aresult of that withdrawal.Please return a copy of this letter (enclosed) withyour signature to acknowledge your agreement toits terms."60. Costain replied to the letter dated 20 March1989 in a letter dated 30 March 1989. WhatCostain said in the latter letter was:--"We acknowledge receipt of and thank you foryour letter dated 20th March 1989 accepting ourCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 202003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)first stage tender in the sum of £7,602,781 subjectto satisfactory negotiation.We confirm we shall work with the design teamand put in hand all works in accordance with theinstructions of the Employers Representative.We enclose as requested a copy of your letterdated 20th March 1989 signed by our ManagingDirector, Mr. W. Sperry, in acknowledgement ofthe terms and conditions contained therein."61. Before Costain replied to Mr. Fletcher's letterdated 20 March 1989 he had in fact written again,this time in a letter dated 23 March 1989. Thematerial part of that letter read:--"I refer to the negotiations between Messrs.Bucknall Austin PLC and yourselves in respect ofthe above Development.I am pleased to advise you that you areauthorised to commence the main contract workson Monday 3rd April, 1989 generally inaccordance with the tender documents already inyour possession with a contract period of 46 weeksand in the budget contract sum of £8,320,000(Eight million, three hundred and twenty thousandpounds).You are aware that the above contract sum is yetto be subject to the reduction agreed between Mr.Bassil and Mr. Blackburn and, of course, is subjectto the completion of the 2nd stage tendernegotiations ....I look forward to a satisfactory outcome to thisproject and would be grateful for youracknowledgment [sic] of the contents of this letter."62. Costain responded to Mr. Fletcher's letterdated 23 March 1989 in a letter dated 31 March1989 as follows:--"We acknowledge receipt of and thank you foryour letter dated 23rd March 1989 giving usauthority to commence the main contract works onthe 3rd April 1989 generally in accordance with thetender documents, with a contract completion dateof 19th February 1990.We note the budget contract sum of £8,320,000as stated in your letter which we understand is stillsubject to negotiation."63. Costain then proceeded with the work ofconstruction of the Store.64. Under cover of a letter dated 8 June 1989Costain sent to Bucknalls calculations indicatingthat its second stage tender for the Store amountedto a total of £8,352,834.56. Bucknalls replied in aletter dated 28 June 1989 that a figure of£8,251,454 had by that time been agreed betweenBucknalls and Costain. In a letter dated 7 July 1989to Tesco Bucknalls recommended acceptance of acontract sum of £8,251,454. Tesco apparentlyaccepted that recommendation, although on theevidence put before me it was unclear exactly whenor how.65. On or about 29 June 1989 Bucknalls sent toCostain revised Employer's Requirements inrelation to the construction of the Store.66. After it commenced the construction of theStore Costain included within the sums of which itclaimed payment from time to time sums claimedby PHJ in respect of its own fees. It appears thatPHJ submitted invoices in respect of its fees toCostain following receipt of a letter dated 4 May1989 written by Mr. Pleass. The letter was copiedto Costain. In his letter Mr. Pleass wrote:--"Unfortunately now that the Main Contractor hasbeen appointed for this Project, all Fee Accountsneed to be passed through Messrs. CostainConstruction.Would you kindly re-submit this account inaccordance with the Conditions in your Letter ofAppointment, and you should note that your feescan now be based on the agreed Tender Figurefrom Messrs. Costain Construction.I am returning herewith your letter and invoicedated 21st April, 1989."In a letter to Costain dated 8 May 1989 Mr. PeterLyons of PHJ wrote that:--"On the direction of our client, I herewithenclose an interim fee account in respect of theabove. I trust you will find this in order forpayment, which I should appreciate receiving assoon as possible, since I was advised to re-directthis to yourselves following its earlier submissionto Tesco Stores Limited."67. Sums which were included in payments madeby Tesco to Costain in respect of the fees of PHJwere passed on by Costain to PHJ under cover ofletters following a standard pattern andincorporating a final paragraph in identical form.The letters were dated, respectively, 26 June 1989,30 August 1989, 5 October 1989, 9 November1989, 19 December 1989, 15 January 1990, 7February 1990, 9 March 1990, 29 March 1990, 18May 1990 and 15 November 1992. Each washeaded "Without Prejudice". The terms of the letterdated 26 June 1989 may be treated as typical of thepattern of all of the letters. The text of that letterwas:--"Following the inclusion of professional fees inthe Quantity Surveyor's, Bucknall Austin'sCertificate Valuation No. 3, we are pleased toadvise that the sum of £98,000.00 (excluding VAT)was certified on your behalf.We therefore confirm that you have received ourcheque in the sum of £ 112700.00 being thesummation of the above mentioned value ofCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 212003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)£98000.00 plus VAT of £14700.00. Your interimfee invoice No. 3036/89 dated 7th May 1989 refers.In forwarding our cheque as outlined above, weconfirm that we do so without prejudice to theoutstanding matters concerning the ConsultantNovation Agreement, drawn up in respect of aletter of appointment, relating the [sic] theprovision of your services, which agreement ispresently unresolved between us and notcompleted."68. During the course of the construction of theStore representatives of Costain chaired sitemeetings and took the minutes of such meetings.69. In a letter dated 11 May 1989 to PHJ Costainwrote:--"We are writing to advise you that from the 12thMay 1989, any variations to existing drawings,other than those specifically requested by anofficial Tesco instruction, must be issued toourselves in preliminary form, for a cost analysisprior to issue as a construction detail.The only exemption to this procedure would beexpanded details of existing constructiondrawings."70. Thereafter Costain continued to write to PHJdirectly concerning matters relevant to the designof the Store. The detail of the communications isnot material to determination of the preliminaryissues, so a few examples of the sort of letter whichCostain wrote to PHJ will suffice.71. In a letter dated 12 May 1989 to PHJ Costainsaid:--"We have been advised by one of oursubcontractors quoting for the coffee shop kitchenthat in order for your layout to the coffee shop tocomply with the latest design standard the wallshould be altered as suggested on the attachedsketch.We are not sure whether these details are validbut trust you will check this out with Mr. K. Pleass,Tesco Stores Limited.Whilst writing we would respectfully remindyou that we are awaiting further details of thesample panels you require."72. Under cover of a letter dated 22 May 1989Costain sent to PHJ:--"for your immediate attention the Tesco'sdrawing detailing their present requirements for theCustomer Catering Facility at the above contract."73. In a letter dated 23 May 1989 to PHJ Costainwrote:--"We enclose for your immediate attention theTesco letter dated 19 May 1989 regarding thedecision to proceed with the high mast lightingscheme to the above project.Will you please ensure that your drawings reflectthis decision. Should you have any queries relatingto this do not hesitate to contact the writer."74. With a letter dated 8 June 1989 to PHJ Costainsent details of the pit to the scissor lift and docklevellers supplied by its subcontractors andrequested PHJ to ensure that any appropriate detailswere reflected in PHJ's drawings.75. In a letter dated 14 June 1989 Costain wrote toPHJ in the following terms:--"Further to our discussion on site and asubsequent telephone conversation, we are notsatisfied with the amount of information given onyour internal drainage drawings.We have received complaints from ourSubcontractor regarding this matter and it is atpresent preventing them from ordering the fittingsand could delay the drain laying.You are aware that we are using Supersleve clayware drainage and require urgently from you thegully types and grating information.The fact that your drawings refer to TescoDesign Standards is insufficient information and asstated previously we require you to producedrawings that are clear and can be issued toSubcontractors and which conform with TescoStandards."76. In a letter dated 8 August 1989 to PHJ Costaincomplained about the non- availability of certaininformation. The letter was in these terms:--"We are concerned to note that certain detailedinformation is still not available which is currentlyfrustrating the progress of the works. Whilstdetailed sheets of information required are alreadyin your possession the following requires yoururgent attention:--1. Details of Pyramid construction.2. Details of elevations involving hungslates.3. Confirmation of door laminate colours.4. Details of junctions for soffit sheeting,discussed 25 July 1989.5. Section through main entrance.Your assurances to produce drawings anddetailed information is generally not met andfrequently lacks co-ordination with Tesco standarddetails.Furthermore many and varied calls to youregarding car park levels and associated drainagehas culminated in Costain developing a systemwhich will operate effectively. This situation istotally unacceptable and we must insist that agreater effort is made by you in order to preventcontract delays.Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 222003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)In recognition of the above difficulties weconfirm our request for you to attend a meeting onsite on Friday 11 August 1989 at 2.30 pm where wetrust items can be addressed prior to the mainTesco Meeting on 16 August 1989."77. Costain also made a habit of sending to PHJfor comment any drawings prepared by itssubcontractors.78. Bucknalls sent to Costain under cover of aletter dated 13 September 1989 two copies of Issue7 Novation Agreements relating to Sibley andGreen. Costain returned those documents toBucknalls under cover of a letter dated 22September 1989 which included this paragraph:--"We note that each of the documents has beensigned by the Employer, but we feel that, inasmuchas in Clause 4 of the Agreement the Consultantacknowledges that to date he has received paymentof the sum stated, it would be prudent for theConsultants to execute the documents before thisCompany is asked to sign them."79. While in many respects illustrated by mattersto which I have already referred Costain operatedas if it was setting the pace for work in connectionwith the Store not only by itself, but also by PHJ,Green and Sibley, the position in relation toBuilding Regulations approval appears to havebeen handled substantially by PHJ to the exclusionof Costain.80. In the minutes of the first meeting betweenrepresentatives of Costain, Tesco, PHJ, Green,Sibley and Bucknalls, which was held on 14 March1989 it was recorded, at minute 2.02 that:--"The application for Building Regulationapproval had been made in the name of theprevious contractor. Peter Hing & Jones to discusswith Redditch [that is to say, the Council of theBorough of Redditch ("the Council")] and amendas necessary.They were also to seek stage BuildingRegulations approval. Ernest Green & Partnerswere requested to assist and if possible enter intodirect communication with the consultant engineerscarrying out the checking on Redditch behalf(Keith Thomson & Partners, Redditch)."81. From the first meeting between Costain,Tesco, PHJ, Green, Sibley and Bucknalls forwardan item, numbered either 2.01 or 2.02, of theminutes remained the question of BuildingRegulation approval.82. The minutes of the meeting held on 29 March1989 at 2.02 recorded that:--"No action had taken place regarding thebuilding regulation approval as discussed at the lastmeeting. Both Peter Hing & Jones and ErnestGreen were instructed to take action as soon aspossible in accordance with previous discussions."83. The relevant minute, 2.02, in those of themeeting held on 12 April 1989 read:--"PH&J had received queries from RedditchBorough Council regarding fire protection. PH&Jwould respond by 14.4.89."84. In fact it appears that PHJ did not respondwithin the timescale expected by the Council, withthe result that by a notice dated 21 April 1989 theplans deposited with the Council were rejected forwant of the supply of information requested by theCouncil's letter dated 31 March 1989. Thatrejection seems to have spurred PHJ into action, forin a letter dated 25 April 1989 to the Council itsought to deal with the outstanding informationrequested by the Council, including in particularconcerning fire protection. In relation to cavitybarriers the letter said this:--"3.0 Cavity BarriersIt is standard practice for Tesco Stores Limitedto provide other fire protection facilities as analternative to the provision of cavity barriers in theceiling void over the sales area, and we now applyfor a relaxation of the Building RegulationRequirement B3 (3) for the following reasons:3.1 The building will be protected byautomatic heat/smoke detection system throughout.3.2 No combustible materials are to beinstalled within ceiling voids.3.3 Duct probes will be installed withinthe extract ducting.3.4 A fireman's control switch will beinstalled.3.5 The automatic detection installationswill be connected to the fire alarm installation,which on activation will automatically shut downthe ventilation system and activate a separatesmoke ventilation.3.6 The ceiling is constructed of noncombustiblematerial.3.7 All electric cables are in metal conduitor trunking."85. In a letter to the Council dated 19 May 1989PHJ confirmed that the Council did not require aformal resubmission of the Building Regulationsapplication following the rejection of plans or aformal application for relaxation of requirements inrelation to cavity barriers in the sales area.86. Minute 2.02 of the meeting held on 10 MayCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 232003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)1989 recorded that:--"Peter Hing & Jones had forwarded a copy ofRedditch Building Control queries to CCL [that is,Costain] and had replied to all points also copyingCCL. CCL suggested that Peter Hing & jones [sic]neet Building Control to clear any furtherproblem."87. The detail of records in the minutes thereafterin relation to the progress of the BuildingRegulations application is not material. It issufficient to state that all relevant minutes indicatedthat the matter was being dealt with by PHJ.88. Building Regulations approval of the plans ofthe Store was, in the event, granted by the Councilon 19 December 1989.89. Construction of the Store was completed onabout 27 February 1990.Attempts to finalise contract documentationbetween Tesco and Costain90. It appears that no serious effort was madeeither on behalf of Tesco or on behalf of Costain toaddress the question of completion of contractdocumentation in relation to the Store until theconstruction of the Store was almost complete.Even at that time the initiative seems to have comesubstantially from Costain, which had the greatestdifficulty in extracting any worthwhile, still lessprompt, response from Bucknalls on behalf ofTesco.91. It was Mr. Gerald Paine, at the time employedby Costain as a Managing Quantity Surveyor, whosought, unsuccessfully as it turned out, to advancethe question of contract documentation. His effortsreally began with a letter to Bucknalls dated 16January 1990, in which he wrote:--"As discussed between Mr. C. Matthews and thewriter today we are pleased to enclose herewith ourdraft Contractor's Proposals for this project for yourperusal. The basic format has been successfullyused on other Tesco projects and we look forwardto receiving your comments shortly, so that we mayamend as necessary and provide you with two setsfor incorporation into the Contract Documents.Similarly we look forward to receiving yourcomments on the proposals discussed todaybetween Mr. C. Matthews and the writer, regardingour proposed amendments to the revisedEmployer's Requirements document, which wasreceived at Coventry on 29th June 1989, afteracceptance of the second stage Contract Sum."Although, as I have already indicated, the Issue 7Main Contract contemplated that Contractor'sProposals would be incorporated in a contract inthat form, it appears that it was only at this timethat Costain got round to producing a draft of such.Obviously the matter of the revised Employer'sRequirements had by this point been longoutstanding.92. Unhappily Mr. Paine's optimism that he wouldhear shortly after his letter of 16 January 1990 fromBucknalls proved to be misplaced. He did send areminder dated 1 March 1990 in which he referredto telephone conversations with Mr. Matthews ofBucknalls after the date of the letter, but by the dateof the letter no final response had beenforthcoming. Eventually Miss Susan Bell ofBucknalls did reply, in a letter dated 15 March1990, with some minor observations. However, thematter of finalising contract documentation was notthen pressed forward by Bucknalls.93. Miss Bell did write a letter dated 14 February1990 to PHJ requesting signature on behalf of PHJof an Issue 7 Novation Agreement. PHJ, by Mr.Lyons, did sign such an agreement, but not until 4May 1990. It was never executed either on behalfof Tesco or on behalf of Costain.94. Mr. Paine replied to Miss Bell's letter dated 15March 1990 in a letter dated 26 March 1990. Thepart of the letter which is material for presentpurposes was in the following terms:--"We acknowledge receipt of your letter dated15th March 1990 and are pleased to confirm ouragreement to your comments. Accordingly weenclose herewith two bound copies of the dulyamended Contractor's Proposal [sic] forincorporation into the Contract Documents.We note that the latter part of our letter dated 1stMarch 1990, concerning our proposed amendmentsto the revised Employer's Requirements, has notbeen covered in your letter of 15th March 1990 andwe look forward to receiving your response.With regard to the recent telephone request fromMr. Matthews we can advise you that we have nowreceived from the Ernest Green PartnershipLimited a letter dated 19th March 1990 enclosingin duplicate the Terms of Engagement andConditions of Appointment and the ConsultantNovation Agreement both duly executed by ErnestGreen Partnership Limited.We enclose herewith both copies of the Terms ofEngagement and the Novation Agreement forincorporation into the Contract Documents.However, we note that most of the items referred toin our letter to you dated 22nd September 1989have not been corrected ....We look forward to receiving the ContractDocuments for execution by this Company at yourCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 242003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)earliest convenience."95. On this occasion Bucknalls, by Miss Bell,replied rather more promptly. In a letter dated 3April 1990 she wrote:--"Further to your letter dated 26th March 1990 wewould make the following comments:--(1) We acknowledge receipt of the twocorrectly amended copies of the Contractor'sProposals.(2) We confirm that the Employer'sRequirements have been revised in accordance withyour amendments.(3) There will be two original copies ofthe Contract Documents, not three as requested byCostain Construction Limited. One will be theContract set and one will be the "Certified Copy".Furthermore we enclose both copies of theTerms of Engagement and the Novation Agreementfor the Structural Engineer for your signature.Please could you sign these and return them to us atyour earliest convenience."96. Mr. Paine's reply to Miss Bell's letter dated 3April 1990 was dated 12 April 1990. What he saidwas:--"We acknowledge receipt of, and thank you for,your letter dated 3rd April 1990.With regard to paragraph (3) thereof you aremistaken in thinking that we requested three sets ofContract Documents. Two, of course, is the normand this is perfectly acceptable. We did, however,call for the Terms of Engagement and The [sic]Novation Agreement for each Consultant to be intriplicate. You will note from our letter dated 22ndSeptember 1989 that they should be in triplicate, sothat after execution each party can retain anoriginal. However, if only two are available weshall retain one upon our execution of the ContractDocuments and shall return the other one to you.With regard to your final paragraph you onlyenclosed both sets of the Novation Agreement forthe Structural Engineer. His Terms of Engagementwere not attached thereto. Since we cannot checkthe Agreement against the wording contained in theContract Documents until we receive them fromyou we suggest that we retain the two sets of theStructural Engineer's Novation Agreementspending our receipt from you of:1. Two sets of Contract Documents2. Two sets of the Terms of Engagementfor the Structural Engineer.3. Two sets of the Terms of Engagementand Novation Agreement for the Architect."97. At that point the matter seems to have lost anysignificant steam. Miss Bell did reply fairlypromptly, in a letter dated 19 April 1990. Shewrote:--"Further to your letter dated 12th April 1990 weenclose a photocopy of the Terms of Engagementfor the Structural Engineer, the original copiesbeing retained at this office.With regard to your request for the Architect'sTerms of Engagement and Novation Agreement,we have yet to receive either the aforementionedfrom Peter Hing and Jones, once received they willbe forwarded immediately.The remainder of the contract documentationwill be retained at our office pending the return ofall outstanding items, when the ContractDocuments will be assembled and despatched forsignature.Should you have any queries or require anyfurther information, please do not hesitate tocontact us."98. Silence then ensued. Mr. Paine enquired as tothe then current position in a letter to Bucknallsdated 25 May 1990."Your letter of 19th April 1990 advised us thatyou have not yet received the Terms ofEngagement and Novation Agreement from PeterHing and Jones, and that the Contract Documentswould be assembled once all outstanding items arereturned.Can you please advise the writer whether youhave now received the completed documents fromthe Architect and whether there are any otheroutstanding matters preventing your compilation ofthe Contract Documents?"99. There was no response to Mr. Paine's letterdated 25 May 1990. He wrote again on 7 August1990. He said:--"We refer to our letter of 25th May 1990 andnote that we do not appear to have received yourreply.You will recall that your letter of 19th April1990 advised us that you had not received from theArchitect the Novation Agreement and Terms ofEngagement. Can you please advise the writerwhether you have yet received the completeddocuments from the Architect?If you have received the completed documentscan you advise the writer if there are any otheroutstanding matters that are preventing yourassembling the Contract Documents and submittingthem to us for execution?If you have not received the documents from theArchitect can you please advise the writer whataction you are taking to conclude thedocumentation for this contract?We look forward to hearing from you shortly."100. Miss Bell did reply on this occasion, in aletter dated 29 August 1990. What she wrote in thatletter was:--Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 252003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)"Thank you for your letter of 7th August 1990concerning contract documentation on the aboveproject.We have now received signed Novationagreements and commissioning letters from PeterHing and Jones. We are however awaiting theformal agreement between Tesco and Ove Arupand Partners, who inform us today that they nowhave this document and will be forwarding it on tous.Upon receipt of this agreement we will be happyto complete the documentation and forward it on toyourselves for signature."101. Another long pause ensued. It ended whenMr. Paine took up the cudgels once more. In aletter dated 24 October 1990 to Bucknalls hewrote:--"We refer to your letter of 29th August 1990,when you advised us that you were expecting toreceive very shortly from Tesco the NovationAgreement for Ove Arup and Partners. As thiswould complete the documentation in yourpossession you were expecting to forward theContract Documents and Novation Agreements tous in the near future.As nearly two months have now elapsed wewould appreciate an update on the situation."102. Miss Bell gave the update requested in aletter dated 30 October 1990. She said:--"Thank you for your letter of the 24th October1990 regarding the contract documentation on theabove project.On Wednesday 24th October we attended ameeting at Dairyglen House to discuss the finalaccount, at which the novation agreement with OveArup was discussed.As yet this agreement has not been finalised withTesco and they have therefore suggested that weprepare our documentation without this.This being the case we would ask you to confirmyour agreement to this solution and in themeantime we shall prepare our documentation."103. Mr. Paine commented on the suggestionsmade in Miss Bell's letter dated 30 October 1990 ina letter dated 2 November 1990. His commentswere:--"Thank you for your letter dated 30th October1990 advising us that the agreement between Tescoand Ove Arup and Partners has not yet beenfinalised.Although we concur with your suggestion toprepare the Contract Documents excluding theagreement with Ove Arup at this stage, we do notagree that this is a "solution". Whilst we lookforward to receiving the Contract Documents toenable our checking process to begin, we wouldalso appreciate your advice as to the probability ofreceiving the letters of appointment and novationagreements duly executed by both Tesco and OveArup and, if relevant, the possible time scaleinvolved."104. Miss Bell left it until 11 December 1990before responding to Mr. Paine's letter of 2November 1990. In her letter of 11 December 1990she wrote:--"Thank you for your letter of 2nd November1990 regarding Contract Documentation on theabove project. We have again written to Ove Arupand Tesco regarding the signing of the agreementsand are awaiting their reply.In the meantime we are happy to pass on to youthe signed Contract Documentation on the aboveproject excluding Ove Arup's agreement. Thisinformation will be with you before the Christmasbreak.Should you have any queries, please do nothesitate to contact us."105. In fact the promised Contract Documentationnever came. No one from Bucknalls ever seems tohave written to Costain again on the subject ofcontract documentation. Mr. Paine chased up thematter at intervals until June 1992, writing a totalof four letters over a period of a year and a half orso. Then, just as Tesco and Bucknalls seem to havelost interest in the matter by about the end of 1990,he lost interest also. There the matter rested untilthe events which led up to the commencement ofthis action. As some reliance was placed upon theparticular terms of Mr. Paine's four letters, dated,respectively, 12 February 1991, 16 August 1991, 6January 1992 and 24 June 1992, I should set out theterms of each letter. That dated 12 February 1991was in these terms:--"Your letter of 11th December 1990 stated thatyou have written again to Ove Arup and Tescoregarding the Novation Agreement, and that wewould receive the Contract Documents, excludingOve Arup's Novation Agreement, before theChristmas break.Unfortunately we have neither received theContract Documents nor any advice concerning theprogress (if any) of the outstanding NovationAgreement.We would greatly appreciate receiving youradvice in both these matters."In the letter dated 16 August 1991 Mr. Painewrote:--"We are pleased to enclose herewith the twoNovation Agreements for Ernest Green PartnershipLimited duly signed by this Company, but leftundated.We confirm your advice that these will beincorporated into the Contract Documents, whichCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 262003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)will then be sent to us by return. When we executethe Contract Documents we shall insert the date onthe above novation agreements and the otherConsultants' novations."Mr. Paine's 1992 letters were brief and ratherdespairing in tone. In that dated 6 January 1992 hesaid:--"We refer to our letter dated 16th August 1991which confirmed your advice that the ContractDocuments would be sent to us "by return".We note that we have not received them andtrust that you will remedy this in the very nearfuture."In his final effort, the letter dated 24 June 1991, hewrote simply:--"Further to our letter of 6th January 1992requesting the Contract Documents, we are advisedby our Coventry office that these are now available.We would be obliged if you could send them tothis office, marked for the attention of the writer."The PHJ Agreement106. The PHJ Agreement was in the terms of theIssue 7 Architect's Agreement. As despatched byTesco in letter form it was dated 22 February 1989.After execution on behalf of PHJ it was sent toTesco under cover of a letter dated 21 March 1989to Mr. Pleass written by Mr. Kenneth Fairbairn, thesenior partner in PHJ, in which he wrote, so far asis presently material:--"Further to my letter of 20 March 1989 I nowenclose herewith the Terms of Engagement andConditions of Appointment in respect of Redditchduly signed and completed.We acknowledge the existence of the draftNovation Agreement which awaits signature andcompletion by Costains as contractor."As I have already recorded, Costain never didexecute an Issue 7 Novation Agreement in respectof the PHJ Agreement, and PHJ itself did not do sountil May 1990.The Maidstone fire and its aftermath107. On 17 July 1993 a fire was starteddeliberately in a newsagent's shop adjacent to asupermarket belonging to Tesco at Grove Green,Maidstone in Kent. The fire spread from the pointat which it had commenced to the supermarket andcaused serious damage. That prompted a concernon the part of Tesco, and in particular Mr. Fletcher,that all Tesco supermarkets constructed in theprevious six years should be inspected so as toensure that all appropriate fire prevention workshad been incorporated in the construction. Tescoseems to have considered it appropriate to seek torequire, in the case of each supermarket constructedduring the relevant period, the contractor who builtit to carry out the inspection considered necessaryas a matter of urgency and without payment. Thatwas perhaps inviting as a response an injunction inemphatic terms to depart. However, Tesco's viewof its power in the construction market place beingsuch that contractors would be anxious to maintainits goodwill seems in large measure to have beenjustified, at least insofar as inspections wereundertaken, and apparently without charge, but atnothing like the pace which Tesco seems to haveconsidered was appropriate.108. A letter in a standard form to contractors wasprepared within Tesco which gave the instructionsto which I have referred. An example of such aletter was one dated 27 July 1993 written toCostain in relation to a supermarket at Chorley inLancashire. The text of the letter said this:--"You are required, as a matter of urgency, tocarry out an inspection of all fire prevention works,such as vertical and horizontal fire barriers, firestopping to party walls, fire break walls and anyarea where fire stopping has taken place within thestructure. This includes checking that the firestopping on walls goes right up to the underside ofthe roofing material, i.e. tiles or slates followingtheir contours.This work is required to be carried out andreported back without fail with [sic] the next fourweeks, and your cooperation in achieving this isurgently required."Letters in similar terms were written to Costain inrelation to a number of supermarkets, such that itbecame apparent to Costain that it would receiveletters in respect of all the supermarkets which ithad constructed for Tesco over the relevant period.109. A supermarket which Costain had built forTesco was at New Oscott ("the New Oscott Store").Costain never in fact received from Tesco a requestto inspect the Store. However, by early September1993 it was anticipating that it would receive sucha request. Mr. Matthew Burley, who was employedby Costain at the time as a Site Manager, wrote toPHJ a letter dated 9 September 1993 under theheading "Tesco, Redditch", in which he said:--"Further to our letter dated 31st August 1993,regarding Tesco New Oscott and in anticipation ofTesco's formal instruction, we confirm our verbalrequest to your Mr. Heckels for the supply of alldrawings relevant to fire protection/preventionworks at the Redditch store."A PHJ "Received" stamp on the reverse of its copyof the letter indicated that the drawings requestedwere despatched to Costain on 12 October 1993,Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 272003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)apparently by Mr.Tony O'Connor.110. Mr. Burley gave evidence before me. Hisevidence, which I accept, was that he did not nowrecall how he came to know that Costain was beingrequired by Tesco to undertake inspections ofsupermarkets which it had constructed. He alsosaid, and again I accept, that he did not now recallthe content of the letter dated 31 August 1993referred to in his letter to PHJ dated 9 September1993, and that he understood that no copy of itcould be found. He said, and Mr. Robert Heckels,who also gave evidence before me, confirmed, thathe had been involved with Mr. Heckels inconnection with the New Oscott Store and it wassimply for that reason that he made his request fordrawings of the Store to Mr. Heckels. I accept that,and I also accept the evidence of Mr. Heckels thathe personally in fact had nothing to do with theStore.111. After the conclusion of what was intended tobe a hearing of the oral evidence in relation to thepreliminary issues a copy of the letter dated 31August 1993 written by Mr. Burley to PHJ came tohand, along with copies of some other documentsrelating to the New Oscott Store. It became clearfrom those documents that Tesco had written aletter dated 20 August 1993 in the standard form towhich I have referred to Costain requiring it tocarry out an inspection of the fire prevention worksat the New Oscott Store. That prompted Mr. Burleyto write the letter dated 31 August 1993 to PHJ, inwhich he said, simply:--"Tesco -- New OscottWe enclose for your information and recordscorrespondence received from Tesco dated 20thAugust 1993, regarding fire protection.Please supply by return all relevant drawingsindicating areas/details to be investigated."On the reverse of the copy of that letter receivedby PHJ was a "Received" stamp beside whichsomeone had written, "Is there a problem here froma design point of view". Mr. Heckels responded tothe letter dated 31 August 1993 in a letter dated 7September 1993 in which he said:--"Further to your letter dated 31st August 1993we would report as follows:---- section 19 through office/retail junction,-- ground floor compartmentation plan,-- first floor compartmentation plan.The drawings confirm that the onlycompartmentation required was betweenoffice/retail area. The design of the fire warningsystem meant that no compartmentation/cavitybarriers were required in the shop floor area. Also,no boundary fire stopping was required because ofthe distance between the store and the surroundingstructures.You will note from the section that theconstruction details indicate masonry supported offthe steelwork. Therefore to check the integrity ofthe protection to the supporting steelwork.As discussed between your Mr. Burley and thewriter, should you require a representative fromourselves to be present when any "opening up"occurs please ask."It does not appear that there was any writtenrequest made by Costain to PHJ for arepresentative to accompany a representative orrepresentatives of Costain on an inspection of theNew Oscott Store following any opening-up.112. Although it was he who requested drawingsof the Store from PHJ, Mr. Burley told me, and Iaccept, that he had no recollection either ofreceiving the drawings requested or of undertakingan inspection of the Store. In his oral evidence hewas adamant that he had never undertaken a fireinspection. He said:--"The thing is I have never done a fire inspectionor done any inspections. The inspections that I didcarry out for Costains -- not looking for fireprotection -- I would usually mark-up the drawingrecording the defect or whatever I was looking at."I accept that evidence. I found Mr. Burley to be animpressive and careful witness.113. In 1993 Mr. Peter Gibson-Leitch wasemployed by Costain as a Contracts Manager basedat its office in Birmingham. He wrote a letter,headed "Tesco, Redditch", to Tesco which wasdated 19 October 1993 and was copied to PHJ. Thetext of the letter was:--"Although we did not receive a letter specific tothis store, we have taken it upon ourselves to carryout a detailed inspection of fire barriers as per otherstores constructed by our Company in theMidlands.We are pleased to report that further to thisinspection, we can confirm that fire stopping workscomply with the requirements of the design andstatutory regulations prevailing at the time ofconstruction."114. Mr. Gibson-Leitch gave evidence before me.He said, and I accept, that he did not recall theevents surrounding the inspections of Tescosupermarkets in any real detail. That is hardlysurprising, given the lapse of time and that, as hetold me, he had many other concerns in theordinary course of his working life. In his witnessstatement dated 14 April 2003, in passages which Iaccept, Mr. Gibson-Leitch said:--"17. I do not recall specific discussions at thatCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 282003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)time amongst the senior management team in theBirmingham office concerning any such request[for inspections to be made of Tesco supermarkets]from Costain's head office. We were not to receiveany payment for these inspections; they were beingdone more as a good will gesture to maintain therelationship with a key client ....22. As contracts manager I would not have anddid not carry out the inspection at Redditch eventhough I would have been qualified to do so. I don'trecall which site manager and personnel weredelegated to carry out the inspections. I have beensupplied by the solicitors for Costain with thenames of various personnel understood to havebeen employed at the Birmingham office during therelevant period and understand that they haveundertaken comprehensive enquiries of a largenumber of ex-employees of Costain in an effort toascertain who would have carried out theinspection for me. Unfortunately, those enquirieshave not led to any person recollecting theinspections and the names have not prompted myrecollection of the events.23. I note from the letter dated 9 September 1993from Matthew Burley that he appears at least tohave commenced the process of the investigation atRedditch and that he was apparently involved inthe inspection at New Oscott.24. It would be consistent that he (or anothermanager with comparable qualifications and skills)would have managed the inspection process,directed the resources on site and then reported theresult of such inspection to me ...27. My approach to the inspections, which Ibelieve was consistent with the Costain approachgenerally, was to have the designs verified by therelevant designers of the stores and then to checkwith the joint attendance of the designers, withoutcarrying out any intrusive works, those designsagainst the actual workmanship for any obviouserrors.28. I understood therefore that what was requiredwas a detailed inspection of those areas of the storethat could be inspected without disrupting thetrading of the store. It is likely that we would havehad to agree some form of method statement withTesco and have reviewed health and safetyconsiderations.29. I would therefore have arranged for adetailed visual inspection to be carried out. Only ifthat inspection revealed any obvious problemswould I have considered it necessary to recommendany further action ....31. I do recall visiting Redditch at some timeduring this period. It may have been to check onthe inspection arrangements.32. The inspection would have looked forconformity with the design information issued to usby the designers, and to check that the quality ofworkmanship was generally satisfactory.33. The inspection would have been conductedby reference to drawings supplied by the architects...34. I do not recall receiving the drawings (whichwould first have come to myself and Colin Ford inthe usual course for distribution to the appropriatestaff members). However, I would have receivednumerous drawings daily and these would not havestood out from the rest. I am sure I must havereceived the drawings or we would have continuedto chase Peter Hing & Jones for them.35. I can't now recall whether I met arepresentative from Peter Hing & Jones as part ofthe inspection arrangements, although I may wellhave done ....40. At the conclusion of the inspection it wouldhave been normal practice for the site manager andarchitect to have reported back that the exercise hadbeen satisfactorily completed, and suchdocumentation confirming the same would havebeen placed on file.41. I don't recall whether or not a formal detailedreport document as such was prepared, but it wouldhave been normal practice that some recognitionwould have been placed on file to conclude theprocess. That might have been in the form of notestaken by the site manager, perhaps on the copydrawings supplied confirming the areas whereaccess had been gained and whether any defectswere noted or in an internal file note ormemorandum format.42. I would not however have written the 19October 1993 letter unless I was satisfied that theinspection had been carried out properly and that Iwas able to give the confirmations contained in thatletter."Mr. Gibson-Leitch also struck me as a cautiousand careful man and an impressive witness.115. Tesco seems to have received Mr. Gibson-Leitch's letter dated 19 October 1993, for in arunning computer listing maintained by Tesco aspart of its monitoring of the process of inspectionof its supermarkets a note was made, as wasdemonstrated by a version of the listing dated 19January 1994 of which a copy was put in evidence,in relation to the Store that "Contractor confirmedcompliance". A different listing, circulated undercover of an internal Tesco memorandum written byMr. Fletcher and dated 29 March 1994, noted thatin respect of the Store that "Main contractorconfirmed all works complete". The same listingsindicated that Tesco had received letters fromCostain in relation to the other supermarkets whichCostain had constructed for Tesco in the Midlands,but none of those letters can now apparently befound.Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 292003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)116. Despite the indications to which I havereferred in the preceding paragraph that Tesco didreceive, and note the contents of, Mr. Gibson-Leitch's letter dated 19 October 1993, Mr. PaulDainty, who at the material time was employed byTesco as a Project Controller, wrote a letter dated28 April 1994 to PHJ in which he said this:--"Re: Inspection of Fire Stopping Works: RedditchI understand that you were the appointedArchitect for the above Development which hasbeen carried out within the last 6 years.Could you please arrange to have an inspectioncarried out by yourselves in conjunction with themain contractors in order to determine thecondition of the fire stopping works and ifnecessary a report should be provided and returnedto myself.If the fire stopping works are satisfactory thencould you please forward a letter informing us ofsame, or alternatively, providing a buildingregulation completion certificate as soon aspossible.Your early attention to the above would beappreciated but in any case should be returned to usno later than Monday, 23rd May, 1994.Should you have any queries regarding theabove, then please do not hesitate to contact me."117. Mr. Dainty was called as a witness on behalfof Tesco. At paragraph 31 of his witness statementdated 3 April 2003 he said in relation to the letterdated 28 April 1994:--"... it is clear that at the time I wrote the letter,Tesco had both been told and had noted that thefire inhibition measures at Redditch weresatisfactory. I therefore cannot now explain why Iwrote the letter of 28.04.94. It was clearlyunnecessary. It may have been that I did not have acopy of the 1993 letter from Costain on the file andtemporarily thought that Redditch had beenoverlooked. I am also not sure why I addressed it toPeter Hing & Jones, rather than Costain given thatit was our usual practice to write to the contractor.When writing it I obviously did not take intoconsideration the fact that Costain had already toldTesco that Redditch was satisfactory."In his oral evidence Mr. Dainty suggested analternative explanation for his writing the letterdated 28 April 1994, namely that in referring to hislistings, which I have already mentioned, his eyeslipped from one line to another, which related to aproject in respect of which the contractor had goneinto liquidation, and thus he thought that there wasno contractor which could be asked to undertake aninspection. In such circumstances, he told me, itwas his practice to request the architect for theproject to undertake the requisite inspection,engaging a new contractor for any necessaryopening up works. I reject that as the explanationsimply because the letter dated 28 April 1994 interms asked PHJ to undertake an inspection "inconjunction with the main contractors". In thecontext the reference can only have been to themain contractors which built the Store. In the resultit is just a mystery why Mr. Dainty wrote the letterdated 28 April 1994.118. While I have no difficulty in accepting thatMr. Dainty could not now recall why he wrote hisletter dated 28 April 1994, the fact that he did writeit indicates to me that at the Tesco end the nature ofthe inspection exercise was treated as beingsomewhat mechanical. That is to say, rather thanthere being any conscious consideration of reportsof inspections, it was more a case of ticking off asupermarket if there had been a letter saying thatfire stopping works were satisfactory, and notticking it off if there had not. The writing by Mr.Dainty of the letter dated 28 April 1994presupposes that he overlooked when he did it notonly Mr. Gibson-Leitch's letter of 19 October 1993,but also both of the versions of Tesco's runninglisting of supermarkets. However, the questionwhether Tesco in fact relied upon either Costain'sletter dated 19 October 1993 or Costain's letterdated 27 May 1994 is one for resolution followingthe second round of this litigation, and so I say nomore about it now. However, Tesco's case as towhat it would have done had it not receivedassurances as to the position concerning the Storedoes have a relevance to the preliminary issues, andso, without deciding whether that case is wellfoundedor not, it is material to set out theindications in the evidence given before me as towhat that case is.119. Mr. Tony O'Connor of PHJ made a file notedated 16 May 1994 as to the top part and 17 May1994 as to the bottom part under the heading "FIRESTOPPING -- TESCO REDDITCH". The note wasin these terms:--"Rang Costains, spoke to Peter Gibson Leech[sic] who recognised letter we received fromTescos and remembered going through thisexercise last year with Robert Heckles [sic] forNew Oscott -- he would research.Peter G. L. rang back and reported that thisexercise was as a result of a fire at Tescos (Kentarea) where fire spread through unprotectedcavities and destroyed the building. He recalledcarrying out 4 surveys with architects at the 4stores in the Midland Area including Redditch buthad no record of passing report on Redditch toTescos. He is surprised that Tescos wrote to us andnot to them as they have details of their report toCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 302003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)forward on Redditch.17/5/94Spoke to Bob Heckles (out yesterday). He recallsdoing the survey for New Oscott -- no problems butproperly protected as agreed with L. A. fire officer.He thinks a similar exercise with Costains forRedditch -- probably Charles Trueman.He suggest [sic] we phone Tescos and put themin touch with Costains as they have a copy of thereport for Redditch and are in any case responsibleunder D + B contract.Tony O'CP.S. Robert has checked his daybook -- hissurvey was at end Sept. 93."120. It appears that Mr. O'Connor's note isinaccurate in a number of respects, although it isunclear whether he noted accurately what he wastold, that information being inaccurate, or whetherthe note itself was inaccurate, or a combination ofthe two.121. Mr. O'Connor himself was called as awitness, but his evidence, which I accept, was thathe had no recollection of the conversationsrecorded in his files note and no recollection of thecircumstances prevailing at the time he made thenote. Other than in relation to the matters recordedin his notes and the sending of copies of drawingsshowing fire precautions to Costain on about 12October 1993, Mr. O'Connor had nothing to dowith the Store.122. Mr. Gibson-Leitch was asked about thereferences to him in the note. His evidence, whichagain I accept, in his witness statement about itwas:--"37. That attendance record is not howeverentirely accurate in so far as it refers to theinspections having been carried out by me onbehalf of Costain. It is not correct to say that Irecalled carrying out the four inspections. As said,in conjunction with my fellow contracts manager,and given the company wide profile of the affair,possibly also our area manager, I would havedelegated this task. I recalled that four inspectionshad been carried out, not that I carried them out.38. It would have been unusual for the architectsnot to be involved in such inspections. Thisapproach was followed by Costain on all suchsimilar requests received from clients."123. Although not something upon which Mr.Gibson-Leitch specifically commented, Mr.O'Connor's note was also inaccurate in indicatingthat no report had been made to Tesco following aninspection in 1993 -- Mr. Gibson-Leitch hadwritten the letter dated 19 October 1993.124. Mr. Heckels was also asked to comment onMr. O'Connor's note. His evidence in his witnessstatement dated 8 April 2003, which I accept, was:--"13. What I can say with complete confidence isthat even if I did mention to Tony O'Connor, oranyone else, that PHJ had carried out some specificfire-stopping survey or inspection of a Tesco storein 1993/4, that would have been a reference to aninspection at the New Oscott site. So far as I canrecall, I never went to the Redditch site at all; andapart from dealing with the telephone call fromCostain referred to above [from Mr. Burley], I hadno involvement at all in the Redditch project.14. As mentioned above, I do not know ifanyone from PHJ attended a re- inspection of thefire-stopping works at Redditch. I do not evenknow if one took place, although obviouslyCostain's letter of 19th October 1993 suggests thatCostain did carry out such an inspection. I certainlydo not recall suggesting that Charles Truman mayhave been involved in such an inspection, but if Idid raise this suggestion, it must have been pureguesswork on my part, based on the assumptionthat if PHJ had been involved in any inspection, hemay have been a likely individual to have beeninvolved. I knew that Redditch was GrahamWelch's project and that Charles Truman workedfor Graham. Charles Truman was not an architect.He was employed as a "clerk of works" and wasresponsible for sorting out site problems. I believehe managed small projects on site and it may wellhave been his job to do routine inspections forGraham Welch. However, for large inspections, thecontractors would, I think, normally wish to use thearchitect who designed the building. A firestoppinginspection would be a big job with lots ofopening up to do. It would probably take more thana day. I do not think it is the sort of job that I wouldever have expected Charles Truman to carry out,and I have to say, therefore, that it seems to menow unlikely that I would ever have suggested toMr. O'Connor that I thought Charles might havecarried out such an inspection.15. I am accordingly a little surprised at whatwas recorded by Mr. O'Connor in his note. I thinkit is at least possible that he may have recordedsomething that I suggested I thought might havehappened as if I had confirmed that I thought thatthat is what definitely had occurred. If I did saywhat is recorded, it may perhaps have been that Iassumed that Costain would have wanted someonefrom PHJ to go with them on such an inspection.My experience is that contractors can be reluctantto take on responsibilities relating directly orindirectly to design matters and this may perhapsbe why I may have supposed at the time that PHJmay had [sic] accompanied Costain on anyinspection. I should say, however, that I have noCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 312003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)specific knowledge that Costain was the sort ofcontractor, which was reluctant to carry outinspections itself."125. Mr. Charles Truman was not called to giveevidence in person, but a witness statement madeby him was put before me as his unchallengedevidence. He ceased his employment with PHJ on31 May 1993. He had nothing to do with anyinspection of the Store in September or October1993.126. In the result it seems to me that no reliancecan be placed on the file note of Mr. O'Connor asan accurate record of anything which actuallyhappened, whether or not it was, in whole or inpart, an accurate record of what Mr. O'Connor wastold on 16 or 17 May 1994.127. There was undoubtedly some contactbetween PHJ and Costain following Mr. Dainty'sletter dated 28 April 1994 to PHJ, for Mr. Gibson-Leitch was prompted to write again to Tesco, thistime marking his letter for the attention of Mr.Dainty. The letter was dated 27 May 1994 andheaded "TESCO -- REDDITCH". It was copied toMr. Welch at PHJ. The letter said, simply:--"We are pleased to report that further to adetailed inspection of the above store last Autumn,we can confirm that fire stopping works complywith the requirements of the design and statutoryregulations prevailing at the time of construction."128. Mr. Welch himself replied to Mr. Dainty'sletter in a letter dated 3 June 1994, which wascopied to Costain. What he said in his letter was:--"Thank you for your letter dated 28th April1994. We were in fact approached by CostainConstruction Limited last October in respect of thismatter, and they have carried out the inspection towhich you refer, as part of their review of all fourMidlands Tesco projects with which they wereinvolved.From discussion with Costain, it appeared theymay not have returned a report to you in respect ofthe Redditch project, but they confirmed to us thatthey would do so, and I see that they have nowwritten.We hope this is satisfactory and closes thematter."129. Mr. Dainty in his evidence told me that hecould not now recall having seen either Mr.Gibson-Leitch's letter dated 27 May 1994 or that ofMr. Welch dated 3 June 1994, but he felt that hemust have received them. However, at paragraph34 of his witness statement dated 3 April 2003 Mr.Dainty asserted with confidence that:--"Tesco relied on Costain's written assurances(see their letters 19.10.93 and 27.05.94 ...) that theyhad carried out a detailed inspection of TescoRedditch and that the store was built in accordancewith the Building Regulations prevailing at thetime of construction. As a result of receiving theseassurances, Tesco believed that the fire inhibitionmeasures at Redditch were satisfactory. I do notbelieve, given the very serious nature of Tesco'srequest initial request [sic], that Costain can havebelieved that Tesco would not rely on theseassurances."130. Mr. Richard Rowswell was employed byTesco in 1993 and 1994 as Fire and StructuralSafety Manager. He retired on account of ill-healthin 1996. However, he did make a witness statementwhich was put before me pursuant to the provisionsof Civil Evidence Act 1995. At paragraph 7 of thatwitness statement Mr. Rowswell referred to theletters dated 19 October 1993 and 27 May 1994written by Mr. Gibson-Leitch. He went on:--"I do not now specifically recall seeing either ofthese letters from Costain, but I was more involvedwith the stores where problems were reported andin respect of which I would have definitelyreceived copies. Having seen the inspectionCostain had carried out at Milton (see below) andtheir subsequent reports, I would have beensatisfied that a "detailed" inspection would haveidentified at least all those defects identified atMilton. If Costain had said the building did notcomply with the design or building regulations,Tesco would have required them to carry out anyremedial works, just as we did at Milton ..."131. There was no real dispute about the factswhich I have set out in this section of thisjudgment. However, it was an important part of thecase of Costain that I should draw inferences inparticular from the file note of Mr. O'Connor as tothe participation of PHJ in the inspection made byCostain prior to Mr. Gibson-Leitch writing hisletter dated 19 October 1993 to Tesco. I find itimpossible to draw the suggested inferences. I havealready indicated my view of the accuracy of thefile note. The position on the evidence which Ihave indicated I accept is that it is not possible tosay who on behalf of Costain made an inspection ofthe Store with a view to reaching a conclusion as towhether it had been constructed in accordance withits design and in accordance with applicablestatutory regulations, or when, other thanapproximately. No witness asserted that theinspection had been made jointly with somerepresentative of PHJ. The evidence on behalf ofCostain went no further than to suggest that itwould have been usual for an inspection of the kindin question to have been made with the architectwho had in fact designed the building, and possibleCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 322003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)that that had happened in this case. However, Mr.Gibson-Leitch did not in either of his letters dated,respectively, 19 October 1993 and 27 May 1994mention that an inspection had been made jointlywith a representative of PHJ or that advice hadbeen sought from PHJ as to whether its design ofthe Store did in fact comply with relevant statutoryregulations. As Mr. Gibson-Leitch wascontemplating a visual inspection of the Store toconfirm that it had been constructed in accordancewith the drawings of PHJ, there was no obviousreason for a representative of PHJ to attend at theinspection. The contribution which PHJ was, onCostain's case, expected to make, was to confirm,or not, that the design complied with applicablestatutory regulations. That was not specificallyrequested in Mr. Burley's letter dated 9 September1993, or at any other time, on the evidence. Had itbeen requested, what providing the relevantinformation involved was simply a consideration ofthe drawings against the background of aknowledge of the relevant regulations. That couldhave been done without whoever was entrustedwith the task on behalf of PHJ leaving his desk. Noone has been identified as the person who waslikely to have attended an inspection on behalf ofPHJ who is a viable candidate for the role. Theonly suggested person, Mr. Truman, no longerworked for PHJ at the relevant time, and was notappropriately qualified to advise as to compliancewith relevant statutory regulations in any event.132. In their closing submissions Mr. MarcusTaverner Q.C, and Mr. Simon Hargreaves, whoappeared on behalf of Costain, called attention tothe documents relating to the New Oscott Storewhich had by then become available and changedtheir focus somewhat from that which it hadoriginally been -- an invitation to infer that arepresentative of PHJ had made an inspection ofthe Store jointly with a representative orrepresentatives of Costain -- to an invitation toinfer that following the request to Mr. Heckels tosupply the fire precautions drawings for the StorePHJ had reconsidered the adequacy of the design ofthe fire precautions and assured Costain that thosedesigns were satisfactory, as well as inspected theStore jointly with Costain. Given that the letterdated 7 September 1993 written by Mr. Heckelsindicated, so far as it went, that PHJ had notundertaken a joint inspection of the New OscottStore jointly with Costain, one can readilyunderstand that alteration in focus. In fact it seemsto me that there is no reason to infer that PHJ didreconsider the adequacy of its design of fireprecautions at the Store following receipt of Mr.Burley's letter dated 9 September 1993. Whereasthe request in relation to the New Oscott Store hadbeen dealt with by the job architect, Mr. Heckels,the request in relation to the Store was dealt withby someone who had no knowledge of the Storeand was not even a qualified architect, Mr.O'Connor. The reconsideration by Mr. Heckels ofhis design of fire precautions for the New OscottStore had not revealed any problems and that maywell have reassured PHJ that there was nothing toreconsider in relation to the Store. Thefundamentals of the design of fire stopping andinhibiting measures for each of the New OscottStore and the Store seem to have been similar,although while the drawings for the New OscottStore did show the lines of cavity barriers in themono-pitched roof, those for the Store did not. Itwould seem that Costain did not request anyrepresentative of PHJ to attend any opening up atthe New Oscott Store, and that circumstance alsomay have led PHJ to consider that there was noneed to reconsider its designs in respect of the firestopping and inhibiting works at the Store. Inreality there appears to me to be nothing in theevidence to justify the drawing of the revisedinference for which Mr. Taverner and Mr.Hargreaves contended.133. As a further point which appeared to arisefrom the documents relating to the New OscottStore and the further cross-examination ofwitnesses called on behalf of PHJ in relation tothem, Mr. Taverner submitted that the letter dated20 August 1993 from Tesco put the requestcontained in the letter dated 31 August 1993written by Costain to PHJ in a context which couldusefully also have informed PHJ's response to therequest contained in the letter dated 9 September1993, namely that both Tesco and Costain wereseeking reassurance as to the adequacy of thedesign by PHJ of fire stopping and inhibitingmeasures, and not simply seeking to be providedwith copies of drawings. That that was so, Mr.Taverner contended, was plain both from the termsof the Tesco letter dated 20 August 1993 copied toPHJ, but also from the terms of the letter dated 31August 1993 written by Costain. In particular, Mr.Taverner asserted that the sentence in the latterletter, "Please supply by return all relevantdrawings indicating areas/details to beinvestigated", was to be understood as a request byCostain not merely for copies of drawings whichshowed fire protection measures, but for advice asto which precise areas of the building or detailswithin it needed to be investigated. Mr. Tavernersought to support that submission by reference toMr. Heckels's response in his letter dated 7September 1993 in which, so Mr. Tavernercontended, Mr. Heckels gave just the sort of advicewhich had been requested. The force of thatsubmission was somewhat diminished by a whiff ofa criticism that by the terms of his reply Mr.Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 332003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)Heckels had suggested, erroneously, that all thatneeded to be considered was the fire protection tothe structural steelwork. In fact, in my judgment,the submission was unsound. The sentence fromthe letter dated 31 August 1993 upon which Mr.Taverner relied does not seem to me to bear themeaning for which he contended. It was not, in myjudgment, a request that PHJ identify whatinvestigations Costain should carry out, or as towhat Costain should look for in undertaking itsinspection, as Mr. Taverner seemed to assert, but asimple request that PHJ should provide copies ofthe relevant drawings. In other words, theexpression "indicating areas/details to beinvestigated" was adjectival, describing thedrawings of which copies were wanted, and notequivalent to a conjunction and an infinitive, whichis what Mr. Taverner's submission would involve.That Mr. Heckels, by his response in his letterdated 7 September 1993 sought to explain why thedrawings of which he sent copies showed whatthey did, and not something else, cannot remotely,as it seems to me, be taken as any giving of advicethat the designs were proper designs or anyindication that PHJ accepted a duty of care toCostain or anyone else in relation to the provisionof the copy drawings or what was shown on them.the Defence of Costain in Action 07 reliance wassought to be placed upon Mr. Laird's letter as anexample of Costain "purporting to act as thoughthere had been a novation in respect of PHJ'sArchitect's Appointment". In fact it seems thatreliance was sought to be placed on the letter assome sort of admission that there had been anovation of the PHJ Agreement, for the letter waswritten long after completion of the construction ofthe Store. It seems to me to be plain that, whateverthe merits of the assertion that there was in fact anovation by conduct of the PHJ Agreement asbetween Costain, PHJ and Tesco, or the assertionthat Costain is estopped from denying that therehad been such a novation, the issue is not advancedby reliance on Mr. Laird's infelicitous use oflanguage as to a matter concerning which it wouldseem he had no knowledge, as it was not suggestedthat he had had any involvement in the constructionof the Store or in the making of any contractualarrangements in relation to it. All he was reallysaying to PHJ in his letter, as it seems to me, was aquestion has arisen as to the structural safety of thisbuilding which you designed and I would like youto advise me about it. The building at which theincident to which Mr. Laird referred had takenplace was in fact the New Oscott Store.Mr. Laird's letter of 18 May 1994The Costain Agreement dated 1 July 1999134. Mr. Nicholas Laird was employed by Costainin 1994 as an Area Manager. He wrote a letterdated 18 May 1994 to PHJ which was in theseterms:--"We have recently had reason to revisit a Tescostore where a triangular gable end at high levelbuilt in brick and blockwork cavity constructionwas sucked out by high winds. The reason for thefailure being the construction was not tied back tothe steelwork.It therefore follows as you were the Architectnovated to us for the Tesco store built at Redditchin 1989/90 that we require you to check yourdrawings and visit the site to remove any doubt thata similar incident could occur. It would also beworthwhile checking for any such other area of thedesign, such as pre-cast copings etc which mayhave a similar potential problem.Would you please carry out your investigationwithin the next 2/3 weeks and write to usconfirming there is no problem or advise by returnof any potential area that would require furtherdetailed investigation.Please respond to Nick Laird at the aboveaddress."135. At paragraph 11 of the Amended Reply to136. An agreement in writing dated 1 July 1999("the Costain Agreement") was made betweenCostain and the Other Costain Company. A copy ofthe Costain Agreement was put in evidence. Therecital to the Costain Agreement provided that:--"The Vendor [that is to say, Costain] has agreedto sell and the Purchaser [that is to say, the OtherCostain Company] has agreed to purchase theAssets and the Businesss on the terms set out inthis Agreement."The expressions "the Assets" and "the Business"were respectively defined in clause 1 of the CostainAgreement as meaning:--"the property and assets agreed to be sold andpurchased under this Agreement;"and"the whole of the business carried on by theVendor in the United Kingdom at the date of thisAgreement;".137. By clause 2 of the Costain Agreementprovision was made for the sale and purchase of theBusiness and the Assets as follows:--"2.1 Subject to the provisions of Clause 2.3 theVendor shall sell and the Purchaser shall purchaseas a going concern the Business and Assets and thePurchaser shall assume the Liabilities with effectCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 342003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)from the date of this Agreement;2.2 Subject to the provisions of Clauses 2.3 and12 the Vendor will wholly discontinue carrying onthe Business and the Purchaser shall be entitled tocarry on and continue the same and to hold itself asdoing so in succession to the Vendor in each casewith effect from the date of the Agreement;2.3 The provisions of Clause 2.1 and 2.2 shall bedeemed to have had effect on the Transfer Date andthe Parties shall procure that all necessary steps aretaken by them to account for the transactionspursuant to this Agreement as if the Business andAssets had been sold and purchased on the TransferDate and as if the Business had been conducted bythe Purchaser and the Assets owned by thePurchaser since that date."In clause 1 of the Costain Agreement the "TransferDate" was identified as 1 January 1999 and theexpression "the Liabilities" was defined asmeaning:--"all unsatisfied liabilities (whether actual orcontingent) as at the date of this Agreementincurred by or on behalf of the Vendor in respect ofthe Business and/or the Assets."138. The "Assets" the subject of the CostainAgreement were more specifically dealt with inclause 3 of the agreement. Clause 4 was concernedwith "the Liabilities" and was in these terms:--"4.1 The Purchaser shall with effect from thedate of this Agreement assume responsibility forthe due and punctual payment, satisfaction anddischarge of the Vendor's obligations under/or inrespect of:4.1.1 the Contracts;4.1.2 the Liabilities; and4.1.3 all other liabilities, obligations andprovisions of whatever nature of the Vendor(including provisions for contingency) relating tothe Business;4.2 The Purchaser shall indemnify and keepindemnified the Vendor against all liabilities orobligations of the Vendor which are to be assumedby the Purchaser under the Provisions of thisClause."The expression "the Contracts" was defined inclause 1 of the Costain Agreement as meaning:--"all the contracts, arrangements and obligationsof the Vendor which relate to the Business,including without limitation, all joint ventureagreements between the Vendor and ThirdParties;".139. Clause 7 of the Costain Agreement wasentitled "Contracts and Third Party Rights". Theexpression "Third Party Rights" was defined inclause 1 of the Agreement as meaning:--"(to the extent to which the Vendor is legallyentitled to assign them) all of the Vendor's rightsagainst third parties including (without limitation)rights under or in respect of warranties,representations, guarantees and indemnities and thebenefit of any insurance or insurance claimattributable to any event occurring before the dateof this Agreement which relates to the Assets or tothe Liabilities assumed by the Purchaser under thisAgreement in respect of the Business or any of theAssets;".Clause 7 itself made this provision:--"7.1 The Purchaser shall take over from theVendor with effect from the date of this Agreementthe benefit and burden of the Contracts and theThird Party Rights;7.2 If the benefit and burden of any of theContracts or Third Party Rights cannot beeffectively assigned to the Purchaser except by anagreement of novation with, or consent to theassignment from, one or more third parties:--7.2.1 this Agreement shall not constitute anassignment or attempted assignment of theContract or Third Party Right in question;7.2.2 the Parties shall seek to procure suchnovation or consent;7.2.3 unless and until such Contract or the ThirdParty Right is novated or assigned:--7.2.3.1 the Vendor will hold the benefit of theContract or the Third Party Right in trust for thePurchaser absolutely and (so far as it lawfully may)give all reasonable assistance to the Purchaser toenable the Purchaser to enjoy the benefit of theContract or the Third Party Right and to enforce itsrights under it; and7.2.3.2 the Purchaser shall (if suchsubcontracting is permissible and lawful under thecontract or other document) as the Vendor's subcontractorperform all obligations of the Vendorunder it."140. By clause 10 of the Costain Agreement itwas provided that:--"The Purchaser shall pay, satisfy and dischargeall the debts, liabilities and obligations relating tothe Business and the Assets which have arisensince the Transfer Date (and which have yet to bepaid, satisfied or discharged) and whichsubsequently arise following completion and shallindemnify the Vendor against all actions,proceedings, costs, damages, claims and demandsin respect of them."141. No attempt was in fact made to seek tonovate as between Costain, the Other CostainCompany and Tesco any contractual arrangementwhich there may have been as between Costain andTesco in relation to the Store. Equally no attemptwas made by Costain to assign to the Other CostainCompany the benefit of any contractualarrangement relating to the Store. On its face theCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 352003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)effect of the Costain Agreement, so far as wasrelevant to any claim made against Costain inAction 07 or Action 439, was simply to imposeupon the Other Costain Company an obligation toindemnify Costain in respect of such claim.The preliminary issues -- categorisation142. It is convenient to consider the preliminaryissues with which this judgment is concerned innine categories, namely:--(i) issues 1 to 6 inclusive ("the Costain ContractIssues"), each of which poses a question in relationto what the contractual position, if any, as betweenCostain and Tesco was concerning the originalconstruction of the Store, or, if there was in fact nocontract, whether Costain is estopped now from soasserting;(ii) issues 7 and 8 ("the Costain 1989-1990Tortious Duties Issues"), which relate to the allegedduties of Costain in tort owed to Tesco in respect ofthe original construction of the Store;(iii) issues 9 and 10 ("the Costain 1993-1994Tortious Duties Issues"), which concern the allegedduties of Costain in tort owed to Tesco in respect ofthe inspection of the Store in 1993 and the reportsmade thereafter;(iv) issues 11 to 13 inclusive ("the CostainAccrual of Cause of Action Issues"), which focuson the question whether the date upon which acause of action in respect of various allegedbreaches of duties of care owed by Costain toTesco accrued was 4 August 2001;(v) issue 14 ("the Other Costain CompanyIssue"), which raised the matter of the liability ofthe Other Costain Company in respect of anydefaults on the part of Costain in performing itsobligations towards Tesco, but which no longerrequires formal decision;(vi) issues 15 to 18 inclusive ("the PHJ ContractIssues"), which relate to the contractual position asbetween PHJ and Tesco;(vii) issues 19 and 20 ("the PHJ Accrual ofCause of Action Issues"), which concern thequestion of the date upon which a cause of actionon the part of Tesco against PHJ accrued;(viii) issue 21 ("the Inspection Issue"), whichraises the question whether Costain or PHJ orneither inspected the Store in 1993;(ix) issues 22 and 23 ("the PHJ 1993-1994Tortious Duties Issues"), which are concerned withthe question whether PHJ owed any duty of care toTesco or Costain in relation to the inspection of theStore in 1993.The Costain Contract Issues143. It was a feature of the trial of preliminaryissues that, although some issues were of directinterest only to Tesco and Costain, or only to Tescoand PHJ, each of Costain and PHJ sought, where ithad no adverse implications for its own position todo so, to support the case of Tesco against theother. Nowhere was this more apparent than inrelation to the Costain Contract Issues. While itseemed to me that the general nature of the caseadvanced on behalf of Costain by Mr. Taverner andMr. Hargreaves was tolerably clear, namely thatCostain only ever carried out work in connectionwith the Store pursuant to the terms of the lettersdated, respectively 20 and 23 March 1989, thematerial parts of which I have set out earlier in thisjudgment, which were characterised as letters ofintent, there seemed to be a considerable amount offorensic mystification expressed both on behalf ofTesco by Mr. Roger Stewart Q.C. and Mr. GrahamChapman, and on behalf of PHJ by Mr. PeterCoulson Q.C. and Mr. Derek Holwill as to whetherCostain could possibly be contending that it hadnot entered into any contract at all with Tesco inrelation to the Store. The position of each of Tescoand PHJ on this question seemed to be that it wasso obvious that there was a contract that thecontrary could not be advanced by someone incontrol of his facial muscles.144. Mr. Stewart and Mr. Chapman at paragraph46 of their written opening in relation to issue 1said:--"The answer is "yes". The nature of Costain'scase as to the formation of a contract is far fromclear. It is not entirely apparent whether Costaindenies the existence of any contract at all (whichwould be very surprising) or merely that it was notconcluded on Tesco's standard terms. In support ofits contention that a contract (and a contract on itsstandard terms) was concluded between the partiesTesco relies on the following:a. Costain in fact designed and constructedthe store. It would be a nonsense to suggest that nocontract at all was concluded between the parties;b. The relevant letter of intent of 20thMarch 1989 ... was itself, a contractual documentand was signed and acknowledged by Costain'sManaging Director Mr. W. Sperry and returned byCostain's Senior Quantity Surveyor Mr. McNally ...In particular it(i) Referred to the Tesco standarddocumentation for use with Design and Buildcontracts issue 7 and the first stage tenderdocumentation;(ii) Used contractual language ("Inconsideration of the issuance of this letter") whichrequired Costain to be part of the design team andCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 362003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)to "put in hand all works in accordance with theinstructions of the Employers Representative";(iii) Contemplated only threecircumstances as breaking the relationship betweenthe parties (repudiation of the terms of the letter byTesco, non-agreement on price or withdrawal byCostain) -- none of which occurred;c. The parties clearly agreed to contract onTesco's standard terms in respect of the design andconstruction of the store. The fact that Costainconsistently pressed Tesco to execute the contractdocuments supports rather than undermines thisargument. Not only did Costain accept the standardterms without demur, Costain was keen to executethe formal contract documents recording them.d. All material matters and terms of thecontract were agreed by the parties. There is noevidence whatever of there being any terms indispute or remaining to be agreed.e. This is not a case where the parties didnot intend to be contractually bound until theformal contract documents had been executed. Onauthority, the court should be slow to draw such aconclusion and should not do so in the absence ofclear evidence to support it. This is not the casehere. At no stage did Costain ever state to Tescothat they were not acting as a design and buildcontractor or reserve their position in any way asagainst Tesco."145. The submissions on behalf of Tesco quotedin the preceding paragraph were echoed on behalfof PHJ in the written opening of Mr. Coulson andMr. Holwill. At paragraphs 1.2.4 and 1.2.5 theywrote:--"1.2.4 In the present case, Costain's case as to theexistence of a Contract between themselves andTesco is not wholly clear. The Amended Defence... denies the existence of the contract alleged byTesco, but does not state whether Costain deny theexistence of any contract at all. In its response toRequest 4 of Tesco's Part 18 Request dated 21.2.03,Costain deny that "any contract" was concludedbetween Tesco and Costain "as regards the designand construction" of the Redditch store. On theother hand, the response to Request 6 merely statesthat "it is not accepted" that there was "some formof contract" concluded between the parties whichseems to suggest something less than a denial ofthis contention. For Costain to contend that it hadno contractual relationship at all with Tesco(notwithstanding the work done for, and thepayments made by, Tesco) would, it is submitted,be remarkable; and PHJ believe that the real issuehere is the terms of such a Contract and inparticular:(a) Whether it should be treated as beingunder seal;(b) Whether it included any designobligations/responsibility.1.2.5 In any event, and whatever Costain's stanceon these matters, it is clear from the documentsidentified below that Tesco and Costain had in factagreed on all relevant matters and that a Design andBuild Contract did in fact come into existencebetween the parties."146. That said, I was reminded on behalf of eachof Tesco, Costain and PHJ of relevant authority onthe question of contract formation, and to thatauthority I now turn.147. At paragraph 30 of their written opening Mr.Stewart and Mr. Chapman submitted, rightly as itseems to me, that the principles applicable to thequestion whether there was a concluded contractwere conveniently set out in the judgment of LloydLJ in Pagnan SpA v. Feed Products Ltd. [1987] 2Lloyd's Rep 601 at page 619:--"As to the law, the principles to be derived fromthe authorities, some of which I have alreadymentioned, can be summarised as follows:(1) In order to determine whether acontract has been concluded in the course ofcorrespondence, one must first look to thecorrespondence as a whole (see Hussey v. Horne-Payne).(2) Even if the parties have reachedagreement on all the terms of the proposedcontract, nevertheless they may intend that thecontract shall not become binding until somefurther condition has been fulfilled. That is theordinary "subject to contract" case.(3) Alternatively, they may intend that thecontract shall not become binding until somefurther term or terms have been agreed; see Loveand Stewart v. Instone, where the parties failed toagree the intended strike clause, and Hussey v.Horne-Payne, where Lord Selborne said at p.323:"... The observation has often been made,that a contract established by letters maysometimes bind parties who, when they wrote thoseletters, did not imagine that they were finallysettling terms of the agreement by which they wereto be bound; and it appears to me that no suchcontract ought to be held established, even byletters which would otherwise be sufficient for thepurpose, if it is clear, upon the facts, that there wereother conditions of the intended contract, beyondand besides those expressed in the letters, whichwere still in a state of negotiation only, and withoutthe settlement of which the parties had no idea ofconcluding any agreement [ My [Lloyd LJ's]emphasis](4) Conversely, the parties may intend tobe bound forthwith even though there are furtherterms still to be agreed or some further formality tobe fulfilled (see Love and Stewart v. Instone perCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 372003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)Lord Loreburn at p. 476).(5) If the parties fail to reach agreement onsuch further terms, the existing contract is notinvalidated unless the failure to reach agreement onsuch further terms renders the contract as a wholeunworkable or void for uncertainty.(6) It is sometimes said that the partiesmust agree on the essential terms and that it is onlymatters of detail which can be left over. This maybe misleading, since the word "essential" in thatcontext is ambiguous. If by "essential" one means aterm without which the contract cannot be enforcedthen the statement is true: the law cannot enforcean incomplete contract. If by "essential" one meansa term which the parties have agreed to be essentialfor the formation of a binding contract, then thestatement is tautologous. If by an "essential" onemeans only a term which the Court regards asimportant as opposed to a term which the Courtregards as less important or a matter of detail, thestatement is untrue. It is for the parties to decidewhether they wish to be bound and, if so, by whatterms, whether important or unimportant. It is theparties who are, in the memorable phrase coined bythe Judge "the masters of their contractual fate". Ofcourse the more important the term is the less likelyit is that the parties will have left it for futuredecision. But there is no legal obstacle whichstands in the way of the parties agreeing to bebound now while deferring important matters to beagreed later. It happens everyday when partiesenter into so-called "heads of agreement"."148. My attention was drawn on behalf of each ofTesco, PHJ and Costain, but particularly on behalfof PHJ, to what Steyn LJ said about formation ofcontracts in G. Percy Trentham Ltd. v. ArchitalLuxfer Ltd. [1993] 1 Lloyd's Rep 25 at page 27:--"Before I turn to the facts it is important toconsider briefly the approach to be adopted to theissue of contract formation in this case. It seems tome that four matters are of importance. The first isthe fact that English law generally adopts anobjective theory of contract formation. That meansthat in practice our law generally ignores thesubjective expectations and the unexpressedreservations of the parties. Instead the governingcriterion is the reasonable expectations of honestmen. And in the present case that means that theyardstick is the reasonable expectations of sensiblebusinessmen. Secondly, it is true that thecoincidence of offer and acceptance will in the vastmajority of cases represent the mechanism ofcontract formation. It is so in the case of a contractalleged to have been made by an exchange ofcorrespondence. But it is not necessarily so in thecase of a contract alleged to have come intoexistence during and as a result of performance.See Brogden v. Metropolitan Railway (1877) 2 AC666; HNew Zealand Shipping Co. Ltd. v. A. M.Satterthwaite & Co. Ltd. [1974] 1 Lloyd's Rep. 534at p.539 col.1 [1975] AC 154 at p. 167 D-E;HGibson v. Manchester City Council [1979] 1 WLR294. The third matter is the impact of the fact thatthe transaction is executed rather than executory. Itis a consideration of the first importance on anumber of levels. See British Bank for ForeignTrade Ltd. v. Novinex [1949] 1 KB 628 at p. 630.The fact that the transaction was performed on bothsides will often make it unrealistic to argue thatthere was no intention to enter into legal relations.It will often make it difficult to submit that thecontract is void for vagueness or uncertainty.Specifically, the fact that the transaction isexecuted makes it easier to imply a term resolvingany uncertainty, or, alternatively, it may make itpossible to treat a matter not finalised innegotiations as inessential. In this case fullyexecuted transactions are under consideration.Clearly, similar considerations may sometimes berelevant in partly executed transactions. Fourthly, ifa contract only comes into existence during and asa result of performance of the transaction it willfrequently be possible to hold that the contractimpliedly and retrospectively covers precontractualperformance. See HTrollope & Colls Ltd.v. Atomic Power Constructions Ltd. [1963] 1 WLR333."149. A theme in the submissions of both Mr.Stewart and Mr. Chapman and those of Mr.Coulson and Mr. Holwill was that in order to find acontract it was not necessary in law for there tohave been an offer made by one party which hadbeen accepted unequivocally by the other. Mr.Stewart and Mr. Chapman at paragraph 29 of theirwritten opening put it in this way:--"It is trite law that the critical question in eachcase is did the parties intend to conclude a legallybinding agreement. Intention (although itselfnecessarily subjective) is judged objectively -- i.e.by the words and conduct of the party concerned.The usual method of testing such an intention is toidentify a clear offer by one party which has beenunequivocally accepted by the other. However, thecourts have recognised that in acommercial/construction context it will sometimes(and perhaps often) be difficult to identify with anyprecision a single offer to which a singleacceptance is given in the course of complex andprolonged negotiations between the parties. What isimportant and determinative is whether from anobjective point of view the parties can be said tohave agreed on all essential matters and intendthemselves to be legally bound by suchagreement."150. At paragraph 1.2.3 of their written opening,Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 382003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)after referring to the passage from the judgment ofSteyn LJ in G. Percy Trentham Ltd. v. ArchitalLuxfer Ltd. which I have set out, Mr. Coulson andMr. Holwill went on:--"More recent cases in which this approach wasadopted are HMitsui Babcock Energy v. John BrownEngineering (1996) CILL 1189; (1996) 51 Con LR129 and the HCourt of Appeal decision in StentFoundations v. Carillion Construction (2001) 78Con LR 188. In the latter case, the Appellantaccepted that there was agreement on all essentialterms but endeavoured to argue that the agreementwas, in effect, "Subject to Contract" and thatformality was a condition precedent to any bindingcontract between the parties. The Court of Appealrejected that argument and upheld the decision ofDyson J. to the effect that there was a bindingcontract. The conduct of the parties was animportant element of the judgment of Lady JusticeHale. She said at paragraph 44:"It also seems to me clear that everyonebehaved as if the Works Contract was in place.Payment was made under that Contract. Thedeveloping dispute about the ground conditionswas being handled by WCM as if it was under thatContract."And at paragraph 46 of her Judgment, shesaid:"Everything else that happened after thenwas in accordance with the Contract betweenWCM and Stent. This includes the procurement forWCM for Wiggins of the Bond and Warranty,which would not have been necessary, or at least asnecessary if, as Mr. Steynor contends, the Letter ofIntent had been a Contract between Wiggins andStent which was still in existence.""151. What both Mr. Stewart and Mr. Chapman,and Mr. Coulson and Mr. Holwill, seemed to behinting at, at least, in the passages quoted in thetwo preceding paragraphs was that a contract cameinto existence as a matter of law, without more,provided only that the relevant parties wereintending at some point to enter into a contract andthe terms of the contemplated contract had beenagreed. In other words, offer and acceptance werenot really relevant, and a contract could, as it were,be imposed upon parties as a result of negotiationsbetween them reaching a point at which nothing ofsubstance was the continuing subject of discussion.It also appeared to be suggested that such aconclusion, namely that a contract had come intoexistence, was reinforced if the parties conductedthemselves in the manner which would have beenappropriate if the contract under negotiation hadbeen concluded and come into effect. Thisapproach to contract formation obviously ascribeslittle or no significance to formality as anindication one way or the other of an intention ornot to enter into contractual relations and seems tocome close to disregarding the injunction of LloydLJ in Pagnan SpA v. Feed Products Ltd., endorsingthe expression of opinion of the trial judge, that it isthe parties who are "the masters of theircontractual fate", that is to say, those who mustdecide whether they wish to be bound contractuallyto each other and, if so, by what terms. In place ofthat approach Mr. Stewart and Mr. Coulsonappeared to be contending in effect that if parties inanticipation of concluding a contract acted as if thecontemplated contract had been made, that contractwould be imposed upon them as a matter of law.Not only that, but in the circumstances of thepresent case it seemed to be contended that thereshould be imposed upon Costain a contract whichwas to be treated as if it had been executed underseal, because the contract being negotiated, if it hadbeen concluded would, or probably would, havebeen executed under seal. At paragraph 23 of theirwritten opening Mr. Stewart and Mr. Chapmanmade this submission:--"After the 19th July 1989, the contract proceededin every respect as if all contract documents hadbeen fully signed and sealed. Moreover at no timedid Costain seek to suggest that they were notcontractually bound or that they did not takeresponsibility for the design. Certificates,payments, meetings, instructions, defects periodsand final accounts all proceeded precisely inaccordance with the terms of Tesco's standardform."The suggestion that, as it were, it is for a party toan alleged contract who contends that no contracthas been concluded to make that plain otherwise hewill be taken to be bound does seem to beapproaching the issue from an unusual direction.152. The English law of contract has evolved overmany centuries in response to the needs of societyin general, and, perhaps, the needs of commercialmen in particular. It is, in my judgment, a strongstrand in the policy guiding the development of thelaw over the years that the question whether or nota contract has been made should depend,fundamentally, upon the intention of the parties tothe supposed contract, objectively ascertained, tomake an agreement by which they desire to belegally bound. In other words, the law does notimpose upon parties a contract which they have notmade for themselves, any more than it imposesupon parties who have made a contract a term as animplied term which they have not themselvesagreed just because the court considers that theterm would be a beneficial addition to the contract.These points were made by Lord Pearson inHTrollope & Colls Ltd. v. North West MetropolitanRegional Hospital Board [1973] 1 WLR 601 atpage 609:--Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 392003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)"Faced with the conflict of judicial opinion inthis case, I prefer the views of Donaldson J andCairns LJ as being more orthodox and inconformity with the basic principle that the courtdoes not make a contract for the parties. The courtwill not even improve the contract which theparties have made for themselves, howeverdesirable the improvement might be. The court'sfunction is to interpret and apply the contract whichthe parties have made for themselves. If the expressterms are perfectly clear and free from ambiguity,there is no choice to be made between differentpossible meanings; the clear terms must be appliedeven if the court thinks some other terms wouldhave been more suitable. An unexpressed term canbe implied if and only if the court finds that theparties must have intended that term to form part oftheir contract; if is not enough for the court to findthat such a term would have been adopted by theparties as reasonable men if it had been suggestedto them; it must have been a term that went withoutsaying, a term necessary to give business efficacyto the contract, a term which, although tacit,formed part of the contract which the parties madefor themselves."153. The court adopts an objective approach toascertaining the intentions of the parties to acontract or supposed contract for purely practicalreasons. The orderly conduct of affairs dependsupon people being taken to mean what they say,rather than being able to avoid the consequences ofwhat they say in reliance upon unexpressedreservations. Thus if, objectively, a personconducts himself, by speech, writing or behaviour,in such a way as to indicate that he intends toassume by agreement legally binding obligationsthe law visits upon him the objective consequencesof his conduct. However, in so doing the law is notseeking to disregard what his actual intentionswere, only to confine the scope of the enquiry as tohis actual intentions to objective manifestations ofthose intentions. In their closing submissions Mr.Coulson and Mr. Holwill seemed to place greatemphasis upon the evidence of various witnessescalled before me, particularly on behalf of Tesco,as to their personal thoughts and beliefs in 1989and 1990 as to whether a contract had beenconcluded between Tesco and Costain, and, if so,on what terms. I disregard that evidence asirrelevant to the enquiry. It is trite law that the testof contract formation is objective, as Steyn LJpointed out in the passage from his judgment in G.Percy Trentham Ltd. v. Archital Luxfer Ltd. whichI have quoted. The intentions of a possiblecontracting party are to be derived from hiscommunications contemporaneously with the othersupposed contracting party, and, perhaps, to adegree, from his conduct towards that party. Theyare not to be derived from private, unexpressedthoughts or feelings which he had at the time thecontract was made, if it was made, still less fromhis thoughts and feelings after the event.154. If the consideration of whether, in aparticular case, parties have entered into a legallybinding agreement is to amount to more than aconsideration of how to impose liability upon aparty which is viewed as morally deserving of it,that consideration must involve the application ofknown principles in a predictable fashion. It is inthis context that the notions of offer and acceptanceare of significance. If parties execute an agreementin writing, then, subject to any expressedreservations that what has been agreed is "Subjectto Contract", or some similar suspensive condition,it may usually be taken that they intend to belegally bound by that which they have agreed. Inany other case in which it is said that a legallybinding agreement has been made, but that isdisputed, it is necessary to consider, first, whetheran agreement has actually been made, and, second,if so, whether the parties to it intended to be legallybound by it. Conceptually an agreement is ameeting of minds as to a state of affairs or as tomutual rights and obligations. An agreement whichis not contained in a single document executed byboth parties will normally be the result of one partyindicating to the other his views or proposals, andthe other indicating his assent to those views orproposals. Using the traditional language of theEnglish law of contract, one party makes an offerto the other and the other indicates his acceptance.Thus the offer and the acceptance in the first placeboth establish that there has been an agreement andwhat are the terms of the agreement. Those termsare likely also to indicate whether the parties intendto be bound in law to observe the terms of theagreement. Consequently, the notions of offer andacceptance are, in my judgment, of the highestimportance in any consideration of the issueswhether an agreement has been made and, if so,what were the terms of the agreement and whetherthe parties intended to be legally bound by thoseterms.155. The views which I have expressed in thepreceding paragraphs are not novel orcontroversial. They echo those expressed by LordDiplock in HManchester City Council v. Gibson[1979] 1 WLR 294 at page 297:--"My Lords, there may be certain types ofcontract, though I think they are exceptional, whichdo not fit easily into the normal analysis of acontract as being constituted by offer andacceptance; but a contract alleged to have beenmade by an exchange of correspondence betweenthe parties in which the successive communicationsCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 402003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)other than the first are in reply to one another is notone of these."156. They also echo the views of Lawton LJ inHButler Machine Tool Co. Ltd. v. Ex-CelloCorporation (England) Ltd. [1979] 1 WLR 401 atpage 409:--"The modern commercial practice of makingquotations and placing orders with conditionsattached, usually in small print, is indeed likely, asin this case, to produce a battle of forms. Theproblem is how should that battle be conducted?The view taken by the judge was that the battleshould extend over a wide area and the courtshould do its best to look into the minds of theparties and make certain assumptions. In myjudgment, the battle has to be conducted inaccordance with set rules. It is a battle more onclassical 18th century lines when conventiondecided who had the right to open fire first ratherthan in accordance with the modern concept ofattrition.The rules relating to a battle of this kind havebeen known for the past 130-odd years. They wereset out by the then Master of the Rolls, LordLangdale, in Hyde v. Wrench, and Lord DenningMR has already referred to them; and, if anyoneshould have thought they were obsolescent, MegawJ in Trollope & Colls Ltd. v. Atomic PowerConstructions Ltd. called attention to the facts thatthose rules are still in force."157. Mr. Coulson, in particular, seemed to comeclose to submitting that once a transaction had beenperformed on both sides, as in the case of thedesign and construction of the Store, it was too latefor either of the parties to the transaction to contendthat there had been no contract between them inrelation to the transaction. He appeared to rely insupport of that suggestion especially upon theobservations of Steyn LJ in G. Percy Trentham Ltd.v. Archital Luxfer Ltd. in the passage which I havequoted already, and also upon those passages fromthe judgment of Hale LJ in HStent Foundations Ltd.v. Carillion Construction (Contracts) Ltd. (2000)78 Con LR 188 which were set out in paragraph1.2.3 of his written opening. The observations ofSteyn LJ were the subject of some comment inHTA Architects Ltd. v. Countryside Properties Plc[2002] EWHC 482 (TCC). However, for presentpurposes, in my judgment, it is material to note thatwhat Steyn LJ considered could be the relevance ofthe fact that a transaction was performed on bothsides was that it "will often make it unrealistic toargue that there was no intention to enter into legalrelations. It will often make it difficult to submitthat the contract is void for vagueness oruncertainty. Specifically, the fact that thetransaction is executed makes it easier to imply aterm resolving any uncertainty, or, alternatively, itmay make it possible to treat a matter not finalisedin negotiations as inessential." None of thesethings was said to be an inevitable consequence ofa transaction being performed on both sides. SteynLJ did not in terms consider at all the case in whichthe parties contemplated the making of a formalagreement which in the event was never executed.He cast no doubt on the general proposition that thenormal mechanism of contract formation is thecoincidence of offer and acceptance.158. As it seems to me, the comments of Hale LJin Stent Foundations Ltd. v. Carillion Construction(Contracts) Ltd., upon which both Mr. Coulson andMr. Stewart relied, need to be considered in thecontext of the issue in that case. What hadhappened was that the owner of a site in theLondon Docklands decided to develop it. Acontractor, Wimpey Construction Management("WCM"), in May 1988 submitted a tender for theundertaking of the development as a managementcontractor. Part of the work necessary to theundertaking of the development was the building ofa piled retaining structure around the site. StentFoundations Ltd. ("Stent") was invited in June 1988by a quantity surveyor acting on behalf of the siteowner to submit a tender for the piling work. Thattender was accepted on 29 June 1988, by whichtime WCM was the front runner for selection as thecontractor for the development. On 14 July 1988 ameeting took place at which representatives ofStent, WCM and the quantity surveyors attended.WCM made clear at the meeting the form ofcontract which it intended should be made betweenit and Stent. On 17 August 1988 the quantitysurveyors, acting on behalf of the site owner,instructed Stent to commence work and indicatedthat it would be required to enter into a subcontractwith WCM. At a meeting on 28 September1988 WCM indicated to Stent that it would beentering into a form of management contract withall package contractors. Stent started work on 19October 1988 and completed it by 31 January 1989.WCM said that it could not enter into a formalcontract with Stent until it had entered into acontract with the site owner. That did not happenuntil 17 January 1989. At first instance there wasan issue as to whether in those circumstances all ofthe terms essential to the making of a contractbetween WCM and Stent had been agreed. Thatpoint was not pursued on appeal. On appeal thesole issue was whether the parties intended to enterinto an agreement other than formally in writing.That issue had been decided against WCM at firstinstance and the appeal against that finding wasdismissed. Thus the context of the observations ofHale LJ was simply a consideration of the issuewhether the agreement which it was accepted in theCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 412003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)Court of Appeal had been made in terms sufficientto amount to a contract was "Subject to Contract".In that context it is hardly surprising that Hale LJshould call attention to those aspects of the casewhich indicated that the parties, far from behavingas if they did not intend to give effect to theiragreement until it had been formalised, actuallygave effect to it in their dealings after theagreement had been made. However, in a case inwhich the issue is whether an agreement has beenmade at all the conduct of the parties towards eachother may have little or no relevance to the enquiry.As Lord Sumner pointed out in Love and StewartLtd. v. S. Instone & Co. Ltd. (1917) 33 TLR 475 atpage 477 even a statement by one party innegotiation for a contract to the other party to thenegotiation that there was now a contract was notof any real assistance in answering the questionwhether there was in fact a contract, for thestatement could simply be wrong as a matter oflaw. Equally, as it seems to me, the fact that partieshave behaved towards each other in anticipation ofthe conclusion of a contract between them in themanner which would have been appropriate if theyhad in fact concluded the contract concerningwhich they were in negotiation is of little value inresolving the issue whether there was in fact aconcluded contract.159. In his oral submissions Mr. Stewartcontended that on any view an agreement wasconcluded between Tesco and Costain by thedespatch by Tesco of the letter dated 20 March1989 to Costain and the return of that lettercountersigned on behalf of Costain under cover ofCostain's letter dated 30 March 1989. He drewattention to the use of wording in the letter dated 20March 1989 which he described as the language ofcontract, such as "in consideration of the issuanceof this letter" and "please return a copy of thisletter (enclosed) with your signature toacknowledge your agreement to its terms".Mr.Taverner and Mr. Hargreaves in their writtenopening seemed to contend that the letter dated 20March 1989 as countersigned and returned to Tescodid not amount to any agreement of any sort.Rather, they appeared to submit, it was a simplerequest to Costain to commence work which wassufficient to support a claim to payment on arestitutionary basis for work done pursuant to therequest, had such been necessary. They remindedme of the decision of Robert Goff J in HBritish SteelCorporation v. Cleveland Bridge and EngineeringCo. Ltd. [1984] 1 All ER 504, in which it was heldthat the effect of the letter of intent in that case wasthat it was a mere request without any contractualforce. However, in the course of his judgment, atpages 509 to 510, Robert Goff J said this:--"Now the question whether in a case such as thepresent any contract has come into existence mustdepend upon the true construction of the relevantcommunications which have passed between theparties and the effect (if any) of their actionspursuant to those communications. There can be nohard and fast answer to the question whether aletter of intent will give rise to a bindingagreement: everything must depend on thecircumstances of the particular case. In most cases,where work is done pursuant to a request containedin a letter of intent, it will not matter whether acontract did or did not come into existence,because, if the party who has acted on the request issimply claiming payment, his claim will usually bebased on a quantum meruit, and it will make nodifference whether that claim is contractual orquasi- contractual. Of course, a quantum meruitclaim (like the old actions for money had andreceived and for money paid) straddles theboundaries of what we now call contract andrestitution, so the mere framing of a claim as aquantum meruit, or a claim for a reasonable sum,does not assist in classifying the claim ascontractual or quasi contractual. But where, as here,one party is seeking to claim damages for breach ofcontract, the question whether any contract cameinto existence is of crucial importance.As a matter of analysis the contract (if any)which may come into existence following a letterof intent may take one of two forms: either theremay be an ordinary executory contract, underwhich each party assumes reciprocal obligations tothe other; or there may be what is sometimes calledan "if" contract, i.e. a contract under which Arequests B to carry out a certain performance andpromises B that, if he does so, he will receive acertain performance in return, usually remunerationfor his performance. The latter transaction is reallyno more than a standing offer which, if acted onbefore it lapses or is lawfully withdrawn, will resultin a binding contract."160. It is part of the folklore of the constructionindustry that there exists a mythical beast, "theLetter of Intent", the legal effect of which, if it isacted upon, is that it entitles a contractor topayment for what he does, but does not expose himto any risk because it imposes no contractualobligations upon him. As Robert Goff J pointed outin the passage quoted in the preceding paragraph,in fact the legal effect of a letter of intent dependsupon the true construction of the communicationsbetween the parties and the effect, if any, of theiractions pursuant to those communications.161. In my judgment the principles to be appliedto the construction of communications betweenparties in order to determine whether they havemade a contract by correspondence are the same asCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 422003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)the principles adumbrated by Lord Hoffman inHInvestors Compensation Scheme Ltd. v. WestBromwich Building Society [1998] 1 WLR 896 atpages 912H to 913F in relation to the constructionof a contract in writing. As enunciated by LordHoffman:--"The principles may be summarised as follows.(1) Interpretation is the ascertainment ofthe meaning which the document would convey toa reasonable person having all the backgroundknowledge which would reasonably have beenavailable to the parties in the situation in whichthey were at the time of the contract.(2) The background was famously referredto by Lord Wilberforce as the "matrix of fact", butthis phrase is, if anything, an understateddescription of what the background may include.Subject to the requirement that it should have beenreasonably available to the parties and to theexception to be mentioned next, it includesabsolutely anything which would have affected theway in which the language of the document wouldhave been understood by a reasonable man.(3) The law excludes from the admissiblebackground the previous negotiations of the partiesand their declarations of subjective intent. They areadmissible only in an action for rectification. Thelaw makes this distinction for reasons of practicalpolicy and, in this respect only, legal interpretationdiffers from the way we would interpret utterancesin ordinary life. The boundaries of this exceptionare in some respects unclear. But this is not theoccasion on which to explore them.(4) The meaning which a document (orany other utterance) would convey to a reasonableman is not the same thing as the meaning of itswords. The meaning of words is a matter ofdictionaries and grammars: the meaning of thedocument is what the parties using those wordsagainst the relevant background would reasonablyhave been understood to mean. The backgroundmay not merely enable the reasonable man tochoose between the possible meanings of wordswhich are ambiguous but even (as occasionallyhappens in ordinary life) to conclude that theparties must, for whatever reason, have used thewrong words or syntax: see HMannai InvestmentsCo. Ltd. v. Eagle Star Life Assurance Co. Ltd.[1997] AC 749.(5) The "rule" that words should be giventheir "natural and ordinary meaning" reflects thecommon sense proposition that we do not easilyaccept that people have made linguistic mistakes,particularly in formal documents. On the otherhand, if one would nevertheless conclude from thebackground that something must have gone wrongwith the language, the law does not require judgesto attribute to the parties an intention which theyplainly could not have had. Lord Diplock made thispoint more vigorously when he said in HAntaiosCompania Naviera SA v. Salen Rederierna AB[1985] AC 191,201:"if detailed semantic and syntacticalanalysis of words in a commercial contract is goingto lead to a conclusion that flouts businesscommonsense, it must be made to yield to businesscommonsense."162. It has become increasingly common in recentyears in the construction industry for a form of"letter of intent" to be employed which, while itdoes indeed contain a request to a contractor tocommence the execution of works, also seeks tocircumscribe the remuneration to which he will beentitled in respect of work done pursuant to therequest in the event that no contract is concluded.Typically the "letter of intent" will seek to providethat the remuneration of the contractor will notinclude any element of profit in addition to out ofpocket expenses incurred in doing the relevantwork or that the remuneration payable will beascertained by someone like a quantity surveyoremployed by the person making the request forwork to be done. It is also likely to request that theaddressee indicates his agreement to the terms setout in the "letter of intent". The naturalinterpretation of a "letter of intent" of the sort nowunder consideration is that it is an offer to engagethe addressee to commence the execution of workwhich it is anticipated will, in due course, be thesubject of a more formal or detailed contract, butupon terms that, unless and until the more formalor detailed contract is made, the requesting partyreserves the right to withdraw the request and itsonly obligation in respect of the making ofpayment for work done before the more formal ordetailed contract is made is that spelled out in the"letter of intent". If an offer in those terms isaccepted either expressly, as, for example, it couldbe by countersigning and returning a copy of the"letter of intent" to indicate agreement to its terms,or by conduct in acting upon the request containedin the letter, it would seem that a binding contractwas thereby made, albeit one of simple content.163. Mr. Stewart submitted during his oralopening that the letter dated 20 March 1989 ascountersigned and returned on behalf of Costaindid indeed represent just such a contract as thatconsidered in the preceding paragraph, although heemphasised that in his submission it wassuperseded by the agreement upon which Tescoseeks to sue Costain. Mr. Taverner in his oralopening was disposed to accept that the letter dated20 March 1989 as countersigned and returnedunder cover of Costain's letter dated 30 March1989 might indeed be a contract of a simple kind.However, he was at pains to submit that, even ifCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 432003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)that were so, Costain did not under the simplecontract accept any responsibility for the adequacyof design work done in relation to the Store by PHJor any other party than itself. Mr. Stewart disputedthat submission and contended that, upon properconstruction, even under the simple contractCostain accepted contractual responsibility for allof the design work done in connection with theStore.164. In support of their submissions summarisedin the preceding paragraph both Mr. Stewart andMr. Taverner called attention to the introductoryparagraph of the letter dated 20 March 1989 and tothe expressed contemplation that the formal, moredetailed, contract into which Tesco and Costainexpected to enter would be in the terms of the Issue7 Main Contract under clause 2 of which Costainwould warrant the quality of the design work doneby whomsoever in relation to the Store. Mr.Stewart, supported by Mr. Coulson, submitted thatthe work which Costain was being invited by theletter dated 20 March 1989 to undertake, andagreed to undertake, was the totality of the workwhich it was anticipated would later form thesubject matter of a formal contract in the terms ofthe Issue 7 Main Contract, that is to say, both theconstruction and the design of the Store. Mr.Taverner submitted that it was plain from thestructure of Issue No. 7 that it was not anticipatedthat a contractor entering into an Issue 7 MainContract, and thereby accepting contractualresponsibility for design work done by othersalready selected and engaged by Tesco, wouldactually enter into the Issue 7 Main Contract unlessand until those for whose design work he wasexpected to accept contractual responsibility hadentered into formal agreements with Tesco in theform of the Issue 7 Architect's Agreement, orwhichever was the relevant form of agreement inIssue No. 7, and an Issue 7 Novation Agreementhad been made between the relevant professionalfirm, Tesco and the contractor. Thus, he submitted,against that factual background, upon properconstruction of the letter dated 20 March 1989, allCostain was being invited to do, and agreed to do,in advance of the making of a formal contract in theterms of the Issue 7 Main Contract, was tocommence the execution of the work which ititself, or sub-contractors engaged by it, wereexpected to undertake in relation to the Store, andnot work which it was not contemplated that itwould do itself or by sub-contractors, but onlyassume contractual responsibility for. So far aswork which it was contemplated Costain in duecourse would assume contractual responsibility for,submitted Mr. Taverner, that had beencommissioned by Tesco, possibly underagreements made between the relevant professionaland Tesco, as was the case with the PHJAgreement, coincidentally concluded bycountersignature on behalf of PHJ on 20 March1989 itself, and had possibly in part, as was thecase with the work the subject of the PHJAgreement, already been done before the letterdated 20 March 1989 was written.165. Mr. Taverner relied upon the same points asthose summarised in the preceding paragraph inanswer to Mr. Stewart's submission that by actingafter about 20 March 1989 until completion of theStore in the manner in which it would have donehad a contract in the form of the Issue 7 MainContract been concluded in respect of the StoreCostain was indicating that it did agree to the termsproposed on behalf of Tesco as those of thecontract between them concerning the Store,namely those indicated in the original invitation totender or in the letter of 20 March 1989 itself. Ihave to say that there was an intangible qualityabout how exactly Mr. Stewart contended that thecontract upon which Tesco sought to sue had beenmade and what precisely were said to be the termsof it. He did, I think, accept that he could not pointto anything which was an identifiable offer or anidentifiable acceptance. At times he seemed to besubmitting little more than that it was notoriousthat Tesco would only engage contractors to buildsupermarkets on its own standard terms, thatCostain had undertaken contractual responsibilityfor the design and construction of othersupermarkets before the Store on the terms of theStandard Documentation, and thus should beconsidered as having agreed the same in respect ofthe Store. Certainly Mr. Coulson's submissions inrelation to the contractual arrangements betweenTesco and Costain in respect of the Store amountedto little more than that. Obstacles to this approachwere presented by the fact that it was undoubtedlycontemplated that Employer's Requirements andContractor's Proposals should be incorporated intoany formal agreement between Tesco and Costainin respect of the Store. On the evidence, althoughboth Employer's Requirements and Contractor'sProposals were agreed between Costain and Tesco,acting by Bucknalls, this did not happen until about3 April 1990 in the case of the Employer'sRequirements and about 15 March 1990 in the caseof the Contractor's Proposals, by each of whichdates the construction of the Store seems to havebeen completed. Both Mr. Stewart and Mr.Coulson appeared attracted by the solution ofdealing with the inconveniently late dates of theagreement of these documents by contending thatthe contract between Tesco and Costainincorporating the Issue 7 Main Contract should beconsidered as having been made without includingEmployer's Requirements or Contractor'sCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 442003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)Proposals. This would be a rather bizarre solution,as it would mean that the documents specific to theStore which indicated what precisely Tesco wantedbuilt and what exactly Costain was going to do forthe price which it was intending to charge wouldnot be included within the contract.166. Mr. Taverner contended that the words in theletter 20 March 1989, "you are to consider yourcompany as part of the design team and to put inhand all works in accordance with the instructionsof the Employers Representative", were importantand supported his submission as to the properconstruction of the letter. He emphasised the word"consider" and suggested that it indicated thatCostain was being invited to proceed as if a state ofaffairs existed which all relevant parties knew didnot. He drew a parallel with the line in the popularsong, "Consider yourself part of the family", whichhe submitted had the meaning, "act as a member ofthe family even though you are not". Mr. Taverneralso emphasised that what Costain was beinginvited to consider itself was not "contractuallyresponsible for design work", but only "as part ofthe design team", a body which comprised PHJ,Sibley, Green and Arup. What Costain's role inrelation to the "design team" was anticipated asbeing, submitted Mr. Taverner, one could discernfrom the terms of Costain's letter dated 30 March1989, in which it said that it would "work with thedesign team", which formulation was apparentlyacceptable to Tesco at the time.167. By contrast, Mr.Coulson, in particular,submitted that that to which Costain was agreeingin agreeing to "consider your company as part ofthe design team", was that Costain was to lead "thedesign team" and to co-ordinate its activities. This,he seemed to consider, was equivalent to acceptingcontractual responsibility for the performance ofthe whole team so far as Tesco was concerned.168. It seems to me that in considering,objectively, the intentions of Tesco and Costain inrespect of the Store in 1989 and 1990, and inparticular in considering the proper construction ofthe letter dated 20 March 1989 written by Tesco toCostain, a factor of the first importance is thatTesco had caused to be prepared with great care apackage of documents, Issue No. 7, itself thesuccessor to a similar package of documents, IssueNo. 6, which it wished to use to regulatecontractually the construction of all of itssupermarkets. The package contemplated aparticular mechanism for structuring relationsbetween those likely to be involved in anyparticular project, namely in the first instanceidentification by Tesco itself of the professionalfirms to be involved in the design of the relevantsupermarket, the making of appropriate contracts ofengagement directly between Tesco and each of therelevant firms, the subsequent identification of acontractor actually to build the supermarket, thenovation of the engagements of the designers to thecontractor and the making of a contract betweenTesco and the contractor under which thecontractor accepted as against Tesco contractualresponsibility for the performance of all thoseengaged in the particular project as designers orconstructors. Moreover, all of the contractualarrangements which the package contemplatedwere either intended to be executed under seal, aswas the position in relation to the Issue 7 MainContract, or contained a provision like clause 9.1 ofthe PHJ Agreement which was apparently intendedto produce by contract the same result as if theagreement had been executed under seal. Plainly,therefore, it was considered important by Tescothat those entering into agreements in the form ofone of those in the package should be liable toTesco for any breach of contract for a period oftwelve years, rather than the six year period forcontractual claims provided for in HLimitation Act1980 s.5. No one soundly in possession of hiscritical faculties could contemplate for a momentaccepting contractual responsibility for thespecialist design work of another whom he has notselected and over whose terms of engagement hehas had no control for a period of twelve yearsunless at very least he is in a position to enforce forhis own benefit those terms of engagement in theevent that he faced a claim based upon hisacceptance of contractual responsibility for thework of that other. I am entirely satisfied thatneither Tesco nor Costain had any thought ofentering into a binding agreement under whichCostain accepted contractual responsibility for thedesign work of PHJ, or others selected initially byTesco, in relation to the Store unless and until, first,contracts of engagement had been concluded in therelevant standard form used by Tesco for theprofessional discipline in question between Tescoand each relevant professional firm, and, second,novation agreements in the terms of the Issue 7Novation Agreement had been concluded between,in each case, Tesco, Costain and the relevantprofessional firm. The conduct of the parties duringthe period of Mr. Paine's correspondence withBucknalls demonstrates that this was the case, andit demonstrates that the issue of the execution ofthe Issue 7 Main Contract under seal was also ofsignificance. Mr. Taverner relied in particular in hisoral closing submissions on the rejection by Mr.Paine in his letter dated 2 November 1990 of thesuggested "solution" to the difficulty presented bythe non-availability of documents executed byArup proposed in Miss Bell's letter dated 30October 1990 and her failure to seek to insist uponCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 452003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)that "solution" as plain evidence that the parties didnot intend to make a contract in the terms of theIssue 7 Main Contract in relation to the Storeunless and until all relevant agreements bymembers of the design team had been concluded asbetween the relevant member and Tesco and hadbeen novated as between the original parties andCostain, or otherwise than under seal. I accept thatsubmission.169. In my judgment, Tesco had no thought ofletting Costain off with only accepting contractualresponsibilty for a period of six years. It was,objectively, important to it to have the Issue 7 MainContract in relation to the Store executed byCostain under seal and it did not intend to make abinding contract superseding the letter dated 20March 1989 in any other way.170. The matters considered in the two precedingparagraphs are not "Subject to Contract" issues orquestions whether there was any continuingnegotiation over the terms of a contract to be madebetween Tesco and Costain, so it is no answer to itthat the expression "Subject to Contract" was neverused in contemporaneous exchanges betweenTesco and Costain or that the only activenegotiations between Tesco, acting by Bucknalls,and Costain seemed to have been over price and tohave been resolved by about 28 June 1989. Thelatter point was particularly urged upon me by Mr.Stewart. He was also keen that I should notice thatthe expression "Subject to Contract" did not featurein exchanges between Tesco and Costain. Thematter to which I have referred goes to the issue ofintention to enter into contractual relations. It maybe that in many cases it is appropriate to draw theinference from the carrying of a project tocompletion that any earlier reservations as toentering into a binding contract had beenovercome, as Steyn LJ suggested in G. PercyTrentham Ltd. v. Archital Luxfer Ltd. However, Isee no warrant for drawing that inference incircumstances in which to do so would involvepostulating that a commercial party had assumedcontractually responsibility for the specialist designwork of others against whom it had no recourse andthe other party had forgone the benefit of a periodof limitation which was commercially important toit.171. Mr. Coulson evidently saw the force in thepoints made at the end of the preceding paragraph,for he sought to deal with them by contending thatthe difficulties could be overcome in part byimplying a term into the contract which hesubmitted had been made between Tesco andCostain to the effect that Tesco would procure themaking of appropriate contracts between itself andthe designers for whose work he asserted Costainwas to be responsible and the novation of thosecontracts as between Tesco, Costain and theappropriate designer in each case. However, theimplication of the sort of terms for which Mr.Coulson contended could not, in my judgment, bejustified by application of the test formulated byLord Pearson in Trollope & Colls Ltd. v. NorthWest Metropolitan Regional Hospital Board. Itwould not represent the actual, but unexpressedagreement of Tesco and Costain, but rather theimposition of terms upon them in order toovercome an obstacle which obviously existed tothe conclusion of a binding contract between them.Mr. Coulson's suggested answer to the significanceattributed by Tesco to the sealing of an Issue 7Main Contract was that it was a matter ofadministration and no doubt Tesco would ratherhave had a contract with a six year limitationperiod than no contract at all. As the issue is what,objectively, Tesco and Costain intended in relationto the sealing of an Issue 7 Main Contract at a timewhen they were addressing the making of a formalcontract, it is no answer to postulate what Tesco'sposition would have been if it had known then whatit knows now, namely that no contract would besealed.172. Given that, for the reasons which I haveexplained, neither Tesco nor Costain had anythought, contemporaneously, of entering into anycontract which incorporated the terms of the Issue7 Main Contract in advance of the making ofappropriate contracts of engagement betweenTesco and each of those involved in the project toconstruct the Store as designers, and the novationof such contracts as between Tesco, Costain andthe relevant professional firm, it is in no waysurprising that Tesco did not make any offer toCostain to enter into such a contract and thatCostain did not make any such offer either. Ratherit is plain from the contemporaneous exchangesbetween the parties, in Tesco's case acting byBucknalls, that the execution of appropriatecontracts of engagement and novation agreementswas what each party recognised as necessary beforethere could be any question of Costain entering intoa contract incorporating the Issue 7 Main Contractin relation to the Store. I have little doubt that, hadsuch contracts of engagement and novationagreements been made in respect of each of thoseinvolved in any way as designers of some part ofthe Store, Costain would, following agreement ofthe price to be paid to it, the Employer'sRequirements and the Contractor's Proposals, haveentered into a form of Issue 7 Main Contract inrelation to the Store, and executed such form ofcontract under seal. It had done so in other cases,and the tone of Mr. Paine's correspondence in theCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 462003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)present case indicated a willingness to do so again.However, it just did not happen, and I see nojustification for treating Costain in law as in thesame position as if that which did not happen hadhappened.173. A curious issue which surfaced rather late, infact only really during the hearing of thepreliminary issues, was an alleged previous courseof dealing. I have set out earlier in this judgmentthe terms of paragraphs 4A-4D of the Re-AmendedReply to the Defence of Costain and the OtherCostain Company in Action 07, in which the issuewas formally raised. I have already set out theevidence that in three cases prior to the projectconcerning the Store Costain had executed forms ofthe then standard version of the Tesco MainContract before at least one of those involved in thedesign of the relevant project had executed anappropriate novation agreement. For the reasonswhich I have indicated that may have been unwise,although it does not seem to have mattered asthings turned out in relation to any of the threecases. However, Mr. Stewart submitted that the factthat Costain executed forms of contract with Tescoin these three cases indicated that the absence ofexecuted novation agreements with members of thedesign team in relation to the Store was no obstacleto the conclusion of a binding agreement betweenTesco and Costain in the terms of the Issue 7 MainContract concerning the Store. I confess that I justdid not see the point of this submission. Whateverhad happened in other cases, in the present caseCostain never did execute a contract in the form ofthe Issue 7 Main Contract. The fact that Costainmay have acted foolishly in other cases does notseem to me to present any hindrance to it actingwisely in this case. What Mr. Stewart seemed to bestriving towards was some suggestion that acontract could come about as a result of a course ofdealing. However, there is not the slightestjustification, in my judgment, for any suchsuggestion. Whether, in any particular case, partieswho may have dealt with each other before haveconcluded a binding agreement must depend uponthe circumstances of that case. The relevance, ifthey do conclude a contract, of the fact that theyhave engaged in a course of dealing in the past, issimply that, if their previous dealings have been ona particular set of standard terms and their presentcontract is silent as to the terms which are togovern it, it can be implied from their previouscourse of dealing that the terms of the previoustransactions are to apply -- see, for example,HMcCutcheon. v. David MacBrayne Ltd. [1964] 1WLR 125 per Lord Reid at page128.174. In the result I find that Tesco and Costain didmake a contract in 1989 under which Costainundertook to carry out work for Tesco inconnection with the construction of the Store, thusthe answer to Issue 1 is affirmative.175. The contract which I find was made was asimple contract in the terms of Tesco's letter dated20 March 1989 as countersigned and returned toTesco under cover of Costain's letter dated 30March 1989. That is the answer to Issue 2 (ii). Noother contract was made between Tesco andCostain in relation to the Store.176. I further find that, by the contract which Ihave held was made, all Costain agreed expresslyto do was to commence the work which it, ratherthan those for whose work it would have acceptedcontractual responsibility had a contract in theterms of the Issue 7 Main Contract been concludedin respect of the Store, was to undertake in relationto the Store either directly or by sub- contractors.In my judgment the "works" which Costain wasinstructed to "put in hand" by the letter dated 20March 1989 could only sensibly be those workswhich Costain was itself, directly or by subcontractors,to undertake, rather than works ofdesign which others had already undertaken oragreed directly with Tesco to undertake. It is notwithout significance, as it seems to me, that in thefurther letter dated 23 March 1989 which waswritten by Mr. Fletcher before Costain replied tohis original letter dated 20 March 1989 hedescribed the works which Tesco wanted Costainto commence as "the main contract works", a formof words which in the construction industrytraditionally is used to refer to the works ofconstruction which a main contractor carries out.By no stretch of the imagination was the request toCostain to accept contractual responsibility towardsTesco for work of design done by PHJ, Green,Sibley or Arup. Thus the answer to Issue 2(iii) isthat none of the express terms alleged at paragraph15 of the Re-Amended Particulars of Claim wereterms of the contract. The material express termswere simply that Costain would commence theexecution of the work of constructing the Store andin return Tesco would make payment in accordancewith the terms set out in the letter dated 20 March1989.177. It seems to me that it was a term of thecontract which I have found, implied as a matter oflaw, that Costain would perform any constructionwork which it undertook under the contract in agood and workmanlike manner. That term isusually implied into a building contract which issilent as to the quality of the work to be undertaken-- see, for example, Hancock v. B. W. HBrazier(Anerley) Ltd. [1966] 1 WLR 1317.Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 472003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)178. In Hancock v. B. W. Brazier (Anerley) Ltd.the claimant purchased from a builder a house incourse of construction. It was held that, in additionto the term to which I have just referred, termsshould be implied into the contract between theparties that the builder would supply good andproper materials and that the house would bereasonably fit for human habitation on completion.179. While it is usually a term of a constructioncontract, by implication if not expressly, that thecontractor will supply materials of good quality --see HYoung & Marten Ltd. v. McManus Childs Ltd.[1969] 1 AC 454 -- this is not invariably so, inparticular if the contractor has been directed by hisclient to enter into a contract with a third party toobtain particular materials on terms which excludeor limit liability for defects -- see HGloucestershireCounty Council v. Richardson [1969] 1 AC 480. Inthe present case nothing turns on the quality ofmaterials supplied for the construction of the Storeand it is unnecessary for me to reach anyconclusion as to what term, if any, it would beappropriate to imply into the contract which I havefound concerning the quality of materials.180. It may be appropriate to imply into aconstruction contract a term that the structure to beerected will, when complete, be reasonably fit forits intended purpose, but that will only be so if andinsofar as the structure is to be designed by thecontractor. The existence of the term in that type ofcase was explained by Lord Denning MR inHGreaves & Co. (Contractors) Ltd. v. BaynhamMeikle and Partners [1975] 1 WLR 1095 at page1098. However, it is clear from the decision of theCourt of Appeal in Lynch v. Thorne [1956] 1 WLR303 that there is no such implied term in a case inwhich the contractor undertakes to build to aparticular specification already, at the date of therelevant contract, devised by or on behalf of theemployer, and it must follow that there is no suchimplied term if the contractor agrees to build inaccordance with plans or specifications to beproduced in the future by others. However, as MayLJ pointed out in HBellefield Computer Services v.E. Turner & Sons Ltd. [2002] EWCA Civ 1823 atparagraph 76 of his judgment:--"There is a blurred borderline betweenarchitectural design and the construction detailsneeded to put it into effect. Borderlines ofresponsibility cannot be defined in the abstract. Acarpenter's choice of a particular nail or screw is ina sense a design choice, yet very often the choice isleft to the carpenter and the responsibility formaking it merges with the carpenter's workmanshipobligations. In many circumstance[s], the scope ofan architect's responsibility extends to providingdrawings or specifications which give fullconstruction details. But responsibility for somesuch details may rest with other consultants, e.g.structural engineers, or with specialist contractorsor subcontractors, depending on the terms of theirrespective contracts and their interrelationship. Aswith the carpenter choosing an appropriate nail,specialist details may be left to specialistsubcontractors who sometimes make detailed"design" decisions without expecting or needingdrawings or specifications telling them what to do.In appropriate circumstances, this would notamount to delegation by the architect of part of hisown responsibility. Rather that element ofcomposite design responsibility did not rest withhim in the first place."In the result it seems to me that it would beappropriate to imply into the contract which I havefound a term that, insofar as any design decisionwas made by Costain, the element designed wouldbe reasonably fit for its intended purpose. By"element designed" I mean that item to which thedesign decision immediately related, so that,following the example of the carpenter and hischoice of nail taken by May LJ, the nail would bereasonably fit for the purpose for which it had beenselected to use it, rather than the woodwork intowhich the nail was inserted would be reasonably fitfor whatever was its intended purpose.181. Thus the answer to Issue 2(iv) is that therewere implied terms of the contract which I havefound that Costain would perform any constructionwork which it undertook under the contract in agood and workmanlike manner and, insofar as anydesign decision in relation to the Store was madeby Costain, the element designed would bereasonably fit for its intended purpose.182. The short answer to Issue 2(i) in the light ofmy findings as to the contract between Tesco andCostain is negative. However, I have to say that,even if I had been persuaded that Tesco had madeout its case that Costain had agreed to undertakethe design and construction of the Store on theterms of the Issue 7 Main Contract, I should stillhave reached the same conclusion on this issue.Mr. Stewart frankly accepted that Tesco's case thatit was a term of the contract for which it contendedthat the limitation period in respect of any breachesshould be twelve years was difficult. Absent atleast a term like clause 9.1 of the PHJ Agreement,the effect of which I consider later in thisjudgment, it seems to me that Tesco's case on thisissue is unarguable.183. Having indicated my conclusions on Issues 1and 2 I turn to consider Issues 3, 4, 5 and 6. Thoseissues do not arise unless I reached conclusionssuch as those which I have reached on Issues 1 andCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 482003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)2. The common theme in each of Issues 3. 4. 5 and6 is estoppel. So far as Issues 3. 4 and 6 areconcerned, essentially what was contended was thatCostain was not entitled to rely upon the fact thatthe contract which Tesco sought to rely upon hadnot actually been concluded. In relation to Issue 5what was contended was, in reality, that Costainwas not entitled to rely upon the fact that it had notactually sealed a form of Issue 7 Main Contract inrespect of the design and construction of the Store.184. Once more Mr. Stewart on behalf of Tescoand Mr. Coulson on behalf of PHJ made commoncause against Costain in respect of Issues 3, 4, 5and 6. The type of estoppel for which they eachcontended was an estoppel by convention.185. The exposition of the law set out by Mr.Stewart and Mr. Chapman in their written openingseemed rather to lack conviction. All they said, atparagraph 36, was:--"It has been suggested that where workcommences without a formal contract and isallowed to continue by the owner/employer whenall material terms have been agreed by the parties,then almost always the principles of waiver andestoppel are brought into play so as to prevent asubsequent denial by the owner that a contract wasconcluded. These principles should apply equallyin the other direction where, in similarcircumstances, the contractor subsequently deniesthat a contract was concluded: Mitsui BabcockEnergy Ltd. v. John Brown Engineering Ltd.(above)."186. Mr. Coulson and Mr. Holwill putconsiderably more enthusiasm into theirsubmissions as to the relevant law. They remindedme that estoppel by convention assumed its currentprominence in English law as a result of thedecisions of Robert Goff J and the HCourt of Appealin Amalgamated Investment & Property Co. Ltd. v.Texas Commerce International Bank Ltd. [1982] 1QB 84. In the Court of Appeal in that case bothEveleigh LJ and Brandon LJ approved theexplanation of estoppel by convention set out inSpencer Bower and Turner, Estoppel byRepresentation, 3rd edition (1977), at page 157:--"This form of estoppel is founded, not on arepresentation of fact made by a representor andbelieved by a representee, but on an agreedstatement of facts the truth of which has beenassumed, by the convention of the parties, as thebasis of a transaction into which they are about toenter. When the parties have acted in theirtransaction upon the agreed assumption that a givenstate of facts is to be accepted between them astrue, then as regards that transaction each will beestopped as against the other from questioning thetruth of the statement of facts so assumed."Lord Denning MR at pages 121 and 122 of thereport expressed his conclusions in two slightlydifferent formulations:--"So I come to this conclusion: When the partiesto a contract are both under a common mistake asto the meaning or effect of it -- and thereafterembark on a course of dealing on the footing ofthat mistake -- thereby replacing the original termsof the contract by a conventional basis on whichthey both conduct their affairs, then the originalcontract is replaced by the conventional basis. Theparties are bound by the conventional basis. Eitherparty can sue or be sued upon it just as if it hadbeen expressly agreed between them."and"When the parties to a transaction proceed on thebasis of an underlying assumption -- either of factor of law -- whether due to misrepresentation ormistake makes no difference -- on which they haveconducted the dealings between them -- neither ofthem will be allowed to go back on that assumptionwhen it would be unfair or unjust to allow him todo so."187. Apart from relying also on the decision of H.H. Judge Esyr Lewis Q.C. in Mitsui BabcockEnergy Ltd. v. John Brown Engineering Ltd. Mr.Coulson and Mr. Holwill drew to my attention thejudgment of Bingham LJ in The Vistafjord [1988]2 Lloyd's Rep 343, to the decision of the Court ofAppeal in The Amazonia [1990] 1 Lloyd's Rep 236and to some observations of Lord Goff ofChieveley in HJohnson v. Gore Wood & Co. [2002]2 AC 1. To these decisions and comments I nowturn.188. In Mitsui Babcock Energy Ltd. v. JohnBrown Engineering Ltd. H.H. Judge Esyr LewisQ.C. in fact found that a binding contract had beenmade between the parties to the action. Havingcited a passage from the decision of Peter Gibson Jin Hamel-Smith v. Pycroft & Jetsave Ltd. quotedby Bingham LJ in The Vistafjord, to which I shallcome, and comments of Lord Denning MR inToepfer v. Cremer [1975] 2 Lloyd's Rep 118 and ofDonaldson J in Surrey Shipping Co. Ltd. v. CieContinentale (France) SA [1978] 1 Lloyd's Rep191, all of which were in rather general terms,Judge Lewis indicated that, had it been necessary todo so, he would have held that the claimant beforehim was estopped from denying that it had enteredinto the contract contended for.189. The passages to which Mr. Coulson and Mr.Holwill specifically drew my attention in thejudgment of Bingham LJ in The Vistafjord were infact quotations from the judgment of Peter GibsonJ in the unreported case of Hamel- Smith v. PycroftCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 492003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)& Jetsave Ltd. of which Bingham LJ indicated hisapproval. They were, first, a comment quoted atpage 351:--"Estoppel by convention is not dependent on acontract, but on a common assumption."and, second, a summary at page 352 that estoppelby convention applies:--"where (1) the parties have established by theirconstruction of their agreement or theirapprehension of its legal effect a conventionalbasis, (2) on that basis they have regulated theirsubsequent dealings, to which I would add (3) itwould be unjust or unconscionable if one of theparties resiled from that convention."However, a little later on page 352 Bingham LJcalled attention to the observation of Purchas LJ inTroop v. Gibson (1986) 277 Estates Gazette 1134at page 1144 that:--"The crucial requirement for convention estoppelis that at the material time both parties should be ofa like mind."190. Mr. Coulson and Mr. Holwill relied upon thedecisions in The Vistafjord and The Amazonia ascases in which:--"Estoppel by convention [was] relied upon toestablish particular contractual terms, therebygiving rise to a contractual cause of action whichwould not otherwise exist."However, the only case to which they drew myattention in which it had been suggested thatestoppel by convention could be relied upon ineffect to bring into existence a contract whichotherwise had not been made was Mitsui BabcockEnergy Ltd. v. John Brown Engineering Ltd.191. Leaving aside for a moment the questionwhether it is possible to found a cause of actionupon an estoppel by convention, as to which Mr.Taverner and Mr. Hargreaves drew to my attentionthe recent decision of the HCourt of Appeal in BairdTextile Holdings Ltd. v. Marks & Spencer Plc[2001] EWCA Civ 274, there is, as it seems to me,an obvious conceptual problem to be faced inrelation to a submission that a party is estopped byconvention from denying the existence of acontract which a fortiori has not actually beenmade. That is that it is plain from the authorities towhich I have been referred that the essence of anestoppel by convention, if it is to exist, is anagreement between the relevant parties as to thestate of affairs upon the assumption as to whichthey will conduct their dealings. At the same time itis fundamental to the making of a contract inEnglish law that the parties to it should havereached agreement, quite apart from the necessityfor other elements, such as consideration, in abinding contract. If the parties are actually agreedthat there exists a binding contract between them,then the correct conclusion as a matter of lawwould seem to be that they have made the contractwhich they are agreed that they have made. If, forwhatever reason, the correct conclusion in aparticular case is that parties have not made abinding contract -- and unless that is the conclusionthe issue of whether there was an estoppel byconvention in relation to a contract cannot arise --then it is logically impossible to see how therecould nonetheless be agreement between themsufficient to give rise to an estoppel by conventionthat they have made the contract which actuallythey have not made.192. The point which I have made in thepreceding paragraph does not seem ever to havebeen considered in any of the decisions to whichmy attention was drawn. That is probably becauseit seems only in relation to construction cases that ithas ever occurred to anyone to seek to establish anestoppel by convention that a contract which hadnot in fact been made had been agreed to have beenmade. Of the two reported cases in which thisadventurous course had been taken, in MitsuiBabcock Energy Ltd. v. John Brown EngineeringLtd., in which it found a degree of favour, it wasnot a matter necessary for the decision of the case,while in HRussell Brothers (Paddington) Ltd. v. JohnLelliott Management Ltd. (1995) 11 Const. LJ 377,to which Mr. Coulson and Mr. Holwill veryproperly drew my attention, H.H. Judge JamesFox-Andrews Q.C. found that the attempt failedbecause it was not possible to found a cause ofaction upon an estoppel by convention. AlthoughMr. Coulson and Mr. Holwill called my attention tothe comments of Lord Goff of Chieveley inJohnson v. Gore Wood & Co. at page 40 of thereport that, "I accept that in certain circumstancesan estoppel may have the effect of enabling a partyto enforce a cause of action which, without theestoppel, would not exist.", more relevant in thepresent context is what he said a little earlier. Atthe foot of page 39 of the report he cited a passagefrom what he described as "the scholarly and muchadmired third edition (1977) by Sir AlexanderTurner" of Spencer Bower & Turner, The LawRelating to Estoppel by Representation at pages167-168:--"Just as the representation which supports anestoppel in pais must be a representation of fact,the assumed state of affairs which is the necessaryfoundation of an estoppel by convention must be anassumed state of facts presently in existence ... Nocase has gone so far as to support an estoppel byconvention precluding a party from resiling from apromise or assurance, not effective as a matter ofcontract, as to future conduct or as to a state ofaffairs not yet in existence. And there is no reasonto suppose that the doctrine will ever develop soCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 502003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)far. To allow such an estoppel would amount to theabandonment of the doctrine of consideration, andto accord contractual effect to assurances as to thefuture for which no consideration has been given."Lord Goff's comment upon that passage, at page40, was:--"I myself suspect that this statement may be toocategorical; but we cannot ignore the fact that itembodies a fundamental principle of our law ofcontract. The doctrine of consideration may not bevery popular nowadays; but although its progeny,the doctrine of privity, has recently been abolishedby statute, the doctrine of consideration still existsas part of our law."Although not bearing directly upon the pointwhich I made in the preceding paragraph, it doesseem to me that in the passage just quoted LordGoff was at least counselling caution beforecontemplating the possibility that an estoppel byconvention could be a substitute for a contract.193. During the course of the openings on behalfof the various parties I expressed some interest inreceiving submissions on the point which I havejust been considering. That seemed to prompt Mr.Stewart and Mr. Chapman, at least, in their closingsubmissions to concentrate more attention upon theproposition that, once a contract had beenestablished, there could be an estoppel byconvention as to its terms, than upon theproposition that there could be an estoppel byconvention which prevented a party from denyingthat a contract which had not actually been madehad been made. However, that does not actuallydeal with the problem, in my judgment, it merelyalters slightly the precise nature of it. If onesupposes that a contract has been made on set ofterms A, the sort of estoppel upon which Mr.Stewart and Mr. Chapman concentrated theirattention in their closing submissions involves theproposition that the parties to the contract on set ofterms A are prevented from denying that it alsoincorporated set of terms B because they haveagreed that their contract should be treated asincorporating set of terms B. However, if theyreally had agreed to incorporate set of terms B intotheir contract, the natural analysis would be thatthey had varied their original contract bysubsequent agreement. If that were not actually thecase, then again it is difficult to see that they hadmade a sufficient agreement to be estopped fromdenying that set of terms B had been introducedinto their contract.194. In their written opening Mr. Taverner andMr. Hargreaves analysed the statements of case ofthe parties in relation to allegations of estoppel byconvention carefully and submitted that, whileTesco's pleaded case depended on there being acontract between Tesco and Costain in respect ofwhich it was said that Costain was precluded fromdenying that the terms of the Issue 7 Main Contractwere incorporated in it, PHJ's case in paragraph 5of its Defence to Costain's Part 20 proceedingsamounted to an assertion that the contract which itcontended for had been in effect made by estoppel.That relatively clear-cut distinction between thetwo cases became blurred during the course of oralsubmissions. However that may be, the answer,submitted Mr. Taverner and Mr. Hargreaves, wasto be found in the decision in Baird TextileHoldings Ltd. v. Marks & Spencer Plc. In that case,as in this, what was contended, so far as presentlyrelevant, was that the defendant was estopped fromdenying that it had entered into a contract with theclaimant. The leading judgment in the Court ofAppeal in that case was that of the Vice-Chancellor. At paragraph 34 of his judgment he setout the submissions of Counsel for Marks &Spencer Plc as follows:--"He contends, amongst many and variedarguments, that a conclusion to that effect does notinvolve the reconciliation of numerous cases butthe recognition that this court is, as the judge was,bound by three decisions of the Court of Appeal toconclude that the estoppel claim has no realprospect of success either. The three decisions andthe propositions they respectively established are(1) a common law or promissory estoppel cannotcreate a cause of action, HCombe v. Combe [1951] 2KB 215; (2) an estoppel by convention cannotcreate a cause of action either, HAmalgamatedInvestment & Property Co. Ltd. v. TezasCommerce International Bank Ltd. [1982] QB 84and (3) accepting that a proprietary or equitableestoppel may create a cause of action it is limited tocases involving property rights, whether or notconfined to land, Western Fish Products Ltd. v.Penwith District Council [1981] 2 AER 204, 217."The Vice-Chancellor indicated his conclusions inparagraph 38:--"In my view English law, as presentlyunderstood, does not enable the creation orrecognition by estoppel of an enforceable right ofthe type and in the circumstances relied on in thiscase. First it would be necessary for such anobligation to be sufficiently certain to enable thecourt to give effect to it. That such certainty isrequired in the field of estoppels such as is claimedin this case as well as in contract was indicated bythe House of Lords in Woodhouse AC Israel CocoaLtd. v. Nigeria Produce Marketing Co. Ltd. [1972]AC 741 and by HRalph Gibson LJ in Troop v.Gibson [1986] 1 EGLR 1, 6. For the reasons I havealready given I do not think that the allegedobligation is sufficiently certain. Second, in myview, the decisions in the three Court of Appealdecisions on which M&S rely do establish thatCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 512003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)such an enforceable obligation cannot beestablished by estoppel in the circumstances reliedon in this case. This conclusion does not involvethe categorisation of estoppels but is a simpleapplication of the principles established by thosecases to the obligation relied on in this. I do notconsider that any of the dicta in the line of casesrelied on by Baird could entitle this court to declineto apply those principles."195. The other members of the Court of Appeal inBaird Textile Holdings Ltd. v. Marks & SpencerPlc, Judge LJ and Mance LJ, agreed with theconclusions of the Vice-Chancellor. In the courseof his judgment Mance LJ made some comments asto the relationship between contract and estoppelby convention which seem to me to be consistentwith my view as to the conceptual difficulties inseeking to establish a convention that parties haveagreed that they have made a contract which afortiori they have not made. He said:--"92. It is also, on authority, an establishedfeature of both promissory and conventionalestoppel that the parties should have had theobjective intention to make, affect or confirm alegal relationship. In Combe v. Combe, all threejudges, echoing what Denning J had said in HighTrees, referred to the need for a promise orassurance "intended to affect the legal relationsbetween them" or "intended to be binding" (perDenning LJ at p.220, Birkett LJ at p.224 andAsquith LJ at p.225.); see also per Oliver LJ inSpence v. Shell UK Ltd. [1980] 2 EGLR 68, 73E.In Amalgamated Investment at p.107B, RobertGoff J touched on the same point, whendistinguishing cases where parties had representeda transaction to have an effect it does not have (e.g.De Tchihatchef) as follows:"Such cases are very different from, forexample, a mere promise by a party to make a giftor to increase his obligations under an existingcontract; such promise will not generally give riseto an estoppel, even if acted on by the promisee, forthe promisee may reasonably be expected toappreciate that, to render it binding, it must beincorporated in a binding contract or contractualvariation, and that he cannot therefore safely relyupon it as a legally binding promise without firsttaking the necessary contractual steps."93. A similar theme is involved in the distinctiontouched on by Robert Walker LJ in Gillett v. Holtat p.831G between "a mere statement of present(revocable) intention, and ... a promise."94. As I have already said, the fact that there wasnever any agreement to reach or even to set out theessential principles which might govern any legallybinding long-term relationship indicates thatneither party can here objectively be taken to haveintended to make any legally binding commitmentof a long-term nature, and the law should not beready to seek to fetter business relationships withits own view of what might represent appropriatebusiness conduct, when parties have not chosen, orhave not been willing or able, to do so in anyidentifiable legal terms themselves. Theseconsiderations, in my judgment, also make it wrongto afford relief based on estoppel, including relieflimited to reliance loss, in the present context."196. In his closing submissions Mr. Coulson,supported to a degree by Mr. Stewart, sought topersuade me that in Baird Textile Holdings Ltd. v.Marks & Spencer Plc the Court of Appeal hadmisunderstood what had been decided inAmalgamated Investment & Property Co. Ltd. v.Texas Commerce International Bank Ltd. or thatthere was some material distinction between thefacts of the Baird case and the facts of the presentcase. However, he did not clearly articulate whatthe distinction for which he contended was. Thedecision in Baird Textile Holdings Ltd. v. Marks &Spencer Plc is, in my judgment, plain in holdingthat a cause of action cannot be founded upon anestoppel by convention. That decision is bindingupon me. In seeking to rely upon an estoppel byconvention that a contract which has not been madewas made, or that a contract which contained set ofterms A in fact incorporated set of terms B so as tobe able, in the one case to sue on the contract andin the other to sue on set of terms B, it is obviousthat Tesco is seeking to found a cause of actionupon the estoppel.197. It is, perhaps, implicit in my identification ofthe logical difficulties to which either version ofthe case on estoppel by convention gives rise, but Ishould make explicit, that I find that neither versionof the supposed convention is made out on theevidence led before me. Each version of the case isin fact, as it seems to me, a construct by means ofwhich it is sought to impose a fanciful legalconclusion on substantially undisputed facts. Thematerial facts, in summary, are that, as I find, inanticipation of the making of a contract in termswhich were substantially agreed as from the date ofthe letter dated 20 March 1989 written by Mr.Fletcher to Costain, subject to finalisation of theEmployer's Requirements, drafting and agreementof the Contractor's Proposals, and agreement of theprice, Costain, PHJ and Tesco each conductedthemselves in the manner which would have beenappropriate had the contract eventually beenconcluded and had retrospective effect. The factthat each party so conducted itself in anticipation ofthe happening of that which did not in fact happendoes not, in my judgment, lead to the conclusionthat any of them is estopped from relying on thefacts as they actually were and the legalCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 522003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)conclusions which follow from those facts. It oftenhappens in life that people make arrangements inanticipation of events. To hold that by so doingthey are to be taken in law to be in the sameposition as if those events had occurred would be toelevate wishful thinking into a principle of thecommon law of England and Wales.198. In the result it must follow, in my judgment,that the answer to Issue 3 is negative. It is not inlaw possible, as it seems to me, to establish anestoppel by convention that a contract which hasnot actually been made has been agreed to havebeen made. That is so for all of the reasons towhich I have referred. Even if the conceptualdifficulty which seems to me to exist could beovercome, the only purpose of seeking to establisha convention that a contract which has not in factbeen made was made can be so as to be able toadvance claims which depend upon such contractbeing treated as having been made, in other wordsto found a cause of action. The formulation of Issue3 is in fact ambiguous as to whether the issue iswhether Costain is estopped from denying that ithad made a contract with Tesco at all, or whetherthe issue is whether, on the footing that there wasin fact a contract, Costain is estopped from denyingthat that contract was on the terms of the Issue 7Main Contract. It may be that in somecircumstances it is possible to establish aconvention, where parties have in fact entered intoa contract, that some term actually agreed cannotbe relied upon, although it might be morestraightforward to analyse such a situation in termsof waiver or variation. However, what seems quiteimpossible is to establish a convention either that acontract which has not been made has been madeor that terms not actually agreed should be treatedas terms of a contract which has been made ondifferent terms. In fact in the present case it seemsthat, because of the impact of the relevantprovisions of Limitation Act 1980, Tesco is notseeking to rely directly upon the contract which itcontends was made between it and Costain in 1989,but rather to rely upon duties of care in tort whichare said to mirror the duties said to have beenassumed by Costain under the contract contendedfor. That circumstance does not seem to me tomake the case any less one in which Tesco isseeking to establish a cause of action by estoppel.199. The formulation of Issue 4 is somewhatbaffling. It seems to proceed on the basis that"design and build contractor" is not a shorthand,and rather imprecise, way of describing a particulartype of contractual relationship, but a status towhich legal incidents are attached. As a party canonly assume obligations to design or build anythingunder a contract, and as the contract will prescribethe incidents of the relationship, there canobviously be no such thing as a "design and buildcontractor" in the abstract. As between Costain andTesco, therefore, Issue 4 is essentially areformulation in less precise terms of Issue 3. Asbetween Costain and PHJ it is impossible to seehow the issue, if otherwise sensible, could arise. Itseems to be something of a stalking horse for Issue6 or some other case that, by virtue of the status ofCostain as "Tesco's design and build contractor",the contractual or tortious duties owed by PHJ toTesco were somehow modified or discharged. Theclear answer to Issue 4, whatever precisely it issupposed to comprehend, is negative, in myjudgment.200. Issue 5 received but little attention from Mr.Stewart and Mr. Chapman in their written opening.All they said about it was this:--"57. [The answer to the issue is] Yes. Costaindemonstrated that it was prepared to execute thecontract documents under seal and the parties at alltimes conducted themselves on the basis that acontract had been concluded on Tesco's standardterms, that the contract would be executed underseal and that, accordingly, the applicable limitationperiod would be 12 years."With the greatest respect to Mr. Stewart and Mr.Chapman, that has the look of a formulation whichappears calculated to mask the manifest absurditiesto which Issue 5 gives rise. The notion underlyingIssue 5 has to be that a party should be taken tohave performed a formal act, sealing a document,which it has not actually performed and was underno obligation to perform, simply because, hadappropriate terms of a contract been agreed and thenecessary prerequisites to the concluding of acontract been met, the probability is that it wouldhave executed the contract under seal. Theargument seems to me to be quite hopeless. Theanswer to Issue 5 is negative.201. The questions of law to which Issue 6 givesrise are in fact the same as those to which Issue 3gives rise, for the expression "novation" simplydescribes a type of contract under which a newparty becomes substituted for one of the existingparties in a contract which has already been made.The questions of fact which arise are similar tothose which are relevant to the determination ofIssue 3, namely whether it is appropriate toconclude from how the parties actually behavedtowards one another during the period in which theStore was being constructed that there was aconvention between them that the PHJ Agreementhad been novated as between PHJ, Tesco andCostain. The answer to Issue 6 is thus the same asthe answer to Issue 3 for the same reasons.Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 532003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)The Costain 1989-1990 Tortious Duties Issues202. In the light of the submissions of Counsel, itis plain that the real question to which these issuesgive rise, notwithstanding the terms of Issue 7, isnot whether Costain owed any duty of care toTesco at all in relation to the work which it did inconnection with the construction of the Store in1989 and 1990, but what were the nature and scopeof that duty of care. Before coming to consider indetail the relevant authorities and applicableprinciples it is, perhaps, helpful to remind oneselfof the essential features of this case from Costain'spoint of view. The basis of the claim in tort againstit is that it owed a duty of care to Tesco to exercisereasonable skill and care in the design andconstruction of the Store, in particular to includeappropriate fire stopping and inhibiting measures inthe structure. Costain's main answer to thatallegation is that it did not itself make the relevantdesign decisions in relation to fire stopping andinhibiting measures, PHJ did. Tesco's counter tothat answer is, in essence, that Costain assumedresponsibility by contract for the adequacy of thedesign of the Store, and it therefore owed a duty ofcare in respect of the design which mirrored itscontractual obligations. However that may be, andit is a point to which I shall return, the allegeddeficiencies in design did not themselves cause anydamage to anything. Rather they meant thatdamage in fact caused quite independently ofCostain or any work it did, namely by the firewhich broke out on 4 August 2001, was moreextensive than it would have been, so it iscontended, if appropriate fire stopping andinhibiting measures had been in place in the Store.In consequence not only was the Store itselfdamaged severely, but the contents of the Store, inthe form of stock and plant and machinery, weredamaged, as was an extension to the Storeconstructed in 1997. Moreover, Tesco lost profits,so it is said, as a result of the Store being unable totrade, or to trade to its normal capacity, for a periodwhilst it was being rebuilt. These features of thecase give rise to a number of important questions ofprinciple.203. The approach which I was urged on behalf ofTesco to adopt to questions of the nature and scopeof duties of care, where those matters were raisedby the preliminary issues, was set out in the writtenopening of Mr. Stewart and Mr. Chapman asfollows:--"37. In considering the existence and scope ofthe duties in tort that may be owed, it may berelevant to distinguish between a duty of carelimited to physical damage to property other thanto the store itself ("the Donoghue v. Stevensonduty") and a duty of care founded on an assumptionof responsibility which allows the recovery of"pure" economic loss including damage to "thething itself" ("the Henderson duty").38. The following ought not to be controversial:a. Save for a dispute as to the extent oftheir design responsibilities, PHJ owed Tesco aHenderson duty concurrent with and arising fromthe architect's appointment.b. Save for a dispute as to the scope of itsinspection duties, Costain owed Tesco a Hendersonduty arising out of the 1993/4 inspections.c. Save for a dispute as to the scope of itsdesign duties, Costain owed Tesco (at the veryleast) a Donoghue v. Stevenson duty arising out ofits (design and) construction of the store.39. What is more controversial, and perhaps atthe heart of the present dispute, are the followingissues:a. Whether Costain owed Tesco aHenderson duty in respect of the (design and)construction of the store; andb. Whether PHJ, if they are to be treatedas being novated to Costain, owed Tesco any dutyof care at all in respect of design and/or inspectionservices provided pursuant to the novation (thoughthis does not fall to be determined now).(2) The Henderson duty40. The following principles arise from theauthorities:a. Where an employer contracts with adesigner for the design of a building, the designerwill owe to the employer a duty of care in tort toexercise reasonable skill and care in and about thedesign.b. The duty of care will be concurrent withthe designer's contractual duties.c. The duty of care will usually extend toholding the employer harmless against economic aswell as physical loss and damage, particularlywhen the designer is under a contractual duty(whether express or implied) to exercise reasonableskill and care in and about the design.d. The duty of care in these circumstancesstems from the proximity between the parties andthe assumption of responsibility on the part of thedesigner for the design. It is based squarely on theline of authorities from Hedley Byrne v. Heller &Partners [1964] AC 465 through Henderson v.Merrett [1995] 2 AC 145.41. Whether the designer is an architect or adesign and build contractor ought not, as a matterof principle, to make any difference: HBellefieldComputer Services Ltd. v. E. Turner & Sons Ltd.[2000] BLR 97 at 102 per Schiemann LJ; HStorey v.Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 542003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)Charles Church Developments Ltd. (1996) 12Const LJ 206; Keating on Building Contracts 7thEd. at paras. 7-01 and 7-31B and Hudson'sBuilding and Engineering Contracts 11th Ed. atpara. 1.278. What is determinative is whether ornot the designer can be said to have assumedresponsibility toward the employer for the design insuch a way that the scope of the duty owedencompasses economic loss. This will be relativelyeasy to establish where:a. A contract also exists between employerand designer; andb. That contract imposes a similar,contractual duty to exercise reasonable skill andcare in relation to the design.42. In the present case, if the Court were to findthat there was no contract because of some failureto document the agreement between the parties,there would be no reason for the law not to imposea duty of care which, viewed objectively, Costainmust have assumed. It is right to acknowledge,however, that the contractual position as betweenthe parties may also negative the imposition of aduty of care in tort. Thus, where there is a chain ofcontracts between employer, contractor and subcontractor,a court may well be unlikely to find aduty of care in tort -- or at least one extending toeconomic loss -- owed by sub- contractor toemployer directly.(2) [sic] A Donoghue v. Stevenson duty of care43. On any view, Costain owed Tesco aDonoghue v. Stevenson duty of care inconstructing the store. This will enable Tesco torecover damages in respect of loss to property otherthan the store itself and thus the following heads ofloss:a. Stockb. Plant & Machineryc. The 1997 bulk store extensiond. Loss of profits consequent on a. and b.and c. above.(3) Scope of obligations44. Whilst it is conceptually possible for thecontent and scope of the obligations owed by aparty in tort to be more or less extensive than thoseowed by it concurrently pursuant to a contract,often the duties will not just be concurrent but alsoco-extensive. As appears below, Tesco contendsthat this is the position as regards both Costain andPHJ in this case. The particular consequence forCostain in this case is that it owed to Tesco a dutyto take reasonable care so as to ensure that thedesign and construction of the store was [sic]reasonably fit for its intended purpose."For reasons which I shall explain, it seems to methat that exposition of the law of negligence as saidto be relevant to the preliminary issues which Ihave to decide is superficial and skates over anumber of difficult and important points ofprinciple.204. The submissions of Mr. Stewart and Mr.Chapman in their written opening specifically inrelation to Issues 7 and 8 were brief. At paragraph59 the submissions in relation to Issue 7 weresimply, "Yes. See further Issue 8 below." The onlyslightly more extensive submissions in respect ofIssue 8 were:--"60. It appears that, even on its own case,Costain accepts that it took responsibility for theconstruction of the store (although it may be thatCostain seeks to assert that it had no contractualresponsibility for the same). Tesco's case is, as setout above, that Costain took responsibility for boththe design and the construction of the store.Whether or not the Court were to find that acontract was concluded, Tesco submits that Costainmust have owed it a Henderson duty of care inrespect of the construction of the store on the basisof the authorities set out in paragraphs 40 to 42above. Tesco also submits that such a duty (even ifa contract were not to be found) extended todesign. Costain assumed responsibility for thedesign of the store: see, for example, the pointsmade on the New Oscott-type gable inspection andthe requirement that all contact between subcontractorsand consultants was directed throughCostain.61. Even were the Court to find that there was noHenderson duty, Costain nevertheless owed aDonoghue v. Stevenson duty (as explained inparagraph 43 above)."205. In their written closing submissions Mr.Stewart and Mr. Chapman rather concentrated onthe questions in relation to the alleged duty of careof Costain to Tesco in respect of the design andconstruction of the Store in 1989-1990 at theexpense of the questions as to whether a contracthad been made between Costain and Tesco, and, ifso, on what terms. Mr. Stewart accepted in his oralclosing submissions that the existence of a duty ofcare of the nature and having the scope for whichTesco contended, namely a duty of care to provideas the Store a building fit for its intended use,depended upon Tesco establishing that Costain hadaccepted a contractual obligation to like effect. As Ihave held that Costain had not accepted such anobligation, that is a short answer to Mr. Stewart'ssubmission. However, he did rely in support of itupon a decision of H.H. Judge Sir William StabbQ.C., HCynat Products Ltd. v. LandbuildCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 552003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)(Investment and Property) Ltd. [1984] 3 All ER513, to which it is approriate to refer.206. So far as is presently material, the issue inCynat Products Ltd. v. Landbuild (Investment andProperty) Ltd. was whether a building contractorwhich had entered into a contract with a customerunder which it agreed that:--"1.(1) The Contractor shall execute andcomplete the Works, so far as it is legally andphysically possible to do so, in a good andworkmanlike manner and using materials of goodquality so far as they may be reasonablyprocurable.(2) The Contractor undertakes that theWork will be designed or have been designed withsuch reasonable professional skill and care andjudgment as an architect or consulting engineer(experienced in civil structural mechanicalelectrical heating or ventilating work as the casemay be) would have exercised had [he] or theybeen appointed by the Employer to perform thoseservices so that they will be suitable for thosepurposes of the Employer which have beenexpressly made known to the Contractor in writingbefore the date of this Contract ..."but did not itself undertake any work ofconstruction or design, owed a duty of care in tortto the customer in respect of the work ofconstruction and design carried out by others.Judge Stabb considered the issue at pages 521G-523D of the report. I need not, I think, set out theextensive citations from the judgment of Megaw LJin HBatty v. Metropolitan Property Realisations Ltd.[1978] QB 554 and from the speech of LordWilberforce in HAnns v. Merton London Borough[1978] AC 728 which Judge Stabb set out in thepassage to which I have referred. Omitting thosecitations what he said was:--"So far as the first defendants, Landbuild [thebuilding contractor], are concerned, no one doubtsthat they are in breach of their contractualobligation to execute and complete the works in agood and workmanlike manner and to see that thebuilding was designed with reasonable professionalskill and care. But it was contended by counsel forCornhill [insurers of Landbuild, which did notitself take part in the trial] that it could not be saidthat they were also in breach of duty, because toequate breach of duty with breach of contract,where the contract has in practice as here beenperformed by an independent contractor, wouldresult, in effect, in making Landbuild liable for thetortious acts of an independent contractor. I am notprepared to accede to his submission that to showbreach of duty it is necessary to look for and findfacts which give rise to a breach of duty which arefacts other than those which give rise to the breachof contract. He cited HEsso Petroleum Co. Ltd. v.Mardon ... [1976] QB 801 and HBatty v.Metropolitan Property Realisations Ltd. ... [1978]QB 554 in support of that contention. In the formercase, a servant of the plaintiff company hadnegligently misrepresented the potential throughputand such representation was also held to constitutea contractual warranty, and, in the latter, thedevelopers were held to be in breach of acontractual warranty to provide a house fit forhabitation and in breach of duty for failure toinspect the land properly, so as to observe that anyhouse built thereon would not be fit for humanhabitation. In the course of his judgment in Batty'scase .... Megaw LJ said ...It will be observed that Megaw LJ stated that theplaintiffs were entitled to judgment on the basis oftortious liability as well as on the basis of breach ofcontract, assuming that the plaintiffs hadestablished a breach by the defendants of acommon law duty of care. I am not concerned withthe relationship between Landbuild and Kirton [asubsidiary of Landbuild which had actually erectedthe building]. It may well be, and for this purpose Iaccept, that Kirton were independent contractors sofar as the work was concerned. Here Landbuild, themain contractors, did absolutely nothing, except tohand over the work to Kirton to be done by them.The question therefore is whether or not they owedto Cynat a primary duty of care which they couldnot delegate to anyone else. The modern view is tobe found in the passage of the speech of LordWilberforce in HAnns v. Merton London Borough ...[1978] AC 728 at 751 where he said ...It seems to me that in entering into that contractin those terms with Cynat, Landbuild couldproperly be said to have established a sufficientrelationship of proximity with Cynat such that, inthe reasonable contemplation of Landbuild,carelessness or neglect on their part might be likelyto cause damage to Cynat. Nor do I consider thatthere is any reason to take employer and contractorout of the class in which that duty of care can besaid to arise. I take the view that Landbuild, inentering into this contract to erect a factory whichwas to be properly designed and built, were under acommon law duty of care to take reasonable stepsto see that this result was achieved. They took nosuch steps and, in the result, Cynat suffereddamage in consequence of the collapse of the roof.The duty of Landbuild, as I have said, was aprimary duty which they could not delegate toKirton or anyone else. Accordingly, in my view,Cynat are entitled to judgment against Landbuildand Render [the designer of the building] on thebasis of breach of contract and tortious liability."207. Mr. Stewart candidly accepted that thedecision of Judge Stabb in Cynat Products Ltd. v.Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 562003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)Landbuild (Investment and Property) Ltd. was theonly case which he had been able to find in whichit had been held that a contractor owed a duty ofcare in tort to its customer in relation to theperformance by independent contractors ofobligations which, by its contract, the contractorhad assumed to its customer. He very properlydrew to my attention that, so far as his researcheswent, Judge Stabb's decision had only been referredto in two other cases, the decision of the House ofLords in D & F Estates Ltd. v. ChurchCommissioners for England [1989] AC 177 and thedecision of Potter J in HAiken v. Stewart WrightsonMembers Agency Ltd. [1995] 1 WLR 1281, ineach of which it had been distinguished. Forpresent purposes it is enough to quote from thejudgment of Potter J in the latter case, for in thecourse of the relevant passage he cited the materialcomments of Lord Bridge of Harwich in theformer. At pages 1303-1305 of the report of hisdecision in Aiken v. Stewart Wrightson MembersAgency Ltd. Potter J said:--"In HCynat Products Ltd. v. Landbuild(Investment and Property) Ltd. [1984] 3 All ER513, the defendants contracted with the plaintiffs asmain contractors to erect a building in respect ofwhich they subcontracted both the work ofconstruction and of design and supervision. Aftercompletion, because of a design fault in the roof, itfell in, and two walls collapsed in a gale. Theplaintiffs sued for the cost of the physical damageand for economic loss stemming from thedisruption of their business. In the course of thetrial the question arose whether the first defendantscould be liable in common law negligence as wellas for breach of contract when the contract had infact been performed by independent contractors.Judge Sir William Stabb Q.C. found thedefendants liable on the basis that they hadbreached their contractual obligations to theplaintiffs to execute and complete the work in agood and workmanlike manner and to supply abuilding designed with reasonable professionalskill and care. He also found the defendants to be inbreach of their common law duty, which he heldwas a primary duty which could not be delegated toan independent contractor. At the material part ofhis judgment he stated, at p.522:"It may well be, and for this purpose Iaccept, that Kirton were independent contractors sofar as the work was concerned. Here Landbuild [thedefendants], the main contractors, did absolutelynothing, except to hand over the work to Kirton tobe done by them. The question therefore is whetheror not they owed to Cynat a primary duty of carewhich they could not delegate to anyone else."He then quoted from the well-knownpassage of the speech of Lord Wilberforce in HAnnsv. Merton London Borough Council [1978] AC728, 751, and continued [1984] 3 All ER 513, 523:"It seems to me that in entering into thatcontract in those terms with Cynat, Landbuildcould properly be said to have established asufficient relationship of proximity with Cynatsuch that, in the reasonable contemplation ofLandbuild, carelessness or neglect on their partmight be likely to cause damage to Cynat. Nor do Iconsider that there is any reason to take employerand contractor out of the class in which that duty ofcare can be said to arise. I take the view thatLandbuild, in entering into this contract to erect afactory which was properly designed and built,were under a common law duty of care to takereasonable steps to see that this result wasachieved. They took no such steps and, in theresult, Cynat suffered damage in consequence ofthe collapse of the roof. The duty of Landbuild, as Ihave said, was a primary duty which they could notdelegate to Kirton or anyone else. Accordingly, inmy view, Cynat are entitled to judgment againstLandbuild ... on the basis of breach of contract andtortious liability."It does not seem to me that there isanything in that authority to lead me to aconclusion in this case contrary to that which Ihave already stated. The decision is not cited, orconsidered, in Keating on Building Contracts, 5thed. (1991), p.161, nor in Hudson's Building andEngineering Contracts, 11th ed. (1995), vol. 1,p.184, para. 1.310, where each of those worksrefers to the position that a builder will notnormally be liable in negligence to the employer orto a third party with whom he did not contract inrespect of damage caused by the negligence of anindependent contractor. Further, it does not appearto have been regarded as a significant exception towhat Lord Bridge of Harwich described in HD & FEstates Ltd. v. Church Commissioners for England[1989] AC 177, 208 as:"trite law that the employer of anindependent contractor is, in general, not liable forthe negligence or other torts committed by thecontractor in the course of the execution of thework."While Lord Bridge distinguished the caseon the grounds that it was (like HBatty v.Metropolitan Property Realisations Ltd. [1978] QB554) concerned with the issue whether thedefendant's admitted contractual liability to theplaintiff was matched by a parallel liability in tort(whereas the plaintiff in the D & F Estates case wasa third party), he also observed H[1989] AC 177,209 that:"the issue was of importance only asbearing upon the liability of insurers to indemnifydefendants", and he appears to have treated it withreservation also for that reason.In Clerk & Lindsell on Torts, pp.229-230,Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 572003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)para 3-37, the HCynat Products case [1984] 3 All ER513 is referred to in a footnote to the considerationof HRogers v. Night Riders [1983] RTR 324, asconstituting an illustration that the well-knowncategories of non-delegable duty may notnecessarily be exhaustive and that it may, in theparticular circumstances of any case, be arguablethat a defendant has accepted a duty of care that isnon-delegable. Finally, the decision is plainlyregarded as an unusual one in Salmond & Heustonon the Law of Torts, 20th ed. (1992), p.477, whereit is suggested that it is important as a matter ofpolicy not to put a premium on the ignorantemployer who confides all his affairs toindependent contractors (cf. HSumner v. WilliamHenderson & Sons Ltd. [1964] 1 QB 450, 471).It is apparent from the report of HCynat ProductsLtd. v. Landbuild (Investment and Property) Ltd.[1984] 3 All ER 513 that Landbuild were notrepresented at the trial, although by fourth partyproceedings they were claiming an indemnityagainst Cornhill Insurance Co., which mountedarguments on their behalf. It is also plain that it wasa case where Landbuild had given an expressundertaking that work would be designed with suchreasonable professional skill, care and judgment asan architect or consulting engineer would haveexercised had he been appointed by the employeeto perform the services.It seems to me that all those matters make theCynat Products case distinguishable from this case,in which I do not consider that similar policyprovisions dictate any finding of non-delegableduty for the purpose of the law of tort."208. Mr. Taverner and Mr. Hargreaves on behalfof Costain in their written opening dealt with thequestion of a duty of care in a very straightforwardmanner:--"265. Whether Costain's building work wascarried out under a contract to building [sic] workor not, it is acknowledged that it owed a duty ofcare to Tesco in respect of the building workcompleted.266. In broad terms, duties owed by those whocarry out building works, and whose works, it issaid, have caused physical damage, are examinedby reference to HDonoghue v. Stevenson [1932] AC562 [HL] and HMurphy v. Brentwood [1991] 1 AC398 [HL], the former providing the genesis of theduty and the latter providing limitations of the duty.See also HBellefield Computer Services Limited v.E. Turner & Sons Limited [2000] BLR 97 [CA](Bellefield No. 1).267. If there was a contractual duty to build, theduty of care is defined in Donoghue v. Stevensonterms. See in this respect, the comments of I. N.Duncan Walllace 116 LQR 530, October 2000,where, having applauded Schiemann LJ's judgmentin Bellefield No. 1 and the ratio, he queriesSchiemann LJ's dicta to the effect that there wouldhave been a concurrent duty owed by the builder intort to that in contract and which would haveextended to damage to the building itself. DuncanWallace says at p. 532:--"The denial of a concurrent liability in tortwhich exceeds the liability in contract, rightlyestablished by the cases on this subject, does not, itis submitted, logically have the effect of elevating alesser liability in tort up to a level of a highercontractual entitlement."268. The reasoning of HHJ Humphrey Lloyd QCin HSamuel Payne v. John Setchell Limited [2002]BLR 489 supports the view that a builder does notowe a duty of care in respect of the building itself,whether in contract with the Claimant or not.269. By contrast, duties owed by those whocarry out professional, or quasi-professionalservices, and whose services, it is said, have causedeconomic damage, are examined by reference toHenderson v. Merrett Syndicates Limited [1995] 2AC 145 [HL].270. This dichotomy of approach results in aprofessional providing services in respect of abuilding (as opposed to a builder or manufacturer)being liable for economic loss in respect of thebuilding in respect of which he has providedservices."209. I did not find helpful the attempts by Mr.Stewart and Mr. Chapman to distinguish betweenwhat they called "the Donoghue v. Stevenson duty"and what they called "the Henderson duty". Thedecision in HDonoghue v. Stevenson [1932] AC 562can now be seen as, in a sense, the end of thebeginning of the development of the English law ofnegligence. It is principally referred to nowadaysfor the statement of the underlying principle of thelaw of negligence in the speech of Lord Atkin atpage 580:--"At present I content myself with pointing outthat in English law there must be, and is, somegeneral conception of relations giving rise to a dutyof care, of which the particular cases found in thebooks are but instances. The liability fornegligence, whether you style it such or treat it asin other systems as a species of "culpa," is no doubtbased upon a general public sentiment of moralwrongdoing for which the offender must pay. Butacts or omissions which any moral code wouldcensure cannot in a practical world be treated so asto give a right to every person injured by them todemand relief. In this way rules of law arise whichlimit the range of complainants and the extent oftheir remedy. The rule that you are to love yourneighbour becomes in law, you must not injureyour neighbour; and the lawyer's question, Who ismy neighbour? receives a restricted reply. YouCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 582003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)must take reasonable care to avoid acts oromissions which you can reasonably foresee wouldbe likely to injure your neighbour. Who, then, inlaw is my neighbour? The answer seems to be --persons who are so closely and directly affected bymy act that I ought reasonably to have them incontemplation as being so affected when I amdirecting my mind to the acts or omissions whichare called in question."The great contribution of Lord Atkin to thedevelopment of the law of negligence was toidentify and to formulate that underlying principle.By so doing he set the scene for the substantialfurther development of the law which has followedand is continuing. His comment that, "acts andomissions which any moral code would censurecannot in a practical world be treated so as to givea right to every person injured by them to demandrelief", is not much regarded these days.210. The initial focus of the development of thelaw of negligence following the decision inDonoghue v. Stevenson was in the area of physicaldamage caused by the acts of the allegedwrongdoer. However, it was made clear by theHouse of Lords in Hedley Byrne & Co. Ltd. v.Heller & Partners Ltd. [1964] AC 465 that, incertain circumstances, a duty of care might existnot simply not to cause physical damage by one'sactions, but also not to cause economic damage bythe careless use of words. Following thatdevelopment of the law, and in particular duringthe 1970s and 1980s, there was a period of rapid,and to a degree ill-considered, development of thelaw in the area of economic loss and thecircumstances in which such could be recovered asdamages for negligence. For present purposes theconclusion of that phase of development may beconsidered to have been marked by the decision ofthe House of Lords in Murphy v. BrentwoodDistrict Council [1991] 1 AC 398. The actual issuein that case was whether a local authority owed tothe purchaser of a house a duty of care inperformance of its functions as the body chargedwith securing compliance with BuildingRegulations such that if it failed to ensure that theplans of the house complied with the relevantrequirements of Building Regulations it was liableto compensate the purchaser for any differencebetween the value of the house as built and thevalue which it would have had if constructed inaccordance with Building Regulations. In theHouse of Lords the issues arose of whether thebuilder of the house owed a duty of care and, if so,what sort of damages were recoverable in respectof any breach of that duty. Those issues in factarose in the context of a consideration of whether itwould be fair, just and reasonable to impose a dutyof care upon the local authority, as the bodycharged with securing compliance, if the defaultingbuilder would not also owe a duty of care to thepurchaser. The principal speech was that of LordKeith of Kinkel. All of their Lordships concurred inthe analysis which he expounded. In the course of alengthy consideration of the relevant authorities hemade this comment upon the decision of the Houseof Lords in Pirelli General Cable Works Ltd. v.Oscar Faber & Partners [19883] 2 AC 1 at page466D-G:--"In HPirelli General Cable Works Ltd. v. OscarFaber & Partners [1983] 2 AC 1 it was held thatthe cause of action in tort against consultingengineers who had negligently approved adefective design for a chimney arose when damageto the chimney caused by the defective design firstoccurred, not when the damage was discovered orwith reasonable diligence might have beendiscovered. The defendants there had in relation tothe design been in contractual relations with theplaintiffs, but it was common ground that a claimin contract was time- barred. If the plaintiffs hadhappened to discover the defect before any damagehad occurred there would seem to be no goodreason for holding that they would not have had acause of action in tort at that stage, without havingto wait until some damage had occurred. Theywould have suffered economic loss through havinga defective chimney upon which they required tospend money for the purpose of removing thedefect. It would seem that in a case such as Pirelli,where the tortious liability arose out of acontractual relationship with professional people,the duty extended to take reasonable care not tocause economic loss to the client by the advicegiven. The plaintiffs built the chimney as they didin reliance on that advice. The case wouldaccordingly fall within the principle of HedleyByrne & Co. Ltd. v. Heller & Partners Ltd. [1964]AC 465."I shall have to return to the decision in PirelliGeneral Cable Works Ltd. v. Oscar Faber &Partners and to the comments of Lord Keith in thepassage just quoted in the context of issuesconcerning accrual of causes of action. However,my attention was drawn to it by Mr. Stewart in thepresent context in support of a submission that,contrary to what was contended on behalf ofCostain, the House of Lords did not decide inMurphy v. Brentwood District Council that abuilder owed no duty of care to a building ownernot to cause him economic loss by providing himwith a building which was defective. Rather,submitted Mr. Stewart, what the House of Lordsdecided was that the builder owed no such duty inthe absence of a special relationship between thebuilder and the building owner. Such a specialrelationship, Mr. Stewart contended, existedbetween the builder and the customer for whom theCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 592003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)builder constructed the building by virtue of thecontract between them.211. The actual decision in Murphy v. BrentwoodDistrict Council was that the previous decision ofthe House of Lords in Anns v. Merton LondonBorough Council [1978] AC 728 was wrong andthat a local authority charged with securingcompliance with Building Regulations did not owea duty of care in the performance of that function tobuilding owners such that building owners couldrecover damages in respect of economic losssustained as a result of breach of BuildingRegulations which the local authority ought to havedetected and prevented. A convenient, succinctrehearsal of the relevant considerations so far as theliability of the builder is concerned can be found inthe speech of Lord Bridge of Harwich at page475A-H:--"If a manufacturer negligently puts intocirculation a chattel containing a latent defectwhich renders it dangerous to persons or property,the manufacturer, on the well known principlesestablished by HDonoghue v. Stevenson [1932] AC562, will be liable in tort for injury to persons ordamage to property which the chattel causes. But ifa manufacturer produces and sells a chattel whichis merely defective in quality, even to the extentthat it is valueless for the purpose for which it isintended, the manufacturer's liability at commonlaw arises only under and by reference to the termsof any contract to which he is a party in relation tothe chattel; the common law does not impose onhim any liability in tort to persons to whom heowes no duty in contract but who, having acquiredthe chattel, suffer economic loss because the chattelis defective in quality. If a dangerous defect in achattel is discovered before it causes any personalinjury or damage to property, because the danger isnow known and the chattel cannot safely be usedunless the defect is repaired, the defect becomesmerely a defect in quality. The chattel is eithercapable of repair at economic cost or it is worthlessand must be scrapped. In either case the losssustained by the owner or hirer of the chattel ispurely economic. It is recoverable against any partywho owes the loser a relevant contractual duty. Butit is not recoverable in tort in the absence of aspecial relationship of proximity imposing on thetortfeasor a duty of care to safeguard the plaintifffrom economic loss. There is no specialrelationship between the manufacturer of a chatteland a remote owner or hirer.I believe that these principles are equallyapplicable to buildings. If a builder erects astructure containing a latent defect which renders itdangerous to persons or property, he will be liablein tort for injury to persons or property resultingfrom that dangerous defect. But if the defectbecomes apparent before any injury or damage hasbeen caused, the loss sustained by the buildingowner is purely economic. If the defect can berepaired at economic cost, that is the measure of theloss. If the building cannot be repaired, it may haveto be abandoned as unfit for occupation andtherefore valueless. These economic losses arerecoverable if they flow from breach of a relevantcontractual duty, but, here again, in the absence ofa special relationship of proximity they are notrecoverable in tort. The only qualification I wouldmake to this is that, if a building stands so close tothe boundary of the building owner's land that afterdiscovery of the dangerous defect it remains apotential source of injury to persons or property onneighbouring land or on the highway, the buildingowner ought, in principle, to be entitled to recoverin tort from the negligent builder the cost ofobviating the danger, whether by repair or bydemolition, so far as that cost is necessarilyincurred in order to protect himself from potentialliability to third parties."Mr. Stewart contended that that passage also wasconsistent with the principle which in hissubmission was to be extracted from the decision.212. Other issues which have arisen during thecourse of the development of the law of negligencehave included the question of liability foromissions, rather than acts of commission, and thequestion of the interrelationship of liability incontract, on the one hand, and in negligence, on theother. In respect of the latter issue Lord Scarman,delivering the advice of the HPrivy Council in TaiHing Cotton Mill Ltd. v. Liu Chong Hing BankLtd. [1986] AC 80 at page 107 did say, obiter:--"Their Lordships do not believe that there isanything to the advantage of the law's developmentin searching for a liability in tort where the partiesare in a contractual relationship. This is particularlyso in a commercial relationship. Though it ispossible as a matter of legal semantics to conductan analysis of the rights and duties inherent in somecontractual relationships including that of bankerand customer either as a matter of contract lawwhen the question will be what, if any, terms are tobe implied or as a matter of tort law when the taskwill be to identify a duty arising from the proximityand character of the relationship between theparties, their Lordships believe it to be correct inprinciple and necessary for the avoidance ofconfusion in the law to adhere to the contractualanalysis: on principle because it is a relationship inwhich the parties have, subject to a few exceptions,the right to determine their obligations to eachother, and for the avoidance of confusion becausedifferent consequences do follow according towhether liability arises from contract or tort, e.g. inthe limitation of action."Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 602003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)213. The provisional expression of view of thePrivy Council in Tai Hing Cotton Mill Ltd. v. LiuChong Hing Bank Ltd. that a duty of care in tortshould not co-exist with obligations arising under acontract has not, in the event, prevailed. Thequestion whether a party which had entered into acontract under which it was a term that it wouldundertake the provision of a service withreasonable skill and care also owed a duty of careto like effect to the other contracting party fell fordetermination as a matter of decision in Hendersonv. Merrett Syndicates Ltd. [1995] 2 AC 145. Theleading speech was that of Lord Goff of Chieveley.All the other members of the House of Lordsagreed with his speech. He considered that theanswer to the question whether a duty of care couldco-exist with contractual obligations dependedupon the correct identification of the principleunderlying the earlier decision in Hedley Byrne &Co. Ltd. v. Heller & Partners Ltd. Having set outpassages from the speeches of Lord Morris ofBorth-y-Gest and Lord Devlin in that case, LordGoff went on, at pages 180C-181F:--"From these statements, and from theirapplication in Hedley Byrne, we can derive someunderstanding of the breadth of the principleunderlying the case. We can see that it rests upon arelationship between the parties, which may begeneral or specific to the particular transaction, andwhich may or may not be contractual in nature. Allof their Lordships spoke in terms of one partyhaving assumed or undertaken a responsibilitytowards the other. On this point, Lord Devlin spokein particularly clear terms in both passages from hisspeech which I have quoted above. Further, LordMorris also spoke of that party being possessed of a"special skill" which he undertakes to "apply forthe assistance of another who relies upon suchskill". But the facts of Hedley Byrne itself, whichwas concerned with the liability of a banker to therecipient for negligence in the provision of areference gratuitously supplied, show that theconcept of a "special skill" must be understoodbroadly, certainly broadly enough to includespecial knowledge. Again, though Hedley Byrnewas concerned with the provision of informationand advice, the example given by Lord Devlin ofthe relationship between solicitor and client, andhis and Lord Morris's statements of principle, showthat the principle extends beyond the provision ofinformation and advice to include the performanceof other services. It follows, of course, thatalthough, in the case of the provision ofinformation and advice, reliance upon it by theother party will be necessary to establish a cause ofaction (because otherwise the negligence will haveno causative effect), nevertheless there may beother circumstances in which there will be thenecessary reliance to give rise to the application ofthe principle. In particular, as cases concerned withsolicitor and client demonstrate, where the plaintiffentrusts the defendant with the conduct of hisaffairs, in general or in particular, he may be heldto have relied on the defendant to exercise due skilland care in such conduct.In subsequent cases concerned with liabilityunder the Hedley Byrne principle in respect ofnegligent misstatements, the question hasfrequently arisen whether the plaintiff falls withinthe category of persons to whom the maker of thestatement owes a duty of care. In seeking to containthat category of persons within reasonable bounds,there has been some tendency on the part of thecourts to criticise the concept of "assumption ofresponsibility" as being "unlikely to be a helpful orrealistic test in most cases" (see HSmith v. Eric S.Bush [1990] 1 AC 831, 864-865, per LordGriffiths; and see also HCaparo Industries Plc v.Dickman [1990] 2 AC 605, 628, per Lord Roskill).However, at least in cases such as the present, inwhich the same problem does not arise, there seemsto be no reason why recourse should not be had tothe concept, which appears after all to have beenadopted, in one form or another, by all of theirLordships in Hedley HByrne [1964] AC 465 (see,e.g., Lord Reid, at pp. 483, 486 and 487; LordMorris (with whom Lord Hodson agreed), at p.494; Lord Devlin, at pp. 529 and 531; and LordPearce at p.538). Furthermore, especially in acontext concerned with a liability which may ariseunder a contract or in a situation "equivalent tocontract", it must be expected that an objective testwill be applied when asking the question whether,in a particular case, responsibility should be held tohave been assumed by the defendant to theplaintiff: see HCaparo Industries Plc v. Dickman[1990] 2 AC 605, 637, per Lord Oliver ofAylmerton. In addition, the concept provides itsown explanation why there is no problem in casesof this kind about liability for pure economic loss;for if a person assumes responsibility to another inrespect of certain services, there is no reason whyhe should not be liable in damages for [sic] thatother in respect of economic loss which flows fromthe negligent performance of those services. Itfollows that, once the case is identified as fallingwithin the Hedley Byrne principle, there should beno need to embark upon any further enquirywhether it is "fair, just and reasonable" to imposeliability for economic loss -- a point which is, Iconsider, of some importance in the present case.The concept indicates too that in somecircumstances, for example where the undertakingto furnish the relevant service is given on aninformal occasion, there may be no assumption ofresponsibility; and likewise that an assumption ofresponsibility may be negatived by an appropriateCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 612003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)disclaimer. I wish to add in parenthesis that, asOliver J. recognised in HMidland Bank Trust Co.Ltd. v. Hett, Stubbs & Kemp [1979] Ch 384, 416F-G (a case concerned with concurrent liability ofsolicitors in tort and contract, to which I will haveto refer in a moment), an assumption ofresponsibility by, for example, a professional manmay give rise to liability in respect of negligentomissions as much as negligent acts ofcommission, as for example when a solicitorassumes responsibility for business on behalf of hisclient and omits to take a certain step, such as theservice of a document, which falls within theresponsibility so assumed by him."214. At page 194C-E of the report of Hendersonv. Merrett Syndicates Ltd. Lord Goff summarisedthe principle which he considered was applicable inthis way:--"But, for present purposes more important, in theinstant case liability can, and in my opinion should,be founded squarely on the principle established inHedley Byrne itself, from which it follows that anassumption of responsibility coupled with theconcomitant reliance may give rise to a tortiousduty of care irrespective of whether there is acontractual relationship between the parties, and inconsequence, unless his contract precludes himfrom doing so, the plaintiff, who has available tohim concurrent remedies in contract and tort, maychoose that remedy which appears to him to be themost advantageous."215. The passage which I have quoted in thepreceding paragraph followed a little way after thispassage, at pages 193G-194B, which set thecontext for it and which seems to me to provideuseful assistance in understanding it:--"It is however my understanding that by the lawin this country contracts for services do contain animplied promise to exercise reasonable care (andskill) in the performance of the relevant services;indeed, as Mr. Tony Weir has pointed out (XI Int.Encycl. Comp. L., ch. 12, para 67), in the 19thcentury the field of concurrent liabilities wasexpanded "since it was impossible for the judges todeny that contracts contained an implied promise totake reasonable care, at the least, not to injure theother party". My own belief is that, in the presentcontext, the common law is not antipathetic toconcurrent liability, and that there is no sound basisfor a rule which automatically restricts the claimantto either a tortious or a contractual remedy. Theresult may be untidy; but, given that the tortiousduty is imposed by the general law, and thecontractual duty is attributable to the will of theparties, I do not find it objectionable that theclaimant may be entitled to take advantage of theremedy which is most advantageous to him, subjectonly to ascertaining whether the tortious duty is soinconsistent with the applicable contract that, inaccordance with ordinary principle, the partiesmust be taken to have agreed that the tortiousremedy is to be limited or excluded."216. In the course of his speech Lord Goff didcomment, at page 186F, upon the passage from theadvice of the Privy Council in Tai Hing CottonMill Ltd. v. Liu Chong Hing Bank Ltd. which Ihave already quoted:--"It is however right to stress, as did Sir ThomasBingham MR in the present case, that the issue inthe Tai Hing case was whether a tortious duty ofcare could be established which was moreextensive than that which was provided for underthe relevant contract."217. At pages 195G-196C Lord Goff made someobservations as to the relevance to the issue of theexistence of a duty of care in tort of the contractualrelationships between the relevant parties, withspecific reference to the sort of contractualarrangements which are not uncommon in theconstruction industry:--"I wish however to add that I strongly suspectthat the situation which arises in the present case ismost unusual; and that in many cases in which acontractual chain comparable to that in the presentcase is constructed it may well prove to beinconsistent with an assumption of responsibilitywhich has the effect of, so to speak, short circuitingthe contractual structure so put in place by theparties. It cannot therefore be inferred from thepresent case that other sub-agents will be helddirectly liable to the agent's principal in tort. Letme take the analogy of the common case of anordinary building contract, under which maincontractors contract with the building owner for theconstruction of the relevant building, and the maincontractor sub- contracts with sub-contractors orsuppliers (often nominated by the building owner)for the performance of work or the supply ofmaterials in accordance with standards and subjectto terms established in the sub-contract. I put onone side cases in which the sub-contractor causesphysical damage to property of the building owner,where the claim does not depend on an assumptionof responsibility by the sub- contractor to thebuilding owner; though the sub-contractor may beprotected from liability by a contractual exemptionclause authorised by the building owner. But if thesub-contracted work or materials do not in theresult conform to the required standard, it will notordinarily be open to the building owner to sue thesub-contractor or supplier direct under the HedleyByrne principle, claiming damages from him on thebasis that he has been negligent in relation to theperformance of his functions. For there is generallyCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 622003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)no assumption of responsibility by the subcontractoror supplier direct to the building owner,the parties having so structured their relationshipthat it is inconsistent with any such assumption ofresponsibility."218. I shall return to the matter of what principlesapplicable to the circumstances of the present casecan be distilled from the decision of the House ofLords in Henderson v. Merrett Syndicates Ltd., andin particular the passages from the speech of LordGoff which I have cited, a little later in thisjudgment. First, however, it is convenient toaddress the question of the nature and extent of theduty of care of a party which has assumedresponsibility by contract to another party in themanner contemplated by Lord Goff in Hendersonv. Merrett Syndicates Ltd. That matter wasconsidered by the House of Lords in SouthAustralia Asset Management Corporation. v. YorkMontague Ltd. [1997] AC 191. The case concernedthe liability of a valuer of real property whosevaluation of property offered as security for a loanwas undertaken carelessly. The leading speech,indeed the only substantive speech, was that ofLord Hoffman. At pages 211F-214F of the reportLord Hoffman said:--"Because the valuer will appreciate that hisvaluation, though not the only consideration whichwould influence the lender, is likely to be a veryimportant one, the law implies into the contract aterm that the valuer will exercise reasonable careand skill. The relationship between the parties alsogive rise to a concurrent duty in tort: seeHenderson v. Merrett Syndicates Ltd. [1995] 2 AC145. But the scope of the duty in tort is the same asin contract.A duty of care such as the valuer owes does nothowever exist in the abstract. A plaintiff who suesfor breach of a duty imposed by the law (whetherin contract or tort or under statute) must do morethan prove that the defendant has failed to comply.He must show that the duty was owed to him andthat it was a duty in respect of the kind of losswhich he has suffered. Both of these requirementsare illustrated by HCaparo Industries Plc v. Dickman[1990] 2 AC 605. The auditors' failure to usereasonable care in auditing the company's statutoryaccounts was a breach of their duty of care. Butthey were not liable to an outside take-over bidderbecause the duty was not owed to him. Nor werethey liable to shareholders who had bought moreshares in reliance on the accounts because,although they were owed a duty of care, it was intheir capacity as members of the company and notin the capacity (which they shared with everyoneelse) of potential buyers of its shares. Accordingly,the duty which they were owed was not in respectof loss which they might suffer by buying itsshares. As Lord Bridge of Harwich said, at p. 627:"It is never sufficient to ask simplywhether A owes B a duty of care. It is alwaysnecessary to determine the scope of the duty byreference to the kind of damage from which A musttake care to save B harmless."In the present case, there is no dispute thatthe duty was owed to the lenders. The real questionin this case is the kind of loss in respect of whichthe duty was owed.How is the scope of the duty determined? In thecase of a statutory duty, the question is answeredby deducing the purpose of the duty from thelanguage and context of the statute: Gorris v. Scott(1874) LR 9 Ex 125. In the case of tort, it willsimilarly depend upon the purpose of the ruleimposing the duty. Most of the judgments in theCaparo case are occupied in examining theCompanies Act 1985 to ascertain the purpose of theauditor's duty to take care that the statutoryaccounts comply with the Act. In the case of animplied contractual duty, the nature and extent ofthe liability is defined by the term which the lawimplies. As in the case of any implied term, theprocess is one of construction of the agreement as awhole in its commercial setting. The contractualduty to provide a valuation and the known purposeof that valuation compel the conclusion that thecontract includes a duty of care. The scope of theduty, in the sense of the consequences for whichthe valuer is responsible, is that which the lawregards as best giving effect to the expressobligations assumed by the valuer: neither cuttingthem down so that the lender obtains less than hewas reasonably entitled to expect, nor extendingthem so as to impose on the valuer a liabilitygreater than he could reasonably have thought hewas undertaking.What therefore should be the extent of thevaluer's liability? The Court of Appeal said that heshould be liable for the loss which would not haveoccurred if he had given the correct advice. Thelender having, in reliance on the valuation,embarked upon a transaction which he would nototherwise have undertaken, the valuer should bearall the risks of that transaction, subject only to thelimitation that the damage should have been withinthe reasonable contemplation of the parties.There is no reason in principle why the lawshould not penalise wrongful conduct by shiftingon to the wrongdoer the whole risk ofconsequences which would not have happened butfor the wrongful act. Hart and Honore, in Causationin the Law, 2nd ed. (1985), p.120, say that itwould, for example, be perfectly intelligible tohave a rule by which an unlicensed driver wasresponsible for all the consequences of his havingdriven, even if they were unconnected with his nothaving a licence. One might adopt such a rule inCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 632003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)the interests of deterring unlicensed driving.But that is not the normal rule. One maycompare, for example, HThe Empire Jamaica [1955]P 259, in which a collision was caused by a"blunder in seamanship of ... a somewhat seriousand startling character" (Sir Raymond EvershedMR, at p.264) by an uncertificated second mate.Although the owners knew that the mate was notcertificated and it was certainly the case that thecollision would not have happened if he had notbeen employed, it was held in limitationproceedings that the damage took place without theemployers' "actual fault or privity" (section 503 ofthe Merchant Shipping Act 1894) because the matewas in fact experienced and (subject to this oneaberration) competent. The collision was nottherefore attributable to his not having a certificate.The owners were not treated as responsible for allthe consequences of his having been uncertificated.Rules which make the wrongdoer liable for allthe consequences of his wrongful conduct areexceptional and need to be justified by somespecial policy. Normally the law limits liability tothose consequences which are attributable to thatwhich made the act wrongful. In the case ofliability in negligence for providing inaccurateinformation, this would mean liability for theconsequences of the information being inaccurate.I can illustrate the difference between theordinary principle and that adopted by the Court ofAppeal by an example. A mountaineer about toundertake a difficult climb is concerned about thefitness of his knee. He goes to a doctor whonegligently makes a superficial examination andpronounces the knee fit. The climber goes on theexpedition, which he would not have undertaken ifthe doctor had told him the true state of his knee.He suffers an injury which is an entirelyforeseeable consequence of mountaineering but hasnothing to do with his knee.On the Court of Appeal's principle, the doctor isresponsible for the injury suffered by themountaineer because it is damage which would nothave occurred if he had been given correctinformation about his knee. He would not havegone on the expedition and would have suffered noinjury. On what I have suggested is the more usualprinciple, the doctor is not liable. The injury hasnot been caused by the doctor's bad advice becauseit would have occurred even if the advice had beencorrect.The HCourt of Appeal [1995] QB 375 summarilyrejected the application of the latter principle to thepresent case, saying, at p.404:"The complaint made and upheld againstthe valuers in these cases is ... not that they werewrong. A professional opinion may be wrongwithout being negligent. The complaint in eachcase is that the valuer expressed an opinion that theland was worth more than any careful andcompetent valuer would have advised."I find this reasoning unsatisfactory. Itseems to be saying that the valuer's liability shouldbe restricted to the consequences of the valuationbeing wrong if he had warranted that it was correctbut not if he had only promised to use reasonablecare to see that it was correct. There are of coursedifferences between the measure of damages forbreach of warranty and for injury caused bynegligence, to which I shall return. In the case ofliability for providing inaccurate information,however, it would seem paradoxical that theliability of a person who warranted the accuracy ofinformation should be less than that of a personwho gave no such warranty but failed to takereasonable care.Your Lordships might, I would suggest, thinkthat there was something wrong with a principlewhich, in the example which I have given,produced the result that the doctor was liable. Whatis the reason for this feeling? I think that the Courtof Appeal's principle offends common sensebecause it makes the doctor responsible forconsequences which, though in general termsforeseeable, do not appear to have a sufficientcausal connection with the subject matter of theduty. The doctor was asked for information on onlyone of the considerations which might affect thesafety of the mountaineer on the expedition. Thereseems no reason of policy which requires that thenegligence of the doctor should require the transferto him of all the foreseeable risks of the expedition.I think that one can to some extent generalise theprinciple upon which this response depends. It isthat a person under a duty to take reasonable care toprovide information on which someone else willdecide upon a course of action is, if negligent, notgenerally regarded as responsible for all theconsequences of that course of action. He isresponsible only for the consequences of theinformation being wrong. A duty of care whichimposes upon the informant responsibility forlosses which would have occurred even if theinformation which he gave had been correct is notin my view fair and reasonable as between theparties. It is therefore inappropriate either as animplied term of a contract or as a tortious dutyarising from the relationship between them.The principle thus stated distinguishes between aduty to provide information for the purpose ofenabling someone else to decide upon a course ofaction and a duty to advise someone as to whatcourse of action he should take. If the duty is toadvise whether or not a course of action should betaken, the adviser must take reasonable care toconsider all the potential consequences of thatcourse of action. If he is negligent, he will thereforebe responsible for all the foreseeable loss which isCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 642003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)a consequence of that course of action having beentaken. If his duty is only to supply information, hemust take reasonable care to ensure that theinformation is correct and, if he is negligent, willbe responsible for all the foreseeable consequencesof the information being wrong."219. In HStovin v. Wise [1996] AC 923 theprincipal point at issue was whether a highwayauthority was liable for injuries sustained by aperson involved in a road traffic accident. The basisupon which it was contended that the highwayauthority was liable was that it had failed,negligently so it was said, to use its statutorypowers to insist upon the removal of an earth bankwhich obstructed sight lines at the junction atwhich the accident occurred. Lord Hoffman in hisspeech, at page 943 of the report, said in relation tothe issue of liability in tort for omissions:--"Omissions, like economic loss, are notoriouslya category of conduct in which Lord Atkin'sgeneralisation in HDonoghue v. Stevenson [1932]AC 562 offers limited help ... There are soundreasons why omissions require different treatmentfrom positive conduct. It is one thing for the law tosay that a person who undertakes some activityshall take reasonable care not to cause damage toothers, it is another thing for the law to require thata person who is doing nothing in particular shalltake steps to prevent another from suffering harmfrom the acts of third parties (like Mrs. Wise) ornatural causes. One can put the matter in politicalmoral or economic terms. In political terms it isless of an invasion of an individual's freedom forthe law to require him to consider the safety ofothers in his actions than to impose upon him aduty to rescue or protect. A moral version of thispoint may be called the "why pick on me?"argument. A duty to prevent harm to others or torender assistance to a person in danger or distressmay apply to a large and indeterminate class ofpeople who happen to be able to do something.Why should one be held liable rather than another?In economic terms, the efficient allocation ofresources usually requires an activity should bearits own costs. If it benefits from being able toimpose some of its costs on other people (whateconomists call "externalities"), the market isdistorted because the activity appears cheaper thanit really is. So liability to pay compensation for losscaused by negligent conduct acts as a deterrentagainst increasing the cost of the activity to thecommunity and reduces externalities. But there isno similar justification for requiring a person whois not doing anything to spend money on behalf ofsomeone else ... Of course it is true that theconditions necessary to bring about an eventalways consists of a combination of acts andomissions. Mr. Stovin's accident was caused by thefact that Mrs. Wise drove out into Station Road andomitted to keep a proper look out. But this does notmean that the distinction between acts andomissions is meaningless or illogical. One musthave regard to the purpose of the distinction as it isused in the law of negligence, which is todistinguish between regulating the way in which anactivity may be conducted and imposing a duty toact upon a person who is not carrying on anyrelevant activity. To hold the defendant liable foran act, rather than an omission, it is thereforenecessary to be able to say, according to commonsense principles of causation, that the damage wascaused by something which the defendant did ...Mr. Stovin's injuries were not caused bynegotiations between the Council and British Railor anything else which the Council did. So far asthe Council was held responsible, it was because ithad done nothing to improve the visibility at thejunction."220. The passage from Lord Hoffman's speech inStovin v. Wise which I have cited in the precedingparagraph was considered by the Court of Appealin a recent case upon which Mr. Stewart placedconsiderable reliance in support of his argument asto the existence of the duty of care on the part ofCostain for which he contended, but which hesought to distinguish in relation to the finding as tothe damages which were recoverable for breach ofthe duty. That case was Bellefield ComputerSerivces Ltd. v. E. Turner & Sons Ltd. [2000] BLR96 (to which I shall refer hereafter in this judgmentas "Bellefield No.1", to distinguish it from the othercase with the same name to which I have alreadyreferred). The facts of the case were, in myjudgment, important to an understanding of whatactually was decided. The defendant buildingcontractors had constructed a dairy buildingbetween 1981 and 1983 under a contract by whichthey undertook to construct the building incompliance with the relevant Building Regulationsand, in particular, so that a particular wall ("theWall") was constructed as a firebreak. The Wallwas not in fact constructed as a firebreak in that itwas not constructed sufficiently high. The buildingwas subsequently sold to the appellants. A fire,which was not in any way the responsibility of thedefendants, broke out in 1995. It spread across theWall and caused damage on the other side fromthat upon which it had started. Had the Wall beenconstructed as a firebreak the fire would not havebeen able to spread to the far side of the Wall fromthat upon which it had commenced. On a trial ofpreliminary issues Bell J held that the defendantshad owed a duty of care to the purchasers of thebuilding to safeguard them from damage other thanto the building itself, but that damages were notrecoverable in respect of damage to that part of theCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 652003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)building which lay on the far side of the Wall fromthe seat of the fire. The defendants appealed againstthe finding that they owed a duty of care to thepurchasers of the building, while the purchasersappealed against the finding that damages were notrecoverable in respect of damage to the building onthe side of the Wall remote from the seat of the fire.Both appeals failed. The leading judgment was thatof Schiemann LJ. On the question of the duty ofcare, at pages 100 and 101 of the report, he quotedthe passage from the speech of Lord Hoffman inStovin v. Wise which I have cited. He then referredto a consideration of the issue of liability fornonfeasance in Atiyah's Accidents, Compensationand the Law. Following citation from that work hestated his conclusions briefly:--"There are arguments against imposing liabilityon reluctant rescuers. There are arguments againstholding public authorities liable for not doingsomething which they are under no statutory dutyto do. But in the present case, absent any possibleexclusion clause in the liability of the builders totheir contractual partners, the imposition of liabilityon the builders to subsequent owners only has theeffect of substituting a different beneficiary for theoriginal beneficiary of the builders' potentialliability. In those circumstances, to hold that,although they would have been liable if the wallhad been built of combustible materials, they arenot liable because the wall was not built highenough, would have been quite unjustifiable on anypolicy ground and the judge was right not to do so.I would dismiss the Builders' appeal."In dismissing the purchasers' appeal, SchiemannLJ indicated that he considered that the conclusionwhich Bell J had reached had been arrived atfollowing the guidance of the House of Lords inMurphy v. Brentwood District Council. At page102 of the report Schiemann LJ made anobservation upon which Mr. Stewart placedconsiderable reliance in support of his submissionas to the correct understanding of the decision inMurphy v. Brentwood District Council:--"In substance the judge applied a control deviceso as to achieve the result that the builders were notliable to subsequent owners for damage to thebuilding itself. There being no evidence of anycontractual exclusion clause which sought toexclude liability in tort, the case has proceeded onthe basis that, had there been no change inownership, the builders would have been liable tothe original owners both in contract and in tort.Contract is irrelevant for present purposes but it issignificant that the builders are assumed liable tothe original owners in tort for damage to thebuilding. ... As I have already indicated, had therebeen no change of ownership the builders wouldhave been liable in tort for the damage to thebuilding."Of the suggestion that different parts of thebuilding should be treated differently for thepurposes of deciding whether the damage to themwas recoverable as damages for breach of the dutyof care which was held to have existed, SchiemannLJ said at page 105 of the report:--"However, in the present case the whole of thedairy was built at the same time by the builders,marketed as a unit, bought as a unit to be used as aunit and was used as a unit. I have no doubt thatany holding either that (1) the rooms on one side ofthe wall should be treated for present purposes asconstituting a different building from the rooms onthe other side of the wall, or that (2) the wallshould be treated as constituting a differentbuilding from the rooms on one side of it, would bea thoroughly undesirable approach to the issuesbefore us."221. The other members of the Court of Appeal inBellefield No.1 were Tuckey LJ and Wall J. Bothof them agreed with the judgment of Schiemann LJand with the judgments of each other. Tuckey LJdid not deal separately with the question of the dutyof care of the defendant. His judgment wasconcerned only with the justification for dismissingthe appeal of the purchasers. Wall J did indicate inhis judgment that he considered that the appeal ofthe defendants was that which presented the lessdifficulty. He also stated his views of the relevantconsiderations and conclusions quite briefly, atpage 107 of the report:--"The principal routes by which Mr. Stow QCsought to escape a Donoghue v. Stevenson liabilityderiving from the speeches in Murphy v.Brentwood District Council were (a) that liabilityunder Donoghue v. Stevenson was limited topersonal injuries and consequential loss arisingtherefrom; and (b) that the case against theDefendant involved pure omissions; it did notinvolve omissions during the course of positive actswhich, together, gave rise to physical damage.Reliance was placed in this context on the speechof Lord Hoffman in HStovin v. Wise, NorfolkCounty Council (Third Party) [1996] AC 923.I was impressed with neither argument. Dealingwith the second argument first, I do not think thatStovin v. Wise assists Mr. Stow on the facts of thiscase. The Defendant was under a duty to build thewall in question in accordance with the plans. Itfailed to do so. Like the judge, I find no intellectualor legal difficulty in taking the view that theDefendant's failure, like much tortious conduct,consisted of both positive acts and omissions.Once the existence of a Donoghue v. Stevensontype duty is acknowledged, it seems to me that itmust apply both to personal injury and to damageto property, together with losses consequent uponeither ..."Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 662003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)222. It is plain, in my judgment, from theconsideration of the issue by both Lord Goff inHenderson v. Merrett Syndicates Ltd. and LordHoffman in Stovin v. Wise that the existence of aduty of care positively to act, rather than simply totake care while engaged in some action, dependsupon the existence of circumstances which in someway justify the imposition of such a duty. Thefocus of the attention of Lord Hoffman in thepassage which I have quoted from his speech inStovin v. Wise was whether it could be said,according to common sense principles of causation,that the omission complained of had caused therelevant damage. That was an approach which ledin that case to the conclusion that the localauthority had not owed a duty of care becausenothing it had done had caused the accident inwhich the claimant sustained his injuries. However,it does not seem to me that Lord Hoffman couldhave been intending to suggest that the test ofwhether a duty of care was owed in respect ofomissions was simply causation of the damagewhich eventuated in any particular case. If thatwere so, it would mean that there existed a generalduty in law not to cause harm to others by act oromission from which an alleged wrongdoer wouldbe excused if his default had not actually causedthe damage in question. Such a general duty wouldrepresent a radical departure from the moretraditional approach explained by Lord Hoffmanhimself in South Australia Asset ManagementCorporation v. York Montague Ltd. in the passagewhich I have quoted. Rather I think that in hiscomments in Stovin v. Wise Lord Hoffman wasseeking to do no more than to emphasise that ingeneral a mere failure to act -- a pure omission --cannot cause any loss. It is, of course, the case thattraditionally a claim for damages for allegednegligence is pleaded by setting out all those thingswhich it is contended that the defendant ought tohave done, but did not do. In a sense, therefore, itcan be said that all claims in negligence are basedupon omissions. However, that is manifestly notthe sense in which the term "omission" is used inthe discussion of liability for omissions in thepassages from the speeches of Lord Hoffman andLord Goff now under consideration. In thosepassages the issue being addressed is in whatcircumstances it can be said that a person who hasactually done nothing should have done something,which had it been done would have been to theadvantage of the claimant and failure to do whichdeprived him of that advantage. Lord Goff inHenderson v. Merrett Syndicates Ltd. indicated thatin circumstances in which a party had agreed bycontract to do something the necessary ingredientfor the creation of a duty of care in tort to actpositively was present. That seems to me, withrespect, not to be a particularly adventurousanalysis, at least in relation to services which by hiscontract a party has undertaken personally toperform. It is difficult to see any circumstancesother than where a party has specifically agreed todo something in which it would be appropriate tofix him with a duty to act positively, rather thansimply to take care while doing something uponwhich he has decided to embark.223. Mr. Stewart submitted that, properlyunderstood, what Lord Goff held in Henderson v.Merrett Syndicates Ltd. was that a party to acontract owed to any other party to the contractwho was affected a duty of care in tort in effect toperform his contractual obligations, whatever theywere. Although Mr. Stewart did not in terms seekto rely upon it, the analysis of Lord Goff of theposition under a chain of contracts in theconstruction industry might be considered, at firstblush, as supporting his submission. It could besaid that it was implicit in the consideration of asub-contractor not owing a duty of care directly tothe employer because of the chain of contractualarrangements which the parties had chosen, that themain contractor did owe not merely contractual,but also tortious duties to the employer in relationto the work of sub-contractors. However, thatwould be an extraordinary position, were it correct.A party to contract may assume a wide variety ofobligations which do not require the doing of anyact or the providing of any advice or information.He may give a guarantee of the performance byanother of his obligations. He may warrant that astate of affairs is so. In relation to the performanceof any obligation which does not require any act tobe performed or any advice or information to begiven the concept of negligence is not reallymeaningful. An obligation of such character iseither performed or it is not. If it is not performed,there will be a cause of action for breach ofcontract. If it is proved that substantial, as opposedto nominal, damages have been suffered as a resultof the breach of contract, they will be recoverable.Carelessness or not in the performance of theobligation just is not relevant to whether it has beenperformed. Moreover, by contract a party mayaccept liability to answer for the default of otherswho in fact are quite independent of him. In thecontext of liability for physical damage to personor property there is a well- understood principlethat a person is not liable for the acts of hisindependent contractors. Mr. Stewart's submissionwould seem to involve a negation of that principlein any case in which a party has by contractaccepted obligations which are to be performed bysub-contractors. In my judgment it is clear thatLord Goff was not intending to lay down anyproposition nearly as wide as that for which Mr.Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 672003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)Stewart contended.224. As a sort of fall back position Mr. Stewartsubmitted that a party to a contract who agreed toundertake particular work owed a duty of care tothe other relevant contracting parties in relation tothe execution of that work, even if he did notundertake the work himself. It was in this contextthat the decision of Judge Stabb in Cynat ProductsLtd. v. Landbuild (Investment and Property) Ltd.was of importance. That decision is now almosttwenty years old and was made at a relatively earlypoint in the modern development of the law ofnegligence. The justification advanced by JudgeStabb himself for his conclusion was an applicationof the test of the existence of a duty of careformulated by Lord Wilberforce in Anns v. MertonLondon Borough Council, nothing else. Potter J inAiken v. Stewart Wrightson Members Agency Ltd.spent some time, at page 1304 of his judgment, indemonstrating exactly how unloved an orphan thedecision seemed to be so far as academic writerswere concerned. Lack of academic approbation isnot traditionally a ground upon which a decisioncan be distinguished, nor is the fact that theunsuccessful party did not appear at the trial whichresulted in the decision. As a decision at firstinstance the judgment in Cynat Products Ltd.v.Landbuild (Investment and Property) Ltd. is notbinding upon any other judge sitting at firstinstance. As the law has developed it is clear, in myjudgment, that the anticipation of Judge Stabb thatthe law of negligence was expanding its scope tobroaden the categories in which a party owed apersonal, non-delegable duty into the area of takingon contractual responsibilities in relation to work tobe done by others was incorrect. It seems to me thatthe decision in Cynat Products Ltd.v. Landbuild(Investment and Property) Ltd. should be put out ofits misery and recognised as simply wrong.225. The approach adopted by Judge Stabb inCynat Products Ltd. v. Landbuild (Investment andProperty) Ltd. was not in any way supported by thedecision of the House of Lords in Henderson v.Merrett Syndicates Ltd. The actual principlerelevant to this part of my consideration laid downby the decision in that case, in my judgment, was,quite simply, that where, by contract, a party hasagreed personally to do something and it is anexpress or an implied term of the contract that thatthing will be done with reasonable care and skill,the party owes to other relevant contracting partiesa like duty of care in tort unless the existence ofsuch duty of care is excluded or modified by thecontract. Exceptionally, as on the particular facts ofthat case, but not usually, such a duty of care mightbe owed to a person higher up a chain of contractsthan those immediately party to the relevantcontract. The House of Lords was not concerned inthat case to broaden the nature or scope of duties ofcare, so as to impose a duty of care upon a personin relation to something actually done by someoneelse, but simply to make plain that it was no answerto the suggestion that a party should be able to suein negligence another party who had failed toexercise reasonable care and skill in doingsomething and had thereby caused the first partyloss, to contend that the parties were in acontractual relationship and that their mutual rightsand obligations should be determined exclusivelyunder their contract.226. The other matter which is presently relevantwhich was the subject of decision in Henderson v.Merrett Syndicates Ltd. concerns economic loss. Inthat the only compensation which a court canaward in respect of loss is money, all loss withwhich the court is concerned is economic.However, in the law of negligence the distinctionbetween physical damage and economic loss,which is well-established in principle, even if itsdetailed application has not always beenstraightforward, has as its object the imposition ofsome limitation upon the scope of theconsequences of his actions for which a negligenttortfeasor is held liable. It is in this area of the lawthat the concepts of the nature and scope of a dutyof care (as to which see the extract from the speechof Lord Hoffman in South Australia AssetManagement Corporation v. York Montague Ltd.set out earlier in this judgment), causation (as towhich see the extract from the speech of LordHoffman in Stovin v. Wise set out earlier in thisjudgment) and foreseeability shade into oneanother. However, the essential point in relation tothe distinction between physical damage andeconomic loss is that physical damage is theimmediate, and generally obvious, consequence ofan act of negligence, while economic loss may notbe. Thus if a duty of care is to be owed not to causeeconomic loss there needs to be some feature of therelationship between the parties which makes itfair, just and reasonable that the scope of the dutyshould extend to the avoidance of economic loss.That is most obviously so if the party alleged toowe a duty having that scope has consciouslyassumed obligations towards the party to whom theduty is said to be owed by entering into a contractwith him in respect of those obligations. That pointwas made by Lord Goff in Henderson v. MerrettSyndicates Ltd. However, it is plain from thedecision of the House of Lords in Hedley Byrne &Co. Ltd. v. Heller & Partners Ltd that that is not theonly situation in which the scope of a duty of carewill extend to not causing economic loss. At thesame time, it is clear from the decision of theHouse of Lords in South Australia AssetCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 682003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)Management Corporation v. York Montague Ltd.that where the scope of a duty of care does extendto not causing economic loss the extent of theeconomic loss to which it extends is not withoutlimit.227. Mr. Taverner submitted that, whatever maybe the implications of the decision in Henderson v.Merrett Syndicates Ltd. in the ordinary case, theposition of a builder in respect of liability under acontract was different. A builder, contended Mr.Taverner, did not owe a duty of care not to causeeconomic loss to anyone, even a party with whomit had entered into a contract to build the buildingin question. That, he submitted, was the effect ofthe decision in Murphy v. Brentwood DistrictCouncil, as a contractual relationship was not asufficient special relationship to displace theordinary rule, and the position had not beenaffected by the decision in Henderson v. MerrettSyndicates Ltd. While he accepted that H.H. JudgeJohn Hicks Q.C. had held in HStorey v. CharlesChurch Developments Ltd. (1996) 12 Const LJ 206that a contractor which took on designresponsibilities did owe a duty of care to its clientnot to cause economic loss, he invited me not tofollow that decision. He drew to my attention adecision of H.H. Judge Humphrey Lloyd Q.C.,HSamuel Payne v. John Setchell Ltd. [2002] BLR489, and invited me to adopt the approach indicatedin that case instead.228. In Samuel Payne v. John Setchell Ltd. JudgeLloyd was concerned with a claim against acompany which had undertaken a groundinvestigation and, on the basis of that investigation,had made recommendations as to the design of thefoundations of a number of cottages. Thefoundations proved to be inadequate. A number ofissues were ordered to be tried as preliminaryissues. One was whether the defendant designer ofthe foundations owed a duty of care to the originalowners of the cottages which extended to avoidingcausing them economic loss because thefoundations of the cottages proved unsatisfactory.Following a lengthy, and scholarly, analysis of theauthorities which concentrated on the decisions inMurphy v. Brentwood District Council andHDepartment of the Environment v. Thomas Batesand Son Ltd. [1991] 1 AC 499 and did not includereference to Henderson v. Merrett Syndicates Ltd.in this context, Judge Lloyd concluded, atparagraph 28 of his judgment, on page 505 of thereport, what they established was:--"that, as a matter of policy, although a buildermust be taken to have foreseen the possibility ofloss or damage arising from inherently defectivework for which it was responsible, it did not owe aduty of care to anybody (including the person whoengaged the builder) to avoid causing such loss ordamage unless it was physical injury to persons ordamage to property other than the building itself."229. In the light of his reading of the authoritiesand his conclusion quoted in the precedingparagraph Judge Lloyd set out at paragraph 31 ofhis judgment, at pages 507-508 of the report, hisassessment of the policy issues which arose:--"First, the skills of a designer and a buildercreate a product: the designer produces drawings,specifications etc; the builder produces the works,either in following through and completing thedesign of others for whom it is not responsible or indevising a design and completing it (as has alwayshappened in very many cases -- especially in thosesectors where the Employer looks to the contractorfor such a complete service -- and as continues tobe so today, since the trend towards design andbuild which began many years ago shows no signsof slackening.) Although a designer may decidewhat is to be done and, sometimes, how it is to bedone, a builder has also to take decisions where thecontract or the designer has left them to him.Matters of detailing and fixing call for the exerciseof proper care and skill which must be provided tothe standard expected of a builder holding himselfout as competent to build the structure or work inquestion, which in the majority of cases will be noless than professional standards, and may indeed behigher where the work is specialised. Since manycontractors have always been responsible fordesign as well as construction, there is in law animplied warranty of suitability for purpose (ie thecore of every design obligation) as well of qualityunless displaced by the terms of circumstances ofthe contract: HYoung & Marten v. McManus Childs[1969] 1 AC 454. For the purposes of liability innegligence in particular the relevant question is notwho should be responsible but, rather, who took therelevant decision and thus failed to exercise therequisite care? Whoever took the decision is in lawlikely to owe some duty of care to avoid causingloss. In my judgment Murphy and DOE v. Batesestablish that, as a matter of policy, any personundertaking work or services in the course of aconstruction process is ordinarily liable only forphysical injury or for property damage other thanto the building itself but is not liable for otherlosses -- ie economic loss. If any liability for sucheconomic loss is to arise it must be for otherreasons, eg as a result of advice or statements madeupon which reliance is placed in circumstanceswhich create a relationship where there is in law tobe an assumption of the responsibility for loss -- iewithin the principle of Hedley Byrne v. Heller (seeLord Keith's speech in Murphy which I havequoted above). In my judgment a designer is notliable in negligence to the client or to a subsequentCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 692003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)purchaser for the cost of putting right a flaw in adesign that the designer has produced that has notcaused physical injury or damage, just as acontractor is not liable. Each is in the eyes of thelaw "a builder" as each is responsible for part of theprocess that leads to completion of a building orother works. Plainly the liability of such a builderin negligence cannot extend to becoming theequivalent of contractual liability for this would bethe beginning of the "transmissible warranty" (seeLord Bridge's speech) and would run counter to thepolicy that there is no liability in negligence fordefects in the product, be it a building or a chattel.Because concurrent liability in tort cannot exceedthe liability in contract it does not follow that insome way that concurrent liability must be elevatedto the level of the contractual liability."230. I differ from the analysis of Judge Lloydwith great hesitation, but I have to say that it doesnot seem to me that Murphy v. Brentwood DistrictCouncil and the other authorities to which hereferred do establish the proposition that a buildernever owes a duty of care which extends to notcausing economic loss, only that he does not do soin the absence of "a special relationship". It seemsto me clear that all of the attention in Murphy v.Brentwood District Council, so far as the builderwas concerned, was on his relationship with whatLord Oliver of Aylmerton at page 489E called "aremote owner", that is to say (page 489C) "aderivative owner with whom he has no contractualor other relationship". While the terms of thespeeches in Murphy v. Brentwood District Councilmay themselves have been somewhat elliptical inrelation to the position of a builder in respect ofowing a duty of care in tort not to cause economicloss to someone with whom he was in a contractualrelationship, there are indications in the passagesfrom the speeches which I have quoted that theposition was, or might be, different from that asbetween a builder and a party with whom he wasnot in a contractual relationship. Any ambiguity orobscurity on this point has now, in my judgment,been clarified by the decision in Henderson v.Merrett Syndicates Ltd. If the position now is, as Iconsider that it is, that anyone who undertakes bycontract to perform a service for another uponterms, express or implied, that the service will beperformed with reasonable skill and care, owes aduty of care to like effect to the other contractingparty or parties which extends to not causingeconomic loss, there seems to be no logicaljustification for making an exception in the case ofa builder or the designer of a building. My readingof the authorities does not require or permit themaking of such exception. I draw comfort in myanalysis from the observation of Schiemann LJ inBellefield No. 1 that in his view the builder in thatcase did owe a duty of care to the original owner inrespect of damage to the building itself.231. What was decided in Bellefield No. 1 was,first, that a contractor who assumed by contractobligations to construct the Wall as a firebreak andto comply with Building Regulations owed a dutyof care in tort to do those things with reasonableskill and care not only to the other party to thecontract, but also to subsequent purchasers. Thesecond matter decided was that the scope of thatduty of care in the case of subsequent purchasersdid not extend to avoiding damage to the buildingconstructed under the contract. The latter decisionwas simply application to the facts of the case ofthe decision of the House of Lords in Murphy v.Brentwood District Council. The novel pointdecided was thus that a duty of care to performobligations which the contractor had undertaken tothe other party to the contract under which therelevant building was built with reasonable skilland care was also owed to successors in title asowners of the building. That is not a point whicharises in the present case, but the analysis providesno support for any submission that such a dutywould have been owed in the absence of a contractor that the duty extended to work which thecontractor did not itself undertake to do personally.It may be that the implications of the decision ofwhat I have described as the novel point inBellefield No. 1 will require careful consideration,particularly the suggestion in the judgments ofSchiemann LJ and Tuckey LJ that the terms of thecontract may be relevant to the existence and scopeof any duty of care to the successor in title. TuckeyLJ in his judgment cited a passage from thedissenting speech of Lord Brandon in HJunior BooksLtd. v. Veitchi Co Ltd. [1983] 1 AC 520 in whichthe sort of issues to which such a suggestion cangive rise were identified.232. In the light of my finding that all Costainagreed by the contract constituted by the letterdated 20 March 1989 as signed and returned to dowas to commence the construction of the Store Ifind that Costain assumed a duty of care to Tescoto carry out the work which it itself, rather than anysub- contractor, in fact did pursuant to thatagreement with the care and skill to be expected ofa reasonably competent building contractor. Thatwork potentially included both physical work ofconstruction and the making of decisions as todesign, in the sense explained by May LJ in thepassage which I have cited from his judgment inthe second Bellefield case. I find that that duty didextend to not causing economic loss, for thereasons which I have endeavoured to set out.233. Had I found that Costain had entered into aCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 702003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)contract with Tesco in the terms for which Tescocontended I should still have found that the duty ofcare assumed by Costain was that which I haveindicated in the previous paragraph. That is for anumber of reasons. The first is that it is contrary toprinciple to impose upon a party a duty of care inrespect of work which everyone knows is to be,and is in fact, undertaken by someone else. Such aduty of care cannot sensibly be characterised as aduty on the relevant party to do something withreasonable skill and care, for he is not doinganything. Rather it would be in the nature of aguarantee that the party actually doing the relevantwork would do it with reasonable skill and care.The second is that the duty of care contended for inthe present case was actually not simply a duty thatdesign work would be undertaken with reasonableskill and care, but that the appropriate fire stoppingand inhibiting works which should have beendesigned would then be constructed, andconstructed without additional cost to Tesco. Thatgoes far beyond any obligation to take care or tosee that care is taken, involving, as it would,incurring expense in order to provide an amenity toTesco. The law does, in limited circumstances,impose a duty upon a landowner to incur expensein order to deal with the consequences of anuisance. However, the sort of obligationcontended for arising under a duty of care in thepresent case is manifestly one that can, in myjudgment, only arise under a contract. Inconsidering the duty of care contended for in thepresent case it is also material, as it seems to me, tonotice that the breach of it is not said itself to havecaused any loss directly. No part of the Storecollapsed as a result of the absence of appropriatefire stopping and inhibiting works, or anything likethat. What is contended is that, had the appropriateworks been undertaken, the consequences of a fire,for which neither Costain nor PHJ were in anysense responsible, would have been less severe. Onanalysis the nature and scope of the duty contendedfor were thus a duty not to cause Tesco theeconomic loss resulting from the fire. Shorn of itslegal sheep's clothing the duty contended foramounts to a duty to provide effective fire stoppingand inhibiting works or to assume the risk ofdamage by fire to the Store and its contents. Evenif, which I do not consider would be right, it wereappropriate to impose upon Costain a duty of careto design and supply without additional cost toTesco appropriate fire stopping and inhibitingworks, it is well-arguable, it seems to me, that thescope of such duty was only to save Tesco fromhaving to incur the cost of providing the relevantfire stopping and inhibiting measures. That wouldhave been the obvious direct consequence of notdesigning and supplying the missing fire stoppingand inhibiting works. To contemplate that thescope of the duty extended to saving Tescoharmless from the consequences of a fire the effectsof which would or might have been less severe hadthe missing fire stopping and inhibiting works beenpresent seems to me to raise precisely the sameissue considered by the House of Lords in SouthAustralia Asset Management Corporation v. YorkMontague Ltd. and illustrated by Lord Hoffman'sexample of the mountaineer and his knee. It wouldseem that the absence of fire stopping andinhibiting works in the present case no more causedthe fire which destroyed the Store than thenegligent assessment of the knee by the doctor inLord Hoffman's example caused the mountaineer'saccident. However, I have not had the benefit offull argument on this point and it is not actuallymaterial to any issue which I have to decide at thisstage. It may be necessary to grapple with it in thesecond round of this action.The Costain 1993-1994 Tortious Duties Issues234. During the course of the hearing before methe answers to these issues were agreed betweenMr. Stewart on behalf of Tesco and Mr. Taverneron behalf of Costain to be:--"It being accepted by Costain that in undertakingthe inspection and in making the statements in theletters dated 19 October 1993 and 27 May 1994,Costain undertook to Tesco a common law duty ofcare to undertake a detailed inspection of firebarriers with reasonable skill and care, and toexercise reasonable skill so as to ensure that thestatements made in the letters (of 19 October 1993and 27 May 1994) were accurate, the questions ofthe nature and scope of that duty of care, includingthe meanings of "a detailed inspection" and "firebarriers" be left over to the trial in October."235. I agree with the answers to the Costain 1993-1994 Tortious Duties Issues set out in the agreedformulation, insofar as there given, and I also agreethat the issues left over cannot be resolved on theevidence which has been led in the present trial.The Costain Accrual of Cause of Action Issues236. Because of the possible implications of theanswers to these issues, with which PHJ was notdirectly concerned, for issues with which it wasdirectly concerned, PHJ, by Mr. Coulson and Mr.Holwill, took an active interest in these issues andadopted a position somewhat different to thatadopted on behalf of Costain by Mr. Taverner andMr. Hargreaves in respect of Issue 11. Mr. CoulsonCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 712003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)and Mr. Holwill submitted that a cause of action ofthe type contemplated by Issue 11 accrued at thelatest in about February 1990 when Tesco took upoccupation of the Store, while Mr. Taverner andMr. Hargreaves submitted that any permissibleclaim of the type contemplated by Issue 11 onlyaccrued when the fire occurred on 4 August 2001.Somewhat different positions were adopted onbehalf of Costain and on behalf of PHJ also inrelation to the answers to Issues 12 and 13. Mr.Coulson and Mr. Holwill submitted that in eachcase a cause of action accrued when Tesco reliedupon the relevant letter. Mr. Taverner and Mr.Hargreaves submitted that a cause of actionaccrued in each case after the lapse of a reasonabletime from the date of the letter to afford Tesco anopportunity to make a further inspection, by, so itwas said, 1997 at the latest. Mr. Stewart and Mr.Chapman submitted that the answer to each ofIssue 11, Issue 12 and Issue 13 was the date of thefire, 4 August 2001.237. Mr. Stewart and Mr. Chapman set out theirsubmissions in relation to Issue 11 at twoparagraphs numbered 67 of their written openingand their submissions in relation to Issues 12 and13 in paragraph 68. The submissions were asfollows:--"67. Whether the duty of care owed is aHenderson duty or a Donoghue v. Stevenson duty,it is clear that for the purposes of the accrual of thecause of action in tort, damage will not be suffereduntil damage to property occurs. The position asregards the Donoghue v. Stevenson duty is straightforward:the cause of action did not accrue untilproperty other than the store itself was damaged.Such damage did not occur until the fire.67. As regards the Henderson duty, the relevantdamage remains physical damage to property buthere the property is the store itself rather than otherproperty. The cause of action does not accrue (evenif that cause of action is in respect of a duty of carethat encompasses economic loss) until such time asphysical damage to the property itself occurs: seeHLondon Congregational Union Inc. v. Harriss &Harriss (a firm) [1988] 1 All ER 15 at 25a-d perRalph Gibson LJ. In this regard a distinction mustbe made between a defect and damage to theproperty. A defect may exist in the propertywithout causing damage to it for the purposes ofsetting time running; see HPirelli General CableWorks Ltd. v. Oscar Faber & Partners (a firm)[1983] 2 AC 1 at 16 per Lord Fraser. Thus in Pirelliitself, while the chimney was clearly defective asfrom the date it was constructed in 1969, time didnot begin to run until damage was suffered in 1970when the chimney cracked. Similarly in LondonCongregational Union Inc. v. Harriss & Harriss (afirm) the drains were clearly defective from themoment that they were constructed in accordancewith the architect's negligent design, but damagewas not suffered until flooding occurred as a resultof that defect. This position is indistinguishablefrom the present case. Here the design andconstruction of the store was defective in that thefire inhibition measures were either absent,defective or inadequate. Nevertheless, damage wasnot suffered until those defects manifestedthemselves in damage to the property as at the dateof the fire.68. Yes. See Issue 11 above. While the duty ofcare owed by Costain in relation to the 1993/4inspection and reports is modelled on moreclassical Hedley Byrne lines, the position onaccrual remains the same as for the duty owedwhen designing and constructing the store. Thequestion of when the cause of action accrues is aquestion of fact in each case. The normal positionin a classic Hedley Byrne case is that the cause ofaction will accrue when the negligentstatement/advice is relied on. But this is notinvariably the position. Thus, a mortgage lenderwho relies on a negligent survey report does notsuffer damage (and hence its cause of action doesnot accrue) when it makes the advance in relianceon the negligent survey, but only when the value ofthe security and the borrower's covenant takentogether falls below that owed by the borrower:HNykredit Mortgage Bank plc v. Edward ErdmanGroup Ltd. [1997] 1 WLR 1627. If the borrowercontinues to pay then the lender does not suffer aloss, even though, arguably, it suffers a contingentloss as soon as it makes the advance because itacquires less security that [sic] it thought it was[sic]. If there was never a default on the part of theborrower, then the lender would never sufferdamage. Similarly, in this case it would be strangeif Tesco's cause of action accrued when it relied onCostain's reports. At that stage Tesco was no worseoff than prior to the inspection and reports: it had adefective store that would suffer damage if (butonly if) a fire began. If there was never a fire, thenTesco would not suffer damage for the purposes ofsetting time running."238. In his closing submissions Mr. Coulson madea point by reference to the decision of the HCourt ofAppeal in Knapp v. Ecclesiastical Insurance GroupPlc [1998] PNLR 172 which was important, and, Ithink, not ultimately in dispute. If it was disputed toany extent, I find that it was a good point. Thepoint was that a cause of action in negligenceaccrues when the claimant first sustains realdamage, meaning other than purely minimaldamage, and that it is irrelevant that later otherdamage is suffered or that the damage originallysuffered becomes more serious. The issue wasexplained by Hobhouse LJ at page 178C-D of theCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 722003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)report in this way:--"The inquiry which we have to undertaketherefore is one which asks when the seconddefendant's negligence first became actionable. Itwas at that moment that the cause of actionaccrued. It is immaterial that at some later time thedamage suffered by the plaintiffs became moreserious or was capable of more precisequantification. Provided that some damage hasbeen suffered by the plaintiffs as a result of thesecond defendant's negligence which was "realdamage" (as distinct from purely minimal damage)or damage "beyond what can be regarded asnegligible" that suffices for the accrual of the causeof action."239. Although I think that I have summarisedsufficiently for present purposes the effect of thesubmissions made on behalf of PHJ in relation tothe Costain Accrual of Cause of Action Issues andthose made on behalf of Costain in relation toIssues 12 and 13, it is convenient to set out thewhole of the answer to Issue 11 for which Mr.Taverner and Mr. Hargreaves contended in theirwritten opening:--"277. There are two parts to this issue:(a) Which of the losses pleaded atparagraph 65 of the Re-Amended Particulars ofClaim in Action No. HT-02-07 are encompassed bythe duty owed by Costain to Tesco?(b) Did Tesco's cause of action in respectof those heads of losses accrue as at the date of thefire, 4 August 2001?278. Since Costain was the builder and not thedesigner: (i) the losses at sub-paragraphs 65b. and65c. (plant and machinery and stock) areencompassed by the duty of care; (ii) the losses atsub-paragraph 65a/ (building works) are notencompassed by the duty of care and (iii) that thelosses at sub-paragraph 65d. (loss of profit) may ormay not be encompassed depending upon theprecise reason why a loss of profit occurred.279. The cause of action in respect of thoseheads of damage encompassed by the duty of careaccrued at the date of the fire."Although in that passage Mr. Taverner and Mr.Hargreaves seem to have been treating the lossesclaimed by Tesco as consequent upon physicaldamage, as I have already indicated in myconsideration of the Costain 1993-1994 TortiousDuties Issues, in my judgment all of the elementsof loss claimed are properly to be characterised aseconomic losses so far as Costain was concernedbecause none of them was caused in any way byany default on the part of Costain, which did notcause the fire.240. There are two strands of authority to whichmy attention was drawn during the argument inrelation to the date of accrual of a cause of actionfor negligence. Those strands, as they originallydeveloped, largely reflected the distinction, towhich I have already referred, between physicaldamage and economic loss. However, the strandshave become somewhat confused as a result of arecognition, in Murphy v. Brentwood DistrictCouncil, of the fact that, although previouslycategorised as giving rise to physical damage, theproper analysis of a case in which a buildingcontained a defect which was discovered before itcaused any damage to person or property was thatthe damage in question was economic loss -- see,for example, per Lord Bridge of Harwich at page475A-G.241. It is convenient to begin the review of therelevant authorities cited to me with the decision ofthe House of Lords in Pirelli General Cable WorksLtd. v. Oscar Faber & Partners [1983] 2 AC 1. Inthat case the defendant consulting engineers wereengaged by the claimants to design an addition totheir factory which included a chimney. Thechimney was built during June and July 1969. Amaterial which was unsuitable was used in theconstruction of the chimney. No later than April1970 cracks appeared at the top of the chimney.The damage to the chimney was not discovereduntil November 1977 and it was held that it couldnot with reasonable diligence have been discoveredearlier than October 1972. The principal issue inthe case in the House of Lords was whether, in thecircumstances, a cause of action in negligenceaccrued when the cracks appeared in the chimney,when the existence of the cracks was discovered orwhen the existence of the cracks could, withreasonable diligence have been discovered. Theonly substantive speech was that of Lord Fraser ofTullybelton. At page 16F-H of the report he saidthis:--"I think, with all respect to Geoffrey Lane LJ,that there is an element of confusion betweendamage to the plaintiff's body and latent defect inthe foundations of a building. Unless the defect isvery gross, it may never lead to any damage at allto the building. It would be analogous to apredisposition or natural weakness in the humanbody which may never develop into disease orinjury. The plaintiff's cause of action will notaccrue until damage occurs, which will commonlyconsist of cracks coming into existence as a resultof the defect even though the cracks or the defectmay be undiscoverable. There may perhaps becases where the defect is so gross that the buildingis doomed from the start, and where the owner'scause of action will accrue as soon as it is built, butit seems unlikely that such a defect would not bediscovered within the limitation period. Such cases,if they exist, would be exceptional."Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 732003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)242. I shall refer to other authority falling in datebetween the two cases, but it is logical to comestraight after the citation from the speech of LordFraser in Pirelli General Cable Works Ltd. v. OscarFaber & Partners to the decision of the HPrivyCouncil in Invercargill City Council v. Hamlin[1996] AC 624, which was an appeal from theCourt of Appeal of New Zealand. An issue in thatcase was when the cause of action of a buildingowner against a local authority for negligentdischarge of its functions of inspecting a houseunder construction accrued. Under English law, inthe light of the decision of the House of Lords inMurphy v. Brentwood District Council, therewould be no cause of action at all in suchcircumstances, but, as the Privy Council madeplain, the common law of New Zealand hasdeveloped differently from English law in thisrespect. The house construction of which gave riseto the claim was built in 1972, cracks began toappear in 1974, but the action was not commenceduntil 1990. The advice of the Privy Council wasgiven by Lord Lloyd of Berwick. At page 648C-649C Lord Lloyd said, so far as is presentlymaterial:--"Once it is appreciated that the loss in respect ofwhich the plaintiff in the present case is suing isloss to his pocket, and not for physical damage tothe house or foundations, then most, if not all thedifficulties surrounding the limitation question fallaway. The plaintiff's loss occurs when the marketvalue of the house is depreciated by reason of thedefective foundations, and not before. If he resellsthe house at full value before the defect isdiscovered, he has suffered no loss. Thus in thecommon case the occurrence of the loss and thediscovery of the loss will coincide ...This approach avoids almost all the practical andtheoretical difficulties to which the academiccommentators have drawn attention, and which ledto the rejection of the HPirelli decision [1983] 2 AC1 by the Supreme Court of Canada in the Kamloopscase, 10 DLR (4th) 641. The approach is consistentwith the underlying principle that a cause of actionaccrues when, but not before, all the elementsnecessary to support the plaintiff's claim are inexistence. For in the case of a latent defect in abuilding the element of loss or damage which isnecessary to support a claim for economic loss intort does not exist so long as the market value ofthe house is unaffected. Whether or not it is right todescribe an undiscoverable crack as damage, itclearly cannot affect the value of the building onthe market. The existence of such a crack is thusirrelevant to the cause of action. It follows that thejudge applied the right test in law ....It is regrettable that there should be anydivergence between English and New Zealand lawon a point of fundamental principle. Whether thePirelli case [1983] 2AC 1 should still be regardedas good law in England is not for their Lordships tosay. What is clear is that it is not good law in NewZealand."243. The comments of Lord Lloyd in InvercargillCity Council v. Hamlin which I have quoted in thepreceding paragraph put the first instance judge inEngland and Wales in a strange position. It wasfundamental to the reasoning of the House of Lordsin Pirelli General Cable Works Ltd. v. Oscar Faber& Partners as to when a cause of action innegligence accrued in respect of defects in abuilding that the nature of that damage wasphysical. Later decisions of the House of Lordshave recognised that that is a mischaracterisationand that properly such defects should be regardedas giving rise to economic loss. Thatnotwithstanding, the decision in Pirelli GeneralCable Works Ltd. v. Oscar Faber & Partners hasnot been formally reconsidered by the House ofLords and remains technically binding upon lowercourts as the law of England. Although, howeverregrettable, it is possible conceptually for thecommon law of New Zealand to be different fromthe common law of England and Wales, what is notlogically possible is for the characterisation of adefect in a building which has not caused damageto person or property to be different in England andWales, on the one hand, and in New Zealand, onthe other. The difficulties of the first instance judgeare compounded, rather than reduced, by aconsideration of the comments which Lord Keith ofKinkel made in Murphy v. Brentwood DistrictCouncil at page 466D-G concerning the decision inPirelli General Cable Works Ltd. v. Oscar Faber &Partners. I have quoted the relevant commentsearlier in this judgment. One thus seems to have atleast two fairly broad hints, one from Lord Keithand those who agreed with him in Murphy v.Brentwood District Council, and the other fromLord Lloyd and those who concurred in the adviceof the Privy Council in Invercargill City Council v.Hamlin, that, should it ever be necessary to do so,the House of Lords may well be disposed toreconsider the decision in Pirelli General CableWorks Ltd. v. Oscar Faber & Partners. Meanwhilethe reasoning underlying it has been recognised asbeing flawed.244. A decision which followed Pirelli GeneralCable Works Ltd. v. Oscar Faber & Partners wasthat of the HCourt of Appeal in LondonCongregational Union Incorporated v. Harriss &Harriss [1988] 1 All ER 15. In that case thedefendants were architects who were engaged bythe claimants in 1969 to design a church hall. Afterit was constructed in 1970 the church hall floodedCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 742003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)on a number of occasions. In 1977 proceedingswere commenced in which it was alleged that thecauses of the flooding were the negligent design bythe defendants of the drains serving the church halland the omission from the design of a damp proofcourse. The defendants contended that the cause ofaction of the claimants had accrued when thechurch hall had been constructed and thus that itwas statute-barred by the date of thecommencement of the action. The trial judgerejected that contention and the defendantsappealed. The leading judgment was that of RalphGibson LJ. At page 22 of the report he said:--"I can see no relevant difference between therelationship of the defendant consulting engineersin the Pirelli case to their clients, the plaintiffs, andthe relationship of the defendant architects in thiscase to their clients, the United Reformed Churchof East Finchley. In both cases there was negligentdesign which was latent, in the sense that for a timethe building and the various parts of it functionedas those parts were expected and required tofunction, and which was later the cause of physicaldamage to the building. I therefore conclude that,unless this case can be distinguished on the facts insome way from the Pirelli case or unless it fallswithin an exception from the rule established bythat case, the cause of action in respect of thenegligent design of the drains must be held to haveaccrued when the flooding occurred and notbefore."245. A little later in his judgment, at page 23G-J,Ralph Gibson LJ said this:--"In applying the principle established in thePirelli case, as Judge Stabb sought to do intheTozer Kemsley case, I see no reason why on thefacts of a particular case the defect resulting fromnegligent design or supervision should notconstitute the physical damage to the buildingprovided that the damaging consequences of thedefect are immediately effective. In suchcircumstances there is no need for subsequent orlater damage in order to complete the cause ofaction.Accepting the principles stated by Judge Stabband applying them to the facts of this case, I amunable to find that the defect in design can orshould be treated as physical damage to thebuilding. The drains, in the physical conditionresulting from the defect in design, were not suchas to produce at once their damaging effects. Theywere capable of functioning properly as drains andthey did so for some twenty months. When theyfailed effectively to function as drains because ofheavy rainfall in the area they did not merelyfunction unsatisfactorily, e.g. by making noises oremitting smells, but were the cause of physicaldamage to other parts of the building. The defect indesign in this case was, in my judgment, as latent,and as distinct from subsequent physical damagecaused by it, as was the negligent incorporation ofunsuitable material in Pirelli's chimney."246. At page 25A-D of the report Ralph GibsonLJ considered an alternative argument on behalf ofthe defendants:--"Next counsel for the defendants submitted that,if the design defect in the drains cannot in this casebe treated as physical damage, nevertheless itcaused, at the date of practical completion at latest,economic damage to the plaintiffs, i.e. the burdenof the cost of putting the drains in order. As I havesaid, counsel for the defendants in this caserepeated the argument which he presented to theHouse of Lords in the Pirelli case based on twocases of breach of duty by solicitors, Howell v.Young (1826) 5 B & C 259 and HForster v. Outred& Co (a firm) [1982] 2 All ER 753, [1982] 1 WLR86. I have already set out Lord Fraser's commenton that argument: in his view the submission wasnot well founded. Counsel for the plaintiffs hasobjected that the point was not taken below andthat no evidence was directed towards it. Counselfor the defendants accepts that that is the position.Even if nevertheless the point can be regarded asopen to the defendants on this appeal, for my part Iam of the opinion that it cannot avail thedefendants so as to require that the cause of actionbe treated as having accrued at latest on practicalcompletion. The ordinary relationship of client andarchitect which existed between the parties in thiscase, or of client and consulting engineer whichwas present in the Pirelli case, is not in my viewsuch that liability for pure economic loss wouldarise in tort on proof of negligent design orsupervision but without proof of damage toproperty."The rejection by Ralph Gibson LJ of the analysisthat a defect in a building which had not causeddamage to person or property did give rise toeconomic loss and his view that an architect orconsulting engineer did not owe a duty of care intort the scope of which could extend to not causingeconomic loss to his client do not reflect the way inwhich the law in this area has developed.247. The second strand of authority to which Ihave referred may be considered for presentpurposes as commencing with the decision of theHCourt of Appeal in Forster v. Outred & Co. [1982]1 WLR 86. In that case a lady executed a legalcharge over her home in February 1973 to secureloans to be made to her son. The defendantsolicitors acted for her in relation to the executionof the legal charge and did not advise her as to riskswhich she was assuming by entering into thecharge. A demand was made under the charge inCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 772003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)such representations Costain assumed a duty ofcare to Tesco the scope of which extended tocompensating Tesco for the consequences of thefire stopping and inhibiting measures which shouldhave been there being absent. I emphasise that I donot at this stage make any finding as to what firestopping and inhibiting measures should have beenpresent. That is a matter to be determined in thesecond round of this action. However, it does seemto me obvious that Costain knew that Tesco wouldbe likely to rely, and intended Tesco to rely, uponthe terms of its reports in deciding what, if any,steps needed to be taken to provide fire protectionat the Store. Whether Tesco did actually rely uponthe terms of the reports is again a matter for thesecond round of the action. All I am indicating atpresent is that in my judgment the scope of the dutyof care which Costain assumed in writing theletters dated 19 October 1993 and 27 May 1994was one which extended to compensating Tesco forthe consequences of any fire which occurred at theStore which consequences would have beenavoided if the terms of the reports had beenaccurate, on the assumptions that they were not infact accurate and that reasonable care was not takenin making them.252. While, as I have indicated, it seems to methat the duty of care which Costain assumed bywriting the letters dated 19 October 1993 and 27May 1994 extended to liability for theconsequences of any fire which consequenceswould not have been suffered had the terms of thereports in the letters been accurate, that is not theonly liability which Costain would have incurred asa result of a breach of its duty of care in relation toeither letter. Adopting the basic comparisonanalysis explained by Lord Nicholls in NykreditMortgage Bank Plc v. Edward Erdman Group Ltd.,on the assumption that Tesco relied on the twoletters, what it did in reliance upon them in the firstinstance was not cause fire protection works to beundertaken at the Store in 1993 or 1994. If,contrary to the findings which I have alreadyindicated, Costain owed a duty of care to Tesco toundertake the provision of the necessary workswithout cost to Tesco, Tesco would probably havebeen put to some trouble and expense in chasingCostain to carry out the necessary works and tosome disruption to its trading activities at the Store,and cost, while the works were carried out,assuming that Costain was in fact prepared toundertake the works in question. If Costain was notobliged to carry out the appropriate works withoutcost to Tesco, as I have found, Tesco would havehad to fund the cost of the works itself. That wouldalso have been the case, at least in the first instance,if Costain was in fact obliged to carry out theworks, but declined to do so. The probability isthat, in whichever way Tesco was going to sustainexpense, the amount of that expense would at somepoint have been greater as a result of the passing oftime and general inflation, than it would have beenif incurred in 1993, following receipt of a nonnegligentreport in a letter of about 19 October1993, or 1994, following receipt of a non-negligentreport in a letter of about 27 May 1994. Whetherthere would in fact have been such an increase incost, and, if so, when it would have occurred, arematters to be decided in the second round of thisaction. However, in principle, if there would havebeen such increase in cost the date at which itoccurred is the date at which a cause of actionwould have accrued in respect of the letter of 19October 1993 or the letter of 27 May 1994, as thecase may be. That is the answer to Issues 12 and13.The Other Costain Company Issue253. During the course of the hearing of thepreliminary issues Tesco discontinued its claimsagainst the Other Costain Company. That seems tome to have been a belated recognition of the plainfact that the claims against the Other CostainCompany were unsustainable as a matter of law. Itseems to me to be elementary that the rights of athird party, such as Tesco, against Costain couldnot in law be prejudiced by the terms of the CostainAgreement, to which it was not a party, and that,equally, it could obtain no rights under thatagreement.The PHJ Contract Issues254. The terms in which Issue 15 is expressed aresomewhat misleading in relation to the point whichMr. Coulson and Mr. Holwill on behalf of PHJactually wanted decided. As Mr. Coulson explainedthe point orally, all it amounted to was whether, indetermining the quality of the performance requiredof PHJ of its obligations in respect of design underthe PHJ Agreement, it was appropriate to haveregard to the fact that it was actually doing itsdesign work for an experienced building contractor,Costain, and it was always envisaged that it wouldbe doing its design work for an experiencedcontractor. This relatively straightforward anduncontroversial point was complicated not only bythe somewhat unclear terms in which Issue 15 wasframed, but also by a concern on the part of Mr.Coulson to seek to have the mantra "design andbuild contractor" included in the answer. Hispreferred answer to Issue 15 as put forward duringCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 782003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)the hearing was:--"It being accepted by the parties that the questionof whether PHJ was in breach of its contractualobligations to Tesco falls to be decided in thecontext and against the factual background thatPHJ performed those obligations on the basis andin the belief that Costain was the design and buildcontractor in relation to this project, issue 15 bedisposed of on these terms."255. The formulation which I have quoted in thepreceding paragraph was agreed between Mr.Coulson and Mr. Stewart but it is susceptible of anumber of objections. Not the least of them is thatthe issue, as explained by Mr. Coulson, seems toraise simply a question of construction of the PHJAgreement, yet it was sought to rely in support ofthe construction for which PHJ contended onevents after the making of the PHJ Agreement --what Costain actually did. To construe a contractby reference to the conduct of the partiessubsequent to the making of the contract is notpermissible -- see HJames Miller & Partners Ltd. v.Whitworth Street Estates (Manchester) Ltd. [1970]AC 583. Further, the beliefs of a party to a contract,if not shared with the other party or parties, are ofno materiality to the construction of the contract.Construction of the contract falls to be approachedin the manner indicated by Lord Hoffman inInvestors Compensation Scheme Ltd. v. WestBromwich Building Society in the passage which Iquoted earlier in this judgment. Leaving thesepoints on one side, it was common ground that, inconsidering what was the nature of a duty of care intort to give advice, it is material to have regard tothe extent to which the advisee appears to needadvice. Mr. Coulson referred me to the decision ofthe Court of Appeal in Carradine Properties Ltd.v.D. J. Freeman & Co. [1999] Lloyd's Rep PN 483.Although fully reported only relatively recently thedecision actually dates back to 1982. The materialpassage was referred to by Leggatt LJ in giving thejudgment of the Court of Appeal in anotherunreported case, Virgin Management Ltd. v. DeMorgan Group Plc, in which judgment was handeddown on 24 January 1996. The material part of thejudgment is at pages 27D-29A of the transcript:--"The judge rejected Virgin's claim on the groundthat Virgin was "a high profile, successful,commercial entity" with considerable in-houseexpertise in taxation matters and was "properlyequipped to consider and take appropriate action todeal with the tax implications of their propertytransactions". There was abundant evidence tojustify these findings. Many of the facts disclosedby this evidence were not known to Finers at thetime, and evidence of them, while possibly relevanton questions of causation, was irrelevant in relationto the scope of Finers' duty. This did not turn on theextent to which Virgin in fact expected to rely onFiners for advice on VAT, but on the extent towhich they appeared to Finers to need such advice.As Donaldson LJ pointed out in CarradineProperties Ltd.v. D. J. Freeman (1982) SJ 157:"In deciding what [a solicitor] should doand what advice he should tender the scope of hisretainer is undoubtedly inportant, but it is notdecisive. If a solicitor is instructed to prepare allthe documentation needed for the sale and purchaseof a house, it is no part of his duty to pursue aclaim for unfair dismissal. But if he finds unusualcovenants or planning restrictions, it may indeed behis duty to warn of the risks and dangers of buyingthe house at all, notwithstanding that the client hasmade up his mind and is not seeking advice aboutthat. I say only that this may be his duty, becausethe precise scope of his duty will depend inter aliaupon the extent to which the client appears to needadvice. An inexperienced client will need and beentitled to expect a solicitor to take a much broaderview of the scope of his retainer and his duties thanwill be the case with an experienced client". (ouremphasis).Finers were instructed to agree thewording of the SDA prepared by Concita'ssolicitors in order to ensure that it carried out theterms of the Surveyors' Agreement. They were notinstructed to advise on the VAT implications of theproposed transaction, and in the absence of suchinstructions the Judge's conclusion that they wereunder no duty to give such advice to apparentlyexperienced and sophisticated commercial clientsor to warn them that the transaction had VATimplications is unassailable. It is absurd to supposethat Finers were under any general duty to warn ofthe possibility of a VAT liability. Clearly therewere fiscal implications in a complex transaction ofthe kind into which Virgin were proposing to enter,and the possibility that these would include VATproblems cannot have been overlooked. Mr. Lehrerwas aware that VAT considerations had dictatedthe identity of the company in which the propertieswere vested. It is true that these considerationswere concerned with liability for output tax and notinput tax, but Mr. Lehrer was entitled to supposethat similar consideration would be given to both.Given the limited nature of his instructions andthe character of the client, Mr. Lehrer was entitledto assume that the fiscal implications of theSurveyors' Agreement were being considered byothers within or instructed by Virgin with greaterexpertise in such matters than himself. Indeed, Mr.Lehrer had confirmation that this was so. At ameeting attended by him on 23rd June, Mr. DeMorgan expressed concern at the VAT implicationsof an invoice in relation to the Sixth floor of VisionHouse. But Mr. Lehrer was not instructed to advisein relation to this, and so far as he was concernedCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 792003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)whatever problem there may have been wasconsidered and dealt with without reference tohim."256. In the light of the way in which the law ofnegligence has developed in respect of itsrelationship to contractual obligations to performservices with reasonable skill and care, it seemsunlikely that the real question in a case such asCarradine Properties Ltd. v. D. J. Freeman & Co.or Virgin Management Ltd. v. De Morgan GroupPlc is whether a duty of care is owed in tort whichis wider in scope than the duty assumed under therelevant contract. Rather the true question wouldseem to be what, on proper construction of therelevant contract, is the scope of the duty, whetherin contract or in tort. That said, it seems to me thatthe sort of considerations identified by Leggatt LJin the passage which I have quoted must berelevant to a construction of the relevantcontractual obligations in the application of theprinciples expounded by Lord Hoffman inInvestors Compensation Scheme Ltd. v. WestBromwich Building Society. The answer to Issue15 is thus that it is relevant in construing the natureof the obligations assumed by PHJ under the PHJAgreement in respect of the design of the Store tohave regard to the fact that it was always envisagedand intended that the Store as designed by PHJwould be constructed by an experienced contractor.What that conclusion may mean in practice interms of what should have been included in designsprepared by PHJ is a matter for the second round ofthis action.257. Issue 16 as formulated also does not indicatewhat the real point is. It was not in dispute that thePHJ Agreement was not in fact a specialty for thepurposes of HLimitation Act 1980 s.8 because it wasnot actually executed under seal. The real questionis what, if any, was the effect of clause 9.1 of thePHJ Agreement, by which it was provided that,"For all purposes the Terms and Conditionscontained in this letter shall be deemed to havebeen made under Seal by the parties". That matterwas certainly raised by Issue 17 if not by Issue 16.258. Tesco's case in relation to Issues 16 and 17was, in essence, that upon proper construction ofclause 9.1, PHJ agreed as a matter of contract notto seek to rely, by way of answer to any claimwhich Tesco might bring against it for breach ofthe PHJ Agreement, upon the provisions ofLimitation Act 1980 until a period of twelve yearshad elapsed from the date of the alleged breach.259. PHJ's answer, as set out in paragraph 17.3 ofthe written opening of Mr. Coulson and Mr.Holwill, was:--"The Contract between PHJ and Tesco was notsealed and was therefore not a Deed. An agreementthat a document should be deemed to be under sealis not equivalent to an agreement that theapplicable limitation period for contractual claimsshould be 12 years. If Tesco had wanted to obtainthe benefit of an extended limitation period, clearwords should have been used. Tesco could andshould have sought PHJ's agreement to an expressterm to that effect."260. The provisions of HLimitation Act 1980 ss. 2and 5 are not mandatory, in the sense that theyapply regardless of the wishes of those potentiallyable to place reliance upon them. In each case inwhich it is possible to rely upon the provisions ofeither of the sections as a procedural bar to a claima party has a free choice whether to seek to relyupon them or not, as is illustrated by the decision inKetteman v. Hansel Properties Ltd. [1987] AC 187.Consequently, it seems to me that there is noreason in principle why parties to a contract shouldnot be able to abandon or to modify the entitlementwhich they would otherwise have to availthemselves in case of need of the provisions ofHLimitation Act 1980 s.2 or s.5.261. In the context of the exercise of a commonlaw right of set-off Lord Diplock said in HGilbert-Ash (Northern) Ltd. v. Modern Engineering(Bristol) Ltd. [1974] AC 689 at page 717:--"It is, of course, open to parties to a contract forsale of goods or for work and labour or for both toexclude by express agreement a remedy for itsbreach which would otherwise arise by operation oflaw or such remedy may be excluded by usagebinding on the parties ... But in construing such acontract one starts with the presumption thatneither party intends to abandon any remedies forits breach arising by operation of law, and clearexpress words must be used in order to rebut thispresumption."262. It is no doubt appropriate to approach anysuggestion that a party has by his contractabandoned or modified his ability to avail himselfof a defence given to him by statute with similarcaution to that indicated by Lord Diplock asnecessary in a case in which the defence allegedlygiven up arises at common law. However, that said,it is ultimately, as it seems to me, a question ofconstruction of the relevant contract whether aparty has abandoned or modified the right which hewould otherwise have to rely upon the provisionsof HLimitation Act 1980 ss. 2 and 5. In the presentcase it is impossible, commercially, to give anyintelligible meaning to, or to attribute anyworthwhile significance to the inclusion in the PHJAgreement of, clause 9.1 unless it is intended toCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 802003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)mean that each party agreed that its rights andobligations towards the other were to be thosewhich they would have been had the PHJAgreement been executed under seal. Theprincipal, perhaps the only, significance of thequestion whether the PHJ Agreement had beenexecuted under seal is the limitation periodapplicable to claims for damages for breach of it.The only sensible construction of clause 9.1 of thePHJ Agreement thus seems to me to be that by itthe parties agreed that neither would rely as againstthe other upon a limitation defence unless and untila period of twelve years had elapsed from the dateof any alleged breach of the agreement. That is theanswer to Issues 16 and 17.263. Issue 18 concerns Tesco's pleaded case thatterms were to be implied into the PHJ Agreementthat:--"a. PHJ would, so far as it was able, design theRedditch store so that,i Its drawings demonstrated compliancewith the relevant statutory requirements, includingBuilding Regulations;b. PHJ would, so far as it was able, inspect thesite during the construction of Redditch store so asto ensure that it was,i Constructed in accordance with goodbuilding practice;ii Constructed in accordance with therelevant statutory requirements, including BuildingRegulations."Mr. Stewart and Mr. Chapman submitted atparagraph 75 of their written opening that thoseterms were to be implied "to give business efficacyto the contract and by obvious inference on thebasis of what was expressly agreed by the parties".264. Mr. Coulson and Mr. Holwill submitted byway of answer to Tesco's case in respect of Issue18 that there was no warrant for implying into thePHJ Agreement the terms for which Tescocontended. They submitted that the PHJ Agreementwas comprehensive and that no implication wasnecessary or appropriate. They relied in particularupon the inclusion in the PHJ Agreement of aSchedule A which set out a number of work stages,all introduced by the words, "The duties to beprovided by the Architect shall comprise all or anyof the following as may be necessary in theparticular case". The ground which it was soughtto cover by the alleged implied terms was covered,they contended, by these provisions in ScheduleA:--"5.1 Prepare in conjunction with other appointedConsultants sufficient information to enable theContractor to make application for BuildingRegulation Approval and any necessary waivers forthe construction of the Works ....6.5 Generally inspect, by means of periodic siteinspection at intervals of at least once a fortnight,(or at more frequent intervals as may be necessarybut not constantly) the Works in order to seek toensure that the project is being constructedgenerally in accordance with the Building Contractand in accordance with good building practice ..."265. In my judgment the test to be satisfied if aterm is to be implied into a contract is that set outin the passage from the speech of Lord Pearson inTrollope & Colls Ltd. v. North West MetropolitanRegional Hospital Board which I have set outearlier in this judgment. I do not see how it cansensibly be said that it is necessary to imply intothe PHJ Agreement the terms for which Tescocontended or that such terms represented the actual,but unexpressed, agreement of the parties.Furthermore, it is not, in law, permissible to implyinto a contract terms which contradict the expressterms -- see, for example, HMiller v. Emcer ProductsLtd. [1956] Ch 304; Lynch v. Thorne [1956] 1WLR 303. For both of these reasons, therefore, theanswer to Issue 18 is that none of the termscontended for was to be implied.The PHJ Accrual of Cause of Action Issues266. So far as Issue 19 is concerned it seemed tobe accepted on all sides that the considerationsrelevant to answering it were essentially the sameas those which arose in relation to Issue 11, withthe difference that the focus was now theperformance by PHJ in 1989 and 1990 of itsobligations assumed under the PHJ Agreement inrespect of design of the Store and inspection ofwork in progress. In my judgment that is a realisticassessment. As I have rehearsed at some length inmy consideration of Issue 11 the relevantauthorities and the principles to be derived fromthem it is enough to say that I hold that scope of theduty of care assumed by PHJ to perform, with thecare and skill to be expected of a reasonablycompetent architect, the work of design andinspection which it agreed under the PHJAgreement to carry out did include not causingeconomic loss. When any economic loss wasincurred by Tesco would fall to be established inthe same manner as would be necessary for thepurposes of Issue 11.267. For the reasons which I have already set out,it seems to me that it is arguable that the scope ofthe duty of care owed by PHJ did not extend tobearing the consequences of the absence of firestopping and inhibiting measures in the event offire, but was limited to the loss, if any, occasionedCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 812003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)to Tesco as a result of the Store being less valuablewhen completed than it would have been if PHJhad performed its duty of care, or to the additionalcost of providing the appropriate measures, ifTesco would have had to have paid extra for themif they had been provided in 1989 or 1990 as partof the original construction of the Store. It was notup to PHJ itself to provide appropriate fire stoppingand inhibiting measures, in the sense of installingthem or paying for others to instal them, so thatPHJ's duty could have been no greater than to haveincluded the necessary design details in itsdrawings or specifications and then to have takenreasonable steps to satisfy itself that the Store hadbeen constructed in accordance with its designs.Had it performed its duty in respect of design,assuming for present purposes that it did not, Tescowould have known what fire stopping andinhibiting measures were appropriate, but it mayhave had to pay for them to be provided. If theywere included within the price which Tesco had topay anyway, Tesco's loss as a result of them beingomitted was the amount by which the Store wasworth less, when completed, than it would havebeen with appropriate fire stopping and inhibitingmeasures having been provided. If they were notincluded within the price, Tesco sustained loss atthe point at which the cost of providing themexceeded the cost had they been provided at thetime of construction of the Store.268. The essential question to which Issue 20gives rise is whether an architect owes a continuingduty to his client to review his design, such that acontractual failure to prepare competent designs isa breach which continues until completion of thestructure which he has designed. It also gave rise tothe question, to which the answer is pretty obvious,whether an architect's duty to inspect requires himto inspect that which cannot be seen because it hasbeen covered up.269. Mr. Stewart and Mr. Chapman submitted intheir written opening that the answer was that therewas a continuing duty. They relied, at paragraph78, upon a dictum of Sachs LJ in HBrickfieldProperties Ltd. v. Newton [1971] 1 WLR 862 atpage 873F that:--"The architect is under a continuing duty tocheck that his design will work in practice and tocorrect any errors which may emerge. It savours ofthe ridiculous for the architect to be able to say, asit was here suggested that he could say: "true, mydesign was faulty, but, of course, I saw to it that thecontractors followed it faithfully" and be enabledon that ground to succeed in the action."270. The notion that a professional person owes acontinuing duty to review the quality of theperformance of his retainer or engagement is not astraightforward one unless it is intended simply asa transparent mechanism for delaying artificiallythe commencement of some period of limitation. Inthe ordinary conduct of human affairs a task whichis considered to have been completed satisfactorilyis put behind one as the next task is embraced. Toexpect someone in real life continuously to reviewwhat he or she is doing is to expect them to beparalysed into substantial inactivity by anxioustraversing of old ground until eternity. A morerealistic approach is to recognise, as Oliver J did inHMidland Bank Trust Co. Ltd. v. Hett, Stubbs &Kemp [1979] Ch 384 at page 403C that:--"It is not seriously arguable that a solicitor whoor whose firm has acted negligently comes under acontinuing duty to take care to remind himself ofthe negligence of which, ex hypothesi, he isunaware."271. Mr. Coulson and Mr. Holwill, at paragraph20.2.2 of their written opening, reminded me of theconsideration of this issue by Dyson J, as he thenwas, in New Islington and Hackney HousingAssociation Ltd. v. Pollard Thomas & EdwardsLtd. [2001] PNLR 515. In paragraphs 14 to 20 hegrappled with, and resolved, the relevantconsiderations in a manner which I find, withrespect, entirely convincing. He said, omitting hiscitation of the passages from the judgments ofSachs LJ and Oliver J which I have already setout:--"14. I accept the proposition that, although it isnecessary to look at the circumstances of eachengagement, a designer who also supervises orinspects work will generally be obliged to reviewthat design up until that design has been included inthe work: see Jackson and Powell on ProfessionalNegligence, 4th Edition, para 2-17. In a number ofcases, it has been held that this duty continues untilpractical completion: see Chelmsford D. C. v. T. J.Evers (1983) 25 BLR 99, 106, Equitable DebentureAssets Corporation Ltd. v. William Moss GroupLtd. (1984) 2 Con LR 1, 24 and Victoria Universityof Manchester v. Hugh Wilson (1984) 2 Con LR43, 73.15. But it is necessary to consider the scope ofthat duty in a little more detail. What does the dutyto review the design entail? In what circumstanceswill an architect be in breach of that duty? I find itconvenient to consider an example. Let us supposethat an architect is engaged on the standard RIBAConditions of Engagement to provide the fullservice (as PTE in the present case), includingadministering a building contract in a standard JCTform of contract. Suppose that he designs thefoundations of a building (a large office block), thefoundations are constructed in accordance with hisdesign, and several years later, practical completionCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 822003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)is achieved. Let us further suppose that the designof the foundations is defective and one which noreasonably competent architect would haveproduced: in other words, the architect wasnegligent. There can be no doubt that the architectcommits a breach of contract when he completesthe design and gives instructions to the contractorto construct the foundations in accordance with it.But in what sense and to what extent is thearchitect under a duty to review his negligentdesign once the foundations have been designedand constructed?16. In my view, in the absence of an expressterm or express instructions, he is not under a dutyspecifically to review the design of the foundations,unless something occurs to make it necessary, or atleast prudent, for a reasonably competent architectto do so. For example, a specific duty might ariseif, before completion, the inadequacy of thefoundations causes the building to show signs ofdistress; or if the architect reads an article whichshows that the materials that he has specified forthe foundations are not fit for their purpose; or if helearns from some other source that the design isdangerous. In such circumstances, I am in no doubtthat the architect would be under a duty to reviewthe design, and, if necessary, issue variationinstructions to the contractor to remedy theproblem. But in the absence of some reason such asthis, I do not think that an architect who hasdesigned and supervised the construction offoundations is thereafter under an obligation toreview his design.17. I do not accept that in every case where anarchitect has negligently introduced a defectivedesign into a building, he is also by the same tokenin breach of a continuing breach [sic] of acontractual obligation to review his design. [DysonJ then quoted the words of Oliver J in MidlandBank Trust Co. Ltd. v. Hett, Stubbs & Kemp whichI have already set out.]18. In my view, that observation is as apt toapply to an architect as it is to a solicitor. Theposition is quite different where the architect (orsolicitor) knows, or ought to know, of his earliernegligence. When that occurs, then he may well beunder a contractual obligation to review his earlierperformance, and advise his client honestly andcompetently of his opinion. Whether he is in factunder such a duty when he has actual orconstructive knowledge of his earlier breach ofcontract will depend on whether the contract is stillbeing performed. If the contract has beendischarged (for whatever reason), then theprofessional person may be under a duty in tort toadvise his client of his earlier breach of contract,but it is difficult to see how he can be under anycontractual duty to do so.19. The foundation for the statement in the casesthat an architect is under a continuing duty toreview his design is the dictum of Sachs LJ inHBrickfield Properties Ltd. v. Newton [1971] 1WLR 862, 973F [sic]: [which was then set out].20. But Sachs LJ was not concerned to explorethe scope of an architect's continuing duty toreview his design. In my judgment, the duty doesnot require the architect to review any particularaspect of the design that he has already completedunless he has good reason for so doing. What is agood reason must be determined objectively, andthe standard is set by reference to what areasonably competent architect would do in thecircumstances."272. In the light of those observations of Dyson JI find that the answer to Issue 20 is that any causeof action in respect of any relevant breach ofcontract accrued at the point at which the relevantdesign was completed by PHJ or the relevantinspection made, and did not continue beyond thatpoint. The answer to the question whether PHJowed any obligation to inspect work which hadbeen covered up is that it did not.The Inspection Issue273. The answer to Issue 21 depends entirelyupon my findings of fact in the light of theevidence as to who, if anyone, made any inspectionof the Store in the autumn of 1993.274. Mr. Stewart submitted that on the evidenceas a whole no one made any inspection. Hepointed, in particular, to the facts that it was notpossible for Costain to identify who had made anyinspection and that there was no contemporaneousrecord of an inspection, such as notes or anannotated drawing or a file memorandum. He alsodrew attention to the fact that the evidence from themarking on the "Received" stamp applied by PHJ tothe reverse of Costain's letter dated 9 September1993 was that drawings were only despatched inresponse to the request in that letter on 12 October1993 and, assuming receipt of the drawings in theordinary course of post, that left little time for theinspection of the Store to have been carried outbefore Mr. Gibson-Leitch wrote his letter dated 19October 1993. It seemed to be common ground thatit would take two or three days to do a proper fireinspection of the Store. All of this is true, but it isimplicit in this submission that Mr. Gibson-Leitch,when he wrote his letters of 19 October 1993 and27 May 1994, knew that what he was writing wasuntrue. Having seen and heard Mr. Gibson-Leitchgive evidence I reject that implicit submissionabsolutely. I was impressed by Mr. Gibson- Leitch.Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 832003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)I consider him to be a man of the highest integrity,and, moreover, as I have said, a careful andcautious man. He would have had no reason towrite as he did unless he considered that he hadgood grounds for what he wrote. He personally wastotally unaffected whether or not an inspection hadbeen carried out, and whatever it was that aninspection revealed. It is obvious from the evidenceput before me that material in relation to theinspection of other Tesco stores in the Midlandswhich resulted in letters being written by Costainwhich were logged by Tesco as having beenreceived, but now cannot be found, that relevantdocumentation has gone missing. I accept theevidence of Mr. Gibson-Leitch that he delegatedthe task of inspection to someone -- to whom, it isno longer possible to say -- who seemed to himcompetent to undertake an inspection of the firestopping and inhibiting works at the Store, and thatthat person subsequently reported to Mr. Gibson-Leitch in terms which persuaded him that a properinspection had been carried out and that theappropriate works had been properly carried out inthe first place.275. Mr. Taverner submitted that I should findthat an inspection of the Store had been made onbehalf of Costain in the autumn of 1993 before Mr.Gibson-Leitch wrote his letter dated 19 October1993, and that on that inspection the representativeor representatives of Costain had beenaccompanied by a representative or representativesof PHJ. He relied heavily upon the terms of thenotes made by Mr. O'Connor on 16 and 17 May1994 which recorded Mr. Gibson-Leitch as havingsaid at that time that he recollected jointinspections with architects at the four Tesco storesin the Midlands area built by Costain and Mr.Heckels as having said that he had undertaken aninspection at New Oscott and as having surmisedthat an inspection had been undertaken by someoneat PHJ, probably Mr. Truman, at the Store. Mr.Taverner also relied upon the fact, as to whichCostain witnesses spoke, and which seems to havebeen accepted at least in general terms by Mr.Heckels, that Tesco's usual practice was to requirea joint inspection by the relevant architect andcontractor. Further, he also attention to the fact thatthere was no positive evidence that there had notbeen a joint inspection.276. Mr. Coulson contended that there was nosubstance in the points made by Mr. Tavernerwhich I have summarised in the precedingparagraph.277. It was, as it turned out, not in dispute thatMr. Truman had left the employment of PHJ at thebeginning of 1993 before the question of aninspection of the Store had arisen. That meant, as itseems to me, first, that Mr. Truman could not havebeen the person who made a joint inspection, ifjoint inspection there was, of the Store with arepresentative of Costain. Second, it meant that Mr.O'Connor's note upon which Mr. Taverner reliedeither recorded accurately inaccurate informationas to Mr. Truman provided by Mr. Heckels orrecorded inaccurately what Mr. Heckels said. Ihave already recorded that both Mr. Heckels andMr. O'Connor were called to give evidence, butneither had any recollection of their conversationindependent of the note made by Mr. O'Connor. Inmy judgment the possibility of misunderstanding atthe time of the conversation was increased by thefact that neither Mr. Heckels nor Mr. O'Connor hadany involvement with the Store apart from thisconversation and, in the case of Mr. Heckels, beingthe PHJ person who was asked to provide therelevant fire precautions drawings to Costain. Mr.Gibson-Leitch in his evidence spoke of Mr.O'Connor's note being inaccurate insofar as itsuggested that Mr. Gibson-Leitch personally hadcarried out surveys of Tesco stores. A furthermystery concerning the notes made by Mr.O'Connor was that they referred to Costain,according to Mr. Gibson-Leitch, having no recordof having reported to Tesco following theinspection of the Store, when in fact Mr. Gibson-Leitch had done so in his letter dated 19 October1993. As I have already indicated, it seems to methat it would not be safe to draw any inferencefrom the terms of Mr. O'Connor's notes. Forwhatever reason they were not accurate in anumber of respects.278. Mr. Coulson also drew attention to the factthat, if Costain had wanted PHJ to inspect the Storejointly with it, the logical point at which to makesuch request would have been in Mr. Burley's letterdated 9 September 1993. That is a fair point.Moreover, in none of the subsequent writtencommunications between Costain and PHJ wasthere any reference to any joint inspection. Mr.Gibson-Leitch's letter dated 19 October 1993 wascopied to PHJ, but that referred only to what "we",meaning in the context Costain, had taken it uponitself to do. There was no suggestion in the letterthat the inspection had been made jointly with PHJ.While what prompted Mr. Dainty of Tesco to writehis letter to PHJ dated 28 April 1994 was obscure,the responses to it did indicate a number of thingsrelevant to the question whether PHJ had made ajoint inspection with Costain in the previousautumn. If there had been a joint inspection onewould have expected that that would have beenrecollected then by relevant personnel on bothsides, specifically Mr. Gibson-Leitch on theCostain side and Mr. Welch on the PHJ side. OneCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 842003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)might have expected the fact of a joint inspection tohave been mentioned in correspondence to Tesco,given that by his letter dated 28 April 1994 Mr.Dainty was specifically asking for PHJ toundertake an inspection. However, in his letterdated 27 May 1994 to Tesco Mr. Gibson-Leitchspoke only of what "we", that is Costain, couldconfirm. Mr. Welch in his letter to Tesco dated 3June 1994 in terms referred to the inspection ashaving been carried out by Costain. He made thatpoint in his letter to Mr. Gibson-Leitch dated 3June 1994. While it is always possible that aresponse from Costain challenging that assertionhas gone missing, given the terms of Mr. Gibson-Leitch's letters to which I have referred, that seemsunlikely.279. In the result I conclude that the answer toIssue 21 is that Costain alone made an inspection ofthe Store in the autumn of 1993 and that PHJ madeno inspection.The PHJ 1993-1994 Tortious Duties Issues280. These were rather curious issues in that theydid not arise as between Tesco and PHJ, each ofwhich agreed that PHJ owed no duties either toTesco or to Costain in relation to the Store in 1993and 1994. It was only Costain which contended thatPHJ owed any duties to Tesco or to Costain.281. The way in which Mr.Taverner and Mr.Hargreaves put Costain's case in relation to theseissues in their written opening was as follows:--"355. These issues fall to be answered asfollows:(a) PHJ owed Tesco and Costain a duty ofcare to identify any element of the design of theRedditch store which did not comply with theStatutory Regulations prevailing at the time ofconstruction. (This is whether PHJ inspected ornot.)(b) PHJ owed Tesco a duty to inspect theRedditch store with that degree of skill and care tobe expected of the reasonably competent architectcarrying out such an inspection.356. The nature of the duties was for PHJ toexercise that degree of skill and care to be expectedof the reasonably competent architect performingsuch services.357. The duty ran from the date of reliance (ifany) by Tesco up and until a further inspection wasor could be expected to be carried out which couldgive rise to the opportunity for the statement beingshown to have been wrong.358. As regards the duty owed to Costain, thisran from the date of Costain's reliance i.e. around3rd June 1994.359. The duties are capable of encompassing oneor more of the losses pleaded at paragraph 65 ofRAPC, including Costain's liability to Tesco (ifany) (see paragraphs 20Q and 20M of Costain'sAmended Particulars of Part 20 Claim.360. PHJ owed Costain a duty of care in thesecircumstances because:(a) PHJ knew, or ought reasonably to haveknown, that Costain asked for "the supply of alldrawings relevant to fire protection/preventionworks at the Redditch store" for the purposes ofcarrying out an inspection of the Redditch store.(b) PHJ thereafter supplied these drawingsknowing that Costain would use them in carryingout an inspection of the Redditch store.(c) Costain, as contractor, would haveassumed, and was entitled to assume, that thedesign depicted in the drawings complied with theStatutory Regulations prevailing at the time ofconstruction.(d) PHJ knew, or ought reasonably to haveknown, that Costain would assume that thedrawings complied with the Statutory Regulationsprevailing at the time of construction.(e) PHJ did not say at any time prior to theinspection (or afterwards) that the design of theRedditch store failed to comply with the StatutoryRegulations prevailing at the time of construction.(f) The inspection in October 1993 tookplace jointly between Costain and PHJ.(g) Costain copied the 19 October 1993letter to PHJ.(h) On 28 April 1994 Tesco wrote to PHJin the terms set out at paragraph 323 above.(i) On 27 May 1994, Costain wrote toTesco in the terms set out in paragraph 327 above,and copied that letter to PHJ.(j) On 3 June 1994, PHJ wrote to Tesco inthe terms set out at paragraph 329 above, andcopied that letter to Costain.(k) PHJ's letter dated 3rd June 1994implicitly confirmed that it was satisfied by itsprevious inspection with Costain and/or that it wassatisfied that the drawings which it had supplied toCostain expressly for the purposes of inspectioncomplied with the Statutory Regulations prevailingat the time of construction. Otherwise, PHJ's letterdated 3rd June 1994 was not a proper response toTesco's letter dated 28th April 1994."282. The exposition of Costain's case which Ihave quoted in the preceding paragraphdemonstrated, as it seemed to me, the fallacies in it.To the extent to which it depended upon a findingthat PHJ had inspected the Store jointly withCostain in the autumn of 1993, it failed because Ihave not made the requisite finding. In the absenceof such a finding it seems to me that the case is allCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 852003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)but unarguable. It is, with the greatest respect toMr. Taverner and Mr. Hargreaves, verging on theabsurd to suggest that by supplying, in response toa request, "all drawings relevant to fireprotection/prevention works at the Redditch store"PHJ was making any statement as to whether theydid, or did not, indicate compliance with relevantstatutory regulations. The request was a request tobe supplied the drawings in fact prepared and usedfor construction, and the supply of drawings inresponse to such a request involved no more thanan implicit statement that the drawings sent werethe correct drawings. What PHJ had no reason tosuppose, at the time it supplied the drawingsrequested, was that Costain would be so stupid asto represent to Tesco that the works shown on thedrawings, if carried out properly, were such ascomplied "with the requirements of the design andstatutory regulations prevailing at the time ofconstruction", unless it was competent to do so.Yet, unless it is contended that PHJ should haveenvisaged that possibility, the alleged duty of PHJis ridiculous. In his final closing submissions Mr.Taverner told me that it will be Costain's case inthe second round of the trial that, upon properconstruction, Costain's letters dated 19 October1993 and 27 May 1994 meant no more than thatCostain had made such inspection as couldreasonably be expected of a contractor. I saynothing about that submission at this stage, savethat it is not obviously easy to reconcile with thesubmission currently under consideration.283. As for the suggestion that, by copying PHJ inon correspondence with Tesco or by indicating toPHJ in May 1994 that it had dealt with Tesco'senquiry concerning the Store in 1993, PHJ therebyassumed a duty of care to Tesco or to Costain ineffect to consider whether it agreed with whatCostain had told Tesco in its letters of 19 October1993 and 27 May 1994 and, if not, to speak out,that seems to me to be preposterous. It would bewrong in principle to impose a duty of care upon aparty which has done nothing to assume one, buthas merely received correspondence or copies ofcorrespondence in which another party hasexpressed opinions or made statements of fact.284. The answer to Issue 22 is, therefore, that PHJassumed no duty of care to either Tesco or Costainin relation to the Store in 1993 or 1994.285. In the circumstances answering Issue 23 doesnot seem to be particularly sensible. However,theoretically the answer seems to be the same asthe answers to Issues 12 and 13.Conclusions286. For the reasons which I have set out earlier inthis judgment the answers to the preliminary issuesare as follows:--1. Did the Claimant ("Tesco") and the FirstDefendant ("Costain") make a contract in 1989under which Costain undertook to carry out anywork or provide any services for Tesco inconnection with the construction of a supermarketand associated buildings at a site at ColdfieldDrive, Oakenshaw Wood, Redditch, Birmingham("the Redditch Site")?Answer: Tesco and Costain did make a contractin 1989 under which Costain undertook to carry outwork for Tesco in connection with the constructionof the Store.2. If the answer to Issue 1 is affirmative:(i) Was it a term of such a contract that thelimitation period in respect of any breaches of theagreement would be twelve years?Answer: No.(ii) How was such contract made and whatdocuments, if any, were incorporated into it?Answer: The contract was made by thecounter-signature on behalf of Costain and return toTesco of Tesco's letter dated 20 March 1989. Theonly document incorporated into the contract wasthat letter as counter-signed and returned.(iii) Were any, and if so which, of theexpress terms pleaded at paragraph 15 of the Re-Amended Particulars of Claim in Action No. HT-02-07 terms of such agreement and, if not so far asmaterial, what were the express terms?Answer: None of the express termspleaded at paragraph 15 of the Re-AmendedParticulars of Claim in Action 07 were expressterms of the contract. The express terms of thecontract were only that Costain would commencethe work of construction of the Store in advance ofthe making of a formal contract and those terms asto payment in the event that no formal contract wasconcluded set out in the letter dated 20 March1989.(iv) Were any, and if so which, of theimplied terms pleaded at paragraph 16 of the Re-Amended Particulars of Claim in Action No. HT-02-07 terms of such agreement and, if not, so far asmaterial, what were the implied terms?Answer: In the way in which they wereformulated none of the terms pleaded at paragraph16 of the Re-Amended Particulars of Claim inAction 07 were implied terms of the contract.However, there were implied terms of the contractthat Costain would perform any construction workwhich it carried out under the contract in a goodand workmanlike manner and that insofar as anydesign decision in relation to the Store was madeby Costain, the element designed would beCopr. © West 2004 No Claim to Orig. Govt. 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2003 WL 21729349 Page 862003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)reasonably fit for its intended purpose.3. Is Costain estopped, as asserted by Tesco atparagraph 12A of its Amended Reply in Action No.HT-02-07, from denying that "the contract withTesco for the design and construction of theRedditch Store was on Tesco's standard terms andconditions" by reason of the matters set outtherein?Answer: No.4. Is Costain estopped, as against Tesco and/orthe Third Defendant ("PHJ"), from denying that itwas retained as Tesco's design and build contractoras alleged in paragraph 5 of PHJ's Defence toCostain's Part 20 proceedings in Action No. HT-02-07?Answer: No.5. If the answer to Issue 2(i) is negative, isCostain estopped, as asserted by Tesco atparagraph 65(2) of the Amended Reply in ActionHT- 02-07 from "denying any claim made byTesco is statute-barred provided that any suchclaim has been made within 12 years from theoccurrence of the relevant breach of whichcomplaint is made"?Answer: No.6. Is Costain estopped from denying a novationby conduct in April 1989 as alleged at paragraph 5of PHJ's Defence to Costain's Part 20 proceedingsin Action No. HT-02-07?Answer: No.7. Did Costain owe to Tesco any duty of care intort in relation to anything undertaken by Costainin connection with the Redditch Site in 1989?Answer: Yes.8. If the answer to Issue 7 is affirmative were thenature and extent of such duty of care as set out inparagraph 17 (and 15 and 16) of the Re-AmendedParticulars of Claim and paragraph 13 of the Replyto the Defence of Costain in Action No. HT-02-07;and if not, what were the nature and extent of theduty of care owed by Costain to Tesco?Answer: The duty of care owed by Costain toTesco was to execute any building or design workwhich Costain in fact carried out itself with the careand skill to be expected of a reasonably competentbuilding contractor so as not to cause damage toperson or property or economic loss.9. Did Costain assume a duty of care to Tesco ofthe nature and extent pleaded at paragraph 27 of theRe-Amended Particulars of Claim in Action No.HT-02-07 as a result of the writing by Costain toTesco of the letter dated 19 October 1993; and, ifnot, what were the nature and extent of the duty ofcare to Tesco (if any) assumed by Costain inwriting the letter dated 19 October 1993?and10. Did Costain assume a duty of care to Tescoof the nature and extent of the [sic] pleaded atparagraph 21 of the Amended Particulars of Claimin Action No. HT-02-439 as a result of the writingby Costain to Tesco of the letter dated 27 May1994; and, if not, what were the nature and extentof the duty of care to Tesco (if any) assumed byCostain in writing the letter dated 27 May 1994?Agreed answer to 9 and 10: It being accepted byCostain that in undertaking the inspection and inmaking the statements in the letters dated 19October 1993 and 27 May 1994, Costain undertookto Tesco a common law duty of care to undertake adetailed inspection of fire barriers with reasonableskill and care, and to exercise reasonable skill so asto ensure that the statements made in the letters (of19 October 1993 and 27 May 1994) were accurate,the questions of the nature and scope of that duty ofcare, including the meanings of "a detailedinspection" and "fire barriers" be left over to thetrial in October.11. If the answers to Issues 7 and 8 are to theeffect that a duty of care was owed by Costain toTesco which was capable of encompassing one ormore of the losses pleaded at paragraph 65 of theRe-Amended Particulars of Claim in Action no.HT-02-07, and on the assumption that Costain wasin breach of that duty of care as alleged by Tesco inthe said Re-Amended Particulars of Claim, subjectto issues arising under Hsection 14A and section 32of the Limitation Act 1980, did Tesco's cause ofaction in tort in respect thereof accrue as at the dateof the fire, 4 August 2001?Answer: No. Any cause of action accrued at thedate at which Tesco in fact sustained economic lossas a result of a breach of the duty of care. If theStore as completed was less valuable than it wouldhave been had the requisite fire stopping andinhibiting measures been incorporated into it, thecause of action accrued at the date of PracticalCompletion. If that is not so, but Tesco would havebeen put to additional expense had it required theinclusion in the Store at the time of construction ofthe appropriate fire stopping and inhibitingmeasures, the cause of action accrued at the date atwhich that cost exceeded what it would have beenat the time of the original construction of the Store.12. If the answer to Issue 9 is to the effect that aduty of care was owed by Costain to Tesco whichwas capable of encompassing one or more of thelosses pleaded at paragraph 65 of the Re-AmendedParticulars of Claim in Action No. HT-02-07, andon the assumption that Costain was in breach ofthat duty of care as alleged by Tesco in the said Re-Amended Particulars of Claim, subject to issuesarising under Hsection 14A and section 32 of theLimitation Act 1980, did Tesco's cause of action intort in respect thereof only accrue as at the date ofthe fire, 4 August 2001?Answer: No. Any cause of action accrued at thedate upon which the cost to Tesco of having carriedout the works which it would have had carried outCopr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 872003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)but for its reliance upon the report increased abovewhat that cost would have been as at the date ofTesco's reliance upon the report and Tesco therebysustained a loss.13. If the answer to Issue 10 is to the effect that aduty of care was owed by Costain to Tesco whichwas capable of encompassing one or more of thelosses pleaded in the Amended Particulars of Claimin Action No. HT-02-439, and on the assumptionthat Costain was in breach of that duty of care asalleged by Tesco in the said Amended Particularsof Claim, subject to issues arising under Hsection14A and section 32 of the Limitation Act 1980, didTesco's cause of action in tort in respect thereofonly accrue as at the date of the fire, 4 August2001?Answer: As for Issue 12.14. On the assumption that Costain is liable toTesco to any extent in respect of the claims madein this action, is the Second Defendant ("CostainLimited") liable to Tesco as contended at paragraph66 of the Re-Amended Particulars of Claim inAction No. HT-02-07 and in paragraph 54 of theParticulars of Claim in Action No. HT-02-439?Answer: The agreed answer to this issue is no, asthe claim against the Second Defendant has beendiscontinued.15. If there was no contract as between Tescoand Costain which imposed upon Costain designand build obligations (whether in accordance withthe Tesco Standard Documentation for use with theDesign and Build Contracts, Issue No. 7, orotherwise) do PHJ's contractual obligations toTesco nevertheless fall to be determined on thebasis that the position as between Tesco andCostain was that Costain had undertaken designand build responsibilities to Tesco as alleged inparagraph 11A of PHJ's Amended Defence inAction No. HT-02-07?Answer: Upon proper construction of the PHJAgreement what was required to be included byPHJ in its designs of the Store was to bedetermined having regard to the fact that thosedesigns were to be implemented by an experiencedbuilding contractor.16. Was the agreement executed by PHJ on 20March 1989 deemed as between the parties to it tobe a specialty for the reason pleaded at paragraph56 of the Re-Amended Particulars of Claim inAction No. HT- 02-07?and17. Is the limitation period for the contractualclaims made by Tesco against PHJ in respect ofalleged breaches of the agreement executed by PHJon 20 March 1989, pleaded at paragraph 8 of theRe-Amended Particulars of Claim in Action No.HT-02-07, 12 years or 6 years?Answer: Although the PHJ Agreement was notin fact a specialty, upon proper construction ofclause 9.1 of it PHJ agreed not to raise a defence oflimitation in respect of any claim for alleged breachof the agreement unless and until a period of 12years had elapsed from the date of the allegedbreach.18. Were any, and if so which, of the impliedterms pleaded at paragraph 10 of the Re-AmendedParticulars of Claim in Action No. HT- 02-07 termsof the agreement between Tesco and PHJ which ispleaded at paragraph 8 of that Re-AmendedParticulars of Claim?Answer: None of the alleged implied terms wereterms of the PHJ Agreement.19. If PHJ was in breach of any duty of careowed in tort to Tesco, as alleged in paragraph 54 ofthe Re-Amended Particulars of Claim in ActionNo. HT-02-07, and subject to issues arising underHsection 14A and section 32 of the Limitation Act1980, did Tesco's cause of action in tort in respectthereof only accrue as at the date of the fire, 4August 2001?Answer: No. Any cause of action accrued at thedate at which Tesco in fact sustained economic lossas a result of a breach of the duty of care. If theStore as completed was less valuable than it wouldhave been had the requisite fire stopping andinhibiting measures been incorporated into it, thecause of action accrued at the date of PracticalCompletion. If that is not so, but Tesco would havebeen put to additional expense had it required theinclusion in the Store at the time of construction ofthe appropriate fire stopping and inhibitingmeasures, the cause of action accrued at the date atwhich that cost exceeded what it would have beenat the time of the original construction of the Store.20. Whether the nature of the obligations set outin paragraphs 9, 10 and 11 of the Re-AmendedParticulars of Claim was such that, in the event thatPHJ was in breach of contract as alleged by Tesco,those breaches of contract occurred at or continueduntil Practical Completion regardless of (1) whenthe allegedly defective design work wasundertaken; and (2) whether, as a matter of fact, thedefects in construction alleged could or could notbe detected upon a reasonable inspection of theRedditch store as at the date of PracticalCompletion.Answer: PHJ had no obligation to review itsdesign unless something occurred which wouldhave brought to the attention of a reasonablycompetent architect the need to review his design.PHJ had no obligation to inspect work executed atthe Store which had been covered up.21. Did Costain or PHJ carry out an inspectionof the Redditch store in 1993/1994? If so, which?Answer: Costain carried out an inspection in theautumn of 1993.22. In all the circumstances, what were thenature and extent of any duty of care in tort, if any,Copr. © West 2004 No Claim to Orig. Govt. Works

2003 WL 21729349 Page 882003 WL 21729349 (QBD (T&CC)), [2003] EWHC 1487(Publication page references are not available for this document.)assumed by PHJ to Tesco and/or Costain in relationto the Redditch Store in 1993 and 1994?Answer: PHJ did not assume any duty of care toeither Tesco or Costain in relation to the Store in1993 or 1994.23. If PHJ did owe Tesco and/or Costain a dutyof care in relation to the Redditch store in 1993/4as alleged by Costain in its Amended Particulars ofClaim in Action No. HT-02-07, and on theassumption that PHJ was in breach of that duty ofcare as alleged by Costain, did Costain's cause ofaction in respect thereof accrue in 1993/4 or did itonly accrue at the time of the fire, namely 4 August2001?Answer: In 1993-1994.END OF DOCUMENTCrown Copyright.287. In the light of the answers which I havegiven to the preliminary issues it would seem that,subject to establishing that Costain was in breachof the duty of care which it was agreed it owed toTesco in respect of its inspection of the Store in theautumn of 1993 and the reports contained in Mr.Gibson- Leitch's letters dated, respectively, 19October 1993 and 27 May 1994, and subject towhatever benefit from reliance upon the provisionsof HLimitation Act 1980 ss.14A and 32 Tesco mayyet derive, Costain will be liable to Tesco only ifthe cost to Tesco of causing to have carried outwhatever works it would have caused to be carriedout if it had known of deficiencies in the firestopping and inhibiting works at the Store in1993/1994 would not have increased between thenand 9 January 1996, the date six years before thecommencement of Action 07. That, of course,assumes that, if there were any earlier breach of aduty of care, a cause of action in respect of itaccrued some time round about 1990 and that noreliance could successfully be placed upon theprovisions of HLimitation Act 1980 ss. 14A and 32in relation to it. It also assumes that the scope ofany earlier duty of care extended to the economiclosses caused to Tesco by the fire at the Store on 4August 2001.288. So far as PHJ is concerned, whether it hasany liability to Tesco for breach of the PHJAgreement would seem to depend upon proof ofsome deficiency in its work of design completedafter 9 January 1990, or proof of some failure afterthat date to react appropriately to some triggerwhich ought to have prompted it to review itsdesign, or proof of some failure to carry out acompetent inspection after that date. Whether PHJhas any liability in tort to Tesco would seem todepend upon proof of a breach of a duty of care, theproper scope of that duty in relation to the type oflosses to which it extended, and the benefit, if any,which Tesco can derive from the terms ofHLimitation Act 1980 ss. 14A.Copr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 12002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)HT-01-253, NEUTRAL CITATION NO. [2002]EWHC 482(TCC)IN THE HIGH COURT OF JUSTICEIN THE QUEENS BENCH DIVISIONTECHNOLOGY AND CONSTRUCTIONCOURTSt. Dunstan's House,133-137, Fetter Lane,London, EC4A 1HDTuesday 26th March, 2002B e f o r e: HIS HONOUR JUDGE RICHARDSEYMOUR Q.C.HTA ARCHITECTS LIMITED, HUNTTHOMPSON ASSOCIATES (A FIRM) Claimantsv.(1) COUNTRYSIDE PROPERTIES PLC (2)TAYLOR WOODROW PLC (3) TAYWOODHOMES LIMITEDDefendantsMichael Douglas Q.C. ( instructed by HammondSuddards Edge for the Claimants) David FriedmanQ.C. and Nerys Jefford ( instructed by CampbellHooper for the Defendants)J U D G M E N TAPPROVED BY THE COURT FOR HANDINGDOWN (SUBJECT TO EDITORIALCORRECTIONS)Introduction1. Towards the end of the 1990s the GreenwichPeninsula to the south-east of London wasconsidered ripe for redevelopment. One of theschemes which was undertaken was that for theconstruction of the Millennium Dome. In July 1997the Deputy Prime Minister, Mr. John Prescott,announced a competition for the design anddevelopment on a 13 hectare site of a housingproject to be called Greenwich Millennium Village(GMV). The freehold owner of the site of GMVwas English Partnerships (EP).2. Messrs. Hunt Thompson Associates (HTA) wasa firm of architects which was established in 1969.One of the founding partners in the practice wasMr. Bernard Hunt. The practice of HTA wastransferred in December 1998 to a limited liabilitycompany which had been incorporated to take itover. That company was, and is, called HTAArchitects Ltd. (HTA Ltd.). HTA and HTA Ltd.are the Claimants in this action.3. After the announcement of the competition forthe design and development of GMV HTA decidedto seek to form a team to submit an entry. Theteam needed to include both entities able to prepareappropriate designs and entities able to translateany design into structures. Essentially what wasrequired was both architects, supported by otherappropriate professional disciplines, such asengineers, and house builders.4. In his efforts to put together a team Mr. Huntapproached representatives of Berkeley Homes Ltd.(Berkeley), Moat Housing Group (Moat) andCopthorn Homes Ltd. (Copthorn). Copthorn is asubsidiary of Countryside Properties Plc(Countryside). Countryside is the first Defendantin this action.5. According to the evidence of Mr. Hunt in hisfirst witness statement, dated 19 February 2002,Mr. Terry Sullivan of Berkeley suggested that HTAinclude in its team a firm of architects called ColeThompson Associates (CTA). CTA had beeninvolved in the development of a type of housecalled an Integer home. Integer is apparently acontraction of the words intelligent and green.6. Mr. Hunt decided that it was appropriate toseek to involve in the team the well-knownSwedish-based architect Mr. Ralph Erskine.7. At an early point a fourth architectural practicebecame involved with the team. That practice wasMessrs. Baker-Brown McKay (BBMK). Theparticular expertise of BBMK was in relation to thedesign of what was described as the TeleservicesCentre.8. By about October 1997 it had been decided thatit was appropriate to include within the team a firmof engineers. So it was that Messrs. BattleMcCarthy (BM) became involved.9. Despite the initial interest of Berkeley, by aboutthe beginning of September 1997 it had droppedout and its place had been taken by TaywoodHomes Ltd. (Taywood). Taywood is a subsidiaryof Taylor Woodrow Plc (TW). TW and Taywoodare, respectively, the second and third Defendantsin this action.10. Also by about the beginning of September1997 the place of Copthorn in the team had beenCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 22002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)taken by its parent company, Countryside.11. On about 9 October 1997 Taywood, acting, onits case, on its own behalf and on behalf ofCountryside and Moat, retained Messrs. TrenchFarrow & Partners (TFP), a firm of projectmanagement consultants. The precise roleundertaken by TFP in relation to the questionswhich I have to decide is a matter of controversy inthis action. The Defendants case is that TFP wasretained, and had authority, only to negotiate, andto agree in principle, Heads of Terms, and had noauthority actually to enter into a binding contracton behalf of those for whom it was acting. Forconvenience I shall call those on whose behalf TFPwas acting hereafter in this judgmentcompendiously the Developers. The Claimantscase is that TFP had full authority to make acontract binding on the Developers. TFP in facthad a more general role in relation to the GMVproject, as I shall call it, and that was to act asproject managers in respect of the task ofproducing a competition entry on behalf of theDevelopers from HTA and the other professionalfirms which I have mentioned. I shall referhereafter in this judgment to HTA and the otherprofessional firms compendiously as the DesignTeam. I shall in this judgment call the Developersand the Design Team collectively the GMT, whichis what they called themselves at the time.12. The design competition had three phases.Phase 1 was an elimination phase intended toreduce the number of entrants in Phase 2, thecompetition proper. Phase 3 was the developmentphase, in which the successful competitorundertook the actual development of GMV.13. The GMT presented a Phase 1 submission on26 September 1997. As a result of that submissionthe GMT was selected to proceed to Phase 2. Thatsuccess became known on 29 September 1997. APhase 2 submission was made on 4 January 1998and was followed by an oral presentation made on6 February 1998. Again success was achieved.That success was notified to the GMT on about 11February 1998. At the end of June 1999 relationsbetween the Developers and at least HTA weresevered. The present action arises out of thatseverance. The case of the Claimants is that theseverance to which I have referred occurred inbreach of a contract which the Claimants contendwas made between HTA, acting on behalf of itself,CTA, Ralph Erskine, BBMK and BM, in relation toStage 2 of the competition, but on behalf of itselfand Ralph Erskine only in relation to Stage 3, onthe one hand, and Countryside and TW,alternatively Taywood, on the other, on 18November 1997 following exchanges ofcorrespondence concluding with a letter sent byfacsimile transmission on 18 November 1997. TheDefendants deny that any contract was made. Theyfurther deny in any event that TW was a party toany contract which was made. None of CTA,Ralph Erskine, BBMK or BM are parties to theaction, but no point has been taken on that onbehalf of the Defendants. For reasons which havenot been explained Moat has not been made adefendant, although, as I shall indicate later in thisjudgment, it would seem that, if the contract forwhich the Claimants contend was made, Moat wasa party to it.The Preliminary Issue14. The central issue in this action is whether ornot the contract for which the Claimants contendwas in fact made. I therefore directed that apreliminary issue be tried which was formulated asfollows:-Was a contract made between the Defendants orany of them and the 2nd Claimant on or by 18November 1997 and if so, what were the terms ofthe contract? (The Claimants case on this issue ispleaded at paragraphs 13-19 of the Particulars ofClaim; the Defendants case on the issue is pleadedat paragraphs 11 to 30 of the Defence. Relevantbackground material is pleaded in the earlierparagraphs of the Particulars of Claim andDefence.)15. I have already set out in the Introductionsection of this judgment such material as is relevantbackground to the consideration of the preliminaryissue.The Claimants pleaded case16. The case set out in the Amended Particulars ofClaim at paragraphs 13 to 19 inclusive in relationto the contract alleged is as follows:-13. The 2nd Claimants [that is, HTA] believed,for the reasons set out below, that it was essentialto establish a binding agreement which (a)governed the terms on which the design teamwould provide their services in support of thecompetition bid; (b) secured the appointment ofthe 2nd Claimants/RE [that is, Ralph Erskine] teamin respect of the subsequent design anddevelopment of the project, in the event of thecompetition bid being successful; and (c) governedthe terms of that appointment.14. The reasons for the 2nd Claimants belief were(a) the scale of the input required of the 2ndClaimants, in particular, in the preparation of theCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 32002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)competition submission (b) the very substantialfinancial benefits which would accrue to the JVP[an expression used in the Amended Particulars ofClaim to mean the first and second, alternativelythe first and third, defendants] if the submissionwere to be successful; (c) the danger that the JVPmight, in the absence of a binding agreement, seeksubsequently to impose whatever terms theywished and/or to find other consultants to takeforward the proposals; (d) the personalcommitment of the 2nd Claimants to the projectand its underlying principles; (e) the potentialbenefits to the 2nd Claimants of the project.15. Accordingly in August 1997 the 2ndClaimants entered into negotiations to achieve suchan agreement with the JVP and/or its agents TrenchFarrow & Partners (TFP). In conducting thosenegotiations the 2nd Claimants were acting onbehalf of the design team as a whole (RE, BBMK,CT, BM and the 2nd Claimants) so far asconcerned work carried out in connection with thecompetition bid and on behalf of the 2nd Claimantsand RE so far as concerned appointment in theevent of the competition bid being successful.TFP, by their letter of 10 November 1997confirmed that they were fully authorised to act forJVP.16.Between 26 August 1997 and 18 November1997 there was a sequence of correspondence inwhich agreement was gradually negotiated untilfinal, binding agreement was reached on 18November 1997. The documents comprisingand/or evidencing the agreement are referred to inparagraph 19 below.17. The negotiations went through the followingstages before agreement was finally reached:(a) In their fax of 26 August 1997 the 2ndClaimants set out the basis on which thearchitectural team would be willing to work,addressing the issues set out at paragraph 13(a), (b)and (c) above and confirmed its willingness toundertake the Stage 1 work at risk subject to anagreement being in place before the start of Stage 2on 9 September 1997.(b) In their fax of 17 September 1997 the 2ndClaimants confirmed agreement with JVP (reachedorally the previous day) that the at risk periodwould be extended to 26 September 1997 on theunderstanding the agreement would be in placebefore that date.(c) It was only on 9 October 1997 that any writtenresponse was received from the JVP. This responsedid not address the issues set out at paragraph13(a), (b) and (c).(d) By their fax of 10 October 1997 the 2ndClaimants emphasised that the design team couldnot embark on Phase 2 without the JVPsconfirmation of the basis for doing so and left openthe question of the teams attendance at a crucial EPmeeting the following Wednesday.(e) In response to that fax, on 13 October 1997,Mr. Phipps of the 2nd and/or 3rd Defendantstelephoned Mr. Hunt of the 2nd Claimants toconfirm JVPs agreement to the principles set out inthe 2nd Claimants 26 August 1997 fax.(f) On 3 November 1997 TFP wrote to the 2ndClaimants (at last) with proposals for a bindingagreement which differed from the 2nd Claimantsoriginal proposals. Further correspondence thenensued between the parties, in particular a fax dated5 November 1997 from the 2nd Claimants to TFPand a letter dated 10 November from TFP to the2nd Claimants.(g) Despite the 2nd Claimants endeavours toavoid such a situation, the design team were nowfully engaged in the Stage 2 work, without havingreceived JVPs written confirmation of the 13(a),(b) and (c) issues. On 12 November 1997, with thefull support of RE and the whole design team, Mr.Hunt orally informed Mr. Springgay of TFP thatthe design team was on the point of pulling out ofthe project unless agreement could be reached.(h) On 14 November 1997 there was a furtherconversation between Mr. Hunt and Mr. Springgayin which Mr. Hunt stated that the team would waituntil 17 November 1997 for the resolution of theissues, failing which the team would pull out of theproject. This was confirmed by a fax from Mr.Hunt to Mr. Springgay on 15 November 1997.(i) On 17 November 1997 TFP wrote a letter tothe 2nd Claimants dealing with the outstandingissues which remained to be resolved between theparties. Mr. Springgay was unable to fax the letterthat day because Mr. Phipps of the 2nd and/or 3rdDefendants had asked to see the final wordingbefore the letter was sent. Nevertheless, the termscontained in that letter were communicated to Mr.Hunt by Mr. Springgay in an oral conversationwhich took place on 17 November 1997. Onhearing the terms, Mr. Hunt said to Mr. Springgaythat the terms were acceptable and that the partieshad a deal on which they could go forward. Hewithdrew the design teams threat to pull out of theproject.(j) On 18 November 1997, TFP faxed the letter ofCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 42002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)17 November 1997 to the Claimants. The sendingof that letter confirmed and evidenced finalagreement between the parties as orally indicatedthe previous day. After receipt of that letter, therewas no further negotiation between the parties.The design team continued with their work, whichsubsequently resulted in success for the JVP in thecompetition.18. The terms of the agreement were as follows:-(a) Composition of the design teamThe design team comprised the 2nd Claimants,RE, CT, BM and BBMK.(b) Stage1 FeeAll Stage 1 work would be carried out at the riskof the design team.(c) Stage 2 FeeThere would be a fixed fee of 150,000 for theStage 2 submission (which would be deducted fromthe Stage 3 payment referred to below in the eventof the competition bid being successful).(d) Success BonusIn the event of the bid being successful a lumpsum bonus of 150,000 would be paid to the designteam, which sum would become due on exchangeof contracts between JVP and EP and would bepayable by four equal instalments at six monthlyintervals starting on the date of exchange.(e) Terms of AppointmentThe terms of the contract would be the RIBAstandard form adapted so far as necessary to theparticular project.(f) AppointmentIf the submission was successful, the 2ndClaimants and RE, would be appointed as thearchitectural team in respect of the MillenniumVillage project for 100% of RIBA Stages C to Eand a guaranteed minimum of 50% of Stages F toL. The appointment was to take place after thecompetition had been decided and beforecommencement of the planning application whichwas due for preparation between February andApril 1998.(g) Fees on AppointmentThe fees for the design team would be 5.5% of theproject value payable in accordance with the RIBAstages:-Stage C (Outline proposals) 15%Stage D (Scheme design to planningapplication)15%Stage E (Detailed Design) 20%Stage F-G (Production information, tendering)20%Stage H-L (Post contract administration) 30%(h) ExpensesFees were to include all normal expenses anddisbursements but foreign travel, printing ofdocuments for planning applications and tenderdocuments were to be reimbursed at net cost.(i) CopyrightCopyright in all documents and drawings wouldremain the property of the relevant Architect orConsultant.(j) TerminationThe 2nd Claimants appointment would beterminable only for non-performance.19. Agreement in relation to the terms referred toin paragraph 13 above is contained in and/orevidenced by the following letters:(a) Composition of Design Team26 August 1997 (the 2nd Claimants to JVP)17 September 1997 (the 2nd Claimants to JVP)(b) Stage 1 Fee26 August 1997 (the 2nd Claimants to JVP)(c) Stage 2 Fee3 November 1997 (TFP to the 2nd Claimants)17 November 1997 (TFP to the 2nd Claimant)(d) Success Bonus17 November 1997 (TFP to the 2nd Claimants)amount of bonus10 November 1997 (TFP to the 2nd Claimants)Copr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 52002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)time of payment(e) Appointment17 November 1997 (TFP to the 2nd Claimants)extent of appointment10 November 1997 (TFP to the 2nd Claimants)timing of appointment(f) Terms of Appointment10 November 1997 (TFP to the 2nd Claimants)(g) Fees on Appointment17 November 1997 (TFP to the 2nd Claimants)overall percentage3 November 1997 (TFP to the 2nd Claimants)percentage at each Stage(h) Expenses3 November 1997 (TFP to the 2nd Claimants)(i) Copyright5 November 1997 (the 2nd Claimants to TFP)10 November 1997 (TFP to the 2nd Claimants)(j) Termination10 November 1997 (TFP to the 2nd Claimants).17. Although expounded at some length in theAmended Particulars of Claim, what the Claimantscase seems to amount to is that the agreement forwhich they contend was contained in sixdocuments, namely HTAs facsimile transmissiondated 26 August 1997, HTAs facsimiletransmission dated 17 September 1997, TFPs letterdated 3 November 1997, HTAs facsimiletransmission dated 5 November 1997, TFPs letterdated 10 November 1997 and TFPs letter dated 17November 1997. I turn, therefore, to considerthose documents, and a number of others whichseem to be relevant if the documents relied uponare to be set in their context.The correspondence between 26 August 1997 and18 November 199718. The first of the documents relied upon onbehalf of the Claimants as a contractual documentis the facsimile transmission dated 26 August 1997.That document was written by Mr. Hunt but it wasnot addressed to any representative of any of theDefendants. Rather it was addressed to Mr. NickCook of Moat, to Mr. Terry Sullivan of Berkeleyand to Mr. Trevor Selwyn of Copthorne. The textof the transmission was as follows:-I am delighted to confirm that Ralph Erskine hasagreed to act as lead architect (see ArchitecturalReview article June 1995 attached). I cannot thinkof any other architect of international standingwhose design approach comes closer to theunderlying philosophy of the Millennium Villagecompetition, and it is marvellous to be workingwith him.As per item 7 of the minutes of 11 August GMTmeeting I have discussed and agreed with NickThompson [of CTA] the following Heads of Termsfor your comment prior to formalising appointmentof the architectural team before the start of Phase 3.Please could you let me have comments/queries byreturn as I am on holiday from 29 August to 6September inclusive.1. Architectural team structure1.1 Ralph Erskine (RE)/ Hunt Thompson (HTA)/Cole Thompson (CTA)/ Baker-Brown McKay(BBMK), will function as a single integratedarchitectural team; flexible and overlapping roles,but broadly defined as follows:-1.2 Ralph Erskine. Lead architect/urban designer.1.3 Hunt Thompson Associates. Executivearchitect; single point responsibility for delivery ofdesign to client and for project management ofarchitectural and design team.1.4 Cole Thompson. INTEGER architect;responsible for delivering intelligent and greeninput into design.1.5 Baker-Brown McKay. Architects forTeleservices Centre.2. Fee basis.2.1 Stage 1 (concluding 8 September). All workat risk.2.2 Stage 2 (concluding 10 November).All work at cost, i.e. salary + overheads +expenses only. Activity and resource plan agreedwith developers/client in advance and translatedinto an agreed lump sum for architectural services.E.g. (i) 7 week design period. Average 6 personteam @ 250 per day = 52,500. (ii) Average 4persons @ 250 = 35,000. Plus VAT, plus expensesCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 62002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)(printing, model, travel/accommodation includingfrom Sweden etc.).Subject to competition timetable not beingextended.2.3 Stage 3 (finalising design, obtaining necessaryapprovals, construction details, contractadministration etc.)To win it will be necessary to be innovative timefor design and for contract administration/qualitycontrol will be significantly greater than usual.Hence the amount of work will equate to the RIBANormal Service (Stages C to K) and fees forarchitects services will be at RIBA recommendedscale (6% of construction cost), less fees paid forStage 2, plus VAT and expenses.i.e. Stages C to E as Normal Service. Role inStage F to K dependent on procurement route e.g.could be Employers Architect for traditionalprocurement or Novated to Contractor orEmployers Agent for design & build.2.4 Underlying assumptions(i) Heads of terms for the appointment of thearchitectural team as above and in accordance withRIBA Conditions of Appointment will be agreedbefore the start of Stage 2, conditional uponwinning the competition.(ii) The design teams ability to deliver a highquality service and to manage its time effectivelydepends on a clear structure within the overalldevelopment team. We believe it is essential forthe successful delivery of the project that oneindividual is given high level responsibility for coordinatingthe consortiums requirements and forbeing the single point of contact with the designteam and our fee proposal is based on thisassumption. (HTA would be willing to provide thisexpanded project management service if required).19. The facsimile transmission dated 26 August1997 was thus really only concerned to set out ingeneral terms the contemplated roles of each of thearchitectural practices intended to be involved andto propose fees for the second and third phases ofthe envisaged work if the competition entry metwith success. There was no reference in thetransmission to BM. None of the addressees of thetransmission seems to have responded to it. HTAdoes not at the time seem to have chased anyonefor a response. What is, however, clear, is that theinitial architectural work, that required for Phase 1,was to be undertaken without charge.20. The next document which is relied upon asbeing a contractual document is HTAs facsimiletransmission dated 17 September 1997. Onceagain the author was Mr. Hunt. The transmissionwas addressed to Mr. Paul Phipps, described as ofTaylor Woodrow, and to Mr. Richard Cherry, whowas at the material time, and remains, a director ofCountryside. Mr. Phipps was actually inSeptember 1997 managing director of Taywood. Acopy of the facsimile transmission dated 17September 1997 was, according to the indicationon it, sent to Mr. Cook of Moat. The facsimiletransmission ended with a proposed agenda for ameeting to be held later on the day it was sent. Theagenda items included:-(ii) The teamRole of each. Contribution to the vision.Any gaps? Cost? Landscape?(vi) Consultants terms.21. The main text of the facsimile transmissiondated 17 September 1997 before the agenda itemswas as follows:-1. To confirm some key points from yesterdaysmeeting:-(i) Taylor Woodrow (PP)/Countryside (RC)/HTA(BH) will act as a steering group responsible forshaping the form and content of the 26 Septemberpresentation, and for co-ordinating the input ofother team members. HTA will be responsible forthe project management of this process.(ii) The main task is to present a greater evidenceof a ground breaking, visionary approach on 26September. HTA will be responsible fordeveloping this, with Erskine as a key element.(iii) The desirability of presenting TaylorWoodrows input as coming from the PLC, anddrawing on Capital Developments track record wasagreed. PP will discuss this with Chief ExecutiveJohn Castle, and requested demystified version ofvision for this purpose from HTA. (Post meetingnote: I will get onto this but would request PP notto wait for further material in view of tightdeadlines. HTAs original text referred to by NickThompson is attached.)2. Consultant team appointment.It was agreed that the consultant team will work atrisk up to 26 September. The developers agreed toreimburse travel/accommodation costs during thisCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 72002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)period expended in integrating Ralph ErskineArchitects into our team. I assume (unless I hear tothe contrary) that the same applies to directexpenses incurred in producing the presentation(e.g.printing).The consultant teams input at no cost is made onthe understanding that terms will be agreed inprinciple before 26 September along the lines ofmy 26 August fax (copy attached).3. Progress report.My partner Ben Derbyshire had a long andproductive conversation with Erskine yesterday,and is now en route to meet him. His enthusiasmand commitment appears to be growing. We thinka joint Erskine/Derbyshire presentation of thevision, with sketches of initial design concepts,would be ideal but it is too early to say how good achance we have of delivering this.22. From the terms of numbered section 2 of thefacsimile transmission dated 17 September 1997 itappears that at that time HTA was not seekingnecessarily agreement to what was set out in thefacsimile transmission dated 26 August 1997, butsimply that terms will be agreed in principle alongthe lines of my 26 August fax. In the context, andgiven the sparse lines of the facsimile transmissiondated 26 August 1997, the agreement in principlebeing sought can only really have amounted to anindication that, if the Phase 1 submission wassuccessful, HTA and the other architects involvedwould at least be paid their costs of working onPhase 2, and if the Phase 2 submission wassuccessful, be paid some fee with a profit element.It does not appear that either of the addressees ofthe facsimile transmission dated 17 September1997 responded to it, or that their failure to do soprompted any action on the part of HTA until afterit was known that success had been achieved inPhase 1.23. Mr. Hunt did return to the subject of themaking of an agreement to retain HTA and theother firms involved in the GMV project in afacsimile transmission dated 2 October 1997addressed to Mr. Phipps, to Mr. Richard Cherry,and to Mr. Cook of Moat. That facsimiletransmission was in the following terms:-We have very much enjoyed working with you onthe project, and are delighted that the team has beenshortlisted. It goes without saying that we are keento work with you in whatever capacity you judgemost helpful. Clearly we need to establish anaction plan for Phase 2 as soon as possible, and asagreed with Richard I will set out some thoughtsfor discussion with you, hopefully before the end ofthis week.First, in view of the need to get in place a highcalibre team to undertake a substantial piece ofwork at short notice, it is essential that weformalise the basis on which the design team isworking. I enclose a copy of my 26 August faxsetting out my proposals, and also of my 17September fax confirming our understanding.Since those faxes English Partnerships have twicemoved the goalposts, such that the Stage 2 designperiod has been almost doubled. I have not lookedat the cost implications in any more detail, but100K now looks a more likely figure to cover thecost of design team time (compared with 32K to52.5K previously estimated) and even this mayprove to be inadequate when we look closely atwhat we need to do to win.Before we get into detail. I would be grateful toyou for your in principle confirmation that the basisoutlined in my fax is acceptable to you. In additionHTA/Erskine have incurred expenses totallingaround 7K (mainly travel/accommodation/andproduction of submission document) and I wouldbe grateful for you [sic] confirmation that we maynow invoice you for this and procedures for doingso.I know that Richard and Paul are meetingtomorrow, and I would be grateful for your urgentresponse to this fax following your meeting so thatI can mobilise the design team.24. From the terms of the facsimile transmissiondated 2 October 1997 it appears that Mr. Hunt wasthen envisaging a need at some point for details ofthe terms of the appointment of HTA and the otherarchitects involved in the GMV project to beconsidered, but that in advance of that time hewanted confirmation in principle that the sort ofbasis of payment contemplated in his facsimiletransmission dated 26 August 1997 was acceptable.25. Mr. Phipps replied to Mr. Hunts facsimiletransmission dated 2 October 1997 in a letter dated9 October 1997 written on the printed stationery ofTaywood. After noting the contents of thetransmission Mr. Phipps went on, so far as ispresently material:-Firstly, I note that you are proposing an overallfee of 100,000 to cover the cost of the design teamthrough Stage Two, and I must confess to beingslightly surprised that this has increased bearing inmind that the time has been almost doubled.Copr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 82002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)I do not think it is appropriate for us to finaliseany form of fee until we have firstly established agreater appreciation of what is required duringStage Two, the briefing meeting has taken place,the level of activity which may be undertaken byour appointed Project Manager, and the extent ofthe involvement by Taylor Woodrow ConstructionsR & D Department they would also be acting as afee paid consultant.Also, on discussing matters with Richard andAlan Cherry yesterday, we would favour anarrangement whereby costs are kept to a minimum,but all parties did benefit from enhanced successbonus on our winning the project. Regarding yourexpenses to date, i.e. those relating to Stage One, Inote your figure of 7,000 and would suggest thatyou provide a breakdown and invoice the threeparties one third accordingly.26. From the terms of Mr. Phippss letter dated 9October 1997 it seems fairly clear that he wasrejecting the idea of any agreement in principle atthat stage as to the remuneration which might bepaid to HTA and the other architects involved inthe GMV project.27. Mr. Hunt was not happy to receive Mr.Phippss letter dated 9 October 1997. He respondedthe next day in a facsimile transmission in thefollowing terms:-I was extremely concerned to receive your 9October fax.I thought we had a common understanding of thebasic principles regarding the design teamsinvolvement in the project, as set out in my 26August fax, (and you will recall we discussed thiswhen we met at Moats offices). I hope ourwillingness and enthusiasm to be part of your teamfor this project go without saying. However thescale of the task in preparing a Phase 2 submissionis such that we cannot embark on it withoutconfirmation of the basis for doing so. I have beentrying to reach you by phone but without success,hence this fax. However we clearly need to discussand resolve this issue urgently, and in the meantimeI suggest we leave open the question of the designteams attendance at the English Partnershipsmeeting on Wednesday.28. It is difficult to reconcile Mr. Hunts assertionthat he believed that the proposals in his facsimiletransmission dated 26 August 1997 had beenaccepted with the absence of any response to eitherthat transmission or that of 17 September 1997, andthe fact that he was pressing in his facsimiletransmission dated 2 October 1997 for your inprinciple confirmation that the basis outlined in myfax is acceptable to you. However, Mr. Phippsseems to have responded to the facsimiletransmission dated 10 October 1997 fairlypromptly by telephone, for in a facsimiletransmission dated 13 October 1997 to Mr. Phippswhich was copied, amongst others, to Mr. RichardCherry of Countryside and to Mr. Cook of Moat,Mr. Hunt wrote:-Thank you for telephoning this morning and foryour reassurance that the basic principles for thedesign teams involvement outlined in my 26August fax (copy attached) are agreed byCountryside and yourselves. I confirm theoutcome of our discussion as follows:(i) Stage 2 costsdesign teams time and expenses on Phase 2 willbe paid by the GMT developers, howevercost estimates quoted by me are illustrative only,and not yet agreedHTA will prepare design team programmes,propose team structure and composition, andprojected staff resources for your comment andapproval, leading to an estimate of the cost ofdesign team time which will be paid by thedeveloperswe will aim for an initial agreement on these costswithin the next two weeks(ii) Stage 3 appointmentif we win the competition the design team will beappointed to carry out full design services inaccordance with the relevant institutes Conditionsof Appointment and recommended fee scales.(iii) Success bonusWe would be happy to discuss a formula along thelines suggested in your 9 October letter; I suggestwe wait till we have an initial estimate of the Stage2 costs before progressing this.(iv) Project ManagerYou have appointed Paul Springgay of TrenchFarrow and are briefing him this evening. (Pleasecould you ask him to contact me asap).(v) Project steering groupWe agreed the need for a small group ofprincipals (e.g.Taywood, Countryside, MHG,Copr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 92002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)HTA, PS) to agree strategy and meet regularly tooversee progress. (We urgently need to gettogether to discuss strategy).29. Mr. Hunt made contact with Mr. Springgayand they met on 16 October 1997. In a facsimiletransmission dated 20 October 1997 Mr. Huntconfirmed to Mr. Springgay that one of the mainconclusions from that meeting was:-1) Design team appointmentYou agreed the current situation is a seriousobstacle to progress (with 3 weeks of tightprogramme now elapsed) and undertook to agreeand document scope of service and terms ofappointment by the middle of this week (Copies offaxes dated 26 August, 2, 10 and 13 Octoberattached)30. The progress anticipated by Mr. Hunt in hisfacsimile transmission dated 20 October 1997 wasnot achieved. He sent a facsimile transmissiondated 27 October 1997 to Mr. Springgay whichincluded:-First, though, I should confirm our discussion midlast week. As regards Stage 3 (i.e. if we win) Iconfirmed the position as stated in my 26 Augustfax and agreed at my 16 September meeting withPaul and Richard at Moat. As regards the costs inthe current Stage 2, I confirmed our willingness todiscuss a reduction linked to a success bonus. Iimagine that the bonus would need to be say threetimes the amount of the cost reduction to makesense of this. N.B. It is important to recognise thatthe design team has already undertaken aconsiderable amount of work on spec, and that thecosts quoted for Stage 2 are already on a non-profitbasis. I await your response.31. On 28 October 1997 Mr. Hunt sent a further,hand-written, facsimile transmission to Mr.Springgay which included the comments that:-Members of the team must know whether they areappointed, and what role they have. We urgentlyneed a reply to my fax of yesterday. And asregards roles, following receipt of your Action Planyesterday I am completely unclear as to the role ofthe leader of the design team vs. the projectmanager.32. In a facsimile transmission to Mr. RichardCherry, Mr. Phipps and Mr. Cook dated 29 October1997 Mr. Hunt wrote:-I need to report to you that lack of resolution as towhether members of the design team are appointed,and if so in what capacity and on what commercialbasis, is now jeopardising the project.As requested by the development team on 11August I set out in my 26 August fax the basis onwhich we would be happy to undertake the project,including the need to formalise the appointment ofthe team before the start of (the current) Phase 3.Four weeks have now passed since the start ofPhase 3. Despite confirmation by me of youragreement to this basis in my faxes to Paul Phippsand Richard Cherry on 17 September, to PaulPhipps on 13 October, and numerous othercommunications the appointments have still notbeen formalised. This despite Paul Springgaysundertaking to me on 16 October to do so by themiddle of last week.The goodwill that the team has shown incommitting itself to the project is now wearingextremely thin. There is concern that if thesituation is allowed to drift any further, theconsequence will be either no formal design teamappointment, or else appointment on a basis lesssatisfactory than that which we have discussed overthe last two months neither of which is acceptable.HTA and TF & P are finally in a position tocommunicate our requirements for inputs from thedesign team, yet uncertainty over the fundamentalissue of appointment is jeopardising its ability torespond. We need to make rapid progress on allfronts and I have therefore requested the team tocontinue to allocate the necessary staff resources ona goodwill basis up to the end of this week to allowtime for us to agree heads of terms, with a view tofinalising formal appointments by 14 November.I hope you will agree the urgent need to resolvethis issue within the timeframe I have indicated andlook forward to working with you to do so.33. Contrary to what Mr. Hunt wrote in hisfacsimile transmission dated 29 October 1997, thethen current phase of the competition was 2, not 3.In Mr. Hunts usage, at any rate, there seemed to bea distinction between heads of terms, which wereof such a nature that they could be expected to beagreed relatively quickly, and formal appointments,which followed on from agreement of heads ofterms and took a little longer to agree.34. Under cover of a transmission sheet dated 3November 1997, upon which he wrote At last!, Mr.Springgay sent to Mr. Hunt a letter dated 3November 1997 in which was set out a lengthyproposal. Mr. Springgay, Mr. Richard Cherry andMr. Phipps all told me in evidence, which I accept,Copr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 102002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)that both Mr. Cherry and Mr. Phipps had expresslyapproved the terms of the letter dated 3 November1997 before it was despatched. The letter was inthe following terms:-Further to our recent discussions on the DesignTeams terms of appointment, I have discussed theissue with the members of the Consortium and weare able to offer the following proposal:1. Stage 2 Submission (up to formal presentationat end January)The Design Team, comprising Ralph Erskine,HTA, Cole Thompson, Battle McCarthy and BakerBrown McKay, will be paid a fixed fee of 110,000.This is as my faxed spreadsheet of 21. 10. 97 andour subsequent discussion. You will need to agreethe exact distribution of this sum to the variousmembers of the team.2. Success BonusIf we are successful, the same Design Team willbe paid a bonus of 150,000. This will become dueon exchange of contracts with English Partnershipsand will be paid in four equal instalments at sixmonthlyintervals, commencing on exchange ofcontracts.3. Subsequent Appointmentsa) Architecture and MasterplanningThe RIBA Scale of Fees as recommended in theyellow book only addresses projects up to 5m invalue and, as such, is not really relevant to this70m+ project. Allowing for the involvement of asignature architect, a fee for a full all-inclusiveservice of 5% is therefore considered appropriate.This would normally be broken down as follows:Stage C: Outline proposals 15%Stage D: Scheme design to planning application15%Stage E: Detail Design 20%Stage FG: Production information and tendering20%Stages HJKL: Post contract administration 20%For this scheme we will, in theory, achieve StageC by the end of the submission on 5th January, andStage D by 30th April 1998. Stages E-L will becarried out in phases to suit our build programme.As I understand the working relationship betweenyourselves and Ralph Erskine, Ralphs involvementwill largely finish at the end of Stage D withyourselves and others responsible for the detaileddesign and production information.At this stage the Consortium, with the exceptionof Moat, have not worked previously with theproposed Design Team and do not feel that itwould be right to commit themselves to the teamfor 100% of all future work unless and until asatisfactory working relationship has beenestablished and can be seen to be working. Theyalso do not want to preclude introducing otherdesigners if it is felt they can bring somethingspecial to the team. As such, we propose toappoint the existing team (including ColeThompson) for 100% of the work during Stages Cand D and to guarantee a minimum of 50% of thework for Stages E-L. In practice, this may well riseto a much higher percentage if all goes well.With regard to Cole Thompson, we do believe theInteger concept is important to our submission andthey must be accommodated within the team.Their request to be appointed for Stages E-L for 50houses does not seem an unreasonable reward.Based on an overall fee of 5% of totalconstruction costs, we propose therefore that thestage fees should be broken down as follows:Total R Erskine HTA(with Other architectsBBMcK eg Cole ThompsonStage C 0.75% 0.50% 0.20% 0.05%Stage D 0.75% 0.25% 0.40% 0.10%Stage E 1.00%--0.50% (min) 0.50% (max)Stage FG 1.00%--0.50% (min) 0.50% (max)Stage HJKL 1.50%--to be decided to be decidedWe invite your comments on the proposedErskine/HTA split.b) Civil and Structural EngineeringIt is considered that an overall fee of 1% of thetotal construction costs for the Battle McCarthyteam would be appropriate. This would be brokendown as follows:Stage C 0.15%Stage D 0.20%Copr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 112002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)Stage E 0.25%Stages FG 0.25%Stages HJKL 0.15%c) Mechanical and Electrical EngineeringIt is considered that an overall fee of 1.45% of thetotal construction costs for the Battle McCarthyteam would be appropriate. This would be brokendown as follows:Stage C 0.10%Stage D 0.15%Stage E 0.35%Stages FG 0.55%Stages HJKL 0.30%The 110,000 paid for the Stage 2 submission willbe deducted from the Stage C payments paidabove.The fees are to include all normal expenses anddisbursements but foreign travel, printing ofdocuments for planning submissions, tenderdocuments, etc. will be reimbursed at net cost.The fees indicated above are based on a fullydesigned and co-ordinated scheme. In the eventthat a procurement route is selected which reducesthe design workload for the consultants, the feeswill be adjusted by negotiation.The above are to be regarded as the main Heads ofTerms which will be fleshed out into acomprehensive formal agreement. Because, at thisstage, neither the Consortium nor the Consultantscan envisage whether a good working relationshipwill be established, it will be a condition of theAgreements that either side can terminate theAgreement at their discretion and without penaltyat one months notice.I will look forward to your response to thisproposal.35. The way in which Mr. Springgay concludedthe letter dated 3 November 1997, with thereference to the above [being] the main Heads ofTerms which will be fleshed out into acomprehensive formal agreement, indicated thatwhat was being contemplated, at least by him, wasthat the matters set out earlier in the letter wouldserve as the agenda for a negotiation of much moredetailed terms which would form a comprehensiveagreement between the parties to it. However, itappears that the contemplated parties did not, bythis stage, include CTA, at least in respect ofanything arising after Stage 2. Under cover of afacsimile transmission dated 4 November 1997 Mr.Springgay sent to Mr. Hunt a copy of a draft of aletter which he intended to send to Mr. NickThompson of CTA. The letter as sent to Mr.Thompson was dated 5 November 1997, anddiffered to some degree from the draft. Thedifferences are not material for present purposes.What is material is that the letter clearly envisagedthat CTA would have an engagement separate fromthat, or those, of HTA, Ralph Erskine, BBMK andBM after the completion of Phase 2 of thecompetition for the GMV. The relevant part of theletter dated 5 November 1997 was in these terms:-With respect to your appointment for this project,I have agreed the following points of principle withthe Consortium:1. The Design Team, of which you are an integralpart, will be paid a fixed contribution towards theirtotal costs for the current Stage 2 submission.Bernard Hunt is aware of the total amount and, asDesign Team Leader, will allocate the portion ofthis fee to be allocated to your INTEGER team.2. In recognition of the fact that the above is onlya contribution, not a full commercial fee, theConsortium will pay a success bonus to the DesignTeam of 150,000 in the event that we aresuccessful. Again, Bernard is responsible forallocating this bonus.3. If we are successful, you will be appointed tocarry out the preparation of construction drawings,tender documentation and contract supervision forthe equivalent of 50 dwellings for 3.5% of therelevant construction cost.The fees are to include all reasonable expensesand disbursements but foreign travel, printing oftender documents, etc. will be reimbursed at cost.The above is intended to set the parameter for theminimum level of input and fee you will receive.In practice, your expertise may be better applied tothe design of the visitor experience centre andshow houses or, indeed, a mix of this and normaldwellings. This will become clearer as theMasterplan develops.The planning and detailed design of the dwellingswill be carried out by Ralph Erskine to ensurecontinuity and that the whole scheme is seen to beby Erskine. Your role will be to work his designCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 122002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)up into production drawings and oversee theimplementation. You will, of course, work withRalph during the design development to advise onthe INTEGER aspects to be incorporated36. Mr. Hunt responded to Mr. Springgays letterdated 3 November 1997 in a facsimile transmissiondated 5 November 1997. The copy put before mebore upon its face manuscript comments of bothMr. Springgay and Mr. Richard Cherry.Disregarding those comments the text of thetransmission was this:-I am responding as requested to your 3 Novemberletter regarding terms of appointment. First somegeneral points:i) The proposal falls short of the terms that thedesign team believed had been agreed, asconfirmed in my 13 October fax to Paul Phipps.However my aim is to respond constructively, andto resolve the position swiftly.ii) I note that your letter was not copied to thedevelopment team, likewise this reply. Please mayI have your confirmation that you are fullyauthorised to act as their agent on their behalf, andthat we can treat correspondence from you as if itwere from them.iii) In view of the fast programme and the need tocreate a climate of confidence, any agreement mustincorporate (a) monthly invoicing and (b) paymentwithin 14 days, interest at 3% over base payable onsums outstanding.Turning to your letter, and taking the items asnumbered in it:1 & 2. Stage 2 submissionYour fee of 110,000 compares to our estimate of203,466. You are asking us to forego 93k andoffering us a 1 in 4 chance of 150k in return. Justto break even the bonus needs to be 4x the amountforegone and I therefore suggest increasing thefixed fee to 150k and the success bonus to 200k.The bonus payment is payable in full immediatelyif the GMT submission is selected as winner orjoint winner of the competition.3. Subsequent appointments(a) Architecture and Masterplanning(i) Your proposed fee of 5% compares with 6%stated in my 26 August letter (and as indicated forprojects over 3m in the RIBA yellow book). Webelieve that the fee we proposed is the appropriateone in the particular circumstances, but we areprepared to agree to 5.5% subject to agreement onthe other issues in this letter.(ii) Ralph Erskine has confirmed that hisinvolvement is on the basis of designing the wholescheme up to Stage E. (The executive architect isinvolved in earlier stages, and works closely as partof Ralph Erskines team in Stage E to ensure asmooth handover.)(iii) I believe Ralph Erskines appointment todevelop the design for the whole development toStage E is agreed, and our understanding to datehas been that the same commitment applies to HTAas executive architects. We do howeveracknowledge the concerns raised by the developers,and propose as follows: (i) HTA appointment forwhole development (ii) agreed procedures forterminating the appointment, whilst safeguardingHTAs reasonable wish to ensure that thecommercial benefits flowing from winning thecompetition are not jeopardised.See Termination below.(iv) Cole Thompson. We are keen to ensure thebenefit of Nick Thompsons input. We are happythat he should obtain a reward which is at least theequivalent of what he is asking for. Our soleconcern in meeting his request is the inefficiency ofdealing with a small portion of Stages F to Ldifferently from the whole. If HTA is protectedfrom the cost, management and liabilityimplications of this, we have no objection, otherthan that it is against the clients interest. HoweverI believe that the interest of both Nick and theclient would be better served if he were to take on ashow house/visitor experience role instead, and asagreed, I will therefore explore this further withNick.(v) Fee split within the consultant team. I think itis premature to attempt a breakdown along the linesof the table at the top of page 3.(b) and (c) Civil, Structural, M & E EngineersPlease liaise directly with Chris McCarthy. Iunderstand that he is concerned about the overallfee level proposed for engineering services.N.B. We need to address the need for landscapeand ecology services.ExpensesNeed to clarify that all costs incurred in theCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 132002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)current Stage, and the cost of printing drawingsgenerally, will be reimbursed.CopyrightCopyright in all documents and drawings willremain the property of the relevant architect orconsultant.TerminationTermination by either party at one months noticeis accepted. If the services of a member of thedesign team are terminated, the developers will paya sum equal to 20% of the portion of theconsultants fee which would have been chargeableif the commission had not been terminated. Thepayment reflects loss of profit which would havebeen earned, and of the other benefits of reputationetc. which the consultant would have received.Client/EmployerClarification as to what legal entity(ies) willformally appoint consultants, and how the liabilityof the various developers will be reflected inworkable appointment and payment arrangements.Formal AppointmentThe parties undertake to enter a formal agreementon the RIBA Standard Form of Agreementincorporating the above, and to complete this nolater than Friday 12 December 1997.37. It is plain from the terms of Mr. Huntsfacsimile transmission dated 5 November 1997 thatwhat was proposed in Mr. Springgays letter dated 3November 1997 was not acceptable to him. It isalso plain that, at least in respect of work to becarried out after Stage 2, Mr. Hunt was inviting theDevelopers to deal directly with BM, rather thanthrough HTA.38. Mr. Springgay replied in his turn to Mr. Huntsfacsimile transmission of 5 November 1997 in amemorandum dated 10 November 1997. Theevidence of Mr. Springgay, Mr. Richard Cherryand Mr. Phipps, which again I accept, is that Mr.Springgay did not show Mr. Cherry or Mr. Phipps adraft of the memorandum before it was sent, but hedid send each of them a copy under cover of amemorandum to them and Mr. Cook dated 13November 1997. When asked about the terms ofthe memorandum dated 10 November 1997 each ofMr. Cherry and Mr. Phipps said that he wasperfectly content with what Mr. Springgay hadwritten. The text of the memorandum dated 10November 1997 was as follows:-Further to your fax of 5.11.97, I have discussedyour points with the client and the following is ourresponse (your refs.):Generalii) I confirm we are fully authorised to act for thedevelopers.iii) Monthly invoices are agreed, based onpercentages of pre-defined stages having beenachieved. The developers fully intend to paypromptly and do not consider it necessary toincorporate an interest clause.1 & 2: Stage 2 submissionThe 110,000 fixed fee must stand, but thedevelopers are prepared to increase the successbonus to 200,000. However, this bonus will onlybecome due upon exchange of an unconditionalcontract with E.P. and payment will be phased asmy previous letter of 3.11.97. I would suggest thatthis should not be an issue as, once contracts areexchanged, you will be receiving almost immediatecash flow through the detailed design appointment.3. Subsequent appointments(a) Architecture & Masterplanningi) the proposed fee of 5% must stand. Your letterof 26th August was misleading in any event in notpointing out that the RIBA Scale fee of 6% was infact for projects only up to 5m in value.iii) The developers share my confusion over therespective roles of Ralph Erskine and HTA duringStage E. Please provide a workplan showingexactly how this will work and the respective feesfor each stage (C, D & E) proposed for RalphErskine and HTA.With respect to our commitment at this stage, theprevious proposal (100% up to Stage D; min. 50%for Stages E-L) must stand. This may be amendedto 100% for Stage E once we fully understand howthis stage will work in practice.iv) The Cole Thompson involvement can beeffectively managed and we are keen to secure theirparticipation along the lines discussed.v) At this stage, we envisage a separatecontractual relationship between the developer andeach consultant, hence why we must understand therelationships and the fee splits.Copr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 142002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)(b) & (c): Civil, Structural, M & E EngineersI will speak directly with Chris McCarthy.ExpensesAgreed.CopyrightAgreed in principle, but a clause in the formalappointment will need to be drafted to ensure thatthe client can still use and develop the schemedesign if for any reason another architect isintroduced after the completion of Stage D (orStage E, depending on (iii) above).TerminationYour proposed amendments are not acceptable as,in practice, your appointment would only beterminated for non-performance. In such a case, itwould not be equitable for you to receivecompensation for loss of profit. In this respect, theformal appointment will include a schedule ofinformation to be provided, a programme forproduction of information and response times, etc.Client/EmployerThe legal entity to be formed to cover the threedevelopers has yet to be defined but this shouldbecome clearer in the next few weeks.Formal appointmentThe RIBA Standard Form of Agreement will forma basis for your formal appointment, but amendedto reflect this particular project and itsrequirements. It will be completed after GMT isselected as the preferred developer and beforecommencement of the planning applicationenvisaged in the Stage 2 Brief for preparationbetween early February 1998 and end April 1998.I firmly believe that the terms now offered arevery generous and should provide the motivationyou need to focus on winning the competition. Thedevelopers are not at this stage prepared to enterany further negotiation. I am concerned that thediscussions on this issues [sic] have deflected yourefforts at a crucial time and we must get back ontrack to achieve the programme circulated on 21stOctober.39. From its terms Mr. Springgays memorandumdated 10 November 1997 seems to have beenintended to put a stop to further discussion of anypossible contract for the time being. That, it seemsto me, was the purpose of Mr. Springgay writing inhis concluding paragraph The developers are not atthis stage prepared to enter any further negotiation.At the same time it appears to have beencontemplated that, at some appropriate point, therewould need to be further consideration of a numberof questions. In particular, the question of whatexactly Ralph Erskine and HTA, respectively, wereto do in Stage E seems to have been an issue whichMr. Springgay and those for whom he was actingwished to revisit, as well as the questions how eachmember of the team envisaged would deal with theothers and how the total overall fee contemplatedshould be divided as between the various membersof the team. Other matters which Mr. Springgaysignalled in his memorandum would need to beconsidered further were the issue of copyright, tocover the possibility of the introduction of anotherarchitect after the completion of Stage D, theproduction of a schedule of information and aprogramme for production of information andresponse times so as to provide criteria by referenceto which it could be determined whether HTA andothers had been guilty of non- performance, andwhat amendments to the RIBA Standard Form ofAgreement should be made to reflect this particularproject and its requirements. Further, all of thesematters were to be revisited in the context ofseparate agreements between each member of theDesign Team and a legal entity yet to be formed.40. Mr. Hunt responded to Mr. Springgaysmemorandum of 10 November 1997 in a facsimiletransmission dated 13 November 1997. What hesaid was this:-As requested, this is a brief summary of what Isaid to you on the phone yesterday.1. Your memo of 10 November does not representan acceptable basis on which the design team canproceed. The issues are set out in my 5 Novemberfax, but the headlines are:2. Stage 2 submission. I have been unable to getagreement from team members to reduce thepackage from 203k to 110k as you propose. Ibelieve I will be able to get agreement to the 150k+package I proposed on 5 November. If you areunable to agree this please let me know by close ofplay tomorrow. I will then fax the teamimmediately, and let them know that you willnegotiate with them directly.3. Scale fee. It is disingenuous to suggest my 26August letter was misleading. The figure quotedunambiguously was 6%. (Note that a fee in excessof the 6.5% recommended for Class 4 buildings,(apartment blocks) as opposed to Class 3 (estateCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 152002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)housing and flats) would be appropriate for thisproject. 6% represents a reduction on this.)4. Ralph Erskine. I consulted him via JohannesTovat. His reaction: 203k package and 6% notnegotiable.More fundamentally he reinstated his position thatif he is to be the architect, it means that it is hisdesign, from concept to detail and execution. Wehave discussed how he achieves this in practice,working closely alongside an executive architect.Your proposal that the clients commitment shouldextend to only 50% of Stages E to L is notcompatible with this principle. Ralph said that ifthis is not resolved before close of play tomorrowhe will withdraw.5. Confirmation is required that if we win theteam will be formally appointed before being askedto proceed with any further designdevelopment/preparation of planning application;and that payment for Stage C will be due at thattime (early February anticipated).41. Mr. Hunts facsimile transmission dated 13November 1997 was clearly a flat rejection of whatwas proposed in Mr. Springgays memorandumdated 10 November 1997. Mr. Springgay and Mr.Hunt then spoke on the telephone on 14 November1997. The next day Mr. Hunt sent to Mr.Springgay a further facsimile transmissionconfirming the discussion. He said this:-To confirm our conversation yesterday. Weagreed to defer the deadline for resolution of theoutstanding issues to close of play on Monday. Tosummarise where we now stand:(i) I set out proposals on 26 August, and we havecommitted substantial resources since in the beliefthat these were accepted by the developers. (ii) Thecounter proposal in your 3 Nov. fax is notacceptable. (iii) We demonstrated our flexibilityand willingness to compromise in my 5 Novemberresponse. It is important to be clear that we mustreach agreement on all the issues covered by thisfax on Monday, and that although I hope we willalways be flexible in our search for win/winsolution, we cannot agree to further concessions.I hope our absolute commitment to working withyou to win this competition for our clients is not indoubt but that neither is our resolution, and Ralphs,to terminate our involvement if we cannot agree onMonday.42. Mr. Springgay and Mr. Hunt had a discussionon the telephone on the afternoon of 17 November1997. Mr. Hunts account of that conversation inhis witness statement dated 19 February 2002 wasas follows:-20.1 On Monday 17 November 1997 I wastelephoned by Paul Springgay who informed me ofthe terms which were going to be offered by theJVP in respect of the remaining outstanding issues.He was acutely aware of the deadline we had setand the need to conclude a deal on that day.Although he had a letter already drafted, heapologised for the fact that he was not faxing theletter but explained that Paul Phipps had asked tohave sight of the final wording, and was notavailable. However, he provided his assurance thatPaul Phippss agreement was not in doubt.Accordingly our conversation was conducted onthe basis that the JVPs offer was firm, and that PaulPhippss agreement was taken as read.20.2 The key issues were that the Stage 2 BidSubmission fees would be agreed at 150,000together with a success fee of 150,000 and that thearchitectural and master plan fee was to beincreased to 5.5%, i.e. the figure that we hadinsisted on in my letter of 5 November 1997. Asregards the extent of the appointment it wasconfirmed that Ralph Erskine/HTA team would beappointed for 100% of the development stages C toE, and a guaranteed minimum of 50% of Stages F-L for the remainder of the project with the prospectof this being extended to 100%. This was subjectto termination as before for non- performance, i.e.confirmation that termination would only occur fornon- performance as per Trench Farrows letter of10 November 1997.20.3 I was pleased that the JVP had understoodthat the threat made in my letter of 15 November1997 to terminate our involvement if we did notreach agreement by 17 November 1997 wasabsolutely serious, and that they had responded bythe deadline.20.4 I was satisfied that that [sic] the negotiations,culminating in the improved terms now beingoffered were an acceptable basis for the Designteams appointment and that the negotiations hadcovered all the issues necessary to conclude anappointment of the Ralph Erskine/HTA team.Accordingly, I told Paul Springgay that weaccepted the terms, that we now had a deal onwhich we were prepared to go forward, and that weaccordingly withdrew our threat to pull out of theproject. This was a watershed moment in theproject and I was delighted that I had achieved myobjectives in relation both to the Design teamsremuneration for preparing the submission, and forHTA/Ralph Erskines appointment in the event ofCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 162002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)winning the competition.43. I confess to some confusion as to why at thispoint, and in relation to work in Phase 3 for whichseparate appointments for CTA and BM werecontemplated, HTA was seeking to act not only onits own behalf, but also on behalf of Ralph Erskine,but not on behalf of BBMK, which had initiallybeen introduced to the GMV project by HTA. Thisconfusion was not allayed by any evidence which Iheard, and the matter remains a mystery to me.44. Mr. Springgay in a supplementary witnessstatement dated 25 February 2002 commented onparagraphs 20.1 of Mr. Hunts witness statementdated 19 February 2002 as follows:-3.1 This deals with my phone conversation withMr. Hunt on 17 November 1997, which I deal withat paragraph 26 of my first statement. Mr. Huntsays that I informed him of the terms which weregoing to be offered. What I was actuallydiscussing was in principle heads of terms and Icovered the issues which I subsequently committedto writing in my memo to Mr. Hunt of the samedate (which was finally sent on the following day)For the avoidance of doubt, if that is what is beingimplied by Mr. Hunt, I did not read out to him onthe telephone the memo which I subsequently sentto him, nor did I suggest to him that I was doing so.3.2 Further on in the paragraph, Mr. Hunt saidthat I provided my assurance that Paul Phippsagreement to the draft memo was not in doubt.This is not true. I said that I believed Mr. Phippswould find the contents of the memo to beacceptable but would need to seek and await hisapproval. The conversation was not conducted onthe basis that what I said was any sort of firm offer,nor that Paul Phipps agreement was taken as read.45. Both Mr. Hunt and Mr. Springgay were crossexaminedas to the accounts of the conversationbetween them on 17 November 1997 which I haveset out. It emerged from the cross-examination thatit was not in dispute between them that Mr.Springgay had indicated during the conversationwhat provision in respect of what matters wasintended to be proposed in the memorandum, andthat Mr. Hunt was not contending that thememorandum or some part of it had been read outto him, rather than summarised. Mr. Springgaytold me that at the end of the conversation Mr.Hunt had not said what he said he had said, but thathe would wait to see the memorandum and wasconfident that he would be able to secureagreement from the Design Team to what wasproposed. I shall indicate my findings of fact onthe difference between Mr. Hunt and Mr.Springgay as to what was said on 17 November1997 later in this judgment. Mr. Springgay told methat he was expecting to hear further from Mr.Hunt after Mr. Hunt had received thememorandum, but he did not do so. It was not indispute that Mr. Hunt did not respond to thememorandum.46. Following the conversation on 17 November1997 Mr. Springgay sent to Mr. Hunt by facsimiletransmission on 18 November 1997 amemorandum dated 17 November 1997. Thememorandum was marked as being copied to Mr.Phipps, Mr. Richard Cherry and Mr. Cook of Moat.It was sent under cover of a facsimile transmissionsheet upon which was written the message:-Bernard, I finally obtained Paul Phipps agreementto the attached this morning. There is stillobviously some flesh to put on the bones but theseare the main points.47. The terms of the memorandum dated 17November 1997 written by Mr. Springgay to Mr.Hunt were as follows:-Further to my memo of 10 November, yoursubsequent fax of 13 November and our discussionthis afternoon, the Consortium will agree to thefollowing revisions to the heads of terms:-Stage 2 SubmissionsIncrease the design team fees to 150,000 with asuccess bonus of 150,000 (as your fax of 27October). The success bonus had previously beenincreased to 200,000 in recognition of a 110,000Stage 2 fee.Architectural & Masterplan FeeThe fee for a full design to be increased to 5.5%.Extent of AppointmentThe Ralph Erskine/HTA team will be appointedfor 100% of the development for Stages C-E(subject to termination as before for nonperformance).For a minimum of 50% of thedevelopment they will also be appointed for StagesF-L inclusive, with the possibility of this beingextended to 100% of the development. The formalagreement will make it a condition that RalphErskine maintains the Lead Designer rolethroughout Stages C-E. As requested in our memoof 10 November we still require a workplan toshow how you will interface with Ralph Erskineand the proposed fee split between HTA and Ralph.Copr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 172002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)With request [sic presumably respect wasintended] to the last point above your mostimportant role will be to act as the interfacebetween Ralph Erskine and the rest of the designteam and the clients. The debacle last night when anumber of people gave up their Sunday evening tocome to HTAs office to hear a presentation ofRalphs latest Masterplan, only to discover that hehadnt turned up, does raise concerns about howeffectively you will be able to perform this role.This is obviously something which will need to becarefully monitored.I hope you will now feel able to move forwardand focus fully on winning this competition.48. The significance of the message on thefacsimile transmission sheet dated 18 November1997 was that the approval of Mr. Phipps to thedespatch of the memorandum dated 17 November1997 had, by the time the facsimile transmissionwas made, been obtained. Mr. Richard Cherryaccepted in his evidence before me that he wasaware of, and approved, the terms of thememorandum dated 17 November 1997 before Mr.Springgay spoke to Mr. Hunt on 17 November1997. The fact that a copy of the memorandumdated 17 November 1997 was sent to Mr. Cook ofMoat indicates that the memorandum was writtenon behalf of Moat as well as on behalf of the othersof the Developers.49. Mr. Michael Douglas Q.C., who appeared atthe trial of the preliminary issue on behalf of theClaimants, submitted that a binding agreement hadbeen made on the telephone on 17 November 1997in the terms for which the Claimants contended, butsubject to a condition precedent that the approvalof Mr. Phipps to the terms of the memorandum beobtained. That condition was met, he contended,and that it had been met was communicated by thesending of the memorandum dated 17 November1997 under cover of the facsimile transmissionsheet dated 18 November 1997. He submitted thatthe effect of the agreement for which the Claimantscontended was that a deal was done on behalf ofthe whole of the Design Team in relation to fees tobe paid by the Developers in respect of Phase 2 ofthe competition and a deal on behalf of HTA andRalph Erskine alone in relation to the employmentof those practices as architects on Phase 3 in theevent that the competition was won. He submittedthat it was plain that there was an intention to makea binding agreement in relation to the fees to bepaid in respect of Phase 2 of the competition, andthat, as it had not been suggested that there wassome different intention in respect of that part ofthe agreement for which he contended whichrelated to Phase 3, it followed that there had beenan intention to make a binding agreement in respectof that also. That struck me as a bit of a bootstrapsargument, but I shall return to it later in thisjudgment. Mr. Douglas relied strongly upon thefact that Mr. Hunt had threatened that HTA andRalph Erskine would cease their respectiveinvolvements in the GMV project unless agreementwas achieved in accordance with the deadlinewhich Mr. Hunt had set. Mr. Douglas submitted, ineffect, that the Developers capitulated to that threat.Whether that is a correct conclusion depends, in myjudgment, not on the presence or absence of athreat as such, but upon the analysis of theexchanges between the parties in accordance withthe applicable principles of the law of contract.The case for the Defendants50. At its most simple the case advanced onbehalf of the Defendants by Mr. David FriedmanQ.C. and Miss Nerys Jefford was that no contractof any description had been made between HTAand any of the Defendants in the manner contendedfor on behalf of the Claimants.51. It was submitted by Mr. Friedman and MissJefford that the contract contended for was onemade by Mr. Springgay acting as agent for therelevant parties, that is to say, Countryside andeither Taywood or TW, but Mr. Springgay had noauthority to make a contract on behalf of any ofthose parties. The significance of that submission,which initially was quite prominent as part of thecase of the Defendants, diminished somewhatduring the course of the hearing. It became clearthat the point was not some assertion that Mr.Springgay had had no authority to write documentsof which he was the author which were sent toHTA, but rather that his authority was limited tonegotiating, or agreeing non-binding heads ofagreement. Thus what was in effect beingsubmitted by Mr. Friedman and Miss Jefford wasthat no contract could have been made, even if suchwould otherwise have been the effect of exchangesbetween HTA and Mr. Springgay, because Mr.Springgay had had no authority, in the course ofwriting documents which he was authorised towrite, to bring about the legal consequences forwhich the Claimants contended. It was, to say theleast, a difficult submission. Mature reflectionseems to have resulted in Mr. Friedman and MissJefford considering that the Defendants had betterpoints, although the point was not abandoned.52. Mr. Friedman and Miss Jefford submitted that,on an objective consideration of the documentsrelied on on behalf of HTA, the alleged agreementfor which HTA contended could not be discerned.They submitted that on such a consideration it wasCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 182002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)plain that the parties to the relevant correspondencewere not intending to conclude a bindingagreement until formal agreements had beenprepared and executed, that being the force ofreferences to Heads of Terms and to agreement inprinciple, and/or until terms beyond those whichhad been the subject of consideration in thecorrespondence had been agreed. They submittedthat the documents relied on on behalf of theClaimants indicated that there were matters uponwhich agreement was necessary, or in relation towhich Mr. Springgay had stated that provisionneeded to be made, which had not been agreed by18 November 1997. The effect of the failure toreach agreement about those matters, theysubmitted, was that no contract had beenconcluded. The particular issues as to which Mr.Friedman and Miss Jefford submitted agreementwas necessary or was desired by Mr. Springgay buthad not been achieved by 18 November 1997were:-(i) the identity of the party to employ HTA andthe other members of the design team;(ii) the amendments to The RIBA Standard Formof Agreement which were to reflect this particularproject and its requirements;(iii) termination;(iv) the identity of the members of the designteam;(v) the relationship between the members of thedesign team;(iv) the nature and form of the proposed contractor contracts, and in particular whether there was tobe one contract to which all members of the designteam were parties, or separate contracts with each,and what form of contract was to be made with BMas engineers;(iiv) fees;(iiiv) copyright;(ix) payment terms.Mr. Friedman and Miss Jefford also submittedthat any agreement which could be discerned in thedocuments upon which Mr. Douglas relied wasincomplete to such an extent that it wasunworkable or void for uncertainty.The Law53. There was little dispute between Mr. Douglas,on the one side, and Mr. Friedman and MissJefford, on the other, as to the principles which Ishould apply in order to determine whether thecontract for which HTA contended had beenconcluded. There was, however, a vigorousdifference as to the result which should be achievedby applying those principles to the circumstancesof the present case. It is, I think convenient torehearse the principles of law by which, incircumstances such as those of the present case, thequestion whether a contract has been concludedfalls, in my judgment, to be answered becausesome significant aspects of those principles wereimplicit, rather than explicit, in the submissionsmade on behalf of the parties before me, and a cleararticulation of all of the relevant principles pointsthe way, as it seems to me, to the correctconclusion in this and other, similar, cases.54. The concept underlying a contract, meaningby that expression an agreement which is bindingin law and thus creates legal rights and obligations,is simply that of agreement. For an agreement tobe legally binding other conditions have to besatisfied. There has to be consideration. There hasto be an intention to enter into legal relations. Butwithout agreement there can be no contract on anyview. The question therefore arises, how is one totell whether an agreement has been made? Thesimplest form of an agreement is the case in whichone party formulates a proposal and another partysays, I agree. The essence of the agreement is ameeting of minds, a conscious assent by one to thetotality of what has been proposed by another. Inany case in which the process by which theagreement is said to have been made is other thanthe most simple a degree of analysis is likely to berequired in order to ascertain whether there hasbeen agreement, but that analysis cannot beundertaken unless one knows what one is lookingfor and what the indicia of it are.55. In the written submissions which were putbefore me on behalf of each of the parties beforethe commencement of the trial there was a degreeof equivocation as to the nature of the enquiry intowhether an agreement had been made and as to theindicia of one. Both sides agreed, as it seems to merightly, that in the context of an agreement which isalleged to be a contract, the test of whether therehas been agreement is objective. I was remindedby both sides of the observations of Steyn LJ, as hethen was, in G. Percy Trentham Ltd. v. ArchitalLuxfer Ltd. [1993] 1 Lloyds Rep. 25 at page 27:-Before I turn to the facts it is important toconsider briefly the approach to be adopted to theissue of contract formation in this case. It seems tome that four matters are of importance. The first isCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 192002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)the fact that English law generally adopts anobjective theory of contract formation. That meansthat in practice our law generally ignores thesubjective expectations and the unexpressedreservations of the parties. Instead the governingcriterion is the reasonable expectations of honestmen. And in the present case that means that theyardstick is the reasonable expectations of sensiblebusinessmen.I shall return later in this judgment to how thatpassage continues, but that the process ofconsidering whether parties made an agreement is apurely intellectual one involving the dispassionateapplication of established rules the adoption of anobjective approach cannot, it seems to me, bedisputed. The same approach is, in my judgment,to be adopted to the issue of intention to enter intolegal relations that is to say, the question is to beapproached objectively in the light of what theparties communicated to each other and how theparties acted, without regard to any privatethoughts of one or other of the parties to thesupposed contract which were not communicatedto the other.56. In their opening submissions Mr. Friedmanand Miss Jefford drew to my attention a commentof Lindsay J. in Jarvis Interiors Ltd. v. GalliardHomes Ltd. [2000] BLR 33 in paragraph 47 at page43 of the report which began, Even given a broaddisposition to find a contract if one can, havingregard to what was said and done and, moreparticularly, to what was not said or done. In thatcase Lindsay J. was delivering the leadingjudgment in the Court of Appeal on an appeal fromthis court in a case in which the issue was whethera binding contract had been concluded between theparties. H.H. Judge John Toulmin C.M.G., Q.C.had decided that there was no concluded contract.His decision was upheld by the Court of Appeal.The context of the remark of Lindsay J. to whichMr. Friedman and Miss Jefford drew my attentionwas that it introduced the statement of a conclusionby Lindsay J. that I am unable to find anythingovertaking the Subject to Contract effect which Iattribute to the combination of the Preliminariesand the Letter of Intent. Mr. Friedman and MissJefford suggested that what was to be derived fromthe comment to which they drew my attention wasthat there is a pre-disposition on the part of theCourt to find a contract if it can.57. In their closing submissions Mr. Friedman andMiss Jefford returned to the point and elaboratedupon it as follows:-3. We accept that the Court does have such adisposition but what it means requires furtheranalysis. It is an encapsulation of three differentpropositions, all of which we accept. They are asfollows:-3.1 The Court does not require strict precisionfrom businessmen: as to this see the passage fromTreitel cited at paragraph 132 of the ClaimantsOpening.3.2 The Court does not require meticulous detailfrom businessmen: as to this see the secondpassage from Chitty cited at paragraph 133 of theClaimants Opening.3.3 Performance may sometimes make it easier tofind a contract: as to this see G. Percy TrenthamLtd. v. Archital Luxfer Ltd. [1993] 1 Lloyds Rep25 at 27 per Steyn LJ. Two points about this shouldbe noted.3.3.1 We are not here addressing an issue aboutacceptance by conduct. That is a separate point.We are addressing the passage which appears about20 lines from the end of the left hand column andbegins The third matter3.3.2 This is not a case in which partial executionmakes it easier to find a contract for any of thereasons suggested by Steyn LJ. The reasons are:(a) From a very early stage the partial executionwas against a background of a dispute about thevery matters which are now in issue. (b) Suchpartial execution as occurred before the disputearose was partial execution which did not impacton the need for a formal appointment, on what theterms of that appointment were or on theimportance of the matters which had not yet beenagreed.4. There are, however, two corollaries to theCourts broad disposition to find a contract if it can.They are equally or perhaps more important thanthe disposition itself. They are as follows:-4.1 The Court does not impose on the partiescontracts which they did not make. It is not for theCourt to make a contract or impose terms which theparties did not agree4.2 The Court respects party autonomy. It is theparties who are masters of their own contractualfate. Thus the Court is bound if the parties agreethat something further be required, whether it bethe execution of a formal document or theagreement of further terms58. On analysis, therefore, it would seem that Mr.Friedman and Miss Jefford were not reallycontending that there is a pre-disposition on theCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 202002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)part of the Court to find a contract if it can, butrather that the governing principle is that it is forthe Court to give effect to the wishes of the parties,objectively ascertained, as to whether they desire toenter into an agreement, and, if so, on what terms.59. Mr. Douglas rather took up the suggestion thatthe Court is pre-disposed to find a contract if it can.He hinted that the passage which I have quotedfrom the judgment of Steyn LJ in G. PercyTrentham Ltd. v. Archital Luxfer Ltd. should beunderstood as indicating that the test of whether anagreement had been made was whether, on thefacts of the particular case, it would be thereasonable expectations of honest men that thereshould have been an agreement.60. Mr. Douglas drew to my attention the wordsof Lord Wright in Hillas & Co. Ltd. v. Arcos Ltd.(1932) 147 LT 503 at page 514:-But it is clear that the parties both intended tomake a contract and thought they had done so.Businessmen often record the most importantagreements in crude and summary fashion; modesof expression sufficient and clear to them in thecourse of their business may appear to thoseunfamiliar with the business far from complete orprecise. It is accordingly the duty of the court toconstrue such documents fairly and broadly,without being too astute or subtle in findingdefects; but, on the contrary, the court should seekto apply the old maxim of English law, verba itasunt intelligenda ut res magis valeat quam pereat.That maxim, however, does not mean that the courtis to make a contract for the parties, or to gooutside the words they have used, except in so faras there are appropriate implications of law, as forinstance, the implication of what is just andreasonable to be ascertained by the court as amatter of machinery where the contractual intentionis clear but the contract is silent on some detail.61. Mr. Douglas also reminded me that in G.Scammell and Nephew Ltd. v. Ouston [1941] AC251 at pages 268 to 269 said this:-There are in my opinion two grounds on whichthe court ought to hold that there never was acontract. The first is that the language used was soobscure and so incapable of any definite or precisemeaning that the court is unable to attribute to theparties any particular contractual intention. Theobject of the court is to do justice between theparties and the court will do its best, if satisfied thatthere was an ascertainable and determinateintention to contract, to give effect to that intention,looking at substance and not mere form. It will notbe deterred by mere difficulties of interpretation.Difficulty is not synonymous with ambiguity solong as any definite meaning can be extracted. Butthe test of intention is to be found in the wordsused. If these words considered however broadlyand untechnically and with due regard to all the justimplications, fail to evince any definite meaning onwhich the court can safely act, the court has nochoice but to say that there is no contract. Such aposition is not often found. But I think that it isfound in this case. My reason for so thinking is notonly based on the actual vagueness andunintelligibility of the words used, but is confirmedby the startling diversity of explanations, tenderedby those who think there was a bargain, of what thebargain was. I do not think it would be right tohold the appellants to any particular version. It wasall left too vague. There are many cases in thebooks of what are called illusory contracts, that is,where the parties may have thought they weremaking a contract but failed to arrive at a definitebargain. It is a necessary requirement that anagreement in order to be binding must besufficiently definite to enable the court to give it apractical meaning. Its terms must be so definite, orcapable of being made definite without furtheragreement of the parties, that the promises andperformances to be rendered by each party arereasonably certain. In my opinion that requirementwas not satisfied in this case.But I think the other reason, which is that theparties never in intention nor even in appearancereached an agreement, is a still sounder reasonagainst enforcing the claim. In truth, in myopinion, their agreement was inchoate and nevergot beyond negotiations. They did, indeed, acceptthe position that there should be some form of hirepurchaseagreement, but they never went on tocomplete their agreement by settling between themwhat the terms of the hire- purchase agreementwere to be. The furthest point they reached was anunderstanding or agreement to agree upon hirepurchaseterms.62. The theme of the suggestion that the Court ispre-disposed to find a contract if it can is that theapproach of the Court is, as it were, Contract =Good, No contract = Bad, so that the Court shouldstrive to find an agreement and therefore a contract.In my judgment that supposed theme does notexist. I accept the submission of Mr. Friedman andMiss Jefford that it is not the function of the Courtto make a contract for parties who have not madeone for themselves. That was made plain by LordWright in Hillas and Co. Ltd. v. Arcos Ltd. in thepassage to which Mr. Douglas drew my attention.It was also made clear by Lord Wright in thepassage from his speech in G. Scammell andNephew Ltd. v. Ouston which I have set out in theCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 212002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)preceding paragraph of this judgment. The effectof the comments of Lord Wright to which Mr.Douglas drew attention, in my judgment, was thatthe court will strive, if satisfied that partiesobjectively wished to make an agreement, andwished such agreement to be legally binding, touphold it, but that the questions whether the partieswished to make an agreement and wished any suchagreement to be legally binding were to beascertained from a consideration of the wordswhich they used in their communications with eachother. Lest it be thought that Lord Wright was alone voice in the wilderness, the point that it is nopart of the function of the Court to impose upon theparties an agreement which they did not make forthemselves was made by Lord Pearson in Trollope& Colls Ltd. v. North West Metropolitan RegionalHospital Board [1973] 1 WLR 601. The issue inthat case was whether a term should be implied intoa contract. In the course of his speech, at page 609,Lord Pearson formulated the test to be applied indetermining whether to imply a term in a contractas follows:-Faced with the conflict of judicial opinion in thiscase, I prefer the views of Donaldson J and CairnsLJ as being more orthodox and in conformity withthe basic principle that the court does not make acontract for the parties. The court will not evenimprove the contract which the parties have madefor themselves, however desirable the improvementmight be. The courts function is to interpret andapply the contract which the parties have made forthemselves. If the express terms are perfectly clearand free from ambiguity, there is no choice to bemade between different possible meanings: theclear terms must be applied even if the court thinkssome other terms would have been more suitable.An unexpressed term can be implied if and only ifthe court finds that the parties must have intendedthat such a term would have been adopted by theparties as reasonable men if it had been suggestedto them: it must have been a term which wentwithout saying, a term necessary to give businessefficacy to the contract, a term which, althoughtacit, formed part of the contract which the partiesmade for themselves.63. Both sides agreed that a convenient statementof the principles to be applied to the question ofwhether there was a concluded contract in thepresent case was to be found in the judgment ofLloyd LJ in Pagnan SpA v. Feed Products Ltd.[1987] 2 Lloyds Rep. 601 at page 619:-As to the law, the principles to be derived fromthe authorities, some of which I have alreadymentioned, can be summarised as follows:(1) In order to determine whether a contract hasbeen concluded in the course of correspondence,one must first look to the correspondence as awhole (see Hussey v. Horne-Payne).(2) Even if the parties have reached agreement onall the terms of the proposed contract, neverthelessthey may intend that the contract shall not becomebinding until some further condition has beenfulfilled. That is the ordinary subject to contractcase.(3) Alternatively, they may intend that thecontract shall not become binding until somefurther term or terms have been agreed; see Loveand Stewart v. Instone, where the parties failed toagree the intended strike clause, and Hussey v.Horne-Payne, where Lord Selborne said at p.323:The observation has often been made, that acontract established by letters may sometimes bindparties who, when they wrote those letters, did notimagine that they were finally settling terms of theagreement by which they were to be bound; and itappears to me that no such contract ought to beheld established, even by letters which wouldotherwise be sufficient for the purpose, if it is clear,upon the facts, that there were other conditions ofthe intended contract, beyond and besides thoseexpressed in the letters, which were still in a stateof negotiation only, and without the settlement ofwhich the parties had no idea of concluding anyagreement [ My [Lloyd LJs] emphasis](4) Conversely, the parties may intend to bebound forthwith even though there are furtherterms still to be agreed or some further formality tobe fulfilled (see Love and Stewart v. Instone perLord Loreburn at p. 476).(5) If the parties fail to reach agreement on suchfurther terms, the existing contract is notinvalidated unless the failure to reach agreement onsuch further terms renders the contract as a wholeunworkable or void for uncertainty.(6) It is sometimes said that the parties must agreeon the essential terms and that it is only matters ofdetail which can be left over. This may bemisleading, since the word essential in that contextis ambiguous. If by essential one means a termwithout which the contract cannot be enforced thenthe statement is true: the law cannot enforce anincomplete contract. If by essential one means aterm which the parties have agreed to be essentialfor the formation of a binding contract, then thestatement is tautologous. If by an essential onemeans only a term which the Court regards asimportant as opposed to a term which the CourtCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 222002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)regards as less important or a matter of detail, thestatement is untrue. It is for the parties to decidewhether they wish to be bound and, if so, by whatterms, whether important or unimportant. It is theparties who are, in the memorable phrase coined bythe Judge the masters of their contractual fate. Ofcourse the more important the term is the less likelyit is that the parties will have left it for futuredecision. But there is no legal obstacle whichstands in the way of the parties agreeing to bebound now while deferring important matters to beagreed later. It happens everyday when partiesenter into so-called heads of agreement.64. In the passage quoted in the precedingparagraph Lloyd LJ, like Lord Pearson in Trollope& Colls Ltd. v. North West Metropolitan RegionalHospital Board, emphasised that it is for the partiesto an alleged agreement to decide whether theywish to be bound and, if so, by what terms. Thecorrect understanding of the words of Lindsay J. inJarvis Interiors Ltd. v. Galliard Homes Ltd., towhich Mr. Friedman and Miss Jefford drew myattention, is, it seems to me, in their context, that,even if one were disposed to find a contract if onecould, in the circumstances of that case it could notbe done. In other words, it was a rhetorical deviceto emphasise the difficulty of the task facing theappellant in that case, not a statement of principle.Again, the passage in the judgment of Steyn LJ inG. Percy Trentham Ltd. v. Archital Luxfer Ltd.upon which Mr. Douglas relied was, in myjudgment directed to that part of the enquiry intowhether a binding contract had been concludedwhich involved the need to consider whether therewas an intention to enter into legal relations. Ithink that it is clear that Steyn LJ cannot haveintended to be understood as holding that the lawwould find a contract whenever the reasonableexpectations of honest men would be that thereshould be one. That would be to run a substantialrisk that parties neither of whom at the time wishedto be bound contractually to the other would findthat the law thrust a contract upon them. Thatconsequence would be contrary to long-establishedprinciple restated in the cases to which I havereferred.65. There are solid practical reasons for leaving itto the parties to determine whether they wish toenter into a contract. It is not the case that unlessparties who have commercial dealings make acontract there are no legal rules which govern theirrelationship. The rules in question are simplydifferent from those arising under the law ofcontract see, for example, British Steel Corporationv. Cleveland Bridge and Engineering Co. Ltd.[1984] 1 All ER 504. It is undoubtedly the casethat the relevant rules, those concerning restitution,are still in a statement of development see, forexample Crown House Engineering Ltd. v. AmecProjects Ltd. (1989) 48 BLR 32 but it should not besupposed that the law is incapable of rising to thechallenge of developing appropriate refinements ofthe law as necessity arises. In some spheres ofeconomic activity, and particularly in theconstruction industry, parties in a commercialrelationship consciously desire to avoid acontractual relationship in some circumstances anddeliberately structure their relationship so as toavoid the conclusion that there is a contract, forexample, by use of a letter of intent. It is no part ofthe function of the court to disappoint theexpectations of parties in such circumstances.66. In relation to the law governing contractformation, it is, in my judgment, less importantconceptually what the rules are than that theyshould be clear, comprehensible and readilyapplied, at least in principle. This is particularlyso, it seems to me, because, first, the rules, for thereasons which I have explained, are to be appliedobjectively through an intellectual process ofevaluation of the facts of the particular case with nopredisposition either to find, or not to find, that theresult is a contract, and, second, in practice adispute as to whether a contract has been concludedis likely to arise once relations between partieshave broken down, so that the respectivecontentions of the parties will reflect theirrespective assessments of whether the balance ofadvantage, in the context of the breakdown ofrelations, lies either in contending that a contractwas concluded, or that it was not. A furtherconsideration which emphasises the importance ofan objective and cerebral approach to analysis ofthe relevant material in any given case is that insome circumstances, and in my judgment thepresent case is an example, the aim of one of theparties to a negotiation is to secure a bindingagreement, while the aim of the other party is, ifpossible, to avoid such. One can only sensiblyaddress which has been successful in achieving itsaim if there are rules which are to be appliedwithout any predisposition towards any particularresult.67. Given that the question whether an agreementhas been made is to be approached objectively,without any predisposition towards any particularconclusion, by application of established rules, Ireturn to the issue by what application of what rulesis the matter of whether there was an agreement tobe resolved?68. Traditionally, the enquiry was, had one partymade to the other an offer which the offeree hadaccepted unequivocally. That approach wasCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 232002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)described trenchantly by Lawton LJ in ButlerMachine Tool Co. Ltd. v. Ex-Cell-O Corporation(England) Ltd. [1979] 1 WLR 401 at page 405 inthis way:-The modern commercial practice of makingquotations and placing orders with conditionsattached, usually in small print, is indeed likely, asin this case, to produce a battle of forms. Theproblem is how should that battle be conducted?The view taken by the judge was that the battleshould extend over a wide area and the courtshould do its best to look into the minds of theparties and make certain assumptions. In myjudgment, the battle has to be conducted inaccordance with set rules. It is a battle more onclassical 18th century lines when conventiondecided who had the right to open fire first ratherthan in accordance with the modern concept ofattrition.The rules relating to a battle of this kind havebeen known for the past 130- odd years. Theywere set out by the then Master of the Rolls, LordLangdale, in Hyde v. Wrench, and Lord DenningMR has already referred to them; and, if anyoneshould have thought they were obsolescent, MegawJ in Trollope & Colls Ltd. v. Atomic PowerConstructions Ltd. called attention to the facts thatthose rules are still in force.69. In the context of an agreement said to havebeen made in correspondence Lord Diplock said inGibson v. Manchester City Council [1979] 1 WLR294 at page 297:-My Lords, there may be certain types of contract,though I think they are exceptional, which do notfit easily into the normal analysis of a contract asbeing constituted by offer and acceptance; but acontract alleged to have been made by an exchangeof correspondence between the parties in which thesuccessive communications other than the first arein reply to one another is not one of these.70. In his submissions Mr. Douglas sought tosuggest at one stage that an agreement incircumstances such as those of the present casecould be made other than by the acceptance by oneparty of an offer made by the other. In particular,Mr. Douglas reminded me of the words of LordDenning MR in Port Sudan Cotton Co. v.Govindaswamy Chettiar & Sons [1977] 2 LloydsRep. 5 at page 10:-In considering this question, I do not much likethe analysis in the text- books of inquiring whetherthere was an offer and acceptance, or a counterofferand so forth. I prefer to examine the whole ofthe documents in the case and decide from themwhether the parties did reach an agreement upon allthe material terms in such circumstances that theproper inference is that they agreed to be bound bythose terms from that time onwards.The purpose of reminding me of that expressionof opinion was, I think, to suggest that it was notnecessary, in order to find a contract, to ask thetraditional question, was there an offer which wasunequivocally accepted, and answer that questionin the affirmative. Rather, it was, or might be,enough to justify the finding of an agreement, thatby trawling through correspondence one could findthat at different times particular matters had beenagreed which in sum could be said to amount to anagreement.71. Mr. Douglas also relied on the passage in thejudgment of Steyn LJ in G. Percy Trentham Ltd. v.Archital Luxfer Ltd. at page 27 of the judgmentwhich continued beyond the point at which mycitation earlier in this judgment ceased and was inthese terms:-Secondly, it is true that the coincidence of offerand acceptance will in the vast majority of casesrepresent the mechanism of contract formation. Itis so in the case of a contract alleged to have beenmade by an exchange of correspondence. But it isnot necessarily so in the case of a contract allegedto have come into existence during and as a resultof performance. See Brogden v. MetropolitanRailway (1877) 2 AC 666; New Zealand ShippingCo. Ltd. v. A.M. Satterthwaite & Co. Ltd. [1974] 1Lloyds Rep. 534 at p.539 col.1 [1975] AC 154 at p.167 D-E; Gibson v. Manchester City Council[1979] 1 WLR 294. The third matter is the impactof the fact that the transaction is executed ratherthan executory. It is a consideration of the firstimportance on a number of levels. See BritishBank for Foreign Trade Ltd. v. Novinex [1949] 1KB 628 at p. 630. The fact that the transaction wasperformed on both sides will often make itunrealistic to argue that there was no intention toenter into legal relations. It will often make itdifficult to submit that the contract is void forvagueness or uncertainty. Specifically, the fact thatthe transaction is executed makes it easier to implya term resolving any uncertainty, or, alternatively,it may make it possible to treat a matter notfinalised in negotiations as inessential. In this casefully executed transactions are under consideration.Clearly, similar considerations may sometimes berelevant in partly executed transactions. Fourthly,if a contract only comes into existence during andas a result of performance of the transaction it willfrequently be possible to hold that the contractimpliedly and retrospectively covers pre-Copr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 242002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)contractual performance. See Trollope & CollsLtd. v. Atomic Power Constructions Ltd. [1963] 1WLR 333.72. Mr. Douglas accepted that the present was nota case of a fully executed transaction. What hadgiven rise to the claims in the action was the factthat HTA was not permitted to providearchitectural services in connection with the laterstages of the GMV project. When pressed as tohow I should determine whether an agreement hadbeen concluded in the present case, I think Mr.Douglas really accepted that one had to find anoffer on the part of HTA which was accepted onbehalf of the Defendants. I consider that that isrealistic. I do not need to concern myself in thisaction with how, conceptually, an agreement mightbe made without there being an offer and anacceptance, assuming such to be possible. Equally,I do not need to concern myself with what sort ofevidence, other than evidence of an offer and anacceptance, might be sufficient to prove anagreement. The agreement contended for on behalfof HTA was an agreement alleged to have beenmade in writing in the exchanges ofcorrespondence which I have already set out,coupled with the effect of the conversation betweenMr. Hunt and Mr. Springgay on 17 November 1997for which Mr. Douglas contended. There seems tobe unanimity of judicial view that such anagreement can only be made by the making by oneparty of an offer which is unequivocally acceptedby the other.73. Mr. Douglas submitted that in order todetermine whether there had been an offer and anacceptance it was necessary to consider the wholecourse of the correspondence between HTA and theDefendants or TFP on their behalf. He referred meto the decision of the House of Lords in Hussey v.Horne-Payne (1879) LR 4 App Cas 311. Mr.Friedman and Miss Jefford relied on the sameprinciple and the same authority. However, itseemed to me that actually each side meantsomething different when submitting that I shouldlook at the whole course of the correspondence.Mr. Douglass submission on analysis was that Ishould extract from the exchanges incorrespondence any element ever apparently agreedand aggregate such elements so as to make anoverall agreement at the end. Mr. Friedman andMiss Jefford submitted that on a consideration ofthe correspondence as a whole it was plain thatthere never was an agreement because of thematters as to which the parties wished to reachagreement but did not.74. Another authority relied on by Mr. Douglaswas Rossiter v. Miller (1878) 3 App Cas 1124. Inthe course of his speech in that case LordBlackburn said:-I quite agree with the Lords Justices that (whollyindependent of the Statute of Frauds) it is anecessary part of the Plaintiffs case to shew that thetwo parties had come to a final and completeagreement, for, if not, there was no contract. Solong as they are only in negotiation either partymay retract; and though the parties may haveagreed on all the cardinal points of the intendedcontract, if some particulars essential to theagreement still remain to be settled afterwards,there is no contract. The parties, in such a case arestill only in negotiation. But the mere fact that theparties have expressly stipulated that there shallafterwards be a formal agreement prepared,embodying the terms, which shall be signed by theparties does not, by itself, shew that they continuemerely in negotiation. It is a matter to be takeninto account in construing the evidence anddetermining whether the parties have really cometo a final agreement or not. But as soon as the factis established of the final mutual assent of theparties so that those who draw up the formalagreement have not the power to vary the termsalready settled, I think the contract is completed.75. The purpose for which Mr. Douglas drew myattention to the decision in Rossiter v. Miller was insupport of his submission that it was no necessaryobstacle to the conclusion of a binding agreementthat it was contemplated that a formal agreementwould be drawn up in the present case. However,the passage from the speech of Lord Blackburnwhich I have quoted in the preceding paragraphdoes shed light on what was meant by the decisionin Hussey v. Horne- Payne in relation to aconsideration of the totality of the relevantcorrespondence. The decision itself indicates thatthe purpose of a consideration of the totality ofrelevant correspondence is not to pick and chooseout of it agreement of particular items at particularpoints so as to construct an edifice which does notitself appear at any single point. Rather thepurpose is to ensure that the appearance ofagreement at some stage as a result of theapplication of a conventional offer and acceptanceanalysis, which would involve looking at each itemin the correspondence only in the context of itsimmediate chronological neighbours, does notcreate a false impression of agreement. That suchis the purpose is demonstrated, as it seems to me,by Lord Blackburns comment in Rossiter v. Millerthat So long as they are only in negotiation eitherparty may retract;. In other words, a party innegotiation is not stuck forever, no matter whatafterwards happens, by what he may agree in thecourse of negotiations. Until the moment of finalCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 252002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)agreement he may retract all or any of what hemight up to the point of retraction have agreed.This is important, for it means that in looking atnegotiation over a course of correspondence it isnot legitimate to suppose that what is agreed at onepoint in one context, should be treated as agreed ata later point in a different context. In my judgmentit is only if one can, on a fair reading of therelevant correspondence as a whole, construe thedocument which ultimately is relied on as the offeras incorporating by reference or by inferencematters agreed earlier in the negotiations, that theyare to be treated as included. Otherwise they are notto be treated as included. A conclusion that mattersconsidered earlier in negotiations are not to betreated as included by implication, if not expresslyreferred to, in the otherwise final offer could resultin the analysis that the supposed agreement was notan agreement. It would do so unless it appearedthat agreement on the matters not mentioned wasno longer required.Application of the law to the facts of the case76. In my judgment it is plain that the contractcontended for on behalf of HTA is not made out.The last document in the series of correspondencerelied on on behalf of HTA was the memorandumdated 17 November 1997 written by Mr. Springgayto Mr. Hunt. It was by acceptance of an offercontained, or recorded, in that document, if at all,that a contract was made between HTA and theDefendants. That memorandum began, Further tomy memo of 10 November, your subsequent fax of13 November and our discussion this afternoon, theConsortium will agree to the following revisions tothe heads of terms. It seems to me that thereference to the heads of terms in the context of thecorrespondence between the parties was a referenceto the letter dated 3 November 1997 written by Mr.Springgay to Mr. Hunt. Thus, in my judgment, forthe purposes of considering whether any, and, if so,what, offer was made to HTA which might havebeen capable of acceptance so as to give rise to abinding contract, one needs to read together theletter dated 3 November 1997, the memorandumdated 10 November 1997 written by Mr. Springgayto Mr. Hunt, and the memorandum dated 17November 1997. Looking at those documentstogether it is apparent, first, that although a designteam comprising Ralph Erskine, HTA, CT, BM andBBMK is identified, there is no indication in therelevant documents as to which of those entities isto do what in relation to the period after success inthe competition, if achieved, or, indeed, before thattime. A particular matter unresolved but arisingfrom the memorandum dated 10 November 1997was the production of a workplan showing therespective roles of Ralph Erskine and HTA. Thememorandum dated 17 November 1997 made itclear that such a workplan was still required. Thememorandum dated 10 November 1997 indicatedthat the Defendants were not themselves, or any ofthem, contemplating entering into any agreementwith HTA, but envisaged that a joint venturecompany would be formed which would, all beingwell, in the fullness of time enter into separateagreements with each member of the design team.The terms of any such agreements would, it wascontemplated, be based on the RIBA StandardForm of Agreement, but amended to reflect thisparticular project and its requirements. Whatamendments might be sought was not addressed,but I think that the requirements referred to musthave been those desired by the joint venturecompany to be established, rather than somethingobjectively justified. It was plain, however, thatsome further, formal agreement with each memberof the design team was contemplated. The questionof copyright was raised in the memorandum dated10 November 1997 and it was made clear that someprovision was required to enable the use by anotherarchitect, if one was brought in after Stage D, ofwork done prior to that. However, no specificprovision was suggested, nor was any provisionaccepted by HTA. In all the circumstances it isclear, in my judgment, that the memorandum dated17 November 1997 contained no offer specificenough to be capable of acceptance so as to giverise to a binding contract. That was in fact areflection of the fact that the parties, objectively,were still in negotiation, and had no thought ofentering into a binding agreement at that stage.What was under discussion were Heads of Terms,not in the sense, which is conceptually possible, ofa preliminary agreement to continue in operationuntil a later, fuller agreement had been made, but inthe sense of identifying the most important matterswhich would need to be addressed in negotiationsfor formal appointments. In other words, whatwas, objectively, under discussion was a sort ofagenda for future negotiations, albeit with anindication of what provision was likely to beincluded in respect of the significant matter ofremuneration.77. In my judgment what I have earlier in thisjudgment called Mr. Douglass bootstraps argumentdoes not avail the Claimants because theunderlying premise is false. The underlyingpremise is that the Developers and the DesignTeam intended to make a binding agreement inrelation to the sums to be paid in relation to thework of the Design Team in respect of Phase 2 ofthe competition. On the back of that premise Mr.Douglas seeks to haul up an agreement in relationto work on Phase 3 of the GMV project by thebootstraps of Phase 2. His submission was thatCopr. © West 2004 No Claim to Orig. Govt. Works

2002 WL 347140 Page 262002 WL 347140 (QBD (T&CC)), [2002] EWHC 482(Publication page references are not available for this document.)there was no indication that in the interchangesbetween the parties in the period with which I amconcerned a different intention existed in relation toPhase 3 from that which existed in relation to Phase2, so that there was an intention to make a contractin respect of both Phases. I accept that on theevidence, viewed objectively, it is not possible todiscern a different intention in relation to Phase 3from that in relation to Phase 2. However, whatfollows, in my judgment, is not the conclusion forwhich Mr. Douglas contended, but that, it beingclear that the parties did not intend to dealdifferently with work on Phase 2 as compared withwork on Phase 3, the question is whether, lookingat all the matters under discussion, whether relatingto Phase 2 or to Phase 3, objectively a contract hadbeen concluded. The answer, it seems to me, isnegative.78. I do not accept that in any event any offercapable of acceptance made, or recorded, in Mr.Springgays memorandum dated 17 November 1997and in the documents which in my view are to betaken to have been incorporated therein wasactually accepted. I reject Mr. Hunts evidence thathe agreed on the telephone with Mr. Springgay on17 November 1997 to accept terms set out in thememorandum dated 17 November 1997 which hehad not then seen and which had at best beensummarised to him. I formed the view from seeingand hearing him give evidence that Mr. Hunt is acautious man. He had had a difficult time trying topin down the Defendants, on any view. He hadbeen concerned that there was a need to ensure thatMr. Springgay had been authorised to send hisletter dated 3 November 1997 and that theDefendants would not seek to disown Mr.Springgay if he, Mr. Hunt, agreed to what was setout in the letter dated 3 November 1997. I am surethat he would have wanted, and did want, to seesomething in writing before indicating anything toMr. Springgay about the proposals summarised byMr. Springgay on the telephone. I am also surethat Mr. Hunt would not, against the background ofthe previous unsatisfactory dealings, from the pointof view of HTA, with the Defendants, have simplyaccepted an indication from Mr. Springgay that Mr.Phipps was most unlikely to dissent from, or towant to alter, the proposals set out in thememorandum dated 17 November 1997. I amsatisfied, therefore, that Mr. Springgay is correct inhis recollection that Mr. Hunts reaction when hespoke to him on the telephone on 17 November1997 was that he wanted to see the memorandumbefore committing himself or any other member ofthe design team.of the design team responded to Mr. Springgaysmemorandum dated 17 November 1997. Mr.Douglas indicated in opening the case on behalf ofHTA that, if necessary, he would wish to argue thatthe proposals contained in Mr. Springgaysmemorandum dated 17 November 1997 wereaccepted by the conduct of HTA in proceedingwith work on the competition for the GMV projectafter receipt of the memorandum. Mr. Friedmanobjected that that point was not open to HTA on itsstatement of case. I think that Mr. Friedman iscorrect in that. If I had thought that the pointmattered I should have been inclined to givepermission for a further amendment of theAmended Particulars of Claim to enable Mr.Douglas to advance the point as to acceptance byconduct. However, the point does not matter in thelight of my conclusions that there was no offercapable of acceptance and no intention to enter intolegal relations. Nonetheless I should indicate thatthere was no evidence that HTAs conduct after 18November 1997 evinced an intention to accept suchan offer as that which HTA contended had resultedin the contract pleaded. On the contrary, HTA andthe other members of the design team had beenworking on the competition for some time and hadexpended considerable cost and effort without therebeing any contract with anyone in respect of suchwork. That situation, working on the competition,merely continued. Insofar as one can identifyanything done which could be said to relatespecifically to the contract contended for, it was therendering of invoices for a success fee totalling150,000, respectively in the proportions 37.5%,37.5% and 25%, to each of Taywood, Countrysideand Moat, each of which invoices was dated 4March 1998. As the pleaded case of HTA is thatwhat was agreed was that the total success feewould be payable in four equal instalments at sixmonthly intervals starting with the exchange ofcontracts between the Developers and EP, therendering of such invoices is plainly not conductreferable to any such agreement.The answer to the preliminary issue80. The answer to the preliminary issue is thusthat no contract was concluded between HTA andthe Defendants or any of them. It is not necessaryto consider the second part of the preliminary issue.END OF DOCUMENTCrown Copyright.79. It is common ground that neither Mr. Hunt noranyone else on behalf of HTA or any other memberCopr. © West 2004 No Claim to Orig. Govt. Works

1990 S.L.T. 249 Page 11989 WL 984342 (OH), 1990 S.C.L.R. 186(Cite as: 1990 S.L.T. 249)1990 S.L.T. 249*249 Rutterford Ltd. v. Allied Breweries Ltd.OHOuter HouseOHLord Caplan27 July 1989Contract--Sale of heritage--Missives of sale--Offer and acceptance--Pursuerswithdrawing qualified acceptance and purporting to accept previous qualifiedacceptance of defenders--Whether bargain thereby concluded.Heritable property--Sale--Missives--Offer and acceptance--Pursuers withdrawingqualified acceptance and purporting to accept previous qualified acceptance ofdefenders--Whether bargain thereby concluded.Property--Heritable property--Sale--Missives--Offer and acceptance--Pursuerswithdrawing qualified acceptance and purporting to accept previous qualifiedacceptance of defenders--Whether bargain thereby concluded.Contract--Heritable property--Sale--Rei interventus--Homologation-- Dispositiondrafted after informal conclusion of missives--Whether pursuers had substantiallyaltered their position.A company (the pursuers) sought to purchase certain shop premises by lodging anoffer through their agents with the agents of the sellers (the defenders). Thiswas met by a qualified acceptance from the defenders' agents which was in turnmet by a further qualified acceptance from the pursuers' agents. The defenders'agents accepted this qualified acceptance subject to further qualifications oftheir own by letter of 29 September 1988. On 11 October 1988 the pursuers' agentsaccepted the qualified acceptance of 29 September, but with furtherqualifications. The offer and all qualified acceptances had been adopted asholograph by the relevant parties. Thereafter the parties' agents corresponded byway of informal letters in respect of certain matters relating to the sale andpurchase of the subjects. On 11 January 1989 the pursuers' agents sent a letter,adopted as holograph, formally withdrawing their qualified acceptance of 11October, purporting to accept the defenders' qualified acceptance of 29September, and concluding the bargain between the parties. On the same day thedefenders' agents acknowledged receipt of that letter, stating that they hadadvised the defenders accordingly, enclosing certain conveyancing forms andasking for sight of the pursuers' draft disposition. That letter was not adoptedas holograph. The pursuers' agents prepared the draft disposition and variousconveyancing forms and despatched same for revisal and return to the defenders'agents. On 16 January 1989 the defenders' agents intimated to *250 the pursuers'agents that they did not accept that a concluded bargain had been reached. Thepursuers raised an action for implement and interdict against the defenders.Held:(1) that the effect of the qualified acceptance of 11 October was to set up acounter offer which supplanted and cancelled out the offer represented by thedefenders' acceptance of 29 September (p. 252E);(2) that there was no distinction to be drawn between essential andinessential conditions in a contract as that could only lead to confusion anduncertainty for the contracting parties whereas the law as it stood presented noCopr. © West 2004 No Claim to Orig. Govt. Works

1990 S.L.T. 249 Page 21989 WL 984342 (OH), 1990 S.C.L.R. 186(Cite as: 1990 S.L.T. 249)difficulty (p. 252K);(3) that the continuing of negotiations after an offer was refused could onlybe regarded as keeping that offer alive where the offeror effectively sorepresented through the negotiations (pp. 252L-253A);(4) that it could not be inferred from the pursuers' averments that betweenSeptember 1988 and 11 January the parties' agents corresponded "on certainmatters"relating to the contract of sale, that the defenders were representingthat they were prepared to regard the offer contained in their qualifiedacceptance as being restored (p. 253A-B);(5) that what the pursuers claimed to have done, in preparing the draftdisposition and conveyancing forms, was not a change of position sufficientlysubstantial to be regarded as rei interventus, given that the case involved ashop said to be worth 215,000 and that extensive negotiationsbetween parties' agents had been in train for over half a year: apart fromincurring a relatively small degree of extra expense, the position of thepursuers when the defenders intimated that they did not recognise the contractwas relatively intact (p. 253J-L); and action dismissed.Wolf & Wolf v. Forfar Potato Co., 1984 S.L.T. 100, followed.Observed, that, unlike in a case of rei interventus, the defenders could nothomologate a contract which the pursuers' letter of 11 January purported toconclude because, at the stage when the letter was sent, there was no consensusin idem (p. 253E-F)Action of implement and interdictRutterford Ltd. raised an action againstAllied Breweries Ltd. concluding for implement of a purported bargain for thesale and purchase of certain shop premises and for interdictFactsThe following narrative is taken from the opinion of the Lord Ordinary(Caplan):In this action the pursuers claim that the defenders have failed to implement acontract of sale whereby the pursuers allegedly purchased a shop at 30/32Blackhall Street, Greenock. It is contended that the contract was entered into byan exchange of letters dated 5 May, 9 June, 9 September and 29 September all in1988 and 11 January 1989. The pursuers accordingly seek implement of the allegedcontract and to have the defenders interdicted from selling or alienating theproperty. The defenders deny that an effective contract was ever concluded andthe issue between the parties is whether or not a contract exists.There appears to be no dispute about the facts relevant to the case. Between 5May 1988 and 11 January 1989 formal letters were exchanged between the parties'respective solicitors with a view to concluding a bargain for the sale by thedefenders to the pursuers of the said shop premises. By letter dated 5 May 1988from Messrs Tods Murray, W.S., Edinburgh (the pursuers' solicitors) to MessrsMacdonalds, solicitors, Glasgow (the defenders' solicitors) the pursuers formallyoffered to buy the said shop. The price was to be 215,000. Byletter dated 9 June 1988 the said offer was accepted but subject to certainqualifications which were indeed 14 in number. By formal letter dated 9 September1988 from Messrs Tods Murray to Messrs Macdonalds the conditions in the saidqualified acceptance were accepted but further qualifications were imposed. On 29September 1988 Messrs Macdonalds replied to Messrs Tods Murray and in theiracceptance of the conditions set out in the letter of 9 September they imposedfurther qualifications. The qualifications on this occasion were seven in number.On 11 October 1988 Messrs Tods Murray wrote to Messrs Macdonalds and theiracceptance of the conditions in the letter of 29 September was once againqualified although by this time the differences between the parties were narrow.There was a difference as to whether or not a sum of >3,500 tobe retained by the purchasers against fulfilment of certain conditions in thecontract should be retainable in perpetuity or for a limited period of 10 yearsand a further difference about the inclusion of a provision that if thepurchasers were dissatisfied with the title offered their only remedy should beto resile without penalty on either party. All the foregoing letters were adoptedas holograph.Following upon the said qualified acceptance of 11 October it is said by thepursuers in their pleadings that between 29 September 1988 and 11 January 1989Copr. © West 2004 No Claim to Orig. Govt. Works

1990 S.L.T. 249 Page 31989 WL 984342 (OH), 1990 S.C.L.R. 186(Cite as: 1990 S.L.T. 249)the parties corresponded by way of a series of informal letters on certainmatters relating to the contract for the sale and purchase of the subjects.However, no further details of this correspondence are averred. In any event thenext development in the formal letters said to constitute the contract was thatby letter dated 11 January 1989 Messrs Tods Murray, in a letter adopted asholograph, wrote to Macdonalds and (1) withdrew their qualified acceptance dated11 October 1988, and (2) purported to accept the qualifications contained in thequalified acceptance of 29 September 1988. It was further stated that the bargainas constituted by the letters of 5 May, 9 June, 9 September and 29 September wasbeing held as concluded. On 11 January 1989 Messrs Macdonalds wrote to MessrsTods Murray in reply to their said letter of the same date. Messrs Macdonalds'letter was informal and was in the terms following:"Thank you for your letter of 11th January *251 withdrawing your qualifiedacceptance of 11th October and concluding missives. We have advised our clientsaccordingly."We enclose our draft Form 12 and draft Letter of Obligation for approval."As the writer is only dealing with this transaction in the absence of our MrMorrison, who is due to return from holiday on Monday, we think it appropriatethat he submit to you draft intimations to the tenants as he has a detailedknowledge of the background to the transaction."Similarly we think it more appropriate for him to prepare a State forSettlement. We await your draft disposition for revisal shortly."After receiving that letter Messrs Tods Murray revised conveyancing form 12 andprepared a draft disposition in modern form. They also prepared conveyancingforms 3 and 4. On 13 January 1989 they wrote to Messrs Macdonalds enclosing thedraft disposition and the said forms 3 and 4 for revisal. They also returned form12 duly revised. Various other conveyancing matters were referred to. By letterdated 16 January 1989 Messrs Macdonalds wrote to Messrs Tods Murray indicatingthat they did not accept that there was a concluded contract. It was explainedthat the writer of the letter who was dealing with the transaction had been onholiday when the correspondence of 11 January had taken place. Indeed, MessrsMacdonalds expressed some surprise that the pursuers had attempted to concludethe transaction at a time when they knew that the partner of Messrs Macdonaldswho was dealing with the matter was on holiday.The case called on procedure roll before the Lord Ordinary (Caplan). Bothparties had preliminary pleas attacking the relevancy of the other's pleadings.Cases referred toButler Machine Tool Co. Ltd. v. Ex-Cell-O Corporation (England) Ltd. [1979] 1W.L.R. 401.Errol v. Walker, 1966 S.L.T. 159 ; 1966 S.C. 93.Glasgow and Newcastle and Middlesbro Steam Shipping Co. v. Watson (1873) 1 R.189.Heiton v. Waverley Hydropathic Co. Ltd. (1877) 4 R. 830.Hunter v. Hunters (1745) Mor. 9169.Hyde v. Wrench (1840) 3 Beav. 334.Johnston v. Clark (1855) 18 D. 70.Law v. Thomson, 1978 S.L.T. 250; 1978 S.C. 343.Mitchell v. The Stornoway Trustees, 1936 S.L.T. 509; 1936 S.C. (H.L.) 56.New Zealand Shipping Co. Ltd. v. A. M. Satterthwaite & Co. Ltd. [1975] A.C.154.Uniroyal Ltd. v. Miller & Co. Ltd., 1985 S.L.T. 101.Wolf & Wolf v. Forfar Potato Co., 1984 S.L.T. 100.Copr. © West 2004 No Claim to Orig. Govt. Works

1990 S.L.T. 249 Page 41989 WL 984342 (OH), 1990 S.C.L.R. 186(Cite as: 1990 S.L.T. 249)Textbooks referred toBell, Principles (10th ed.), s. 26.Craigie, Conveyancing (3rd ed.), pp. 246-248.Gloag, Contract (2nd ed.), pp. 37 and 39.McBryde, Contract, paras. 5-86 et seq.On 27 July 1989 the Lord Ordinary repelled the pursuers' pleas in law,sustained the defenders' first plea in law and dismissed the action.LORD CAPLAN.[After the narrative quoted supra his Lordship continued:]In their pleadings the pursuers plead that the said correspondence amounts to aconcluded and effective bargain. They further plead that esto the said contractis improbative it has been validated by rei interventus and homologation. Bothparties have preliminary pleas attacking the relevancy of each other's pleadings.At the procedure roll hearing it was contended on behalf of the defenders thata qualified acceptance of an offer is in effect a counter offer (Craigie,Conveyancing (3rd ed.), pp. 246-248). If an offer is met by anything less than aclear acceptance then such acceptance can be ignored -- Johnston v. Clark. Theeffect of a refusal of an offer is that the offer lapses and a counter offer isin fact a refusal. I was referred to Gloag on Contract (2nd ed.), pp. 37 and 39,Uniroyal v. Miller & Co. Ltd., and Wolf and Wolf v. Forfar Potato Co. Counselalso discussed the cases referred to by Gloag at p. 37, namely Hunter v.Huntersand Hyde v. Wrench. It was also claimed that the letter dated 11 January1989 from the pursuers' solicitors concluded nothing since by that stage therewas nothing to accept. In any event, the offer constituted by the letter of 29September would have lapsed. Mere negotiations will not be sufficient to keep anoffer open if the offer would otherwise expire. I was referred to Glasgow etc.Steam Shipping Co. v. Watson . I was further referred to the classic definitionof rei interventus in Bell's Principles, s. 26 and it was argued that it wascritical that the actings be "not unimportant" . The actings relied on by thepursuers, namely the preparation of a draft disposition and the preparation andrevisal of standard forms, were not of sufficient importance to set up a casebased on rei interventus. I was also referred to Mitchell v. The StornowayTrustees . It was argued that there was no concluded informal agreement whichcould be homologated (Law v. Thomson ). Finally, I was referred to Heiton v.Waverley Hydropathic Co. as an illustration of actings considered to be tootrivial to be the basis of rei interventus.For the pursuers it was contended that the letter from their solicitors of 11January 1989 concluded a formal contract. In so far as the defenders' qualifiedacceptance of 29 September 1988 was to be regarded as an offer, time was not ofits essence. The view that a qualified acceptance had the effect of nullifyingthe offer it related to was based on doubtful authority and in any event was toobroadly stated. Missives in commercial negotiations should be regarded as anevolutionary process where offers and counter offers are constantly *252 beingmodified and adjusted as negotiations progressed. In the present case, therelevant correspondence was part of a lengthy and complicated negotiationprocess. Even if a qualified acceptance should be regarded as a refusal of therelevant offer that rule would only apply if the qualifications related toessential conditions so that the qualified acceptance could be regarded as acompletely new offer. With regard to inessential conditions it is more correct toregard such qualifications as proposals for modification of the offer rather thanas a refusal of the offer. I was referred to McBryde, The Law of Contract, paras.5-86 et seq. The cases founded on by Professor Gloag at p. 37, namely Hunter v.Hunters and Hyde v. Wrench , are doubtful support for the views the authorCopr. © West 2004 No Claim to Orig. Govt. Works

1990 S.L.T. 249 Page 51989 WL 984342 (OH), 1990 S.C.L.R. 186(Cite as: 1990 S.L.T. 249)expresses. In Wolf and Wolf v. Forfar Potato Co. Lord McDonald expresses the viewthat, if negotiations continue after an original offer is refused and theoriginal offer is thereafter unreservedly accepted, the offeror may well bebarred from maintaining that no bargain had been concluded. Moreover, in Wolf andWolf there had been an admission that the original offer was to be regarded asrefused. HUniroyal Ltd. v. Miller & Co. Ltd.and Butler Machine Tool Co. Ltd. v.Ex-Cell-O Corporation (England) Ltd. were "battle of the forms" cases. In NewZealand Shipping Co. Ltd. v. A. M. SatterthwaiteLord Wilberforce commented thatin many ways a traditional analysis of offer, counter offer, rejection andacceptance is out of date.In any event, if the contract was not to be regarded as probative it wascompleted by rei interventus and homologation. In Bell's definition of the formerthe word "important" can only mean "material". To have a disposition draftedinvolves expense and is therefore material. The defenders had no relevantaverments from which it could properly be concluded that the defenders' counteroffer of 29 September had not been accepted within a reasonable time. The actingsof the parties following upon the exchange of letters on 11 January 1989, wereclearly referable to the contract established by the whole correspondence.In my view counsel for the defenders were quite correct when they contendedthat the effect of the qualified acceptance of 11 October 1988 was to set up acounter offer which supplanted and cancelled out the offer represented by thedefenders' acceptance dated 29 September. The law on the matter may not besupported by voluminous authority but the authority which exists is clear and hasremained uncontradicted over a long period of time. Professor Gloag sets out inhis textbook on Contract at p. 37 of the 2nd edition, the position as heunderstood it. Certainly the effect of Hunter v. Hunters(one of the two cases herelies on) is somewhat obscure but Hyde v. Wrenchis a clear enough case andappears to proceed upon principles which would be common to both Scots andEnglish law. That Hyde v. Wrenchis still the cornerstone of English law on therelevant topic was made clear by the judicial observations in Butler Machine ToolCo. Ltd. v. Ex-Cell-O Corporation (England) Ltd.The position in Scotland has been made no less clear in the recent case ofWolf and Wolf v. Forfar Potato Co. As Lord Robertson observes at p. 106, the rulespoken to by Gloag accords with common sense. In the case of an offer with notime limit attached, the offer by implication remains open for a reasonable timeand that would include such time as in all the particular circumstances of thecase may reasonably be required to allow the offeree to reply. However, when theofferee replies by way of a qualified acceptance he is, in effect, saying thatthis is my response to your offer. The focus then shifts to the original offerorwho has to consider whether or not he will accept the counter proposals. He doesnot require to consider whether or not specifically to withdraw his originaloffer for he already has had the offeree's response to it. If the position wereotherwise there would effectively be two offers affecting the same subjects onthe table at the same time. If the original offeror were to accept the qualifiedacceptance simultaneously with the offeree withdrawing his qualified acceptanceand accepting the original offer, then considerable practical difficulties couldemerge.The great advantage of the law as I understand it to be is that it is clear andcertain. The arguments advanced on behalf of the pursuers may be imaginative butthey find no support in the authorities. It may be that, in the course ofprotracted negotiation, an acceptor who tries to obtain improved terms does notwant to reject the original offer outright. However, he can only be judged bywhat he states formally, not by unexpressed reservations and the clear import ofa qualified acceptance is to the effect that these are the terms upon which I amnow prepared to conclude to contract. If, as the pursuers contend, negotiation isan evolutionary process, negotiations have evolved to the point where it is theacceptor's counter offer which is under active consideration, not the earlieroffer. Moreover, I do not find the attempt by pursuers' counsel to draw adistinction between essential and inessential conditions of the contract helpful.If the effect of a qualified acceptance has to be weighed by assessing the degreeby which the qualifications may be regarded as essential to the contract, thiscould only lead to confusion and uncertainty for the contracting parties. Icannot see that the law as it presently stands presents any particulardifficulty. A party who receives an offer, knows that he must accept it, refuseCopr. © West 2004 No Claim to Orig. Govt. Works

1990 S.L.T. 249 Page 61989 WL 984342 (OH), 1990 S.C.L.R. 186(Cite as: 1990 S.L.T. 249)it outright, or replace it with a counter proposal.The pursuers relied to a large extent on the obiter observations of LordMcDonald in Wolf and Wolf. However, Lord McDonald did not disagree with the viewof the majority that if a qualified acceptance is unacceptable to the originalofferor, he is entitled to regard his original offer as fallen. It follows thathis Lordship's reference to the effect of further negotiation must apply to asituation where the offeror through such negotiations effectively represents thathe is prepared to keep the *253 original offer alive -- that is to say to restoreit. No doubt the inference would be available in particular circumstances.However, Lord McDonald's observations must not be taken as applying tonegotiations in the abstract but rather to particular negotiations from which therequisite inference can be drawn. In the present case the pursuers merely offerto prove that between September 1988 and 11 January 1989 the parties' solicitorscorresponded "on certain matters" relating to the contract of sale. I do not seehow it would be possible to infer from these bland facts, if proved, that thedefenders were representing that they were prepared to regard their originaloffer as being restored. It follows from the foregoing that the pursuers are notable to prove that their letter of 11 January 1989 concluded formal missives.I have decided therefore that the letter from the pursuers' solicitors dated 11January 1989 does not do what it purports to do, namely to conclude a formalcontract. However, it does not follow that the letter has no significance at all.The letter was in probative form and I think that, at least, it can properly beregarded as a proposal that a contract be concluded on the basis of the earlierexchange of letters. The pursuers were indicating that they were prepared tocontract on that basis and had the defenders chosen to reply in formal terms tothe effect that they expressly accepted the pursuers' offer to conclude missivesthen there would, in my view, have been an effective contract. However, thedefenders certainly did not formally and expressly accept any offer contained inthe letter from the pursuers' solicitors of 11 January, so the question remainswhether they perfected a contract by virtue of rei interventus or homologation.The letter of the defenders' solicitors dated 11 January 1989 does not purportto agree to accept any proposal emanating from the pursuers' earlier letter ofthe same date. Instead, it purports to accept, erroneously as it turns out, thatmissives were concluded by the pursuers' letter. The fact that the letter wasinformal emphasises that it was not intended itself to be an element in thecontract. However, the defenders cannot homologate a contract concluded by thepursuers' said letter because, at the stage when that letter was sent, there wasno consensus in idem. As I have indicated, there was no offer of 29 Septemberwhich was alive and therefore habile to be accepted. As Lord Maxwell points outin Law v. Thomson, homologation cannot per se create an agreement but can onlyformalise a pre-existing agreement.The position, of course, is different in relation to rei interventus and Errolv. Walkerestablished that not only can an informal agreement be perfected by reiinterventus, but that rei interventus can provide consent to an agreement wherean element of consent would otherwise be lacking. Thus, whether or not the factswhich followed from the letter from the defenders' solicitors dated 11 Januarysupport what in terms is an informal agreement or themselves apply the missingelement of consent to that agreement, I think that, if the pursuers could provethat the acts in question amount to rei interventus, they would have a validcase. The defenders must be taken to have known of and permitted the preparationby the pursuers of a draft disposition and the relevant conveyancing formsbecause, in effect, they invited the pursuers to prepare these documents.However, I am not satisfied that what the pursuers claim to have done could everamount to a change of position sufficiently substantial to be regarded as reiinterventus.It is significant that in Bell's definition he refers to "proceedings notunimportant"and "alteration of circumstances, loss, or inconvenience" as separateand distinct factors. Thus it is not the mere fact that the obligee has incurredsome loss that constitutes rei interventus but the fact that such loss resultsfrom an important step. The law jealously protects the need for formal contractin the constitution of heritable obligations. The exceptions based on personalbar are not based on technical exceptions but on the equitable basis that itwould not be fair that a party should be prejudiced by formal inadequacy in anCopr. © West 2004 No Claim to Orig. Govt. Works

1990 S.L.T. 249 Page 71989 WL 984342 (OH), 1990 S.C.L.R. 186(Cite as: 1990 S.L.T. 249)agreement if through the obligor's actings he has substantially altered hisposition. However, the relevant cases point to substantial prejudice arising andit is for that reason that Bell introduces to his definition the concept of"proceedings not unimportant" . Cases which present no difficulty are, forexample, where the obligee alters his position by physically intromitting withthe subjects in a material sense (as would arise were he allowed to takepossession and physically alter them); or where he is allowed to enter intosubstantial commitments consequential upon the view that a contract of purchasehas been concluded (as for example would arise if he were to sell or vacateanother property).The examples I have given are, of course, in no sense exhaustive but it isobvious to me that the change of position relied upon here is of quite adifferent dimension to the kind of actings acknowledged by the authorities asamounting to rei interventus. The pursuers have instructed the preparation of adraft disposition in modern form and revised or prepared a few standard forms.This will no doubt have involved them in some legal expense although they do notstate what this expense has been. Nevertheless, given that the case involves ashop said to be worth 215,000 and that extensive negotiationsbetween solicitors were in train for over half a year, it is difficult toenvisage that the extra legal costs which might have been incurred amounted to aserious or important change in the pursuers' position. Thus, apart from incurringa relatively small degree of extra expense, the position of the pursuers on 16January 1989 when the defenders intimated that they did not recognise thecontract was relatively intact. In my view no contract for the sale of thepremises having been properly concluded, the actings which the pursuers rely uponcannot be said to provide the link necessary to complete the contract. It followsthat I require to repel the pursuers' pleas in law, sustain the defenders' firstplea in law, and dismiss the action.Representation*254 Counsel for Pursuers, Nimmo Smith, Q.C., Brailsford; Solicitors, TodsMurray, W.S.--Counsel for Defenders, Galbraith, Q.C., Howie; Solicitors, DormanJeffrey (for Macdonalds, Glasgow).R. F. H.© W. Green & Son Limited1990 S.L.T. 249, 1989 WL 984342 (OH), 1990 S.C.L.R. 186END OF DOCUMENTCopr. © West 2004 No Claim to Orig. Govt. Works

1984 S.L.T. 100 Page 11983 WL 217320 (2 Div)(Cite as: 1984 S.L.T. 100)1984 S.L.T. 100*100 WOLF AND WOLF v. FORFAR POTATO CO.2 DivSecond Division2 Div(The Lord Justice-Clerk(Lord Wheatley), Lords Robertson and McDonald)1 September 1983Contract--Offer and acceptance--Effect of later acceptance, within time- limit,of original offer after issue of qualified acceptance and counter- offer--Whetheroriginal offer fell on qualified acceptance with counter-offer.Damages--Breach of contract--Measure of damages--Purchase for resale.Following a business introduction in October 1977 regarding the possible saleof potatoes by a Forfar potato merchant to an international potato merchant inAmsterdam, on 29 November 1977 the Forfar merchant telexed an offer (open foracceptance till 17.00 hrs., 30 November 1977) to sell potatoes to theinternational merchant, subject to certain conditions regarding delivery datesand sizes. By telex dated 30 November 1977, the international *101 merchantpurported to accept the offer, subject to certain additional conditions.Following a telephone conversation between the parties to clarify the position,the international merchant by further telex dated 30 November 1977, sent withinthe time-limit, again purported to accept the original offer but requested thattheir conditions telexed in their first telex, should be given consideration. TheForfar merchant did not supply the potatoes and was sued for damages. Thequestion arose as to whether there was a valid contract with consensus in idemever constituted between the parties. The sheriff after a proof before answer,held that (1) there was no contract between the parties, and (2) the pursuersfailed to prove any loss. The pursuers appealed to the Court of Session.Held, that on the making of a qualified acceptance and counter-offer, theoriginal offer falls and that on the failure to obtain the terms requested in thecounter-offer, the party cannot fall back on and accept the original offer.that the proper measure of damages in this case would have been the probableprofit on a contract for the purchase of seed potatoes for resale.Observed, (per Lord McDonald) that in some cases of contract in re mercatoriathe general proposition that where a refusal of an offer is not peremptory, butis combined with a request for better terms, the construction that the offer isgone and that the party cannot fall back on an acceptance of the original offer,may not apply where the parties continue to negotiate and ultimately the originaloffer is accepted without reservation.Appeal from interlocutor of sheriff of Tayside, Central and Fife at ForfarWolfand Wolf, potato merchants with a place of business in Amsterdam, raised anaction of damages for breach of contract against the Forfar Potato Co. in thesheriff court at Forfar. The facts of the case and the telex messages referred toare set out in the opinion of Lord Robertson (post, p. 104).On 23 January 1981 the sheriff, after a proof before answer, sustained all thepleas-in-law for the defenders and assoilziedthem from the crave of the writ.The pursuers appealed to the Court of Session.The case was heard before the Second Division on 1 September 1983.Copr. © West 2004 No Claim to Orig. Govt. Works

1984 S.L.T. 100 Page 21983 WL 217320 (2 Div)(Cite as: 1984 S.L.T. 100)Cases referred to:Hunter v. Hunters (1745) Mor. 9169.Hyde v. Wrench (1840) 3 Beav. 334.On 1 September 1983 the Second Division refused the appeal.The Lord Justice-Clerk (Lord Wheatley).The pursuers raised this action of damages for breach of contract in thesheriff court at Forfar, the sum sued for being 36,186. Thepursuers aver that a contract under which the defenders undertook to supply tothem 1,000 tonnes Desiree potatoes was concluded by the interchange of threetelex messages and a telephone call and that these potatoes were not delivered tothem in terms of that contract. The defenders admit that they did not makedelivery of the potatoes referred to, but maintain that they were under noobligation to do so since no such contract was concluded by the parties. After aproof before answer the sheriff by interlocutor dated 23 January 1981 sustainedall the defenders' pleas-in-law and assoilzied them from the crave in the action.These included a plea to the relevancy of the pursuers' pleadings, a plea that nocontract had been concluded between the parties, and a plea that esto there hadbeen a concluded contract and esto the defenders were in breach of it, thepursuers had sustained no loss in consequence of any such breach. The sherifffound in law: "(1) There being no contract between the parties the defenders haveno duty to pay damages to the pursuer, and (2) the pursuers having failed toprove any loss the defenders are not liable to pay the pursuers therefor" . Thepursuers have now appealed against said interlocutor, maintaining that thesheriff's said findings in law and the interlocutor following therein were notwarranted. They submit that they have proved that there was such a concludedcontract and that as a result of its non-fulfilment they have suffered loss whichis properly reflected in the sum sued for. The defenders, per contra, maintainthat the sheriff reached the right conclusion on both branches of his judgment.In setting out the arguments of the competing parties I find myself compelledto address myself to the submissions made by senior counsel for the pursuers andappellants, because, so far as the merits of the case on proof of a concludedcontract are concerned he disowned some of the arguments advanced by his junioron this aspect of the case and departed from his own pleadings in regard to oneof the elements which are averred to have constituted a valid contract. I acceptthat senior counsel who is in charge of his client's case must make the ultimatedecision on how the case has to be conducted, and on what arguments it has to bebased, so long as these are within the four walls of his record.I propose to deal first of all with the issue of whether a valid contract wasconcluded. While starting off with an averment that telex message 6/2 [ofprocess] was an acceptance of the defenders' offer in telex message 6/1 thepursuers' ultimate case on record is that the telex messages (6/1, 6/2 and 6/3 ofprocess) and a telephone call between representatives of the parties which tookplace between the issue of 6/2 and the issue of 6/3 constituted a valid contract.It was conceded by pursuers' counsel that telex 6/2 could not be regarded as anacceptance of the offer in telex 6/1, despite earlier contentions to the contraryby the pursuers themselves. Senior counsel for the pursuers rejected the initialargument by his junior that the contract was concluded simply on the telexmessages 6/1 and 6/3 of process and that telex message 6/2 of process could beignored. He insisted that 6/2 had to be looked at as part of the relevant mattersto be taken into consideration in deciding whether 6/3 constituted a legalacceptance of the defenders' *102 offer in 6/1. So far as the said telephoneconversation is concerned he maintained that this was not a live issue in theappeal because the sheriff had decided that the terms thereof did not constitutean unqualified acceptance of the defenders' offer in 6/1 of process, a decisionwhich he accepted. He acknowledged that this was a departure from his record,but, as previously noted, he maintained that as the telephone conversation wassuperseded by 6/3 of process the question was whether in all the circumstancesthe terms of 6/3 constituted an unqualified acceptance of the defenders' offer.Copr. © West 2004 No Claim to Orig. Govt. Works

1984 S.L.T. 100 Page 31983 WL 217320 (2 Div)(Cite as: 1984 S.L.T. 100)If they did, and he maintained that they did, then a valid contract wasconcluded.The submission on behalf of the defenders was simply that the elements averredin the pursuers' pleadings did not constitute a concluded contract becausemanifestly there was no consensus in idem. 6/2 of process was admittedly not anacceptance of the defenders' offer in 6/1 and in effect 6/2 constituted a newoffer which was never accepted. There was clearly no consensus of opinion,particularly in relation to the shipping date and the split-grading of thepotatoes as evidenced by 6/2, and the differences between the parties thereanenthad admittedly not been resolved by the telephone conversation. Against thatbackground, the terms of 6/3 clearly did not constitute an unqualified acceptanceof the defenders' offer.Before considering and determining these cross-submissions I turn to thefindings-in-fact made by the sheriff and his accompanying note which gives thereason for his decisions. At this stage I shall confine myself to the findingswhich relate to the issue of whether a contract was concluded. Junior counsel forthe pursuers had a few minor criticisms to make, but as the argument wasdeveloped by her senior none of these objections had any substance and I see noreason why this issue should not be approached on the findings as they stand. Ishould point out, however, that in relation to findings 16 and 17 [concerningfurther negotiations subsequent to the three telex messages] senior counsel forthe pursuer argued that they were irrelevant, since a contract was eitherconcluded or not concluded by the issue of 6/3 of process and nothing subsequentthereto could affect that issue, whereas counsel for the defenders maintainedthat these subsequent communings further illustrated that there never had beenany consensus between the parties.In his note the sheriff dealt first of all with the question of credibilitywith which I shall deal later. He next dealt with the telephone conversationwhich took place between Mr Wolf of the pursuers and Mr McKay of the defenders. Ido not consider it necessary to deal with this in any detail. The sheriffregarded Mr McKay as a more credible witness than Mr Wolf. In my opinion it hasnot been established that he was not entitled to do so. That apart, however, itbeing now accepted that 6/2 was not an unqualified acceptance of the defenders'offer and that the telephone conversation did nothing to advance the case that itwas, all that emerged from that conversation was the fact that there were stilldifferences between the parties on certain matters, such as the shipping date andsplit-grading. The defenders were still insisting that these matters werematerial conditions of the offer and that any departure from them would be newconditions and unacceptable as such, whereas the pursuers were looking to havetheir counter-proposals on these matters accepted. It was accepted by pursuers'counsel that these were material matters. It was in that situation that telex 6/3was sent. When he came to consider the terms thereof the sheriff took the viewthat the introductory words "following our telex number 906 [6/2] and telephoneconversation" entitled him to look at what was included therein, and having takenthat approach he came to the conclusion that 6/3 did not advance the positionbeyond 6/2, which indicated that there was still no consensus. He regarded thephrase in 6/3 which began "In order to facilitate these matters" as being morediplomatic than, but no different in effect from, the word "but" in 6/2, whichhad negated 6/2 as an acceptance of the offer. He summed up his view by saying:"In my opinion, therefore, 6/2, the telephone conversation with Mr McKay and 6/3of process are all three identical in meaning and even in structure. Theycommence by saying 'We accept 6/1'. They then nullify that acceptance bydemanding qualifications to many of the most important terms, notably date ofshipment and split-grading. They then make a gesture towards further negotiation". The sheriff considered that the opinion which he had formed that no consensushad been reached was borne out by subsequent events. Recalling that the proof hadbeen before answer, he took the view that his decision that no contract had everbeen concluded between the parties was really one of relevancy and sustained thedefenders' plea to relevancy. Insofar as his decision was based simply on thetelex messages 6/1, 6/2 and 6/3 which were accepted by the parties, even ifprobation was not formally renounced, that course is understandable, butsustaining a plea to the relevancy should result in dismissal not in absolvitor.If a decision in favour of the defenders has to include consideration of thetelephone conversation, the appropriate plea to sustain would be the defenders'fourth plea-in-law, resulting in absolvitor.Copr. © West 2004 No Claim to Orig. Govt. Works

1984 S.L.T. 100 Page 41983 WL 217320 (2 Div)(Cite as: 1984 S.L.T. 100)In my opinion the issue turns on (1) whether 6/2 constituted a new offer, and(2) the interpretation to be given to the wording of 6/3. Before considering thisI must re-affirm and put on record some concessions made by senior counsel forthe pursuers. These were: (1) although 6/2 was intended as an unqualifiedacceptance of 6/1, insofar as it sought to impose new conditions, it did not meetthat offer; (2) the conditions in relation to the sailing date and split-gradingwere material conditions, and the pursuers' reference to these in 6/2 renderedthat a fresh offer. He maintained, however, that the time for acceptance given in6/1 entitled the pursuers to tender a legal acceptance of 6/1 within the timelimitirrespective of 6/2. He submitted that 6/3 withdrew the qualifications in6/2 and quoad ultra 6/3 expressly accepted *103 timeously the offer in 6/1. In sofar as 6/2 constituted a fresh offer which had not been accepted, the passage inGloag on Contract (2nd ed.)at p. 37 that a fresh offer cuts out the original onedid not apply in a case where the original offer stipulates for an acceptancewithin a specified time, and reference was made to Gloag, supra, at p. 35.The first argument advanced by defenders' counsel is a simple andstraightforward one, and turns on a proposition in law. In my opinion it is wellfounded. The sheriff took the view that 6/2 was a counter-offer. He made afinding (no. 12) to that effect. Counsel for the pursuers did not dispute this.Gloag, supra, under reference to Hunter v. Hunters and Hyde v. Wrench , says atp. 37: "An offer falls if it is refused. If the refusal is not peremptory, butcombined with a request for better terms, the general construction is that theoffer is gone, and that the party to whom it was made, on failure to obtain theterms he requests, cannot fall back on an acceptance of the original offer".Whether or not the cases referred to by Gloag in themselves vouch that legalproposition, I am satisfied that it is sound, and, as previously noted, seniorcounsel for the pursuers did not dispute it as a general proposition. Moreover,he maintained that consideration stopped with the issue of 6/3 and that nothingsubsequent thereto was relevant. The question of bar was neither pled nor mooted.The case for the pursuers rested on the validity of 6/3 as a timeous acceptanceof 6/1. I do not consider that the fact that the original offer had a terminaldate within which it could be accepted takes it out of the category to whichGloag refers. According to Gloag, when the counter-offer is made the generalconstruction is that the offer is gone. Once the offer is gone it cannot beaccepted. It is not suggested that the counter-offer in 6/2 was accepted by thedefenders, and on that short basis it seems to me that the defenders' case mustsucceed.Even if that were wrong, there still falls to be considered the second of thedefenders' submissions on "no concluded contract". This has to proceed on thebasis that after 6/2 was sent it was still open to the pursuers to accept theoffer in 6/1, and the question is whether 6/3 constituted a valid acceptance.Senior counsel for the pursuers accepted that if 6/3 did not do so that was theend of the pursuers' case. The sheriff took the view that, against the backgroundof 6/2 and the telephone conversation which revealed no consensus, 6/3 did notadvance the position. 6/3 was in these terms: "Following our telex no. 906 [i.e.6/2] and telephone conversation with Mr McKay we confirm that we have acceptedyour offer. In order to facilitate matters for us we would highly appreciate ifyou can take into consideration the points we have raised. Telephone number of MrSam Wolf is Amsterdam (20) 908259 where you can call after 18.30 hours yourtime". Counsel for the pursuers argued that this was a simple and directacceptance of the defenders' offer in 6/1, that the material conditions on whichthere had been no consensus previously had been accepted, and that these had beenreplaced by a request to see whether the points which they (i.e. the pursuers)had raised in relation to these matters could be given consideration.This interpretation has to be considered against the background of what hadhappened. The pursuers considered at the time that 6/2 was sent that itconstituted a valid acceptance of 6/1. That was their initial case on thepleadings. Nonetheless, Dr Schoonderwoerd had expressed doubts whether the word"but"in 6/2 did not import new conditions, and so the telephone conversation tookplace between Mr Wolf and Mr McKay. These two were unable to reach any agreementregarding the disputed conditions and certainly no acceptance of 6/1 was achievedeither by 6/2 or the telephone conversation or both. 6/3 was then despatched, andunder reference to these two events it says: "we confirm that we have acceptedyour offer" (the emphasis is mine). Plainly they had not accepted or offered toCopr. © West 2004 No Claim to Orig. Govt. Works

1984 S.L.T. 100 Page 51983 WL 217320 (2 Div)(Cite as: 1984 S.L.T. 100)accept the terms of 6/1 before the despatch of that communication. Was thewording then just a matter of bad grammar when the present tense was intended?This could be a dangerous line to follow in re mercatoria, unless it was clearthat the present tense was meant. Why then the use of the word "confirm" inrelation to an acceptance when no previous acceptance had been tendered? Thesubsequent words -- "if you can take into consideration the points we haveraised"-- and the information supplied as to how Mr Hollywood of the defenderscould contact Mr Wolf by telephone when only he could negotiate conditions onbehalf of the defenders seem to confirm that the negotiations were still pendingand that no legally binding contract had been concluded. It is perhaps notwithout significance that Mr Wolf thought that he was accepting the offer when hesent 6/2, and the phrase "accept your offer" is used there as well. 6/3 begins bythe words "following our telex no. 906 [6/2] and the telephone conversation", andwhile different meanings were attributed to that phrase, the plain meaning is notjust the temporal one but is "consequential upon" or "as a result of". Once it isestablished and conceded that these two factors, either alone or in combination,did not conclude a contract, the interpretation which the pursuers seek to placeon 6/3 as a whole disappears. According to Mr McKay's version of the telephoneconversation, not only did he not agree to Mr Wolf's counter-proposals, but heinformed Mr Wolf that only Mr Hollywood could agree terms. In that situation theinformation in 6/3 as to how Mr Hollywood could contact Mr Wolf is not withoutsignificance. Nor is it without significance that communings continued after 6/3had been received. For all these reasons I am satisfied that the sheriff wasright in holding that 6/3 did not conclude a contract. That being so, then exconcessu the pursuers' case fails.The question of damages accordingly does not arise, but as much time wasdevoted to this question both at the proof and at the appeal, I feel that Ishould briefly state my views on it.The sheriff held that the pursuers had failed to prove any loss, and in anyevent had failed to *104 minimise any proved loss. So far as the latter point isconcerned all that the pursuers had to establish was that they took reasonablesteps to offset or minimise the loss they sustained through the defenders'failure to supply the potatoes under the contract. Looked at as a whole theevidence seems to me to be that they took reasonable steps without success to get1,000 tonnes of Desiree potatoes elsewhere. The law did not require them to combevery conceivable source. The evidence adduced by the pursuers in relation to theAlgerian contract for which the 1,000 tonnes of Desiree potatoes were destinedwas unsatisfactory and not a safe measure of damages arising out of a failure toimplement that contract. So far as the first point is concerned, the sheriff tookthe view that Mr Wolf on the pursuers' behalf had conceded that the pursuers hadmade up the deficiency in supply of potatoes to the Algerians under the 1977-78contract by getting a compensatory order for an additional 1,000 tonnes under the1978-1979 contract. He rejected an argument by pursuers' counsel that one couldnot set off profits in 1978-1979 against losses in 1977-1978. I find thesheriff's reasoning in this respect not altogether convincing. The conditions ofthe Algerian contracts are far from clear, but it seems that an additional 1,000tonnes in 1978-1979 would still have been within the permissible quota for thatyear. On the basis that damages are due to the pursuers for the defenders' breachof contract, I find that the 1978-1979 consignment of 1,000 tonnes (which wasnever accepted or paid for by the Algerians as a result of matters which were resinter alios quoad the defenders) is not a legitimate set-off against any damageswhich would have been due by the defenders to the pursuers under the contract. Onthe other hand, it is reasonable to infer that if the defenders had supplied thepursuers with 1,000 tonnes of Desiree potatoes under the contract the pursuers,who were in a line of business which would have enabled them to dispose of suchpotatoes commercially would have done so at a profit. There is a finding-in-fact(no. 21) which was unchallenged that a reasonable profit on a contract for thepurchase of seed potatoes for re-sale in 1977-1978 would be approximately 10 percent. On the contract price of >100 per tonne listed in theoffer 6/1, this would have yielded a profit of 10,000, and Iconsider that this would have been a proper measure of the pursuers' loss ifthere had been a contract established and breached.In all the circumstances I would refuse the appeal, but recall the interlocutorof the sheriff dated 23 January 1981 to the extent of substituting "the third andfourth" for "all" in relation to the defenders' pleas-in-law therein, and quoadCopr. © West 2004 No Claim to Orig. Govt. Works

1984 S.L.T. 100 Page 61983 WL 217320 (2 Div)(Cite as: 1984 S.L.T. 100)ultra affirm that interlocutor.Lord Robertson.This is an action of damages for alleged breach of contract, and came beforethis court on an appeal by the pursuers against an interlocutor of the sheriff atForfar dated 23 January 1981. The sheriff after proof before answer had sustainedall the defenders' pleas-in-law and assoilzied them from the crave of the action.The basic question in the appeal is whether the sheriff's finding- in-law thatthe pursuers had failed to establish that a contract was concluded between theparties was warranted. The sheriff also held that the pursuers had in any eventfailed to prove any loss arising from the alleged breach of contract: this pointdoes not arise unless the pursuers succeed on the basic question.The background facts are simple. The pursuers are international potatomerchants having their principal place of business in Amsterdam. The defendersare potato merchants with a place of business in Forfar. Following a businessintroduction in October 1977 in regard to the possible sale by the defenders tothe pursuers of seed potatoes, the defenders on 29 November 1977 sent a telexmessage (6/1 of process, hereinafter referred to as "6/1") to the pursuers in thefollowing terms:"... 29.11.77"... we are sorry for the delay in telexing you but here things are becomingextremely difficult"very cold weather is seriously disrupting seed movements and most producersare concerned with dressing and delivering their existing consignments beforeChristmas"basically it means that I can offer 1000 (one thousand) tonnes desiree AA132 x 60mm for late January movement at 100 pounds FOB stowed Montrose Scotland in50 kilo hessian sacks subject to normal standard inspections"payment by irrevocable letter of credit paid on sight of bills of lading,Phyto-sanitary certificate issued by the department of agriculture for Scotland.Commercial invoices certificate of origin and movement certificate to be openednot later than 5th January 1978 and valid until 20th February 1978"this offer is valid till 17.00 hours on Wednesday 30th November 1977 andthereafter subject to availability"we regret this is not the shipment time you requested but there is no pointin committing ourselves to what may be an impossible delivery situation"please note"the size 32 x 60mm is not in error. Most riddles in Scotland are sized 32mmmaking it difficult to find substantial quantities dressed at 35mm"the change in size is to your client's advantage giving a higher tuber countper bag"regards Jim Hollywood."Jim Hollywood was the defenders' managing director at the time.By telex message dated 30 November 1977 (no. 6/2 of process, hereinafterreferred to as "6/2" ) the pursuers replied in the following terms, videlicet:"... Amsterdam 30/11/77 Tlx m 906 to the attn. of Mr J Hollywood."good afternoon"unfortunately have not been able to talk to you personally but neverthelesswould like to make the following comments on the offer you have made to us"we accept the offer, but: *105" -- shipment should be in the week of 9th of January 1978"-- Phyto-sanitary arrangements for Algeria should be applied. Finalacceptance in Scotland by Algerian inspection-committee" -- packing in new jute bags of minimum 340 grams" -- size should be split-graded 32/45 45/60" -- payment will be by irrevocable letter of credit, opened not later than5/1/78 and valid till 20/1/78, negotiated till 30/1/78"further we would like to mention it is our intention to come to Scotland assoon as possible, not only to discuss this quantity but also to discuss possiblefuture co-operation with you"thank you and awaiting your call."best regards... ."Copr. © West 2004 No Claim to Orig. Govt. Works

1984 S.L.T. 100 Page 71983 WL 217320 (2 Div)(Cite as: 1984 S.L.T. 100)On 30 November 1977, following upon the above telex 906 (6/2), there was atelephone conversation between Sam Wolf, the pursuers' director, and Ewan McKay,an employee of the defenders. Thereafter a telex message no. 908 was sent by thepursuers to the defenders (no. 6/3 of process, hereinafter referred to as "6/3"), which was in the following terms, videlicet:"Amsterdam 30/11/77"tlx m 908"to the attention of Mr J Hollywood"good afternoon"following our telex m 906 and telephone conversation with Mr McKay weconfirm that we have accepted your offer"in order to facilitate matters for us we would highly appreciate if you cantake into consideration the points we have raised telephone number of Mr Sam Wolfis ... where you can call after 18.30 hrs your time.best regards ..."It is not disputed that this telex message (6/3) was sent prior to the deadlinespecified in telex 6/1 (17.00 hours on 30 November 1977).In the pursuers' pleadings it is finally averred that "said telex messages andtelephone call constituted a valid contract of sale between the pursuers anddefenders". The basic question in the case is whether a valid contract, withconsensus in idem, was ever constituted between the parties.The sheriff in his note sets out in detail his views upon the various argumentsaddressed to him upon this critical matter and his reason for holding that nocontract was ever validly entered into. I refer to the sheriff's note. On appealthe pursuers had difficulty in making clear submissions and at the end of the daytheir senior counsel presented arguments at variance with his pleadings and moreparticularly with the argument addressed to the court by his junior. It wasconceded on behalf of the pursuers (contrary to their averments in cond. 3 of therecord) that telex 6/2 was not, and could not be regarded as, an acceptance bythe pursuers of the defenders' offer in telex 6/1. This in my view is clear uponits terms, wherein it is said "we accept your offer, but ... " In my opinion thesheriff, for the reasons he gives, was well entitled to regard 6/2 as a rejectionof 6/1 and a counter-offer.Accepting that 6/2 was not an acceptance of 6/1, junior counsel for thepursuers' first argument was to the effect that the contract was constituted by6/1 and 6/3 and 6/2 could be ignored. This argument was jettisoned by thepursuers' senior counsel. It seems to me to be untenable.The argument of senior counsel for the pursuers was rather that 6/1, 6/2 and6/3 should all be looked to as forming the basis of the contract. The telephoneconversation could be ignored, as the sheriff did not hold that it could be heldto incorporate an unqualified acceptance of an offer and in any event wassuperseded by 6/3, which set out the final agreement between the parties. Thepursuers' final submission was that, regarding 6/2 as not an acceptance of theterms of 6/1, but as putting forward fresh conditions which did not meet 6/1, 6/3must be regarded as withdrawing the qualifications set out in 6/2 and timeouslyaccepting simpliciter the terms of 6/1, subject to a plea for furtherconsideration of the points raised. As the acceptance was timeously sent beforethe deadline set in 6/1 the agreement was valid.In my opinion this argument cannot be accepted. Once it is conceded that 6/2was not an unqualified acceptance of 6/1 but constituted a rejection of 6/1 and anew offer, it follows in my opinion that there could only be consensus in idem ina contract if the defenders subsequently at some time, and in some way, acceptedthe new offer. I do not find any evidence, or indication, that the defenders everdid so accept the new offer set out in 6/2 at any time.The sheriff accepted the evidence of Mr McKay in regard to the telephoneconversation on the afternoon of 30 November 1977, and preferred his evidence tothat of Mr Sam Wolf. He was plainly entitled to do so. The importance of MrMcKay's evidence upon this matter is that he made it plain that no consensus upona contract had been concluded either before or during the telephone conversation.This indeed was in the end of the day accepted by the pursuers' counsel. It wasCopr. © West 2004 No Claim to Orig. Govt. Works

1984 S.L.T. 100 Page 81983 WL 217320 (2 Div)(Cite as: 1984 S.L.T. 100)not disputed by the latter that there were material conditions put forward in 6/2-- particularly on the date of shipping and the split- grading -- which rendered6/2 a new offer rather than an acceptance of 6/1. This new offer was not acceptedin the course of the telephone call.The pursuers argued that the effect of 6/3 was to withdraw the qualifications,or counter-offer, in 6/2, and to accept simpliciter the offer in 6/1. They wereentitled to do so within the time limit set in 6/1.In my opinion this argument fails, for two basic reasons, videlicet:(1) The wording of the first paragraph in 6/3 indicates clearly, in my opinion,that Mr Wolf at that time understood that the offer in 6/1 had already beenaccepted; 6/3 was being sent simply to "confirm that we have accepted your offer". This accords with the previously expressed view that 6/2 was an acceptance of6/1 and the telephone conversation had affirmed that an agreement had beenreached. The defenders on the other hand did not agree that any such agreementhad been *106 reached. If it had been intended that 6/3 should withdraw thecounter-offer in 6/2 and accept 6/1 simpliciter it would have been simple to doso in 6/3. I agree entirely with the reasoning of the sheriff to the effect that6/3 did not constitute a withdrawal of the counter-offer put forward in 6/2, andthat no consensus in idem between the parties was reached by the sending of 6/3.Once it is conceded that 6/2 constituted a counter- offer, an acceptance by thedefenders to the terms of that counter-offer was necessary to complete acontract. Such an acceptance was never given. Nor did 6/3 indicate that thecounter-offer had been withdrawn. As senior counsel for the defenders put it inan apt phrase:"6/3 was only an inaccurate record of an agreement which had never beenentered into".(2) It was argued on behalf of the pursuers that as 6/1 gave them a time- limitbefore which they were entitled to accept the terms set out in 6/1, they wereentitled to accept that offer at any time before the time-limit expired: thisapplied as a rule of law even although in the meantime they had rejected theoffer in 6/1 and proposed a new offer. If that were withdrawn later, they werestill entitled to accept the original offer in 6/1, which remained in existenceuntil the expiry of the time-limit. This is what they had done in 6/3.In my opinion this argument is unsound. If, as is admitted, 6/2 was a refusalof the offer contained in 6/1, and was a new offer (which was never accepted),the legal effect is that the original offer in 6/1 disappeared. The time-limitwas part of that offer and with its refusal that condition fell along with allthe other conditions of that offer. See Gloag on Contract (2nd ed., p. 37), wherethe learned author says: "An offer falls if it is refused. If the refusal is notperemptory, but combined with a request for better terms, the generalconstruction is that the offer is gone, and that the party to whom it was made,on failure to obtain the terms he requests, cannot fall back on an acceptance ofthe original offer". This passage in my opinion sets out the law on this matter,and seems to me with respect to be in accordance with common sense (see Hunter v.Hunters; Hyde v. Wrench ).In my opinion the sheriff's conclusion that no consensus in idem and nocontract was ever reached between the parties was correct upon his findings, andI would refuse the appeal.Much time was consumed at the hearing of the appeal upon the question ofdamages, but in view of my clear opinion that the pursuers fail upon the primaryquestion I do not think it necessary to deal with damages at all, beyond sayingthat I am inclined to agree with the views of your Lordship in the chair upondamages and if I had reached the subject would have measured damages at10,000.On the whole matter I agree that the appeal should be dealt with as indicatedby your Lordship.Lord McDonald.Copr. © West 2004 No Claim to Orig. Govt. Works

1984 S.L.T. 100 Page 91983 WL 217320 (2 Div)(Cite as: 1984 S.L.T. 100)Your Lordships have narrated the relevant history of this case in detail and Ido not repeat this. I agree that the appeal should be refused, subject to theamendment to the interlocutor of the sheriff proposed by your Lordship in thechair.I reach this conclusion basically upon a construction of the term of telexmessage 6/3, in the light of the terms of 6/1 and 6/2 and the sheriff's findingsas to the telephone conversation between representatives of the parties on 30November 1977. At best 6/2 was no more than a qualified acceptance of theoriginal offer 6/1. The bargain would not be concluded unless and until thequalifications were either accepted by the defenders or unequivocally withdrawnby the pursuers.The sheriff in finding 16 makes it clear that there was no question of thequalifications being accepted on behalf of the defenders in course of thetelephone conversation of 30 November 1977. Unless therefore the telex message6/3 can be construed as a reversal of the pursuers' position as stated on thetelephone and an unequivocal withdrawal of the qualifications therein insistedupon, the appeal, as matters now stand, cannot succeed.The most plausible argument by the appellants involved the rhetorical question:"If 6/3 was not intended to alter the pursuers' position as stated on thetelephone, what was the point of sending it at all?" This, in my view, begs thequestion. As your Lordship in the chair has pointed out, this is a case in remercatoria and, as I see it, the question is -- what interpretation would areasonable potato merchant put upon the terms of 6/3 in the light of all that hadpreceded it? For the reasons stated by your Lordships I agree that this documentdid not conclude a binding contract between the parties and that the sheriff wasright so to hold.If 6/3 had fallen to be construed as an unequivocal withdrawal of thequalifications contained in 6/2, I would have felt some reservation in applyingthe general proposition stated by Gloag at p. 37 to the circumstances of thepresent case. That proposition is stated thus: "An offer falls if it is refused.If the refusal is not peremptory, but combined with a request for better terms,the general construction is that the offer is gone, and that the party to whom itwas made, on failure to obtain the terms he requests, cannot fall back on anacceptance of the original offer". Two authorities are cited for thisproposition. The first is Hunter v. Hunters. I have read the report in this oldcase with care and have difficulty in finding in it support for such a generalproposition as is stated by Gloag. The other is the English case of Hyde v.Wrench. I read that case as one in which an offer was peremptorily refused andtherefore not one which supports Gloag's proposition. It is moreover a caserelating to heritable property in England and based upon the Statute of Frauds.Neither case bears much relationship to the present mercantile transaction.I accept that a qualified acceptance can properly be regarded as a counterofferwhich in turn requires acceptance by the original offeror before thebargain is complete. I also accept that if the qualifications are unacceptable tothe original offeror he is entitled to regard his original offer, including anytime-limit contained therein, as *107 having fallen. If, however, he continues tonegotiate with the offeree and the latter, within the period of the originaltime-limit, unreservedly accepts the original offer, I feel that the offeror maywell be barred from maintaining at a later date that no bargain had beenconcluded. In the present case the parties did continue to negotiate during theperiod of the time-limit and indeed beyond it as the sheriff's finding no. 17reveals. Had they reached a concluded bargain within that period, albeit by awithdrawal by the pursuers of the conditions contained in their qualifiedacceptance or counter-offer, and had the defenders subsequently discovered thatthey could not supply the potatoes, I do not consider that they could then beheard to say that there was no contract because their original offer had fallenin toto as soon as the qualified acceptance or counter-offer was received. As,however, I agree that 6/3 did not withdraw the earlier qualifications which thepursuers sought to insist upon, this matter does not arise.Neither does the matter of damages. I consider, however, that although theCopr. © West 2004 No Claim to Orig. Govt. Works

1984 S.L.T. 100 Page 101983 WL 217320 (2 Div)(Cite as: 1984 S.L.T. 100)defenders must be held to have known that the pursuers required the potatoes forresale to Algeria, the exceptional loss involved to the pursuers in the event offailure to implement that contract cannot be regarded as being within theirreasonable contemplation. On the other hand they must be regarded as anticipatingthat the pursuers would expect to make a reasonable commercial profit on resale.The evidence indicates that this would have amounted to 10,000 and I agree that this would have been the appropriatemeasure of damages had a contract been established and breached by the defenders.RepresentationCounsel for Pursuers, Morison, Q.C., M. L. Clark; Solicitors, J. & F. Anderson,W.S.-- Counsel for Defenders, Bruce, Q.C., Kerr; Solicitors, Morton, Fraser &Milligan, W.S.C H A of L1984 S.L.T. 100, 1983 WL 217320 (2 Div)END OF DOCUMENT© W. Green & Son LimitedCopr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 11960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)*31 Ingram and Others v. Little.Court of AppealCASellers, Pearce and Devlin L.JJ.1960 June 27, 28, 29, 30; July 28.Contract--Mistake--Mistake as to identity--Sale of car to purchaser physicallypresent--Purchaser impersonated reputable businessman--Offer and acceptance--Towhom was offer addressed--Whether mistake vitiated contract-- Whether contractvoid or voidable.Three plaintiffs, joint owners of a car, advertised it for sale. A rogue,introducing himself as H., offered to buy it. When he pulled out his cheque bookto pay for it, the first plaintiff, conducting the negotiations for theplaintiffs, told him that they expected cash, that they were not prepared toaccept payment by cheque, and that the proposed sale was cancelled. The roguethereupon said that he was P.G.M.H., a reputable businessman, living at anaddress in Caterham, and having business interests in Guildford. The plaintiffshad never heard of P.G.M.H., but the second plaintiff forthwith went to the localpost office, and ascertained from the telephone directory that there was such aperson as P.G.M.H., living at the address given by the rogue. The secondplaintiff told the first plaintiff what she had learnt and, as the result of thatinformation, they believed that the rogue was P.G.M.H. and decided to let therogue have the car in exchange for his cheque.The rogue had nothing whatever to do with the real P.G.M.H., and the rogue'scheque was dishonoured on presentation. Meanwhile, the rogue had sold the car tothe defendant, who bought it in good faith.On a claim by the plaintiffs against the defendant for the return of the car,or, alternatively, damages for its conversion:-Held(Devlin L.J. dissenting), that where a person physically present andnegotiating to buy a chattel fraudulently assumed the identity of an existingthird person, the test to determine to whom the offer was addressed was how oughtthe promisee to have interpreted the promise; applying that test to the presentcase and treating the plaintiffs as the offerors, the offer was made solely to*32 the real P.G.M.H., the rogue was incapable of accepting it, and theplaintiffs' mistake, therefore, prevented the formation of a contract with therogue; accordingly, the plaintiffs' claim succeeded (post, pp. 53, 55, 61).Dictum of Viscount Haldane in HLake v. Simmons[1927] A.C. 487, 500; 43 T.L.R.417, H.L. applied.HPhillips v. Brooks Ltd.[1919] 2 K.B. 243 ; 35 T.L.R. 470 distinguished.Hardman v. Booth (1863) 1 H. & C. 803 and Cundy v. Lindsay(1878) 3 App.Cas.459, H.L. considered.Per Devlin L.J. There was nothing to rebut the ordinary presumption that thefirst plaintiff was addressing her acceptance to the person to whom she wasspeaking. Therefore, there was offer and acceptance in form. In the present case,the rogue's identity was immaterial. His credit-worthiness was material, for theplaintiffs were really concerned with his credit-worthiness, not with hisidentity, but credit-worthiness in relation to a contract was not a basic fact,and a mistake about it did not vitiate a contract (post, pp. 67, 69).Decision of Slade J. affirmed.Copr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 21960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)APPEAL from Slade J.The following facts are taken substantially from the judgment of Slade J.: Theplaintiffs, Miss Elsie Ingram, Miss Hilda Ingram and Mrs. Mary Ann Maud Badger,advertised their Renault Dauphine motor-car, registration number ULJ 101, forsale in the issue of the "Bournemouth Echo" for August 2, 1957, in these terms:"1957 Dauphine, 3,800 miles, sky blue, 725 o.n.o. Park-stone4084." As a result of that advertisement they received two inquiries. One wasfrom a man named Gray, who, having made a telephone call to the plaintiffs, wasno longer interested. The other was from a swindler who called himselfHutchinson. He telephoned on August 3, 1957, the Saturday before the August BankHoliday. He spoke to Miss Elsie Ingram, said that he had seen the advertisementand would like to come and see the car. He gave the name of Hutchinson over thetelephone, and said that he was staying for the week-end at the Savoy Hotel,Bournemouth. Miss Elsie Ingram told him that she had received another inquiry(the one from the man Gray) whom she thought might come and see the car, andasked whether she could telephone Hutchinson back. Later she telephoned the SavoyHotel, Bournemouth, asked for Hutchinson and spoke to "the rogue Hutchinson."About 2.15 p.m. on August 3 the rogue Hutchinson called at the house where theplaintiffs were living. He was admitted by Miss Hilda Ingram; he told her he wasHutchinson, and Miss *33 Hilda Ingram accordingly introduced him to her sisterMiss Elsie Ingram as Hutchinson. He looked at the car, and asked Miss ElsieIngram to take him for a run in it, and she did so. During the run he was verytalkative. He told her that he came from Surrey. He talked about his family, whohe said were then in Cornwall, and he said that his home was at Caterham. At thattime he had given no further information, nor had he even given his initials; hewas merely Hutchinson.After the drive they came back to the house and discussed the sale of the car.Hutchinson offered Miss Elsie Ingram, who conducted the negotiations for theplaintiffs, 700 and she refused. After some bargaining heoffered 717, which she said she was prepared to accept. Therogue then pulled out a cheque book and she immediately realised that he wasproposing to pay 717 by cheque. She told him that she wouldnot in any circumstances accept a cheque, and that she was only willing to sellthe car for cash. She told him that so far as she was concerned the deal wasfinished. She said that she was not prepared to accept a cheque. She had expectedcash, and she made as though to walk out of the room.The rogue started to talk and try to convince her that he was a most reputableperson, and then for the first time he gave his initials. He said that he was aP. G. M. Hutchinson. He said that he had business interests in Guildford, andthat he lived at Stanstead House, Stanstead Road, Caterham.Miss Hilda Ingram, who had been in the room, slipped out of the room and aftera short time returned. She had gone to the Parkstone post office, which was onlyabout two minutes away from the plaintiffs' house, and had looked in the maintelephone directory covering the district of Caterham. In that directory she hadseen the entry "Hutchinson, P. G. M., Stanstead House, Stanstead Road, Caterham4665," and she believed that that was the man who, at that moment, was with hersister in their house. On her return to the house she told her sister, Miss ElsieIngram, who was still discussing the proposed sale, that she had checked with thetelephone directory at the post office and that there was such a person as P. G.M. Hutchinson living at Stanstead House, Stanstead Road, Caterham. Havingreceived that information, the two sisters decided that they would let the roguehave the car in exchange for the cheque. The decision was reached because theybelieved that the rogue was the person he said he was. When he gave the cheque,the rogue wrote on the *34 back "P. G. M. Hutchinson, Stanstead House, StansteadRoad, Caterham."The rogue was not P. G. M. Hutchinson of Stanstead House, Stanstead Road,Caterham, who had nothing to do with the transaction in question and knew none ofthe parties connected with it. This gentleman banked with a branch of Lloyds BankLtd. in London. The rogue "Hutchinson" opened an account on August 2, 1957, at abranch of the Westminster Bank Ltd. in Guildford with a deposit of10, acquired a cheque book from which he drew cheques on thisCopr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 31960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)account to the extent of nearly 4,000, including the cheque ofAugust 3 for 717 made payable to the plaintiffs, none of whichcheques were honoured on presentation. Unlike the P. G. M. Hutchinson hepurported to be, he was not a man of substance with an established address inCaterham.On August 6, 1957, the Tuesday after the bank holiday, a man called Hardy soldthe plaintiffs' car to the defendant, Reginald Little, a Blackpool motor dealer,in consideration of an allowance of 605 towards the purchaseprice of a Ford Consul motor-car sold to him by the defendant for 780 on the same day. Hardy made up the difference by a cashpayment to the defendant of 175. The transaction was effectedon the defendant's behalf by two of his employees, a salesman and his manager.The rogue disappeared, and had remained untraced. In December, 1957, thedefendant sold the plaintiffs' car to another motor dealer in consideration of anallowance of 725 towards the purchase price of a Rover motorcar,bought by him from the other motor dealer on the same occasion. Thedefendant paid the balance in respect of the Rover car 75 bycash.The plaintiffs sued the defendant for the return of the car or, alternatively,for damages for its conversion. The plaintiffs contended that there never was acontract between them and the rogue Hutchinson so that he could pass no title inthe car to the defendant; alternatively, they contended that if he could pass agood title to the defendant, there was no evidence that he and Hardy were thesame person, so that there was no evidence that it was he who sold the car to thedefendant; as a further alternative, they contended that the defendant had notbought the car in good faith and without notice of any defect in the sellers'title so that the plaintiffs could still avoid the contract.The defendant contended that the rogue Hutchinson had a voidable title in thecar as the result of a contract with the plaintiffs, that the defendant boughtthe car in good faith and without *35 notice of any defect in the seller's titlefrom the rogue Hutchinson, and that the defendant thereby obtained a good titleto the car under section 23 of the Sale of Goods Act, 1893.The trial began at Winchester, where the evidence was heard, and the case wasthen adjourned to London for argument and judgment. The judge held that the rogueHutchinson and Hardy were one and the same person, and that the defendant hadbought the plaintiffs' car in good faith and without notice of any defect in theseller's title from the rogue Hutchinson, but he held that the plaintiffs'mistake as to the identity of the person with whom they were dealing preventedthe formation of a contract with the rogue, so that he could pass no title in thecar to the defendant; judgment was, therefore, given for the plaintiffs for720, the agreed value of the car, as damages for conversion.The defendant appealed.Stephen Chapman Q.C. and Ronald Hopkins for the defendant. The issue is whetherthe transaction between the plaintiffs and the rogue Hutchinson passed a title tothe car, albeit a voidable title, which was capable of being transferred to thedefendant, or whether the transaction was vitiated by a fundamental mistake andconferred no title at all. The judge held that there was such a mistake so thatno title to the car had passed; the judgment being founded on ProfessorGoodhart's article, "Mistake as to identity in the law of contract" (1941), 57L.Q.R. 228.There are three main submissions. First, the bargain was struck and thecontract made at the moment the parties agreed upon the price, that being thesole matter to be agreed after the car had been seen, and, under section 18, rule1, of the Sale of Goods Act, 1893, prima facie the property in the car passed tothe rogue Hutchinson. There was then a concluded contract for the sale of thecar, payment to be made by cash. All that took place thereafter was a discussionas to whether the plaintiffs would be prepared to accept a cheque. Thatdiscussion related to the performance of the contract, not to its formation.Secondly, assuming that the bargaining as to whether a cheque should be takenwas part of the making of the contract, a mistake as to the identity of theparties in a case where the parties bargain face to face can only vitiate theCopr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 41960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)contract where it is of the essence of the contract that one party should be aparticular person. The test for determining whether the contract is a nullitydoes not depend on the rules of offer and acceptance, but on whether the contractis a personal contract. In the present *36 case, it was not vital to the creationof the contract that the purchaser of the car should be a particular person. Theidentity of the purchaser was quite immaterial to the plaintiffs.Thirdly, in any event, the negotiations for the sale of the car had nothing todo with whether the rogue Hutchinson was a particular person, for the plaintiffshad never heard of him. By giving himself a false name, he gave himself a falselabel and false attributes, but the false representations were as to his qualityonly; he did not lead the plaintiffs to believe that they were dealing withsomeone else known to them.The conclusions in Professor Goodhart's article are that HPhillips v. BrooksLtd. [FN1] was wrongly decided; that the test propounded by Pothier (Traite desObligations (1803), s. 19, p. 13) is incorrect; and that the clue to the problemof mistake is to be found in the rules of offer and acceptance. The question,according to Professor Goodhart, is simply a matter of the interpretation of theoffer. Previously, it had always been accepted that mistake was a separatecompartment of the law of contract, and the question was whether the parties weread idem or whether they were talking about different fundamental matters: seeRaffles v. Whichelhaus, [FN2] where the mistake was one of subject-matter. Whereidentity was in question, the Pothier test has always been accepted as thecorrect one. Where the contract is personal in the sense that the person withwhom one is willing to contract is a material element of the contract, an erroras to the identity of that person is a fundamental mistake which vitiates thecontract. If an impresario engages someone to sing the part of Siegfried, it isvital that the singer should be the particular artist with whom the impresariointended to contract and not an impostor. But if X goes to Paddington stationand, saying that he is Professor Goodhart, asks for and is given a ticket toOxford, there is a contract even if he is not Professor Goodhart. The vitalclassification is whether the contract is a personal or impersonal contract. Thefact that credit is given does not alone convert a contract into a personalcontract, because it is always assumed by one party that the other will becapable of performing his obligations.FN1 H[1919] 2 K.B. 243; 35 T.L.R. 470.FN2 (1864) 2 H. & C. 906.Professor Goodhart's article rests on two false premises. First, that theidentity of the parties is a term of every contract, and, secondly, that thestate of mind of the offeree is the decisive *37 criterion as to whether there isa contract. The identity of the parties is not a term of every contract. In acontract between A and B, A and B are the parties to the contract, but it is nota term of the contract that A shall be A; the term of the contract is that Ashall do something. The parties to the contract are the two uprights, but thebargain is the cross-bar between them. If it were a term of the contract that Ashall be A, then a birth certificate would have to be produced to verify that Ais A. The premise is completely fallacious. Identity is, however, a material termof some contracts, and it is only in those that the doctrine of mistake as toidentity operates. Secondly, it is said that if an offeree knows that an offer isnot intended for him, he is incapable of accepting it. If that were right, it istantamount to saying that in every case where a fraud is perpetrated it wouldoperate as a fundamental mistake, because the fraudulent party would know thatthe offer was not intended for him. It is quite clear law that the fact that aparty is misled is nihil ad rem: see Smith v. Hughes. [FN3] In any case this testbegs the question: what the offeree knows is that the offer is made and intendedto be made to himself, even if he has caused it to be made by a false statementas to who he is. The rules of offer and acceptance may be helpful in solving somecases, but they do not provide a complete solution to the problem of identity inthe law of mistake.Copr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 51960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)FN3 (1871) L.R. 6 Q.B. 597.These two false premises in Professor Goodhart's article lead to the test whichhe propounds, and which has been incorporated by the judge in his judgment - howought the promisee to have interpreted the promise. Hardman v. Booth [FN4] wasrelied on in support of that test, but that case depended on the law of agency;all it decided was that where a person represents himself to be an agent, and hehas no authority to contract, there is no contract. The remedy of the aggrievedparty is to sue the agent for breach of warranty of authority.FN4 (1863) 1 H. & C. 803; 158 E.R. 1107.The Pothier test has always been accepted: see per Fry J. in Smith v.Wheatcroft, [FN5]per A. L. Smith L.J. in HGordon v. Street, [FN6] per Horridge J.in HPhillips v. Brooks Ltd., [FN7]per Viscount Haldane in HLake v. Simmons,[FN8]per McCardie J. in HSaid v. Butt, [FN9]per Lawrence J. in HDyster v. Randall& Sons, [FN10]per Tucker J. in *38 HSowler v. Potter [FN11] and per Hallett J. inHDennant v. Skinner and Collom. [FN12]FN5 (1878) 9 Ch.D. 223, 230.FN6 H[1899] 2 Q.B. 641, 647; 15 T.L.R. 445, C.A.FN7 H[1919] 2 K.B. 243, 248.FN8 H[1927] A.C. 487, 501; 43 T.L.R. 417, H.L.FN9 H[1920] 3 K.B. 497, 502; 36 T.L.R. 762.FN10 H[1926] Ch. 932, 939.FN11 H[1940] 1 K.B. 271, 275; 56 T.L.R. 142; [1939] 4 All E.R. 478.FN12 H[1948] 2 K.B. 164, 166; [1948] 2 All E.R. 29 .Here it was the rogue Hutchinson who made the offer and the plaintiffs whoaccepted it. The judge treated the plaintiffs as the offerors, but strictly itwas the rogue's counter-offer which was accepted by the plaintiffs. In many casesit is almost impossible to know who is making the offer, for example, the ticketcases. This shows that the Goodhart test is not a satisfactory one; it can onlyassist where it is abundantly clear who makes the offer and to whom, as inBoulton v. Jones. [FN13] The Goodhart test is irreconcilable with King's NortonMetal Co. Ltd. v. Edridge, Merrett & Co. Ltd. [FN14]; on the Goodhart test theonly person capable of accepting the offer was Hallam & Co., so that, if thatfirm did not exist, there was a fortiori no contract; yet a contract was held toexist, the false name assumed by Wallis amounting to no more than a false label.FN13 (1857) 2 H. & N. 564.FN14 (1897) 14 T.L.R. 98, C.A.Copr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 61960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)The name and address given by the rogue Hutchinson were merely labels. Therecan only be an identification of a person when there is some background knowledgeof him and the use of a name links up with what is already known of him. So inCundy v. Lindsay [FN15] the mistake was as to a particularly well- known firm.Unless there is some background knowledge, the mere giving of a name and anaddress does not create an identification of an existing personality. In anyevent, the mistake in the present case was as to the rogue Hutchinson'sattributes. The plaintiffs were not concerned to verify his identity; if theywere, they could have asked to see his driving licence, correspondence addressedto him or even a visiting card. All that they wanted was to be assured of hisfinancial standing, not that he was Hutchinson. Assume that the rogueHutchinson's cheque could have been met, but that someone else offered more moneyfor the car, it is inconceivable that the plaintiffs could say that there was nocontract and be able to sell the car for the higher price. There was nothing inthe negotiations to suggest that it was in any sense vital that the false labelof the rogue Hutchinson should correspond with reality.FN15 (1878) 3 App.Cas. 459, H.L.It is only where there is a false introduction of a third party who is known tothe deceived party as an existing person, so that an impact is produced in thedeceived party's mind that he is *39 dealing only with the third party, thatthere can be a fundamental mistake as to identity. If the third party isfictitious, the mistake is merely a mistake of quality: King's Norton Metal Co.Ltd. v. Edridge, Merrett & Co. Ltd. [FN16] So, too, if, as in the present casethe third party is unknown to the deceived party, so that the mention of thethird party's name means nothing at all to the deceived party.FN16 14 T.L.R. 98, C.A.HPhillips v. Brooks Ltd. [FN17] has always been accepted as correct: see perHallett J. in HDennant v. Skinner and Collom, [FN18] where it was followed; andalthough it was the subject of much argument in HLake v. Simmons, [FN19] there isno suggestion in the latter case that it was wrongly decided. Lake v. Simmonsitself does not bear directly on the present problem, because it turned on theconstruction of the insurance policy. Benjamin on Sale, 8th ed. (1950), p. 107,accepts HPhillips v. Brooks Ltd. [FN20] as correct. It has been suggested thatthe Scottish case of Morisson v. Robertson [FN21] conflicts with Phillips v.Brooks Ltd., but Morisson's case was simply a case of agency, which followedHardman v. Booth. [FN22] Phillips v. Brooks Ltd. was a stronger case than thepresent case, because the name Sir George Bullough was known to the jeweller.Apart from that, the present case is indistinguishable from Phillips v. BrooksLtd. and should be decided in the same way.FN17 H[1919] 2 K.B. 243.FN18 H[1948] 2 K.B. 164, 169.FN19 H[1927] A.C. 487, H.L.FN20 H[1919] 2 K.B. 243.FN21 1908 S.C. 332.FN22 1 H. & C. 803.Copr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 71960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)Hopkins following. The real question when parties are contracting interpraesentes is whether the impostor has given himself a false description orwhether he has assumed a false personality. In the present case that might be aquestion of fact, but because the judge proceeded on false premises he neverposed to himself the real question. The element of pre-knowledge is of thegreatest, if not, of decisive importance in determining whether a statement is nomore than a false description, or whether it amounts to the assumption of a falsepersonality. The distinction is between clothing oneself with qualities that onedoes not possess or with a false identity. If the judge had considered the rightquestion, the proper answer would have been that the rogue Hutchinson'sdescription of himself amounted to no more than a false label. The conclusion inthe present case would be a fortiori to HPhillips v. Brooks Ltd., [FN23] wherethe person misrepresented was a well-known member of society.FN23 H[1919] 2 K.B. 243.*40 Ingram Poole for the plaintiffs. If the Pothier test were part of Englishlaw its application might well involve investigation into the differences betweensubstance and quality, or those between personality and attributes, not to speakof other difficulties arising out of the words "consideration of the person" and"enters as an element." The wording covers attributes as well as identity as awhole. The classification of contracts into personal and impersonal contracts,although pertinent to such questions as the right to assign, has no bearing onthis case. Every contract is capable of having a personal element, but the law isnot concerned with the subjective desires of the contracting parties when itseeks to ascertain whether a contract exists. The test is an objective one -whether a particular person, on a construction of what took place, can be said tohave displayed the intention to contract with another. But where that other knowsthe true facts there is no room for a finding that on application of the usualtest there was a concluded contract. One step in the inquiry in a case where twopersons were present together in a room is not progressed by posing a question inthe form: "Did she think she was contracting with someone else?" The appropriateway here to express the question is: "Did she believe that the person present inthe room and the man living at Stanstead House with whom she was minded tocontract on certain terms were one and the same person?" It was only when theyhad independent evidence of the existence of P. G. M. Hutchinson and had been ledto think that the rogue in the room was the same person as the real P. G. M.Hutchinson that they were prepared to proceed with the sale.The judge in treating the plaintiffs as the offerors may or may not have beenstrictly correct, but it is immaterial whether the plaintiffs are regarded asmaking an offer which the rogue Hutchinson could not accept, or whether they areregarded as the acceptors who did not intend to accept the offer of a cheque fromhim. The principle remains the same; where A makes an offer to B, C cannot acceptit or acquire any rights under it. This is a fundamental rule of offer andacceptance basic to the law of contract. Pollock C.B. stated the rule thus inBoulton v. Jones [FN24]: "It is a rule of law, that if a person intends tocontract with A, B cannot give himself any right under it." That is the trueproposition, subject to viewing the intention of the parties objectively. Theonly test as to a statement of intention that is recognised by *41 English law iswhat did it mean to the offeree, assuming that he was a reasonable man. In Uptonon-SevernR.D.C. v. Powell [FN25] the offer to the fire brigade had to beinterpreted in the way that a reasonable man would construe it. The test isentirely objective: see per Lord Wright in HNorwich Union Fire Insurance Societyv. William H. Price Ltd. [FN26] If someone knows, therefore, that an offer is notintended for him, he is unable to accept it. The circumstances of the presentcase show that the offer was addressed to the real Hutchinson, and that the rogueHutchinson knew that the offer was not meant for him. Accordingly, he could notaccept it. Acceptance of the Pothier test would appear to be inconsistent withthe objective test, but in any event the plaintiffs' case here falls within, andunder, the Pothier test. Personal considerations are an important element of thecontract where what is involved is the financial stability of a person. At firstglance the sale of theatre tickets is a contract involving no personalconsideration, yet such was held void in HSaid v. Butt. [FN27] In the presentCopr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 81960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)case, the personality of the other party was a material element of the contract.The plaintiffs could therefore succeed quite apart from the test propounded byProfessor Goodhart, and even if HPhillips v. Brooks Ltd. [FN28] was rightlydecided. That case depended on the finding of fact that the jeweller intended tocontract with the customer in the shop whoever he was. But the judge found in thepresent case that the plaintiffs did not intend to contract with the rogueHutchinson.FN24 (1857) 2 H. & N. 564, 565.FN25 [1942] 1 All E.R. 220, C.A.FN26 H[1934] A.C. 455, 463; 50 T.L.R. 454, P.C.FN27 H[1920] 3 K.B. 497.FN28 H[1919] 2 K.B. 243.It is submitted in particular regarding HPhillips v. Brooks Ltd. [FN29] first,that if Horridge J. came to the conclusion that there can be no operative mistakeas to identity inter praesentes, then that decision was wrong and contrary toauthority: Hardman v. Booth [FN30] and now HLake v. Simmons. [FN31] That this wasin fact the conclusion is the view taken in the Goodhart article, and there isstrong support to be gathered from the report for the drawing of this inference.If the headnote correctly states the decision, then the decision is wrong. In sofar as Horridge J. adopted the circular reasoning to be found in Edmunds v.Merchants Despatch Co., [FN32] this is to be regretted. Secondly, the statementin the headnote is, in any event, not the law having regard to Lake v. Simmons.Thirdly, the decision provides no warrant for the proposition that Pothier ispart of English law. The second leg *42 of the Pothier statement was neverexpressed to be the basis of the decision, although the first leg of thestatement was held in terms not to govern the situation. Fourthly, it appearsthat Horridge J. so held for two reasons: (a) because (as he found) "the sellerintended to contract with the person present and there was no error as to theperson with whom he contracted "; (b) because Smith v. Wheatcroft [FN33](wherePothier was quoted) was an action for specific performance, and misrepresentationwould have been an answer to enforcement. Fifthly, the true ratio decidendi isnot apparent, but if it is to be looked at simply as a decision depending on itsspecial facts, namely, that the jeweller intended to sell to the person in theshop, whoever he was, then Slade J. in the present case could have found infavour of the plaintiffs without that involving a refusal to follow Phillips v.Brooks Ltd. It has been suggested as explanatory of the decision that the bargainin Phillips v. Brooks Ltd. was made before the misrepresentation, which only wentto payment: see per Viscount Haldane in HLake v. Simmons. [FN34] No reliance isplaced on this explanation, because such a notional separation of the passing ofproperty and payment for it in an over-the-counter sale would appear to beinconsistent with principle: see Pharmaceutical Society of Great Britain v. BootsCash Chemists (Southern) Ltd. [FN35] Moreover, such a reason for his decision wasnever advanced by Horridge J. See particularly the first paragraph of hisjudgment. Sixthly, if HPhillips v. Brooks Ltd. [FN36] is a right decision on itsparticular facts, then the present case is to be distinguished because: from thebeginning the fraudulent person claimed to be Hutchinson; the plaintiffs heremade their attitude plain, as shown on the failure of the first attempt atcontract in the absence of cash; no ostensible agreement of sale was achieveduntil after the fraudulent person had put forward as the contracting party anexisting person actually living at an address stated; if the property in this carwas ever to pass, it could on any showing only do so after the plaintiffs hadaccepted that person as the contracting party.FN29 H[1919] 2 K.B. 243.Copr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 91960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)FN30 1 H. & C. 803.FN31 H[1927] A.C. 487.FN32 (1883) 135 Mass. 283.FN33 9 Ch.D. 223.FN34 H[1927] A.C. 487, 500.FN35 [1952] 2 Q.B. 795; [1952] 2 T.L.R. 340; [1952] 2 All E.R. 456; Affd. [1953]1 Q.B. 401; [1953] 2 W.L.R. 427; [1953] 1 All E.R. 482, C.A.FN36 H[1919] 2 K.B. 243.HPhillips v. Brooks Ltd. [FN37] was referred to with approval in HDennant v.Skinner and Collom, [FN38] but that case is distinguishable, *43 for it wasbased on the passing of the property in goods under the particular law relatingto auction sales.FN37 H[1919] 2 K.B. 243.FN38 H[1948] 2 K.B. 164.As to the argument that there was a concluded contract before the rogueHutchinson offered to pay by cheque, it is submitted that this is not tenable.However, if there was, it was immediately repudiated by the rogue Hutchinson inoffering a cheque, and the repudiation was accepted by the plaintiffs. There wasnot such a contract because of a fundamental mistake arising out of therequirement as to cash on the one side and to offer a cheque on the other, or,alternatively, it was an implied term of the transaction that payment would be bycash, so that the offer of a cheque was a counter-offer which involved therejection of the original offer, as in Hyde v. Wrench. [FN39]FN39 (1840) 3 Beav. 334.The fact that a person is physically present and identifiable by sight andhearing cannot mean by itself that the other party always intends to contractwith the person physically present. Is it possible to say that if thenegotiations had taken place on the telephone, there would have been a materialdifference? Could the mere withdrawal of the physical presence of the rogueHutchinson alter the legal situation? Sir Frederick Pollock rightly said thatseeing a man does not tell you who he is. The primary question in HLake v.Simmons [FN40] was whether there was a contract of bailment with the supposedwife of Van Der Berg; there was no contract of bailment in that case becausethere was no real consent to the bargain; her claim to be someone she was notvitiated the whole transaction. [Reference was made to Sir Carleton Kemp Allen'sarticle, "Mistaken Identity" (1928) 44 L.Q.R. 72, 75.] Lake v. Simmons isdecisive of the present case, because if the contract of bailment there was void,the apparent contract of sale in the present case must be void too. The primaryquestion before the court in that case and in the present case was identical. So,too, in HJohn Rigby (Haulage) Ltd. v. Reliance Marine Insurance Co. Ltd. [FN41]Copr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 101960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)there was no contract with the thief who pretended to be the driver of asubcontractor, although he was physically present at the time of the purportedcontract: see per Jenkins L.J. [FN42]King's Norton Metal Co. Ltd. v. Edridge,Merrett & Co. Ltd. [FN43] underlines the importance of an existing third person.A. L. Smith L.J. [FN44] *44 referred to the distinction between not knowing who aperson is when contracting with him, and thinking that he is some existing thirdperson. That distinction emphasises the force of the plaintiffs' case. Theymistakenly believed that the man in the room and the man at Stanstead House wereone and the same person. Viewing their actions in an objective manner, it isclear that they intended to deal and to deal only with a particular person - theman living at Stanstead House.FN40 H[1927] A.C. 487, H.L.FN41 H[1956] 2 Q.B. 468; [1956] 3 W.L.R. 407; [1956] 3 All E.R. 1, C.A.FN42 H[1956] 2 Q.B. 468, 483.FN43 14 T.L.R. 98, C.A.FN44 Ibid. 99.Much stress has been placed on the fact that until the discussions about thecheque the plaintiffs had never heard of the existence of the real Hutchinson.But that factor cannot be decisive, because once they had verified the existenceof the real Hutchinson and assumed that they were dealing with the particularperson living at Stanstead House, there was produced in their minds a falseimpression about the identity of the actual person in the room - they believedthat he was the man they knew to be living at Stanstead House. It would make nodifference to their wrong impression had they met the real Hutchinson on previousoccasions or had heard of him previously. He was just as real a person after theinquiry at the post office as if they had known him. The plaintiffs, induced bythe fraudulent person into the belief that he was the real Hutchinson, made anoffer which by their actions they made quite clear was only addressed to the realHutchinson - and he alone was capable of accepting it.If the plaintiffs are wrong on the main question, they desire to challenge thetwo findings of the judge in the defendant's favour - first, that the rogueHutchinson was the same man as the man called Hardy who sold the car to thedefendant; and, secondly, assuming that he was the same man, that the defendanthad bought the car in good faith. The defendant relies on section 23 of the Saleof Goods Act, 1893, whereby a seller who has a voidable title can pass a goodtitle to a bona fide purchaser for value before the sale is avoided. To be withinthe section the defendant must prove that he bought from someone with a voidabletitle, which in the present case is the rogue Hutchinson. On the evidence it isnot shown that the rogue Hutchinson was the same person as Hardy; there is simplyno evidence on the point at all, and since the burden of proof rests on thedefendant he has not discharged the onus. The judge based his finding that theywere one and the same person on an inference; but an inference can only be drawnfrom some kind of evidence. The *45 judge's view was really no more than mereconjecture. It was just as consistent with the evidence that Hardy stole the carfrom the rogue Hutchinson and sold it to the defendant.Even if it was the rogue Hutchinson who sold the car to the defendant, thelatter did not buy it in good faith. It is conceded that the burden of provinglack of good faith rests on the plaintiffs: HWhitehorn Brothers v. Davison.[FN45] But a failure to make inquiries where the circumstances of the sale aresuspicious justifies a finding of lack of good faith: see per Vaughan WilliamsL.J. in Whitehorn Brothers v. Davison, [FN46]per Lord O'Hagan [FN47] and LordBlackburn [FN48] in Jones v. Gordon. There was a number of factors which shouldhave put the defendant on inquiry, and the absence of inquiry must lead to theCopr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 111960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)conclusion that the defendant, through his servants who carried out the sale onhis behalf, deliberately shut his eyes to the true situation. Hardy sold the carin Blackpool, having a log book which showed that the first plaintiff was theowner of the car and that she lived on the south coast. The defendant bought itfor 605, over 100 less than the rogueHutchinson had purported to pay for it, and sold it for >760 afew months later - a large profit for a deal which was completed in about 40minutes with a stranger, who said that he was on holiday in Blackpool and gavehis permanent address as being in Hull. The defendant's servants did not evenlook at the log book or ask for any receipt to show that Hardy had bought thecar. Had they looked at the log book, they would have seen the first plaintiffwas the owner of the car. Failure to make inquiries regarding a log book if itcontains the name of a third person as owner of the car is evidence of lack ofgood faith: see per Lush J. in Heap v. Motorists Advisory Agency Ltd., [FN49]per Denning L.J. in HBishopsgate Motor Finance Corporation Ltd. v. TransportBrakes Ltd. [FN50] and per Morris L.J. in HCentral Newbury Car Auctions Ltd. v.Unity Finance Ltd. [FN51] The circumstances of the sale must have createdabundant suspicion in the minds of any honest dealer.FN45 H[1911] 1 K.B. 463, C.A.FN46 Ibid. 476, 478.FN47 (1877) 2 App.Cas. 616 , 625, H.L.FN48 Ibid. 628, 629.FN49 H[1923] 1 K.B. 577, 591; 39 T.L.R. 150.FN50 H[1949] 1 K.B. 322, 337, 338; 65 T.L.R. 66; [1949] 1 All E.R. 37, C.A.FN51 H[1957] 1 Q.B. 371, 397; [1956] 3 W.L.R. 1068; [1956] 3 All E.R. 905, C.A.Stephen Chapman Q.C. in reply.[SELLERS L.J. You need not trouble about the plaintiffs' cross-appeal againstthe judge's findings.]*46 The judge's finding of fact that the plaintiffs did not intend to contractwith the rogue Hutchinson was vitiated by the approach which he made as a matterof law. He founded himself on the false premises in Professor Goodhart's article,and applied the false test there propounded. The essence of the bargain was thatthe plaintiffs wanted cash, not that they were going to contract only with aparticular individual. When cash was not forthcoming, all that they wereconcerned with was the financial stability of the man facing them in the room.The question is whether the essential intention of the plaintiffs was to bargainwith the man in the room, or whether that prima facie presumption was overridenby something more fundamental, that is, that the man in the room should have aspecific identity. Where there are prima facie two persons bargaining about thetransfer of property, there must be a heavy onus on either of them to establishthat what has objectively emerged has been vitiated by something which is notapparent to third parties, and which is based on evidence that cannot beobjectively tested. In the present case, it was not vital to the creation of thecontract that the other party should be a particular person; the plaintiffs wereonly concerned that he should have credit.Cur. adv. vult.Copr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 121960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)July 28. The following judgments were read. SELLERS L.J.In August, 1957, the plaintiffs were the joint owners of a Renault Dauphinemotor-car, ULJ 101.On August 3, 1957, the Saturday before the August Bank Holiday of that year, ina transaction with a man not inappropriately called "the rogue Hutchinson " bythe judge, the plaintiffs parted with the car to him. By August 6 the car was inBlackpool and there was a purported sale of it to the defendant by the rogue, asthe judge found, then using the name Hardy.If the property in the car had passed on August 3 to "the rogue Hutchinson, "whatever his true name and identity was, then the defendant would have obtained agood title on the judge's findings that Hutchinson and Hardy were but one person,"the rogue Hutchinson," and that the defendant through his servants bought thecar in good faith and without notice of the seller's defect in title.Slade J. held that no contract had in fact been entered into between theplaintiffs and "Hutchinson" and that no title had *47 passed to him, and,therefore, none was transferred to the defendant, and he gave judgment for theplaintiffs for 720, the agreed value of the car, as damagesfor conversion.The defendant has appealed against this decision, alleging that the judge waswrong both in law and in fact in so holding and it will be necessary to examinethe facts found as well as the law applied.By a cross-notice of appeal, the plaintiffs have challenged the findings of thejudge that the man, who sold the car to the defendant, was the same man as theman who had obtained it from them and that the defendant bought the car in goodfaith. It was submitted to us that the judge's findings were unjustified, but Iagree so fully with what the judge has said and held on both these matters [FN52]that I do not review the evidence or the argument afresh on the plaintiffs'contentions. The defendant and his servants, like so many who buy and sellsecondhand motor-cars, might have been more astute and more careful, but itrequires more than that to justify a finding of bad faith. The inference thatthere had been no transaction with the car intervening *48 between that with theplaintiffs and that with the defendant seems reasonable and probable, and,therefore, sufficiently established as the judge has held.FN52 The following are the relevant passages of the judgment of Slade J. on thesematters: "I am now going to decide two questions which, on the view of thepresent case that I take, cannot affect the result hereafter. The first one is... was Hutchinson Hardy? I find as a fact that he was. I draw that inferencefrom evidence which appears to be almost overwhelming, and it is shortly this.Hutchinson obtained possession of the Renault Dauphine on the Saturday before thebank holiday in August, 1957, in Poole in Dorsetshire. He sold it to thedefendant the following Tuesday afternoon in Blackpool. It was the same car,registration number ULJ 101. He obtained the log book from Miss Elsie Ingram, andhe handed over that same log book on the following Tuesday. It matters not in theleast, as I understand it, whether Hutchinson was Hardy, or whether Hardy wassomeone acting with the authority of Hutchinson - that is to say, acting as agentof Hutchinson to dispose of the car. I find as a fact that they were one and thesame person. If they were not, it can mean only that in that short period fromthe afternoon of Saturday, August 3, 1957, until the afternoon of Tuesday, August6, 1957, there must have been some intermediate disposition of the car unless, ofcourse, as I say, Hutchinson said to one of his fellow rogues: 'I do not want toappear in this again. You take this car and sell it on my behalf.' The secondquestion is this. If section 23 of the Sale of Goods Act, 1893, should arisehereafter, I have to decide whether the defendant bought the Renault Dauphine onTuesday, August 6, 1957, in good faith and without notice of the defect inHardy's title. ... I have seen Quinn [one of the defendant's salesmen] andBickerstaffe [the defendant's manager] in the witness-box. I think they were bothhonest men, and I find as a fact that they did accept the Renault Dauphine and175 in cash in return for the defendant's 1956 Ford Consulworth 780, both in good faith and without notice of any defectin Hardy's title to the Renault Dauphine car."Copr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 131960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)The decision in the present case turns solely on whether "Hutchinson" enteredinto a contract which gave him a title to the car which would subsist until itwas avoided on the undoubted fraud being discovered.There was no evidence from the other alleged contracting party, "Hutchinson, "the alleged buyer, for he is apparently unknown and untraced, but the judge foundthe plaintiffs' evidence satisfactory and reliable. [His Lordship then stated thefacts as found by Slade J. and continued:]During the conversation, from which a contract, if any, has to be derived, therogue "Hutchinson" knew he was not the person the plaintiffs believed him to beand to whom alone they made their offer to sell the car and to whom alone theyintended to give possession of it in exchange for his cheque."Hutchinson" knew that the offer to sell the car in exchange for a cheque wasnot made to him as he was, but only to an existing person whom he representedhimself to be. If the plaintiffs are to be regarded as the acceptors of"Hutchinson's" offer to pay by cheque, he knew full well that it was not hischeque they were accepting but the cheque of the man they thought he was byreason of his persuasion and deceit.The judge found that Miss Elsie Ingram intended to part not merely withpossession but with the property in the car, but that she did so believing thatthe person to whom she was selling the car was P. G. M. Hutchinson of StansteadHouse, Stanstead Road, Caterham, with a number in the telephone directory, and hefurther held that, if the entry in the telephone directory had not been confirmedby Miss Hilda Ingram, the two sisters would not have accepted the cheque inpayment or parted with the car.If "Hutchinson" had paid cash for the car, then it seems clear that there wouldhave been a concluded and unimpeachable transaction in which the identity andfinancial stability of the buyer would have been of no moment. This is not a casewhere the plaintiffs wished to withhold their car from any particular person orclass of persons. Their desire, made quite obvious in the negotiations, was toensure that they received payment and, unless cash was paid, the person with whomthey were dealing was of major importance truly only as to his credit worthinessand this fact was equally clear to "Hutchinson " from the course which thenegotiations took.*49 It does not seem to me to matter whether the right view of the facts is, asthe judge has held and as I would agree, that there was no concluded contractbefore the cheque book was produced and before the vital fraudulent statementswere made or that there was a concluded contract which "Hutchinson " at oncerepudiated by refusing to pay cash and that this repudiation was accepted by theplaintiffs and the transaction was then and there at an end. The property wouldnot have passed until cash had been paid and it never was paid or intended to bepaid.Was there a contract of sale subsequently made which led to the plaintiffstaking "Hutchinson's" cheque and in exchange for it handing over the car and itslog book?The judgment held that there never was a concluded contract, applying, as Iunderstand it, the elementary factors required by law to establish a contract.The judge, treating the plaintiffs as the offerors and the rogue "Hutchinson "as the offeree, found that the plaintiffs in making their offer to sell the carnot for cash but for a cheque (which in the circumstances of the Bank Holidayweek-end could not be banked before the following Tuesday, August 6, 1957) wereunder the belief that they were dealing with, and therefore making their offerto, the honest P. G. M. Hutchinson of Caterham, whom they had reason to believewas a man of substance and standing."Hutchinson," the offeree, knew precisely what was in the minds of the twoladies for he had put it there and he knew that their offer was intended for P.G. M. Hutchinson of Caterham and that they were making no offer to and had noCopr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 141960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)intention to contract with him, as he was. There was no offer which he"Hutchinson" could accept and, therefore, there was no contract.The judge pointed out that the offer which the plaintiffs made was one whichwas capable of being accepted only by the honest P. G. M. Hutchinson of Caterhamand was incapable of acceptance by "Hutchinson."In all the circumstances of the present case I would accept the judge'sfindings. Indeed the conclusion so reached seems self-evident.Is the conclusion to be held wrong in law? If it is, then, as I see it, it mustbe on the sole ground that as "Hutchinson" was present, albeit making fraudulentstatements to induce the plaintiffs to part with their car to him in exchange forhis worthless cheque and was successful in so doing, then a bargain must *50 havebeen struck with him personally, however much he deceived the plaintiffs intothinking they were dealing with someone else.Where two parties are negotiating together and there is no question of one orthe other purporting to act as agent for another, and an agreement is reached,the normal and obvious conclusion would no doubt be that they are the contractingparties. A contrary finding would not be justified unless very clear evidencedemanded it. The unfortunate position of the defendant in this case illustrateshow third parties who deal in good faith with the fraudulent person may beprejudiced.The mere presence of an individual cannot, however, be conclusive that anapparent bargain he may make is made with him. If he were disguised in appearanceand in dress to represent someone else and the other party, deceived by thedisguise, dealt with him on the basis that he was that person and would not havecontracted had he known the truth then, it seems clear, there would be nocontract established. If words are substituted for outward disguise so as todepict a different person from the one physically present, in what circumstanceswould the result be different?Whether the person portrayed, by disguise or words, is known to the other partyor not is important in considering whether the identity of the person is of anymoment or whether it is a matter of indifference. If a man said his name wasBrown when it was in fact Smith, and both were unknown to the other party, itwould be difficult to say that there was any evidence that the contract was notmade and intended to be made with the person present. In King's Norton Metal Co.Ltd. v. Edridge, Merrett & Co. Ltd. [FN53] one Wallis fraudulently describedhimself as Hallam & Co., making it appear a substantial firm with a largefactory. The court held that the use of an assumed name by the buyer did notprevent a finding that the plaintiffs, the sellers of some brass rivet wire, hadcontracted with him.FN53 (1897) 14 T.L.R. 98, C.A.But personal knowledge of the person fraudulently represented cannot, I think,be an essential feature. It might be a very strong factor but the qualities of aperson not personally known might be no less strong. If a man misrepresentedhimself to be a Minister of the Crown or a stockbroker, confidence in the personso identified might arise although the individual so described was wholly unknownpersonally or by sight to the other party.It would seem that there is an area of fact in cases of the *51 type underconsideration where a fraudulent person is present purporting to make a bargainwith another and that the circumstances may justify a finding that,notwithstanding some fraud and deceit, the correct view may be that a bargain wasstruck with the person present, or on the other hand they may equally justify, ashere, a finding the other way.Some of the difficulties and perhaps confusion which have arisen in some of thecases do not, in my view, arise here.If less had been said by the rogue, and if nothing had been done to confirm hisCopr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 151960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)statements by Miss Hilda Ingram, who communicated what she had learnt to MissElsie who was doing the main negotiation, the result might have been different,for the sellers' concern about the stability and standing of the buyer might nothave been revealed and it might have been held that an offer in suchcircumstances was to the party present, whatever his true identity would be.In HPhillips v. Brooks Ltd. [FN54] the rogue North had apparently been in theshop some time inspecting goods which were brought and displayed for sale to himwithout any regard to his identity - he was a "customer" only. The judgment ofHorridge J. is, as I read it, based on a finding of fact that Phillips intendedto deal with North as a customer. Viscount Haldane, in HLake v. Simmons, [FN55]has taken the view that the case could be explained on the ground that thefraudulent misrepresentation was not made until after the parties had agreed upona sale.FN54 H[1919] 2 K.B. 243; 35 T.L.R. 470.FN55 H[1927] A.C. 487, 501; 43 T.L.R. 417, H.L.That opinion has been criticised, mainly, I think, by academic writers, but if,as must be conceded, it is a possible view, and as HPhillips v. Brooks Ltd.[FN56] has stood for so long and is, as I think, a decision within an area offact, I would not feel justified in saying it was wrong.FN56 H[1919] 2 K.B. 243.It is not an authority to establish that where an offer or acceptance isaddressed to a person (although under a mistake as to his identity) who ispresent in person, then it must in all circumstances be treated as if actuallyaddressed to him. I would regard the issue as a question of fact in each casedepending on what was said and done and applying the elementary principles ofoffer and acceptance in the manner in which Slade J. directed himself.The judgment quotes extensively from the article by Dr. Goodhart, the editor ofthe Law Quarterly Review, called *52 "Mistake as to identity in the Law ofContract" (1941) 57 L.Q.R. 228, and I would join the judge in his expression ofindebtedness to the author. Referring to HPhillips v. Brooks Ltd. [FN57] Dr.Goodhart asked "Did the shopkeeper believe that he was entering into a contractwith Sir George Bullough and did North know this? If both answers are in theaffirmative, then it is submitted that there was no contract."FN57 H[1919] 2 K.B. 243.I think there may be a doubt in that case whether both the answers should havebeen in the affirmative, but on the facts of the present case I feel no doubt andI would uphold the judge's view of no contract.Dr. Goodhart might well be right when he said that "There is no branch of thelaw of contract which is more uncertain and difficult" than that involved in thepresent case, and I am conscious that our decision here will not have served todispel the uncertainty.The recent case in the New Zealand courts, HFawcett v. Star Car Sales HLtd.,[FN58] has also produced a division of opinion, Gresson P. taking a differentview from North J. and Cleary J. in the appellate court, who upheld the judgmentof Hardie Boys J. [FN59] that a mistake by a purchaser as to the identity of aperson with whom he is dealing does not necessarily invalidate any sale whichtakes place. North J. put the question thus [FN60]: "Does the purchaser of achattel who pays the price asked by the true owner and takes delivery of thechattel from the true owner acquire a good title if it so happens that he is toldCopr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 161960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)and believes he is dealing with the previous owner who he wrongly thinks is stillthe true owner?" In that case, which was also the case of the purchase of amotor-car, the purchase of the car had not been completed by the purchaser andjudgment had been obtained against him. In the action, he was seeking toestablish that no contract of sale of the car had been made by the purchaser.North J. said [FN61]: "In my view, the vital and indeed all-important matter wasthe representation made by Mrs. Davies that she was the true owner of the motorcar.The name 'Mrs. Fawcett' meant nothing at all to the purchaser. All he wasinterested in was to ensure that he was dealing with the true owner, and indeedhe was. His eyes as well as his mind rested on Mrs. Davies. In my opinion thenthe representation that the person present negotiating the sale was 'Mrs. *53Fawcett' amounted to no more than a false description." Cleary J. said [FN62]:"Mr. Gould believed that the woman before him was Mrs. Fawcett (which she wasnot) and was the owner of the car (which for the present purposes she was) and hewas in fact dealing with a person able to make title to the car. In my view,there was not merely one side to a contract but a contract in fact, voidable itis true, but one under which the property passed from the owner to the purchasernotwithstanding the false name assumed by the owner." The majority of the courttherefore accepted the view that a contract was entered into. That case revealsthe difficulties of the problem. It turns, I think, on the view taken of thefacts and, apart from a comprehensive review of the authorities made by GressonP., I do not think it is helpful in the present case.FN58 H[1960] N.Z.L.R. 406 , C.A.FN59 [1959] N.Z.L.R. 952 .FN60 H[1960] N.Z.L.R. 406, 425.FN61 Ibid. 426.FN62 H[1960] N.Z.L.R. 406, 431.The question in each case should be solved, in my opinion, by applying thetest, which Slade J. applied, "How ought the promisee to have interpreted thepromise" in order to find whether a contract has been entered into.I am in agreement with the judge when he quotes, accepts and applies thefollowing passage from Dr. Goodhart's article - "It is the interpretation of thepromise which is the essential thing. This is usually based on the interpretationwhich a reasonable man, in the promisee's position, would place on it, but inthose cases where the promisor knows that the promisee has placed a peculiarinterpretation on his words, then this is the binding one. The English law is notconcerned with the motives of the parties nor with the reasons which influencedtheir actions. For practical reasons it has limited itself to the simplequestions: what did the promisor promise, and how should this be interpreted?"HPhillips v. Brooks Ltd. [FN63] is the closest authority on which the defendantrelies. Once that is distinguished on its facts, without going so far as to sayit is wrong, authority leans strongly in favour of the judgment appealed from.FN63 H[1919] 2 K.B. 243.Cundy v. Lindsay, [FN64] on the findings of the Court of Appeal [FN65] and theHouse of Lords, was to the same effect as the present case. The plaintiffsintended to sell to Blenkiron & Co. but Blenkarn fraudulently assumed theposition of the buyer. Therefore, an offer to sell to Blenkiron & Co. wasknowingly "accepted" by Blenkarn and there was no contract.Copr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 171960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)FN64 (1878) 3 App.Cas. 459, H.L.FN65 Sub nom. Lindsay v. Cundy(1877) 2 Q.B.D. 76, C.A.*54 But as the learned authors of Cheshire and Fifoot on the Law of Contract,5th ed. (1960), p. 197, point out, another view of the facts of that case mighthave been that "the plaintiffs, though deceived by the fraud of Blenkarn,intended or were at least content to sell to the person who traded at 37 WoodStreet, from which address the offer to buy had come and to which the goods weresent. If this were the true position, there was a contract with Blenkarn of 37Wood Street, though one that was voidable against him for his fraud."Blenkiron & Co.'s address was 123 Wood Street and the three judges of theQueen's Bench Division [FN66] had taken this view.FN66 Sub nom. Lindsay v. Cundy(1876) 1 Q.B.D. 348 .Hardman v. Booth [FN67] more closely supports the judgment in the present case.One of the plaintiffs was fraudulently persuaded by Edward Gandell that he was amember of Gandell & Co., which in fact consisted only of Thomas Gandell. It washeld that there was no contract since the plaintiff's offer was made to Thomasonly, as Edward knew to be the fact, and, therefore, he could not accept ithimself.FN67 (1863) 1 H. & C. 803; 158 E.R. 1107.The legal position is, I think, well illustrated by Dr. Goodhart in the article(57 L.Q.R. 228, 241) already referred to. There is a difference between the casewhere A makes an offer to B in the belief that B is not B but is someone else,and the case where A makes an offer to B in the belief that B is X. In the firstcase B does in fact receive an offer, even though the offeror does not know thatit is to B he is making it, since he believes B to be someone else. In the secondcase, A does not in truth make any offer to B at all; he thinks B is X, for whomalone the offer is meant. There was an offer intended for and available only toX. B cannot accept it if he knew or ought to have known that it was not addressedto him.The judgment has quoted and referred to Pothier's statement of the law (Traitedes Obligations (1803), s. 19, p. 13), and I have observed that Dr. Goodhartconcludes his article by saying that "it is certainly time that Pothier'sstatement was firmly and finally buried."Slade J. would have held equally for the plaintiffs if he had applied thesubjective test, which Pothier seems to stipulate. Pothier's statement has beencited in several English cases - by Fry J. in Smith v. Wheatcroft, [FN68] a caseof specific performance, *55 and in this court in HGordon v. Street, [FN69] andfollowed in HSowler v. Potter. [FN70]FN68 (1878) 9 Ch.D. 223, 230.FN69 H[1899] 2 Q.B. 641, 647; 15 T.L.R. 445, C.A.FN70 H[1940] 1 K.B. 271; 56 T.L.R. 142; [1939] 4 All E.R. 478.Having regard to the judge's finding that whichever view he takes it does notCopr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 181960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)affect his decision, I do not feel the occasion appropriate to consider furtherthe part that Pothier's views should play in English law.If it is the formation of a contract which calls for consideration, as it ishere, "How ought the promisee to have interpreted the promise" is, in my opinion,the correct approach, as the judge has held; but I recognise that the correctanswer may not always prove as ascertainable as I believe it to be in the presentcase.I would dismiss the appeal.PEARCE L.J.I agree. The question here is whether there was any contract, whether offer andacceptance met. For, as Gresson P. said in HFawcett v. Star Car Sales Ltd.,[FN71]"a void contract is a paradox; in truth there is no contract at all."FN71 H[1960] N.Z.L.R. 406, 412.Much argument has ranged round Professor Goodhart's illuminating article ofwhich the judge made considerable use in arriving at his conclusion. The authorrightly points out that the often-quoted passage from Pothier is misleading. For,it seems to substitute for the objective English test, "How ought the promisee tohave interpreted the promise," the entirely different subjective test, "What didthe promisor intend when he made the promise," and if taken literally it seems toinvolve "an inquisition into the feelings," and into the motives of the promisor.When an offeror seeks to avoid an apparent contract on the ground of mistakenidentity the investigation must start with his actual state of mind. For it wouldbe absurd if he could avoid the contract when he was not really mistaken in hisown mind as to the offeree's identity or when the apparent contract was notinduced by mistake, when he was equally prepared to make the contract had he notbeen mistaken. That, as it seems to me, is a preliminary essential. But thecourts, in deciding the question whether the apparent contract is non-existentowing to mistake in identity, apply the usual objective test (see Holmes on theCommon Law (1881), p. 308, Lecture 9), rather than a subjective test which wouldgravely impair the certainty and stability of contracts. The judge approached thematter on an *56 objective basis. He pointed out, however, that he would havereached the same result by approaching the matter on the subjective testsuggested by Pothier. In cases such as this the cheat is fully aware of theofferor's actual state of mind. Moreover, he could not be heard to say that hewas not aware of the offeror's state of mind when he has himself deliberately andfraudulently induced it. Thus the objective and subjective tests produce the sameresult in such a case, and it is the offeror's intention which provides theanswer. It is for that reason, I think, that in such cases as this so manyobservations have been made that are equally referable to the subjective andobjective test.The real problem in the present case is whether the plaintiffs were in factintending to deal with the person physically present, who had fraudulentlyendowed himself with the attributes of some other identity, or whether they wereintending only to deal with that other identity. If the former, there was a validbut voidable contract and the property passed. If the latter, there was nocontract and the property did not pass. The cases on this difficult subject havebeen very fully set out in an interesting dissenting judgment of Gresson P. inHFawcett v. Star Car Sales Ltd., [FN72] but the facts in that case, though theyconcern the fraudulent sale of a motor-car, are dissimilar in certain ways thatmake the decision itself inapplicable to the present case.FN72 H[1960] N.Z.L.R. 406, 408.The judge dealt with the matter as if the plaintiffs were the offerors and thecheat was the acceptor, and for convenience I do likewise. The question which wasofferor and which was offeree makes no difference to the principle. There are, noCopr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 191960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)doubt, cases where the answer to that question might throw some light on thefacts, but in this case no help is derived from it. Here it may well be that theultimate offeror was the false Hutchinson and the plaintiffs were the"acceptors," in which case the problem is whether the plaintiffs were intendingto deal with or accept an offer from the false Hutchinson physically present orthe real Hutchinson of Stanstead House.The mere fact that the offeror is dealing with a person bearing an alias orfalse attributes does not create a mistake which will prevent the formation of acontract: King's Norton Metal Co. Ltd. v. Edridge, Merrett & Co. Ltd. [FN73] Forin such a case there is no other identity for which the identity of the offereeis mistaken. "There was only one entity, trading it might be under *57 an alias,and there was a contract by which the property passed to him ": see per A. L.Smith L.J. [FN74]FN73 14 T.L.R. 98.FN74 14 T.L.R. 98, 99.But where a cheat passes himself off as another identity (e.g., as someone withwhom the other party is accustomed to deal), it is otherwise. In Cundy v. LindsayLord Cairns L.C. said [FN75]: "I ask the question, how is it possible to imaginethat in that state of things any contract could have arisen between therespondents and Blenkarn, the dishonest man? Of him they knew nothing, and of himthey never thought. With him they never intended to deal. Their minds never evenfor an instant of time rested upon him, and as between him and them there was noconsensus of mind which could lead to any agreement or any contract whatever. Asbetween him and them there was merely the one side to a contract, where, in orderto produce a contract, two sides would be required."FN75 3 App.Cas. 459, 465.An apparent contract made orally inter praesentes raises particulardifficulties. The offer is apparently addressed to the physical person present.Prima facie, he, by whatever name he is called, is the person to whom the offeris made. His physical presence identified by sight and hearing preponderates overvagaries of nomenclature. "Praesentia corporis tollit errorem nominis " said LordBacon (Law Tracts (1737), p. 102). Yet clearly, though difficult, it is notimpossible to rebut the prima facie presumption that the offer can be accepted bythe person to whom it is physically addressed. To take two extreme instances. Ifa man orally commissions a portrait from some unknown artist who had deliberatelypassed himself off, whether by disguise or merely by verbal cosmetics, as afamous painter, the impostor could not accept the offer. For though the offer ismade to him physically, it is obviously, as he knows, addressed to the famouspainter. The mistake in identity on such facts is clear and the nature of thecontract makes it obvious that identity was of vital importance to the offeror.At the other end of the scale, if a shopkeeper sells goods in a normal cashtransaction to a man who misrepresents himself as being some well-known figure,the transaction will normally be valid. For the shopkeeper was ready to sellgoods for cash to the world at large and the particular identity of the purchaserin such a contract was not of sufficient importance to override the physicalpresence identified by sight and hearing. Thus the nature of the proposedcontract must have a strong bearing on the question of whether the intention ofthe offeror (as understood by his offeree) was to make his *58 offer to someother particular identity rather than to the physical person to whom it wasorally offered.In our case, the facts lie in the debatable area between the two extremes. Atthe beginning of the negotiations, always an important consideration, the name orpersonality of the false Hutchinson were of no importance and there was no otheridentity competing with his physical presence. The plaintiffs were content tosell the car for cash to any purchaser. The contractual conversation was orallyaddressed to the physical identity of the false Hutchinson. The identity was theman present, and his name was merely one of his attributes. Had matters continuedthus, there would clearly have been a valid but voidable contract.Copr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 201960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)I accept the judge's view that there was no contract at the stage when the manpulled out his cheque book. From a practical point of view negotiations reachedan impasse at that stage. For the vendor refused to discuss the question ofselling on credit. It is argued that there was a contract as soon as the pricewas agreed at 717 and that from that moment either party couldhave sued on the contract with implied terms as to payment and delivery. That maybe theoretically arguable, but, in my view, the judge's more realistic approachwas right. Payment and delivery still needed to be discussed and the partieswould be expecting to discuss them. Immediately they did discuss them it becameplain that they were not ad idem and that no contract had yet been created. But,even if there had been a concluded agreement before discussion of a cheque, itwas rescinded. The man tried to make Miss Ingram take a cheque. She declined andsaid that the deal was off. He did not demur but set himself to reconstruct thenegotiations. For the moment had come, which he must all along have anticipated,as the crux of the negotiations, the vital crisis of the swindle. He wanted totake away the car on credit against his worthless cheque, but she refused.Thereafter, the negotiations were of a different kind from what the vendor hadmistakenly believed them to be hitherto. The parties were no longer concernedwith a cash sale of goods where the identity of the purchaser was prima facieunimportant. They were concerned with a credit sale in which both parties knewthat the identity of the purchaser was of the utmost importance. She now realisedthat she was being asked to give to him possession of the car on the faith of hischeque.This was an important stage of the transaction because it demonstrated quiteclearly that she was not prepared to sell on credit to the mere physical man inher drawing room though he *59 represented himself as a man of substance. Heproceeded to "give to airy nothing a local habitation and a name." He tried topersuade her to sell to him as P. G. M. Hutchinson of Stanstead House, apersonality which no doubt he had selected for the purpose of inspiringconfidence into his victim. This was unsuccessful. Only when she had ascertained(through her sister's short excursion to the local post office and investigationof the telephone directory) that there was a P. G. M. Hutchinson of StansteadHouse in the directory did she agree to sell on credit. The fact that the manwrote the name and address on the back of the cheque is an additional indicationof the importance attached by the parties to the individuality of P. G. M.Hutchinson of Stanstead House.It is not easy to decide whether the vendor was selling to the man in herdrawing room (fraudulently misrepresented as being a man of substance with theattributes of the real Hutchinson) or to P. G. M. Hutchinson of Stanstead House(fraudulently misrepresented as being the man in her drawing room). Did theindividuality of P. G. M. Hutchinson of Stanstead House or the physical presenceof the man in the room preponderate? Can it be said that the prima faciepredominance of the physical presence of the false Hutchinson identified by sightand hearing was overborne by the identity of the real Hutchinson on theparticular facts of the present case?The judge said: "I have not the slightest hesitation in reaching the conclusionthat the offer which the plaintiffs made to accept the cheque for717 was one made solely to, and one which was capable of beingaccepted only by, the honest Hutchinson - that is to say Philip Gerald MorpethHutchinson of Stanstead House, Stanstead Road, Caterham, Surrey, and that it wascapable of being accepted only by the honest Hutchinson." In view of theexperience of the judge and the care which he devoted to the present case, Ishould hesitate long before interfering with that finding of fact, and I wouldonly do so if compelled by the evidence or by the view that the judge drew someerroneous inference. Where, as here, a borderline case is concerned withascertaining the intention of the parties, the views of the trial judge who hearsthe witnesses should not lightly be discarded. I am not persuaded that on theevidence he should have found otherwise.It is argued that the judge should have come to a contrary *60 conclusion byfollowing HPhillips v. Brooks Ltd. [FN76] I do not find that case easy toevaluate, because the facts are far from clear. It appears from the report thatthe name of Sir George Bullough was not mentioned until after the deal hadapparently been concluded and the cheque in payment of the goods had been or wasCopr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 211960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)being written out. Then, apparently, as a postscript or variation of thetransaction, the false Sir George obtained leave to take off one of the articleswithout waiting for the cheque to be cleared, and the vendor thereby relinquishedhis lien on that article. The plaintiff in re-examination had said that he had nointention of making any contract with any other person than Sir George, but thosewords could hardly be true literally, since he had apparently made a contractwith the man before he was told that he was Sir George.FN76 H[1919] 2 K.B. 243.Viscount Haldane in HLake v. Simmons [FN77] said of that case: "Horridge J.found, as a fact, that though the jeweller believed the person to whom he handedthe jewel was the person he pretended to be, yet he intended to sell to theperson, whoever he was, who came into the shop and paid the price, and that themisrepresentation was only as to payment." In my view, it was a border-line casedecided on its own particular facts, and is in no wise decisive of the casebefore us.FN77 H[1927] A.C. 487, 501.Hardman v. Booth [FN78] was decided the other way. There the plaintiffs, goingto the place of business of Gandell & Co., which consisted only of ThomasGandell, were fraudulently misled at interviews with his son Edward, anunauthorised clerk in the business, into invoicing goods to Edward Gandell & Co.and paying with a bill of exchange similarly made out. It was held that there wasno contract. Pollock C.B. said [FN79]: "It is difficult to lay down any generalrule by which, at all times and under any circumstances, it may be determinedwhether or no there is a contract voidable at the option of the party defrauded,but in this case I think it clear that there was no contract. Mr. Hawkinscontended that there was a contract personally with Edward Gandell, theindividual with whom the conversations took place ... but the plaintiffs supposedthey were dealing with Gandell & Co., the packers, to whom they sent the goods;the fact being that Edward Gandell was not a member of that firm and had noauthority to act as their agent. Therefore at no period of time were there twoconsenting minds to the same *61 agreement." Wilde B. said [FN80]: "It is clearthat there was no sale to Gandell & Co., because they never authorised EdwardGandell to purchase for them; and it is equally clear that there was no sale toEdward Gandell, because the plaintiffs never intended to deal with himpersonally." That case, however, as a clearer case of there being no contractthan is the present one, since there the plaintiffs had gone to the premises ofGandell & Co. to deal with that firm, and on those premises they had dealt withsomeone who duped them into believing that he was a member of the firm. Had theplaintiffs in the present case gone to Stanstead House especially to deal withthe real Hutchinson and been duped on the premises by the false Hutchinson, theircase would have been very clear.FN78 1 H. & C. 803.FN79 Ibid. 806.FN80 1 H. & C. 803, 808.In HLake v. Simmons [FN81] the court was dealing with a somewhat differentproblem, namely, whether a jeweller had "entrusted" possession of jewellery to acheat, and it held that he had not. Viscount Haldane there said [FN82]: "Incircumstances such as these, I think there was no such consensus ad idem as, forexample, Lord Cairns in his judgment in Cundy v. Lindsay [FN83] declared to berequisite for the constitution of a contract. No doubt physically the womanentered the shop and pretended to bargain in a particular capacity, but only onthe footing of being different person from what she really was. There was neverany contract which could afterwards become voidable by reason of a falserepresentation made in obtaining it, because there was no contract at all,Copr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 221960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)nothing excepting the result of a trick practised on the jeweller."FN81 H[1927] A.C. 487.FN82 Ibid. 500.FN83 3 App.Cas. 459.Each case must be decided on its own facts. The question in such cases is this.Has it been sufficiently shown in the particular circumstances that, contrary tothe prima facie presumption, a party was not contracting with the physical personto whom he uttered the offer, but with another individual whom (as the otherparty ought to have understood) he believed to be the physical person present.The answer to that question is a finding of fact.It is argued that although such a finding might properly have been reached ifthe cheat had pretended to be some great man or someone known already to thevendor by dealing or by reputation, it could not be so in this case, since thevendor had no knowledge of P. G. M. Hutchinson of Stanstead House. Had it *62 notbeen for investigation of the telephone directory, that might well be so; buthere the entry represented an individual of apparent standing and stability, aperson whom the vendor was ready to trust with her car against his cheque. Hisindividuality was less dominating than that of a famous man would be, but that isa question of degree. It does not, I think, preclude the judge from finding thatit was with him that the vendor was intending to deal.The court is naturally reluctant to accept the argument that there has been amistake in such a case as this since it creates hardship on subsequent bona fidepurchasers. The plaintiffs' unguarded transaction has caused loss to another.And, unfortunately, when the contract is void at common law, the court cannot (asthe law stands now) by its equitable powers impose terms that would produce afairer result. However, in the present case the subsequent purchasers, althoughthe judge found that there was no mala fides, were no more wise or careful thanthe plaintiffs. The regrettable case with which a dishonest person can accomplishsuch a fraud is partially due to the unfortunate fact that registration books arenot documents of title and that registration and legal ownership are so looselyconnected.Although I appreciate the force of Mr. Chapman's very full and fair argument,he has failed to persuade me that the judge could not properly arrive at hisconclusion. I agree that the appeal should be dismissed.DEVLIN L.J.The point on which the present case turns is the effect of deception about theidentity of a contracting party. It is a difficult point on which I have themisfortune to differ from my brethren. On all other points I agree with them andshall add nothing. On the chief point I shall not attempt to analyse all theauthorities; there is a very full discussion of them in the recent judgment ofGresson P. in HFawcett v. Star Car Sales Ltd., [FN84] and I shall not need torepeat more than the essential facts.FN84 H[1960] N.Z.L.R. 406.The plaintiffs advertised their car for sale at 725 ornearest offer. The swindler, whose true name is unknown and whom Mr. Chapman hasconveniently described as H., called in answer to the advertisement and, afterinspection and negotiation, offered 717; and as soon as thefigure was agreed, produced his cheque book. Miss Elsie Ingram, who was makingthe deal on behalf *63 of the plaintiffs, at once said that she would not in anycircumstances accept a cheque, and she sought to bring the interview to an end.Copr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 231960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)He went on talking. He had previously given his name as Hutchinson and said thathe lived at Caterham; and it is common ground that if he had been able andwilling to pay cash the plaintiffs would have required to know no more. H. nowsaid that he was a P. G. M. Hutchinson, that he had business interests inGuildford and that he lived at Stanstead House, Stanstead Road, Caterham. Onhearing the name and address, Miss Hilda Ingram, who was in the room, slipped outand went round to the post office near by, looked in the directory covering thedistrict of Caterham and saw the entry, "Hutchinson, P. G. M., Stanstead House,Stanstead Road, Caterham 4665." She was away five minutes or a little longer; andduring that time the conversation between H. and Miss Elsie Ingram had continued.He had tried to convince Miss Ingram that he was indeed the Hutchinson he hadmentioned. When Miss Hilda came back she told Miss Elsie that she had checkedwith the telephone directory and that there was such a person listed. They thendecided that they would take his cheque and the deal was so concluded. The chequewas in due course dishonoured. Meanwhile, H. sold the car to the defendant.The question is whether H. was able to pass the property in the car to thedefendants so that they can resist a claim based on conversion; and that turns onwhether the contract between the plaintiffs and H. was voidable or void. If theplaintiffs were induced to enter into a contract by H.'s false representation asto his identity, the contract remains valid until the plaintiffs elect todisaffirm it; since before they did that, H. had parted with the car to thedefendants, he was in a position to give them a good title to it. If, however,mistake as to identity prevented the contract being made at all, the property inthe car did not pass to H., and so he could give no title to the defendants.In the textbooks, cases of mistaken identity are to be found both in thechapters that deal with the formation of contract and in those that deal with theeffect of mistake. Whichever way it is looked at, the essential question is thesame: has a contract been made? If the fatal defect goes to form, the question isanswered with a simple negative and the case is put under the head of formation.If the defect is one of substance, that is, where the outward form is completebut the necessary consensus is vitiated by mistake, the question is answered bysaying that the contract is void. It may be objected that a void contract is *64a meaningless expression; but it is a useful one to describe a contract that isperfect in form but void of substance. There is also this practical difference.It is for the plaintiff to prove offer and acceptance in form. But mistake is aground of defence and it is for the defendant to plead it and assert that thecontract is not what it seems to be. If the contract is complete on the surface,as when it is a formal document, the burden will be on him from the outset. Butin oral contracts it may well be in question whether there is a contract even inappearance.So the first thing for a judge to do is to satisfy himself that the allegedcontract has been properly formed, and Dr. Goodhart, in the article that thejudge has adopted, has shown how easy it is to fall into error if one does notbegin with that. There must be offer and acceptance. The offer must be addressedto the offeree, either as an individual or as a member of a class or of thepublic. The acceptance must come from one who is so addressed and must itself beaddressed to the offeror. Boulton v. Jones, [FN85] for example, is a simple casein which an offer was accepted by someone to whom it was not addressed. Theclassic case of Cundy v. Lindsay [FN86] was one in which the acceptance was notaddressed to the offeror. The offer, as in the instant case, was addressed to aperson who held himself out as willing to do business. But the offer was made byBlenkarn and the acceptance addressed to Blenkiron. The fact that there was areal Blenkiron, whom Blenkarn was pretending to be, showed that it was not a caseof falsa demonstratio non nocet. It is noteworthy that the word "mistake" is notmentioned in the judgments of either of these cases.FN85 (1857) 2 H. & N. 564.FN86 3 App.Cas. 459.Before, therefore, I consider mistake, I shall inquire whether there is offerand acceptance in form. There is no doubt that H.'s offer was addressed to MissIngram and her acceptance, apparently, addressed to him. But, it is argued, theCopr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 241960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)acceptance was in reality addressed to P. G. M. Hutchinson, who was not theofferor, and, therefore, no contract was made. There can be no doubt upon theauthorities that this argument must be settled by inquiring with whom Miss Ingramintended to contract: was it with the person to whom she was speaking or was itwith the person whom he represented himself to be? It has been pressed upon usthat this is a question of fact and that we ought to give great weight to theanswer to it provided by the trial judge. It *65 is, I think, a mixed question offact and law. I am sure that any attempt to solve it as a pure question of factwould fail. If Miss Ingram had been asked whether she intended to contract withthe man in the room or with P. G. M. Hutchinson, the question could have nomeaning for her, since she believed them both to be one and the same. Thereasonable man of the law - if he stood in Miss Ingram's shoes - could not giveany better answer. Whether it is fact or law, it is not a question that the trialjudge is any better equipped to answer than we are. In saying that, I mustacknowledge that I am with diffidence refusing the guidance offered by ViscountSumner in HLake v. Simmons [FN87]: "The conclusion that his state of mind was anappearance of consent produced by the trick and not a real consent induced byfraud is a judicial conclusion from the circumstances proved, from the evidenceof the victim as to what was said and done, what he believed, and what he wouldor would not have done in the absence of that belief, and finally, from thejudge's own view of the ability of the witness himself to analyse and explain hisown mental processes with tolerable exactness. A conclusion from these materialsis greatly assisted by seeing him and judging what manner of man he is." I hopethat I am not diminishing the province of the trial judge, which I should alwayswish to honour and respect. But I cannot understand how observation of thewitness can detect whether his consent was produced by a trick or induced byfraud; I doubt whether an analysis of his mental processes would help either. Allthat Miss Ingram or any other witness in her position can say is that she did infact accept the offer made to her; and that, if she had not been tricked ordeceived, she would not have accepted it.FN87 H[1927] A.C. 487, 503.Courts of law are not inexperienced in dealing with this sort of situation.They do so by means of presumptions. Let me take as an example the law thatgoverns a contract. This depends on the intentions of the parties, but no oneever attempts to ascertain their intentions by question and answer. The answerwould almost invariably be that neither of the parties had thought about thematter at all. If one of them were pressed to say what law he would have chosenif he had thought about it, he would naturally tend to opt for the law that wouldbe most favourable to him in the circumstances of the dispute that had broughthim to court. In the present type of case, the answer to a similar *66 type ofquestion might be equally misleading; as the deceived party in the present case,the plaintiff wants the contract declared void ab initio; as the deceived partyin the recent case of HFawcett v. Star Car Sales Ltd., [FN88] the defendant therewanted it affirmed. The court, therefore, has to work on the presumed intentionof the parties. In the case of conflict of laws, there are a number ofpresumptions which the court uses, such as that the parties are presumed tointend the law of the country where they have provided for arbitration, if suchbe the case, or the law of the place where the contract was made. Whether thecourt, when it acts in this way, is really ascertaining the intentions of theparties or whether it is simply providing a just solution of their difficultiesis a theoretical question which I need not explore. Lord Wright has somepenetrating observations to make about the problem as it arises in cases offrustration: see HFibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd.[FN89] and HDenny Mott & Dickson Ltd. v. Fraser & Co. Ltd. [FN90]FN88 H[1960] N.Z.L.R. 406.FN89 H[1943] A.C. 32, 70; 58 T.L.R. 308; [1942] 2 All E.R. 122, H.L.FN90 H[1944] A.C. 265, 275; 60 T.L.R. 419; [1944] 1 All E.R. 678, H.L.Copr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 251960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)In my judgment, the court cannot arrive at a satisfactory solution in thepresent case except by formulating a presumption and taking it at least as astarting point. The presumption that a person is intending to contract with theperson to whom he is actually addressing the words of contract seems to me to bea simple and sensible one and supported by some good authority. It is adopted inBenjamin on Sale, 8th ed. (1950), p. 102, where two decisions in the UnitedStates are referred to, Edmunds v. Merchants Despatch Co. [FN91] and Phelps v.McQuade. [FN92] The reasoning in the former case was adopted by Horridge J. inHPhillips v. Brooks Ltd., [FN93] and the latter case is a decision of the NewYork Court of Appeals. All these three cases still stand as the law in theirrespective jurisdictions. Corbin on Contract (1951), vol. 3, s. 602, p. 385,cites them and a number of others, and states the general principle in the UnitedStates as follows: "The courts hold that if A appeared in person before B,impersonating C, an innocent purchaser from A gets the property in the goodsagainst B."FN91 (1883) 135 Mass. 283.FN92 (1917) 220 N.Y. 232.FN93 H[1919] 2 K.B. 243.I do not think that it can be said that the presumption is conclusive, sincethere is at least one class of case in which it can be rebutted. If the personaddressed is posing only as an agent, *67 it is plain that the party deceived hasno thought of contracting with him but only with his supposed principal; if thenthere is no actual or ostensible authority, there can be no contract. Hardman v.Booth [FN94] is, I think, an example of this. Are there any other circumstancesin which the presumption can be rebutted? It is not necessary to strain to findthem, for we are here dealing only with offer and acceptance; contracts in whichidentity really matters may still be avoided on the ground of mistake. I amcontent to leave the question open, and do not propose to speculate on what otherexceptions there may be to the general rule. What seems plain to me is that thepresumption cannot in the present case be rebutted by piling up the evidence toshow that Miss Ingram would never have contracted with H. unless she had thoughthim to be P. G. M. Hutchinson. That fact is conceded and, whether it is provedsimpliciter or proved to the hilt, it does not go any further than to show thatshe was the victim of fraud. With great respect to the judge, the question thathe propounded as the test is not calculated to show any more than that. He said:"Is it to be seriously suggested that they were willing to accept the cheque ofthe rogue other than in the belief, created by the rogue himself, that he, therogue, was in fact the honest P. G. M. Hutchinson of the address in Caterham withthe telephone number which they had verified?" In my judgment, there iseverything to show that Miss Ingram would never have accepted H.'s offer if shehad known the truth, but nothing to rebut the ordinary presumption that she wasaddressing her acceptance, in law as well as in fact, to the person to whom shewas speaking. I think, therefore, that there was offer and acceptance in form.FN94 1 H. & C. 803.On my view of the law, it, therefore, becomes necessary to consider nextwhether there has been a mistake that vitiates the contract. As both my brethrenare of opinion that there has been no offer and acceptance, the result of thisfurther inquiry cannot affect the decision in the present case or its ratio, andI shall, therefore, state my conclusions and my reasons for it as briefly as maybe.In my judgment, there has been no such mistake. I shall assume without argumentwhat I take to be the widest view of mistake that is to be found in theauthorities; and that is that a mistake avoids the contract if at the time it ismade there exists some state of fact which, as assumed, is the basis of thecontract *68 and as it is in truth, frustrates its object. Cases of mistakenidentity have usually been dealt with in the authorities by the application ofCopr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 261960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)the test propounded by Pothier, Traite des Obligations (1803), s. 19, p. 13,where he said: "Wherever the consideration of the person with whom I contract isan ingredient of the contract which I intend to make, an error respecting theperson destroys my consent, and consequently annuls the agreement." If this iswider than the principle I have stated, I do not think it can be part of the lawof England, for I can see no reason why mistake as to identity should operatemore easily to avoid a contract than any other sort of mistake. If Pothier iscorrectly interpreted, the word "ingredient" is very wide; but the examples whichhe gives to illustrate his proposition are examples in which mistaken identitywould generally destroy a fundamental assumption and frustrate the object of thecontract. The whole object of contracting for a portrait, for instance, is tohave it done by the particular artist selected and so his identity is normallyessential.The fact that Miss Ingram refused to contract with H. until his supposed nameand address had been "verified" goes to show that she regarded his identity asfundamental. In this she was misguided. She should have concerned herself withcreditworthiness rather than with identity. The fact that H. gave P. G. M.Hutchinson's address in the directory was no proof that he was P. G. M.Hutchinson; and if he had been, that fact alone was no proof that his chequewould be met. Identity, therefore, did not really matter. Nevertheless, it maytruly be said that to Miss Ingram, as she looked at it, it did. In my judgment,Miss Ingram's state of mind is immaterial to this question. When the law avoids acontract ab initio, it does so irrespective of the intentions or opinions orwishes of the parties themselves. That is the rule in the case of frustration:see Hirji Mulji v. Cheong Yue S.S. Co. Ltd. [FN95] It is the rule also in a casesuch as HScammell (G.) & Nephew Ltd. v. Ouston, [FN96] where the parties believedthemselves to have contracted, but had failed to reach agreement on essentialswith sufficient particularity. This rule applies in the case of mistake becausethe reason for the avoidance is the same, namely, that the consent is vitiated bynon-agreement about essentials. It is for the court to determine what in thelight of all the circumstances is to be deemed essential. In my *69 judgment, inthe present case H.'s identity was immaterial. His creditworthiness was not, butcreditworthiness in relation to contract is not a basic fact; it is only a way ofexpressing the belief that each party normally holds that the other will honourhis promise.FN95 H[1926] A.C. 497; 42 T.L.R. 359, P.C.FN96 H[1941] A.C. 251; 57 T.L.R. 280; [1941] 1 All E.R. 14, H.L.I wish that I could conclude this judgment without any reference to HLake v.Simmons, [FN97] for that is a case with which I find it very difficult to dealbriefly. But if, as is often suggested, the ratio decidendi in the House of Lordsis that enunciated by Viscount Haldane [FN98] in the leading speech, I shouldfind it impossible to distinguish the present case satisfactorily. I must,therefore, embark on the difficult task of ascertaining what the true ratio is.FN97 H[1927] A.C. 487.FN98 Ibid. 494.I do not think that the reasoning in the case can properly be analysed withoutsome introductory observations about larceny by a trick. I base them on thejudgment of Sellers J., as he then was, in HDu Jardin v. Beadman Bros. Ltd.[FN99] The history of the offence is fully set out in Russell on Crime, 11th ed.(1958), p. 1036, and I give below only the bare account of it that is necessaryfor my purpose. Larceny at common law required that there should be an asportavitor taking of the goods with intent to steal. This produced a difficulty in thecase of a bailee who obtained possession of the goods lawfully; he could notthereafter be guilty of larceny by appropriating them, however dishonestly. Thisdifficulty was finally removed by statute in 1857 when the offence of larceny bya bailee was created. "In the meantime," as Russell says at p. 1041, "the judgesCopr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 271960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)had found themselves forced to adopt strange contortions of reasoning in order tojustify the conviction of dishonest men." The difficulty, which had to beremoved, was that the bailee had taken the chattel with the consent of the owner.In R. v. Pear, [FN100] the court decided, that if a horse was hired with theintention of stealing it, the fraudulent intention of the bailee at the inceptionof the transaction in some way negatived in law the consent of the owner to dowhat he in fact did. Therefore, there was a taking without consent, which came tobe called larceny by a trick. But the courts restricted this doctrine to thetransfer of possession; and they always refused to apply it to a case where whatwas in issue was the transfer of property. It is, perhaps, for this reason thatwe have not been troubled here by any argument about *70 larceny by a trick. Butthere has been a great difference of opinion whether this notion of consentshould or should not be imported into other branches of the law, particularlyliability under the Factors Act, 1889. Until recently, the ruling judgments onthis point have been obiter; but I trust that the law may now be regarded assettled by the decision of Sellers J. in HDu Jardin v. Beadman, [FN101] where heheld that "consent" in the Factors Act, 1889 , was not to be interpreted in anartificial way in order to bring it into harmony with the criminal law. I neednot pursue the controversy further. Its only importance for my purpose is so thatthe speech of Viscount Sumner, which I think to be crucial in HLake v. Simmons,[FN102] is properly understood.FN99 H[1952] 2 Q.B. 712; [1952] 1 T.L.R. 1601; [1952] 2 All E.R. 160.FN100 (1779) 2 East P.C. 685.FN101 H[1952] 2 Q.B. 712.FN102 H[1927] A.C. 487, 503.The facts in Lake v. Simmons centred round a woman who was living with a Vander Borgh, and who had dealings with the plaintiff, a jeweller. She falselyrepresented to him that she was Mrs. Van der Borgh and she obtained jewelleryfrom him by falsely representing that she desired to show it to her husband forhis approval, and also to a person she named as Commander Digby, who did not infact exist. She made away with the jewellery and the plaintiff sued to recoverhis loss under a Lloyd's policy, the defendant being an underwriter. The policywas against (inter alia) theft, but subject to an exception on which the argumentturned. A convenient summary of its essential terms is given by Viscount Sumner[FN103]: "The exception clause takes out of the stipulated cover against 'thefts'generally ... those committed by customers ... but only when, the words 'inrespect of goods entrusted to them by the assured' are satisfied."FN103 Ibid. 507.All three courts held that there was a theft, i.e., larceny by a trick, and,accordingly, that the loss fell within the general words. There was, however,much difference of opinion about the operation of the exception. McCardie J. held[FN104] that the jewellery was not entrusted to the woman as a customer, but thatshe received it as a mere agent or messenger for the purpose of showing it toothers. He, therefore, decided in favour of the plaintiff. His decision wasreversed by a majority in the Court of Appeal. [FN105] None of the Lords Justicesaccepted his view that the woman was not a customer and the decision turned onthe meaning of "entrusted." *71 Bankes L.J. and Warrington L.J. held that therewas an entrusting within the exception so that the loss fell outside the policy.Atkin L.J. held that there was not. He said [FN106] that the word "entrust"implied a consensual act and that the fact of larceny negatived consent both incriminal and in civil matters. It would be absurd to hold, he thought, that thewoman could both take the goods without the consent of the true owner for thepurpose of larceny by a trick and be "entrusted" with the goods by the trueowner.Copr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 281960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)FN104 [1926] 1 K.B. 382; 42 T.L.R. 168.FN105 H[1926] 2 K.B. 51; 42 T.L.R. 425, C.A.FN106 H[1926] 2 K.B. 51, 71, 72.In the House of Lords, [FN107] the decision of the Court of Appeal wasreversed. Viscount Haldane said [FN108] that for the purpose of an entrustingwithin the meaning of the policy there must be a definite contract. He held thatthere was never any contract at all, because the plaintiff was entirely deceivedas to the identity of the person with whom he was transacting; it was only on thefooting and in the belief that she was Mrs. Van der Borgh that he was willing todeal with her at all. This is a bare summary of his reasoning; it is sufficientfor my purpose to say that it is clear authority for the view from which I amdissenting. None of the rest of their Lordships expressly followed ViscountHaldane. Lord Atkinson's opinion [FN109] turned on the construction of thepolicy. He held that the entrusting within the exception could not mean thedelivery in all good faith by a dealer of goods to a customer which that customerhad planned to steal. He also inclined to McCardie J.'s view that the woman wasnot a customer. Lord Blanesburgh [FN110] based his conclusion on the simpleground that the woman was not a customer, but entirely agreed with the judgmentof Viscount Sumner. Lord Wrenbury [FN111] simply concurred.FN107 H[1927] A.C. 487.FN108 Ibid. 499.FN109 Ibid. 511.FN110 Ibid. 513.FN111 Ibid. 513.It is clear, therefore, that Viscount Haldane's reasoning can be accepted asthe ratio decidendi only if it was assented to by Viscount Sumner. I know thatthe fault must be mine, but I find the speech of Viscount Sumner very difficultto interpret. I think that the operative part of his reasoning begins [FN112]after he has set out the policy. He gave a special meaning to the word"entrusted," derived from the use of the same word in an earlier part of thepolicy. He held that it meant entrusted on the condition of sale or return. Heheld that there was not an *72 entrusting to the woman on this condition; ifthere was an entrusting, it was either to Van der Borgh or Commander Digby, oneof whom was imaginary and the other was not a customer. That was his firstreason. The second reason [FN113] was, I think, an acceptance of Atkin L.J.'sview of the effect of larceny by a trick. Finally, he agreed [FN114] that thewoman was not a customer for the purpose of the exceptions clause.FN112 Ibid. 507.FN113 H[1927] A.C. 487, 508.FN114 Ibid. 511.But, before he gave this statement of his reasons, he made a number ofobservations that might suggest that he was agreeing with the view expressed byCopr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 291960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)Viscount Haldane, though he never in fact said so. He said this [FN115]: "Again,if Mr. Lake consented to nothing, analogies from the distinction between void andvoidable contracts are beside the mark, and equally so are arguments which turnon consensus ad idem as an ingredient in the conclusion of a contract ... As itis, there was no contract and nothing to avoid." I have italicised the word "if"because I think that what appears to be a positive statement that "there was nocontract and nothing to avoid" is based upon the hypothesis that Lake consentedto nothing. I think this must be so, for, in the next paragraph, Viscount Sumnersaid: "the next step is to consider whether anything can be imputed to Mr. Lakewhich would be equivalent to his consent. " I think that the clue to whatViscount Sumner is saying in this part of his speech is on the next page where hesaid [FN116]: "Such facts may raise difficulties in deciding whether his frame ofmind involved misplaced consent or was consistent with absence of any consent atall, but the conclusion that it was such as would negative the appearance ofconsent and so remove the difficulty in the way of proving an asportavit,concludes the whole issue." He elucidates this with three examples, one of which,a case of a confidence trick man, posing as a benevolent millionaire, wouldcertainly not be a ground for avoiding a contract.FN115 H[1927] A.C. 487, 505.FN116 Ibid. 506.I think that Viscount Sumner is neither agreeing nor disagreeing with ViscountHaldane. What he is saying is that Viscount Haldane's reasoning is not to thepoint as he, Viscount Sumner, sees it. Distinction between void and voidablecontracts are beside the mark and so are arguments which turn on consensus. Thething is concluded by the fact there is larceny by a trick. In other words,Viscount Sumner is agreeing with Atkin *73 L.J. [FN117] and is refusing todistinguish between the sort of lack of consent that goes to make larceny by atrick and the sort that avoids a contract, though he reserved [FN118] hisjudgment about "consent" in the Factors Act, 1889. In my judgment, therefore, theratio decidendi of Lake v. Simmons turns on the construction of the policy, andthe only view for which there is a clear majority is the view that the woman wasnot a customer. Certainly there is no support for the opinion of Viscount Haldanein any of the other speeches and, though I recognise his great authority, Iprefer to follow HPhillips v. Brooks Ltd., [FN119] the cases in the United Statesto which I have referred, [FN120] and the decision of the majority of the Courtof Appeal in the recent case in New Zealand, HFawcett v. Star Car Sales Ltd.[FN121]FN117 H[1926] 2 K.B. 51, 71, 72.FN118 H[1927] A.C. 487, 510.FN119 H[1919] 2 K.B. 243.FN120 Ante, p. 66.FN121 H[1960] N.Z.L.R. 406.There can be no doubt, as all this difference of opinion shows, that thedividing line between voidness and voidability, between fundamental mistake andincidental deceit, is a very fine one. That a fine and difficult distinction hasto be drawn is not necessarily any reproach to the law. But need the rights ofthe parties in a case like this depend on such a distinction? The great virtue ofthe common law is that it sets out to solve legal problems by the application tothem of principles which the ordinary man is expected to recognise as sensibleand just; their application in any particular case may produce what seems to hima hard result, but as principles they should be within his understanding andCopr. © West 2004 No Claim to Orig. Govt. Works

[1961] 1 Q.B. 31 Page 301960 WL 18924 (CA), [1960] 3 All E.R. 332, [1960] 3 W.L.R. 504, (1960) 104 S.J. 704(Cite as: [1961] 1 Q.B. 31)merit his approval. But here, contrary to its habit, the common law, instead oflooking for a principle that is simple and just, rests on theoreticaldistinctions. Why should the question whether the defendant should or should notpay the plaintiff damages for conversion depend upon voidness or voidability, andupon inferences to be drawn from a conversation in which the defendant took nopart? The true spirit of the common law is to override theoretical distinctionswhen they stand in the way of doing practical justice. For the doing of justice,the relevant question in this sort of case is not whether the contract was voidor voidable, but which of two innocent parties shall suffer for the fraud of athird. The plain answer is that the loss should be divided between them in suchproportion as is just in all the circumstances. If it be pure misfortune, theloss should be borne equally; if the fault or imprudence of either party hascaused or contributed to the loss, it should be borne by *74 that party in thewhole or in the grdater part. In saying this, I am suggesting nothing novel, forthis sort of observation has often been made. But it is only in comparativelyrecent times that the idea of giving to a court power to apportion loss has founda place in our law. I have in mind particularly the Law Reform Acts of 1935, 1943and 1945, that dealt respectively with joint tortfeasors, frustrated contractsand contributory negligence. These statutes, which I believe to have workedsatisfactorily, show a modern inclination towards a decision based on a justapportionment rather than one given in black or in white according to the logicof the law. I believe it would be useful if Parliament were now to considerwhether or not it is practicable by means of a similar act of law reform toprovide for the victims of a fraud a better way of adjusting their mutual lossthan that which has grown out of the common law.RepresentationSolicitors: Corbin, Greener & Cook for Charles Ingham, Clegg & Crowther, LythamSt. Annes, Lancs.; Gibson & Weldon for B. A. Greenwood & Co., Poole, Dorset.Appeal dismissed with costs. Leave to appeal to the House of Lords. (N. P. )(c) Incorporated Council of Law Reporting For England & WalesEND OF DOCUMENTCopr. © West 2004 No Claim to Orig. Govt. Works

(1923) 16 Ll. L. Rep. 325 Page 11923 WL 18433 (Sh Ct)(Cite as: (1923) 16 Ll. L. Rep. 325)*325 Seed Shipping Co. v. Owners of "Baron Cathcart."Glasgow Sheriff's Court.Sh Ct (Glasgow)Monday, July 9, 1923.Before Sheriff-Substitute A. D. Thomson.Sale of Ship--Verbal Offer and Discussion --Acceptance in Writing--WhetherContract concluded--Want of Consensus ad idem--Condition as to Drydockingdiscussed but not agreed to.This claim arose out of an alleged contract for the sale of the vessel at theprice of £16,600. The Sheriff-Substitute found that there was not completeconsensus ad idem between the parties, and that in consequence there was noconcluded contract. He therefore assoilzied the defenders and granted theirexpenses.The SHERIFF-SUBSTITUTE , in a note attached to the judgment, said that thepursuers craved in effect a decree for delivery of the steamer in exchange forthe contract price. The defence was that there was no concluded contract of sale.It was therefore incumbent upon the pursuers, if they were to overcome thisdefence and establish their claim, to prove that there was a concluded contract.They endeavoured to do so by founding upon a letter which they delivered to thedefenders on Feb. 17, 1922. The letter was in the following terms:--s.s. Baron Cathcart .Referring to conversations of date, Mr. Dunn has been on the telephone withMr. Seed and is now instructed to accept your offer of this steamer at £ 16,600(covering total commission of 3 per cent.), on conditions as discussed andverbally arranged to-day. We will draw up the contract on Monday morning andsubmit it for your approval and signature. Mr. Seed's inspector, Mr. Thomson,will be at the steamer on Monday in the early afternoon to examine the tanks andthe machinery and donkey boiler as arranged with Mr. McNaught.--Yours truly,Thos. McLaren & Co.The letter was perfectly distinct in its terms, and on the face of it was anacceptance upon the conditions referred to of a verbal offer of the steamer atthe price of £16,600. The pursuers' case was based entirely upon this letter,their case being that it was a valid acceptance of a subsisting offer, whereby acontract was duly concluded.The defenders, however, met this case by three contentions, viz.:--(1) Thatthere was no offer open for acceptance when the letter was written. (2) That theparties having, if they contracted at all, contracted under mutual error, werenot bound by the contract, the error founded upon being the mistaken belief thatthe steamer had passed her No. 1 official survey. (3) That no contract wasconcluded, because the parties contemplated that there should be no bindingengagement until a formal contract should be entered into and executed-- whichwas never done.On the first point, he considered in view of Hyde v. Wrench, 3 Beav. 336, citedin Anson on Contracts, that the letter quoted was a timeous and valid acceptance,and therefore primâ facie sufficient for the concluding of a contract.The second point was that the parties, if they contracted at all, did so undermutual error. The defenders represented to the pursuers that the vessel hadpassed her No. 1 survey. This, however, was not the case. Both parties believedand were negotiating in the belief that she had passed it. They were both,therefore, in error. Did this mutual error justify the defenders in repudiatingthe contract? He felt compelled to answer the question in the negative.Accordingly he thought that second defence to the action fell to be repelled.Copr. © West 2004 No Claim to Orig. Govt. Works

(1923) 16 Ll. L. Rep. 325 Page 21923 WL 18433 (Sh Ct)(Cite as: (1923) 16 Ll. L. Rep. 325)The third defence was that no contract was concluded because the partiescontemplated that there should be no binding engagement until a formal writtencontract had been entered into and executed, which was not done. A contract forthe sale of a ship did not require to be in writing; it might be concludedverbally. The evidence in the present case established that parties on both sidescontemplated that a formal written document should be adjusted and executed."Where a formal writing is stipulated for, or is customary, it is always aquestion of circumstances whether the parties to such a contract intend that theexecution of a formal writing shall be suspensive of the completion of thecontract. The analogous case of missives of lease is an illustration in point"(per Lord Moncreiff in Rederei v. Salveson & Co., 6 F. at p. 75). There was noevidence of any usage or custom in the shipping trade whereby the completion of acontract for the sale of a ship was deemed to be suspended until a formalcontract should have been executed, and one was therefore compelled to look toother considerations in ascertaining the intentions of the parties.The first consideration in deciding this question would seem to be this: Whatdid the parties agree to? Did they agree as to the essentials of a sale? Did theyagree as to certain conditions understood and intended to be the basis of theiroffer and acceptance?The pursuers' averments included the following terms:--"(1) The price to bepaid should be £16,600. (2) The vessel should be delivered to the pursuers on herreturn from Bilbao. (3) Should the vessel sustain any damage on the voyage toBilbao, the vessel should be drydocked, and if any damage should be sustained byher it should be repaired by the defenders. If the result of the examination wasthat no damage had been sustained, the pursuers were to pay *326 for the cost ofthe said examination. It was an implied term of the contract from theconversation between the parties that the usual certificates should be handedover."The proof established that the subject of sale was the steamer in question;that there was agreement as to the price and as to the place and time ofdelivery; that defenders agreed to pay for any damage (not merely for damagebelow water) sustained on the voyage; but (and this was very important) thatdefenders did not agree, and indeed refused to drydock the vessel except in thecase of her having stranded. Unfortunately for the pursuers, the Court found anobligation upon the defenders to drydock the vessel at the end of the voyage,which had been the subject of discussion on Feb. 17, and was evidently regardedon both sides as material. This obligation was one of the conditions, butalthough it had been discussed it had not been agreed to as the pursuersbelieved. Consequently there was not consensus ad idem, and upon this ground,which he confessed seemed to him in the circumstances a somewhat narrow one, hefelt compelled to hold that there was no concluded contract and that thedefenders must be assoilzied.(c) Lloyds of London Press LimitedEND OF DOCUMENTCopr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 125 Page 11912 WL 17392 (Ch D)(Cite as: [1912] 2 Ch. 125)*125 Northern Assurance Company, Limited v. Farnham United Breweries,LimitedChancery DivisionCh DJoyce J.1912 Feb. 27, 28, 29; March 8Company--Debentures--Trust Deed--General Meeting--"Extraordinary Resolution"--Power of Majority to bind Minority--Power to sanction Modification of Rights--Redeemable Debentures--Conversion into Irredeemable--Special Circumstances--Condition Precedent--Additional Powers--"Modification"-- "Redeemable"--"Irredeemable"--Meaning of.A debenture trust deed conferred upon a general meeting of the debentureholdersa power, exercisable by extraordinary resolution passed by a majority ofnot less than three-fourths of the number of persons voting thereat, to sanctionany modification or compromise of the rights of the debenture-holders against thecompany or against its property, whether arising under the debentures, or thetrust deed or otherwise, and provided that an extraordinary resolution dulypassed should be binding upon all the debenture-holders:--Held, that the conversion of redeemable debentures into irredeemable orperpetual debentures was a modification of the rights of the debenture-holderswithin the meaning of the power, and that the existence of some serious orspecial circumstances was not a condition precedent to the exercise of the power.The meaning of "redeemable" and "irredeemable" as applied to debenture stock,and the modification of the rights of stock holders effected by the conversion ofredeemable stock into irredeemable stock, discussed by Eve J. in In re JosephStocks & Co., post, p. 134, n.ACTION.The defendant company was incorporated in 1889 under the Companies Acts, 1862to 1886, with limited liability. The nominal capital was 225,000l. divided into10,000 ordinary shares of 10l. each and 12,500 preference shares of 10l. each.In 1890 the defendant company raised a sum of 200,000l. by the issue of aseries of first mortgage debentures for 100l. each bearing interest at 4l. 10s.per cent. per annum. By each of the debentures the company covenanted to pay theprincipal moneys thereby secured on September 30, 1909, or on such earlier dateas the same should become payable in accordance with the conditions thereunderwritten, and in the meantime to pay interest thereon half-yearly at the rateabove mentioned, and thereby *126 charged with such payment its undertaking andall its property described in the schedule to the trust deed hereinaftermentioned.Condition 2 provided that the principal moneys should immediately becomepayable if (inter alia) the company made any default referred to in the trustdeed hereinafter mentioned.Each debenture also provided that the holders of the debentures were to beentitled, pari passu, to the benefit of, and to be subject to, the provisionscontained in the trust deed whereby the company vested and covenanted to vestcertain property of the company therein specified in the trustees therein namedfor securing payment of the principal moneys and interest payable in respect ofthe debentures.The trust deed contained inter alia a covenant that the company would duly payCopr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 125 Page 21912 WL 17392 (Ch D)(Cite as: [1912] 2 Ch. 125)the principal moneys and interest secured by the debentures in accordance withthe terms thereof and would observe and perform the several conditions indorsedupon the debentures, and provided that the provisions contained in the fifthschedule to the trust deed should have effect in such manner as if suchprovisions were therein set forth.Clauses 13, 14, and 15 of the fifth schedule to the trust deed provided asfollows:--"13. Without limiting or derogating from the powers or discretions vested inthe trustees a general meeting of the debenture holders shall in addition to thepowers hereinbefore given have the following powers exerciseable by extraordinaryresolution namely:--(1.) Power to sanction the release of any of the mortgaged premises.(2.) Power to sanction any modification or compromise of the rights of thedebenture holders against the company or against its property whether such rightsshall arise under the debentures or under these presents or otherwise.(3.) Power to assent to any modification of these presents recommended bythe trustees or trustee.14. An 'extraordinary resolution' passed at a general meeting of thedebenture holders duly convened and held in accordance with these presents shallbe binding upon all the debenture *127 holders whether present or not present atsuch meeting and each of the debenture holders shall be bound to give effectthereto accordingly.15. The expression 'extraordinary resolution' when used in this schedulemeans a resolution passed at a meeting of the debenture holders duly convened andheld in accordance with the provisions herein contained by a majority consistingof not less than three-fourths of the number of persons voting thereat Providedthat in computing the majority when a poll is demanded such majority shall beascertained by reference to the number of votes to which every such person isentitled under these presents."By a supplemental trust deed dated May 1, 1907, executed in pursuance of anextraordinary resolution passed at a meeting of debenture-holders held on April19, 1907, the date fixed by the debentures for payment of the principal moneysthereby secured was altered and extended from September 30, 1909, to September30, 1919, and additional property was assured to the trustees by way of furthersecurity. The supplemental deed also provided that nothing therein containedshould prejudice or affect any provision contained in the principal trust deed orin the debentures by virtue of which the principal moneys secured by thedebentures would on the happening of any event become payable on a day earlierthan the date fixed for payment thereof by the debentures as altered by thesupplemental deed and every such provision should continue in full forceaccordingly.The whole of the above-mentioned issue of debentures was still outstanding, andthe plaintiffs were holders for value of fifty of the debentures for the totalamount of 5000l.On December 16, 1910, a general meeting of debenture-holders (notice of whichhad been given on December 7, 1910, and which had been duly convened pursuant tothe provisions in the fifth schedule of the trust deed) was held for the purposeof passing as an "extraordinary resolution" a resolution to the effect "that thisgeneral meeting of holders of debentures ... hereby sanctions and assents tocertain proposed modifications of the rights of the holders of the saiddebentures against the company and its property (and in particular the conversionof *128 the said debentures into perpetual debentures) and certain proposedmodifications of the said trust deed (as already modified as above mentioned)"--namely, by the supplemental trust deed--"which are recommended by"--the defendanttrustees--"(all which proposed modifications have been explained to the meeting) andhereby authorises the trustees of the said trust deed with the view ofeffectuating, such modifications to concur with the company in executing afurther supplemental trust deed in the terms of the draft which has beensubmitted to the meeting and has for the purposes of identification beensubscribed by the chairman thereof."The plaintiff company were represented at the meeting by their secretary andsolicitor, who spoke against the resolution, but the same was put to the meetingCopr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 125 Page 31912 WL 17392 (Ch D)(Cite as: [1912] 2 Ch. 125)and upon a poll being taken there were 1238 votes for and 141 against theresolution, which was declared carried. The plaintiff company by theirrepresentatives were amongst those who voted against the resolution.The further supplemental trust deed in the terms of the draft supplementaltrust deed sanctioned by the meeting was subsequently executed and contained inparticular a provision by which the debentures, in lieu of being redeemable onSeptember 30, 1909, were made unredeemable except in certain events thereinspecified.The plaintiff company subsequently commenced this action against the companyand the trustees of the trust deed for (1.) a declaration that the resolutionpassed at the meeting of December 16, 1910, was ultra vires and not binding onthe plaintiffs; (2.) an order declaring that the further supplemental trust deedexecuted pursuant to the resolution was invalid and unauthorized and ought to beset aside; and (3.) an injunction to restrain the defendants from giving furthereffect to the resolution.In their statement of claim the plaintiffs alleged that many of the debentureholderswho voted in favour of the resolution were largely interested in thedefendant company as shareholders and the resolution was not passed bona fide andin the interest of all the debenture-holders but to benefit the defendant companyand *129 its shareholders, and that there solution was beyond the scope of theauthority conferred on a general meeting of debenture holders by the conditionsand regulations indorsed on the debentures.The plaintiffs also alleged that at the meeting of December 16, 1910, thedefendant trustee who was in the chair gave no reasons or justification to themeeting for the resolution or for the various provisions and terms of the draftfurther supplemental trust deed (as then read) and refused to give any suchreasons or justifications though requested to do so by the plaintiffs'representatives; and they further alleged that there was in fact no occasion ornecessity for the modification or alteration of rights effected by the resolutionor further supplemental trust deed, nor any justification therefor.Younger, K.C., Buckmaster, K.C., and Whinney, for the plaintiff company. Theconversion of terminable into perpetual debentures is not a "modification" withinthe meaning of the trust deed. It is a complete change in the nature of thesecurity and cannot be described as a modification. The resolutions introduceinequalities among the class of debenture-holders inter se and authorize thetrustees to give away the mortgaged property, and that is not permissible underany majority clause. Further, no occasion has arisen demanding any such change.This was not a "modification." The Oxford English Dictionary defines"modification" as "the action of making changes in an object without altering itsessential nature or character." The change in question involves the alteration ofthe essential nature of the debentures, and the essential rights of thedebenture-holders. Instead of being a debenture which must be paid off, it hasbecome a debenture which need not be paid off except at the will, or in an eventdependent upon the will, of the company: HIn re Southern Brazilian Rio Grande DoSul Ry. Co. [FN1] Although payment was postponed by the first supplemental trustdeed the covenant for payment was retained, but by the second supplemental deedit is not modified but abolished.FN1 H[1905] 2 Ch. 78.Further, if the alteration be a modification within the meaning of the deed nooccasion has arisen for it inasmuch as a crisis or *130 difficulty is a conditionprecedent to the power arising at all: Mercantile Investment and General TrustCo. v. International Co. of Mexico [FN2]; HFollit v. Eddystone Granite Quarries[FN3]; Walker v. Elmore's German and Austro-Hungarian Metal Co. [FN4], perVaughan Williams L.J.; HSneath v. Valley Gold, Ld. [FN5]; In re Joseph Stocks &Co. [FN6], in which case there was power to do anything which the Court wouldhave jurisdiction to sanction; the meaning of which was explained in HShaw v.Royce, Ld. [FN7]The condition precedent is not fulfilled in this case and thereis no substantial ground for the proposed alteration.Copr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 125 Page 41912 WL 17392 (Ch D)(Cite as: [1912] 2 Ch. 125)FN2 [1893] 1 Ch. 484 n.,FN3 H[1892] 3 Ch. 75.FN4 (1901) 85 L. T. 767, 770-772.FN5 H[1893] 1 Ch. 477.FN6 (1909) 54 Sol. J. 31; see note at end of this report, p. 134.FN7 H[1911] 1 Ch. 138.Moreover, this is not within the terms of the power. The covenant for paymentby the company is released. Modification does not include destruction. Thebenefits (if any) supposed to be given by this resolution are entirely illusory.Gore-Browne, K.C., and Wheeler, for the defendant brewery company. The Court isasked merely to interpret the deed. This is a question of the law of contract,and a primary rule is that an additional term is not to be introduced into awritten contract unless an implication necessarily arises that the parties sointended: Hamlyn & Co. v. Wood & Co. [FN8] The plaintiffs seek to read acondition precedent into this contract, namely, that the power of modificationshould not be exercised unless extraordinary difficulties arise. But there is nota word in the trust deed or schedules to shew that special circumstances musthave arisen, and the cases cited on behalf of the plaintiffs have nothing to dowith the real question before the Court, with the exception of In re JosephStocks & Co. [FN9], which is a decision most strongly in support of themodification in this case. The other cases were cases of compromise and notmodification.FN8 H[1891] 2 Q. B. 488.FN9 (1909) 54 Sol. J. 31; see note at end of this report, p. 134.The terms on which the company made the offer in this case were not illusory.There is no suggestion of fraud or collusion. Individual holders may havepreferred to have a perpetual debenture rather than run the risk of having one oftheir number wreck the whole business of the company by applying for a *131receiver. It is true that the modification must be within the terms of the deed,--which we submit it is: In re Joseph Stocks & Co. [FN10],--but the parties haveagreed that if what is proposed is good enough for three fourths of the wholebody they will all be bound by it. That being so, the Court has no jurisdictionto override the decision of the majority and say that what they have contractedto do they shall not do. The occasion has come when this has been done in goodfaith. The debenture-holders are not giving up much; they keep their security andtheir good charge and are getting their 4l. 10s. per cent. interest.FN10 54 Sol. J. 31; see note at end of this report, p. 134.Hughes, K.C., and J. K. Young, for the trustees. The trustees throughout haveacted bona fide and with propriety and have done their duty, and there is nosuggestion that they were acting unfairly. The decision in In re Joseph Stocks &Co. [FN11] shews that the modification in question was fully authorized by theCopr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 125 Page 51912 WL 17392 (Ch D)(Cite as: [1912] 2 Ch. 125)trust deed.FN11 54 Sol. J. 31; see note at end of this report, p. 134.Buckmaster, K.C., in reply. We do not suggest that there has been any personalmisconduct on the part of the defendant trustees.Cur. adv. vult.March 8. JOYCE J.This is an action by one only of a large number of persons and companies, theholders of debentures of the defendant brewery company, impeaching the validityof certain resolutions passed by a majority of more than eight to one of thesedebenture-holders at a meeting duly held pursuant to the provisions of the fifthschedule of the debenture trust deed.In my opinion the action is not properly constituted, and particularly in thatthe plaintiffs do not sue on behalf of themselves and other debenture- holders,nor is any one made a party to defend on behalf of or as representing themajority who passed the resolutions. In the circumstances it appears to me thatany order I may make will not be binding upon the other debenture-holders.Upon a former occasion by a similar resolution the period originally fixed forthe payment of the debentures was extended *132 for ten years, namely, fromSeptember 30, 1909, to the same date in 1919. Neither the plaintiffs nor any oneelse, so far as I understand, objected to this. The principal complaint now isthat the resolutions impeached, to put it broadly, as in the case of In re JosephStocks & Co. [FN12] before Eve J., convert what I believe is commonly, but,perhaps, not quite accurately, termed a redeemable debenture into what issimilarly termed an irredeemable or perpetual debenture. These are theexpressions, I think, used in s. 103 of the recent Act.FN12 54 Sol. J. 31; see note at end of this report, p. 134.There is a suggestion in the pleadings, and for some time there wereinsinuations, at least in the speeches of counsel, that the resolutions impeachedwere not passed bona fide and in the interests of all the debenture- holders, butto benefit the defendant company and the shareholders therein. No evidence,however, in support of these allegations was adduced, so that the case has to bedecided upon the documents alone, if we include among these prints of the reportsand balance-sheets for the years 1907, 1908, 1909, 1910 and 1911, and atranscript of the shorthand notes of the proceedings at the meeting when theresolutions in question were passed. Ultimately Mr. Buckmaster, counsel for theplaintiffs, disclaimed any imputation of personal misconduct on the part of thedefendant trustees. It is quite plain that they simply acted in a regular mannerunder the advice of their solicitors and counsel, although, of course, they mayhave been wrong.Now what I mentioned as being the principal ground of complaint was not in anyview of the case an act of the debenture trustees or any other persons or personpossessing a fiduciary character. The offence is the vote of the majority of thedebenture-holders themselves in general meeting, after discussion, and in face ofthe opposition of a minority less than one-eighth; the fact being that theprovisions of the debenture trust deed--some of the conditions are at the back ofthe debenture, but I treat them as if they were all contained in the deed--enabled a certain majority assembled in a certain manner to do what they allindividually and collectively might have done if of one mind sui juris andcompetent. They enabled such a majority to *133 override what I think MellishL.J. would have called a few "cantankerous" debenture-holders. The powers--suchas they were--under which the meeting of debenture-holders acted are contained inclauses 13, 14, and 15 of the fifth schedule to the trust deed. The power of theCopr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 125 Page 61912 WL 17392 (Ch D)(Cite as: [1912] 2 Ch. 125)majority of the debenture-holders to alter the character of the debentures so faras it existed--if it did exist--was conferred by sub-paragraph (2.) of clause 13in the power to sanction any modification or compromise of the rights of thedebenture-holders against the company or against its property, and so on.In the first place the plaintiffs' counsel, founding themselves upon theobservations of Vaughan Williams L.J. in the case of Walker v. Elmore's Germanand Austro-Hungarian Metal Co. [FN13]--where, however, the terms of the clauseconferring the powers were quite different from those in the present case--contended that the power conferred by sub-paragraph (2.) of clause 13 could notbe exercised unless or until some serious occasion arose, which, to put itbroadly, in the judgment of the Court or some one else--I scarcely know whom--rendered it absolutely necessary or plainly expedient that recourse should be hadto the exercise of the powers in question, and that the existence of thisnecessity was in effect a condition precedent to any exercise of the power tomodify the rights of the debenture-holders. I do not find any such conditionexpressed or necessarily implied anywhere in the document, and I may refer to thejudgment of Lord Esher M.R. in Hamlyn & Co. v. Wood & Co. [FN14] on the subjectof implying clauses, a case which was cited to me by Mr. Gore-Browne, although,of course, there cannot be a compromise in the absence of any dispute or unlesssome question or other has arisen.FN13 85 L. T. 767.FN14 H[1891] 2 Q. B. 488, 491.What Fry L.J. said in the case of Mercantile Investment and General Trust Co.v. International Co. of Mexico [FN15]was nothing about any implied condition, butmerely this: "Is this transaction a modification or compromise of the rights ofthe debenture-holders against the American company or against its property? Ifthis question be answered in the affirmative, the *134 defendants are right; ifin the negative, the plaintiffs." What I have to ask myself in this case, Ithink, is this: Is the transaction in question a modification of the rights ofthe debenture-holders against the company, or against its property, or is it not?Apart from this contention or theory with respect to the existence of a conditionprecedent, the plaintiffs advisedly abstained from any attempt to adduce evidenceto shew that the conduct of the majority was actually or technically fraudulent,or that the vote was otherwise than perfectly bona fide, regular, and proper,although they did contend that the alteration made or sanctioned could notpossibly be regarded as a modification or modifications of the rights of thedebenture-holders, but amounted to something much more extensive, and, I supposewould almost say, destroyed their rights. Upon consideration, as I have alreadyintimated, I cannot accede to, this contention as to implying a conditionprecedent to the meeting or voting of the debenture-holders. I am of opinion anddecide that the resolutions, so far as they altered the character of thedebentures, did not amount to anything more than modifications of the rights ofthe debenture- holders against the company and its property.FN15 [1893] 1 Ch. 484, n., 490, n.This was the principal question, no doubt, in the action, which but for thisobjection with reference to altering the character of the debentures would not Ithink have been brought. [His Lordship dealt with some other matters not materialto this report, and then concluded:]Upon the whole, I think that this action fails, and I do not see my way to takeany other course than to dismiss it.RepresentationCopr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 125 Page 71912 WL 17392 (Ch D)(Cite as: [1912] 2 Ch. 125)Solicitors: Lyne & Holman; Druces & Attlee; E. T. Hargraves.(R. M.)NOTEH[1912] 2 Ch. 134In Re Joseph Stocks & Co., LimitedEve, J.1909 Oct 28ACTION.The defendant company was incorporated in 1897 under the Companies Acts, 1862to 1890.*135 In November, 1897, the company offered for public subscription 225,000l.4l. per cent. debenture stock secured by a trust deed dated January 8, 1898, inthe usual form, whereby it was provided that the debenture stock should be heldsubject to the conditions set forth in the first schedule thereto. The first ofthe conditions empowered the company at any time before October 1, 1907, to givesix months' notice to the stockholders or any of them of the company's intentionto redeem the stock held by them at the price of 105l. for every 100l., and thatat the expiration of the notice the stock would be redeemed accordingly; and thecondition further provided that any of the stock not previously redeemed would beredeemed at par on October, 1, 1907, or as soon as the security therebyconstituted became enforceable, and that as and when any stock ought to beredeemed in accordance with those presents the company would subject to thoseconditions pay to the several holders of the stock the redemption moneystherefor, calculated, in the one case, at 105l. per 100l., and, in the othercase, at par. The third condition provided that every stockholder should beentitled to a certificate under the seal of the company stating the amount of thestock held by him and referring to those presents.The provisions relating to meetings of debenture stockholders were contained inthe third schedule to the trust deed, and clauses 15, 16, and 17 thereof providedas follows:--"15. A general meeting of the stockholders shall in addition to the powershereinbefore given have the following powers exerciseable by extraordinaryresolution, namely:--(1.) A power to sanction the release of any of the mortgaged premises.(2) Power to sanction any compromise or arrangement proposed to be madebetween the company and the stockholders provided that it is one which the Courtwould have jurisdiction to sanction under the Joint Stock Companies ArrangementAct, 1870, or any statutory modification thereof for the time being subsisting ifthe company were being wound up and the requisite majority at a meeting of thestockholders summoned pursuant to that Act or modification thereof aforesaid hadagreed thereto.(3.) Power generally to sanction any modification or compromise of therights of the stockholders against the company or against its property whethersuch rights shall arise under these presents or otherwise.(4.) Power to assent to any modification of the provisions contained inthese presents which shall be proposed by the company and assented to by thetrustees or trustee.(5.) ....16. An extraordinary resolution passed at a general meeting of thestockholders duly convened and held in accordance with these presents shall bebinding upon all the stockholders whether present or not present at such meetingand each of the stockholders shall be bound to give effect thereto accordinglyand the passing of any such resolution shall be conclusive evidence that thecircumstances justify the passing thereof the intention being that it shall restwith the meeting without right of appeal therefrom to determine whether or notCopr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 125 Page 81912 WL 17392 (Ch D)(Cite as: [1912] 2 Ch. 125)the circumstances justify the passing of such resolution. *136 17. The expression'extraordinary resolution' when used in this schedule means a resolution passedat a meeting of the stockholders duly convened and held in accordance with theprovisions herein contained at which an absolute majority in value of the wholebody of the stockholders shall be present in person or by proxy and carried by amajority consisting of not less than three-fourths in value of such clearmajority upon a show of hands or if a poll is duly demanded then by a likemajority at the poll."In 1904 the company was indebted in a considerable amount to its bankers, whohaving regard to the fact that the debenture stock of the company was falling dueat an early date, required their debt to be paid off or substantially reduced. Itwas eventually agreed between the company and the bank that the debt should bereduced by annual instalments and that the company should arrange with thedebenture stock holders to postpone the due date of payment until the debt to thebank should be paid.In order to carry out this arrangement a meeting of the stockholders was dulyconvened under the provisions of the third schedule, and held on September 6,1904, for the purpose of passing as an "extraordinary resolution" the followingresolution:--"That the debenture holders consent to the conversion of their existing 4 percent. first mortgage debenture stock redeemable at par on the 1st day of October,1907, into or for 4 1/2 per cent. irredeemable debenture stock. Interest on thenew irredeemable stock to commence as from the 1st of October, 1904."On a poll the resolution was carried, holders of stock to the total amount of148,500l. voting in favour of it, and holders to the amount of 5250l. votingagainst it.By an indenture of October 3, 1904, made between the company of the one partand the trustees of the other part, the terms of the trust deed were modified bysubstituting 4 1/2 per cent. for 4 per cent. as the rate of interest on thedebenture stock and by taking away from the stockholders the right to repaymenton October 1, 1907, or at any time until and unless the company should go intoliquidation or make some default by reason of which the charge created by thetrust deed should become enforceable, and by conferring upon the company thepower to redeem any stock upon giving six months' notice of its intention so todo.The plaintiffs, who were holders of about 800l. debenture stock, some beingoriginal subscribers and the others having purchased their holdings in or about1900, gave notice to the company,--the plaintiff Willey in September, 1904, andthe other plaintiffs in April, 1905,--refusing to be bound by the resolution, andthat they would rely upon the terms upon which the stock was originally issued.Immediately after October 1, 1907, the plaintiffs applied to the company forpayment of the principal money and interest owing to them in respect of the stockheld by them, but the company refused payment, contending that the plaintiffswere bound by the resolution and supplemental deed.The plaintiffs then commenced this action on behalf of themselves and all otherstockholders who had not consented to be bound by the deed of October 3, 1904,against the company and the surviving trustee of the trust deed, claiming (1.)payment by the company of the principal amount of the *137 stock held by themrespectively with interest at 4 per cent., (2.) that the charge created by thetrust deed might be enforced by sale, and (3.) so far as necessary, execution ofthe trusts of the trust deed.Gore-Browne, K.C., A. R. Kirby, and Tomlin, for the plaintiffs, contended(inter alia) that the word "irredeemable" in the resolution meant "not redeemableby the mortgagor," and that by converting "redeemable" into "irredeemable"debentures the company had lost its right to redeem; and, further, that as therewas in existence no dispute to compromise, the majority of the stockholders hadno power to bind the minority by the extraordinary resolution in question. Theycited Hyde v. Wrench [FN16]; HIn re Chicago and North West Granaries Co. [FN17];HIn re Southern Brazilian Rio Grande Do Sul Ry. Co. [FN18]; Hay v. Swedish andNorwegian Ry. Co. [FN19]; and Mercantile Investment and General Trust Co. v.Copr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 125 Page 91912 WL 17392 (Ch D)(Cite as: [1912] 2 Ch. 125)International Co. of Mexico. [FN20]FN16 (1840) 3 Beav. 334.FN17 H[1898] 1 Ch. 263.FN18 H[1905] 2 Ch. 78.FN19 (1889) 5 Times L. R. 460.FN20 [1893] 1 Ch. 484, n.Stewart-Smith, K.C., and Whinney, for the defendant company.W. H. Cozens-Hardy, for the defendant trustee.EVE J. At or about the time the company was incorporated in the month ofJanuary, 1898, it proceeded to raise a sum of 225,000l. by the issue of 4 percent. debenture stock secured by a trust deed, in a form well known in theprofession now, by which the company purported to charge, and did in fact charge,its assets with repayment of the principal moneys and interest in accordance withthe terms of the deed. The terms upon which the stock was issued and held by thestockholders were contained partly in the body of the deed and partly in theschedules attached to the deed.Under the deed, by virtue of a clause contained in the first schedule, thecompany had the option of paying off the principal moneys secured by the deed atany time prior to October 1, 1907, provided it gave six months' notice of itsintention and paid in addition to the principal moneys a premium of 5l. inrespect of each 100l. paid off. Further, if the company went into liquidation, orif any of the events happened which, according to the tenor of the deed, wouldmake the principal moneys immediately repayable, the company was bound, on thehappening of any one of those contingencies, to repay the principal moneys, andfinally the company bound itself in any event to pay off the whole of theprincipal moneys on October 1, 1907. These observations express the obligationsof the company and the rights of the stockholders so far as is material for thepurposes of this case.To those rights and obligations were added certain provisions, and by theprovision to which I am about to refer power was given to a majority of thestockholders to enter into compromises or arrangements with the company, which,if entered into strictly in accordance with the power conferred upon themajority, were to have the effect of binding the minority and the whole of thedebenture stock holders.The powers conferred upon the majority of the stockholders are to be *138found, so far as they are material to-day, in clause 15 of the third schedule tothe deed, and by that clause a general meeting of the stockholders shall have thefollowing powers exercisable by extraordinary resolution, namely,--I need notread No. (1.), because that is not suggested as having any relevancy in thepresent discussion--Nos. (2.), (3.), and (4.) are in these words:(2.) "Power to sanction any compromise or arrangement proposed to be madebetween the company and the stockholders provided that it is one which the Courtwould have jurisdiction to sanction under the Joint Stock Companies ArrangementAct, 1870, or any statutory modification thereof for the time being subsisting ifthe company were being wound up and the requisite majority at a meeting of thestockholders summoned pursuant to that Act or modification thereof aforesaid hadagreed thereto. (3.) Power generally to sanction any modification or compromiseof the rights of the stockholders against the company or against its propertywhether such rights shall arise under these presents or otherwise. (4.) Power toassent to any modification of the provisions contained in these presents whichCopr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 125 Page 101912 WL 17392 (Ch D)(Cite as: [1912] 2 Ch. 125)shall be proposed by the company and assented to by the trustees or trustee."In 1904 the company found itself indebted to its bankers in respect of anoverdraft to a considerable amount, and according to the correspondence the bankhad clearly intimated that it would be no party to any increase of the overdraft,or indeed, as I read the correspondence, to the maintenance of the overdraft atthe figure it had then reached unless the company forbore to pay any dividend onits ordinary and preference shares. That no doubt was a serious matter which thedirectors had to take into consideration, and negotiations having been carried onbetween the company and the bank, the position ultimately reached was this: thatthe bank were content to allow the overdraft to be reduced by instalments anddividends to be continued to be paid provided the company could come to somearrangement with the debenture stock holders under which the obligation of thecompany to make payment of the principal moneys on October 1, 1907, would be doneaway with; that is to say, the company was to propose to the debenture stockholders so far to modify the rights of the debenture stock holders against thecompany as to release their right to payment on October 1, 1907.The bank intimated in the last letter which preceded the meeting to which I amabout to refer that this arrangement if carried out must be carried out prior tothe end of the month of September, and I rather gather from the correspondencethat this was because the preference dividend would in the ordinary course bepayable very shortly after the end of that month.The company by its minutes appears to have left to a committee consisting ofMajor Edwards and another director, Mr. Baldwin, the carrying out or bringingforward of the proposal which had been made, and which the company as appears byits minutes evidently thought it best to accept, and in due course a notice wasissued summoning a meeting of the debenture stock holders to be held on September6 for the express purpose of considering a resolution embodying the proposal madeby the company. The notice of the meeting is clear upon that point, and themeeting was held in accordance with that notice on September 6.*139 I pass by for the moment the action which the plaintiffs took, but I willcome back to it shortly.At the meeting the resolution the terms of which were stated in that notice wasput to the meeting and was defeated on a show of hands, but on a poll beingdemanded was carried by a very large majority. The plaintiffs, who collectivelyrepresent principal sums amounting in all to 800l. of the debenture stock,intimated to the company immediately on receipt of the notice of the meeting thatthey declined to be parties to any such resolution. I think it is quite obviousthat from beginning to end the plaintiffs collectively have refused in any way torecognize the right of the majority to bind them by this resolution, and thatfrom first to last they have maintained the position which they asserted then,that they were not bound by the resolution.In the first place they say that the resolution was in the circumstances ultravires of the meeting, and in the next place that, even assuming that theresolution was intra vires, it was passed in terms which in fact preserved theirrights under the deed of 1898. With regard to the first question, whether or notthe resolution was ultra vires of the meeting, that depends upon the trueconstruction to be given to clause 15 of the third schedule to the trust deed.Taking Fry L.J.'s language in Mercantile Investment and General Trust Co. v.International Co. of Mexico [FN21] I put to myself the question which hepropounds. He says: "Is this transaction," that is to say, the transactionevidenced by this resolution, "a modification or compromise of the rights of thedebenture-holders against the American company or against its property? If thisquestion be answered in the affirmative, the defendants are right; if in thenegative, the plaintiffs." Now here I have for all practical purposes the samelanguage in clause 15 as that which the Court of Appeal had to consider in clause22 of the deed before them in the case from which I have read that extract, and Ihave to ask myself whether the conversion of the stock which had to be paid offon October 1, 1907, into stock in respect of which there was no obligation to payit off on October 1, 1907, is or is not a modification of the rights of thestockholders. I think it obviously is. The right of the stockholder, as I pointedout in an earlier part of my judgment, was to receive his principal moneys if thecompany went into liquidation or if the company committed any breach of theCopr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 125 Page 111912 WL 17392 (Ch D)(Cite as: [1912] 2 Ch. 125)covenants on its part contained in the deed, and the right, whatever happened, onOctober 1, 1907, to be paid off. Those three rights the stockholders enjoyed downto September 6, 1904, and the effect of this resolution was so far to modifytheir rights against the company as to eliminate from those three rights theabsolute right to repayment on October 1, 1907.FN21 [1893] 1 Ch. 484, n., 490, n.In my opinion the question must be answered in the affirmative, and whether itbe under sub-sections (2.), (3.), or (4.), or under each of them, that the powerarises, in my opinion it was competent for, and within the powers of, a generalmeeting properly convened by a proper majority to modify the rights of thestockholders by releasing the right to repayment on October 1, 1907.But Mr. Gore-Browne says that this was not the effect of what was done, *140that the resolution was not really a contract between the stockholders and thecompany, but an offer by the stockholders, which the company by its subsequentaction has refused to accept. I do not think that is an accurate statement of theorder of things. I am bound to hold upon the documents before me that the offerwas made and the proposal was put forward by the company, and that the consent ofthe stockholders to that proposal by the passing of the resolution was anacceptance of that offer and constituted a new contract or a modification of theold contract as between the stockholders and the company.But further than that, Mr. Gore-Browne argues that, when you look at the termsof this resolution, the true effect of it is to leave the stockholders where theywere and to put the company in a less advantageous position. He says that when,by the resolution, the stockholders agreed to convert the stock which wasredeemable at par on October 1, 1907, into irredeemable stock, the only effectwas to deprive the company of its option to redeem. I agree that, prima facie,the true legal meaning of the word "redeemable" when applied to stock is stockliable to redemption, that is to say, liable to be redeemed at the option of themortgagor or person who has the right to redeem. North J. in the case of HIn reChicago and North-West Granaries Co. [FN22] says, "Does ' redeemable' mean'liable to redemption,' or does it mean that the debentures are to be all, infact, redeemed within the specified period? In my opinion, it means that they areto be liable to redemption, and there is no obligation on the company to redeemthem." If that be the prima facie meaning of the word "redeemable," the primafacie meaning of the word "irredeemable" when applied to stock is stock that themortgagor has no power to redeem.FN22 H[1898] 1 Ch. 263, 267.It is contended that those meanings must be attached to the two words"redeemable" and "irredeemable" in this resolution, and that the effect of theresolution is to leave the stockholder a right to demand payment on October 1,1907, but to deprive the company of any right which it may previously have had toredeem the stock. I cannot so construe this resolution. I think in whatever sensethe word "redeemable" is used in the resolution the word "irredeemable" must beheld to be used in the contrary sense. The word "redeemable" is used in thisresolution in reference to stock which in any event must be paid off. It is notused to describe stock which the company has the option of paying off. Itdescribes stock which the company is bound to pay off, and applying to the word"irredeemable" the contrary meaning, it describes stock which the company is notbound to pay off. I cannot attach to the word "redeemable" the meaning which itundoubtedly must bear in this resolution without attaching to the word"irredeemable" in the same resolution the exact contrary meaning, and I find theless difficulty in doing so when I see that the resolution embodies a concessionto the company and not by the company, and one in respect of which the companyconsents to an increase in the rate of interest on the stock from 4 per cent. to4 1/2 per cent.I think the true meaning of this resolution is that the company has proposedCopr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 125 Page 121912 WL 17392 (Ch D)(Cite as: [1912] 2 Ch. 125)and the debenture stock holders have accepted the proposal that the *141debenture stock, which, according to the existing state of things, ought to bepaid off on October 1, 1907, is to be replaced by debenture stock in respect ofwhich there is to be no such liability on the part of the company.Accordingly I hold that there was, after the passing of this resolution, nosubsisting right in the plaintiffs to demand payment of their principal moneyseither by reason of the resolution being ultra vires or by reason of theresolution being so framed as to keep alive their absolute right to payment onthe due date.Under these circumstances I must dismiss the action, and I must dismiss it withcosts, but in so doing it must not be understood that I have expressed anyopinion as to whether the supplemental deed which was in fact executed on October3, 1904, gives effect to the contract which I have found to be embodied in theresolution of September 6.Solicitors: Whitfield, Dean & Whitfield, for Humphreys, Hirst & Whitley,Halifax; Walker & Rowe, for Frederick Walker & Son, Halifax.(R. M.)(c) Incorporated Council of Law Reporting For England & WalesEND OF DOCUMENTCopr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 134 Page 11909 WL 15821 (Ch D)(Cite as: [1912] 2 Ch. 134)*134 In Re Joseph Stocks & Co., LimitedWilley v. Joseph Stocks & Co., Limited.ACTION.Chancery Division.Ch DEve J.1909 Oct. 28No Court Information In OriginalThe defendant company was incorporated in 1897 under the Companies Acts, 1862to 1890.*135 In November, 1897, the company offered for public subscription 225,000l.4l. per cent. debenture stock secured by a trust deed dated January 8, 1898, inthe usual form, whereby it was provided that the debenture stock should be heldsubject to the conditions set forth in the first schedule thereto. The first ofthe conditions empowered the company at any time before October 1, 1907, to givesix months' notice to the stockholders or any of them of the company's intentionto redeem the stock held by them at the price of 105l. for every 100l., and thatat the expiration of the notice the stock would be redeemed accordingly; and thecondition further provided that any of the stock not previously redeemed would beredeemed at par on October, 1, 1907, or as soon as the security therebyconstituted became enforceable, and that as and when any stock ought to beredeemed in accordance with those presents the company would subject to thoseconditions pay to the several holders of the stock the redemption moneystherefor, calculated, in the one case, at 105l. per 100l., and, in the othercase, at par. The third condition provided that every stockholder should beentitled to a certificate under the seal of the company stating the amount of thestock held by him and referring to those presents.The provisions relating to meetings of debenture stockholders were contained inthe third schedule to the trust deed, and clauses 15, 16, and 17 thereof providedas follows:--"15. A general meeting of the stockholders shall in addition to the powershereinbefore given have the following powers exerciseable by extraordinaryresolution, namely:--(1.) A power to sanction the release of any of the mortgaged premises.(2) Power to sanction any compromise or arrangement proposed to be madebetween the company and the stockholders provided that it is one which the Courtwould have jurisdiction to sanction under the Joint Stock Companies ArrangementAct, 1870, or any statutory modification thereof for the time being subsisting ifthe company were being wound up and the requisite majority at a meeting of thestockholders summoned pursuant to that Act or modification thereof aforesaid hadagreed thereto.(3.) Power generally to sanction any modification or compromise of therights of the stockholders against the company or against its property whethersuch rights shall arise under these presents or otherwise.(4.) Power to assent to any modification of the provisions contained inthese presents which shall be proposed by the company and assented to by thetrustees or trustee.(5.) ....16. An extraordinary resolution passed at a general meeting of thestockholders duly convened and held in accordance with these presents shall bebinding upon all the stockholders whether present or not present at such meetingand each of the stockholders shall be bound to give effect thereto accordinglyand the passing of any such resolution shall be conclusive evidence that thecircumstances justify the passing thereof the intention being that it shall restwith the meeting without right of appeal therefrom to determine whether or notthe circumstances justify the passing of such resolution. *136 17. The expression'extraordinary resolution' when used in this schedule means a resolution passedCopr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 134 Page 21909 WL 15821 (Ch D)(Cite as: [1912] 2 Ch. 134)at a meeting of the stockholders duly convened and held in accordance with theprovisions herein contained at which an absolute majority in value of the wholebody of the stockholders shall be present in person or by proxy and carried by amajority consisting of not less than three-fourths in value of such clearmajority upon a show of hands or if a poll is duly demanded then by a likemajority at the poll."In 1904 the company was indebted in a considerable amount to its bankers, whohaving regard to the fact that the debenture stock of the company was falling dueat an early date, required their debt to be paid off or substantially reduced. Itwas eventually agreed between the company and the bank that the debt should bereduced by annual instalments and that the company should arrange with thedebenture stock holders to postpone the due date of payment until the debt to thebank should be paid.In order to carry out this arrangement a meeting of the stockholders was dulyconvened under the provisions of the third schedule, and held on September 6,1904, for the purpose of passing as an "extraordinary resolution" the followingresolution:--"That the debenture holders consent to the conversion of their existing 4 percent. first mortgage debenture stock redeemable at par on the 1st day of October,1907, into or for 4 1/2 per cent. irredeemable debenture stock. Interest on thenew irredeemable stock to commence as from the 1st of October, 1904."On a poll the resolution was carried, holders of stock to the total amount of148,500l. voting in favour of it, and holders to the amount of 5250l. votingagainst it.By an indenture of October 3, 1904, made between the company of the one partand the trustees of the other part, the terms of the trust deed were modified bysubstituting 4 1/2 per cent. for 4 per cent. as the rate of interest on thedebenture stock and by taking away from the stockholders the right to repaymenton October 1, 1907, or at any time until and unless the company should go intoliquidation or make some default by reason of which the charge created by thetrust deed should become enforceable, and by conferring upon the company thepower to redeem any stock upon giving six months' notice of its intention so todo.The plaintiffs, who were holders of about 800l. debenture stock, some beingoriginal subscribers and the others having purchased their holdings in or about1900, gave notice to the company,--the plaintiff Willey in September, 1904, andthe other plaintiffs in April, 1905,--refusing to be bound by the resolution, andthat they would rely upon the terms upon which the stock was originally issued.Immediately after October 1, 1907, the plaintiffs applied to the company forpayment of the principal money and interest owing to them in respect of the stockheld by them, but the company refused payment, contending that the plaintiffswere bound by the resolution and supplemental deed.The plaintiffs then commenced this action on behalf of themselves and all otherstockholders who had not consented to be bound by the deed of October 3, 1904,against the company and the surviving trustee of the trust deed, claiming (1.)payment by the company of the principal amount of the *137 stock held by themrespectively with interest at 4 per cent., (2.) that the charge created by thetrust deed might be enforced by sale, and (3.) so far as necessary, execution ofthe trusts of the trust deed.Gore-Browne, K.C., A. R. Kirby, and Tomlin, for the plaintiffs, contended(inter alia) that the word "irredeemable" in the resolution meant "not redeemableby the mortgagor," and that by converting "redeemable" into "irredeemable"debentures the company had lost its right to redeem; and, further, that as therewas in existence no dispute to compromise, the majority of the stockholders hadno power to bind the minority by the extraordinary resolution in question. Theycited Hyde v. Wrench [FN1]; HIn re Chicago and North West Granaries Co. [FN2]; HInre Southern Brazilian Rio Grande Do Sul Ry. Co. [FN3]; Hay v. Swedish andNorwegian Ry. Co. [FN4]; and Mercantile Investment and General Trust Co. v.International Co. of Mexico. [FN5]Copr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 134 Page 31909 WL 15821 (Ch D)(Cite as: [1912] 2 Ch. 134)FN1 (1840) 3 Beav. 334.FN2 H[1898] 1 Ch. 263.FN3 H[1905] 2 Ch. 78.FN4 (1889) 5 Times L. R. 460.FN5 [1893] 1 Ch. 484, n.Stewart-Smith, K.C., and Whinney, for the defendant company.W. H. Cozens-Hardy, for the defendant trustee.EVE JAt or about the time the company was incorporated in the month of January,1898, it proceeded to raise a sum of 225,000l. by the issue of 4 per cent.debenture stock secured by a trust deed, in a form well known in the professionnow, by which the company purported to charge, and did in fact charge, its assetswith repayment of the principal moneys and interest in accordance with the termsof the deed. The terms upon which the stock was issued and held by thestockholders were contained partly in the body of the deed and partly in theschedules attached to the deed.Under the deed, by virtue of a clause contained in the first schedule, thecompany had the option of paying off the principal moneys secured by the deed atany time prior to October 1, 1907, provided it gave six months' notice of itsintention and paid in addition to the principal moneys a premium of 5l. inrespect of each 100l. paid off. Further, if the company went into liquidation, orif any of the events happened which, according to the tenor of the deed, wouldmake the principal moneys immediately repayable, the company was bound, on thehappening of any one of those contingencies, to repay the principal moneys, andfinally the company bound itself in any event to pay off the whole of theprincipal moneys on October 1, 1907. These observations express the obligationsof the company and the rights of the stockholders so far as is material for thepurposes of this case.To those rights and obligations were added certain provisions, and by theprovision to which I am about to refer power was given to a majority of thestockholders to enter into compromises or arrangements with the company, which,if entered into strictly in accordance with the power conferred upon themajority, were to have the effect of binding the minority and the whole of thedebenture stock holders.The powers conferred upon the majority of the stockholders are to be *138found, so far as they are material to-day, in clause 15 of the third schedule tothe deed, and by that clause a general meeting of the stockholders shall have thefollowing powers exercisable by extraordinary resolution, namely,--I need notread No. (1.), because that is not suggested as having any relevancy in thepresent discussion--Nos. (2.), (3.), and (4.) are in these words:(2.) "Power to sanction any compromise or arrangement proposed to be madebetween the company and the stockholders provided that it is one which the Courtwould have jurisdiction to sanction under the Joint Stock Companies ArrangementAct, 1870, or any statutory modification thereof for the time being subsisting ifthe company were being wound up and the requisite majority at a meeting of thestockholders summoned pursuant to that Act or modification thereof aforesaid hadagreed thereto. (3.) Power generally to sanction any modification or compromiseof the rights of the stockholders against the company or against its propertywhether such rights shall arise under these presents or otherwise. (4.) Power toCopr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 134 Page 41909 WL 15821 (Ch D)(Cite as: [1912] 2 Ch. 134)assent to any modification of the provisions contained in these presents whichshall be proposed by the company and assented to by the trustees or trustee."In 1904 the company found itself indebted to its bankers in respect of anoverdraft to a considerable amount, and according to the correspondence the bankhad clearly intimated that it would be no party to any increase of the overdraft,or indeed, as I read the correspondence, to the maintenance of the overdraft atthe figure it had then reached unless the company forbore to pay any dividend onits ordinary and preference shares. That no doubt was a serious matter which thedirectors had to take into consideration, and negotiations having been carried onbetween the company and the bank, the position ultimately reached was this: thatthe bank were content to allow the overdraft to be reduced by instalments anddividends to be continued to be paid provided the company could come to somearrangement with the debenture stock holders under which the obligation of thecompany to make payment of the principal moneys on October 1, 1907, would be doneaway with; that is to say, the company was to propose to the debenture stockholders so far to modify the rights of the debenture stock holders against thecompany as to release their right to payment on October 1, 1907.The bank intimated in the last letter which preceded the meeting to which I amabout to refer that this arrangement if carried out must be carried out prior tothe end of the month of September, and I rather gather from the correspondencethat this was because the preference dividend would in the ordinary course bepayable very shortly after the end of that month.The company by its minutes appears to have left to a committee consisting ofMajor Edwards and another director, Mr. Baldwin, the carrying out or bringingforward of the proposal which had been made, and which the company as appears byits minutes evidently thought it best to accept, and in due course a notice wasissued summoning a meeting of the debenture stock holders to be held on September6 for the express purpose of considering a resolution embodying the proposal madeby the company. The notice of the meeting is clear upon that point, and themeeting was held in accordance with that notice on September 6.*139 I pass by for the moment the action which the plaintiffs took, but I willcome back to it shortly.At the meeting the resolution the terms of which were stated in that notice wasput to the meeting and was defeated on a show of hands, but on a poll beingdemanded was carried by a very large majority. The plaintiffs, who collectivelyrepresent principal sums amounting in all to 800l. of the debenture stock,intimated to the company immediately on receipt of the notice of the meeting thatthey declined to be parties to any such resolution. I think it is quite obviousthat from beginning to end the plaintiffs collectively have refused in any way torecognize the right of the majority to bind them by this resolution, and thatfrom first to last they have maintained the position which they asserted then,that they were not bound by the resolution.In the first place they say that the resolution was in the circumstances ultravires of the meeting, and in the next place that, even assuming that theresolution was intra vires, it was passed in terms which in fact preserved theirrights under the deed of 1898. With regard to the first question, whether or notthe resolution was ultra vires of the meeting, that depends upon the trueconstruction to be given to clause 15 of the third schedule to the trust deed.Taking Fry L.J.'s language in Mercantile Investment and General Trust Co. v.International Co. of Mexico [FN6] I put to myself the question which hepropounds. He says: "Is this transaction," that is to say, the transactionevidenced by this resolution, "a modification or compromise of the rights of thedebenture-holders against the American company or against its property? If thisquestion be answered in the affirmative, the defendants are right; if in thenegative, the plaintiffs." Now here I have for all practical purposes the samelanguage in clause 15 as that which the Court of Appeal had to consider in clause22 of the deed before them in the case from which I have read that extract, and Ihave to ask myself whether the conversion of the stock which had to be paid offon October 1, 1907, into stock in respect of which there was no obligation to payit off on October 1, 1907, is or is not a modification of the rights of thestockholders. I think it obviously is. The right of the stockholder, as I pointedout in an earlier part of my judgment, was to receive his principal moneys if theCopr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 134 Page 51909 WL 15821 (Ch D)(Cite as: [1912] 2 Ch. 134)company went into liquidation or if the company committed any breach of thecovenants on its part contained in the deed, and the right, whatever happened, onOctober 1, 1907, to be paid off. Those three rights the stockholders enjoyed downto September 6, 1904, and the effect of this resolution was so far to modifytheir rights against the company as to eliminate from those three rights theabsolute right to repayment on October 1, 1907.FN6 [1893] 1 Ch. 484, n., 490, n.In my opinion the question must be answered in the affirmative, and whether itbe under sub-sections (2.), (3.), or (4.), or under each of them, that the powerarises, in my opinion it was competent for, and within the powers of, a generalmeeting properly convened by a proper majority to modify the rights of thestockholders by releasing the right to repayment on October 1, 1907.But Mr. Gore-Browne says that this was not the effect of what was done, *140that the resolution was not really a contract between the stockholders and thecompany, but an offer by the stockholders, which the company by its subsequentaction has refused to accept. I do not think that is an accurate statement of theorder of things. I am bound to hold upon the documents before me that the offerwas made and the proposal was put forward by the company, and that the consent ofthe stockholders to that proposal by the passing of the resolution was anacceptance of that offer and constituted a new contract or a modification of theold contract as between the stockholders and the company.But further than that, Mr. Gore-Browne argues that, when you look at the termsof this resolution, the true effect of it is to leave the stockholders where theywere and to put the company in a less advantageous position. He says that when,by the resolution, the stockholders agreed to convert the stock which wasredeemable at par on October 1, 1907, into irredeemable stock, the only effectwas to deprive the company of its option to redeem. I agree that, prima facie,the true legal meaning of the word "redeemable" when applied to stock is stockliable to redemption, that is to say, liable to be redeemed at the option of themortgagor or person who has the right to redeem. North J. in the case of HIn reChicago and North-West Granaries Co. [FN7] says, "Does ' redeemable' mean 'liableto redemption,' or does it mean that the debentures are to be all, in fact,redeemed within the specified period? In my opinion, it means that they are to beliable to redemption, and there is no obligation on the company to redeem them."If that be the prima facie meaning of the word "redeemable," the prima faciemeaning of the word "irredeemable" when applied to stock is stock that themortgagor has no power to redeem.FN7 H[1898] 1 Ch. 263, 267.It is contended that those meanings must be attached to the two words"redeemable" and "irredeemable" in this resolution, and that the effect of theresolution is to leave the stockholder a right to demand payment on October 1,1907, but to deprive the company of any right which it may previously have had toredeem the stock. I cannot so construe this resolution. I think in whatever sensethe word "redeemable" is used in the resolution the word "irredeemable" must beheld to be used in the contrary sense. The word "redeemable" is used in thisresolution in reference to stock which in any event must be paid off. It is notused to describe stock which the company has the option of paying off. Itdescribes stock which the company is bound to pay off, and applying to the word"irredeemable" the contrary meaning, it describes stock which the company is notbound to pay off. I cannot attach to the word "redeemable" the meaning which itundoubtedly must bear in this resolution without attaching to the word"irredeemable" in the same resolution the exact contrary meaning, and I find theless difficulty in doing so when I see that the resolution embodies a concessionto the company and not by the company, and one in respect of which the companyconsents to an increase in the rate of interest on the stock from 4 per cent. to4 1/2 per cent.Copr. © West 2004 No Claim to Orig. Govt. Works

[1912] 2 Ch. 134 Page 61909 WL 15821 (Ch D)(Cite as: [1912] 2 Ch. 134)I think the true meaning of this resolution is that the company has proposedand the debenture stock holders have accepted the proposal that the *141debenture stock, which, according to the existing state of things, ought to bepaid off on October 1, 1907, is to be replaced by debenture stock in respect ofwhich there is to be no such liability on the part of the company.Accordingly I hold that there was, after the passing of this resolution, nosubsisting right in the plaintiffs to demand payment of their principal moneyseither by reason of the resolution being ultra vires or by reason of theresolution being so framed as to keep alive their absolute right to payment onthe due date.Under these circumstances I must dismiss the action, and I must dismiss it withcosts, but in so doing it must not be understood that I have expressed anyopinion as to whether the supplemental deed which was in fact executed on October3, 1904, gives effect to the contract which I have found to be embodied in theresolution of September 6.RepresentationSolicitors: Whitfield, Dean & Whitfield, for Humphreys, Hirst & Whitley, Halifax;Walker & Rowe, for Frederick Walker & Son, Halifax.(R. M.)(c) Incorporated Council of Law Reporting For England & WalesEND OF DOCUMENTCopr. © West 2004 No Claim to Orig. Govt. Works

(1883) L.R. 22 Ch. D. 441 Page 11883 WL 19585 (CA)(Cite as: (1883) LR 22 Ch. D. 441)*441 Williams v. BriscoCourt of AppealCAJessel, M.R., Cotton and Bowen, L. JJ.1882 Nov. 21Chancery DivisionKay, J.1882 Feb. 21Specific Performance--Condition Precedent--Agreement to grant Lease to Nomineeof Plaintiff--No Nominee appointed--Agreement by Letter--Statute of Frauds.A lessee wrote to his lessor offering to surrender his lease and to take afresh lease for twenty-one years to a nominee, or to a company which he intendedto form, at an increased rent, but otherwise on the same terms as the existinglease; and by a subsequent letter offered to instruct his solicitor to prepare adraft lease. The lessor telegraphed to him in reply to get the lease prepared.Afterwards correspondence took place between the solicitors as to the form of thelease, and the lessee's solicitor prepared a formal agreement. Differences havingarisen, the lessor refused to grant the lease, and the lessee brought an actionfor specific performance of the agreement to grant a lease and for damages. Nocompany had been formed and no nominee appointed by the Plaintiff before thetrial of the action:--Held, (reversing the decision of Kay, J.), that assuming that there was abinding agreement for a lease, the formation of a company or appointment of anominee was a condition precedent, and that the Plaintiff could not *442 maintainan action for specific performance of the contract, as he had not performed thecondition.But, held, also, on the construction of the correspondence, that there was nobinding agreement between the parties, and therefore the action entirely failed.THE Plaintiff, Griffith Williams, claimed by his statement of claim specificperformance of an agreement that the Plaintiff should surrender a certainindenture of lease to the Defendant, Wastel Brisco, and that the Defendant, inconsideration of an advanced rent of £80, should accept such surrender and granta fresh lease to the nominee or nominees of the Plaintiff at the said advancedrent but otherwise on the terms of the existing lease. The Plaintiff also askedin the alternative for damages for breach of the agreement.The Defendant put in a defence in which he stated that he was only tenant forlife of the premises, and denied that any agreement had ever been concluded; andpleaded the Statute of Frauds. He also denied that the Plaintiff was ever readyand willing to perform the agreement on his part.The Plaintiff was a timber merchant at Aberystwyth. The premises at which thebusiness was carried on were held under a lease granted on the 3rd of March,1876, by the Defendant's father for a term of twenty-one years at the rent of £50. The Plaintiff proposed to form a limited company for carrying on the businessand to surrender the old lease and procure a fresh lease to be granted to the newcompany.No formal agreement had been drawn up, but the Plaintiff sought to prove theagreement by a series of letters between the parties. The principal of these areas follows:--Copr. © West 2004 No Claim to Orig. Govt. Works

(1883) L.R. 22 Ch. D. 441 Page 21883 WL 19585 (CA)(Cite as: (1883) LR 22 Ch. D. 441)February 18th, 1880. From the Plaintiff to the Defendant."I hereby offer to surrender the present lease of my premises at Newtown uponyour granting to the limited company proposed to be formed to carry on mybusiness there, or to my nominees, a new lease of the premises for a term oftwenty-one years from Lady Day next for a premium of £50, but at the same rentand under the same covenants as are contained in my present lease, I guaranteeingthe payment of rent and performance of covenants."This offer was refused by the Defendant, who proposed a rent *443 of £100. ThePlaintiff then proposed a rent of £75, which was also refused.On the 1st of April, 1880, the Defendant wrote to the Plaintiff, in answer to aletter which was not produced:--"Your few lines just received. If an £80 rental will suit your views thematter may be settled at once."On the 3rd of April, 1880, the Plaintiff replied as follows:--"In reply to your favour of the 1st instant, although the rent of £80 isreally a very high one, I will surrender the existing lease as required on yourgranting a new lease at £80 a year to my nominee on the same terms in everyrespect as the present one, and I hope something will now be done at once."On the 9th of June, 1880, the Plaintiff wrote complaining of the delay, andadding, "Perhaps I had better instant my solicitors to prepare a draft lease andsend it on to your solicitors for approval, as I am now anxious to bring thematter to a close as soon as possible."On the 25th of June, 1880, the Defendant sent back the following telegram:--"Get the lease prepared for twenty-one years, and I shall bear half theexpense."Then followed a correspondence between the solicitors of the parties as to theform of the proposed lease, and on the 28th of June, 1880, the Plaintiff'ssolicitors proposed the following agreement as carrying out the intention of theparties."Mr. Brisco agrees to grant to Messrs. Williams, & Son, or their nominees, whenapplied for, a new lease of the premises now held by Messrs. Williams & Son ofMr. Brisco, situate, &c., for a term of twenty-one years at a rent of £ 80 perannum, and subject to the same covenants as in present lease, which is to bethereupon surrendered, each party to bear one-half of the expenses of carryingout the agreements. Messrs. Williams & Son to guarantee the payment of rent andperformance of covenants of new lease."The Plaintiff's solicitor further wrote on the 30th June, 1880, asking that theagreement might be made out in the name of G. Williams instead of Williams & Son,and adding, "The provision for determining the new lease at the expiration ofseven or *444 fourteen years at the lessee's option to be inserted in the newlease, as in the present one. We should be glad to know if you have preparedagreement."No agreement was, however, signed; and after some further correspondence theDefendant refused, through his solicitor, to grant a new lease to the nominees ofthe Plaintiff.The Plaintiff then brought the present action. The action was heard before Mr.Justice Kay on the 21st of February, 1882.Higgins, Q.C., and Fellows, for the Plaintiff:--Crossley, Q.C., and Laing, for the Defendant:--KAY, J.Copr. © West 2004 No Claim to Orig. Govt. Works

(1883) L.R. 22 Ch. D. 441 Page 31883 WL 19585 (CA)(Cite as: (1883) LR 22 Ch. D. 441)after reading the correspondence down to and including the telegram of the 25thof June, 1880, said:--Looking at all that correspondence I can have no reasonable doubt the partieswere then at one, and had agreed to a lease of twenty-one years from Lady Daymentioned in the letter of the 18th of February, at a rent of £80 for thepremises comprised in the existing lease. It seems to me that that is the resultof this correspondence; and that a telegram may be taken to be an acceptance inwriting, is decided by the case of Godwin v. Francis [FN1].FN1 Law Rep. 5 C. P. 295.But I must not stop there, following not only what Lord Cairns expressed, butwhat he actually did in the case of Hussey v. Horne-Payne [FN2]. I must lookthrough the rest of the correspondence to see whether or not these terms, which Iconsider, were concluded at that point, were afterwards in any way modified, orthe agreement which I think up to that point is established, was put an end to.The correspondence goes on thus: [His Lordship then considered the subsequentcorrespondence between the solicitors of the parties, and continued:--] Examiningthe correspondence in order to make out what the real meaning of it is, I cannotavoid coming to the conclusion that there was a definite contract between theparties, that each of them thoroughly agreed that a lease should be accepted andgranted; that the former lease was to be surrendered, and the new lease was to be*445 for twenty-one years from Lady Day, 1880, subject to the agreed rent andupon the terms in all other respects of the former lease, but to be granted to acompany which was to be formed, Mr. Williams guaranteeing payment of rent andperformance of covenants, in fact, joining in the lease for the purpose of givingthe guarantee.FN2 4 App. Cas. 311.Now that being so, I cannot come to any conclusion that this attempt to havethe contract put into a more formal shape in any way destroyed the contract thathad been entered into. Therefore I hold that there was a contract sufficientlyclear and definite to enable this Court to decree specific performance.But several other objections have been raised. Although it is proved thecompany was on the eve of formation, it has not been formed, and at this momentthere is no such company. That is an objection very well worth considering, butthe Court has ample power to prevent the Defendant being injured by that state ofthings, because I am at liberty to put the Plaintiff on an undertaking that thecompany which was contemplated, and to which Mr. Brisco agreed to grant thelease, shall be completely formed in a definite time; and if it is not, I retainthe power of dismissing this action with costs. I am told that an undertakingwill be given, and that the company will be completely and properly formed withina month from this time; and on that undertaking I think I am bound to overrulethat objection, and not consider it as an obstacle to my granting specificperformance.[His Lordship then considered the objections which had been made on the groundthat the terms of the new lease did not sufficiently appear in the letters, andexpressed his opinion that taking the whole of the correspondence together theterms of the new lease could be clearly made out. His Lordship then continued:--]Therefore, upon the whole, I think I am bound to declare that in this casethere is on the correspondence a contract by Mr. Brisco to grant a lease of thepremises comprised in the then existing lease for twenty-one years commencingfrom Lady Day, 1880; that existing lease to be surrendered, and the rent to be£80 a year instead of £50; the lease to be granted to the *446 company within amonth from this date, and within that time the Plaintiff to guarantee the paymentof rent and performance of covenants.(C. M.)Copr. © West 2004 No Claim to Orig. Govt. Works

(1883) L.R. 22 Ch. D. 441 Page 41883 WL 19585 (CA)(Cite as: (1883) LR 22 Ch. D. 441)From this judgment the Defendant appealed.The appeal came on to be heard on the 21st of November, 1882.Crossley, Q.C., and Laing, for the Appellant:--Where it is attempted to make out an agreement by letters it is incumbent onthe Plaintiff to shew distinctly that all the terms were defined, and that theywere all agreed to at one time by both parties. The Plaintiff has not shewn thisin the present case. The date of the commencement of the term had not beenmentioned before the telegram of the 25th of June, 1880, on which the Plaintiffrelies, was sent. The whole correspondence was only negociation: Marshall v.Berridge [FN3]; Hyde v. Wrench [FN4]. The subsequent letters which passed betweenthe solicitors shew conclusively that the parties did not consider themselvesbound by what had taken place. The whole correspondence must be looked at, forsubsequent letters often throw light upon the intention of the parties asexpressed in previous letters: Hussey v. Horne-Payne [FN5].FN3 19 Ch. D. 233.FN4 3 Beav. 334.FN5 4 App. Cas. 311.But even if there was a concluded agreement the Plaintiff cannot maintain thisaction. The lease was to be granted to a nominee of the Plaintiff or to a companyto be formed, but no nominee has been appointed and no company has been formed.The Plaintiff ought to have been in a position to aver that a company had beenformed and that they were ready to accept the lease.Higgins, Q.C., and Fellows, for the Plaintiff:--There was a concluded agreement when the telegram of the 25th of June, 1880,was sent. The term is sufficiently indicated. It is to be for twenty-one yearscommencing from Lady Day, 1880. The subsequent letters between the solicitorscould not *447 affect this agreement. They were imperfectly informed of what hadreally taken place.With respect to the objection that a company has not been already formed, weare ready and able to form one before the lease is granted. It is sufficient ifwe are ready to perform the contract when the lease is tendered. In an ordinarysuit for specific performance between vendor and purchaser it is sufficient ifthe vendor shews a good title when the inquiry as to title is made.JESSEL, M.R.:--This appeal from a decision of Mr. Justice Kay raises two points. The first iswhether, supposing there were a binding contract to grant a lease of the propertyin question, there could be a decree for specific performance of it to a nonexistingcompany, a point which, so far as I know, is entirely new. The otherquestion is whether there was any binding contract at all which could sustain theaction either for specific performance or damages.As to the first point, I think that such a decree could not be supported. Thecontract for which specific performance is sought was of this kind, it was togrant a lease to the nominees of the Plaintiff. The lease cannot be granted tillhe has appointed a nominee, and until the nominee has accepted the proposedlease. Such a contract is common enough in the case of building leases betweenthe freeholder and the builder. The nominee is generally the purchaser of thehouses and the lease is granted to him, but the contract can never be enforcedtill the nominee is appointed. In the present case the lease was to be granted toCopr. © West 2004 No Claim to Orig. Govt. Works

(1883) L.R. 22 Ch. D. 441 Page 51883 WL 19585 (CA)(Cite as: (1883) LR 22 Ch. D. 441)a limited company; and not only at the time when the action was brought, but atthe time of the trial there was no such company formed. Mr. Justice Kay took anundertaking from the Plaintiff that he would establish such a company; butsuppose he did not succeed in doing so, then the contract could not be performedand the Defendant might indeed put the Plaintiff into prison, but he could notget the decree worked out. I think that if the learned Judge had considered thisdifficulty he would not have made the decree in that form. Therefore thePlaintiff cannot maintain this decree for specific performance.*448 But that does not dispose of the whole case. Suppose the Defendant hadabsolutely refused to perform the contract, he would have waived his right toinsist upon the performance by the Plaintiff of the condition precedent, and laidhimself open to an action for damages. The Plaintiff may say in such a case I amnot to be put to the trouble of doing acts which will be useless by reason of theDefendant's refusal to perform the contract. Assuming that to be the case, thePlaintiff might maintain this action for damages although he could not getspecific performance. It is therefore necessary to see if there was any contractor not. I must say that it is near the line, but on careful consideration of thecorrespondence I have come to the conclusion that the letters amount only tonegotiation, and did not constitute a contract. In the first place I do notconsider that Hussey v. Horne-Payne [FN6] laid down any new law. It was alwaysheld that you might look at the whole of the correspondence, just as inconstruing a clause of a deed you let in the whole deed, and sometimes alsocontemporaneous deeds. If in all the letters taken together you see that theparties did not intend to make a contract, even though on two or three lettersthere appeared to be a contract, you would hold that on the whole correspondencethere was none.FN6 4 App. Cas. 311.[His Lordship then considered the correspondence and concluded as follows:--]On the whole I think the result is that there was no concluded agreement. Bothparties, in my opinion, intended that there should be a clear and formalagreement drawn up. It is for the Plaintiff to convince the Court that there is abinding agreement, and, in my opinion, he has not done so in this case. Theappeal must be allowed and the action dismissed with costs.COTTON, L.J.:--There are two questions for decision in this case. First whether the decree forspecific performance is right; and, secondly, whether there was an agreementbetween the parties. On the first point, the objection to this judgment is thatat the time when the action was brought the Plaintiff had not provided a nominee,*449 which was a condition precedent to the lease being granted. No doubt inactions for specific performance which arise between vendor and purchaser thereis an inquiry as to the title of the vendor after a decree has been made, and ifno title is shewn the action is then dismissed. But the regular form ofproceeding in that kind of action is by inquiry, and it stands on a differentfooting from actions like this, where the Plaintiff must shew that he has doneeverything that he is required to do before the action is brought. And, in myopinion, where there is a contract to grant a lease to a nominee of thePlaintiff, the Plaintiff must aver in his claim that he has appointed a nominee,and that the nominee is ready and willing to accept the lease.But that is not enough to dispose of this action, for if the Defendant haddistinctly refused to perform the contract, that would have dispensed with thenecessity for the Plaintiff to perform the conditions, and would have entitledthe Plaintiff to claim damages. Therefore we must go into the question whetherthere was an agreement or not. I agree that this is a very difficult question,but I am unable to see any letter from the Defendant which amounts to anacceptance of the terms offered by the Plaintiff.Copr. © West 2004 No Claim to Orig. Govt. Works

(1883) L.R. 22 Ch. D. 441 Page 61883 WL 19585 (CA)(Cite as: (1883) LR 22 Ch. D. 441)[His Lordship then reviewed the correspondence and concluded by saying that inhis opinion there was no agreement which could form the ground of an action.]BOWEN, L.J.:--I entirely agree.RepresentationSolicitors: Griffith Jones; Biale.(M. W.)(c) Incorporated Council of Law Reporting For England & WalesEND OF DOCUMENTCopr. © West 2004 No Claim to Orig. Govt. Works

(1879-80) L.R. 5 Q.B.D. Page 11879 WL 15569 (QBD)(Cite as: (1879-80) LR 5 Q.B.D. 346)*346 Stevenson, Jaques, & Co. v. McLeanQueen's Bench DivisionQBDLush, J.1880 May 25Contract--Sale of Goods--Offer, till when open--Refusal of Offer, what amountsto--Revocation of Offer, when effective.The defendant, being possessed of warrants for iron, wrote from London to theplaintiffs at Middlesborough asking whether they could get him an offer for thewarrants. Further correspondence ensued, and ultimately the defendant wrote tothe plaintiffs fixing 40s. per ton, nett cash, as the lowest price at which hecould sell, and stating that he would hold the offer open till the followingMonday. The plaintiffs on the Monday morning at 9.42 telegraphed to thedefendant: "Please wire whether you would accept forty for delivery over twomonths, or if not, longest limit you could give." The defendant sent no answer tothis telegram, and after its receipt on the same day he sold the warrants, and at1.25 P.M. telegraphed to plaintiffs that he had done so. Before the arrival ofhis telegram to that effect, the plaintiffs having at 1 P.M. found a purchaserfor the iron, sent a telegram at 1.34 P.M. to the defendant stating that they hadsecured his price. The defendant refused to deliver the iron, and thereupon theplaintiffs brought an action against him for non-delivery thereof. The jury foundat the trial that the relation between the parties was that of buyer and seller,not of principal and agent.The state of the iron market was very unsettled at the time of the transaction,and it was impossible to foresee when the plaintiffs' telegram was sent at 9.42A.M. how prices would range during the day:--Held, by Lush, J., that under the circumstances the plaintiffs' telegram at9.42 ought not to be construed as a rejection of the defendant's offer, butmerely as an inquiry whether he would modify the terms of it, and that, although*347 the defendant was at liberty to revoke his offer before the close of the dayon Monday, such revocation was not effectual until it reached the plaintiffs;consequently the defendant's offer was still open when the plaintiffs acceptedit, and the action was, therefore, maintainable.Cooke v. Oxley (3 T. R. 653) discussed.Bryne & Co. v. Leon van Tienhoven & Co. (49 L. J. (C.P.) 316) followed.FURTHER CONSIDERATION before Lush, J. The facts and arguments sufficientlyappear from the judgment.May 7. Waddy, Q.C., and Hugh Shield, for the plaintiffs.Cave, Q.C., and Wormald, for the defendant.Cur. adv. vult.May 25. LUSH, J.This is an action for non-delivery of a quantity of iron which it was allegedthe defendant contracted to sell to the plaintiffs at 40s. per ton, nett cash.The trial took place before me at the last assizes at Leeds, when a verdict wasgiven for the plaintiffs for 1900l., subject to further consideration on theCopr. © West 2004 No Claim to Orig. Govt. Works

(1879-80) L.R. 5 Q.B.D. Page 21879 WL 15569 (QBD)(Cite as: (1879-80) LR 5 Q.B.D. 346)question whether, under the circumstances, the correspondence between the partiesamounted to a contract, and subject also, if the verdict should stand, to areference, if required by the defendant, to ascertain the amount of damages. Thequestion of law was argued before me on the 7th of May last.The plaintiffs are makers of iron and iron merchants at Middlesborough. Thedefendant being possessed of warrants for iron, which he had originally bought ofthe plaintiffs, wrote on the 24th of September to the plaintiffs from London,where he carries on his business:"I see that No. 3 has been sold for immediate delivery at 39s., which means ahigher price for warrants. Could you get me an offer for the whole or part of mywarrants? I have 3800 tons, and the brands you know."On the 26th one of the plaintiffs wrote from Liverpool: "Your letter hasfollowed me here. The pig iron trade is at present very excited, and it isdifficult to decide whether prices will be maintained or fall as suddenly as theyhave advanced. Sales are being made freely for forward delivery chiefly, but notin warrants. It may, however, be found advisable to sell the warrants as maker'siron. I would recommend you to fix your price, and if you will write me yourlimit to Middlesborough, I *348 shall probably be able to wire you somethingdefinite on Monday." This letter was crossed by a letter written on the same dayby the clerk of one Fossick, the defendant's broker in London, and which was inthese terms:--"Referring to R. A. McLean's letter to you re warrants, I have seen him againto-day, and he considers 39s. too low for same. At 40s. he says he would consideran offer. However, I shall be obliged by your kindly wiring me, if possible, yourbest offer for all or part of the warrants he has to dispose of."On the 27th (Saturday) the plaintiffs sent to Fossick the following telegram:--"Cannot make an offer to day; warrants rather easier. Several sellers thinkmight get 39s. 6d. if you could wire firm offer subject reply Tuesday noon."In answer to this Fossick wrote on the same day:"Your telegram duly to hand re warrants. I have seen Mr. McLean, but he isnot inclined to make a firm offer. I do not think he is likely to sell at 39s.6d., but will probably prefer to wait. Please let me know immediately you get anylikely offer."On the same day the defendant, who had then received the Liverpool letter ofthe 26th, wrote himself to the plaintiffs as follows:--"Mr. Fossick's clerk shewed me a telegram from him yesterday mentioning 39s.for No. 3 as present price, 40s. for forward delivery. I instructed the clerk towire you that I would now sell for 40s., nett cash, open till Monday." No suchtelegram was sent by Fossick's clerk.The plaintiffs were thus on the 28th (Sunday) in possession of both letters,the one from Fossick stating that the defendant was not inclined to make a firmoffer; and the other from the defendant himself, to the effect that he would sellfor 40s., nett cash, and would hold it open all Monday. This it was admitted musthave been the meaning of "open till Monday."On the Monday morning, at 9.42, the plaintiffs telegraphed to the defendant:"Please wire whether you would accept forty for delivery over two months, orif not, longest limit you would give."This telegram was received at the office at Moorgate at 10.1 A.M., *349 and wasdelivered at the defendant's office in the Old Jewry shortly afterwards.No answer to this telegram was sent by the defendant, but after its receipt hesold the warrants, through Fossick, for 40s., nett cash, and at 1.25 sent off atelegram to the plaintiffs: "Have sold all my warrants here for forty nett today."This telegram reached Middlesborough at 1.46, and was delivered in duecourse.Before its arrival at Middlesborough, however, and at 1.34, the plaintiffstelegraphed to defendant:"Have secured your price for payment next Monday--write you fully by post."Copr. © West 2004 No Claim to Orig. Govt. Works

(1879-80) L.R. 5 Q.B.D. Page 31879 WL 15569 (QBD)(Cite as: (1879-80) LR 5 Q.B.D. 346)By the usage of the iron market at Middlesborough, contracts made on a Mondayfor cash are payable on the following Monday.At 2.6 on the same day, after receipt of the defendant's telegram announcingthe sale through Fossick, the plaintiffs telegraphed:"Have your telegram following our advice to you of sale, per yourinstructions, which we cannot revoke, but rely upon your carrying out."The defendant replied: "Your two telegrams received, but your sale was toolate; your sale was not per my instructions." And to this the plaintiffsrejoined:"Have sold your warrants on terms stated in your letter of twenty- seventh."The iron was sold by plaintiffs to one Walker at 41s. 6&D, and the contractnote was signed before 1 o'clock on Monday. The price of iron rapidly rose, andthe plaintiffs had to buy in fulfilment of their contract at a considerableadvance on 40s.The only question of fact raised at the trial was, whether the relation betweenthe parties was that of principal and agent, or that of buyer and seller. Thejury found it was that of buyer and seller, and no objection has been taken tothis finding.Two objections were relied on by the defendant: first, it was contended thatthe telegram sent by the plaintiffs on the Monday morning was a rejection of thedefendant's offer and a new proposal on the plaintiffs' part, and that thedefendant had therefore a right to regard it as putting an end to the originalnegotiation.Looking at the form of the telegram, the time when it was sent, and the stateof the iron market, I cannot think this is its fair meaning. The plaintiffStevenson said he meant it only *350 as an inquiry, expecting an answer for hisguidance, and this, I think, is the sense in which the defendant ought to haveregarded it.It is apparent throughout the correspondence, that the plaintiffs did notcontemplate buying the iron on speculation, but that their acceptance of thedefendant's offer depended on their finding some one to take the warrants offtheir hands. All parties knew that the market was in an unsettled state, and thatno one could predict at the early hour when the telegram was sent how the priceswould range during the day. It was reasonable that, under these circumstances,they should desire to know before business began whether they were to be atliberty in case of need to make any and what concession as to the time or timesof delivery, which would be the time or times of payment, or whether thedefendant was determined to adhere to the terms of his letter; and it was highlyunreasonable that the plaintiffs should have intended to close the negotiationwhile it was uncertain whether they could find a buyer or not, having the wholeof the business hours of the day to look for one. Then, again, the form of thetelegram is one of inquiry. It is not "I offer forty for delivery over twomonths," which would have likened the case to Hyde v. Wrench [FN1], where oneparty offered his estate for 1000l., and the other answered by offering 950l.Lord Langdale, in that case, held that after the 950l. had been refused, theparty offering it could not, by then agreeing to the original proposal, claim theestate, for the negotiation was at an end by the refusal of his counter proposal.Here there is no counter proposal. The words are, "Please wire whether you wouldaccept forty for delivery over two months, or, if not, the longest limit youwould give." There is nothing specific by way of offer or rejection, but a mereinquiry, which should have been answered and not treated as a rejection of theoffer. This ground of objection therefore fails.FN1 3 Beav. 334.The remaining objection was one founded on a well-known passage in Pothier,which has been supposed to have been sanctioned by the Court of Queen's Bench inCooke v. Oxley [FN2], that in order to constitute a contract there must be theCopr. © West 2004 No Claim to Orig. Govt. Works

(1879-80) L.R. 5 Q.B.D. Page 41879 WL 15569 (QBD)(Cite as: (1879-80) LR 5 Q.B.D. 346)assent or concurrence *351 of the two minds at the moment when the offer isaccepted; and that if, when an offer is made, and time is given to the otherparty to determine whether he will accept or reject it, the proposer changes hismind before the time arrives, although no notice of the withdrawal has been givento the other party, the option of accepting it is gone. The case of Cooke v.Oxley [FN3] does not appear to me to warrant the inference which has been drawnfrom it, or the supposition that the judges ever intended to lay down such adoctrine. The declaration stated a proposal by the defendant to sell to theplaintiff 266 hogsheads of sugar at a specific price, that the plaintiff desiredtime to agree to, or dissent from, the proposal till 4 in the afternoon, and thatdefendant agreed to give the time, and promised to sell and deliver if theplaintiff would agree to purchase and give notice thereof before 4 o'clock. TheCourt arrested the judgment on the ground that there was no consideration for thedefendant's agreement to wait till 4 o'clock, and that the alleged promise towait was nudum pactum.FN2 3 T. R. 653.FN3 3 T. R. 653.All that the judgment affirms is, that a party who gives time to another toaccept or reject a proposal is not bound to wait till the time expires. And thisis perfectly consistent with legal principles and with subsequent authorities,which have been supposed to conflict with Cooke v. Oxley. [FN4] It is clear thata unilateral promise is not binding, and that if the person who makes an offerrevokes it before it has been accepted, which he is at liberty to do, thenegotiation is at an end: see Routledge v. Grant. [FN5] But in the absence of anintermediate revocation, a party who makes a proposal by letter to another isconsidered as repeating the offer every instant of time till the letter hasreached its destination and the correspondent has had a reasonable time to answerit: Adams v. Lindsell. [FN6] "Common sense tells us," said Lord Cottenham, inDunlop v. Higgins [FN7], "that transactions cannot go on without such a rule." Itcannot make any difference whether the negotiation is carried on by post, or bytelegraph, or by oral message. If the offer is not retracted, it is in force as acontinuing offer till the time for accepting or rejecting it has arrived. But ifit is retracted, there is an end of the proposal. *352 Cooke v. Oxley [FN8], ifdecided the other way, would have negatived the right of the proposing party torevoke his offer.FN4 3 T. R. 653.FN5 4 Bing. 653.FN6 1 B. & A. 681.FN7 1 H. L. C. 381.FN8 3 T. R. 653.Taking this to be the effect of the decision in Cooke v. Oxley [FN9], thedoctrine of Pothier before adverted to, which is undoubtedly contrary to thespirit of English law, has never been affirmed in our Courts. Singularly enough,the very reasonable proposition that a revocation is nothing till it has beencommunicated to the other party, has not, until recently, been laid down, no casehaving apparently arisen to call for a decision upon the point. In America it wasdecided some years ago that "an offer cannot be withdrawn unless the withdrawalreaches the party to whom it is addressed before his letter of reply announcingthe acceptance has been transmitted": Tayloe v. Merchants' Fire Insurance Co.Copr. © West 2004 No Claim to Orig. Govt. Works

(1879-80) L.R. 5 Q.B.D. Page 51879 WL 15569 (QBD)(Cite as: (1879-80) LR 5 Q.B.D. 346)[FN10]; and in Bryne & Co. v. Leon Van Tienhoven & Co. [FN11] my Brother Lindley,in an elaborate judgment, adopted this view, and held that an uncommunicatedrevocation is, for all practical purposes and in point of law, no revocation atall.FN9 3 T. R. 653.FN10 9 How. Sup. Court Rep. 390.FN11 49 L. J. (C P.) 316.It follows, that as no notice of withdrawal of his offer to sell at 40s., nettcash, was given by the defendant before the plaintiffs sold to Walker, they had aright to regard it as a continuing offer, and their acceptance of it made thecontract, which was initiated by the proposal, complete and binding on bothparties.My judgment must, therefore, be for the plaintiffs for 1900l., but this amountis liable to be reduced by an arbitrator to be agreed on by the parties, or, ifthey cannot agree within a week, to be nominated by me. If no arbitrator isappointed, or if the amount be not reduced, the judgment will stand for 1900l.The costs of the arbitration to be in the arbitrator's discretion.RepresentationSolicitors for plaintiffs: Dodds & Co.Solicitors for defendant: Harries, Wilkinson, & Raikes.Judgment for the plaintiffs.(c) Incorporated Council of Law Reporting For England & WalesEND OF DOCUMENTCopr. © West 2004 No Claim to Orig. Govt. Works

JBL 1987, Mar, 122-130 Page 1(Cite as: J.B.L. 1987, MAR, 122-130)Journal of Business Law1987ArticleCONTRACT, RELIANCE AND BUSINESS TRANSACTIONSWilliam Howarth.Copyright (c) 1987 Sweet & Maxwell Limited and ContributorsKeywords: Commercial law; ContractsAbstract: Legal categorisation of business transactions.*122 IntroductionAs Lord Devlin observed in 1951:""The danger in any branch of the law is that it ossifies. If all lawyerswere made doctors overnight, they would flock to the dissecting rooms, for Iam sure that they would prefer corpses to live patients." [FN1]Unfortunately this comment remains as true today as ever, and was rarely betterillustrated than within the law of contract. In this area of law the formalitiesof contract formation, and the paradigm of a contract inherited from classicalfree-market thinking of the last century, continue to dominate the minds oflawyers despite their mismatch with present-day needs. [FN2] The purpose of thisarticle, however, is not to reiterate the standard destructive criticisms oftraditional contractual thought. It is intended to make a constructive point:that some contemporary legal needs could be met more effectively if artificialand outdated barriers between different parts of the common law were broken down.In particular this is most urgently required in situations which should be morereadily categorised as giving rise to reliance- based liability rather thancontract-based liability. Despite the familiarity engendered by the ossificationof contract, there are a wide range of situations where the contractual approachis less appropriate than it may once have been and the argument forrevitalisation is strongest. Most notable is the approach which the courts taketo the legal categorisation of business transactions, and the discussion whichfollows centres upon this area. Initially this involves making some observationsabout the practicalities of business dealings as a prelude to a discussion of thecontrasting ways in which courts interpret and give effect to those practices.Within the scope of this discussion it will appear that the danger to which LordDevlin drew attention remains as a challenge both to commercial law and thecommon law as a whole.Business transactionsThe limited amount of empirical study which has been undertaken concerningcommercial transactions indicates an incongruous gulf between the *123 classicalprinciples of the law of contract and the actual practices of buying and sellingcommodities. [FN3] On the few occasions when legal academics have ventured outinto the field and looked at the way that business people conduct theirtransactions, they have unearthed attitudes ranging from indifference tohostility towards the orthodox norms of contract law and those that seek to applythem to commercial life. As an outspoken informant in one of the studies put it:""you can settle any dispute if you keep the lawyers and accountants out ofit. They just do not understand the give-and-take needed in business." [FN4]The first empirical study of the legal basis of business transactions wasMacaulay's influential survey of transactions involving large companies inWisconsin in the United States. [FN5] The survey exposed a widespread disregardfor the strict rules of contract law and a preference for settlement of disputesCopr. © West 2004 No Claim to Orig. Govt. Works

JBL 1987, Mar, 122-130 Page 2(Cite as: J.B.L. 1987, MAR, 122-130)between buyers and manufacturers, or suppliers, of goods by negotiation withoutreference to the precise terms of any contract between the parties. In many casesthis was because the supply of goods was undertaken without the existence of anyformal contract. One manufacturer of packaging materials in the survey disclosedthat between 60 and 75 per cent. of all orders supplied were met without finalagreement on all the terms necessary for formation of a binding contract. Evenwhere legally enforceable contracts did appear to have been concluded, a range ofcircumstances made the legal basis of the transaction an inappropriate mechanismfor resolving disputes. On balance an aggrieved party would take the view thatthe pursuit of a contractual remedy was not cost-beneficial where it involved thesouring of a continuing business relationship [FN6] which was of greater valuethan any legal remedy that might be secured.Another detriment that might result in making use of strict contractualremedies was the unquantifiable damage to a firm's trading reputation that mightbe suffered as a consequence of it appearing to be unduly litigious. In short,the relatively rare circumstances where parties did resort to litigation tendedto be restricted to situations where exceptionally large sums of money were atissue, or where a continuing relationship such as a franchise was to beterminated, or where there was some ""irrational factor" such as the personcontrolling an organisation having been made to look foolish, or being the victimof fraud, or bad faith. Needless to say, the vast majority of *124 businesstransactions fell outside these narrow categories, and where disputes arose theyfell to be governed by norms of commercial custom which were significantlydifferent from those that a contract lawyer or court would impose upon thesituation.One of Macaulay's striking conclusions (for lawyers at least) was thatinformal standards such as ""one does not welsh on a deal" and ""one ought toproduce a good product and stand behind it" have a wider influence upon businesspractice than the orthodox rules of the law of contract.Subsequent studies, undertaken in the United Kingdom, have largely confirmedMacaulay's findings. Beale and Dugdale's survey of the purchasing practices ofengineering manufacturers in the Bristol area revealed similarly extensive areasof commercial activity in which little use was made of contractual rights orremedies. [FN7] Even where contracts were entered into, their primary purposeswere to convey information about the specification of the product to be suppliedand to plan corrective provisions in the event of adverse contingencies, ratherthan to secure contractual rights and remedies. Contracts, where made, were foundto serve the ""alegal" purpose of clarifying the exact nature of the deal ratherthan that of casting it in a particular legal mould. ""Gentlemen's agreements"and the unwritten rules of trade custom assumed greater importance in disputeresolution than the technicalities of contract law. Because of this, transactorswere found to conduct their affairs with inattention to major legal difficultiesunderlying their activities. One such difficulty was the renowned contractlawyer's problem of ""the battle of the forms," [FN8] where contracting partiesexchange order forms containing differing sets of standard conditions, and adispute ensues concerning the set of terms on which the final contract is based.The business reality of the situation in respect of the great majority oftransactions is in marked contrast to the contract theory:""... [M]ost firms seemed unconcerned about the failure to make a contract... provided two sets of conditions contained terms commonly found in thetrade a sufficient basis would exist to enable any dispute to be settledwithout difficulty; even common understanding did not have to be veryprecise." [FN9]A general point to be abstracted from these studies must be that commercialtransactions are generally entered, executed, and, where disputes arise,resolved, within a legal vacuum. For a variety of reasons business people findthe law of contract unhelpful at best, and counter-productive at worst, as amechanism for the resolution of disputes. This must be an unsatisfactory state ofaffairs. If the guiding policy value behind commercial law is, as Lord Devlinsuggested, that it ""ought to be a reflection of the constantly changing ideas ofconduct which merchants may have," [FN10] then the surveys show an astonishingfailure of the law to honour that obligation to commerce. Lord Devlin'sinvocation sounds as appropriate today as ever:*125 ""... [T]he law might go further than it does towards meeting thebusiness attitude. In particular a more generous admission into the contractCopr. © West 2004 No Claim to Orig. Govt. Works

JBL 1987, Mar, 122-130 Page 3(Cite as: J.B.L. 1987, MAR, 122-130)of custom and trade practice would be entirely in keeping with the basicprinciples of the law merchant and with the traditions which lie at the heartof the common law." [FN11]One way in which progress in this direction might be made is through a more readyrecognition of an important option to the present fashion of categorisingbusiness relations as contractual in nature. This is the possibility that suchrelationships often fit more appropriately into the legal category ofreliancebased rather than contractual relations. In particular, the facts ofbusiness situations are such that it is often more apposite to look to theprinciples of restitution, which permit a plaintiff to recover a quantum meruitaward for goods provided or work done under a ""contract" which is ineffectivebecause it fails to meet the requirement of agreement in contract formation.[FN12] Here it is to be stressed that the right does not arise out of anycontract (for there need be none), but from the fact of executed consideration bythe plaintiff at the defendant's request. [FN13] In this respect common lawobligations based upon reliance appear in many respects better adapted tobusiness practice than those based upon contract. In what follows the advantagesof this line of approach are illustrated by contrasting two cases which arise outof broadly similar disputes about contract formation. [FN14] The former caseseeks to resolve the dispute through traditional principles of the law ofcontract, whilst the latter makes use of extra-contractual principles.The contract approach: Butler Machine Tool Co. Ltd. v. Ex-Cell-O Corp. Ltd.[FN15]In this case the respondents, Butler Machine Tool Co. provided the appellantswith a quotation of £75,532 for a machine tool to be delivered ten months later.This quotation was subject to the seller's terms which, it stated, ""shallprevail over any terms and conditions in the buyer's order." Amongst these termswas a price-variation clause permitting the price to be increased in accordancewith the seller's increased costs of manufacture. In response, the buyer placedan order for the machine subject to their own conditions which did not include aprice-variation clause. The buyer's order form incorporated a tear-offacknowledgement of the receipt of the order which stated, ""we accept your orderon the terms and conditions stated thereon." The seller signed and returned thisacknowledgement along with a letter saying that the order was being entered inaccordance with the seller's original quotation. On delivery, the seller claimedentitlement to £2,892 in addition to the original price, on account of increasedcosts payable under the price-variation clause. Against this, the buyer disputedtheir liability to pay *126 the additional sum on the ground that the pricevariationclause constituted no part of the final contract between them.The Court of Appeal took the facts to exemplify the ""battle of the forms,"and proceeded to apply the standard offer and acceptance analysis to ascertainwhat contract was eventually concluded between the parties. On this analysis theyfound that the buyer's order was a counter-offer which had the effect of puttingto an end the original offer made in the seller's quotation. [FN16] By completingand returning the buyer's acknowledgement form, the seller had accepted thecounter-offer on the buyer's terms and therefore no pricevariation clause wasincorporated into the final contract. Thus the Court of Appeal was unanimous infinding that the seller was unable to recover the addition sum.Butler Machine Tool Co. Ltd. v. Ex-Cell-O Corp. Ltd. provides a good exampleof a regularly occurring difficulty in business transactions: a disagreementabout the nature of a bargain or undertaking which arises after it has beenperformed by at least one party. What is doubtful, however, is that the partiesthemselves, or the reasonable business person taking a detached view of theevents, would have characterised and resolved the dispute in the way that wasdone by the court. The case is open to at least three reservations. They are, inorder of gravity:(1) In the first place a rather crucial point of fact received dismissiveconsideration by the court. Along with the acknowledgement of the order theseller's letter to the buyer stated that the acknowledgement was ""being enteredin accordance with our revised quotation." That is, the earlier quotation whichwas made subject to the price-variation clause. Did these words serve to reaffirmthat the transaction was to be governed by the seller's terms? [FN17] The courtCopr. © West 2004 No Claim to Orig. Govt. Works

JBL 1987, Mar, 122-130 Page 4(Cite as: J.B.L. 1987, MAR, 122-130)took the view that the reference to the earlier quotation concerned the price andidentity of the machine, but did not concern the other terms which the seller hadimposed on the supply of the machine. With respect, this point appearsunconsidered by any of the judges and looks to be an arbitrary stipulation ontheir part. The alternative construction of the facts, however, raises anoverwhelming theoretical difficulty. If the letter made reference to the pricevariationclause the overall effect of the total correspondence was selfcontradictory.The seller had both acknowledged that the transaction was governedby the buyer's terms (by signing the tearoff acknowledgement slip) and at thesame time affirmed that the transaction was governed by their own terms (in thecovering letter). On facts such as these it is impossible for application of theoffer and acceptance analysis to yield any clear conclusion. Undeniably therewere good pragmatic reasons for the court construing the facts as they did; to dootherwise would be to attribute inconsistent behaviour to the seller. Whethercommercial persons would take the same view, however, is far from clear.(2) This leads on to the second issue, which is the simple question whetherthere was actually any contract made by the parties. The court expressed no *127doubt that a contract was concluded and concerned themselves only with the issueof the terms of the contract. Again it could be asked whether this course wastaken out of expediency in view of the fact that the machine had beenmanufactured, delivered and accepted before the dispute about price variationarose. To have found that no contract had been concluded, without more, mighthave appeared to sidestep the issue that the parties had come to the court tohave resolved. Nonetheless the assumption that a contract was concluded has theuneasy appearance of an over-pragmatic response to the facts. It is difficult toreconcile it with the traditional doctrine of the law of contract that thequestion of formation of a bilateral contract is something to be determinedindependently of whether performance of the alleged contract is executory orexecuted. [FN18] As a matter of contract theory, it is erroneous to suppose thatmerely because something has been done then there is therefore some contract inexistence which has thereby been executed. This looks, however, to be close tothe major premise on which the case was argued and resolved. A compellingalternative is the view that:""the truth is that the parties were never really agreed on the terms whichwere to govern the sale of the machine, but the case illustrates a fact ofbusiness behaviour which is difficult to reconcile with the legal rules ofoffer and acceptance. For it is clear that though the parties never agreed onterms, they were willing to proceed with their transaction as though they wereagreed." [FN19](3) The third point to stress is the conclusion that no contract was ever madebetween the parties need not lead to the ""absurd" or ""impractical" [FN20]result that they are left without any legal means of resolving the dispute. Thefinding that a contract exists, let it be remembered, is not an end in itself,but a means which lawyers (rather than the business concerns in dispute) havechosen by which to decide whether the additional £2,892 will be payable or not.What matters to the parties themselves is whether the money is to be paid. Inturn, following Lord Devlin's comments, what matters to the business community atlarge is that the law does its best to meet the expectations engendered bycustom. Whether this is done through the law of contract or some other branch ofthe law is, it is suggested, a matter of indifference to business people. In thecase at issue the points that have been made lead to the suggestion that areliance-based form of obligation would have been a more apposite mechanism forresolving the dispute than the contract-based approach that was actuallyemployed. In the section which follows an example of this approach is used toillustrate the contrast.The reliance approach: British Steel Corp. v. Cleveland Bridge and EngineeringCo. Ltd. [FN21]In this case the defendants, Cleveland Bridge and Engineering Co., had enteredinto a contract for the construction of a building, and approached the *128plaintiffs to manufacture and supply steel nodes which were to be used in theconstruction of the building. After preliminary discussions about technicalspecifications for the nodes, the defendants requested the plaintiffs to commencethe work directly with a view to a formal contract being drafted at a later date.Copr. © West 2004 No Claim to Orig. Govt. Works

JBL 1987, Mar, 122-130 Page 5(Cite as: J.B.L. 1987, MAR, 122-130)The defendants anticipated that the eventual contract would be made on theirstandard terms which included a provision for unlimited liability on the part ofthe plaintiffs in the event of consequential loss due to late delivery. Theplaintiffs, however, were unwilling to accept such liability and anticipated acontract on their own standard terms which would exclude any provision of thatkind. Further discussions ensued, during which time the plaintiffs proceeded tomanufacture and deliver all the nodes except the last, which was held back assecurity to ensure payment. No formal contract was entered into between theparties. After a delay of over three months, due to an industrial dispute at theplaintiffs' factory, the final node was delivered. The defendants declined tomake payment for the nodes and claimed breach of contract and entitlement todamages due to the delay in delivery. The amount so claimed exceeded the allegedcontract price. Against this, the plaintiffs denied that any contract had beenconcluded and sued for the value of the nodes on a quantum meruit basis.Robert Goff J. in the Queen's Bench Division held that, although a contractcould in principle have come into existence either as a mutual executory contractor as a unilateral contract, on the facts no contract had been created, and theplaintiffs were not contractually bound to compensate the defendants for thelosses arising as a consequence of the late delivery of the final node.On the quantum meruit claim, however, Goff J. applied the restitutionaryprinciples governing work done under anticipated contracts which nevermaterialise. [FN22] The authorities establish the principle that where one partydoes work at the request of another during negotiations which are expected tolead to the formation of a contract but no contract is concluded, then recoveryfor the work is allowed as a quantum meruit. [FN23] The obligation arises despitethe failure to meet the formalities of contract formation, and is applicable byoperation of a rule of law to the effect that a recipient of services must pay areasonable price for what he has received. [FN24] The facts of the case felldirectly beneath this principle. Goff J. found that the law imposed a quasicontractualobligation upon the defendants to pay a reasonable sum for the workwhich had been done pursuant to their request. [FN25] The reasonable sum amountedto the quoted price outstanding for the nodes.Two points of contrast arise from the comparison between this case and theprevious one. The first is the rebuttal of a popular fallacy of contractual *129thinking, to the effect that the failure to find a legally enforceable contractbetween the parties leaves them without rights against each other. Thismisapprehension which, it has been suggested, underlies Butler Machine Tool Co.Ltd. v. Ex-Cell-O Corp. Ltd., is exposed for its falsity. Moreover the exampleprovided by British Steel Corp. v. Cleveland Bridge and Engineering Co. Ltd.shows the awkwardness of attempts to treat business relations as contractualwhere they fall more naturally into a reliance-based category. As a matter oflegal theory this might not be newsworthy, but as a matter of legal practice itis well worthy of note.Secondly, although the approach taken by the court in British Steel isproperly commended as conducive to the ""fairest result" [FN26] by contrast tothe application of the traditional theory of contract formation, it has more tocommend it than that. It is a clear means by which the common law can ""gofurther than it does towards meeting the business attitude." [FN27] Some businesspeople, when asked to reflect upon the facts of British Steel might be inclinedto place their sympathy with the plaintiffs because of the suggestion that it wasthe defendants' behaviour that obstructed the formation of the contract. Othersmight sympathise with the defendants because of large losses they suffered underthe delayed construction contract for which the nodes were to be used.Nonetheless, it is submitted that these issues are extrinsic to the matter beforethe court where the facts were that no contract had been entered into and nounlimited liability for delay in delivery of the nodes had been undertaken. Giventhese parameters, the approach taken by Goff J. is, it is suggested, ""entirelyin keeping with the basic principles of the law merchant and with the traditionswhich lie at the heart of the common law." [FN28] The approach of making a partypay for work done at their request has everything to commend it over theintricate and often inconclusive niceties involved in ascertaining who fires thelast shot in an arbitrary and unrealistic battle of the forms. It is clear fromthe norms of commercial custom that business people comprehend the rationality ofhaving to pay for services which have been requested, but doubtful that theycomprehend the technicalities which are entailed by the rules of contractCopr. © West 2004 No Claim to Orig. Govt. Works

JBL 1987, Mar, 122-130 Page 6(Cite as: J.B.L. 1987, MAR, 122-130)formation.ConclusionThe points that have been made lead to two conclusions, one of note topractitioners and the other of note to empirical researchers. The conclusion forthe practitioners is that the commercial lawyer's duty to meet the needs ofbusiness is often better met by viewing business situations in terms of reliancerather than contract. Not only does this meet the needs of justice better thanthe ""ossified" rules of contract, but more important, it comes closer to theoutlook of business people who seek a ""reasonable" solution to a dispute ratherthan that which emerges, as if by mysticism, from an abstruse line of *130reasoning involving offers, counter-offers, requests for information, etc. All ofthis strives for more certainty than most of the real business world admits.Another of Lord Devlin's cautions is pertinent:""... [T]he danger [is] that [which] besets the relationship betweencommercial lawyers and commercial men; that the commercial man's vagueness ofthought and happy-go-lucky phraseology may have to sustain a weight of logicalargument which it was never constructed to bear." [FN29]This trap has been well illustrated by Butler and the preferred alternative wellillustrated by British Steel. All that remains is for the courts and commerciallawyers to take note. None of this is intended to suggest that courts shoulddecline to give effect to a contract where it is clear that the parties intendeda contract as the legal vehicle to govern their relations, but simply that acontract should not be imposed upon parties whose relations make it clear thatthey desire to travel by other means. The plea is for flexibility on the part ofthe lawyers in responding to business needs.The conclusion for the empirical researchers is a reaffirmation of the caveatwhich governs any empirical research in the social sciences: namely that anycollection of empirical data is open to varying interpretations. The facts do notalways speak for themselves. In respect of the interpretation of the facts ofbusiness life, the researchers may well have undertaken their safari in search ofthe wrong kind of animal. More revealing conclusions might be provided byreinterpretation of the data with the question of reliance-based liabilityuppermost in their sights. In all likelihood the manufacturer of the packagingmaterials in Macaulay's survey, who dealt with customers for the most partoutside the law of contract, could recover a reasonable cost for any materials hesupplied to a customer's request extra-contractually. Similarly, the othertraders, who were made to appear by the researchers to conduct their businessoutside the law, could probably protect their interests by law but outside thelaw of contract. The fact that these rights do exist outside the law of contractis a feature which the surveyors have played down unduly.The extent to which commercial concerns should insist upon their reliancebasedentitlements is a separate issue to the question of the existence of thoserights. It might be that little use would be made of extra-contractual rights forthe same reasons that little use is made of contractual rights: cost, souringbusiness relations, damage to trading reputation, etc. On the other hand, iflegal thought were to run closer to business practice, the distrust in the lawwhich the surveys have undeniably uncovered might be diminished. In turn,business people might turn more readily to the law for redress of grievances. Itmay be that the present state of abeyance in which commercial law is widely heldby commercial practice is a direct consequence of shortcomings in the operationof the law. Laws which appear reasonable to those to whom they apply are likelyto be put more readily into effect.FN The author wishes to express his gratitude to Professor J. A. Andrews of theDepartment of Law, University College of Wales, for many helpful comments made onan earlier draft of this article.FN1. Devlin, ""The Relation Between Commercial Law and Commercial Practice"(1951) 14 M.L.R. 249, 251.Copr. © West 2004 No Claim to Orig. Govt. Works

JBL 1987, Mar, 122-130 Page 7(Cite as: J.B.L. 1987, MAR, 122-130)FN2. Atiyah, ""Contracts, Promises and the Law of Obligations" 94 L.Q.R. 193.FN3. Macaulay, ""Non-Contractual Relations in Business" (1963) 28 Am.Soc.Rev. 45;Beale and Dugdale, ""Contracts Between Businessmen: Planning and the Use ofContractual Remedies" (1975) 2 Brit.J. Law and Soc. 18; Yates, Exclusion Clausesin Contracts (2nd ed. 1982) pp.19-33; Lewis, ""Contracts Between Businessmen:Reform of the Law of Firm Offers and an Empirical Study of Tendering Practices inthe Building Industry" (1982) 9 Brit.J. Law and Soc. 153. John Livermore,""Exemption Clauses in Inter-Business Contracts" [1986] J.B.L. 90.FN4. Macaulay, ibid.FN5. Ibid.FN6. Macneil, ""Contracts: Adjustment of Long-Term Economic Relations UnderClassical, Neoclassical and Relational Contract Law" (1978) 72 NorthwesternUniv.L.R. 854.FN7. Beale and Dugdale, ibid. note 3.FN8. Hoggat, ""Changing a bargain by Confirming it" (1970) 33 M.L.R. 18.FN9. Beale and Dugdale, ibid. note 3.FN10. Devlin, ibid. note 1 p.250.FN11. Ibid. p.260.FN12. Lagos v. Grunwaldt [1910] 1 K.B. 41, 47-48.FN13. Planche v. Colburn (1831) 3 Bing. 14.FN14. Comparisons have been drawn between these two cases for different purposesby Adams, ""The Battle of the Forms" [1983] J.B.L. 297.FN15. [1979] 1 All E.R. 965; Adams (1979) 95 L.Q.R. 481; Rawlings (1979) 42M.L.R. 715.FN16. Hyde v. Wrench (1840) 3 Beav. 334.FN17. Atiyah, An Introduction to the Law of Contract (3rd ed. 1981) p.55.FN18. Atiyah, ""Contracts, Promises and the Law of Obligations" (1978) 94 L.Q.R.193, 201.FN19. Atiyah, An Introduction to the Law of Contract (3rd ed. 1981) p.55.Copr. © West 2004 No Claim to Orig. Govt. Works

JBL 1987, Mar, 122-130 Page 8(Cite as: J.B.L. 1987, MAR, 122-130)FN20. Ibid. pp.55 and 71.FN21. [1984] 1 All E.R. 504.FN22. Goff and Jones, The Law of Restitution (2nd ed. 1978) Ch. 24.FN23. William Lacey Ltd. v. Davis [1957] 1 W.L.R. 932; Sanders and Forster Ltd.v. A. Monk and Co. Ltd. [1980] C.A. Transcript 35; O.T.M. Ltd. v. HydranauticsLtd. [1981] 2 Lloyd's Rep. 211, dictum of Parker J. at p. 214.FN24. Craven-Ellis v. Canons Ltd. [1936] 2 K.B. 403; William Lacey Ltd. v. Davis[1957] 1 W.L.R. 932, 939.FN25. [1984] 1 All E.R. 511.FN26. Adams, ""The Battle of the Forms" [1983] J.B.L. 297.FN27. Devlin, ""The Relation Between Commercial Law and Commercial Practice"(1951) 14 M.L.R. 249, 266.FN28. Ibid.FN29. Ibid. p.257.END OF DOCUMENTCopr. © West 2004 No Claim to Orig. Govt. Works