CLS Civil Engineering Ltd v WJG Evans and Sons

[2024] EWHC 194 (TCC)

In 2021, CLS engaged WJGE to carry out construction works on a development at Narbeth, Pembrokeshire. CLS said that WJGE was engaged subject to a letter of intent (“LOI”), which governed the relationship between the parties, and that this limited CLS’s liability to £1.1 million. WJGE said that the construction contract was governed by JCT terms and that, in any event, CLS's liability was not capped at £1.1 million.

Deputy Judge Moody KC noted that it became clear during the hearing that the real dispute between the parties was whether CLS's liability to WJGE was limited to £1,100,000 in circumstances where WJGE had lodged a final valuation for £1,413,669.24.

CLS said that that the position was clear; the parties had never agreed JCT terms. The LOI and its revisions were clearly accepted by WJGE and governed the parties' relationship. WJGE said that a contract had come into existence but that there were four possible bases for it: (a) a contract based on correspondence and communications between the parties before works commenced; (b) a contract based on the LOI; (c) a contract based on the LOI "as purportedly varied"; and (d) a contract based on the formal contract that the parties presupposed would be executed as of the week of 4 October 2021. As at 4 October 2021, all essential terms were agreed between the parties such that a contract was formed on the basis of the JCT Intermediate Contract 2016 conditions; and (b) the parties agreed that the cap should be removed. This was on the basis that they agreed that WJGE would continue to be paid in excess of the cap as that was commercially sensible.

The judge considered that WJGE was bound by the cap of £1,100,000. One reason was that this appeared to have been admitted by WJGE in evidence. Further, the judge said that he would reach the same conclusion based upon an objective construction of the communications between the parties. The original LOI made clear that CLS's intention was to enter into a contract with WJGE but on terms to be agreed. In the meantime, WJGE was instructed to proceed but CLS would not be liable to pay WJGE more than £150,000 plus VAT. The judge considered that WJGE accepted that offer by starting work. 

The fact that WJGE accepted the offer was further demonstrated by an email which referred to WJGE coming "ever closer to the £150k cap." In the meantime, the parties were negotiating about the other terms including JCT terms. A revised letter of intent increased the cap to £300,000. There was no evidence of an express acceptance of that revision, but CLS offered an increase in the cap to £500,000. It was clear that this was accepted because of a WJGE email which said they were happy "to accept the increased value of work" and a second email referred to the "current LOI limit of £500k." WJGE also then threatened that all works would stop unless the limit was further increased. CLS offered an increase to £800,000, which was accepted. 

WJGE also drew attention to the cap of £800,000 being exceeded. The judge said that WJGE thereby expressly accepted that WJGE was working subject to that cap. The final increase to £1,100,000 was made and WJGE noted the existence of the limit in a further email.

Accordingly, the correspondence between the parties, “objectively construed,” showed that the cap was accepted at the time as the works progressed. There were at least six occasions on which WJGE expressly or impliedly agreed that WJGE was working subject to the cap.

The chronology showed that the parties were in discussion about JCT terms whilst the works were being undertaken but it is also clear that there was no agreement as to which JCT terms would apply. In the opinion of the judge, the parties' discussions in relation to a formal contract and JCT terms never achieved a meeting of minds.

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