Facts
After the second world war Westminster London Borough Council
("the Council"), the Defendant, caused to be constructed what
became known as the Churchill Gardens Estate ("the Estate") which
comprised of 37 blocks of flats situated in Pimlico. Over time the
blocks of flats deteriorated and by 1984 the original windows had
been identified as a matter of concern. The Council decided to
engage the services of surveyors or architects to survey the
condition of the windows. The Council invited Hadley Design
Associates ("HDA"), the Claimant, to tender for the work by writing
to HDA on 10 February 1984. The letter stated that it was
envisaged that the project would span over five years and that any
engagement would be in accordance with the Royal Institute of
Chartered Surveyors Conditions of Engagement for Building Surveyors
(1981 Edition) ("RICS Conditions").
HDA submitted a tender on 5 March 1984, which was accepted by a
letter dated 2 April 1984 in which the Council confirmed that the
terms of engagement were as set out in its letter dated 10 February
1984.
HDA undertook the survey and prepared a full report identifying
a substantial quantity of work as being necessary. HDA was to
supervise the maintenance work to be done and formally contracted
with the Council on 1 July 1987 to carry out the works of repair
and refurbishment ("the Contract"). The Contract described the
services by reference to the Conditions of Engagement for Building
Surveying Services published by RICS, as amended by the Council's
Conditions of Appointment. However, curiously, the contract did not
state that the relevant conditions were incorporated into it.
Nevertheless, a number of the RICS Conditions were varied in the
Contract, including clause 1.7 which was entitled "Postponement and
determination". The RICS Conditions allowed for the contract to be
terminated either by the client or surveyor at any time on the
expiry of "reasonable notice". The amendment in the Contract stated
"reasonable notice shall be one month".
Works proceeded under the Contract for some time. On 15 February
1996 the City Solicitor on behalf of the Council wrote to HDA
informing it that under clause 1.7 of the Contract the Council was
terminating the contract with one month's notice. No reasons were
given for the termination. HDA subsequently issued a claim
against the Council for wrongful termination of the Contract
claiming the loss of profit it would have made had it been
permitted to carry out all the full works required under the
Contract.
To overcome the differences posed by clause 1.7, at the trial,
Mr Burr, on behalf of HDA, relied heavily on what was said at a
meeting on 31 July 1986 between Messrs Wickersham and Berry for the
Council and Mr Wright for HDA. Mr Burr contended that Mr Wickersham
had stated at the meeting, as further clarification of clause 1.7,
that the Council would not seek to determine the Contract unless
either HDA was in default of the Contract or the Council had run
out of money, a situation that was unlikely to happen due to the
necessary works being budgeted for. Mr Burr also relied on
similar assurances made during a telephone conversation between Mr
Wright and Mr Anthonio for the Council, who at the time was
finalising the Contract.
HDA claimed:
- those assurances amounted to a collateral contract by which the
Council agreed that it would only terminate the Contract in the
limited circumstances as mentioned above;
- those assurances were representations made to induce HDA into
entering into the Contract and that HDA did in fact rely upon those
representations when entering into the Contract, which resulted in
the Council being estopped from "resiling from the true effect of
the said representation and/or assurances in that it would be
unjust and unconscionable for them to do so";
- it was implied into the Contract to give business efficacy that
the Council would not terminate the Contract for any reason unless
HDA was in breach of the Contract, and
- section 3(2)(b) of the Unfair Contract Terms Act 1977 ("UCTA")
applied, in that a clause on one party's standard written terms
allowing that party to terminate without reason on one month's
notice purported to permit partial or different performance from
that which HDA expected, and should be treated as invalidating or
restricting the operation of the said clause.
Judgment
The majority of the judgment deals with factual findings in
relation to the collateral contract, estoppel and implied terms
arguments; these are dealt with briefly here. Judge Seymour found
that in fact no agreement or representation had been made that
clause 1.7 would only operate in the event of HDA's default or if
the Council ran out of money. As a result the claims for collateral
contract and/or reliance on representations fell away.
Further Judge Seymour rejected the argument of an implied term
since it defied the basic principle that an implied term must not
contradict any express term of the agreement. Here, a clear right
to terminate for convenience in one month's notice existed.
Turning to the UCTA argument, section 3(2)(b) of UCTA applies to
contracts made on one party's standard written terms of
business. Judge Seymour therefore considered if the Council
had written standard terms of business and if it did, whether the
Council had dealt with HDA on those terms. As to whether written
standard terms existed, evidence was put before Judge Seymour by Mr
Burr that showed that in 1984 the Council had in mind to prepare
what was described as "Standard Conditions for Building Surveyors".
It was clear from Mr Wickersham's evidence that standard conditions
were produced and used by the Council, but it was not clear when
this in fact took place. Mr Burr asserted that the modifications to
the RICS Conditions included in clause 12 of the Contract were the
Council's "Standard Conditions for Building Surveyors". Mr Burr
further contended, in the alternative, that the modifications in
clause 12 of the Contract were customarily sought by the Council in
negotiating any contract incorporating the RICS Conditions and were
the same as those in the "Standard Conditions for Building
Surveyors". As such Mr Burr contended that this was sufficient for
the contract to be on the written standard terms of business of the
Council. Judge Seymour rejected the submissions made by Mr Burr
stating:
"The concept underlying the provisions of
[UCTA] s3, in my judgment, is that there should exist a stock of
written, no doubt usually, at any rate, printed, contract
conditions which was simply drawn from as a matter of routine and
intended to be adopted or imposed without consideration or
negotiation specific to the individual case in which they were to
be used. That seems to me to be the force of the words "written"
and "standard" in the expression "written standard terms of
business".
In other words, it is not enough to bring a case within [UCTA]
s3 that a party has established terms of business which it prefers
to adopt, as for example, a form of draft contract maintained on a
computer, or established requirements as to what contracts into
which it entered should contain, as, for example, provision for
arbitration in the event of dispute. Something more is needed, and
on principle that something more, in my judgment, is that the
relevant terms should exist in written form prior to the
possibility of the making of the relevant agreement arising, thus
being "written", and they should be intended to be adopted more or
less automatically in all transactions of a particular type without
any significant opportunity for negotiation, thus being
"standard".
Further, Judge Seymour found that the contract was specifically
drafted by the City's solicitor's department. Rather than the
written standard terms of the Council being incorporated by
reference or by attachment in an appendix, in this case the
amendments desired to the RICS Conditions for the purposes of this
contract, were set out in full in the main text of the
agreement.
In coming to this conclusion Judge Seymour considered the cases
of: (1) Flamar Interocean Ltd v Denmac Ltd [1990] 1 Lloyd's Rep
434, in which Potter J expressed the view that a party does
not deal on written standard terms if the terms are subject to
negotiation to adapt to the circumstances of the case, and (2)
St Albans City and District Council v International Computers
Limited [1996] 4 All ER 481. Judge Seymour found that the
parties did not contract on the Council's written standard terms of
business and accordingly held that section 3 (2)(b) of UCTA did not
apply.
Notwithstanding this, Judge Seymour also considered whether, had
section 3 of UCTA applied, the provision would have been
unreasonable and therefore unenforceable. He found that in the
absence of any expert evidence to show that in these circumstances
1 month was unreasonable, the period was not manifestly
unreasonable and as such did not render the contract substantially
different to that executed.
Commentary
This decision by a Technology and Construction Court judge,
albeit in a construction context, will be of significant interest
to IT lawyers, and particularly those who have followed the various
UCTA issues raised in recent IT cases and as commented on in
previous editions of MCLR. Previously, relatively little judicial
guidance has been provided on the meaning of written standard terms
of business, despite these words having been considered in a number
of IT cases before the TCC. We now appear to have some helpful
guidance as to how we might identify written standard terms of
business. What remains a little less clear, however, is whether the
parties to the contract in question are actually "dealing" on the
basis of the written standard terms of business at issue, which is
the test to be applied pursuant to UCTA.
Prior to this case, in British Fermentation Products Limited
v Compare Reavell Limited [1999] 2 ALL ER (Comms) 389, Judge
Bowsher in the TCC identified that a standard term is one that is
"usually used". Similarly, in Oval (717) v Aegon Insurance
Limited 85 BLR 997 Reese QC, sitting as a Recorder found that
a standard term must be used on at least one previous
occasion. Judge Seymour appears to accept this position and
goes further, such that for there to be written standard terms of
business there should exist a stock of written, printed, contract
conditions which are simply drawn from as a matter of routine and
intended to be adopted or imposed without consideration or
negotiation specific to the individual case in which they are to be
used.
It is submitted that the Courts are now giving a definition of
written standard terms of business along the same lines as how the
original Law Commission responsible for UCTA saw the phrase being
interpreted. Although the Law Commission did not wish to lay
down a precise definition of a standard form contract, in its
report (Law Commission 69, para 151) guidance was given as to what
was considered to be written standard terms of business as
follows:
"Broadly speaking, standard form
contracts are of two different types. One type is exemplified by
forms which may be adopted in commercial transactions of a
particular type…. such as forms for building and engineering
contracts sponsored by the Royal Institute of British Architects,
the Institution of Civil Engineers and the Federation of
Associations of Specialists and Sub-contractors. Such forms may be
drawn up by representative bodies with the intention of taking into
account the conflicting interests of the different parties and
producing a document acceptable to all. The other type is the form
produced by, or on behalf of, one of the parties to an intended
transaction for incorporation into a number of contracts of that
type without negotiation. Examples include a multitude of
printed documents setting out conditions of various kinds, terms
found in catalogues and price lists, and terms set out or referred
to in quotations, notices and tickets. Although it is the
second type of standard form contract that has attracted the most
criticism, both types have in common the fact that they were not
drafted with any particular transaction between particular parties
in mind and are often entered into without much, if any, thought
being given to the wisdom of the standard terms in the individual
circumstances."
It is arguable that this has now been given judicial backing in
the current case.
Now that we may more readily identify written standard terms of
business, the next question is whether the contracting parties
"dealt" on the basis of these written standard terms of business.
This is a more difficult question to answer, and has been
considered in numerous cases including Cap v Salvage
Association, St Albans District Council v ICL,
South West Water v ICL, Pegler v Wang,
and Watford v Sanderson. In Cap v Salvage
Association Judge Thayne Forbes identified six factors to be
considered when assessing whether a deal has been concluded on
written standard terms of business. These are:
- the degree to which the standard terms are considered by the
other party as part of the process of agreeing the terms
- the degree to which the standard terms are imposed by the party
putting them forward
- the relative bargaining power of the parties
- the degree to which the party putting forward the standard
terms is prepared to negotiate the terms generally and the standard
terms in particular
- the extent and nature of any agreed alterations as a result of
negotiations
- the extent and duration of the negotiations
Nourse LJ, in St Albans District Council v
ICL, found that the relevant test was whether one of the
parties "deals" on the written standard terms of business, i.e.
"makes a deal" on that basis. As such, it was not a requirement
that the contract had to be concluded in the absence of any
negotiation, so long as the deal was on one party's written
standard terms of business. This is illustrated in the case of
South West Water v ICL. The contract at issue was heavily
negotiated between the parties and indeed South West Water rejected
ICL's first proposal of a limitation of liability clause. ICL
put forward an alternative limitation clause which was accepted and
ICL was found to have dealt on its written standard terms of
business.
Judge Seymour declined to give any greater guidance in relation
to "dealing" but confirms that it would be a question of fact as to
whether the relevant contract was on written standard terms. He
went on to state the following:
"If the only agreed contract terms are
those of written standard terms of business the conclusion that the
parties dealt with on the written standard terms of business by the
relevant party may be obvious. It is unlikely to be enough to
avoid that conclusion that apart from the written standard terms of
business, some term was specifically negotiated for the purposes of
the particular contract. However, in the context of possibly
voluminous documentation of a pre-prepared document setting out
written standard terms of business may be so small in relation to
the whole, or the modifications to a pre-prepared document setting
out written standard terms of business may be so significant, that
it may be an abuse of language to describe the resulting contract
as a deal on the original standard terms of business of one or
other of the parties."
On the facts Judge Seymour found that the Council did not deal
on written standard terms of business of the Council.
It is also of interest that Judge Seymour considered whether the
provision to terminate on one month's notice was reasonable (in a
contract of considerable duration) and found that it was, in the
absence of evidence to the contrary. This gives some comfort to
contract drafters who want the certainty of knowing that the
contract may be brought to an end lawfully by service of
notice. However, what is clear is that when seeking to
identify that a termination period is unreasonable, some sort of
evidence in support of the unreasonableness of the period needs to
be adduced. For example, here the claimant might have adduced
evidence as to the general practice in respect to commissions of
this kind in 1987 or in relation to the engagements of buildings
surveyors in 1987.
