As Judge Bowsher QC noted in the case of VHE
Construction plc -v- Alfred McAlpine Construction Limited (14th
April 1997) it is remarkable how often uncertainty about the very
existence of a contract, and its terms, is at the root of disputes
in the construction industry.
Whatever the reasons for this, and the lack of
adequate planning must be one, the result is that there is a
considerable body of case law where the principles of contract
formation are considered and the potential for payment on some form
of quasi-contractual basis is assessed.
So what is the position where anticipated contracts
do not materialise? It is not unusual for consultants to undertake
some “preliminary” work before contract negotiations
have even commenced, never mind been concluded. That work may be
time consuming and of considerable value to a client. Is a
consultant entitled to be paid for work executed or services
provided in those circumstances?
As a starting point, there is no doubt that where a
consultant carries out work in the mere hope of obtaining a
contract, and the parties are free to withdraw from negotiations at
any time before a contract is concluded, the costs associated with
the work which has been carried out cannot generally be recovered.
In those cases, it is implicit that the work is being carried out
at the consultant’s own risk. Similarly, where a contractor
is invited to tender for work, unless there is an express provision
to the contrary, it is unlikely that it will be entitled to payment
for that work if a contract subsequently fails to materialise.
One reason for these conclusions is that English
law does not recognise any concept of good faith. It is also well
established that an “agreement to agree” is generally
unenforceable. However, there are some exceptional circumstances in
which a party may be able to recover costs which it has incurred,
not pursuant to an actual or implied contract, but because the
Courts will impose an obligation to pay.
Most recently, this issue was considered in the
case of Countrywide Communications Limited -v- ICL Pathway
Limited and Another (21st October 1999). Whilst this is not a
construction case, it does address some principles of general
importance.
Countrywide is a public relations consultancy which
carried out work for the First Defendant in relation to a project
for the proposed implementation of a computer system for the
payment of social security benefits. It is apparent from the
judgment that the course of negotiations was relatively involved,
but the precise details are of no immediate concern. In short, it
transpired that Countrywide provided various services to the First
Defendant with a view to being appointed on a long-term basis if
the First Defendant’s own bid for work was successful. For
reasons best known to the parties, Countrywide was not subsequently
appointed.
The Judge held, on the facts, that there was no
binding agreement to appoint Countrywide if the bid was successful.
Indeed, all of the detailed terms and conditions remained to be
negotiated. However, the Judge rejected the Defendant’s
submission that all of the preliminary work Countryside had carried
out was part of the ordinary process of bidding for work and that
it was accordingly speculative and “entirely at its own
risk”.
The Judge reached this conclusion by applying the
principles of restitution. In summary, on the facts of this case
the Court was prepared to impose an obligation to pay even if this
had not the been clear intention of the parties. Whilst there is
considerable academic debate, to which the Judge referred, on the
circumstances in which claims of this kind can be advanced, certain
principles are apparent. In particular, for a claim to succeed:
- the Defendant must have been “enriched” by the
services provided;
- enrichment must have been at the Claimant’s expense;
- retaining the benefit of the services provided without payment
for them must be unjust; and
- any defences would need to be taken into account.
This area of law is difficult and continuing to
develop. Payment for services provided during the course of
negotiations with a view to being appointed under a formal contract
is by no means certain and there is no substitute for obtaining a
binding contract with clearly defined rights. Nevertheless, it is
quite clear that the Courts will, in some circumstances, impose an
obligation to pay where a consultant would otherwise have provided
a benefit for free in circumstances where refusal to pay is, quite
simply, unjust.
If you have any further questions on this topic,
please contact Andrew Rawstron at anr@cms-cmck.com or on +44 171
367 2519