Contract formation: the importance of pre-contract meetings

Disputes concerning the formation of contracts are not uncommon in the construction industry. Contractors or subcontractors often commence work before a contract has been properly concluded, resulting in each party asserting that its standard terms form the basis of the contract when problems arise. This is more commonly known as the 'battle of the forms'.

Such a situation arose in the case Cubitt Building and Interiors Limited -v- Richardson Roofing (Industrial) Limited, in which the parties required certain declarations as to what terms and conditions were incorporated into the subcontract. Cubitt alleged that its standard terms and conditions were incorporated and Richardson alleged that it was the Dom/1 subcontract conditions.

Cubitt sent a tender enquiry to Richardson, which it ignored. Following a further invitation, Richardson quoted as had been requested, which it stated was subject to its standard conditions. Further exchanges took place and Richardson priced further pages of the Bills of Quantities. After this exchange, the parties had a meeting on 12 May 2003. At that meeting Cubitt, as was its standard practice, provided a copy of its eight-page pro-forma meeting minutes entitled Pre-Subcontract Meeting Minutes, which were used for discussion and confirming the agreements reached.

Substantial agreement on every aspect of the subcontract was reached at that meeting in respect of the subcontract conditions, price, payment periods, programme, insurances and attendances to be provided by Cubitt. Soon after that meeting, Cubitt issued a relatively simple letter of intent stating: "Please accept this letter as notification of our instruction to proceed." That letter also stated that a formal subcontract would be prepared and issued. Richardson did not signify its acceptance of that letter by signing it as requested in the letter. A few days later, Cubitt sent its order to Richardson, which did not sign it. The inevitable question arose as to whether a contract was agreed and when.

Agreement on price

The judge's view was that the agreement was reached by the parties at the subcontract meeting on 12 May 2003, as there was agreement on price and all essential areas that required agreement. Neither party had pleaded or argued that a binding agreement was reached at this subcontract meeting, preventing the judge from deciding the matter in this way.

However, the judge's view was that before the letter of intent was sent, there was an offer capable of acceptance, namely the finally revised price with all the other terms that had been materially agreed at the 12 May 2003 meeting. The judge concluded that Cubitt's letter of intent dated 29 May 2003 was in contractual terms an acceptance of the most recent offer. Accordingly, the subcontract, incorporating the Dom/1 conditions, came into existence on the date of the letter of intent.

Additionally, the judge's view was that the intention to enter into a formal subcontract in the future as stated in the letter of intent did not undermine its legal effect. This overcame the problem of the parties' pleaded case and the rejection by Richardson of Cubitt's order.

It is unclear as to whether a completed set of pre-contract agenda/meeting minutes would be sufficient in themselves to constitute a written contract in accordance with section 107 of the Construction Act. In Mast Electrical Services -v- Kendall Cross Holdings Limited, the judge decided that the pre-start meeting minutes neither constituted nor evidenced such a contract, as they failed to set out or record all the terms of the contract, particularly in respect of agreed rates of payment. This deprived Mast of its right to refer its dispute(s) to adjudication.

However, if pre-order agenda/meeting minutes are as comprehensive as those used in this case (as are now commonly used by contractors in concluding negotiations with subcontractors), and if they properly record all the agreements as to the contract terms, then it is likely that they would be sufficient to constitute a contract in accordance with section 107 of the Construction Act.

In summary, contractors and subcontractors should not underestimate the importance of pre-order agendas/meeting minutes as they could create a legally binding contract, or constitute an offer that can be accepted resulting in a legally binding contract.

Gary Peters

Director, Brewer Consulting

Summing up

The case:

Cubitt Building and Interiors Limited -v- Richardson Roofing (Industrial) Limited [2008] EWHC 1020 (TCC).

The issue:

The potential importance of pre-contract meeting agendas/meeting minutes.

The implication:

Contractors and subcontractors should not underestimate the importance of pre-order agendas/meeting minutes as they could create a legally binding contract, or constitute an offer which can be accepted resulting in a legally binding contract.