Aughton Ltd (Formerly Aughton Group Ltd) v M.F. Kent Services Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE RALPH GIBSON,SIR JOHN MEGAW |
| Judgment Date | 04 November 1991 |
| Judgment citation (vLex) | [1991] EWCA Civ J1104-4 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 91/1042 |
| Date | 04 November 1991 |
[1991] EWCA Civ J1104-4
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LIVERPOOL DISTRICT REGISTRY
OFFICIAL REFEREE'S BUSINESS
(HIS HONOUR JUDGE STANNARD)
Royal Courts of Justice
Lord Justice Ralph Gibson
and
Sir John Megaw
91/1042
MISS MARY O'ROURKE, instructed by Messrs Baker & McKenzie, appeared for the Appellants (Defendants).
MR ADRIAN WILLIAMSON, instructed by Messrs Hill Dickinson Davis Campbell (Liverpool), appeared for the Respondents (Plaintiffs).
This is an appeal brought with the leave of the single judge by M.F. Kent Services Limited, the defendants, from the order of His Honour Judge Stannard, sitting as Official Referee in Liverpool, whereby on 15th March 1991 he refused to stay parts of the proceedings under section 4 of the Arbitration Act 1950. He held, in a detailed and careful judgment, that an arbitration clause contained in a document was not effectively incorporated in the contract between the parties. I have found the case difficult. For the reasons which follow, I would uphold the order of the learned judge but on different grounds.
The nature of the submissions made on this appeal, and of the authorities to which we have been referred, makes it necessary to state the facts in detail.
(i) The proceedings are between Aughton Limited, the plaintiffs, ("Aughton") and M.F. Kent Services Limited ("Kent") with reference to work done by Aughton at the Atomic Weapons Research Establishment at Aldermaston. The contractual structure for the doing of all the work in hand at Aldermaston began with a main contract between the Ministry of Defence and Press Construction Limited ("Press") as main contractors for the work. Press engaged Kent as sub-contractors to carry out part of the work, namely instrumentation and electrical installation. Kent then, in about August 1987, engaged Aughton to carry out work connected with the electrical installation.
(ii) Aughton were engaged by Kent on six sub-sub-contracts, No.l Pre-calibration, 23rd November 1987, £18,591; No.2 Instrumentation, 3rd June 1988, £884,459; No.3 Electricians, 3rd June 1988, £42,674; No.4 Loop checking, 12th October 1988, £72,716; No.5 Equipment hire, 22nd October 1987–8th February 1988, £3,605; and No.6 Calibration, 30th March 1989, £1,051. The sums stated are not contract prices but the amounts claimed by Aughton including interest and they are disputed: see affidavit of Mr Kavanagh: file 2: pages 3–4. The dates are those on or between which the sub-sub-contracts were made. The arbitration agreement was claimed by Kent to have been incorporated only into sub-sub-contract No.2 (I shall refer to the sub-sub-contracts hereafter by their numbers), but the stay was claimed in respect of both No.2 and No.4 on the ground that No.4 was an agreed extension or variation of the work under No. 2.
(iii) It was not disputed in argument that No.2 became an effective contract when Aughton accepted the offer made by Kent in their letter of 3rd June 1988. That letter contained two paragraphs to which much of the argument has been directed. They were as follows:
"(7) You [Aughton] will enter into a sub-sub contract with us [Kent] based on G C Works I as discussed at our meeting on 21.2.88 for the execution of the works.
(11) Our previous correspondence and the documentation encompassed in our enquiry forms part of our agreement."
The arbitration clause was said to be incorporated into the sub-sub-contract by the words in paragraph (7) not from GC/Works/1 but from the conditions of the Press/Kent sub-contract. That has required examination of what had been discussed at the meeting and the "previous correspondence and documentation".
(iv) On 7th December 1987 an invitation to tender was handed by Mr Kavanagh of Kent to Mr Girdham of Aughton together with drawings and a specification. In the document Press were named as the main contractor and Aughton were invited to tender to Kent for the work as sub-sub-contractor. The conditions of the main contract were said to be "Form GC/Works/1/edition 2 as amended". The form of tender was required to be "based on the following information and documents which are enclosed". Those matters were listed under headings (a) to (i). Under (b) to (i) reference was made to such matters as drawings, specification, bills of quantities and schedules of rates and of them no mention has been made in argument. Under (a) there was reference to "Press Construction Limited conditions of sub-contract and M.F. Kent Services Limited conditions of sub-sub-contract".
(v) There were in existence when the invitation to tender was handed over, "Press Construction Limited conditions of sub-contract" in the sense that conditions of sub-contract were contained in the sub-contract between Press and Kent. They were based, in fact, on the GC/Works/1 conditions with certain changes. Those conditions have been called in argument "Press/Kent". There were, however, no Kent conditions of sub-sub-contract. Kent had had in mind the preparation of a set of conditions for sub-sub-contracts, but did not in fact have that done. No mention was made of these matters in December.
(vi) Aughton tendered for the work in No.2 on the basis of the invitation to tender. The form of tender is not relied upon.
(vii) On 21st January 1988 Mr Kavanagh met Mr Girdham and there was reference to conditions of contract. After the meeting by letter or fax of 27th January 1988, Mr Kavanagh confirmed Kent's interest in placing a letter of intent with Aughton for the installation of pipe work and the unit rates were set out. Paragraph 5 of that letter reads:
"You [Aughton] will enter into a subcontract with us based on G.C.Works 1 as discussed and clarified at our meeting of 21st January 1988 for execution of the works."
(viii) The judge held, after hearing the oral evidence of Mr Kavanagh and Mr Girdham, that, at the meeting of 21st January 1988, Mr Kavanagh showed to Mr Girdham a copy of the Press/Kent contract and attempted to take him through it. His explanation was limited because Mr Girdham was interested only in the terms of payment. The judge accepted that on that occasion Mr Kavanagh made it clear to Mr Girdham that "the terms of No.2 were to be contract terms as G.C/Works/1-Press/Kent contract unmodified; that No.2 was to be 'back to back' with the Press/Kent contract incorporating G.C/Works/1, and that Kent was passing on to Aughton the conditions imposed on Kent by the Press/Kent contract." Mr Kavanagh also told Mr Girdham that Kent did not intend to add any additional clauses of their own save as to general housekeeping and safety matters. Later Kent decided not to impose any such additional clauses on the ground that in their view they were sufficiently covered by the conditions of the Press/Kent contract. It is not necessary to explain why and how the word "unmodified" got into this case. Neither side has attached importance to it.
(ix) On 2nd March 1988, at a second meeting, prices for No.2 were confirmed.
(x) On 3rd June 1988, Kent sent their letter to which I have referred above. The form of the offer contained in the letter was "We confirm our intent to place an order with you as follows". The substance of the work was then described. The letter continued:
"This order will be subject to the following conditions:
1) Rates for pipeworks installation will be as our fax to you of 27.1.88.…
5) Quantities indicated in the [bills of quantities] are indicative only. Final value of the contract will be measured on the actual installed quantity multiplied by the rate as provided in the sub contract.…
7) You will enter into a sub-sub contract with us based on G C Works I as discussed at our meeting on 21.2.88 for the execution of the works.
8) Payment will be 'back to back', Certificates will be monthly and payment will be within 14 days of our receipt on payment.…
11) Our previous correspondence and the documentation encompassed in our enquiry forms part of our agreement…
We require your acceptance by return."
(xi) There was, it seems, no formal acceptance from
Aughton but there is no doubt that, as already stated, No.2 became a binding contract by acceptance by conduct of the offer in the letter of 3rd June 1988.
(xii) The judge found that certain conduct on the part of Aughton after the making of the No.2 amounted to admissions that that sub-sub-contract was governed by the conditions of the Press/Kent contract. That conduct so described included the observance of the conditions with reference to the provision of a programme, records and returns, notices of delay, payment and written confirmation of instructions; a letter written on 27th October 1988, in which Aughton referred to having received "a copy of our back to back Contract Form GC/Works/1" which was a reference to a copy of the Press/Kent contract; and another letter of that date in which Aughton wrote that unless certain payments were made Aughton would "have no alternative but to require that this situation goes to arbitration". That, said the judge, could only be a reference to condition 61 the arbitration clause in the Press/Kent contract. No plea of estoppel has been raised in this case.
(xiii) No.4 was made, according to Aughton, in October 1988. The judge held that in December 1988 it was orally agreed by Mr Kavanagh with Mr Redshaw of Aughton that No.4 should be an extension or variation of No.2 and that, therefore, No.4, as No.2, incorporated the conditions of the Press/Kent contract insofar as they were...
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