Merit Process Engineering Ltd v Balfour Beatty Engineering Services (HY) Ltd

JurisdictionEngland & Wales
JudgeMr Justice Edwards-Stuart
Judgment Date28 May 2012
Neutral Citation[2012] EWHC 1376 (TCC)
Date28 May 2012
CourtQueen's Bench Division (Technology and Construction Court)
Docket NumberCase No: HT-11463

[2012] EWHC 1376 (TCC)




Royal Courts of Justice

Strand, London, WC2A 2LL


Mr Justice Edwards-Stuart

Case No: HT-11463

Merit Process Engineering Ltd
Balfour Beatty Engineering Services (HY) Limited

Mr James Bowling (instructed by Mills & Co. Solicitors) for the Claimant

Miss Ruth Wilkinson (instructed by Dundas & Wilson LLP) for the Defendant

Hearing date: 18 May 2012

Mr Justice Edwards-Stuart



This is an application by the Defendant made under CPR 62.3(2) and section 9 of the Arbitration Act 1996 to stay the action brought by the Claimant. By an order made by Ramsey J on 15 March 2012, as varied by me on 31 March 2012, the parties were ordered to serve submissions and evidence setting out their position in relation to the application which was originally listed to be heard on 4 April 2012. It was put back to 18 May 2012 at the request of the Claimant.


A preliminary difficulty was that the Claimant made it clear that it wished to rely on oral evidence and did not consent to the application being determined on the basis of witness statements alone, unless the contents of the statement of its witness, Mr Tony Wells, a director of the Claimant's parent company, was accepted as true for the purposes of the application.


Miss Ruth Wilkinson, of Dundas & Wilson, who appeared for the Defendant, had indicated before the hearing to her opponent, Mr James Bowling, who appeared for the Claimant, that she did not wish to cross-examine Mr Wells. However, Miss Wilkinson was not prepared to accept the truth of the contents of his witness statement, a position that Mr Bowling was, unsurprisingly, not prepared to accept.


Accordingly I indicated to the parties at the outset of the hearing that the most appropriate course might be for the parties to make their submissions in the light of the evidence that had been served on the basis that if I thought it necessary to hear evidence in order to deal with the application fairly, I would adjourn it to enable the relevant witnesses to be called and cross-examined. If I felt that this was not necessary, I would determine the application on the basis of the written evidence as served. Both parties were content for this course to be adopted and so the application proceeded on that basis. This was because it seemed to me that if the Claimant were to be successful in relation to the Main Installation package on the basis of the documents, it would have no need to rely on any oral evidence.


The action brought by the Claimant relates to three separate work package contracts, if contracts they were, made with the Defendant, two of which were closely related —known as the Main Installation package and the Vacuum Drainage package —and one of which involved a wholly different project, at a different site and involving different people. That was the Isis contract.


It has been accepted by the Claimant from the outset that the Isis contract did incorporate a valid arbitration clause and that there can be no answer to the Defendant's application for a stay of the proceedings in relation to that contract. However, the Claimant submitted that the Defendant was being unreasonable by insisting on its right to have that dispute referred to arbitration if the other two disputes were to be resolved by litigation. That has given rise to a small issue in relation to costs.


So far as the Main Installation package and the Vacuum Drainage package are concerned, the former is by far the more substantial claim. The subject of the Vacuum Drainage contract is a simple claim for £12,000, said to have been deducted by the Defendant by way of retention. Under the Main Installation package the Claimant claims over £685,000 plus VAT. It is convenient to deal with that part of the application first.

The Main Installation package


The Claimant was invited to quote for the installation of certain pipework, plant and other work on a project known as the Diamond Synchrotron Project. The parties negotiated for some time during 2003 and 2004, during which the scope of the work originally contemplated was significantly reduced, but eventually —by a letter of intent dated 2 March 2004 —the Claimant was invited to start the Main Installation works under the terms of the letter pending the agreement of a formal sub-contract. As the works progressed the limit of expenditure under the letter of intent was raised in stages from the £500,000 stated in the letter to £1,600,000. The final limit was agreed in September 2004.


The main contractor was Costain, to whom the Defendant was a sub-contractor. However, the Defendant did not sign the sub-contract with Costain until 10 December 2004. It was accepted by Miss Wilkinson at the hearing before me that, whatever the extent of the agreement between the parties as to the terms of the sub-contract for the Main Installation package, there was no intention to create legal relations until the terms of the Defendant's contract with Costain had been finalised.

The letter of intent


After confirming that it was the Defendant's intention to enter into a contract with the Claimant for the relevant work (which I do not need to set out), the letter of intent continued as follows:


Contract documents will be sent to you in due course. In the meantime please accept our instructions to commence the works with all due expedition and in accordance with our directions.

These instructions are given to you subject to contract (and include the provision of a Performance Bond to the Value of £80, 000 or 5% of your agreed Contract Value) the conditions of which will be HY/SUBCO/1 Edition 1 July 2001 Revision, but it is agreed that if the contract is not concluded between us, subject to the following restriction, you will be entitled to re-imbursement of your actual costs, properly and exclusively incurred in complying with these instructions, but you will have no entitlement to claim loss of profit or any other consequential loss, cost or expense.

Interim payments will be made to you. The first Valuation Date will be …

Your entitlement to re-imbursement in complying with these instructions is limited to an amount not exceeding £500,000 (Five Hundred Thousand Pounds) unless, further instructions are given to you by [the Defendant] in writing expressly or clean this financial limit. You are also required to:

• Forward a copy of your current Employers Liability and Public Liability insurances, and the completed Acknowledgement Slip from our "Health Safety & Environment Guide for Sub-Contractors" prior to commencement of any works on site.


All of the above requirements must be satisfied prior to commencement of any works on site. Please signify your acceptance of the terms of this instruction by signing and returning to us a copy of this letter."

(My emphasis)

It is to be noted that this letter contained no limitation as to the period for which it would remain valid.

The subsequent correspondence


The following day, 3 March 2004, Mr Wells, acting on behalf of the Claimant, sent an e-mail to Andrew Edwards, then a Senior Buyer of the Defendant, in the following terms:

"Confirming yesterday's discussion:

5% limit on liquidated damages is accepted

We will provide a 5% (GBP 80,000) bond until December 04

We will provide a milestone payment schedule by Friday 12 March

If you send through a copy of your T&Cs, we can start to review."


On 5 March 2004, Mr Edwards replied as follows:

"Confirm all acceptable. Attached doc for your perusal. It's not yet complete as we still have loose ends to tie up with Costain so the contract specifics are still missing."


On 24 March 2004 Mr Edwards had a meeting with Mr Wells and a Mr Iain Paterson, the Commercial Manager of the Claimant, and on the following day, 25 March, he sent an e-mail to Mr Wells, copied to Mr Paterson, in the following terms:

"Further to our meeting yesterday with Iain, we seem to have one outstanding item, being settlement discount being included. As I recollect we agreed on an overall cost of £1,550,000.00 for the project, but still had issues over the payment being 60 days and also the fact that we could not make any payment for anything off-site.

We agreed that we would raise the contract figure to £1,600,000.00 on the basis that £22,000.00 would accommodate your financing the project costs due to non-payment off site and £28,000.00 for the deduction of 2.5% settlement discount in order that we could make payment in 35 days from application dates agreed.

If you are now stating this causes a problem then we have no alternative but to reduce the contract price by £28,000 and revert to 60 days payment terms."


On receiving this Mr Wells sent Mr Edwards a short e-mail saying that he would call him the following day to discuss and "agree something fair and reasonable". On the following day, 26 March 2004, the two of them spoke on the telephone, after which Mr Wells sent the following e-mail to Mr Edwards:

"Confirming our conversation this morning.

We accept your proposal of 30–35 day payments, with valuations of onsite materials only; at a price of GBP 1,600,000.


This suggests that the Defendant's proposal described in the e-mail of 25 March 2004 was agreed.


However, on 30 March 2004 Mr Paterson sent an e-mail to Mr Edwards in the following terms:

"I understand that the only outstanding issue related to the 2.5% Discount Clause in the Sub-Contract is now resolved with Tony.

To confirm, the agreement reached is that the Sub-Contract Amount is £1,637,500.00 which is subject to 2.5% Discount. Payment Terms to be based on 35 days.

Therefore all remaining terms are now agreed in principle —could you please therefore confirm when we can anticipate receiving the formal sub-contract...

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2 firm's commentaries
  • Contract Formation And The Incorporation Of Arbitration Clauses
    • United Kingdom
    • Mondaq United Kingdom
    • 20 July 2012
    ...Topic Case of Merit Process Engineering Ltd v Balfour Beatty Engineering Services (HY) Ltd, [2012] EWHC 1376 (TCC) concerned issues regarding formation of contract. In particular it addressed whether the parties had reached an agreement on price and insurance arrangements and ultimately whe......
  • The Concluded Bargain: Near Enough Good Enough?
    • United States
    • Mondaq United States
    • 16 April 2013
    ...near enough was not good enough. Footnotes 1 Merit Process Engineering Ltd. v. Balfour Beatty Engineering Services (HY) Limited, [2012] EWHC 1376 (TCC). 2 See Bear Stearns Bank Plc v. Forum Global Equity Ltd, [2007] EWHC 1576 3 See Pagnan SpA v. Feed Products Ltd., [1987] 2 Lloyd's Rep 601.......

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