Skanska Rasleigh Weatherfoil v Somerfield Stores Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NEUBERGER,LORD JUSTICE RICHARDS,LORD JUSTICE LEVESON,Lord Justice Neuberger |
| Judgment Date | 22 November 2006 |
| Neutral Citation | [2006] EWCA Civ 1732 |
| Docket Number | A1/2006/1516, A1/2006/1517 |
| Court | Court of Appeal (Civil Division) |
| Date | 22 November 2006 |
[2006] EWCA Civ 1732
Lord Justice Neuberger
Lord Justice Richards
Lord Justice Leveson
A1/2006/1516, A1/2006/1517
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MR JUSTICE RAMSEY)
Royal Courts of Justice
Strand
London, WC2
MR J NICHOLSON QC & MR A HUGHES QC (instructed by Messrs Clarke Willmott) appeared on behalf of the Appellant.
MR S DENNISON QC & MS S CHENG (instructed by Skanska UK plc Legal Department) appeared on behalf of the Respondent.
This is an appeal from the decision of Ramsey J on the preliminary point of interpretation of a contract in a letter dated 17 August 2000 (the "August letter"), which included a temporary arrangement between Skanska Rashleigh Weatherfoil Ltd ("Skanska") and Somerfield Stores Ltd ("Somerfield").
Somerfield is a well-known operator of around 1300 supermarkets in the United Kingdom. In 2000 it decided to reorganise the way in which it procured the maintenance of those buildings and the machinery therein. It had in mind either a single national contract or a limited number of regionally-based contracts. Such a contract is known as a Facilities Management Agreement ("FMA").
On 19 June 2000 Somerfield invited Skanska, which specialises in such services, to tender for the provision of maintenance services to its properties in four, subsequently reduced to three, regions. The letter (the "June letter") included a draft of the proposed contract in the form of the incomplete FMA which, although in draft form, I shall call "the June FMA". The June letter invited prices to be submitted on the basis of three different service levels, of which only one, the "fully comprehensive level", is relevant.
The basic nature of the proposed FMA was that a contractor, for instance Skanska, would be required to provide preventative and reactive maintenance services to all the properties in the region for a term of three years. Preventative maintenance was envisaged as involving visits to carry out regular maintenance and servicing and, where necessary, replacements in accordance with a schedule to be agreed. Reactive maintenance was envisaged as being ad hoc maintenance, for instance carrying out work on request caused by acts of vandalism or leaking pipes. The June FMA contemplated a fixed annual fee, payable by instalments, for preventative maintenance services, and payment at agreed hourly rates for the reactive maintenance services.
Between June and August 2000, discussions between Skanska and Somerfield took place as to the scope and terms of the ultimate FMA they would enter into. Skanska submitted a tender on 14 July 2000, which was revised in a number of respects in the next month. By mid-August 2000 the position was as follows. There was an incomplete draft of the proposed FMA, namely the June FMA, which if finalised would govern the relationship between the parties for some three years. Pursuant to Somerfield's request, Skanska submitted its tender, which had been subjected to a number of revisions and was itself subject to a number of negotiations. The parties accordingly envisaged that there would have to be further negotiations before the June FMA, as amended by agreement, could or would eventuate into a contract.
However, Somerfield wanted to receive the provision of maintenance services immediately. In those circumstances Somerfield wrote a letter to Skanska on 17 August 2000. The letter was headed "Subject To Contract" and was in the following terms, save that the paragraphs were un-numbered, but I have numbered them for ease of reference:
"Dear Sirs,
Facilities Management Agreement
1. We refer to the invitation to tender ("Tender") sent to you on 19 th June 2000 for the provision to us of preventative and reactive maintenance services ("Services") in, respect of the major plant and related equipment. located in our stores in regions two (2) six (6) and eight (8) as detailed in the Tender.
2. We now wish to appoint you to provide us with the Services, which are more particularly described in the contract (ref.: JRB/2240842 DRAFT 3—14th June 2000) ("Contract") enclosed with the Tender.
3. This appointment is, however, strictly subject to contract, and to the approval of our board. As soon as this letter has been signed, we both undertake to commence good faith negotiations with a view to completing and signing a mutually acceptable contract derailing the terms of your appointment as soon as is reasonably practicable ("the Agreement"). No commitment from either of us relating to the provision of the Services shall (subject to the remaining provisions of this letter) arise until we have both signed the Agreement
4. We agree to negotiate exclusively with you in respect of the Services until we give you notice indicating otherwise, save that we may negotiate the termination of our existing arrangements with our existing suppliers relating to the provision of any services similar to the Services.
5. In consideration of the above, and whilst we am negotiating the terms of the Agreement, you will provide the Services under the terms of the Contract from 28 th August 2000 (or such other date as we may advise to you) until 27 th October 2000 ("the Initial Period"), such Services to be provided at the prices detailed in the Tender return provided by you (as subsequently amended) as the same are more particularly itemised on the attached schedule.
6. In agreeing to the Services being provided on the above basis during the Initial Period, neither of us is in any way fettering our discretion to seek additional or different provisions or prices when negotiating the detailed terms of the Agreement. We acknowledge that you will be expending time, resources and expense during the Initial Period, and in preparing to provide the Services after the Initial Period. Such expenses will include staff recruitment and the purchase of equipment. We, therefore, agree to reimburse your reasonable wasted costs and expenses should the Agreement not be signed or should we unilaterally withdraw from, or otherwise terminate, negotiations prior to signature of the Agreement PROVIDED ALWAYS that our liability under this paragraph shall not in any event exceed …"
The August letter ended by inviting Skanska to confirm its acceptance of its terms by countersigning and returning a copy to Somerfield.
On 21 August 2000, Skanska returned a copy of the letter, duly countersigned "agreeing to the terms set out above". On the same day Skanska also replied to the rest of the August letter in relation to the projected, longer term, three-year arrangement. In that letter various points were made by Skanska, including the point that it wished to limit its liability under an indemnity in the June FMA to £10 million in any one year.
It is common ground that the August letter, although headed "subject to contract", did include a contract relating to the provision of "services", as defined in paragraphs 1 and 2, for the "initial period" as defined in paragraph 5. (Any doubt about this must be put to rest by the bracketed words towards the end of paragraph 3). I shall call this contract "the temporary arrangement".
Although there were other preliminary issues which were determined by Ramsey J, the only issue which is the subject of this appeal is whether the temporary agreement included most of the terms of the June FMA, referred to as the "contract" in paragraph 2 therein, or whether it only incorporated very few of them.
Identifying the issue in this way is self-evidently not entirely satisfactory because of its lack of specificity. As I understand it, before the arguments were orally developed before the judge, the position each party took was rather more extreme than the position it now takes. Skanska was originally contending that none of the terms of the June FMA were to be implied in the temporary arrangement; the only purpose of referring to the June FMA in paragraphs 2 and 5 of the August letter was, on its case, to identify the nature of the works performed under the temporary arrangement. Somerfield, on the other hand, originally contended that all the terms of the June FMA were incorporated into the temporary arrangement, particularly in light of the way in which the June FMA was referred to in paragraph 5 of the August letter. However, the position of each party mellowed somewhat during the hearing and they both approached the issue "in terms of broad principle" as the judge recorded in paragraph 69 of his judgment.
Because neither party had an entirely clear position on every provision of the June FMA, the judge expressed his conclusion in this way in the next paragraph of his judgment:
"As a result, I answer this issue in terms of the broad principle that the terms incorporated are those terms of the June FMA limited to terms necessary to define the services which Skanska was to provide but also, as I have set out above, I have identified certain [broad] terms taking...
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