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Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd [2006] ABC.L.R. 11/22 - page 2 / 5





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Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd [2006] ABC.L.R. 11/22

The August letter ended by inviting Skanska to confirm its acceptance of its terms by countersigning and returning a copy to Somerfield.

  • 7.

    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.

  • 8.

    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".

  • 9.

    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.

  • 10.

    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.

  • 11.

    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 account of the limited submissions made as to the practical effect of that broad principle."

  • 12.

    In effect, therefore, the judge accepted Skanska's submission that very few of the provisions of the June FMA, in effect only those which directly or indirectly defined "the services", were to be treated as incorporated into the temporary arrangement. Concomitantly he rejected Somerfield's submission that the temporary arrangement incorporated all the provisions of the June FMA, save those which were inconsistent with the terms of the August letter or with a two-month agreement. In reaching his conclusion the judge directed himself in accordance with the approach set out by Lord Hoffman in Mannai Investment Co v Eagle Star Life Assurance [1997] AC 749-775, and in Investors Compensations Scheme v West Bromwich Building Society [1998] 1 WLR 912-914. In other words, in summary, he sought to interpret the words of the August letter as they would be objectively be understood against the background of the particular context in which they were written.

  • 13.

    The judge first considered the words of the August letter and, in particular, the reference to the June FMA, described therein as the "contract" in paragraphs 2 and 5 of that letter. He considered that the wording in each case was consistent with the notion that the June FMA was simply being referred to for the purpose of identifying "the services" which Skanska was to provide during the period specified in paragraph 5.

  • 14.

    Turning to the surrounding circumstances, the judge thought that two factors were of particular importance in relation to the issue of whether the temporary arrangement was to be treated as subject to most of the terms of the June FMA. First, he considered that the June FMA was intended to apply for a reasonably long period, namely three years, whereas the temporary arrangement was intended to be for a much shorter period, namely two months, although it is fair to say that, in practice, due to extensions agreed expressly or impliedly between the parties, it lasted much longer than that. Secondly, he considered that it was clear from the terms of the August letter that the one thing that the parties had yet to agree, and were anxious not to agree for the moment, was whether they should be bound by all the terms of the June FMA. It was those terms that they were seeking to negotiate, and it was because they had not reached agreement as to all those terms, that they had not reached a binding agreement there and then. Accordingly, he thought it highly unlikely that the parties would have intended to have been bound by the June FMA.

  • 15.

    Like many issues of interpretation, the point raised in the instant case is not entirely easy and it was rendered more difficult by the change of position on the part of each party during the hearing. That is not intended to imply any criticism of a party who changes its position in relation to a point of interpretation or any other point of law during argument in court. One of the many benefits of such oral debate is it enables points to be refined or improved in the way which would be hard or even impossible if the debate were pursued solely in writing.

  • 16.

    I turn to paragraph 2 of the August letter. It seems to me that the reference there to the June FMA is quite plainly limited in the way that Skanska argues and the judge held. The purpose of the reference to the June FMA was merely an order to identify "the services" there described. Indeed, I do not understand Somerfield to argue the contrary.

Arbitration, Building & Construction Law Reports. Typeset by NADR. Crown Copyright reserved. [2006] EWCA Civ 1732


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