England and Wales High Court (Technology and Construction Court) Decisions

Case No: 1997/ORB/509

Date: 28 October 1998

B e f o r e :

Mr Anthony DE FREITAS (instructed by Davenport Lyons for the Plaintiff)

Mr David RAILTON QC and Jeffrey CHAPMAN (instructed by Squire and Co for the Defendant)

1. In this litigation, the Plaintiff seeks damages for negligence and/or breach of contract by the Defendant in the performance of its professional duties as architect. He also seeks the sum of £132,680 in restitution, as money paid under a mistake of fact. The contract of engagement contained the following limitation of liability clause:

" 6.2 The liability of the Architect for any loss or damage arising out of any action

or proceedings referred to in clause 5 shall, notwithstanding the provisions of clause

6.1, in any event be limited to a sum not exceeding £250,000".

2. This judgment is concerned with the application of this clause to the issues raised in these proceedings. The 2 principal questions that fall for determination are (i) whether the clause applies at all to the claims that are made by the Plaintiff (in particular, to the claim in restitution), and (ii) if it does, whether the clause satisfies the test of reasonableness as required by the Unfair Contracts Terms Act 1977 ("UCTA"). Before I come to the issues, however, I need to summarise the relevant history.

3. The Plaintiff is an heir to the Littlewoods fortune, and a very wealthy man. In 1993, he was considering having a bungalow built on the land that he owned at Deelinmore, Carron, Co Clare, Eire. He had been dealing with an interior designer and an Irish builder. Contract documents had been prepared, and a price quoted. The Plaintiff was being advised by his solicitor, a Mr Pickworth.

4. Mr Yakeley is an architect who has been in practice since the late 1960s. In March 1993, he formed the Defendant Co. It was registered on 16 March. Immediately before that, he had practised as Yakeley Associates Architects Ltd, which was a wholly owned subsidiary of CMW Plc. The parent company went into liquidation in May 1993.

5. Mr Pickworth approached Mr Yakeley in early March seeking his opinion as to the adequacy of the contract and specification which had been drafted by the interior designer. Mr Yakeley met the Plaintiff and Mr Pickworth on 17 March. He advised them that the contract and specification were inadequate. He agreed to visit the site in order to consider the position in more detail.

6. On 19 March, he visited the site with the Plaintiff. On 21 March, he sent Mr Pickworth a fax, (which he dated 22 March). Under cover of the fax, he sent copies of 2 draft letters (which wrongly bear the date 24 March) addressed to the Plaintiff. The first draft letter contained a detailed critique of the services that had been provided by the interior designer, and in particular the proposed contract documents. The second put forward the terms on which Mr Yakeley was prepared to act as architect for the project. In the draft letter, he said that his fee would be 8.5% of the construction cost, subject to a minimum of £19125, assuming for this purpose a construction cost of £225,000. The letter continued:

"The terms of our appointment would be in accordance with the Royal

Institute of British Architects Standard Form of Agreement for the

Appointment of an Architect, a copy of which I have enclosed and

completed in respect of this project.

In addition, we would be happy to carry out tender action through

completion (including inspecting the works during construction)

for which we would charge £70 per hour including travelling time

Alternatively you could employ a local, properly qualified achitect

to carry out this service for you."

.

7. Enclosed with the draft letters was a copy of SFA 92, whose terms included the following:

"3. The Architect shall provide the Services specified in Schedule Two

4. The Client shall pay the Architect the fees and expenses and

disbursements specified in Schedule Three.

5. No action or proceedings for any breach of this Agreement shall be

commenced against the Architect after the expiry of three years from

completion of the Architect’s Services, or, where the Services specific

to building projects Stages K-L are provided by the Architect, from the

date of practical completion of the Project.

6.1 The Architect’s liability for loss or damage shall be limited to such sum

as the Architect ought reasonably to pay having regard to his responsibility

for the same on the basis that all other consultants, Specialists and the

contractor, shall where appointed, be deemed to have provided to the

Client contractual undertakings in respect of their services and shall be

deemed to have paid to the Client such contribution as may be appropriate

having regard to the extent of their responsibility for such loss or damage.

6.2 The liability of the Architect for any loss or damage arising out of any action

or proceedings referred to in clause 5 shall notwithstanding the provisions

of clause 6.1 in any event be limited to a sum not exceeding £250,000.00

6.3 For the avoidance of doubt, the Architect’s liability shall never exceed the

lower of the sum calculated in accordance with clause 6.1 above and the sum

provided for in clause 6.2."

8. In Schedule 2, stages A to C (inception to outline proposals) had been struck out, but stages G to L ( ie the stages from tender action to completion) had not been struck out. Schedule 3 included the following:

"1. Fees

Percentage fee of 8.5% with minimum of £19,125.00 for Stages D through

F-G and hourly for stages H through K-L as set out in Stephen Yakeley

Associates Ltd’s letter dated 24 March 1998 to James Moores Esq."

9. The figure in Clause 6.2 was emboldened.

10. On 21 March, the Plaintiff spoke to Mr Pickworth by telephone. Mr Pickworth said that he was very happy with both letters and the agreement. On the following day, the Plaintiff spoke to Mr Yakeley. The Plaintiff wanted to know whether Mr Yakeley would be preparing the drawings and specification, and how long this would take. Mr Yakeley said that he would send the 2 letters which had been vetted by Mr Pickworth. On the same day, Mr Yakeley sent the 2 letters by fax to the hotel in Dublin where the Plaintiff was staying. On 23 March, the Plaintiff confirmed by telephone to Mr Yakeley that he was happy with the 2 letters, and was happy to receive the original SFA 92 when they next met. On that same day, Mr Yakeley sent the Plaintiff by first class post a copy of the agreement to his address at " Beelin More" (sic).

11. The Plaintiff and Mr Yakeley met on 29 March. The Plaintiff mentioned that there was a barn and stables, saying that cost would determine whether these would be built. He also said that he was seeing another architect that afternoon, and would revert to him the following day.

12. On 30 March, the Plaintiff telephoned Mr Yakeley and said that he accepted Mr Yakeley's quotation. On 2 April, Mr Yakeley wrote to the Plaintiff confirming that his proposal had been accepted, and that he had started work.

13. In May, Mr Yakeley was asked to design the barn and stables. On 26 May, he wrote to the Plaintiff offering a fee of 8.5%, subject to a minimum of £18,700 (assuming a construction cost of £220.000), all other terms being those contained in the second letter of 22 March. It seems that this proposal was accepted, but in the event, the Defendant was required to do little or no work on the barns or stable. By 27 July, the quantity surveyors were advising a budget figure for the whole project of £690,000: of this sum, £355,000 was in respect of the bungalow.

(i) When and how did the contract between the parties come into existence?

(ii) Did the agreement include clauses 6.1 to 6.3 of SFA 92?

(iii) Do clauses 6.1 to 6.3 apply to all the pleaded claims, including in particular to the claim which is pleaded in restitution?

(iv) Do clauses 6.1 to 6.3 satisfy the test of reasonableness under UCTA?

15. This issue arises only because section 11(1) of UCTA requires the reasonableness of a term to be judged having regard to the circumstances which were, or ought reasonably, to have been known to or in the contemplation of the parties when the contract was made. For the Plaintiff, it is submitted that the contract was made in about June 1993. On behalf of the Defendant, it is contended that the contract was made on 23 March, or alternatively on 30 March 1993. I am in no doubt that the contract was made on 30 March.

16. I am satisfied that by the time of telephone conversation on 30 March, the Plaintiff had received the 2 letters of 22 March and the SFA 92 Agreement, and that it was the offer contained in these documents that the Plaintiff accepted orally on that occasion. On the face of it, a contract was clearly created by that acceptance. Mr De Freitas, however, submits otherwise. He contends that there was a "tension" between the second letter of 22 March, clause 3 of the SFA 92 conditions and Schedules 2 and 3 of the Agreement, which was not resolved until about June 1993, and that until there was a resolution, there could be no contract. He points to the fact that the letter speaks of an engagement for stages up to stage G in Schedule 2, whereas clause 3 of the conditions states that the Defendant will provide the services specified in Schedule 2, which include all stages from D to L. I cannot agree with Mr De Freitas' analysis. It seems to me that, reading the letter and SFA 92 together, it is clear that the Defendant was offering (i) to do stages D to G for 8.5% of the construction cost; and (ii) to do stages H to L at the hourly rate of £70. In so far as there is a conflict between clause 3 of the standard form on the one hand and the language inserted by Mr Yakeley in Schedule 3 on the other hand, the latter must prevail as indicating the intention of the parties. There is no evidence that the parties thought that there was a conflict, still less one whose resolution was a precondition of the concluding of a binding contract. Furthermore, there is no evidence that anything relevant happened in June which bore on this issue.

17. Since nothing turns on the question whether the contract was made on 23 rather than 30 March, I do not propose to give my reasons for preferring the later date.

18. In my judgment, it is impossible to argue that clause 6, and in particular clause 6.2 was not incorporated in the contract that was made on 30 March. I accept the submissions of Mr Railton QC on this issue. I find that the Plaintiff was aware of the limitation in clause 6.2. As he conceded in evidence, the limitation contained in clause 6.2 was obvious at a glance to anyone looking at the document. I am satisfied on the balance of probabilities that, by the 30 March, the Plaintiff had received the SFA 92 document, at least in the unsigned version that had been sent by first class post on 23 March (and which was disclosed by him on discovery). It is also likely that he had received a faxed copy of the agreement sent on 22 March. In the light of the problems over the terms of the contract with the builder which Mr Yakeley had identified, it was likely that the Plaintiff would wish to see the terms that were being offered by Mr Yakeley. There is support for this in the fact that in his letter to Mr Pickworth dated 22 March, Mr Yakeley said that he had mentioned to the Plaintiff on the telephone that he would be sending him "the letters and the agreement".

19. Even if the Plaintiff had not personally received a copy of the SFA 92 document by 30 March, Mr Pickworth undoubtedly had done so. Mr Pickworth was acting as the Plaintiff's solicitor, and had considered the documents (including SFA 92)and advised the Plaintiff that he was happy with them. Mr Pickworth's knowledge of the terms of clause 6 of SFA 92 is, as a matter of law, to be imputed to the Plaintiff: see Halsbury's Laws 4th Edition Volume 1(2) paragraph 149. Mr De Freitas sought to meet this point by submitting that Mr Pickworth was not the Plaintiff's agent, because he did not negotiate with Mr Yakeley on behalf of the Plaintiff. He even went so far as to suggest that Mr Pickworth was in truth advising Mr Yakeley, and acting as agent for the Defendant company, so that any knowledge acquired by Mr Pickworth during the transaction could not be imputed to the Plaintiff. This suggestion had never been raised until Mr De Freitas made his final speech, and was not put to Mr Yakeley in evidence. Neither party called Mr Pickworth. In these circumstances, I am not prepared to find that Mr Pickworth was advising the Defendant company rather than the Plaintiff. It seems clear to me that he was clearly acting as the Plaintiff's solicitor in advising him as to the terms of the Defendant's engagement. Accordingly, his knowledge must be imputed to the Plaintiff.

20. Since the Plaintiff was aware of clause 6, I conclude that it was incorporated in the contract. Even if I had held that the Plaintiff was not aware of the clause, I would still have concluded that it was incorporated on the grounds that it was sufficient for incorporation that the clause was a condition in common form, and that adequate notice had been given identifying the conditions which were available for inspection: see Circle Freight v Medeast [1988] 2 LLR 427,433. Clause 6 is in common form in a standard form of contract. All that the Defendant was obliged to do was fairly bring to the Plaintiff's attention the fact that some conditions would be attached to the agreement between the parties: see Thornton v Shoe Lane Parking Ltd [1971]2 QB 163, 172-173 .

21. At paragraph 3 of the Reamended Statement of Claim, the following implied term is pleaded:

" that the Defendants would only be entitled to charge:

(i) As additional works at an hourly rate work which was not additional only by virtue of the Defendant's failure to carry out the works in the said Stages with reasonable care and skill; and

(ii) For such hours as an architect exercising reasonable care and skill would spend in doing additional work or doing work under Stages H through K to L."

22. The pleading then alleges at paragraph 6 that payments were made to the Defendant under a mistake of fact, namely that the invoices raised for additional works were not additional only by virtue of the Defendant's failure to carry out the work with reasonable care and skill, and the invoices raised for hours were for such hours as an architect exercising reasonable care and skill would spend in doing additional work. An alternative case is pleaded in misrepresentation. At paragraph 7, there is pleaded an orthodox series of allegations of breach of contract in failing to carry out the contract with reasonable skill and care.

23. The prayer contains a claim for £132,680 in restitution for repayment of the money overpaid under a mistake of fact, and a claim for damages for breach of contract.

24. Mr Railton submits that £250.000 limit does not apply only to liability for breach of contract. He relies on the difference in language between clause 6.1 and 6.2, submitting that the "loss or damage" referred to in clause 6.1 is not restricted to loss or damage resulting from a breach of contract. In this, it is to be contrasted with clause 6.2, which refers back to clause 5, which mentions proceedings for breach of the agreement. Finally, he points to clause 6.3, which provides that the Defendant's liability shall never exceed the lower of the sum calculated in accordance with clause 6.1 and the sum provided for in clause 6.2. If it had been necessary for me to decide this point, I would have been inclined to reject Mr Railtons' argument on the simple ground that, reading clauses 5 and 6 as a whole, it seems to me that they are dealing exclusively with liability for breach of the agreement. It would be strange if the draftsman had intended to deal with, and only with the consequences of a breach of the agreement in clause 5 and clause 6.2, but to sandwich between these clauses a provision dealing not only with liability for breach of contract, but other liability as well.

25. I have no doubt, however, that even if clause 6.1 only applies to liability for breach of contract, it applies to all the pleaded causes of action in this case. The submission of Mr De Freitas is simple. He says that a claim in restitution is not a claim for damages for breach of contract. It is fundamentally different. Accordingly, clause 6 does not apply. I can accept that, conceptually, a claim in restitution is different from a claim for damages for breach of contract. But there is another well-established principle of law, which is fatal to the argument of Mr De Freitas. A limitation which the parties have agreed as applicable to claims for damages for breach of contract cannot be circumvented by formulating a claim which could be made in contract on some other basis. The agreement sets out the respective risks and responsibilities assumed by the parties. It is not open to the Plaintiff to evade this limitation by suing on an alternative ground. This principle is most frequently applied where a party seeking to escape from the terms of a contractual exclusion or limitation clause, by alleging a concurrent duty in tort, is held to be bound by the clause in relation to his claim in tort as well as his claim in contract: see, for example, Henderson v Merrett Syndicates [1995] AC 145,191A-C,193B-E;, and Elder Dempster & Co Ltd v Paterson, Zochonis & Co [1924] AC 522,547-548, as well as other authorities that were cited to me.

26. In the present case, it is obvious that the allegations made in paragraph 6 of the Reamended Statememt of Claim could have been pleaded as particulars of breach of contract. I would go so far as to suggest that that is how most pleaders would have advanced the case for recovery of the sums sought to be recovered. Applying the principle to which I have just referred, I would hold that the mere fact that the claim has been dressed up as a claim in restitution cannot avail the Plaintiff in his attempt to sidestep clause 6. As has been seen, paragraph 3 of the pleading alleges an implied term. I have considerable doubts as to whether such a term is to be implied in this contract. I have in mind the express terms of the contract, and the fact that the Defendant was under a contractual duty to perform with the skill and care of a reasonably competent architect. I have not, however, been asked to decide this point. The language of the implied term for which the Plaintiff contends is very revealing. Mr De Freitas accepts that his argument on this issue depends on his being able to establish this implied term. But the terms in which it is pleaded prove that, in substance, his case is one of breach of contract.

27. No separate arguments were addressed to me on the claim in misrepresentation. It seems to me that the reasoning which is fatal to the argument in relation to restitution applies with equal force to the case as it is advanced in misrepresentation. I conclude, therefore, that clause 6 does apply to all the pleaded claims in this case.

28. It is common ground that the Plaintiff dealt with the Defendant as a consumer within the meaning of section 12 of UCTA. The provision of most direct relevance to the issue of reasonableness is section 11(4) which provides:

"(4) Where by reference to a contract term or notice a person seeks to

restrict liability to a specified sum of money, and the question arises

(under this or any other Act) whether the term or notice satisfies the

requirement of reasonableness, regard shall be had in particular (but

without prejudice to subsection (2) above in the case of contract terms)

to -

(a) the resources which he could expect to be available to

him for the purpose of meeting the liability should it arise; and

(b) how far it was open to him to cover himself by insurance."

28. It is also not in dispute that, in determining whether the Defendant has satisfied the requirement of reasonableness, the court is entitled to have regard to the Guidelines contained in Schedule 2 to the Act: see, eg Flamar Interocean v Denmore [1990] 1LLR 434, 438-9. The Guidelines which are of particular relevance to the present case are:

"(a) the strength of the bargaining positions of the parties relative to

each other, taking into account (among other things) alternative means

by which the customer’s requirements could have been met;

(b) whether the customer received an inducement to agree to the term,

or in accepting it had an opportunity of entering into a similar contract

with other persons, but without having to accept a similar term;

(c) whether the customer knew or ought reaonably to have known of the

existence and extent of the term (having regard, among other things, to any

custom of the trade and any previous course of dealing between the parties);"

29. The burden is on the Defendant to satisfy the requirement of reasonableness: see section 11(5) of UCTA. I have reached the clear conclusion that the Defendant has discharged that burden. The argument on both sides was directed exclusively to the question whether the limitation in clause 6.2 was reasonable. I shall identify the factors that have led me to my conclusion. It will be seen that, in large measure, I have adopted the approach urged on me by Mr Railton in his final submissions.

30. The £250,000 limit was not an arbitrary figure. It was based on Mr Yakeley's assessment of the likely cost of the works. The Plaintiff's Irish builder had submitted quotations in the sum of £268,000, and £274,000 shortly before the end of March. Mr Yakeley based his own fee on an assumed construction cost of £225,000. His opinion that £250,000 was a reasonable estimate of the likely construction cost was not challenged in evidence, and I accept it as a reasonable figure. This case is to be contrasted with others where an important factor which has led the court to hold that a clause is unreasonable has been that the party seeking to rely on it did not provide any rational explanation for it: see, eg, Salvage Association v CAP Financial Services Ltd [1995] FSR 654, 676. It would take some quite exceptional circumstance, beyond the reasonable contemplation of the parties, to give rise to a liability for damages in a sum greater than the total estimated cost of the project itself.

31. It is significant that, when cross-examined, the Plaintiff accepted that if the limitation of damages clause was roughly sufficient to cover the total building cost, that would be "fair enough".

32. The fees that it was envisaged in March that Mr Yakeley would earn from the commission were of the order of £20,000, with more fees being dependent on the scope of the contract being enlarged to include stages H and beyond. The ceiling on damages was, therefore, more than ten times the amount of the fee income that would necssarily be generated by the contract.

33.The Plaintiff was in a stronger bargaining position than the Defendant. He could have instructed any architect. Indeed, as I mentioned earlier, he approached another architect in late March. There was a severe recession in the construction industry at the time. Architects were chasing work. The Plaintiff was in no particular hurry to enter into this contract with the Defendant, and he had a solicitor to protect his interests in the negotiations with the Defendant.

34. Both the Plaintiff and his solicitor were aware of the existence of clause 6. They both had ample opportunity to object to it. Instead, they both said that they were "happy" with the proposed agreement.

35. A comparison of their respective resources shows that the Defendant company had none and the Plaintiff was a very wealthy man. The Defendant did, however, have in place insurance cover of £500,000 in respect of each and every claim. Section 11 (4) obliges the court to have particular regard to the question how far it was open to the Defendant to cover itself by insurance. In this case, the Defendant actually did cover itself in a sum substantially in excess of the ceiling figure. That is a factor which I must, and do, take into account in deciding the issue of reasonableness. But the fact that the insurance cover was in excess of the ceiling figure cannot be determinative. As I pointed out in the course of argument, an architect might have insurance cover of £10M, and be engaged to carry out a small project with an estimated contract value of £10,000. It would be absurd in such a case to say that any ceiling figure lower than £10M would be unreasonable. When asked why he had not inserted a figure of £500,000 in clause 6.2, Mr Yakeley said that (i) he considered the figure he inserted to be reasonable having regard to the estimated cost of the project, and (ii) he was concerned to leave some allowance in case he had to meet any legal costs. The reasonableness of this second point was not tested, and the policy was not produced to me. Nevertheless, I regard his first explanation alone as a reasonable one.

36. Weighing all these factors, I am satisfied that the ceiling figure of £250,000 was reasonable. As a postscript, I should refer to the point made by Mr De Freitas in his final submissions that the reasonableness of that figure had to be judged, not at the end of March when (as I have held) the contract was made, but in about June, when he says the barn and stables were added to the contract, thereby increasing the estimated cost by a further £220,000. As he put it, the contract in its enlarged form constituted the final contractual position between the parties. I have already referred to the letter of 26 May. I agree with Mr Railton that the barn and stables are a red herring. The barn and stables were never part of the contract with which this dispute is concerned. The Defendant was not in the event engaged to do that work. The letters of 22 March were headed "Proposed new bungalow". The SFA 92 (both unsigned and signed) referred to the work as the "proposed bungalow". The letter of 26 May was a separate offer. If it had given rise to a second contract that had been performed, it would have been, save as to fee, on the same terms as the second letter of 22 March. That would almost certainly have meant that the contract arising from the letter of 26 May would have been subject to its own ceiling figure of £250,000. It is not, however, necessary to decide that point.

37. In the result, Clause 6, and in particular the limitation in Clause 6.2, satisfies the test of reasonableness, and applies to all the Plaintiff's causes of action.