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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		15th April 2011

 


Mr Justice Akenhead:

1. The States of Guernsey ("Guernsey") seek through Part 8 proceedings determination of issues relating to whether or not there were binding arbitration agreements entered into between them and Jacobs UK Ltd ("Jacobs") in relation to a project which involves the development of a new terminal at Guernsey Airport. The case raises some issues of more general interest in relation to the circumstances in which an arbitration agreement might (or might not) be entered into after the project is substantially completed.
2. It has been agreed that, where necessary, I will decide any relevant contentious issues of fact on the documents and written evidence filed by the parties. There is a substantial history to the project and to the dealings between the parties, by which they sought to establish a contractual relationship, including one which at various stages of negotiation did or did not include provision for arbitration. It is accepted by the parties that I do not need to decide whether or not there was any underlying agreement between the parties by which Jacobs actually performed their various engineering services on the project.
3. The context of this current dispute is that Guernsey wishes to pursue various claims against Jacobs and there is an issue as to whether the agreed forum is arbitration or the Courts.

The History and the Facts.

4. Initially, Guernsey wanted to retain its entire professional team contractually by way of one contract with a lead consultant, namely the Architect, Kensington Taylor ("the Architect"). Jacobs is and was a firm of consulting engineers, formerly known as Babtie, who were to be retained. In May 1998 Jacobs sent to the Architect an appendix which identified in broad terms the services which they were prepared to provide. Although this schedule has no specific reference to an arbitration agreement it relates to a schedule of services under the then current ACE conditions which did have an arbitration clause.
5. On 5 January 1999, the Architect effectively quoted to Guernsey for the costs of providing the multi-disciplinary services which included those of Architect, Quantity Surveyor and a full Engineering Consultancy including Structural, Civil, Traffic, Environmental and Mechanical and Electrical Engineering Services, together with Airport Consultancy. The quote was a total of £1,143,600, including some fees already paid. This was put forward inferentially by the Architect on the basis that possibly the RIBA standard terms would govern the relationship. This letter was copied to Jacobs.
6. On 21 January 1999, Guernsey sent to the Architect a memorandum dated 20 January 1999 from its Strategic Property Adviser referring to the earlier quotation letter which, apart from suggesting that the final form of agreement between Guernsey and the Architect was to be subject to Law Officer approval, did not suggest obviously that arbitration was essential. The Architect replied on 22 January 1999 (copied to Jacobs) that it would respond which it did on 9 February 1999 to the effect that all of the issues raised in the memorandum would eventually be covered in the Conditions appointment.
7. It is a common feature of the correspondence that there are (or appear from the files) to be long gaps in the responses of the various parties. On 22 July 1999 Guernsey indicated that the relevant government committee had formally agreed to the Architect's fee proposal in principle but limited the Architect's instructions at that stage to proceeding up to "planning submission stage". Guernsey asked if the Architect could forward it's "proposed finalised terms of engagement so that they can be forwarded as one document to the Law Officers."
8. On 12 August 1999, there was a meeting between various Guernsey representatives, the Architect and the Quantity Surveyors ("the QS"), Jacobs not being there. However at the Project Start up Meeting on 17 August 1999, Jacobs did attend with the others, Guernsey and British Aerospace who were providing airport consultancy services to Guernsey. The formal start date for the project was confirmed as having been 12 August 1999. The "Contracting Strategy" was "confirmed as traditional, i.e. Design Team, separate [Project Manager] and then Tendered Main Contractor." The reference to the Design Team was in effect to the engagement by Guernsey of the Architect as the Lead Consultant responsible for the provision of all relevant design related services, with the idea being that the Architect would sub-contract the non-Architect design services to others including Jacobs. The minutes revealed that there was a discussion about insurances and in that context the Architect confirmed that it had "utilised an RIBA agreement with back to back terms for ACE and RICS Terms of Engagement for their sub consultants Babtie and DLE respectively." There is no suggestion or inference that this involved any express or conscious discussion about there being arbitration agreements as between the Architect and Jacobs.
9. There was some correspondence between the Architect and Guernsey about proposed conditions of engagement which led to a letter dated 22 October 1999 in which the Architect sent to Guernsey some draft conditions of engagement. It is wholly unclear what was sent but it may well be that there were some references to arbitration within those conditions because Guernsey's Strategic Property Adviser wrote a memorandum which made its way onto Jacobs' files which amongst other things said that "references to arbitration are not consistent". That memorandum suggests that there were documents from the Architect, QS and Jacobs but it is not clear what they were.
10. Matters appear to have drifted somewhat and on 8 June 2000 the Architect wrote to Guernsey with what was called a "finalised draft of the Conditions of Engagement". This document broadly outlined which disciplines the Architect was responsible for and attached the conditions of engagement of the Architect, the QS and Jacobs, albeit that at this stage what was still apparently being envisaged was one contract between Guernsey and the Architect and separate sub-contracts between the Architect and the other consultants. The Conditions of Engagement relating to Jacobs were the ACE Conditions of Engagement 1995 2^nd Edition 1998 which envisaged that for the engineering works the agreement would be governed by the laws of England whose courts would have "non-exclusive jurisdiction". There was no arbitration agreement in these standard terms.
11. Guernsey's Strategic Property Adviser issued internal advice (not copied to Jacobs) which suggested that Guernsey Law was to apply and "in particular reference must be made to Guernsey Arbitration Law." Guernsey wrote to the Architect on 25 September 2000 considering the proposed draft contracts with the various professionals and stated:

"At present, all contracts are expressed to be subject to English law. In general, it would be expected that the contracts would be subject to Guernsey Law and the jurisdiction of the Royal Court and I would advise that this would be appropriate for a project such as this. By specifying Guernsey Courts having jurisdiction purposes, this would avoid needless travel and delay in the event of any dispute and the use of Guernsey Law ought to avoid the misapplication of the UK and other Regulations by the contractors or related interpretation problems in the event of a dispute."

There is nothing in this letter, which was copied to Jacobs by the Architect, about arbitration. Indeed the only way that this letter can be interpreted is that Guernsey was asking for a Guernsey Law and Guernsey Court jurisdiction.

12. The Architect responded on 3 October 2000 explaining that the Architect was the lead consultant who would in turn employ all the other consultants. It envisaged that there would be identical back to back agreements between it and those consultants.
13. On 24 January 2001, there was a meeting between Guernsey, the Architect, Jacobs and DLE (and possibly others) at which there was some discussion about contracts and the hand written note suggests that the main contract between the Architect and Guernsey and the individual contracts between the Architect and the other consultants would be "back to back". The note, which was never translated into minutes, rather cryptically says "Guernsey Arbitration" but does not record what if anything was discussed about it.
14. At some stage in early 2001, Guernsey had a change of mind about how the professional services were to be procured. It decided that it would have separate appointments with each of the consultants. As from 28 February 2001, Jacobs started to submit invoices direct to Guernsey for its fees for professional engineering services in respect of the airport terminal project. Although it does not appear that terms had been agreed the invoices contained the words "in accordance with the Terms of Engagement interest is due on accounts which are not paid within 14 days."
15. On 25 June 2001, Guernsey sent to BAE a letter which did not find its way onto Jacobs' file which stated:

"I attach, for your information, copies of documents with regard to the Guernsey Airports Contracts for the following parties:

Babtie (letter dated 07 June 2001)

Kensington Taylor (letter dated 06 June 2001)

Davis Langdon & Everest (letter dated 06 June 2001)

I should be most grateful to receive any comments that you may wish to make at your earliest possible opportunity…"

The attached documents relating to Jacobs' appointments were a commentary on the ACE form of agreement and conditions. Against Clause 9.2, which in the standard form does not contain an arbitration agreement, there was an arbitration clause in relation to any dispute arising between the Consulting Engineer and Guernsey. The commentary on the QS appointment also provided for Guernsey arbitration.

16. The letter of 25 June 2001 was sent by BAE to DLE under cover of a letter dated 5 July 2001 (which was also not on Jacobs' files), albeit it was copied to the Architect. That these two letters and their attachments did not make it, at least at the time, to Jacobs is corroborated by Jacobs' letter dated 13 August 2002 to DLE, copied to BAE and the Architect, by which Jacobs sent copies of the ACE Conditions of Engagement which envisaged litigation in court, coupled with mediation and adjudication.
17. DLE wrote back to Jacobs on 15 November 2002 enclosing two "Engineer Agreements" for the civil/structural and the mechanical and electrical services. It is wholly unclear whether DLE was writing on behalf of Guernsey but it is at the very least not unlikely that it was because the agreements were drafted to be between Guernsey and Jacobs. The letter stated:

"These have been completed as required for the Project and the agreed Fee Agreement

Particular alterations you will note are for Guernsey Law, [that /but/there] is no Arbtn or Adjn or VAT and not a Deed

As the States have not come back in regard to warranty this has been knocked out, as for KT and DLE…"

"Arbn" and "Adjn" obviously mean arbitration and adjudication. The draft agreements make it clear that while Guernsey Law is to apply dispute resolution is to be through the "non-exclusive jurisdiction of" The Guernsey Courts.

18. On 6 December 2002, Jacobs wrote to BAE in the context of some actual or implied criticism of its services. It made clear that the project was highly complex and that there had been additional services. It went on:

"Moving on to matters relating to our appointment, DLE recently forwarded a copy of a revised ACE Conditions…B(1) for civil/structural engineering and B(2) mechanical and electrical services in buildings. We feel unable to sign these documents as there are inconsistencies with both our original draft agreement and your project brief.

In our original ACE Conditions of Engagement 1998 B(1), we identified that our payment of fees for undertaking Normal Services as defined in section A 20.1 would be 4.5% of the outturn cost…

In our recent review, we have identified that a number of services that we had been instructed to undertake are clearly Additional Services as defined in the ACE agreement and therefore should be paid at the defined hourly rates. We are currently producing a document detailing and substantiating these Additional Services and will forward this for your comment…

To summarise, we have identified a number of areas of structural and mechanical and electrical design, which we consider to be Additional Services and as such we should be reimbursed at the specified hourly rates…"

Jacobs did not like some handwritten amendments which restricted its rights to claim for "Additional Services"; this was to feature later in the contractual story.

19. BAE wrote to Guernsey on 9 December 2002 enclosing consultant agreements for the Architect and the QS; it went on to say that the writer had "not received any "Form of Agreement" from Babtie since the draft copy issued in conjunction with [the Architect], but understand that DLE are still working with Babtie to obtain a copy for signing by the Board". This letter but not its attachments were copied to Jacobs.
20. On 9 December 2002 BAE replied to Jacobs' letter of 6 December referring to an earlier letter from the Architect in which the Architect had agreed on behalf of the design team to the consultants' fees. It denied that Guernsey had made any changes and suggested that in relation to mechanical and electrical design Guernsey had been poorly advised. However, it passed on that Guernsey would be happy to discuss a basis for payment of some additional fees.
21. Matters proceeded slowly if at all in relation to the agreements for the various consultants and on 28 July 2003 BAE wrote to the QS (copied to the Architect, Jacobs and Guernsey) as follows:

"Although I have been continually promised that you will deal with the matter, I have been chasing you for the revised "Consultants Agreement" documents for DLE, K-T and Babtie, over the last few weeks. This followed the fixing of a meeting to be held with representatives of the Board of Administration and States of Guernsey Law Officers to close the action out.

I remind you that this meeting is for Friday, 1 August 2003, at 10.00 am and I am expecting to take the three documents mentioned above with me, in an amended state that reflects the various comments and changes requested by the Law Officers. I also recall that I still do not have the said documents and expect them to be sent by courier tomorrow…without fail. I do not want to be "shot as the messenger" if they do not arrive."

22. Jacobs replied to BAE on 30 July 2003 advising of the position regarding "our ACE Agreements":

"At the start of this project the intention was for Babtie to act as sub consultants to Kensington Taylor. Accordingly we drafted two 'back to back' ACE agreements B(1) 2^nd edition 1998 documents, one from Babtie to Kensington Taylor, and the second from KT to the Board of Administration. These agreements identified normal and additional services: …

Late in the year we were presented with two new documents by DLE, a revised B(1) and a B(2) both using the latest format as reprinted in August 2000 with minor corrections. DLE had handwritten text in the agreements stating that "C9.1 Additional Services included: Services additional to those in C1 to C9: the Consulting Engineer has agreed to perform as Additional Services deemed to be included and catered for by the Schedule as described in A 20.1 and no further payment of fees shall be due". This was contrary to our original agreement and totally unacceptable and we advised you and DLE that we would not be prepared to agree to these documents.

… I reported that I had discussed the matter with my board and have been asked to produce two new Agreement documents. I will draft a new B (1) directly between Babtie and Board of Administration using exactly the same wording as in our original document and a new B (2) covering the M&E using the same wording for the payment clauses."

It is clear that both sets of agreements being discussed in this letter had no arbitration agreement.

23. BAE did not respond directly to this but wrote to DLE on 1 August 2003 enclosing a copy of its letter dated 5 July 2001 (see above). BAE stated that this letter "and comprehensive comments on each of the consultants agreements, was issued to both DLE and Babtie…" There was some sort of meeting, not attended by Jacobs, on 1 August 2003 which suggests that Jacobs's draft agreement might have been altered by Guernsey's in-house solicitor but that Jacobs did not agree. Someone has noted (it is not clear who) that someone sent to Jacobs in June 2001 the comments attached presumably to the letter of 25 June 2001 (see above). This is all inconclusive on the issue.
24. On 10 February 2004, Jacobs sent to BAE its ACE Conditions of Engagement for B (1) and B (2) agreements. It wrote that by way of compromise and without prejudice to future discussions it would agree to a design fee at 4.6% of £12,966,700. The attached agreements were similar to the earlier ones in that there was no arbitration agreement and disputes would be resolved by the Guernsey Courts. There were no material changes to the standard list of Additional Services.
25. It was only eight months later on 19 October 2004 Guernsey responded in effect by sending back to Jacobs Guernsey's versions of the B (1) and B (2) ACE Agreements. Guernsey added:

"The Law Officers have made a number of red line amendments to the original copies, and I should appreciate it if you would incorporate these. They have also asked that you include a provision relating to the Fee.

I await the finalised copies for signature in due course."

I will refer to this matter and the attachments as "the Offer". The attached Agreements and conditions contained a significant number of red lined or handwritten amendments. Clause 9.2 relating to adjudication was deleted and the new clause 9.2 was added in each of the two draft agreements:

"If a dispute should arise between the Consulting Engineer and the Client whether before or following completion or alleged completion or abandonment of the project or the determination of the appointment of the Consulting Engineer or out of any contested invoice or any determination of the appointment of the Consulting Engineer under Condition 5.4 or 5.5 the dispute shall be referred to the arbitration of a person to be agreed between the parties to act as arbitrator or failing agreement within one month of a notice by either party to the other requiring agreement to an arbitrator, to an arbitrator appointed by the Senior Advocate in private practice (not in conflict) in Guernsey and in his absence the next Senior Advocate so qualified. Arbitration shall be conducted in accordance with the Arbitration (Guernsey) Laws 1982 and 1986 save that the parties hereby agree that the hourly rates at which on a party-party basis they may recover their advocates costs shall be limited in accordance with the standard maximum contained in the Royal Court (Costs and Fees) Rules 2000 as amended from time to time."

26. Practical or substantial completion of the project occurred in November 2004. The Offer letter having not been responded to, Guernsey sent another letter dated 6 January 2005 referring to its letter of 19 October 2004 and asking for "an update on the status of the agreements at your earliest convenience." Jacobs replied on 18 January 2005 neither accepting nor rejecting the Offer:

"…We apologise for not replying earlier. As I said when we met at our offices on 24 November, I had forwarded our ACE Agreements with your written comments on to our legal team and have now received an initial response.

We have to say that we are very surprised that you should come back to us at this stage in the negotiations over the final agreement with a large number of amendments that appear to reflect differences required due to Guernsey legal requirements and operating procedures, many of which must have been known to you from the start of the project.

We had assumed that all negotiations were now complete; if you intend to raise new issues at this stage then we would also wish to raise a number of issues that we now require in recent versions of our agreements. Please let us know how you would like to receive these."

27. Two months later on 18 March 2005 Guernsey replied:

"I refer to your letter… the contents of which are somewhat surprising.

Back in 2001 we forwarded the comments from the Law Officers on the necessary amendments required to the form of appointment, to make it compliant with Guernsey Law, and since that time we have been concerned to get the forms of appointment completed and executed. Those prepared by you were forwarded for checking to the Law Officers in July of last year and they did not comply with the original amendments required. This fact was communicated to you. By the time we held our meeting on 24 November 2004, we had still not heard from you on the documents and were advised at that meeting that the matter was with your legal department and they would respond to us by Christmas.

Your response therefore that a large number of amendments and operating procedures had been raised 'at this stage' completely ignores the fact that these matters were highlighted to you at the commencement of this project. The amendments requested are simply to make the documents compliant.

Will you therefore please ask your legal department to have the courtesy of reviewing the amended documents and let us have a final copy for our approval in anticipation of them being signed without further delay."

28. On 22 March 2005, Jacobs responded to this latest letter:

"The following is a very brief chronology of relevant events:

We initially issued draft ACE B(1) in 1999, with our fee set at 4.5% of the outstanding cost.

We chased your Project Manager repeatedly to get these finalised before the detailed design was commenced.

In June 2000, Kensington Taylor forwarded a single document to yourselves, combining the three professional documents together, namely RIBA for KT, RICS for DLE and the ACE for Babtie.

In November 2002 we received considerably revised ACE B (1) and B (2) documents from Davis Langdon & Everest. We wrote to Phil Nokes on 6 December 2002, detailing why we were unable to sign these documents.

We issued our ACE B (1) and B (2) agreements to Phil Nokes on 10 February 2004.

For your information we scan, hyperlink and database all incoming and outgoing correspondence from this office. We have no record or recollection of receiving any correspondence from the Law Officers during 2001. Moreover, we did not receive any correspondence from your office relating to the professional agreements in 2001. I have spoken to Keith Hudson and he, like me, also has no recollection of receiving any such comments. It may be this was sent to Davis Langdon, who were liaising with the Law Officers over professional appointments. However, if you have a record of the issue of this correspondence to us then I would be pleased to see copies of the same.

More recently I have forwarded your 'red line' revised ACE B (1) and B (2) agreements to our legal advisers in October 2004. The feedback received was that if it is intended to raise these new issues at this late stage then we would also wish to raise a number of issues for inclusion in any agreements. Can you please confirm how you would wish to proceed."

29. On 24 March 2005, Guernsey replied, stating that it forwarded a memorandum detailing contract changes to the Project Manager on 25 June 2001, stating that "similar amendments were forwarded relating the conditions of appointment of the other members of the project team". It refers to the letter dated 9 December 2002 (referred to above) and an e-mail from the QS dated 16 December 2002. It said that since December 2002 it had been "continually asking for the agreement to be signed" and added:

"The agreements should reflect the agreement that was reached between the parties at the commencement of this project. I can confirm that the last amendments made by the Law Officers did not seek to introduce new terms, but simply to reflect the matters raised by them in that original memorandum and in particular relating to the Guernsey jurisdiction. We do not agree therefore that it would be appropriate for you to seek to introduce new matters at this point.

We do however await your comments on the document.

I am in receipt of invoice 580062 from you dated 16^th November 2004. The work for which the invoice has been rendered appears to fall within clause 8.1 of the Appointment conditions where you are to:

'perform work or advise the client in connection with any claim or matter where such claim or matter arises out of any contract to the execution of the Works and is referred for the first time to the Consulting engineer…'

I wish to reiterate that whilst the States of Guernsey will pay any sums that are properly and lawfully due to Babtie, the question of additional fees cannot be considered until we understand and can agree the legal basis upon which you consider that any such fees are due. This would therefore seem to emphasise the need to reach agreement upon the form of appointment. We accordingly wait to hear from you."

The invoice referred to was for some £7-£8000 and related to time spent by Jacobs in examining an extension of time claim relating to structural and stainless steel work.

30. Jacobs replied to this letter on 7 April 2005:

"You state in your letter that comments were passed to the Project Manager on 22 June 2001. As we stated in our letter of 22 March 2005, we did not receive any correspondence from your office relating to the professional agreements in 2001..."

It then goes on to refer to its letter dated 6 December 2002 (see above) and quoting the Additional Services clause which it had objected to. It continued:

"It was the introduction of this clause rather than any reference to Guernsey Law which led to us being unprepared to sign the revised agreement. We certainly did not agree to perform any Additional Services as part of our original fee.

Our legal advisors have reviewed your 'red lined' proposed amendments to our ACE B (1) and B (2) agreements as sent to us on 19 October 2004. Our senior directors are prepared to sign the revised agreement on the condition that you acknowledge that the detailed examination of the structural and stainless steel extension of time claim was an Additional Service for which we will be reimbursed accordingly.

You state that you are in receipt of our invoice 580062. You also suggest that the work undertaken appears to fall within clause 8.1…The relevant section however, is the remainder of this clause which goes on to read: "… provided that this service shall not extend to the detailed examination of any financial claim"…

We consider that the work undertaken on the structural and stainless steel extension of time claim is clearly an Additional Service and we invoiced you accordingly last November. This invoice is now in excess of 3 months overdue and we request that it is paid without further delay.

Could you please write to confirm your agreement that the work undertaken in the detailed examination of the structural and stainless steel extension of time claim was an Additional Service as defined under C10.19 of the ACE B (1) agreement. Upon receipt of this letter we will then re-draft and resubmit the ACE B (1) and B (2) agreements revised in accord with your 'red lined' notes for your approval and signature…."

I will refer to this letter as the "Counter-Offer".

31. There was, surprisingly, no response to this Counter-Offer letter for some nine months, albeit in between there was some discussion about payment for disbursements said to be due to Jacobs. The response came in a letter dated 25 January 2006 from Guernsey to Jacobs:

"I am now in a position to respond to the letter… dated 7 April 2005 relating to the agreement and to the claims were additional expenses. We confirm that it is our understanding that the agreement will entitle Babtie to additional payment for additional services in certain circumstances. Accordingly to assist us assess whether any further payment is due, will you please let us have the following information:

A description of the work undertaken and copies of any reports and other documents produced by you in relation to this additional work

Confirmation of who gave you the instruction to undertake this additional work, (with copies of the instructing letter authority)

Whether you gave any estimate as to the cost for undertaking this work

A copy of the invoices relating to this work with (if not apparent on the face of the invoice) a breakdown of time spent, and the activities to which the relevant time refers.

We will then be glad to give this matter our immediate attention."

32. There followed some further discussion relating to disbursements (as opposed to any particular invoice for additional services). In a letter dated 16 June 2006, Guernsey wrote in the context of the discussion about disbursements:

"The Appointment forms have still not been agreed or signed. There is still a major outstanding issue on additional services. Accordingly the question of the disbursements is one that is governed by the original agreement and not the draft ACE Conditions."

Guernsey followed that up with another letter on 20 July 2006, stating:

"Despite the efforts of the States of Guernsey, Jacobs Babtie have not agreed or signed their form of appointment and accordingly I cannot see how it can govern the terms of your appointment."

Agreement was later reached so far as an amount for disbursements was concerned.

33. Nothing material happened until 19 June 2008 when Guernsey's solicitors served on Jacobs a notice requiring and requesting it to concur in the appointment of a sole arbitrator pursuant to Clause 9.2 of what was said to be the Contract. Three names were put forward and, ultimately, subject to appropriate reservations about whether there was any arbitration agreement at all, Mr David Friedman QC was selected. The dispute broadly related to substantial cost overruns on the Airport Terminal project.
34. Substantial correspondence followed over the next two years, which it is unnecessary to quote from. Suffice it to say in at least a superficially leisurely way, it emerged that Jacobs were saying that there was no binding arbitration agreement between the parties whilst Guernsey's solicitors argued that there clearly was such an agreement. It is clear that Jacobs's preference was that if there was to be a dispute between the parties, multi-party proceedings were preferable. Primarily Jacobs's solicitors argued that in effect their client's letter of 7 April 2005 included "a condition precedent" to any such arbitration agreement.

These Proceedings

35. These proceedings were issued on 15 November 2010, by agreement in this country, to have issues relating to the possible existence of an arbitration agreement between the parties resolved by the English Court. Apart from the basic issue as to whether or not there is a binding arbitration agreement between the parties, a number of other points were raised, such as estoppel, which are no longer pursued. The parties exchanged extensive witness evidence, much of which is reflected in the history which I have set out above.
36. Essentially the argument from both parties revolves around the Offer and Counter-Offer letters. What the argument has boiled down to is a relatively simple one which is whether at the very least agreement was reached that any disputes were resolvable by arbitration by virtue of these and possibly later letters, with Guernsey asserting that agreement was reached and Jacobs arguing that it was not. Jacobs have abandoned any argument previously apparently promoted in correspondence that there was a binding agreement with some sort of "condition precedent" which had not been satisfied. Both sides argued that to a greater or lesser extent previous exchanges relating to possible contract terms since 1998 might have some contextual bearing.

Discussion

37. The parties, through their Counsel, have made it clear that it is unnecessary for me (and possibly undesirable) to find that there was any underlying contract between Guernsey and Jacobs in relation to the provision of professional services for this project. It seems to be the case that all the services called for were provided, albeit that there is some issue as to whether they were provided to the requisite degree of competence and care.
38. I do not consider that a detailed examination of the history provides much insight into what the parties did or did not agree in any binding sense or mutually express in relation to arbitration. To begin with and at least until 2001 and possibly early 2002, there were to be no direct contracts as between Jacobs and Guernsey. Guernsey's plan at that stage was that there would be a single point contract between it and the Architect who, as Lead Consultant, would be responsible to it for the whole gamut of professional services and that the Architect would employ in effect on a sub-contract basis the other professionals such as Jacobs and the QS. It is clear to me that there was little or no discussion, conscious or otherwise, in relation to whether or not there would be arbitration or litigation or the venue of either. If anything, as between the Architect and Jacobs, as this early period proceeded, Jacobs was calling as between it and the Architect for a form of contract which did not have an arbitration agreement in it.
39. Once the parties began to move away from a single contract between Guernsey and the Architect, one can begin to see that Guernsey was expressing, albeit not to Jacobs, directly or indirectly, the view that amongst other things in general terms it would have a preference for arbitration in Guernsey. The evidence as to whether Jacobs were made aware of this is so vague and poorly supported that I cannot find that Jacobs were aware of this requirement of Guernsey. Certain it is that there was no actual discussion between Guernsey and Jacobs as such about any arbitration clause or agreement.
40. Thereafter and through to 2004, Jacobs made its position clear contractually which was that the ACE standard conditions would apply and those conditions did not contain an arbitration clause. It is clear that Guernsey became aware of this because when it submitted their draft agreements in 2004 to Jacobs they used the versions which Jacobs had used and, as they called it, "red lined" them to incorporate by way of draft amendment an arbitration clause, amongst numerous other amendments.
41. Before considering the impact of the correspondence which followed in 2004, it is necessary to consider the law. It is accepted by both parties that it is necessary, if Guernsey is to succeed in these proceedings, for there to have been at the very least a binding agreement that disputes between the parties relating to the Terminal project should be referred to arbitration. As for any other agreement, what is sometimes called "the objective test" has to be adopted:

"Under this test, once the parties had to all outward appearances agreed in the same terms on the same subject matter, then neither can, generally, rely on some unexpressed qualification or reservation to show that he had not in fact agreed to the terms to which he had appeared to agree. Such subjective reservations of one party therefore do not prevent the formation of a contract." (Chitty on Contracts-Para 2.002)

This has been applied in many cases, a recent one being Maple Leaf Macro Volatility Master Fund v Rouvroy [2009] EWCA Civ 1334.

42. Probably the large majority of arbitration agreements are contained in the underlying contracts (whether construction, engineering, professional services, commercial, landlord and tenant or otherwise). It is of course open to parties whose underlying contract does not contain an arbitration clause, or even if there is no underlying contract, to agree on an ad hoc basis to refer all or given disputes to arbitration. It must therefore be necessary for the Court, where there is an issue as to whether or not there is in the underlying contract an incorporated arbitration clause or as to whether there is independently an arbitration agreement, to adopt the conventional approach either as a matter of construction or on ordinary "offer" and "acceptance" principles. There is support for this in two cases referred to by Counsel, The Elizabeth H [1962] 1 Lloyds Rep 172 and Modern Buildings Wales Ltd v Limmer and Trinidad Co Ltd [1975] 2 Lloyds Rep 318.
43. If one is considering whether there is such an arbitration agreement, when one comes to the stage of offer, counter-offer and acceptance, it is of course open to a party to withhold acceptance on any ground, even if that ground is objectively a relatively minor ground. A party who says, for instance: "I will not accept your multi-million pound offer unless and until you agree that you reduce it by £1000", will not be considered to have accepted the multi-million pound offer.
44. I have no doubt, and both Counsel accepted, that Guernsey's letter of 19 October 2004 can properly be classified as an offer in contractual terms. It was essentially offering to Jacobs to contract on the terms in the red-lined drafts enclosed with the letter. It is also the case that this Offer was neither accepted nor rejected in the correspondence between then and April 2005; that correspondence, although somewhat fractious, simply raised historical issues as to what had or had not been communicated prior to October 2004. Jacobs only made it clear in that period of correspondence that it would respond.
45. I have formed a very clear view that the letter of 7 April 2005 was in law a counter-offer and can not be considered as in some way a partial agreement which included the arbitration clause. My reasons are as follows:

(a) Jacobs made it absolutely clear that historically it had not been prepared to sign an earlier version of the agreement because it objected to amendments relating to Additional Services.

(b) It explained that its motivation was nothing to do with Guernsey Law being sought to be incorporated but because it was not prepared to perform Additional Services (properly so called) for no additional sum.

(c) Jacobs indicated clearly that it would sign the revised agreement but "on condition" that its work involved in dealing with a particular extension of time claim (presumably from the contractor) "was an Additional Service for which [it] would be reimbursed accordingly".

(d) The rest of the letter is wholly consistent with it being made clear to Guernsey that Jacobs would only sign up to the red-lined draft agreements if and when Guernsey acknowledged and confirmed that this work was an Additional Service.

(e) The fact that Jacobs' claim for this work was only some £7-8000's worth of work does not mean that Jacobs was not in some way entitled to raise this requirement by way of Counter-Offer.

(f) It might have been different if the parties had positively agreed to leave this issue over but nonetheless sign up to the proffered agreements, but this was not to be the case. There is no real hint in the wording which it used, looked at in the round, that Jacob was accepting that the parties could or should proceed on this partial basis.

(g) The wording of this letter construed objectively is that Jacobs was only prepared to agree to accept the revised agreement (including the arbitration clause) if Guernsey would accept that the invoiced claim was a justified one. Historically, this invoice was contested for good or bad reason by Guernsey; it does not matter that the reason was good or bad because Jacobs was seeking, as the price for it agreeing to the revised forms of contract, that Guernsey accepted the invoice.

46. Counsel for Guernsey, as a fall back argument, contended that Guernsey actually accepted the Counter-Offer in its letter dated 25 January 2006. This is a somewhat odd contention since unequivocally Guernsey wrote in June and July 2006 in effect that the revised terms had still not been accepted. However, the letter of 25 January 2006 clearly does not accept the specific condition which Jacobs was requiring Guernsey to accept. All that Guernsey was saying in that letter was that the draft agreements would entitle Jacobs to additional payment "in certain circumstances". All that Guernsey had to say if it was accepting Jacobs' negotiating position was words to the effect: "Yes, we will pay that invoice as an Additional Service". Instead, it went on to ask for details of the claim, which is itself inconsistent with accepting that it would pay the contentious invoice and concluded that it would "then be glad to give this matter [its] immediate attention" (emphasis added). This was not an acceptance of the Counter-Offer.
47. Jacobs' solicitors' argument, adumbrated both in correspondence and to some extent in witness statements in these proceedings, that the requirement in the Counter-Offer that Guernsey accept the contentious invoice as a condition of accepting the red-lined versions of the agreements was some sort of "condition precedent" was rightly not pursued by Counsel. If there was an effective condition precedent, that would invariably suggest that there was a binding agreement and, for the reasons set out above, that involves the wrong analysis of offer and acceptance.

Decision

48. It follows from the above that Guernsey's Part 8 proceedings fail and should be dismissed. If the parties agree, I would be prepared to issue a suitably worded declaration to the effect that there was no arbitration agreement as between Guernsey and Jacobs in relation to the Guernsey Airport Terminal Project.