'Notwithstanding anything to the contrary contained in this Subcontract Agreement and the Head Contract, the Subcontractor shall not be liable for any indirect, consequential or economic losses whether in contract or in tort (including negligence) such as, but not limited to, loss of profit, loss of use, cost of replacement production, business interruption and the like.'
44 Milestone payments were discussed, but without finality and with the appellant to provide its programme to the respondent and the respondent to put forward a specific proposal. Liquidated damages of actual costs to a maximum of $40,000 per day was again stated and agreed.
45 The appellant told the respondent that the respondent's reservations could not be discussed at that time, and that the appellant's representatives at the meeting would have to take the non-negotiable clauses higher because they did not have authority to agree on matters of that kind.
46 The respondent was then told that it was the successful tenderer. Arrangements were made for it to collect some drawings the next day so that it could start the shop drawings. There were numerous matters remaining for discussion and resolution, notwithstanding that, as the referee said, "the parties confidently hoped, if not expected, that they would be able to attend to and resolve the matters which remained outstanding before a contract could be concluded". The outstanding matters included that the respondent was still to see the Project Related Conditions, which it had made plain was essential, and that the appellant had to agree to the non-negotiable clauses upon which the respondent insisted.
47 To this point in the meeting nothing had been said of a letter of intent. One of the appellant's representatives left the meeting and returned with the letter. It was handed to the respondent's representatives without comment. They briefly looked at the first page, but none of them read it. The appellant did not draw attention to what the letter said about commencement of the works. Before the meeting ended, it was repeated that there were outstanding contractual issues to be resolved.
48 In my opinion, these circumstances tell against the parties intending that the letter of intent operate as an offer open to acceptance by commencement of the works. The circumstances were not consistent with commencement of the works binding the parties to an immediate contract.
49 Notwithstanding that there was a confident hope, perhaps expectation, that agreement could be reached, and a willingness on the respondent's part to get the works under way, there could not reasonably be attributed to the respondent willingness to contract on terms of general conditions some of which it had concerns about, or to the appellant a belief that the respondent was willing. To repeat, the respondent had made plain that seeing the Project Related Conditions was essential, and its concerns about the SC.JCC-D conditions had been made known but had not been considered. At best the letter of intent was unclear upon whether a commencement contract would include the general conditions, to which the appellant's reliance before the judge on a general conditions commencement contract is testimony. A contractual bond possibly on terms to which one party objected as unknown or unacceptable was not consistent with the respondent's position, as made clear to the appellant, even as an interim bond in anticipation of a formal subcontract.
50 Still less could there reasonably be attributed to the respondent willingness to contract, even on an interim basis, on terms which flew in the face of terms on which it insisted and in part had been agreed, or to the appellant a belief that the respondent was willing. The non-negotiable clauses were not part of the terms in the letter of intent, para 4 of the letter was inconsistent with milestone payments and para 7 of the letter was inconsistent with the accepted $40,000 per day.
51 Even before the letter of intent it was contemplated that the respondent would commence the works prior to the formal subcontract. Arrangements were made for that to occur. The arrangements were made without any mention of contractual consequences of commencing the works, and the parties to that point must be taken to have accepted that the works could be commenced on a non-contractual understanding. When the letter of intent was handed over, nothing was said about contractual consequences of commencing the works. It must have been apparent to the appellant that the respondent was not then aware of what the letter said. That indicates that the appellant did not treat, or expect the respondent to treat, the letter of intent as carrying with it the making of a contract upon commencement of the works.
52 Nor was the content of the letter of intent consistent with its terms being the terms of a contract coming into existence upon commencement of the works. On the appellant's case, the contract thus formed was a contract under which the respondent was not entitled to any payment until the formal subcontract had been executed (see the last subparagraph of para 10 of the letter of intent). If so, there could be no question of progress payments or retention as provided in paras 4 and 5 of the letter: yet these were said to be part of the contract. Under the contract thus formed the liquidated damages in para 7 would apply if a formal subcontract was not entered into, which meant that the respondent would be paid nothing but would be fully liable to the appellant, including for liquidated damages. The terms of the contract did not make sense.
53 There may be difficulty in a court attributing significance to less obvious aspects of a commercial situation, since the court is not necessarily in a position to appreciate the commercial forces. But the commercial disadvantage to the respondent in an immediately binding commencement contract was plain. Perhaps, as the appellant submitted, the appellant would have wished to avoid the risk of its chosen sub-contractor withdrawing from the project more or less at will, and perhaps also the respondent may have wished to have the contractual certainty of recovering its investment of time and money in assisting the appellant in the tendering. But there had been agreement on starting work without any contract. To the point when the letter of intent was handed over, each party conveyed to the other that it was content for work to start and to take the commercial risk that they would fail to come to a concluded agreement on the formal subcontract. For the appellant, in the absence of a contract that risk would continue. For the respondent, a commencement contract would substitute for its risk a different and far greater risk of being bound in contract to carry out the works, without payment but exposed to liability which it had non-negotiably refused. So viewed, the commercial situation did not favour an intention to make an immediately binding contract. The respondent would be delivering itself into the appellant's hands.
54 The appellant sought to counter this by suggesting that it would be obliged to act reasonably in the negotiations towards the formal subcontract. I have difficulty in seeing the legal principle which would so oblige it, and there could be reasonable failure to agree on (for example) the non-negotiable clauses. In my opinion, regard to the parties' commercial situation tends against an intention of the parties to make an immediately binding contract.
55 None of this can stand against sufficiently clear words of the letter of intent. The appellant fastened upon the first subparagraph in para 10 of the letter, which it submitted was in words too clear to be ignored. It said that "this subcontract agreement" meant a separate contract coming into existence upon commencement of the works, and that "confirm" referred to the contract so coming into existence.
56 The word "deemed" may create a fictitious situation, or it may simply state an indisputable conclusion (Hunter Douglas Australia Pty Ltd v Perma Blinds (1968) 122 CLR 49 per Windeyer J at 65-7). In para 10 it seems to have the former usage, since commencement of the works is an act rather than a statement of a conclusion. The word "confirm" would normally suggest that what is confirmed is already in existence, but on any view no subcontract was in existence prior to commencement of the works and the word seems to have been used to emphasise the existence of "this subcontract agreement", whatever that may have meant.
57 The words "this subcontract agreement" did not clearly mean a separate contract coming into existence upon commencement of the works. They could readily enough be read as referring to "the subcontract agreement" in para 1 of the letter of intent, the formal subcontract following agreement in further negotiations. If the words had been "the sub-contract agreement" much of the appellants argument would be lost, and "this" had to do a lot of work in the argument. Where in the penultimate paragraph of the letter of intent the words "this contract" were used, they most naturally referred to the foreshadowed formal subcontract, of which the letter of intent and thus the expanded meaning of "tradesman" would form part (see para 2 of the letter). It may be noted that the word "tradesman" was not used in the letter. The same reference of "this subcontract agreement" was well open.
58 Going beyond these textual considerations, the first subparagraph in para 10 of the letter of intent was one part of what para 10 describes as "General Clauses". The general clauses were to be provisions of a contract, and the natural understanding of the letter was that they were to be provisions of the formal subcontract via incorporation of the letter in the contract as envisaged in its para 2. On the appellant's argument, however, the first subparagraph of para 10 was not a provision of a contract, but a potentially contract-creating offer. The structure of the letter of intent was to the contrary.
59 I do not accept that the first subparagraph in para 10 of the letter of intent has the clear meaning necessary for an intention to make an immediately binding contract. It must be understood as part of the letter of intent as a whole and in the circumstances in which the letter of intent passed between the parties.
60 The referee correctly referred to the letter's "obvious drafting and construction difficulties". In essence, he considered that its function was to ensure that work done prior to the formal subcontract envisaged in the letter would, by incorporation of the letter of intent in the contract, be taken to have been performed under that subcontract although the subcontract was not in existence at the time of performance. On this view, the deemed acceptance was not intended to be acceptance of an offer to be allowed to perform the works, for no payment, under a fourth class contract. It was acceptance in the sense of agreement in the formal subcontract upon its retrospective operation, giving sense to "deemed" as creation of a fictitious situation. The statement that no payment would be made until the formal subcontract had been executed then also made sense. It was not an immediate contractual provision. Rather, when it became a provision of the formal subcontract it prevented claims that money should have been paid at earlier times. In my opinion, the letter of intent is readily open to this construction and operation.
61 Subject to regard to the parties' subsequent conduct, in the circumstances in which the letter of intent passed between the parties I consider that an intention to make a concluded and immediately binding contract upon commencement of the works should not be found.
62 The appellant relied on cases such as Pagnan SpA v Feed Products Ltd (1987) 2 Ll R 601 and Graham Evans Pty Ltd v Stencraft Pty Ltd (2000) 16 BCL 335, particularly for finding an intention to be bound notwithstanding that important matters remained to be agreed and for entry upon performance of the works of itself supporting the existence of a fourth class contract. Each case must be decided on its own facts. The law reports contain many illustrations of work begun in anticipation of a contract, as was to occur in the present case before the letter of intent was produced and passed over. I do not think these cases govern the facts of the present case.
63 Evidence of subsequent communications between parties is admissible for the light it casts upon their dealings from which a contract is alleged to have arisen: for example, it may show that apparently concluded negotiations were in fact continued, or were not regarded by the parties as contractually binding until entry into a formal contract (B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 97011 at 9149, 9155; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 97023 at 9255; Brambles Holdings Ltd v Bathurst City Council at 163-4). Evidence of the parties' subsequent conduct is also admissible as an admission by conduct of the existence or non existence of a subsisting contract (Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 668-9, 672; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd at 9255). The probative force of an admission may not be great. If the direct evidence is complete and enables a conclusion, an indirect admission may count for little. Similarly, if an admission is of a matter of law or legal consequences, as to which the admitting party has no expertise or is otherwise to be seen as uninformed or unreliable, the admission will not carry much weight (see for example Lustre Hosiery Ltd v York (1935) 54 CLR 134 at 138-9, 143; R W Miller & Co Pty Ltd v Krupp (Australia) Pty Ltd (1991) 32 NSWLR 152 at 155-6). And as Gleeson CJ said in Australian Broadcasting Corporation v XIV Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550, "it will often be necessary to identify with some care the fact which is said to have been admitted".
64 Of particular importance in the subsequent conduct of the parties, in my view, is the respondent's letter of 20 February 1998. Even if it was not a rejection of any offer in the letter of intent it was a continuation, after receipt of the letter of intent and before any commencement of the works, of the negotiations left over from the meeting of 19 February 1998.
65 Again omitting formal parts, the letter read -
"Further to our meeting at your offices on Thursday 19 February 1998 and following further post tender discussions, we were most pleased to receive your letter regarding the Main Roof Structure and Roof Cladding on the above project.
You will recall that there are a couple of outstanding commercial matters to be resolved regarding the subcontract and these are detailed below for your consideration.
1 We have not had sight of the sections of the Head Contract document that may be applicable to the above subcontract works nor have we received a copy of the Project Related Conditions marked 'D'. Our offer is therefore based on the proviso that there are no adverse commercial considerations within these documents. (We still await such documents from Abigroup.)
2. As an amendment to clause 8 of the Subcontract we would require the following clauses covering exclusion of consequential losses and a cap on total liability.
'Notwithstanding anything to the contrary contained in this Subcontract Agreement and the Head Contract, the Subcontractor shall not be liable for any indirect, consequential or economic losses whether in contract or in tort (including negligence) such as, but not limited to, loss of profit, loss of use, cost of replacement production, business interruption and the like.'
'Notwithstanding anything to the contrary herein contained, the total liability of the Subcontractor shall be limited to the Subcontract Sum.'
3. We require clarification of clause 9.03.02 and 10.11 whereby the Builder may, due to any act, default or omission by it, or it's designers, or any of it's subcontractors or suppliers etc. cause delay to the works of this Subcontractor and in such a case, the Builder is not entitled to an extension of time under the Head Contract. In such a scenario, how does this subcontractor recover lost time and any associated costs? Will the Builder seek agreement and pay this subcontractor for acceleration measures if necessary and/or any associated reasonable costs for delay? Obviously, we cannot be expected to pay liquidated damages where the delay was caused by Abigroup. The condition precedent in clause 10.2.01 and 10.12.08 should not apply to the above case.
4. Clauses 10.15 and 10.16 refer to liquidated damages 'or otherwise'. As discussed, we would agree to actual costs incurred by Abigroup, subject always to a maximum daily rate of damages inclusive of both clauses, combined at $40,000 per day and capped to a maximum of 10% of the Subcontract Sum.
5. As soon as we are in receipt of the Project Schedule from Abigroup, we will propose a payment schedule for your consideration, which would include payments linked to milestone achievements and a provision for payment in respect of design and engineering works progressing off site and purchase of raw steel.
6. Programme/Drawings
We acknowledge receipt of tender drawings, but these are not Approved for Construction and therefore we cannot proceed using such drawings. Due to Abigroup's very tight schedule for this work, Abigroup will need to provide the Approved for Construction drawings (correct, complete and with no 'holds') within two weeks of 20 February 1998. Obviously, the sooner this occurs, the better, because our period of 26 weeks cannot commence until we have received such drawings.
In addition, we request your clarification of the following matters which we did not have the opportunity to discuss at the meeting:
(a) the provision by Abigroup of a form of surety that ABB will be paid.
(b) administration of the BHP Free Issue Steelwork option.
(c) Clause 10.30 of the Subcontract conditions should be qualified with the words "Subject to clause 3.02" at the beginning.
We trust the above matters are acceptable for inclusion in the subcontract documentation and look forward to your further correspondence."
66 The letter did not identify an offer in the letter of intent, or in any other way recognise that commencement of the works would bring a fourth class contract. In para 1 the respondent described its "offer", that is, its tender, as subject to the proviso that there were no adverse commercial considerations in the head contract or the Project Related Conditions. It still insisted on the non-negotiable clauses (para 2) and liquidated damages at $40,000 per day (para 4), and proposed milestone payments (para 5). The statement that the period of 26 weeks could not commence until it had received drawings (found to be an error for 36 weeks) (para 6) was scarcely consistent with preparedness for time to begin running under a commencement contract upon any commencement of the works, for example, by establishment.
67 The appellant did not in response draw attention to what the letter of intent said about commencement of the works. It did not point out that the respondent's "offer" would effectively become unconditional and immediately binding upon commencement of the works. On 24 February 1998 the appellant sent the Project Related Conditions to the respondent. Some drawings were provided on 25 February, purportedly as drawings Approved for Construction but in fact of a roof structure of a different design from that on which the respondent had tendered. A "kick-off" meeting was held on 24 February 1998 and a "site introduction" meeting was held on 26 February 1998. On 12 March 1998 the respondent raised a number of concerns with the Project Related Conditions, and on 18 March 1998 the appellant sent to it a significantly amended version of the SC.JCC-D conditions and a revised set of Project Related Conditions. The respondent raised many matters of concern and asked for a "further post-tender meeting prior to agreement on the terms of the subcontract". There were then further negotiations.
68 The conduct of the parties evidenced in and in response to the letter of 20 February 1998 was not that of offeror and acceptor of a commencement contract. They continued negotiations, and got on with the works as a practical matter not withstanding that they were still considerably apart as to the terms on which they would contract. Not until the litigation was under way did the appellant assert that a commencement contract had come into existence. As will be seen, it had specific occasion to state its contractual position in June 1998, and the contract it then asserted was not a commencement contract.
69 The referee did not specifically advert to the parties' subsequent conduct when considering a commencement contract. He did so when considering a contract coming into existence on 19 February 1998, responding to the appellant's submission -
" … to the effect that, in the course of conduct and, in particular, in documents which were generated by and between the parties, after 19 February 1998 and in the months that followed, there were indicia consistent with the formation of an agreement on 19 February 1998 and pointing to and evidencing the fact of formation of such an agreement."
70 The referee said of the subsequent conduct, in particular that of the respondent, that -
"Most, if not all, of the 'indicia' relied upon by Abigroup fall into this category, ie they seem to me to simply be consistent with ABB having been selected as the successful tenderer, asked to get on with the works, working at one level with Abigroup to conclude the terms of an agreement which both hoped, if not expected, to be made and, from ABB's point of view, taking steps and doing things which it was prudent to do on the assumption that a contract would be concluded and would have retrospective effect. Thus, to give a simple example, it would not be surprising for ABB, in circumstances where there was no dispute that a term of contract which the parties expected would be made would require the lodging of bank guarantees, to lodge those guarantees before the contract negotiations actually were concluded; nor would it be surprising for Abigroup to accept them while both parties intended and expected that they would bring their contractual negotiations to a conclusion."
71 The judge said -
"122 Notwithstanding that one can of course find indications to the contrary as for example the procuring by ABB of bank guarantees in favour of Abigroup, and an e-mail of 27 February 1998 internal to ABB referring to ABB having been awarded the fabrication and erection of the subject structure, to my mind the overwhelming burden of the subsequent conduct of both parties is against any inference confirmatory of their having entered into a binding contract of the type and that the time for which Abigroup contends or at any time. That the case is unusual for reasons I have earlier outlined [essentially concerning findings as to the communicated and accepted inhibitions of ABB on entering into any contract in the absence of clarification of the matters to which I have referred] is clear."
72 A full detailing of the parties' conduct is not required. It is sufficient to go to conduct of the respondent on which the appellant principally relied in the appeal, and in the course of doing so to note some relevant conduct of the appellant which weighs quite strongly against a limited terms contract.
73 In internal documents the respondent said that it had been awarded a contract. For working purposes that was accurate enough, and it was of negligible weight as an admission. As the referee observed, words of contract used by the parties between themselves and otherwise were "being used as a shorthand reference to the working relationship between the parties at the time and/or prospectively, to the contract which everyone expected would be made".
74 The respondent let contracts to sub-subcontractors, for example to engineers to prepare workshop drawings. The appellant submitted that it would not have done so unless it thought it had a binding contract with the appellant and so could safely engage the sub-subcontractors. This also has negligible weight. The putative binding contract with the appellant was one under which the respondent was not entitled to any payment. Payment was dependent on reaching further agreement with the appellant. The safety was illusory, and the letting of the sub-subcontracts was sufficiently explained by getting on with the job in anticipation of the formal subcontract.
75 One of the sub-subcontracts recited that the respondent "has entered into an agreement as follows", then referring to the roof works. The appellant submitted that this was an express admission. The evidence established that, although dated 26 March 1998, the sub-subcontract was entered into in August 1998, at a time when the respondent was clearly maintaining that no contract had come into existence. This adds point to the referee's observation concerning use of the words of contract, and again the matter is of negligible weight.
76 On 20 March 1998 the respondent claimed an extension of time and delay costs. The appellant submitted that this acknowledged a contract, because otherwise there was no occasion for the claim and no entitlement to an extension of time and costs. In passing, if this be correct the contract had to be a general conditions contract rather than a limited terms contract. However, the claim included that "[i]n the absence of a formally executed Contract Agreement, this notification is issued in accordance with the requirements proposed to be incorporated in a formalised Contract Agreement between AEC and Abigroup for these works". The claim was in truth inconsistent with the existence of a commencement contract, since it asserted that a contract was yet to be made. I do not think that the appellant was correct in submitting that "formalised" implied an existing informal contract. The appellant did not in response assert that there was an existing contract.
77 On 17 March 1998 the respondent provided two bank guarantees to the appellant, each to the value of $350,000. Paragraph 5 of the letter of intent had provided for retention in the form of two bank guarantees to that value. The appellant submitted that this acknowledged a contract on the terms of the letter, and pointed also to the reference in the guarantees to security for the performance of a contract entered into between the appellant and the respondent. However, the bank guarantees could have no place in a commencement contract, under which the respondent was not entitled to payment at all. Retention was meaningless for that contract, and the provision of the bank guarantees and their reference to a contract could be material only to the formal subcontract or to a course of conduct outside any contract.
78 The bank guarantees were handed over at a meeting on 25 March 1998 held as part of the ongoing discussions towards the formal subcontract, and the referee correctly said that it would not be surprising for the bank guarantees to be provided and accepted in anticipation of the formal subcontract. In the circumstances next described, the provision of the bank guarantee is readily explicable as part of a course of conduct outside any contract.
79 On 19 March 1998 the appellant wrote to the respondent outlining how progress claims were to be administered. It said that they were due by the twentieth of each month, projected to the end of the month, and listed what was to be included in and with a progress claim. It also said that no progress payment would be made until the bank guarantees had been provided.
80 On 19 May 1998 the respondent submitted a progress claim for work to 20 May 1998. The appellant submitted that this recognised a contract, although it acknowledged that it was not consistent with the statement in the letter of intent that no money would become due and payable until the formal subcontract had been executed. What followed is particularly instructive. The appellant responded to the progress claim on 17 June 1998. It said that "[i]n reference to clause of the subcontractors [sic] post tender interview your claim is rejected", the clause being blank, and that "In the interest of a working relationship we are prepared to make a one off payment on account" of $100,000. It was added, "You should not [sic] that no payments are made until the sub contract agreement is signed". This may have been a reference to the letter of intent, but it was not an assertion of a currently binding contract and was consistent with the operation of para 10 of the letter earlier described.
81 At this time came the respondent's letter of 17 June 1998, saying that it had commenced work following the letter of intent in the expectation that agreement could be reached, and that it was evident that agreement could not be reached "and thereby no formal contract is in existence". The letter said that the appellant should decide whether it wanted the respondent to discontinue work and invoice for the reasonable cost of the work done or continue work to completion within a reasonable time and at a reasonable cost.
82 A meeting followed. The appellant's letter of 24 June 1998 summarised "the major issues discussed and the proposed steps forward to resolution". It said that "in our view the contract remains in place", although it was not more specific. The proposed steps included that contractual negotiations would be maintained and work would continue.
83 The respondent's letter of 26 June 1998 rejected an existing contract, saying that "[w]hat is in place is merely an open 'contract', on the basis of your instructions for AEC to commence work pursuant to your letter of 19 February 1998". The appellant's reply asserted -
""The contract which exists between our two organisations is one which reflects our agreement to matters which arose between (and including), the original request to bid and the awarding of the subcontract.
The documentation to form the subcontract was clearly described in the correspondence issued during the tender and negotiation periods; The 'Minutes of Subcontract Post Tender Interview' also reflect the documents to be included in the Subcontract".
84 The appellant paid the respondent "on account", although it was not obliged to do so - an illustration of getting on with the job in anticipation of a formal subcontract. Of more significance, at a time when the appellant should clearly have asserted a commencement contract, it did not do so. The failure to assert a commencement contract, let alone a limited terms contract, is stark.
85 The respondent made another progress claim, for work to 30 June 1998. In a certificate dated 23 July 1998 the appellant approved payment of $824,290.96 "notwithstanding that there is no contractual requirement to provide a payment certificate … ". At this time the parties were manifestly at issue over whether a contract had come into existence. To the contrary of the appellant's submissions, the parties conducted themselves inconsistently with a commencement contract. The findings negated any other contract, and they were conducting themselves outside any existing contractual rights and obligations. Their conduct did not support, but was contrary to, a limited terms contract or any commencement contract, and amounted to getting on with the job concurrently with negotiation and disputation.
86 Reverting to the bank guarantees, the stipulation for their provision in order to obtain payment fully explains why they were provided.
87 On 8 April 1998 the respondent provided the appellant with a Project Execution Plan for the roof works. It included that the respondent "has undertaken a review of the Contract on the basis of AEI letter of acceptance and produced/amended the relevant project plans accordingly", and that "[t]he Project Execution Plan (this document) has been revised to reflect the requirements contractually agreed". The appellant submitted that this acknowledged an existing contract. It is of little weight, attracting the referee's observation earlier noted.
88 On 21 April 1998 the respondent claimed extensions of time and delay costs. The claims were said to be "pursuant to such entitlements contained in the Subcontract Agreement" and "in accordance with the provisions of the Subcontract Agreement". The appellant submitted that these were unequivocal statements by the respondent as to the existence of a contract between them. Again in passing, if so the contract was not a limited terms contract. The claims did not repeat the reference to a proposed formal agreement found in the claim of 20 March 1998, but nothing had contractually changed and the "Subcontract Agreement" to which they referred was the proposed formal agreement.
89 The appellant rejected the claims, saying it was "unable to make a reasonable assessment" because the respondent had "failed to comply with its contractual obligations to produce a suitable programme … as per Item 13 of the Minutes of Subcontract Post Tender Interview". Whatever contract this assumed, it was not a limited terms contract.
90 The appellant's best support came from the respondent's letter dated 29 April 1998, in which it objected to entering into a supply agreement with BHP because -
"1. A contract exists between Abigroup and ABB Engineering Construction to the exclusion of other parties. Therefore any alterations or variations to the contract must be similarly restricted to Abigroup and AEC only. In the circumstances the agreement between BHP, SOCOG and Millenium, cannot be transferred over to AEC."
The appellant submitted that this was a clear statement that a contract existed, made by the respondent to protect its position.
91 The statement can be seen as an assertion of the incipient formal subcontract. The negotiations were ongoing, and it is understandable that the appellant should have asked the respondent to enter into the supply agreement and that the respondent should have declined, both against the background of a contract they anticipated would come into existence. That said, a natural reading of the letter is assertion of an existing contract. It must be taken into account, but only together with all else bearing upon the existence of a contract.
92 The referee said of this letter, together with other of the "indicia" -
"While, on their face, some of the words used by ABB in some of the contemporaneous documentation point to a contract being in existence, these individual phrases appear in documents created by engineers, project managers, programmers and the like. I do not think that the use of some isolated phrases which, considered by themselves, speak of a contractual situation, can stand against the body of evidence which establishes that there was no agreement at 19 February 1998 and thereafter, on the defendant's alternative case, until at least 5 May 1998. The documents referred to can be classified as created in the course of the ongoing relationship between ABB and Abigroup, by non-lawyers and I do not attach contractual significance to isolated statements, made in such circumstances, which do not in fact reflect the true legal situation between the parties, particularly in circumstances where both of them were anxious to get on with the works and ABB was, as I read the materials, anxious to pay some attention to matters which were likely to be the subject of terms in any agreement which might be reached, such as the provision of bank guarantees, the notification of delays for claim purposes, the provision of a project execution plan, and so on."
93 In my opinion this is a correct assessment, equally applicable to a commencement contract. Moreover, in the manner I have explained the appellant's own conduct was inconsistent with the existence of a commencement contract. When it had occasion to explain the contract which it said was in place, that contract was not a commencement contract, still less a limited terms contract. On balance, the subsequent conduct of the parties is against rather than supportive of a concluded and immediately binding contract made upon commencement of the works.
94 I consider that the correct, indeed plain, conclusion is that a contractual intention should not be found and a limited terms contract did not come into existence.
95 It is not necessary to consider whether the letter of 20 February 1998 amounted to a rejection of any offer in the letter of intent. The referee's consideration was brief, his prior conclusions making it superfluous. He referred only to "the words of the letter and, in particular, the express reference in the first numbered paragraph of the letter to ABB's offer being based on the proviso that there are no commercial considerations within the head contract and the Project Related Conditions". The formula of offer and acceptance in the appellant's pleading of a commencement contract should not obscure true question, one of objectively ascertained contractual intention. The letter should be seen as part of the parties' dealings, rather than analysed for rejection of an offer which, if the opinion to which I have come is correct, was not there to be rejected. The letter's significance lies in its contribution to conduct of the parties otherwise than as offeror and acceptor of a commencement contract, not in its place in an offer and acceptance process.
96 Nor is it necessary to consider commencement of the works on 25 February 1998. Brambles Holdings Ltd v Bathurst City Council was a case of a contract implied from conduct, not a contract formed by acceptance of an offer. On the appellant's pleading and its conduct of the reference, commencement of the works may not have been available otherwise than as acceptance of an offer. It does not matter. Nor does it matter whether the respondent is unable to say for its quantum meruit claim that it commenced the works on 25 February 1998 but for contractual purposes that it did not.