This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its 1981 decision British Steel Corp. v. Cleveland Bridge and Engineering Co Ltd., the United Kingdom Queen’s Bench ordered Cleveland Bridge and Engineering Co Ltd. to pay nearly £230,000 in restitution to the British Steel Corp. for the manufacture and delivery of 137 cast-steel nodes used in the construction of a bank building in Saudi Arabia, despite the absence of a written contract between the parties.
After winning a tender for the construction of a bank building, Cleveland Bridge approached British Steel for the supply of the required cast-steel nodes. British Steel submitted an estimated price based on incomplete information provided by Cleveland Bridge. Further negotiations ensued, which included discussions regarding the technical aspects and appropriate specifications for the manufacture of the cast-steel nodes.
Cleveland Bridge then sent a letter to British Steel that stated its intention to enter into a contract. The letter also stated, “We understand that you are already in possession of a complete set of our node detail drawings and we request that you proceed immediately with the work pending the preparation and issuing to you of the official form of sub-contract.” However, contrary to the contents of the letter, British Steel was not in possession of the full set of drawings and did not respond to the letter, since it expected a formal offer to follow shortly thereafter.
To prevent delays, British Steel began preparing for the manufacture of the required goods. Ongoing negotiations ensued over the specifications, with the parties agreeing that British Steel would manufacture the first cast. This cast proved to be unsatisfactory, requiring extensive alterations to the patterns and specifications. In subsequent negotiations, the parties arrived at a provisional agreement on price but continued to disagree over other contract conditions. In particular, British Steel would not agree to post a performance bond or to assume unlimited liability if the delivery schedule was not met.
In the interim, British Steel agreed to submit a revised delivery schedule and to accelerate delivery of the completed cast-steel nodes. It eventually delivered all but one of the 137 cast-steel nodes. Notwithstanding its prior assurances regarding progress payments, Cleveland Bridge refused to make any payment until all of the nodes were on site in Saudi Arabia. After a stormy meeting between the parties, Cleveland Bridge continued to refuse to make payment and submitted a written claim to British Steel for damages for late delivery. British Steel countered with a claim for payment for the delivered goods.
The Court rejected the damages claim made by Cleveland Bridge for late delivery, finding that the parties had never reached an agreement regarding the delivery time. Furthermore, while the Court concluded that the parties never formally entered into a contract for the cast-steel nodes, it determined that British Steel was still entitled to recover a reasonable amount for the work completed based on a restitution claim:
In my judgement, the true analysis of the situation is simply this. Both parties confidently expected a formal contract to eventuate. In these circumstances, to expedite performance under the expected contract, one requested the other to commence the contract work, and the other complied with that request. If thereafter, as anticipated, a contract was entered into, the work done as requested will be treated as having been performed under that contract; if, contrary to their expectation, no contract was entered into, then the performance of the work is not referable to any contract the terms of which can be ascertained, and the law simply imposes an obligation sounding in quasi-contract or, as we may say, in restitution. Consistently with that solution, the party making the request may find himself liable to pay for work which he would not have had to pay for as such if the anticipated contract had come into existence, e.g. preparatory work which will, if the contract is made, be allowed for in the price of the finished work.
As this case demonstrates, parties should arrive at a meeting of the minds and conclude a formal written agreement complete with all necessary specifications and performance terms prior to the commencement of any work. Furthermore, as evidenced by the restitution award to British Steel, suppliers may be entitled to compensation for their work even in instances where no contract is formed between the parties. The failure to establish a certainty of terms can therefore serve as the catalyst for future commercial disputes and potential legal claims.
