Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2009] CSOH 52

CA66/06

OPINION OF LORD GLENNIE in the cause LANGSTANE HOUSING ASSOCIATION LIMITED Pursuers; against (FIRST) RIVERSIDE CONSTRUCTION (ABERDEEN) LIMITED, (SECOND) RAMSAY & CHALMERS, (THIRD) JOHN S. RAMSAY, (FOURTH) ALEXANDER T. CHALMERS, (FIFTH) PETER J. FRASER, (SIXTH) RAMSAY CHALMERS LIMITED, (SEVENTH) CUMMING & CO (ABERDEEN) LIMITED, (EIGHT) NEIL ROTHNIE and (NINTH) ALAN CUMMING Defenders: ­­­­­­­­­­­­­­­­­________________

Pursuers: Clarke QC; CMS Cameron McKenna (Scotland) LLP

Second to Sixth Defenders: Dean of Faculty, Dunlop; Brodies LLP

(First, Seventh, Eighth and Ninth Defenders not participating)

3 April 2009

Introduction

[1] This preliminary proof before answer concerns the question of what terms were incorporated into the contract between the pursuers and the second defenders and the extent to which the second defenders are entitled to rely upon them. In issue are questions of contractual construction, incorporation of terms and the application of the Unfair Contracts Terms Act 1977 as amended.

[2] The pursuers are the Langstane Housing Association Limited. In about May 2001, they purchased subjects known as 411/2 Union Street, Aberdeen from Granite Developments. The subjects comprised the first to fifth floors of a larger building which included retail units. In March 1998 a fire in the lower part of the building caused extensive damage, including damage to the subjects. A renovation scheme to reinstate and develop the subjects was initiated by Granite Developments and was, in general terms, adopted by the pursuers after they purchased the subjects.

[3] During the course of the renovation works, a partial collapse of the subjects occurred. This action is brought by the pursuers to recover damages which they claim to have suffered in respect of that collapse. They aver that the collapse resulted from the breach of contract and/or negligence of the contractors, of the architect and of the consulting engineers. The second defenders were the consulting engineers. In this action the pursuers claim against the defenders "jointly and severally, or severally" for an amount in excess of £3 million.

[4] In Article 5 of Condescendence, the pursuers aver that their representatives met with the staff of the second defenders on 9 March 2001; that by letter dated 15 March 2001 to the pursuers, the second defenders set forth their fee proposals and the proposed basis of their engagement; and that thereafter the pursuers engaged the second defenders as consulting structural and civil engineers for the scheme of works. It is not in dispute that the contract between the pursuers and the second defenders was formed by the second defenders' letter of 15 March 2001 and the pursuers' conduct in instructing the work and subsequently paying for it in accordance with the terms of that letter. In the course of the proof, reference was made to the second defenders' invoice after completion of the work and the pursuers' payment thereof. The invoice clearly referred to the letter of 15 March 2001, and the remittance advice from the pursuers in turn referred to that invoice.

[6] In Answer 5, the second defenders aver that the contract between them and the pursuers was subject to and governed by the Association of Consulting Engineers Conditions of Engagement, B(1), (the "ACE Conditions"). The importance of the ACE Conditions for present purposes lies in the Net Contribution Clause, clause B8.2, which is in the following terms:

"Subject to B8.1 but notwithstanding otherwise anything to the contrary contained in this Agreement, such liability of the Consulting Engineer for any claim or claims shall be further limited to such sum as the Consulting Engineer ought reasonably to pay having regard to his responsibility for the loss or damage suffered as a result of the occurrence or series of occurrences in question, on the basis that the Lead Consultant, all Other Consultants and all Contractors and Sub-Contractors shall be deemed to have provided contractual undertakings on terms no less onerous than those set out in B2.3 to the Client (whether or not they shall have been so provided to the Client) in respect of the carrying out of their obligations and shall be deemed to have paid to the Client such proportion which it would be just and equitable for them to pay having regard to the extent of their responsibility."

Clause B8.1, which is referred to in the opening words of B8.2 quoted above, is a "Limitation of Liability" clause which bears to limit the liability of the Consulting Engineer to a sum to be inserted at A.10 of the Memorandum of Agreement. The Memorandum of Agreement is a blank form attached to the ACE Conditions which is intended to be completed by the contracting parties.

[7] The third to fifth defenders are sued as the partners in the second defenders. The sixth defenders are a limited company connected with the business of the second defenders. They accept that if the acts of the second defenders amounted to a breach of contract or fault or negligence, the obligation to make reparation arising therefrom is owed by them rather than by the second to fifth defenders. It is not clear whether there is any dispute about this issue but, if there is, it does not arise for decision at the present stage. The preliminary proof was conducted between the pursuers and the second to sixth defenders. None of the other defenders took part in it.

The ACE Conditions of Engagement

[8] The ACE Conditions of Engagement are a set of standard terms drawn up by the Association of Consulting Engineers. They are intended to be used as the basis of agreements between a client and a consulting engineer. The earliest version which was put in evidence is dated 1 March 1963, reprinted and incorporating amendments to July 1979. This is generally referred to in the documents as the ACE Conditions of Engagement 1963, Amended 1979. There have been a number of versions since then. There were included with the documents put before the court the 1981 edition, the 1984 edition (with reprints in 1986, 1988 and 1990), the 1995 edition and, finally, "Conditions of Engagement 1995, 2nd Edition 1998" ("the 1998 revision"). In addition, there would periodically be amendments made to the then current version of the Conditions, which would usually, as I understand it, at least recently, take the form of loose leaf pages.

[9] Each edition of the ACE Conditions contained a number of different Forms of Agreement, to be used depending on, for example, whether the Consulting Engineer was engaged as a Lead Consultant, or was engaged directly by the Client but not as a Lead Consultant, and so on. In the earlier versions, these were lettered A, B, C, D and E. By 1981, this has changed to numbering. However, by 1995 the different Forms of Agreement were again lettered. Agreement B, which is the applicable one here, was for use when the Consulting Engineer was engaged directly by the Client, but not as a Lead Consultant. Agreement B was itself published in two variants for different engineering disciplines, variant 1 for Civil and Structural Engineering and variant 2 for the Engineering of Electrical and Mechanical Services in Buildings. The services supplied by the second defenders were Civil and Structural Engineering. Accordingly, Agreement B1 was the appropriate Form of Agreement for the present case if either the 1995 Conditions or the 1998 revision were to be used.

[10] Over the years, the different versions of the ACE Conditions of Engagement changed considerably, both in content and in form. Unlike previous versions, the 1995 edition contained a lengthy pro forma Memorandum of Agreement to be filled out by the parties. In the 1998 revision, the Memorandum of Agreement ran to some 12 pages. In the Introduction to the 1995 Conditions, the Association of Consulting Engineers refer to the various choices given to the parties by the standard Conditions and comment that:

"The agreements are not intended to be used as unsigned reference material with the details of an engagement being covered in an exchange of letters, although much of their content could be used as a basis for drafting such correspondence."

In the Guidance on Completion of Agreements issued by the Association of Consulting Engineers in connection with the 1998 revision, the point is made that:

"The Memorandum of Agreement is a major element of the contract and contains all the spaces which must be filled in to create an Agreement for a specific commission. It is vitally important that it should be completed correctly in order to create a legally valid and comprehensive contract."

The Guidance then goes on to discuss what needs to be completed in relation to the various paragraphs of the Memorandum of Agreement. In paragraph 14 of the Guidance, it is stated that clause B8.1:

"is drafted on the basis that a limit of liability will be agreed with the Client and two options have been provided in A10, one of which must be deleted."

Paragraph 20 of the Guidance points out that

"B8.2 differs from the traditional joint and several formula and provides for 'net contribution', i.e. that the Consulting Engineer will be liable for only his fair share of the loss, taking into account his share of responsibility."

There is no suggestion that any additional agreement needs to be entered into to make clause B8.2 effective.

[11] The Net Contribution Clause first made its appearance in the ACE Conditions of Engagement in September 1993, by Amendment Sheet No 6. That Amendment Sheet set out a number of amendments which were to apply to the texts of the 1981 and 1984 Conditions of Engagement. Paragraph 4 of the Amendment Sheet contained the text of the Net Contribution Clause in substantially the same terms as the clause in the 1998 revision. In the 1995 Conditions, the Net Contribution Clause appeared as part of a package of clauses in which it was combined with an exclusion of liability for certain matters and a monetary limit. Two versions of this package were included in the standard Conditions, the first being split into sub-paras 8.1A, 8.1B and 8.1C, while the second was numbered 8.2A, 8.2B and 8.2C. Each alternative was bracketed, the parties having to choose between them in the Memorandum of Agreement which they required to fill in. The parties also had to choose the monetary limit. The 1998 revision reverted to a single form of Net Contribution Clause which required no choices to be made in the Memorandum of Agreement. In connection with the clauses concerning "Liability, Insurance and Warranties", the parties were required to make a choice not only as to the monetary limit (clause 8.1) but also as to the limitation of time within which to bring claims (clause 8.3) and the amount of professional indemnity insurance and public liability insurance which the Consulting Engineer was required to maintain (clauses 8.4 and 8.5).

The material facts

[12] The parties were agreed that the documents put before the court were authentic and could be referred to for their contents whether or not they were spoken to by a witness. In addition, I heard evidence from three witnesses of fact. Mr Kenneth Clark, the former Development Property Manager of the pursuers, gave evidence about the dealings between the pursuers and the second defenders during the relevant period. Mr Colin Gough, who previously worked under Mr Clarke and is now Project Manager for the pursuers, also spoke to those matters in so far as he was involved in them. Mr Sandy Chalmers, a partner or former partner in the second defenders and a director of the sixth defenders, covered the same matters from the point of view of the second defenders. I found all of them to be credible and generally reliable, though each of them confessed to not remembering certain matters and, on occasions, they were clearly mistaken as to the details.

[13] The pursuers are a charitable Housing Association committed to the provision of homes, mainly but not exclusively for single people. They are one of many Housing Associations in the United Kingdom. They operate within Aberdeen and in the Aberdeenshire area. At present they have over 2000 units (flats), some of them being the product of refurbishment and others being newly built for them. Most, perhaps 80%, of their funding comes from public funds, originally through the Housing Corporation and subsequently through its successors. The balance of the finance required is obtained through the private sector. For the year ended 31 March 2008, they had a turnover of in excess of £7 million.

[14] Since at least the early 1980s, the pursuers have operated through a Panel of Consultants, comprising architects, engineers, surveyors and other professionals. The practice was to appoint to the Panel a number of professionals within each discipline and, as and when a particular project arose, to use the services of those professionals who were on the Panel. This had advantages both for the pursuers and for the consultants on the Panel. One obvious advantage was that the pursuers did not have to start from scratch in finding the appropriate consultants for any particular project. Another was that the consultants on the Panel could expect to be engaged regularly on projects for the pursuers over the years, though (since there was more than one in each discipline on the Panel) obviously not on every one of their projects. It was explained in evidence by Mr Clark that there was another important advantage of this system. The pursuers would investigate many potential developments. Many might not come to anything. They would ask professionals on the Panel to assist in their preliminary work. If the proposed development came to fruition, those professionals would be engaged and paid according to the agreed rates. But if the proposed development came to nothing, the pursuers would not have to pay; and the panel members were content to proceed on the basis that, while they would not be paid for that abortive work, they would be next in line when a new project came along. I am satisfied that engineers, architects and surveyors in general, and the defenders in particular, regarded it as desirable to be selected for and kept on the Panel.

[15] It appears from the evidence that the appointment of the second defenders to the Panel proceeded on an informal basis until 1995. Certainly I was shown no document confirming appointment to the Panel before that date and, as I understood it, neither Mr Clark nor Mr Gough thought that there had been a formal appointment letter before then. Reference was made in evidence to three letters from the second defenders to the pursuers, in December 1986, February 1989 and December 1990, containing the second defenders' fee proposals or estimates for work on three different projects. In each of those letters the second defenders based their estimate on the "ACE Conditions of Engagement 1963, Amended 1979" (or a variant of that wording). Given that by 1986, 1989 and 1990, the dates of the letters referred to above, there were more current editions of the ACE Conditions of Engagement than the 1963 version amended in 1979, there was some uncertainty as to why the letters referred to that earlier version of the Conditions. Mr Chalmers sought to answer this by reference to a table of the various projects on which the second defenders had worked for the pursuers. He was able to say that those projects had first been entered on the books of the second defenders not when the letters were written but some years earlier, variously in 1982 and 1984. It was his understanding that the intention was always to refer to the latest version of the ACE Conditions. I accept that evidence, though in fact had that intention been carried through to those particular projects, the appointment would have been on terms of a later version than the 1963 (amended 1979) version. It is fair to say that none of the three witnesses from whom I heard showed a great awareness of the different versions of the ACE Conditions or the timing of any revisals to them.

[16] The first written appointment to the Panel took the form of a letter from the pursuers to the second defenders dated 7 March 1985 in the following terms:

"Dear Sirs

I write to confirm your appointment to the approved Panel of Consultants of the Association. Your appointment will be on the basis of the current ACE Conditions of Service. Thereafter, you will be appointed on a job by job basis where the Association will negotiate with you the appropriate terms, conditions, rates, etc. for any particular scheme.

Yours faithfully

COLIN GOUGH

Development Officer"

There is no evidence of any response to this letter from the second defenders. In the course of submissions, the question was raised as to what was meant by the word "current" in that letter. Mr Clarke QC, for the pursuers, suggested that the meaning of the letter was that future jobs would be undertaken by the second defenders on the basis of the ACE Conditions of Engagement "current" as at 7 March 1995. That is, of course, a possible meaning; but it seems to me more likely that the parties intended by that letter to indicate that future jobs would be to undertaken on the basis of the version of the ACE Conditions of Engagement "current" as at the date of the appointment to that job. I can conceive of no reason, and none was suggested in evidence, why the parties should have wanted to fix the particular version of the ACE Conditions current as at 7 March 1995 as the version that they would use for all future jobs. There is no evidence that they had contracted on the basis of that version before and, as I have already explained, neither of the witnesses for the pursuers suggested that they had any interest in or knowledge of any particular version of the ACE Conditions.

[17] At the beginning of 1995, the pursuers were in the process of negotiating an arrangement with the Woolwich Building Society regarding the raising of Private Finance for their development programme over the next three years. The Woolwich wanted "the Association's Consultants for the schemes covered by the loan", i.e. consultants on the pursuers' Panel, to enter into a Duty of Care Agreement in terms of which the consultants would undertake duties of care to the Woolwich in similar terms to those duties owed by them to the pursuers. On 10 February 1995, the pursuers sent to the second defenders a draft copy of the Duty of Care Agreement proposed by the Woolwich. Clause 1.1.2 thereof referred to the terms of appointment of the Consultant, brief details of which were to be set out in Part 1 of the Schedule at the back of the Agreement. The Schedule was left blank in this draft. The second defenders passed this on to their brokers for comment. On 17 February 1995 the brokers wrote back with certain questions and comments. Under reference to clause 1.1.2, they emphasised that if the second defenders were not appointed on "standard ACE terms and conditions", they should ensure that they would not be taken beyond their recognised professional capacity; and they suggested that, to protect their position, the second defenders should insert into the draft Duty of Care Agreement "the Net Contribution Clause provided for under the ACE/RIAS Approved Form of Warranty". The draft, together with the brokers' comments, was passed by the second defenders to their solicitors for advice. By letter of 7 March 1995, the solicitors confirmed the brokers' advice that any Letter of Appointment referred to in the Duty of Care Agreement should not take the second defenders beyond their recognised professional capacities; and that attempts should be made to use the ACE terms and conditions. In a subsequent letter of 23 March 1995, the second defenders' solicitors agreed that they would write to the pursuers in relation to the proposed Duty of Care Agreement. I need not refer to the further correspondence during April 1995.

[18] On 16 May 1985, the pursuers wrote to the second defenders in the following terms:

"Dear Sirs

Woolwich Building Society

The saga of the Association's attempt to arrange a package of private finance from the Woolwich Building Society continues and their bureaucratic requirements are still having to be met by the Association. They have now asked me to reiterate our letter to you of the 7^th March 1995 regarding terms of engagement and further have asked that I ask consultants to respond directly to the letter accepting the terms of the letter.

I therefore enclose a copy of a letter reiterating those terms. I will send it by fax to you today (Tuesday) and would ask you to respond to me in writing accepting the terms similarly by fax today. This would mean that I can get all the relevant information available for them by Wednesday morning at the earliest when I have to send them the letter I sent to you, your response, and a copy of the actual documents (Blue Book, ACE, RICS whatever).

I know that you will assist me in this by responding upon receipt.

Yours faithfully

Kenneth Clark

Development Property Manager"

The letter "reiterating" the terms of engagement, enclosed with that letter, was also dated 16 May 1995, and provided as follows:

"Dear Sirs

I write to confirm your appointment to the approved Panel of Consultants of the Association. Your appointment will be on the basis of the current ACE Conditions of Service.

Thereafter the Association will negotiate with you on a job by job basis any appropriate discount to the scale fee and will confirm this in writing.

Yours faithfully

Kenneth Clark

Development Property Manager"

By fax of the same date from Mr Chalmers, the second defenders acknowledged the letter of 16 May 1995 and confirmed that its terms were acceptable. A revised draft of the Duty of Care Agreement was circulated in June 1995 and, it seems, approved by the second defenders and their solicitors. In the Schedule to the draft, the Particulars of Appointment were entered as "A.C.E. Conditions of Engagement 1984 (amended 1988) Agreement 3". It was suggested by Mr Clarke, for the pursuers, that since by then the "current" ACE Conditions were the 1995 Conditions, this demonstrated that Mr Chalmers was wrong in his understanding that the second defenders had always worked on the basis of the then current Conditions. I do not accept this. The Duty of Care Agreement, as completed, related to two particular projects entered in the books of the second defenders in 1993 and 1994. The version of the ACE Conditions current as at those dates was the 1984 version reprinted in 1990. Mr Chalmers explained that they would seek to use the version of the Conditions in force at the time they were first consulted about the particular project.

[19] No evidence was led as to the terms of any other specific projects to which the second defenders were appointed as Consultant Engineers between May 1995 and March 2001. I therefore cannot form any view as to whether, in setting out their fee proposals for such projects, the second defenders referred to the ACE Conditions of Engagement, either in general terms or specifically to a particular version. The next contractual document, chronologically, in the bundles which were before me is the letter of 15 March 2001. As I have already noted, that described the Basis of Engagement for the project at 411/2 Union Street as "ACE Conditions of Engagement Agreement - B1".

Expert evidence

[20] Mr Barter gave evidence for the pursuers under reference to his report of 16 March 2009. His evidence was of limited compass. In his report, he explained that "most if not all Consulting Engineers would want their contract with the client to be in accordance with the relevant current ACE Agreement". For the structural work at 411/2 Union Street, he identified the relevant document as being the 1998 revision of the 1995 Conditions. He had assumed as the basis for his earlier (and fuller) report that it was this version of the ACE Conditions which applied even though the blanks were not filled in and the alternatives were not deleted. He explained in cross-examination that as a consulting engineer he would want a Net Contribution Clause to be included in any collateral warranties as well as in the contract. The idea of such a clause was that each party should pay for their own mistakes and thus avoid the risk of the insolvency of another contractor or consultant. The employer could insist on the contractor or other consultant having liability insurance and, indeed, could even take out his own insurance against insolvency of the contractor or consultant. Whether such a term was acceptable would come down to the bargaining strength of the parties. The clause had often been a bone of contention. Adopting the Net Contribution Clause would tend, in theory at least, to reduce duplication in the cost of insurance and should, therefore, lead to a reduction in the cost to the employer - though the effect on a particular contract might not be noticeable.

The issues

[21] Before the preliminary proof, the pursuers lodged a List of Issues for determination at the preliminary proof (No.51 of Process). The issues were:

(1) Whether the contract between the pursuers on the one hand and the second and/or sixth defenders on the other was subject to and governed by the Association of Consulting Engineers Conditions of Engagement, B(1).

(2) If the answer to question 1 is positive, which version of the said Conditions applies to the contract, and in particular does Clause B8.2 of the 1998 version of the said Conditions apply?

(3) If the Answer to questions 1 and 2 is positive, is the contract subject to the Unfair Contract Terms Act 1977?

(4) If the answer to questions 1, 2 and 3 is positive, are the circumstances such that it was not fair and reasonable within the terms of the Unfair Contract Terms of Act 1977 to incorporate the said clause into the contract?

The second defenders were content to adopt these as the relevant questions to be answered at the preliminary proof.

Submissions

[22] Mr Clarke QC, for the pursuers, identified the first two questions as raising issues of incorporation. The question was whether any version of the ACE Conditions of Engagement was incorporated into the contract under which the second defenders acted as Consultant Engineers on the 411/2 Union Street project; and, if so, whether this included the Net Contribution Clause B8.1. He referred me to the summary of the applicable principles in para.7-02 of the third edition of McBryde, The Law of Contract in Scotland. In the third and fourth bullet points in that paragraph, the editors identify two distinct questions, namely (a) whether the document has been incorporated to any extent and, if so, (b) what parts of the document have been incorporated? Each of these questions had to be approached by asking whether there was "reasonable sufficiency of notice of what is incorporated". Unusual conditions, or "conditions which affect claims under the contract" may require very clear notice for there to be effective incorporation into the contract. In support of this summary, the editors of McBryde refer to the ticket and notice cases and the cases concerned with course of dealing. Mr Clarke relied particularly upon the decision of the Court of Appeal in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] 1 QB 433 as authority for the approach that where the condition sought to be incorporated into the contract was unusual or unduly onerous, it was necessary for the party seeking to incorporate it to take reasonable steps to have it brought to the attention of the other party. The more unusual or onerous the term, the greater the steps that were required to ensure that the other party was aware of it. Mr Clarke referred me to a number of other cases in support of this approach, namely McConnell & Reid v Smith 1911 SC 635, Lacey's Footwear (Wholesale) Ltd v Bowler International Freight Ltd [1997] 2 Lloyds Rep 369, Montgomery Litho Ltd v Maxwell 2000 SC 56, Picardi v Cuniberti [2003] BLR 487 and Munkenbeck & Marshall v. Harold [2005] EWHC 356 (TCC).

[23] Mr Clarke submitted none of the ACE Conditions of Engagement applied to the contract between the pursuers and the second defenders in respect of 411/2 Union Street. The letters of March and May 1985 did not have the effect that, without more, the appointment of the second defenders as Consulting Engineers in respect of future projects would be subject to the ACE Conditions. Nor did he accept that the reference in the letter of 15 March 2001 to "ACE Conditions of Engagement Agreement - B1" as the "Basis for Engagement" was sufficient to incorporate the ACE 1995 Conditions (Revised 1998) or, indeed, any version of the ACE Conditions. No particular version of the ACE Conditions was referred to in the letter. In the context of what had gone before, with the parties having referred to different versions of the ACE Conditions variously by specific year and by use of the word "current", it was all a "guddle". However, in any event, even if objectively the intention was to refer to the 1998 version, the Net Contribution Clause was unusual in that it innovated on and restricted the common law approach of joint and several liability. Mr Barter had referred to the clause as a "real bone of contention" and a "big change". Rather than the pursuers suing the second defenders and then leaving it to them to claim against others, the effect of the Net Contribution Clause was to put the onus on the pursuer to claim against all the parties potentially at fault. Such a clause should have been brought to the attention of the pursuers. Mr Clark said that he would have expected such changes to be brought to his attention, but it was common ground that no notice at all of this clause was given by the defenders to the pursuers.

[24] Mr Clarke QC pointed out that the 1998 Conditions were not intended to be adopted by reference into an agreement entered into by exchange of letters or by a letter followed by conduct. There were a large number of choices to be made by the parties to the contract if they wanted to proceed on the basis of the 1998 revision of the Conditions. Unless the parties made these choices, the 1998 Conditions were difficult to operate.

[25] Mr Clarke submitted, therefore, that Question (1) should be answered in the negative; and Question (2), if it arose, should be answered by saying that clause B8.2 was not incorporated.

[26] Turning to Questions (3) and (4), Mr Clarke submitted that the case fell within sections 16(1)(b) and 17(1)(a) of the Unfair Contract Terms Act 1977. As to what was meant by a "standard form contract" in section 17, he referred to McCrone v Boots Farm Sales Ltd 1981 SC 68 and to Border Harvesters Ltd v Edwards Engineering (Perth) Ltd 1985 SLT 128. The test of reasonableness was set out in section 24 of the Act, as amended by the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990. The second defenders had to show that it was fair and reasonable to incorporate the Net Contribution Clause into the contract. Section 24(4) placed the onus on the party contending that the term was fair and reasonable. All the circumstances had to be taken into account. The term was unusual and controversial. It altered the common law position markedly by placing upon the client the risk of insolvency of the contractor or one of the consultants. Although the second defenders had pled a case of inequality of bargaining position, that case was not relied upon. It was relevant to consider the resources of the party seeking to rely upon the term and his ability to cover himself by insurance. Mr Clarke accepted that the question of insurance was relevant both ways, that is to say not only the insurance that the second defenders could have obtained but also the insurance arrangements which the pursuers could have made or insisted upon. The second defenders had simply failed to discharge the onus upon them. There was insufficient evidence on this point to enable the court to say that the term was fair and reasonable. The answer to questions (3) and (4) should, therefore, be: Yes.

[27] For the second defenders, the Dean of Faculty focused initially on the 16 May 1995 letter of appointment to the Panel. The terms of that letter were clear. When a job came up in the future, the engagement of the second defenders as Consulting Engineers would be on the current ACE Conditions of Engagement. The word "current" did not suggest reference to a set of Conditions frozen in time; rather, it pointed to the use of the version of the Conditions current at the date of any particular engagement. There was no reason put forward in the evidence for wanting to freeze the conditions as at May 1995. However, he argued that it made little difference, since the 1995 Conditions, even without the 1998 revisions, also contained a Net Contribution Clause (as indeed did the 1993 Amendment to the 1984 Conditions). The letters surrounding the engagement of the second defenders for a particular project did not need to refer to the ACE Conditions, since in terms of the May 1995 letter they applied anyway. The reference to the ACE Conditions in the letter of 15 March 2001 was simply "belt and braces". But even if that analysis of the May 1995 letter was wrong, the letter of 15 March 2001 made it absolutely clear that the ACE Conditions of Engagement - B1 applied to the second defenders' engagement as Consulting Engineers for the project at 411/2 Union Street. The reference in the letter of 15 March 2001 to the ACE Conditions was clearly a reference to the then current version of the Conditions. Mr Barter said that everyone reading that letter would take the reference as being to the then current version. Such a construction was consistent with the decision of the House of Lords in Smith v U.M.B. Chrysler (Scotland) Limited 1978 (SC) HL 1, in particular per Viscount Dilhorne at p.7, Lord Fraser at p.11 and Lord Keith at p.15.

[28] The Dean of Faculty argued that on the evidence the pursuers were the proferentes of the ACE Conditions. It was they who referred to the Conditions in their letters of appointment to the Panel of March and April 1995. At any rate, it could certainly not be said that the Conditions were forced upon them. The fact that Mr Gough had not read and did not know the details of the ACE Conditions was neither here nor there. These were the Conditions on which the pursuers had expressed a willingness to contract. They could have obtained a copy of the Conditions had they wish to do so. It was accepted that in the letter of 15 March 2001 there was no specific reference to clause 8.2 of the ACE Conditions. There was no need for such a reference. This was not a case where the second defenders were imposing on the pursuers an extortionate or draconian or highly unusual term, still less a term which they could not, objectively, have expected to be included, and without the opportunity for the pursuers to consider or respond to it. Mr Clarke QC, in his argument for the pursuers, had relied upon Mr Barter's evidence that the inclusion of the Net Contribution Clause was a "bone of contention". However, this worked both ways. It showed that the term was not highly unusual, since clearly it was frequently included as a contract term. And it showed that the term was well known to those who were familiar with the ACE Conditions of Engagement. In other words, it was not a term which was slipped into the agreement between the parties in circumstances where the pursuers could complain that it was not adequately brought to their attention.

[29] Relying substantially on the evidence of Mr Barter, the Dean of Faculty submitted that the Net Contribution Clause was neither particularly onerous nor draconian. He pointed out that it was the pursuers, not the Consulting Engineer, who chose the contractor and the other professional advisers; it was the pursuers, not the Consulting Engineer, who determined on what terms the contractor and the other professional advisers would be engaged; and it was the pursuers, not the Consulting Engineer, who were in a position to insist upon the contractor and other professional advisers having appropriate insurance cover. Why, he asked rhetorically, should the Consulting Engineer bear the risk that the contractor or other consultant chosen by the pursuers might become insolvent or not have adequate insurance? The Net Contribution Clause avoided the necessity for a duplication of insurance and, at least on the macro economic level, was likely to lead to a saving in the overheads ultimately borne by employers on construction projects. Further, as a matter of legal policy, there was much to be said in favour of an approach to liability being several rather than joint. In this connection he referred to the recent House of Lords decision, albeit in a very different context, of Barker v Corus UK Ltd [2006] 2 AC 572.

[30] In the course of addressing the question of formation of contract, he referred to para.12-009 of the 30th Edition of Chitty on Contracts, and to some of the well-known ticket cases, including Parker v The South Eastern Railway Company (1876-77) LR 2 CPD 416, John Hood v. The Anchor Line 1918 SC (HL) 143, The Aberdeen Grit Company Limited v Ellerman's Wilson Line Limited 1933 SC 9 and L'Estrange v F. Graucob Limited [1934] 2 KB 394. The question in those cases was whether the party seeking to rely upon the conditions had taken reasonable steps to bring them to the attention of the other party at the time of contracting. If so, it did not matter that the other party had not bothered to read the conditions. He argued that the Interfoto line of authority applied only where the terms sought to be incorporated were very "unusual or draconian", or "very onerous, unreasonable and extortionate", taking those expressions from Circle Freight International Ltd. (T/A Mogul Air) v Medeast Gulf Exports Ltd. (T/A Gulf Export) [1988] 2 Lloyd's Rep. 427, 434 and HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co [2001] 2 Lloyd's Rep 161 at para.211; and see also Amiri Flight Authority v BAE Systems plc [2003] 2 CLC 662 at paras.14 and 15. The later authorities, including HIH Casualty and Amiri Flight Authority, raised doubts about whether the Interfoto principle applied at all, or at least with equal force, in the case of a written agreement or one between commercial parties: see also JP Morgan Chase Bank v Springwell Navigation Corporation [2008] EWHC 1186 (Comm) at paras.576-585. He submitted that the existence of the requirement to draw the attention of the opposite party to the clause depended upon a combination of how outlandish the clause was, whether (or to what extent) the agreement was a written agreement, and whether the other party had an opportunity to consider the proffered terms before entering into the contract: see Shepherd Homes Ltd v Encia Remediation Ltd [2007] EWHC 70 (TCC) at para.68.

[31] Finally on this part of the argument, the Dean of Faculty referred me to the decision of the Court of Appeal in Tersons Ltd v Stevenage Development Corporation [1963] 2 Lloyd's Rep 233 at 368 where, in the context of a contra proferentem argument, Pearson LJ said that in his opinion that maxim had little if any application to the case before the court, since the General Conditions were not a partisan document or "an imposed standard contract", but were a general form in common use prepared and revised jointly by various representative bodies including the Federation of Civil Engineering Contractors, and would naturally be incorporated in contracts of the kind under consideration. The Dean of Faculty suggested that the same considerations applied to the question under consideration in the present case.

[32] Turning to deal with the arguments under the Unfair Contract Terms Act 1977, the Dean of Faculty submitted that neither section 16 nor section 17 of the Act, on a proper analysis, applied here and that, therefore, the Act itself did not apply. Section 16(1) was concerned with a term of a contract which purports to "exclude or restrict liability for breach of duty". On a proper analysis, he submitted, the Net Contribution Clause did not do that. What it did was to say that the Consulting Engineers would only be liable for their own breach of duty and would not be liable for breaches of duty by other parties, whether contractors or other consultants. As to section 17, that applied the standard of fairness and reasonableness to a term in a standard form contract under which a party who was in breach of a contractual obligation sought to exclude or restrict his liability to a "customer". Sub-section (2) defined a "customer" as a party to a standard form contract "who deals on the basis of written standard terms of business of the other party to the contract". That was not the case here, since not only were the terms relied upon standard terms of a professional body rather than of the second defenders, but they were put forward initially, or at least equally, by the pursuers as the terms on which they wanted to do business. Accordingly, the Unfair Contract Terms Act 1977 did not apply. In any event, the Net Contribution Clause was fair and reasonable for the reasons already given (see para.[29] above).

Discussion

[33] In considering whether any and if so what terms are incorporated into a contract between the parties, the starting point is to look at the language that the parties have used in any written document forming part of the contract. In the present case, it is agreed between the parties that the second defenders' engagement as Consulting Engineers for the project at 411/2 Union Street came into being by virtue of the second defenders' letter of 15 March 2001 and the pursuers' conduct thereafter in instructing the work to be done and paying for it against the second defenders' invoice. This is not, therefore, a written contract in the ordinary meaning of that expression. Nonetheless, the effect of the pursuers' conduct was, to put it in conventional terms, to accept the offer made in the second defenders' letter. The correct approach, therefore, is to look to that letter to see what terms were proposed and, by conduct, accepted.

[34] The letter of 15 March 2001 set out the Basis of Engagement in the following terms:

"Basis of Engagement - ACE Conditions of Engagement Agreement - B1"

There is no doubt that the second defenders were proposing, and the pursuers were accepting, that the ACE Conditions of Engagement should apply to the contract. I consider that the obvious construction of the document is that the current up-to-date version of those Conditions should apply. I accept the evidence of Mr Barter that that would be the understanding of those involved in the industry, not only of consulting engineers but of those who regularly deal with and contract with them. Indeed, it seems to me to be the most sensible reading for the reasons set out in Smith v U.M.B. Chrysler (Scotland) Limited. At p.15 of the report, Lord Keith noted that it was common experience that the general conditions of contract of various bodies were revised from time to time. Anyone requesting a copy of such conditions would reasonably expect to receive the current up-to-date edition. That case was concerned with the defenders' own standard terms. It seems to me that the position is a fortiori when the reference is to the terms and conditions of a trade body or association. In such a case, the other party to the contract, if he wishes to find out which terms are being referred to, might reasonably refer to the association itself and ask the association for a copy of its terms. I think it extremely unlikely that upon such enquiry the person making the request would be shown anything other than the then current up-to-date edition of its terms, with such loose leaf amendments as had been made up to that date. The most current edition of the terms as at 15 March 2001 was the 1998 revision of the 1995 ACE Conditions of Engagement. In my opinion, therefore, it is to the 1998 edition that the parties must be taken to have been referring in the letter of 15 March 2001 and in the acceptance, by conduct, of the terms of that letter.

[35] Of course, if it were shown that there was a course of dealing between the parties, in that they had always chosen to use a particular version of the ACE Conditions, notwithstanding that it had been superseded by subsequent versions, it might be possible to argue that the unqualified reference to ACE Conditions should be taken as a reference to the version of the ACE Conditions which the parties had always used. But no such case is pled or was sought to be made out in evidence. Nor was there any evidence that the pursuers were particularly concerned as to which version was used. Neither Mr Clarke nor Mr Gough had read any version of the ACE Conditions in full; and I did not find this particularly surprising since their main, if not their only, interest was that the arrangements which they made should be acceptable to the Housing Corporation or its successor.

[36] There was, in fact, probably no need in the letter of 15 March 2001 to specify the particular form of agreement which was to apply, but the express reference to "B1" also provides confirmation that the reference is to the 1995 Conditions, whether in their original form or in the 1998 revision. In the 1981 and 1984 versions of the ACE Conditions, the different forms of agreement were numbered rather than lettered. The earlier version, that of 1963 reprinted and amended in 1979, used letters, but the form applicable to Structural Engineering Work, where the architect had been appointed by the client, was Form C. Accordingly, the reference in the letter of 15 March 2001 to the form "B1" would have made no sense unless it was taken as a reference to the 1995 Conditions, either in their original form or as revised in 1998. In the introduction to the 1995 ACE Conditions of Engagement, the different lettering and numbering of the forms of agreement are described in such a way that it is clear that the appropriate form for the role that the second defenders were to play in the Union Street project was form B1. The 1998 revision has, on the cover sheet for Agreement B(1), the explanation that it is to be used in the case of "Consulting Engineer engaged directly by Client, Not as Lead Consultant" and that it is to apply where the role of the Consulting Engineer is in "Civil/Structural Engineering". There could be no doubt, therefore, that if the 1995 ACE Conditions were to apply, whether in their original form or in the form of the 1998 revision - and I have already made it clear that in my opinion it is the 1998 revision which applies - the appropriate form of Agreement within those Conditions was form B1.

[37] The second defenders argued that the letter of appointment of 16 May 1995, accepted by the second defenders by fax of the same day, was sufficient of itself to incorporate the current up-to-date ACE Conditions into the contract for 411/2 Union Street. In view of the conclusion which I have reached on the effect of the letter of 15 March 2001, there is no need for me to decide this point. But I should give my views briefly. The purpose of the letter of 16 May 1995 was to confirm the appointment of the second defenders to the Panel of Consultants and to set out the terms on which they were appointed. As members of the panel, they had no duties unless and until they were engaged on a particular project. The reference to the appointment being on the basis of certain terms, therefore, must be intended as a statement that when they were engaged on particular projects, the engagement would be on those terms. In other words, the terms set out in the letter were to govern the relationship of the parties in respect of any project to which the second defenders were appointed as Consulting Engineer. The letter states that the appointment will be "on the basis of the current ACE Conditions of Service". It seems to me that that must refer to the ACE Conditions of Service current at the date of any particular appointment. My reasoning is the same, mutatis mutandis, as that which I sought to explain in relation to the interpretation of the letter of 15 March 2001. Absent any indication to the contrary, it would be anticipated that, as and when a contract came into being on terms of the ACE Conditions of Engagement, it would be on the ACE Conditions which were current and up-to-date at that time. What the letter of 16 May 1995 is doing is telling the second defenders, on their appointment to the Panel of Consultants, that all future contracts will be on the ACE Conditions current as at the date of the contract. The alternative construction would be that the parties had chosen, on 16 May 1995, that the edition of the ACE Conditions then in force would govern all future appointments to particular projects regardless of any changes to the standard form ACE Conditions decided upon by the Association of Consulting Engineers thereafter. As I have said before, if there was any indication that the parties had set their hearts on a particular version of the ACE Conditions in preference to later versions, then this might be a powerful factor. But there is no such indication either in the pleadings or in the evidence. Further, had the parties intended to make reference to a particular version of the ACE Conditions and not to the version current at the time of any contract, I would have expected the letter of appointment of 16 May 1995 to have referred to that version by date or other identifying description, rather than use a term such as "current". Accordingly, even if the letter of 15 March 2001 had not identified any standard conditions applicable to the project at 411/2 Union Street, I would have concluded that the ACE Conditions then current would have applied by reason of the terms on which the second defenders were appointed to the Panel of Consultants of the Association by the letter of 16 May 1995.

[38] Having decided that the terms on which the second defenders undertook to provide services for the project at 411/2 Union Street bore to include the Form of Agreement B1 of the 1995 ACE Conditions of Engagement (2^nd edition 1998), I next have to consider whether the whole of those terms was incorporated into the contract and, in particular, whether clause B8.2 applied.

[39] The starting point, so it seems to me, must be that the contract specifically refers to those Conditions. In those circumstances it is difficult to see on what principle clause B8.2 might fall to be excluded. The only argument put forward is based upon the decision of the Court of Appeal in Interfoto. In my opinion that case does not bear the weight sought to be placed upon it by the pursuers in the present circumstances.

[40] It is necessary to consider the Interfoto case in some detail. The facts are as follows. The plaintiffs ran a photographic transparency lending library. In response to a telephone enquiry by the defendants, the plaintiffs delivered to the defendants 47 transparencies, together with a delivery note containing various printed conditions. Condition 2 stipulated that all the transparencies had to be returned within 14 days of delivery, otherwise a holding fee of £5 a day plus VAT would be charged for each transparency retained thereafter. The defendants did not read the conditions and had not used the plaintiffs' services before. They returned the transparencies four weeks later and, when the plaintiffs invoiced them at the rate of £5 a day per transparency, they refused to pay. The Court of Appeal held that the plaintiffs were not entitled to rely upon the clause. Dillon LJ relied upon the ticket cases, and in particular Parker v South Eastern Railway Co (1877) 2 CPD 416 and Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163, to hold that, because the defendants had not had their attention drawn to what was, on any view, a particularly onerous and unusual clause, that clause had not been effectively incorporated into the contract. His reasoning is summarised in the following passage taken from pp.438-9:

"Condition 2 of these plaintiffs' conditions is in my judgment a very onerous clause. The defendants could not conceivably have known, if their attention was not drawn to the clause, that the plaintiffs were proposing to charge a 'holding fee' for the retention of the transparencies at such a very high and exorbitant rate.

At the time of the ticket cases in the last century it was notorious that people hardly ever troubled to read printed conditions on a ticket or delivery note or similar document. That remains the case now. In the intervening years the printed conditions have tended to become more and more complicated and more and more one-sided in favour of the party who is imposing them, but the other parties, if they notice that there are printed conditions at all, generally still tend to assume that such conditions are only concerned with ancillary matters of form and are not of importance. In the ticket cases the courts held that the common law required that reasonable steps be taken to draw the other parties' attention to the printed conditions or they would not be part of the contract. It is, in my judgment, a logical development of the common law into modern conditions that it should be held, as it was in Thornton v Shoe Lane Parking Ltd. [1971] 2 QB 163, that, if one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that that particular condition was fairly brought to the attention of the other party.

In the present case, nothing whatever was done by the plaintiffs to draw the defendants' attention particularly to condition 2; it was merely one of four columns' width of conditions printed across the foot of the delivery note. Consequently condition 2 never, in my judgment, became part of the contract between the parties."

Bingham LJ began his judgment by remarking that in many, perhaps most, legal systems outside the common law world, the law of obligations recognises and enforces an overriding principle that parties should act in good faith. He described that as, "in essence a principle of fair and open dealing". Noting that English law had committed itself to no such overriding principle, he cited the cases on sufficiency of notice as an example of the kind of response which the courts had developed on a piecemeal basis to demonstrated problems of unfairness. He referred in detail to Parker v South Eastern Railway Co, Hood v Anchor Line (Henderson Brothers) Ltd [1918] AC 837, J Spurling Ltd v Bradshaw [1956] 1 WLR 461 and Thornton v Shoe Lane Parking Ltd. He went on to say this:

"Turning to the present case, I am satisfied for reasons which Dillon LJ has given that no contract was made on the telephone when the defendants made their initial request. I am equally satisfied that no contract was made on delivery of the transparencies to the defendants before the opening of the jiffy bag in which they were contained. Once the jiffy bag was opened and the transparencies taken out with the delivery note, it is in my judgment an inescapable inference that the defendants would have recognised the delivery note as a document of a kind likely to contain contractual terms and would have seen that there were conditions printed in small but visible lettering on the face of the document. To the extent that the conditions so displayed were common form or usual terms regularly encountered in this business, I do not think the defendants could successfully contend that they were not incorporated into the contract.

The crucial question in the case is whether the plaintiffs can be said fairly and reasonably to have brought condition 2 to the notice of the defendants. The judge made no finding on the point, but I think that it is open to this court to draw an inference from the primary findings which he did make. In my opinion the plaintiffs did not do so. They delivered 47 transparencies, which was a number the defendants had not specifically asked for. Condition 2 contained a daily rate per transparency after the initial period of 14 days many times greater than was usual or (so far as the evidence shows) heard of. For these 47 transparencies there was to be a charge for each day of delay of £235 plus value added tax. The result would be that a venial period of delay, as here, would lead to an inordinate liability. The defendants are not to be relieved of that liability because they did not read the condition, although doubtless they did not; but in my judgment they are to be relieved because the plaintiffs did not do what was necessary to draw this unreasonable and extortionate clause fairly to their attention. I would accordingly allow the defendants' appeal and substitute for the judge's award the sum which he assessed upon the alternative basis of quantum meruit."

It has been suggested in some of the cases decided subsequently that Bingham LJ decided the case on a different basis from that adopted by Dillon LJ, in that whereas Dillon LJ proceeded on the basis that, if the clause was incorporated, that was the end of the matter, Bingham LJ dealt with it on the basis that, even if it was incorporated, it could not be relied upon by the pursuers because they had not done enough to draw this "unreasonable and extortionate clause" fairly to the attention of the defenders. For my part, although I do not think it really matters, I do not read the judgements in that way. It seems to me that Bingham LJ also decided the case on the basis that the failure sufficiently to draw the clause to the attention of the defenders meant that it was not incorporated into the contract. This seems to me to follow from the last sentence of the first of the two paragraphs quoted above, in which he says that if the conditions were common form or usual terms, the defendants could not contend that they were not incorporated into the contract; per contra, the discussion in the following paragraph about the term being unreasonable and extortionate and it not having been brought adequately to the attention of the defendants, appears to lead to the conclusion that it was not effectively incorporated into the contract.

[41] The Interfoto case was not concerned with a written contract. The terms upon which the plaintiffs sought to rely where set out on a document sent to the defendants when the transparencies were delivered to them. The first question that arose, therefore, was whether the defendants had been given sufficient notice that the document contained terms which it was intended should be binding on the parties under the contract. That question was answered in the affirmative. The reason that the question has to be asked at all is because, as Dillon LJ noted in the passage quoted above, it was and still is the case that people hardly ever trouble to read printed conditions on a ticket or delivery note or similar document. Therefore it is necessary, if the terms are to be incorporated into a contract between the parties, that the recipient should have had it brought to his attention that the document contains contractual terms. But, as Dillon LJ goes on to say, even if people notice that there are printed conditions, they tend to assume that they are not of any great importance. If there is some condition which is of particular importance, in the sense of departing in a material way from the terms usually incorporated into that type of contract, then, by a parity of reasoning, the recipient of the document should not only be made aware that the document contains contractual terms but should have his attention drawn to that condition. This has been described in the cases as applying to unusual, onerous, exorbitant or draconian conditions, but I do not think that anything turns on the epithet. The important characteristic is that the condition departs in a material way from the terms which would reasonably be expected to apply to that type of contract.

[42] All of this arises in the context of the conditions upon which one party seeks to rely having being given to the other party by means of a ticket or receipt or some other similar document, in circumstances where the recipient might not know that the document was intended to affect the legal relationship between the parties and, even if he did, would probably assume that it was not intended to import a set of terms that required to be thought about carefully before being accepted. Interfoto is therefore a case in the direct line of ticket cases dating back to the nineteenth century. More particularly, it confirms the line of authority in cases such as Spurling v Bradshaw and Thornton v Shoe Lane Parking to the effect that it is not necessarily sufficient to draw attention to the set of conditions as a whole if amongst those conditions there is one that is particularly onerous or unusual. However, I share the doubts, which have been expressed in the cases to which the Dean of Faculty referred (see para.[30] above), as to whether that principle can have any application to the case of a written agreement, between commercial parties, and where the parties have had the opportunity of considering the proffered terms before deciding whether or not to proceed. Although, as I have said, the present case is not one of a wholly written agreement, it shares the important characteristics of a written agreement in that the terms proposed by the second defenders were identified in the second defenders' letter of 15 March 2001 and were the terms upon the basis of which the pursuers instructed the work to proceed.

[43] In the present case, therefore, I consider that the enquiry begins and ends with the question of whether, on a proper construction of the letter of 15 March 2001, the terms of that letter having been accepted by the pursuers by conduct, the parties are to be taken as having intended the 1995 ACE Conditions of Engagement (2^nd Edition 1998) to govern the engagement of the second defenders as Consulting Engineers. I have held that they are to be taken as having intended those conditions to apply. In those circumstances, I consider that the whole of those conditions should apply save where the parties by act or omission have indicated that a particular condition should not.

[44] There are, in the present case, some such cases. The parties failed to indicate a monetary limit of liability. The consequence is that clause B8.1, which provides that the liability of the Consulting Engineer "shall not exceed the sum or sums recoverable under A10" - A10 being a paragraph of the Memorandum of Agreement which required to be completed if there was to be a monetary limit - is rendered ineffective. Similarly, the failure to complete A11 of the Memorandum of Agreement means that the opportunity given in clause B8.3 to stipulate a time limit for bringing claims which differs from the statutory limit has not been taken; and therefore that clause too is ineffective. However, none of this affects the effective incorporation of clause B8.2, the Net Contribution Clause, in respect of which nothing is required to be completed in the Memorandum of Agreement.

[45] Mr Clarke QC argued that the failure to complete the Memorandum of Agreement rendered the incorporation of the ACE Conditions inoperative. He pointed to the guidance published by the Association of Consulting Engineers to the effect that it was important that the Memorandum of Agreement be completed fully and carefully, and that the Conditions were not intended to be incorporated by reference into a contract concluded in some other form. The guidance is, of course, important; but the question is ultimately one of contractual intention. If the parties have in fact concluded a contract by letter, or by letter and conduct, there is no reason why they should not, if they so wish, incorporate the ACE Conditions by reference without completing the Memorandum of Agreement designed to go with those Conditions. Most of the Memorandum of Agreement is concerned with details of the other consultants, the scope of the work and so on. The remainder provides space for the parties to record their agreement concerning matters such as the monetary limit of liability to which I have referred. If the former are not set out either in the Memorandum of Agreement or in some other document, then to the extent that some essential part of the proposed agreement is not in fact agreed, there might be scope for argument as to whether a contract was concluded at all. That does not arise in the present case where the work has been done and paid for and the parties are agreed that a contract was concluded and carried out. If the latter details are not set out, either in the Memorandum of Agreement or in some other document, the consequence might be that the particular term within the ACE Conditions is rendered inoperative - but that would not affect the incorporation of other terms which do not depend for their effectiveness upon some further agreement being reached and recorded.

[46] I should, however, deal with the parties' submissions on the basis that the principles set out in Interfoto apply to this case. Even on that basis, I do not think that the pursuers can successfully contend that the Net Contribution Clause was not incorporated into the contract. I say this for two reasons. First, I do not consider that this is a case where the second defenders can properly be said to be putting forward the ACE Conditions so as to place the onus on them to show that they had drawn attention to any unusual term. Rather it is a case of two contracting parties, who have dealt with each other over a period of over 20 years, entering into a new agreement in respect of a particular project on the same or substantially the same terms as they had applied to their contracts over the course of their relationship. As far as the evidence shows, they had always dealt on the basis that the second defenders would carry out work and be paid for it according to the ACE Conditions. Both parties would have known that those Conditions might be altered from time to time by the Association of Consulting Engineers. Both parties had the opportunity over the years to make themselves familiar with the ACE Conditions of Engagement. Each would be entitled to assume that the other had made itself as familiar as it wanted to make itself with the terms. Without going so far as to say that the pursuers were the proferentes of the ACE Conditions - the evidence does not show enough of the background to enable me to reach that conclusion - it is enough to say that both parties had always worked on the basis of those conditions and that there was no need for either to bring to the attention of the other any particular term, whether unusual, onerous or otherwise. Secondly, it does not seem to me that the Net Contribution Clause can properly be categorised as either unusual or onerous. Certainly it is a term which places a burden on the pursuers if they wish to litigate. Further, it clearly transfers to the pursuers the risk that one of its contracting parties might become insolvent. But, as was submitted by the Dean of Faculty (see para.[29] above), it is the pursuers who choose their contracting parties and it is the pursuers who can, no doubt at a price, insist that their contracting parties carry appropriate insurance. Further, as became clear in the evidence of Mr Barter, it is a term which has become the subject of argument amongst parties using the ACE Conditions and, possibly, amongst parties using other forms as well. The clause was first introduced, as I understand it, into the 1984 Conditions (1988 revision) by Amendment Sheet No 6 in September 1993. Accordingly, by the time that the second defenders submitted their proposal for the project at 411/2 Union Street in March 2001, the clause had been in circulation for over seven years. Anyone who contracted on the basis of the ACE Conditions, and was interested in what they said, would have been well aware of the existence of the Net Contribution Clause and, if not aware of its introduction in 1993 by way of that Amendment Sheet, would have been aware of its inclusion in the 1995 Conditions and in the 1998 revision. Accordingly, I see no basis upon which it can plausibly be argued that the second defenders ought to have drawn the pursuers' attention specifically to the clause or that, because they did not, that clause was not incorporated into the contract between the parties.

[47] Turning to the Unfair Contract Terms Act 1977, the first question on which I was addressed was whether that Act applies so as to exclude reliance on the Net Contribution Clause save to the extent that it can be shown to be fair and reasonable. Mr Clarke, for the pursuers, relied on both clause 16(1)(b) and clause 17(1)(a). The relevant parts of those clauses are in the following terms:

"16(1) Where a term of the contract purports to exclude or restrict liability for breach of duty arising in the course of any business ..., that term -

...

(b) shall ... have no effect if it was not fair and reasonable to incorporate the term in the contract.

17(1) Any term of a contract which is a ... standard form contract shall have no effect for the purpose of enabling a party to the contract -

(a) who is in breach of a contractual obligation, to exclude or restrict any liability of his to the ... customer in respect of the breach;

...

if it was not fair and reasonable to incorporate the term in the contract.

(2) In this section 'customer' means a party to a standard form contract who deals on the basis of written standard terms of business of the other party to the contract who himself deals in the course of a business."

The argument advanced by the Dean of Faculty under reference to clause 16(1) was that the Net Contribution Clause did not seek to exclude or restrict liability for the second defenders' breach of duty. It simply sought to ensure that the second defenders were only held liable for the consequence of their own breach of duty and were not held liable, by the doctrine of joint and several liability, for the breaches of duty by other contractors and consultants.

[48] It seems to me that there is considerable force in this argument. The operative part of the Net Contribution Clause provides that the liability of the Consulting Engineer should be limited to

"such sum as the Consulting Engineer ought reasonably to pay having regard to his responsibility for the loss or damage suffered as a result of the occurrence or series of occurrences in question ..."

That does not bear to exclude or restrict his own liability for his own fault or breach of duty. The point is incapable of further elaboration. Accordingly, clause 16(1) does not apply so as to impose a "fair and reasonable" test in the present case.

[49] The argument in respect of clause 17 was equally succinct. In terms of clause 17(2), the question was whether the pursuers were dealing on the basis of the second defenders' written standard terms of business. If so, they qualified as a "customer"; if not, they did not so qualify and the terms of section 17(1) had no application to this case. I do not think that it can be said in the present case that the pursuers were dealing on the basis of the written standard terms of business of the second defenders. I say this for two reasons. First, the ACE Conditions are not the second defenders' standard terms of business. They are drafted and promulgated by the Association of Consulting Engineers and used, I understand, widely within the profession. There is, so it seems to me, an analogy to be drawn from the approach of Pearson J in Tersons v Stevenage Development Corporation. Secondly, it is by no means clear that, in the context of the relationship between the parties as a whole, it was the second defenders rather than the pursuers who put forward the ACE Conditions. It would be wrong, in my opinion, simply to take the letter of 15 March 2001 and deduce from that that it was the second defenders who were relying on the ACE Conditions. One has to look also at the letter of appointment to the Panel of Consultants on 16 May 1995, in terms of which it was the pursuers who put forward the ACE Conditions. It does not seem to me that section 17 has any application to the present case.

[50] In those circumstances, the question of whether or not the second defenders can prove that it was fair and reasonable to incorporate the Net Contribution Clause in the contract does not arise. However, if I am wrong on that, I should say that, just as I have held that the clause is by no means unusual or onerous, so also I would hold it to be fair and reasonable. I have given my reasons in paras.[29] and [46] above. It is a relevant matter that the clause is part of a body of conditions drafted by a professional body and is widely used within the profession and in the industry. Albeit that they have attracted controversy, this has not stopped them being used. The pursuers themselves have shown a willingness to contract on the basis of the ACE Conditions. Further, and perhaps of greatest importance, it is open to the pursuers, who choose their contractors and consultants, to ensure that proper insurance is in place in the event that one or more of them is in breach of contract or duty. If proper insurance is in place, then it should be possible in the event of insolvency of the contractor or consultant to go against the insurer. I see nothing unfair or unreasonable in the client taking the risk that he has adequately covered himself against the possible insolvency of those whom he himself has appointed.

Conclusion

[51] For these reasons I would answer the questions raised at this preliminary proof in the following way:

Q1 - Yes

Q2 - Yes: the 1998 revision applies to the contract, including clause B8.2

Q3 - No, the contract is not subject to the Unfair Contract Terms Act 1977

Q4 - Not applicable, but in any event the term, and reliance thereon, is fair and reasonable.

I shall put the case out By Order before pronouncing an Interlocutor to that effect.