GMC Utilities Group Ltd v Sumitomo Electric Industries Ltd

[2026] EWHC 885 (TCC)

SEI was the main contractor in relation to the construction of an undersea electricity interconnector between Wales and Ireland. SEI contracted the installation and associated civil works package for the onshore direct cable work to GMC. SEI made a demand under a performance bond, stating that GMC had not fulfilled its obligations under the subcontract due to a failure to meet the taking-over date, asserting that delay damages applied as a result. This call on the bond prompted correspondence between the parties about the possibility of GMC paying the sum demanded into an escrow account pending final agreement between the parties.

During those discussions, on 8 November 2024, GMC’s solicitors wrote to the solicitors for SEI. One of the issues behind the dispute was whether that letter formed a binding agreement between the parties or whether that letter was more properly construed as part of an exchange which was subject to contract.  

An Escrow Agreement was subsequently agreed between the parties on 19 December 2024. GMC relied on the time taken to agree that agreement as evidence that there was no agreement as alleged arising from the 8 November correspondence. 

The parties agreed that the negotiations leading to the 8 November letter were not admissible as an aid to interpretation of the terms alleged to have been agreed. The judge said that it was sufficient to note that, in exchanges on 6 November 2024 headed, “Without prejudice save as to costs and subject to contract”, GMC’s solicitors wrote to SEI’s solicitors seeking SEI’s agreement to an escrow agreement being arranged with the escrow agent. By response sent the same day, SEI’s solicitors accepted the proposal. A draft escrow agreement under the escrow agent was provided by GMC’s solicitors “subject to contract” on 8 November 2024.

GMC said that the letter of 8 November 2024 was merely a step in negotiations being undertaken “subject to contract”. Reliance was placed on the correspondence referred to in the first paragraph of the letter, which expressly began “subject to contract”.

In contrast, SEI submitted that the numbered paragraphs of the 8 November letter contained the core terms of an agreement reached between the parties, for consideration, under which GMC agreed to pay monies into escrow in return for SEI’s agreement not to seek payment from the issuer of the monies called under the performance bond.

The judge said that the legal principles as to the meaning and effect of negotiations “subject to contract” were not seriously in issue. Negotiations started “subject to contract” can conclude without that condition, either by express agreement or by implication that the condition was no longer to be applied, or by waiving it. In all cases, what must be borne in mind is that the court will not lightly hold that such a waiver exists or that such an implication can be made.

Here, the judge was unable to accept GMC’s submission that no agreement was reached between the parties until the conclusion of the Escrow Agreement on 19 December 2024. It was clear from the opening paragraph of the letter of 8 November 2024, confirming acceptance of GMC’s offer, that GMC considered a concluded agreement had been reached in the correspondence to which reference was made and was no longer proceeding “subject to contract”. Either expressly or by implication, this removed any prior “subject to contract” condition.

Consistent with such a conclusion, the letter contained no such heading. Indeed, such a heading appeared on none of the correspondence passing between the parties after SEI purported to accept the 7 November counter-offer in its email sent on 8 November 2024. Furthermore, the letter of 8 November 2024 no longer contained the reservation of rights which was stated at the conclusion of the letter of 7 November 2024. This was also consistent with the parties having reached agreement as to how they would regulate their relationship with regard to the monies demanded under the performance bond.

It was also noteworthy that, in none of the exchanges after 8 November 2024, was it suggested that the conclusion of the Escrow Agreement was a pre-condition to a binding agreement on the terms of the letter of 8 November 2024. The correspondence concerning the Escrow Account was a separate chain of negotiations.

The judge accepted that the headings to the correspondence referred to in the first paragraph of the letter of 8 November 2024 could not be determinative on their own whether they formed part of a negotiation which commenced “subject to contract”. Subsequent exchanges were not required to bear that heading. It was unclear why the confirmation email of 8 November 2024 was marked “without prejudice save as to costs”. It may have been a reflection that the terms of the timing of the undertaking were yet to be agreed and that SEI believed it would have some protection on costs in having made clear that the balance of the terms were accepted, or alternatively, it may have been a reflection of the email to which it responded being headed “Without prejudice save as to costs and subject to contract”. Whatever the reason, the position on the undertaking having been clarified later that day, SEI's acceptance of the same contained no reservation, nor was it headed “subject to contract”.

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