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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Shyam Jewellers Ltd v Cheeseman [2001] EWCA Civ 1818 (29 November 2001)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/1818.html
Cite as: [2001] EWCA Civ 1818
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
OF JUSTICE IN THE TECHNOLOGY
AND CONSTRUCTION COURT
(His Honour Judge Anthony Thornton QC)
Strand, London, WC2A 2LL Thursday 29th November 2001 |
||
B e f o r e :
and
SIR MARTIN NOURSE
____________________
| SHYAM JEWELLERS LIMITED |
Claimant/Appellant |
|
| - and - |
||
| M. CHEESEMAN |
Defendant/Respondent |
____________________
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Joseph Harper QC and Michael Daiches Esq (instructed by Bennett Griffin & Partners, Worthing, for the Defendant)
____________________
Crown Copyright ©
- This is an appeal from a decision of HH Judge Thornton QC on 10 March 2000 in the Technology and Construction Court upon an issue in a claim which came before him as an application by the claimant for summary judgment under CPR 24.1 and 2. The case concerns a contractual dispute between the claimant company which carries on the business of wholesale and retail jewellers at 178, Ealing Road, Wembley, Middlesex and the defendant, a shopfitter and designer. The protagonists in the dispute with whose correspondence and evidence the court was concerned are Mr Atul Unadkat, a director of the claimants, and Mr Cheeseman, the defendant, who carries on business on his own account under the trading name 'Apex Practice Design' from his home in West Sussex.
- The relevant contract is a written contract signed on 13 December 1998 for works to the value of £83,800 plus VAT i.e. £98,456, in respect of which an initial deposit of £20,000 was payable. The contract stated that interim payments of £60,000 were 'Due on various dates throughout the contract' with a final payment of £18,465 on completion. The works were works of shopfitting to the claimants' jewellery shop. They were described simply by reference to Contract Drawings No. 4203-03 to 09, the first of which was a general drawing and the remainder specified the various details. Because of the importance of an early opening date, time for delivery was expressly agreed to be of the essence. No date was stated for completion, but the judge was satisfied that the programme of work was originally agreed as set out in the passage from his judgment which I shall quote hereafter.
- The 'various dates' upon which the interim payments were to be made were not specified in the contract. However, by Clause 6(i)(c) the claimant was to pay any interim payment 'as and when required by the [defendant] company' and by Clause 6(iv) default by the claimant in making payment due entitled the defendant to refuse to do any further work.
- From the defendant's point of view those provisions were important because, as the judge made clear in his judgment:
- So far as the programme of the work was concerned the judge described it in this way:
- The judge made clear that deadlines and proper programming were matters of great importance to the defendant because:
- The history of events after the signing of the contract was as follows. The deposit was not in fact paid on the signing of the contract. Mr Unadkat paid by a cheque for £10,000 next day, followed by a cheque for the balance of £10,000 drawn on Christmas Eve, with the effect that it could not be cleared through the defendant's account until the New Year. This represented what the judge described as a:
- Thereafter a number of what the judge described as 'significant changes' to the work were required and agreed so as to increase the size of the retail area in the shop. The additional costs involved were not quantified at the time that the variations were made and agreed, but it was apparent that substantial additional costs to the overall value of the work would result. When calculated at or about the time of the termination of the contract it was clear that the costs had risen from the original sum of £98,456 to a sum somewhat in excess of £130,000. In practical terms there was also a considerable measure of design change, re-measurement and changes to the drawings required which caused delay. Thus although the onsite structural works by other contractors were not completed on 29 January 1999, revised drawings which would enable the defendant to make a start could only be finalised on the weekend of 5/6 February 1999.
- The defendant, who appears to have contemplated (though it was never expressly agreed) demanding the £60,000 of interim payments under the original contract in three tranches of £20,000, demanded the first such payment on or about 4 February. However, the claimants only paid £10,000 immediately, the second tranche of £10,000 being paid on 10 February following pressure from the defendant. On a date put at 12 February in the Particulars of Claim but which appears from the defendant's own letter of 16 February (see below) to have been 15 February, the defendant started certain preliminary work on site through his own sub-contractor prior to the works of installation. In the light of all the changes and the inevitable increase in the cost of the contract works as a result, he was concerned as the judge put it:
- On 16 February 1999 the defendant sent a fax letter to Mr Unadkat telling him that, on the following day, he must meet 'to go over the financing of the project'. On 17 February they met in a meeting which was vital to the issues before the judge. Given the differing versions of the parties as to what was said and/or agreed at that meeting, the procedure adopted before the judge, whereby his decision was made on the basis of the evidence before him without the benefit of oral evidence or cross-examination on the points of difference, was singularly ill-suited to resolving that conflict in accordance with the overriding objective of fairness. I shall return to that aspect of the hearing shortly.
- Suffice it to say at this stage that it was the defendant's case that on 17 February he pressed for a substantial further interim payment in the light of the escalation of the cost. Although just over 40% of the original contract price had been paid, it was inadequate from the defendant's point of view as it did not cover the offsite pre-installation joinery costs of the fittings to be installed, in respect of which the defendant was liable to the sub-contractors with whom the work had been placed and it represented far less than 40% of the revised upward costs of the contract works engendered by the changed requirements and drawings. He stated that he explained this situation and its difficulties fully to Mr Unadkat. He said he asked for a cheque that very day, which he said should be a substantial cheque and not merely £10,000, the amount of each of the series of cheques he had previously been given.
- The key passages of the defendant's first witness statement are as follows:
- In his second witness statement the defendant elaborated as follows:
- In his two witness statements, Mr Unadkat's version of the 17 February meeting was a simple denial that he was either asked for, or promised to give a cheque. He gave no detail of the substance of the meeting save to say that it was to finalise the revised design and the revised price for the works which could not be achieved without provision of the costings which the defendant had yet to provide. Mr Unadkat agreed that a meeting was fixed for the 18th as the defendant had stated and did not dispute the arrangements made for that meeting. He said the postponement was so that the defendant could bring in the figures and the costings could be agreed. However, he stated clearly that no demand for payment was made by the defendant at the meeting and there was no agreement that the claimants would make such payment.
- It was not in dispute that the meeting did not take place. Instead of being at his office all day as he had stated, Mr Unadkat departed early for Leicester in order to chase a debt which the claimants were owed. The defendant, who on 17 February had returned to West Sussex, rose at 6am on 18 November to prepare full costings. Having done so, he left for Wembley in the late morning arriving at the claimants' office at around 2pm only to find Mr Unadkat absent, his brother informing the defendant that he had gone to Leicester. The brother then reached Mr Unadkat on his mobile telephone and a conversation took place between Mr Unadkat and the defendant.
- Again it is necessary to refer to the rival versions of that call in the witness statements. In his first statement, Mr Unadkat said
- In his first statement, the defendant did not dispute those assertions. What he said was:
- In his second statement, Mr Unadkat repeated:
- Again the defendant did not dispute Mr Unadkat's version of the call. The defendant returned to West Sussex, however, and reflected upon the position which had been reached, and came to the following conclusion as set out in his first witness statement:
- He added to this in his second statement, saying in respect of the failure of Mr Unadkat to make any payment or turn up to the meeting:
- On 19 February 1999 the defendant sent Mr Unadkat by a fax letter the first paragraph of which stated:
- The second paragraph referred to the problems caused for the defendant caused by the late start, the contract changes, 'the lack of funding in accordance with our normal terms', and the substantial increase in the contract price.
- The third paragraph stated:
- The letter continued by reciting and protesting at the events of 18 February, when Mr Unadkat failed to appear.
- The fourth paragraph stated:
- The fifth paragraph stated:
- The letter finished with a promise to write again later to make suggestions as to how 'we can finalise this sad episode to the least inconvenience and cost of both parties'.
- On 19 February 1999 Mr Unadkat replied by fax:
- By letter of 20 February, the defendant replied. By this stage proposals were being put forward by both sides with a view to rescuing the position. However no agreement was reached. The only paragraph of the letter relevant to the issue before the judge stated as follows:
- The matter came before the judge as the hearing of an application by the claimant for summary judgment and the witness statements of the parties had been prepared in that context. The relief claimed in the application was an order that the court give summary judgment against the defendant pursuant to Part 24 of the CPR and for £40,000 being the amount paid by the claimant to the defendant pursuant to the contract prior to what was said to be the wrongful repudiation by the defendant, accepted by a letter from the claimant's solicitors' dated 6 June 1999. There was also a claim for damages and interest to be assessed. The application stated that the defendant had no real prospect of successfully defending the claim. There was a claim in the alternative for an order that the defendant make an interim payment to the claimant pursuant to Part 25. 6 CPR for such amount as the court thought fit on the grounds that if the action proceeded to trial the claimant would obtain substantial damages against the defendant.
- The parties having arrived before the judge prepared to present arguments on that basis, (the appointment had been listed for two hours), the judge immediately indicated that he considered the matter appropriate for determination by means of a preliminary issue as to which of the parties had repudiated the contract. The judge made clear (or, at any rate, as counsel are agreed, it was implicit) that, if the trial on the preliminary issue went ahead, it should do so there and then. Counsel who appeared for the claimant demurred. The matter plainly could not go ahead with oral evidence or cross-examination if it was to be dealt with that day. Not merely was there insufficient time, but Mr Unadkat was not present in court. Counsel pointed out to the judge that if, as appeared to be the case, the issue largely turned on credibility as between the rival versions of events, and if the matter went to the Court of Appeal, there was likely to be criticism of the procedure adopted. However, the judge put to counsel in robust terms that, even if there were cross-examination, each witness would simply stick to his version and deny the version of the other. On that basis he considered that the matter was appropriate for disposal on the evidence in the written statements. He encouraged counsel to go outside and agree upon the course which he proposed.
- The defendant's counsel was amenable to this course, but counsel for the claimant was not. He felt pressurised and would have wished for an opportunity to challenge various assertions contained in the defendant's statements; also to cross-examine the defendant on the basis that he had taken a precipitate and unjustified decision to terminate the contract at a time when he was angry and disappointed at having been let down by Mr Unadkat's breaking of the 18 February appointment. However, in the light of the pressure from the judge, and the fact that the defendant's counsel was agreeable to the proposal, the claimant's counsel agreed, being also confident of the correctness of the claimant's case. Both counsel therefore returned and consented to the judge's suggestion.
- Unfortunately, the judge did not require, and counsel did not further argue, that, if the matter were to proceed as a preliminary issue, it was essential that it do so on the basis of some agreed statement of facts or set of assumptions. Yet, on the cases advanced by the parties in the correspondence and their witness statements, the issue of whether or not the defendant had good grounds for accepting the claimant's conduct as repudiatory by the letter of 19 February, or had himself thereby repudiated the contract, depended upon a disputed history as to the significance in context of alleged delays in payment, the detail and circumstances of a vigorously disputed meeting, and the conclusions which the defendant was reasonably entitled to draw in the light of Mr Unadkat's absence on 18 February, in particular in the light of the telephone call on 18 February in which Mr Unadkat had apologised and offered to return forthwith from Leicester. So far as those matters required resolution for the purposes of the judge's decision, it is clear that he was in no position properly to resolve them without cross-examination of the protagonists in the absence of agreed or assumed facts..
- In Civil Procedure (Spring 2001) Vol 1 at page 396 a note appears in which, adopting remarks made by Ward LJ in a somewhat different context in Day v- RAC Motoring Services Limited [1999] 1 All ER, 1013, it is stated that the Court hearing a Part 24 Application should be wary of trying issues of fact on evidence where facts which are apparently credible are to be set against facts being advanced by the other side. Choosing between them is the function of the trial judge, not the judge on an interim application, unless there is some inherent improbability being asserted or some extraneous evidence which would contradict it. I would endorse that note. In my view it has direct application to the facts of this case. Although the judge (no doubt rightly) regarded it as inherently improbable that the defendant had not demanded a substantial sum at the 17 February meeting, that was not of itself definitive of the outcome of the case; nor does it seem to me that there was extraneous evidence available which plainly demonstrated the defendant's right to succeed. I consider that the observation of the judge to the effect that, because the parties would merely stick to their statements and (by implication) that any oral evidence would therefore not assist the judge in resolving the dispute, was misplaced.
- That said, however, we are faced on this appeal with the position that counsel consented to the procedure adopted and neither asserts it as a ground of appeal or seeks to have the matter remitted. Indeed we are invited by both sides to review the decision of the judge on the basis that, where there was a conflict of evidence between Mr Unadkat and the defendant, he was entitled to resolve it on the basis of his view of the evidence at large. This is by no means an easy procedure, because the judge gave a comparatively short ex tempore judgment in which he did not advert to various of the difficulties or deal in detail with the conflict of evidence. In particular he failed entirely to take into account the undisputed evidence of Mr Unadkat as to what passed in the 18 February telephone call. However, insofar as the judge made primary findings of fact the parties accept that we should be bound by them. Insofar as he omitted to make a finding upon a factual matter relevant to the issue of repudiation we are invited to draw our own conclusions on the material available. Finally, the parties are agreed that we are in as good a position as was the judge to make appropriate inferences and draw conclusions of law from the primary facts found by the judge or established by the evidence.
- In his judgment the judge described the parties and emphasised the difficult position of the defendant as a sole trader. However, he did not find that those difficulties were made clear to the claimants or that they were accepted by them as affecting the nature of the parties' obligations to one another. He set out the various vicissitudes in progressing the contract on the lines I have described above. He made clear that the development and variation by the claimants of their requirements was something they were entitled to do in what he described as a 'relatively informal contract arrangement of this kind'. It is also clear that though he found that the timing of the work as originally agreed was intended to be a three-week period from the start of work onsite on 18 January 1999, he did not find that the delay in start date involved any breach of contract in that respect. Having described the three concerns of the defendant in early February as set out at paragraph 9 above, the judge moved to the meeting which took place on 17 February. He dealt with the disputed meeting in this way:
- The judge noted Mr Unadkat's assertion that he had regarded the previous day's meeting as having the twin purposes of agreeing a figure for the additional work and agreeing a schedule of work. He then went on to deal with Mr Unadkat's comments on the defendant's complaint that he had not been given a cheque on 17 or 18 February. He referred to the last paragraph of that letter quoted at paragraph 28 above and highlighted the words:
- The judge then went on to give his reasons why he preferred the evidence of the defendant that he had asked for a substantial cheque. He said:
- The judge then went on to deal with why he considered that a contractual obligation to make interim payment had arisen despite the absence of a request for a specific sum. He said:
- The judge then turned to the question of repudiation, saying that in that context he must look at the commercial realities of the situation when determining the question of whether a party in a commercial contract has evinced by his conduct a sufficient intention to repudiate so as to entitle the other party to treat the contract as being at an end. In that context he referred to the statement of Lord Wright in Smith and Co v Bailey and Co [1940] 3 All ER 60 at 72:
- The judge then expressed his conclusion as follows:
- It has not been in issue between the parties on this appeal that the judge placed his decision fairly and squarely upon the non-payment of 'a substantial sum in excess of £10,000' (or any sum) upon 18 February, which he identified as a breach of the claimant's contractual obligation to pay interim payments 'as and when required' by the defendant; such failure, in the light of the history, demonstrating that the claimants were unwilling or unable to comply with the terms of the contract as to payment.
- It has, however, been argued by Mr Crampin QC for the claimants, that, bearing in mind the objective nature of the test to be applied and the need for a repudiatory breach to be one which 'goes to the root of the contract', alternatively one which demonstrates an intention on the part of the party in breach not to be bound by the terms of the contract, the judge came to the wrong conclusion on the basis of his findings of fact and/or the undisputed evidence before him.
- Mr Crampin's argument runs as follows.
- (1) While the judge referred to the history of the delay and difficulties caused to the defendant by reason of the variations required to the scheme as originally designed as part of the background to the defendant's decision to accept the claimants' alleged repudiation (and indeed it is plain from the correspondence and the defendant's witness statement that the defendant regarded those matters as constituting breaches of contract by the claimants) the judge did not find that the claimants were in breach of contract in those respects; nor did Mr Harper QC for the defendant so argue.
- (2) While the deposit of £20,000 was paid in two instalments which the judge stated was 'commercially unsatisfactory', it did not affect the ordering of the fittings to be installed which were not planned to be ordered until the New Year and the defendant did not dispute Mr Unadkat's statement that there was no complaint by the defendant.
- (3) Again, while the next interim payment of £20,000 was made by separate cheques for £10,000 each dated 4 and 10 February, it was not in issue that when the first cheque was handed over, Mr Unadkat apologised and said he would give a similar amount next week (which he did) without complaint from the defendant.
- (4) So far as the meeting of 17 February was concerned, Mr Crampin first criticises the method by which the judge arrived at the conclusion that, Mr Unadkat's letter of 19 February was an admission that he had been asked for an immediate substantial payment in excess of £10,000. Mr Crampin submits that the letter should have been read at face value as an assertion that no request for a specific payment had been made or refused, and that Mr Unadkat had simply promised to pay a substantial cheque when the work of fitting out had started which (by implication) he plainly did not consider had occurred by the time of the 19 February meeting. Indeed it is correct that the fitting out work had not yet started, the start on 12 or 15 February being no more than preliminary site work.
- (5) Whatever the true import of that letter, and taking the defendant's witness statement and the findings of the judge at face value, the defendant, at the highest, demanded a substantial but non-specific sum 'in excess of £10,000'. Mr Crampin submits that it would have been necessary for the defendant to ask for a specific sum in order for the defendant to create an immediate obligation, and/or trigger a specific breach of the obligation, by the claimants to 'pay any interim payment as and when required'.
- (6) Alternatively, even if a crystallised obligation had arisen to make a payment in excess of £10,000 next day, the failure to do so fell to be considered in the context of the circumstances in which it occurred. The judge accepted the explanation of Mr Unadkat that he was absent on 18 February for good reason. However, he held that, in the light of the promise the day before, the defendant was entitled to expect an immediate cheque by some means other than a face to face meeting and that, not having provided it, the claimants were in repudiatory breach which the defendant was entitled to accept next day. That finding involved the judge in ignoring the undisputed evidence before him that by telephone in the early afternoon, Mr Unadkat had stated he was prepared to leave Leicester immediately and return to London, but that the defendant (although not happy with the situation) had said that there was no problem and they would meet again; (b) that the defendant did not request a further specific payment at that time; and that, later that day, Mr Unadkat tried to contact the defendant on three occasions, leaving messages on the defendant's answerphone to contact him. In those circumstances, Mr Crampin submits that even if the claimants were in breach by reason of Mr Unadkat's failure to leave a cheque for the defendant on 18 February he could not in any ordinary sense be said to be demonstrating an intention to repudiate the contract.
- (7) In order to create a situation whereby the claimants were in repudiatory breach, the defendant should have taken the step of making a demand for a payment of a specific sum by way of interim payment within, say, forty-eight hours failing which the claimants would be treated as having repudiated the contract.
- (8) Insofar as the defendant treated the conduct of the claimants as demonstrating an inability to pay in the future, there was no good reason so to infer. The defendant appears to have assumed without tangible reason that it was necessary for Mr Unadkat to chase the Leicester debt in order to make a payment to the defendant.
- (9) In reality, in a mixture of anger at his current treatment and a general fear that the claimants might prove 'awkward' at the end of a troublesome contract, the defendant 'jumped the gun' in order to avoid any such eventuality.
- Mr Harper for the claimants has sought to support the decision and reasoning of the judge. He has urged us to be particularly wary of disturbing a decision of an experienced judge of the Technology and Construction Court who must, as Mr Harper submits, have seen in the course of his career many contracts and situations of this kind. Mr Harper urges that the judge was entitled to take the robust view which he did. He places substantial importance on the observation of Salmon LJ in the Decro-Wall case at p369 already quoted at paragraph 40 above. He submits that, having in mind the history referred to by the judge, and the importance to the defendant of obtaining a substantial interim payment, the claimants' failure to make a payment on 18 February reasonably shattered the defendant's confidence in both the ability and willingness of the claimants to pay both the sum demanded and future sums as and when they fell due under the contract.
- Confronted with the failure of the defendant in his statement to deal with the evidence of Mr Unadkat as to the nature and contents of his telephone call from Leicester, Mr Harper could only offer surmise as to the reasons why the defendant returned to West Sussex rather than awaiting Mr Unadkat's promised return so as to agree the figures and receive a cheque in the late afternoon. Nor could he explain why, having apparently told Mr Unadkat that they would meet again, the defendant decided to write his letter of 19 February purporting to accept the claimant's repudiation.
- I accept in principle the argument of Mr Harper that the court should pay special attention and attach particular weight to the decision of an experienced judge sitting in a specialist jurisdiction such as the Technology and Construction Court. However, the issue of critical importance in this case is not one unique to the field of construction law, involving as it does the appropriate inference or conclusion to be drawn (a) as to the ability or willingness of a party to a contract to pay sums as and when they fell contractually due in a situation where there was no evidence before the court as to the means, available credit, solvency, or turnover of that paying party; (b) as to the effect of (disputed) oral exchanges between the parties.
- As to (a), whilst accepting and respecting the remarks of Salmon LJ in the Decro-Wall case (see paragraph 40 above) concerning breaches which shatter the confidence of the party not in breach, it is important to appreciate that, in making those remarks, Salmon LJ was, in the context of a case of delayed payments, emphasising the difference between mere foot-dragging in payment, where the party contractually obliged to make periodic payments regularly made them 'some days late as they had done throughout the whole course of the dealings between the parties', and a failure in payment of such a character as reasonably to give rise to a conclusion of inability to pay. The principle which emerges from the authorities is that, in any given case, where a party is alleged to be in repudiatory breach by reason of a failure or delay in payment of an instalment or interim sum due under a contract, the 'potency' and legal effect of such breach falls to be judged in the light of the seriousness of the breach and its effect upon the continuing performance of the contract. This involves an examination of the circumstances of the breach itself as well as its implications for the future of the contract and any likelihood of repetition.
- It is also clear that, in assessing the nature and effects of the breach, the court is concerned to do so objectively. Thus it can only concern itself with the reasonable perceptions and reactions of the party asserting a repudiatory breach, so that it will not take into account concerns or fears which, however naturally entertained, are not justifiably grounded in the actions and intentions manifested by the party alleged to be in repudiatory breach. This will particularly be so where a party's actions are said to demonstrate a future inability to pay, bearing in mind the proper reluctance of the court to hold a party in anticipatory breach in the absence of clear evidence of that party's intention not to comply with its future contractual obligations. It is thus preferable, in my view, to approach issues of repudiation in the light of the distinction between what is, in its context, a 'mere' breach of contract or delay in payment on the one hand, and a breach or failure which goes to the root of the contract and its future performance, rather than to consider the matter in terms of the 'confidence' existing between the parties. Whereas the relationship of confidence and the need to maintain it gives rise to an implied term in contracts of employment, agency and the like, it seems to me to import a notion which is neither characteristic, nor a necessary incident, of the relationship of the parties to an arm's length contract for work and materials.
- So far as the law is concerned, I would add that, where a party asserts that the payment of an interim sum is contractually due in circumstances where the amount of the payment and the date upon which it falls due are not specified in or determinable under the provisions in the contract but depend upon demand by the party entitled to payment, it is usually incumbent upon that party to crystallise the obligation of payment by specifying or otherwise identifying the sum due and the date upon which it is payable. Such a step is all the more important if the party making the demand proposes to treat non-payment as a repudiatory breach of the contract, precisely because it obviates room for argument as to the sum required or the time allowed for payment. Unfortunately, this is not a case where that was done.
- Turning to the facts as found by the judge, it seems to me plain that, prior to the meeting of 17 February, while there had been a short delay in the earlier payments demanded, so that the claimants had in effect paid four instalments of £10,000 rather than two of £20,000 as demanded, this had met with little or no complaint from the defendant and, in each case, the delay had not been long and had not resulted in any delay or difficulty to the defendant in ordering the off-site joinery for the purposes of the contract. The question of a further substantial payment was not raised or demanded until the meeting at 17 February. At that meeting the defendant never demanded a specific sum, the judge finding that he was asking for a sum 'in excess of £10,000'.
- In order to establish whether a promise was made that he would receive such a sum, the judge sought to resolve the conflict of evidence by basing his decision upon what was said in the letter of Mr Unadkat written on 19 February. He treated Mr Unadkat's acknowledgement that 'I did promise you a substantial cheque when you start the work' as sufficient to demonstrate that such a promise was made. That finding seems to me somewhat questionable. I do not think that the judge was right to treat the reference to the start of work as a recognition by Unadkat that the cheque was immediately due at that point or as a promise that it would be made immediately. Plainly Mr Unadkat's letter was referring to a promise made on 17 February, but equally it seems that he treated the work of fitting out as not yet started. However, I am prepared to deal with the matter on the basis that the judge reasonably found that on 17 February Mr Unadkat promised to produce a substantial cheque in excess of £10,000 the following day at the meeting then arranged and that, by failing to be in his office for the purpose of that meeting next day or to leave a cheque for the defendant in the minimum sum of £10,000, he placed the claimants potentially in repudiation of the contract. Even so, however, it seems to me that the position changed in the course of the telephone call on 18 February by reason of the undisputed conversation which ensued and which the judge ignored when coming to his conclusion.
- Not only did Mr Unadkat offer to leave Leicester and return immediately to London, but the defendant, while unhappy, told there him was no problem and they would meet again. He did not request a specific payment at that time, but left the matter over to a further meeting. Nor, in his statement, did the defendant dispute Mr Unadkat's assertion that he rang and left messages later that day on the defendant's answerphone to contact him. In the face of Mr Unadkat's apology for his absence, and his statement of willingness to meet that day to resolve the matter, it seems to me impossible to say that, at the time the defendant wrote his letter on 19 February, the claimant's conduct could reasonably be regarded as repudiatory. The conclusion which I would draw is that, following the telephone conversation, when driving back to Sussex, the defendant changed his mind about a further meeting and decided to treat the claimant's behaviour through Mr Unadkat as repudiatory for the reasons he expressed in the fourth and fifth paragraphs of his letter of 19 February (see paragraphs 25 and 26 above). In my view, by reason of what had passed on the telephone, and having indicated that there would be a further meeting to resolve matters, the defendant was not in position to treat the failure of the claimants to make payment on 18 February as a repudiatory breach without putting them to the sword of a demand for a particular sum by way of interim payment, either within a specified period of time or 'forthwith'.
- I would only add that, I do not consider that, on the judge's primary findings of fact, the defendant had good reason to regard the claimants as being unable to pay the sums falling due under the contract (c.f the remarks of Salmon LJ in the Decro-Wall case). It was not in dispute that, at the time of the meeting of 17 February, the final figures required for that meeting were not ready. Further, the judge accepted that there was good reason for Mr Unadkat to go up to Leicester. The defendant had no tangible reason to suppose that, without the trip to Leicester, the claimants could not have paid him; or that, even if that were so, the claimants would be unable to fulfil their obligation to make payment in the future. I regret to say that I consider that the defendant 'jumped the gun' at a time of irritation and disillusion at the way he had been treated, and that, while sympathy may be due to his position, he nonetheless himself repudiated the contract by writing as he did on 19 February, indicating that the contract was at an end.
- I would therefore allow the appeal and set aside the judgment in favour of the defendant. In substitution, I would order that judgment be entered for the claimant on liability with damages to be assessed.
- I agree
LORD JUSTICE POTTER:
"As a sole trader he is inevitably heavily dependent upon prompt payment for the work that he has carried out, particularly as a substantial proportion of the work involves the acquisition of expensive materials and the carrying out offsite of the necessary joinery work. This work is usually a substantial part of the value of his work and has to be carried out before any full payment for it has been made."
"There was an element of work, referred to by the parties as structural work, which had to be carried out at the rear of the premises before any installation work was undertaken. That work was envisaged as being carried out by a contractor to be arranged separately by the claimant . It is clear from the correspondence and the evidence, that what the parties envisaged on 13 December was that the installation work by the defendant would be carried out within a three week period from the start of the work onsite. Immediately preceding that work, the structural work would be carried out by another contractor in effect, whilst that work was being carried out, the offsite joinery work would itself be carried out such that there would be a coincidence of the offsite joinery work and the onsite structural work with both being concluded about the same time. That conclusion would immediately be followed by the start of work onsite by Mr Cheeseman and any joiner or labourer required by him to assist in the installation of the units. That start would be 18 January 1999. The installation work would itself be carried out at some speed and would undoubtedly require considerable skill because, although some final adaptation work using templates prepared by Mr Cheeseman offsite would be carried out, the bulk of the installation work would involve the bringing in of the units in a completed form, slotting them into position and fixing them. Thus, the whole operation required considerable skill with detailed pre-planning of a kind that is frequently found in that kind of work."
"Mr Cheeseman has a practice of only undertaking such work at any one time that he is able to fulfil and therefore needs to be able to meet the very type of contractual deadlines that this type of work requires. Any failure to meet the programme of one contract which Mr Cheeseman had entered into would have a significant consequence to Mr Cheeseman's turnover. In other words, if . a delay of even two to three weeks had occurred, this would have a significant knock-on effect on Mr Cheeseman's turnover, particularly in circumstances in which the cost of the offsite pre-contract work that he was carrying had been incurred within the originally envisaged timescale."
" commercially unsatisfactory situation that the deposit payable up front was in fact paid half up front and half after a significant number of working days following the entering into of the contract in the context of the envisaged start onsite of 18 January."
"To establish three things from early February: firstly, an agreed revised contract sum to take account of the changes to which I have referred; secondly, a programme of work of the type that I have indicated would be necessary on this contract, could be met; and thirdly, a need to establish the finance in this project."
"I started the meeting by telling the Claimant that the way the contract was being broken was creating all sorts of problems. I explained to him that the interim payment funding was unacceptable and that we had to have an immediate payment. The Claimant's reply was to remind me that he had paid me £40,000. I carefully explained that we had completed the manufacturing which was the largest cost of the entire project, that we had made all the extra counters and wall units he had ordered and that we need a payment to finance the impending sitework . I told the Claimant that if the project was to be completed I would need a substantial contractual payment that day I told the Claimant that the counters and the wall displays and the fitted shop interior elements accounted for around 60% of the cost of the project and that the balance was for the sitework I made it absolutely clear to the Claimant that I was demanding a substantial payment immediately. The claimant asked what the cost was of the extras he had ordered. I told him I had not yet calculated the additional cost of the extra flooring, ceiling, lighting and air-conditioning, counters, wall units, etc. I asked him for a cheque at once. The Claimant refused saying he wanted to know the cost of the extra sitework before handing over a cheque. I said that had nothing to do with it. I would give him those figures when they had been calculated but I was asking for a cheque, in accordance with the Contract to cover the level of funding I had already committed. The claimant refused again and insisted he wanted the figures before he handed over a cheque. I became very anxious. The Claimant attempted to re-assure me, promising me a cheque the next day. I asked why the cheque could not be given over today. I had given a full explanation and the figures the claimant was referring to had nothing to do with the central funding of the Contract. The Claimant refused and said he would hand over the cheque the following day. I insisted that I receive a substantial cheque, not simply £10,000 as had been given before.
I asked the Claimant would he meet me on the following day. The Claimant replied that he would be there all day and it did not matter what time I came to see him. I tried again to fix a precise time by referring to the morning, lunchtime or the afternoon. I was reassured that it did not matter, anytime would be ok. He shook hands and said, "I'll see you tomorrow.""
"At the meeting on 17 February 1999 I demanded payment of at least £20,000 there and then. I also told Mr Unadkat that another £10,000 would not be acceptable and that I really wanted an additional sum of £7,000 to cover the extra counters and wall units we had made. On that day Mr Unadkat eventually stated that he would not pay me the sum demanded at once but that I only had to arrive the following day with some details of the extra costs of the project to be given the payment I had demanded"
"I apologised for my absence [and said] that if he wished I would leave Leicester immediately and return to London so we could meet. The defendant, although not happy with the situation, said that there was no problem and we would meet again. The defendant did not request a further specific payment at that time. On returning from Leicester late afternoon on 18 February I tried to contact the defendant on three occasions and despite leaving a recorded message asking the defendant to contact me, I did not hear anything until I received the defendant's faxed letter dated 19th February." (See further below)
"I found the whole situation incredible. Not only had the Claimant gone out but he had apparently made the decision late the previous evening. He had not telephoned me to let me know my journey to Wembley would be complete waste of time. He had not asked anybody to pass a message to me. I now learned that he had a mobile phone which had not been used to make contact with me. I felt certain that the Claimant had no respect for me or the contract. The Claimant apologised to me and explained that he come up to Leicester to chase money owed to him. I now believed that the Claimant had to chase money from people in Leicester in order to pay me. I felt the whole Contract was now at an end. I could no longer trust the Claimant to keep his word. I had made it very clear that I was trusting him the previous day when I had left without a cheque."
"I told him that I was quite prepared to leave Leicester immediately and return to London. He did not seem too concerned and said that we could meet again. I apologised for the fact that I was not there. I fully accept that out of courtesy I should have telephoned him the previous night or the next morning to inform him of my movements. As soon as I got back to London I telephoned the defendant and left several messages on his answer phone to contact me. He did not. There was no reason for the defendant to believe that I was chasing money to pay him."
"I had no choice other than to consider the Contract with [the claimants] at an end. There had been so many breaches, some of which I had overcome or agreed to disregard, but it was now very clear that I had been dealing with company directors who could not be trusted to keep their word and would continue to hold back when payments were needed. I had stressed several times that the Claimant's late and drawn out variation changes and decisions not being made was costing me business with other clients. Above all I now knew that I would not be paid as the Contract provided when it came to the end of the work. I was sure, with all the recent past experience of dealing with the Claimant that I would be left with a debt while T, holding the final payment due to me would try to re-negotiate the figure due. It became absolutely clear that the Contract and the Terms of Contract meant nothing to him. The Claimant was just going to go on his own way but there was nothing I could do. Taken altogether the breaches were enough to conclude that he had repudiated the Contract. He had broken the bond of trust that is an essence of every contract of this type. In the eight months I had been dealing with the Claimant I had only a signature on the Contract Form and one fax from him. I concluded that there was no way in which I could go forward with any further works."
"Mr Unadkat knew full well what was the main reason for me leaving the previous day without a cheque. He made a promise to pay over the cheque the following day and whatever his reasons he decided not to keep to his promise. The payments he had previously made were not sufficient to fund the balance of a project whose end cost would exceed £119,600. Mr Unadkat knew that I did not have the funds to pay for his project because that fact had been mentioned many times and the Contract clearly stated interim sums were to be handed over when required. I told him that if funding was not made by Mr Unadkat the project could not have proceeded. He refused to provide funds he had promised by absenting himself to avoid the arranged meeting. At that point I accepted the refusal to pay as a final breach of the Contract terms. There was no way forward with a controlling director who broke his word and behaved in a rude and cavalier fashion to me and my Contract terms"
"It is with regret that I have had to come to a business decision to consider the Contract for shopfitting of your premises as repudiated. It has become impossible for me to perform a Contract for you where my functions as designer/contractor/project manager are continually undermined."
"At your request, we agreed to meet again on Thursday 18th to finalise matters, agree a conditional figure for the larger area of retail use, handover a substantial sum to enable us to continue with the project and re-schedule the programme of work to try and get the works carried out quickly. I also told you of my difficulties that due to the delays, that I was having with other clients who wanted work done but I had been unable to enter into any other firm contract whilst yours was still to be carried out and completed."
"After my protracted abortive journeys yesterday I have given the whole matter some considerable thought. Because of what has happened over the last few months, I have totally lost confidence in whether or not you have the ability to fund the project within the Agreed Terms of Contract Even if you have the means to pay for the work you seem to want to drip feed the payments out of your cashflow. I have explained at length that we do not have any funds to pay for our client's materials, or the labour costs from our own resources ."
"Now, very importantly I am extremely fearful that there will be some sort of protracted post-mortem situation at the end of the work and that we would not be paid the full amount due. In particular, the additional cost of works carried out strictly outside the originally contracted work would be the subject of a protracted wrangle where we were forced to accept less than the sum due to obtain even part-payment. I cannot go forward when all the signs are going to put in a further amount of expertise in an effort only to end up with a bad debt situation. Our margins do not allow for this."
"I am in receipt of your fax of this morning and note its contents. I do not accept that you are legally entitled to repudiate the contract, nor do I think that is necessary. The contract can be completed with goodwill on both sides.
Whilst we did agree to a meeting in my office yesterday, no specific time was arranged. I had to travel to Leicester on business and more importantly to collect a debt. I should have informed you of the change on the night of the [17th] or yesterday morning and for this I sincerely apologise. As agreed, I phoned you, not once but three times, at your home the minute I returned from Leicester. I even left a message on your answering service. The agenda of yesterday's meeting was two-fold
a) To agree to a figure for additional work as specified in your second paragraph of today's. You will recall from our meeting of [17th] that I did not object to this additional costing, but only sought your assurance that this increase would be fair and reasonable. You did indeed give me that assurance but, clearly, a figure needs to be agreed.
b) The other item on the agenda was to agree the schedule of work, and when you would want to commence work in earnest. I am happy to meet in any timescale which would suit you.
Regarding financing the project, I would like to assure you that my company has the means to fund the project without seeking outside resources. Whilst I appreciate our contract stipulates additional payments are due to you as and when required, you will note that we have paid 41% of the original contract value, which you must accept is substantial. At no stage had you sought for a specific payment and it was refused. In our meeting of [17th] you will recall that I did promise you a substantial cheque when you start the work. This I am still prepared to do."
"Your letter does contain a number of factual errors to do with payments and the comments you make such as "when you start work" and "commence work in earnest". We have completed the manufacturing of the largest element of the entire project but cannot fit it in until the site is ready. The only reason the site is not ready is the delays caused by things entirely out of our control."
THE PROCEEDINGS BELOW
THE JUDGMENT
"There is a considerable dispute as to what was discussed at the meting and as to why a second meeting which both envisaged would take place on the following day, 18 February, did not take place. I am clear that the appropriate way of considering the evidence is to take the evidence from the mouth of Mr Unadkat, in particular his letter of 19 February in response to a fax that had been received from Mr Cheeseman. Mr Unadkat had gone to Leicester and that caused the cancellation of the second meeting on 18 February and that had caused considerable unrest so far as Mr Cheeseman was concerned and he had faxed the following morning the letter to which Mr Unadkat replied."
" you will recall that I did promise you a substantial cheque when you start the work. This I am still prepared to do."
The judge went on to note that some work had started onsite in the form of plumbing of the toilet, the covering of some drainage runs and the installation of two doors. He went on:
"So, what is revealed by the letter is, firstly, an acceptance that there was a promise for a substantial cheque and, secondly, that would be provided "when you start work". That pre-condition had already been fulfilled. So why was a substantial cheque not paid?
The claimant says that a substantial cheque was not paid because it had not been asked for by Mr Cheeseman and, until there is request for a specific sum, no obligation to make an interim payment would have arisen. I cannot, on the basis of the evidence I have summarised, accept that."
"Clearly Mr Cheeseman had gone to the meeting with the intention of asking for a substantial cheque and, on his evidence, he did ask for that and made it clear that what he was asking for was a sum in excess of £10,000 which was the size of each of the four tranches already paid. It is true that he did not specify a precise figure but in context he was looking for something that could be regarded as a significant increase on £10,000. I find that it is inconceivable that no such request was made by Mr Cheeseman at the meeting and I find that Mr Unadkat's letter is an admission by him that such a request was made by Mr Cheeseman and it was met by an acceptance Mr Unadkat that there would be an immediate substantial payment .
it, is clear to me, and I so find, that Mr Cheeseman sought a cheque at that first meeting for a substantial extra figure, that Mr Unadkat responded that he was unable or unwilling to give a cheque then but undoubtedly left Mr Cheeseman the impression which it was reasonable for him to have formed, that a cheque would be forthcoming the following day at the meeting that never took place."
"If the meeting the following day did not take place for a very good reason, and I am prepared to accept the evidence of Mr Unadkat on that matter, the clear consequence of the meeting on 17 February was that Mr Cheeseman was entitled to expect by some other means than a face to face meeting an immediate cheque for a substantial sum. The work had started, an agreement, or acceptance of the need, to make a substantial immediate payment had been given at the meeting of 17th February and yet, come 19th February, there had been no meeting, no cheque and no acceptance but the assurance given at that meeting would be fulfilled."
"I do not say that it is necessary to show that the party alleged to have repudiated should have an actual intention not to fulfil the contract. He may intend in fact to fulfil it but may be determined to do so only in a manner substantially inconsistent with his obligations and not in any other way."
He also referred to the observation of Salmon LJ in Decro Wall International SA v- Practitioners in Marketing Limited [1971] 1 WLR 361 at 369:
"The case would have been quite different if the defendant's breaches had been such as reasonably to shatter the plaintiff's confidence in the defendant's ability to pay for the goods with which the plaintiff supplied them."
"In the context of this commercial relationship, of a relatively informal kind, but nonetheless of the kind I would regard as common place in this kind of business, was the claimant's conduct in not tendering a cheque for a substantial sum in excess of £10,000 on or immediately following 17 February something sufficient to shatter Mr Cheeseman's confidence that the claimant would fulfil its contractual obligation in the way envisaged and as evincing an intention to be bound, if at all, by terms more advantageous to the claimant than had been agreed? Those contractual terms included a clear undertaking to pay interim payments as and when sought. No doubt it would be implied that only reasonable sums would be sought on a reasonable interim application basis . I find that it was reasonable of Mr Cheesmean to seek an immediate payment of a substantial sum in excess of £10,000. The value of the joinery work carried out offsite is now claimed to be about £53,000 plus VAT of which only less than £40,00 had been paid. In addition to that, extra work had been carried out in design work all of which would undoubtedly have been reflected in the overall price. There had also been the delays to which I have referred and there had been the unexplained and certainly not completely satisfactorily explained, payment of four instalments of £10,000 in circumstances where at least some of that money should have been paid days earlier and in which it would normally have been anticipated that the instalments would have been two instalments of £20,000.
Taking all that into account, and given the background I have now sought to summarise as to the contractual relationship of the parties, the need for speed and close co-ordination work and all the other factors, I am satisfied that the claimant's conduct was such as reasonably shattered Mr Cheeseman's confidence that the contract would be completed and fulfilled by the claimant so far as payment was concerned in the way that had been agreed.
I find that the contract was repudiated by the claimant's conduct in not tendering any cheque, let alone one for a sum in excess of £10,000 on or immediately after the meeting on 17 February 1999."
THE GROUNDS OF APPEAL
CONCLUSION
Sir Martin Nourse: