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Cite as: [2002] EWCA Civ 972, 85 Con LR 1

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		Neutral Citation Number: [2002] EWCA Civ 972
		Case No: A1/2001/1215

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM TECHNOLOGY & CONSTRUCTION COURT
(His Hon. Judge Thornton Q.C.)

Royal Courts of Justice
Strand,
London, WC2A 2LL

16th July 2002

B e f o r e :

LORD JUSTICE WARD
LORD JUSTICE LAWS
and
LORD JUSTICE KEENE
____________________

Between:

	CLARKE & SONS	Appellant
	- and -
	ACT CONSTRUCTION	Respondent

____________________

(Transcript of the Handed Down Judgment of
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)

____________________

Mr Kenneth Munro (instructed by Wedlake Saint) for the Appellant
Mr Philip Noble (instructed by Galbraith & Co.) for the Respondent
____________________

HTML VERSION OF JUDGMENT
AS APPROVED BY THE COURT
____________________

Lord Justice Ward :

This dispute arises out of an extensive redevelopment by ACT Construction Ltd. (“ACT”), the respondents to the appeal, of a former cold store in Kangley Bridge Road, Sydenham, SE26, so as to convert it into a 24-hour coach depot for E. Clarke & Sons (“Clarke”), the appellant. Clarke appeals against the order of His Hon. Judge Anthony Thornton Q.C. in the Technology and Construction Court made on 24^th May 2001 when judgment was entered for ACT for £186,567.02. The appeal is brought with the permission of Henry L.J.

The Background.

At the material time Clarke conducted a successful coach operating business from a depot at Minden Road, London SE20. By the late 1980s it was operating about 20 coaches from that depot but by the end of the decade the fleet had doubled and it was becoming difficult properly to manage the maintenance, servicing and cleaning of these coaches from the depot which was becoming too small for the operation. This was a family company and Mr Bill Clarke was its driving force.

ACT carried on business as civil engineers and builders. At an earlier stage ACT had been retained by Clarke to give expert evidence in connection with works at Minden Road which had gone disastrously wrong. Mr Clarke become quite friendly with Mr Blake who ran the building side of ACT’s business.

ACT began to do some work for Clarke. The first job was no more than replacing a smashed manhole cover in March 1988. Much more extensive work of rectification to the yard and a draining system at Minden Road was carried out at the end of 1989 and into 1990 for some £56,000 calculated on a time and materials basis. A year later a coach washing facility was constructed for a fixed price of some £31,000.

Even this new facility was insufficient to enable the business to be conducted efficiently. In September 1990 Clarke became aware that a disused cold store at Kangley Bridge Road was available for purchase. The site presented a number of difficulties to Clarke. First, planning permission was needed for the refurbishment work and the change of use. Secondly, the site itself was at different levels and thirdly much structural demolition and reconstruction would be required. Nevertheless Clarke agreed to buy subject to planning permission for £840,000. Mr Clarke and Mr Blake were involved in many detailed discussions about this venture and Mr Clarke invited Mr Blake in November 1990 to assemble a professional team to prepare the necessary documents for the planning application, it being envisaged that ACT would in time carry out the necessary work if the project proceeded. That planning application was granted but with some unacceptable conditions. For that reason and because Clarke was having difficulty selling the Minden Road site, the matter was placed on hold but rejuvenated in the autumn of 1991. Mr Clarke asked Mr Blake to finalise the details of the renovation work.

By early 1992 Mr Clarke decided that he would proceed with the acquisition of the Kangley Bridge site without the sale of Minden Road having been achieved. In consequence he instructed Mr Blake to embark on the necessary design work for what had become a much more substantial redevelopment. The first issue which arises in this appeal is whether or not those discussions led to a contract between the two companies. I shall return to that later.

The work went ahead on 6^th April 1992. A further application for planning permission was made supported by details of the revised layout. The revised job involved the demolition of the cold store and other buildings, the construction of a workshop, spray booth and preparation area, a double inspection pit and a covered parking area. The overall job would require a great deal of demolition and drilling out of concrete and excavations, the construction of structural steel framing, cladding, extensive roofing and paving, the installation of equipment purchased by Clarke and the partial demolition, building, rebuilding and refurbishment of the office accommodation. The contracts for the purchase of Kangley Bridge Road were exchanged on 9^th April 1992. Over the ensuing months ACT rendered “interim applications” for payment, the first, No. 7, being dated 17^th April. From time to time payments were made on account. Clarke was having difficulty selling the Minden Road site and so work slowed down in the autumn of 1992. A smaller team remained on site. Interim application No. 16 dated 20^th October 1993 was made in respect of work done to 28th September 1993. In May 1994 Clarke asked ACT to leave the site and ACT seems to have agreed to discontinue the work. In October 1994 ACT wrote enclosing what was said to be a reconciliation statement for the work to September 1993 showing £19,367 outstanding as at that date and asking for “say £25,000 on account” for the works between October 1993 and ACT leaving the site in May 1994. Mr Blake said he still had “some loose ends to finalise”. Clarke paid £19,000 and looked forward to the final account. That was not received until 1997. This led to a dispute and to ACT’s commencing proceedings for the recovery of the sum of £208,608.28 alleged to be due to them, being the difference between the cost of the work calculated by ACT to be £1,485,312.88 and £1,276,704.60 paid by Clarke. Clarke counterclaimed monies said to have been overpaid and claimed damages both for the failure to complete the work within a reasonable time and for defective work.

The Judgment.

16 days were set aside for the hearing of this dispute. There were vast bundles of documents littering the court. The costs were likely to have appeared to the judge to have been disproportionate to the sums in dispute. For whatever reason, the judge took a decision at the outset of the trial and the parties had little option but agree that the judge:-

“… should initially determine certain crucial issues that had arisen in the anticipation that resolution of those issues would enable agreement to be reached as to the overall dispute. These issues are as follows:

1. Was there a contract entered into between the parties?

2. If so, what were the terms, if any, of that contract as to

(1) Payment;

(2) a cap on overall recovery by the claimant;

(3) the scope of the work;

(4) the contract period?

”3. Was the claimant entitled to the claimed mark-ups? If not, was the claimant entitled to reasonable mark-ups and, if so, what would those reasonable mark-ups be?

4. Was any contract or entitlement of the claimant to payment illegal and unenforceable?”

Mr Clarke’s case was quite simply that ACT would construct “the Job”. Inclusive of the supply and installation of the necessary workshop equipment, it was not to cost more than £815,000. There was little discussion about the precise scope of the work, the contract period and generally Mr Clarke conducted the negotiation in an informal way as he did all his business and he relied on Mr Blake to honour his promises. Mr Blake denied that there was any discussion about a price for the work. He agreed to work within the flexibility Mr Clarke would demand on a time and materials basis. In April only Phase 1 of the work was known.

The judge held:-

“27. … an “agreement” as to the lump sum ceiling to be paid for the work to be undertaken does not necessarily suffice to create a legally enforceable contract.

28. The essential ingredients for a building contract of some complexity are agreements as to the scope of work and the price. In this case, neither were defined with any precision.”

As to the scope of the work, the judge found that there clearly had been discussion between the parties about phasing the work. Obvious parts of the work were not included in Phase 1 for example the roofing work covering the yard where the coaches would be parked, the paving of that area and the refurbishment of the two-storey office block. The judge was satisfied that the precise content of the two phases had not been finally agreed. Indeed planning permission had not even been obtained at the time of the agreement. He held in paragraph 29:-

“It followed that the scope of the work even in outline, was not agreed since Mr Clarke wanted “the Job” to be constructed whereas Mr Blake envisaged only Phase 1 as being required. There was no agreement as to the scope of Phase 1 and overriding these uncertainties was the absence at that time of a finalised amended planning permission.”

He also held that the scope of the detailed work was not finalised. Drawings and specification of the work had not been agreed nor was there agreement as to the extent to which equipment being ordered and paid for directly by Mr Clarke would be included within the scope of the work or its price. The judge held:-

“31. Finally, the actions of the parties belied there being an intention to create legal relations with immediate Mr Blake’s letters to Vestey Estates and its solicitors and to Mr Clarke and his solicitor are consistent with there being an understanding that a formal contract between Clarke and ACT would be entered into in the future but inconsistent with there being a contract already having been entered into. These letters are also consistent with an understanding that ACT would start work on a piecemeal basis with a formal contract being contemplated in the near future. It would be unlikely that the parties would have envisaged a binding and enforceable contract being entered into for the job before Clarke either acquired an interest in the site, save as a bare non-contractual licensee, or had had confirmed to it that an amended planning permission would be forthcoming or had a clear idea as to when and for what price the Minden Road site would be sold.

32. What was clearly envisaged was that Mr Blake would work up his detailed drawings and costings into formal contract documents on the basis that he had provided an acceptable estimate for the work of £815,000. These documents would then be used, assuming the detailed costings they obtained were acceptable to Clarke, to form the basis of a contract which would be entered into when Clarke had acquired the site and an amended planning permission and had a clearer idea as to the timescale it could afford. In the meantime ACT would make a start on site on an informal basis without any contractual framework. That work would in other words be paid for as and when it was carried out on the basis of reasonable remuneration. Since no different basis was ever discussed or agreed to, all subsequent work on site was carried out on that non-contractual basis.

33. It also follows that the questions as to the terms of any contract as to payment, a cap on ACT’s overall recovery, the scope of work and an overall contract period do not arise.”

The judge then dealt with mark-ups. He held:-

“40. ACT has invoiced Clarke on a day work basis of charging, using the time and materials supplied, the cost of both and markups for overheads and profit which, averaged across labour, materials, subcontractors and preliminaries, averages out at about 20%. Clarke maintains that the appropriate figure should be 8% on all work including the work already invoiced and paid for. The 8% figure is based on Clarke’s expert quantity surveyor’s evidence that the percentage margin typically used by building contractors during the period of construction was in the region of 8%-12%. ACT did not directly engage a quantity surveyor expert witness. Instead, an engineer was engaged who consulted a quantity surveyor. I cannot accept that evidence since it was hearsay, not explained and not supported by the pricing books also adduced in evidence.

41. I find that it is not open to Clarke to re-open day works already claimed and paid for. These elements of ACT’s entitlement to be paid have been settled and not previously challenged. As for the unpaid day work invoices, I find that an appropriate and fair rate would be 15%. This is slightly higher than the bracket advanced by Clarke’s expert but that bracket was based on a defined building contract whereas day works were being charged for with higher uplifts in 1992-1994. Thus, a modest uplift on what was being charged for defined contracts is appropriate. I take into account the higher percentages charged out and paid for pursuant to the earlier invoices.”

He summarised his findings in his conclusion in this way:-

“42. In conclusion I find that no contract came into being between Clarke and ACT and that, in consequence, ACT is entitled to be paid on a quantum meruit basis, being a daywork basis for the time and materials employed. This claim is enforceable and is subject to a markup, on all unpaid invoices and day works of 15%. However, previous payments should remain unaffected by this finding.”

The handdown of that Judgment.

That judgment was handed down on 21^st January 2001. We have no transcript of what then happened. Mr Munro, for Clarke, made some attempt to persuade the judge to revisit his finding that the paid invoices could not be re-opened and he took another point, not previously well-heralded, that Clarke was entitled to establish the “base line” figure for labour costs to which the 15% markup should be added. That discussion seems to have been inconclusive. The judge gave directions for the quantification of the claim and effectively adjourned the hearing.

The May 2001 Hearing.

Mr Munro attempted again to re-open the issue in relation to labour charges submitting that the figure for the labour charge in the invoices was not the actual sum paid by ACT for the labourers but the sum paid and a markup already built into that. Mr Munro was seeking to exclude the build-up and to pay the 15% markup on the baseline figure only. He was also seeking to impose the 15% markup across the board on applications 6 to 16. The judge resolved that dispute on 1^st May and gave a short judgment dealing with it. He drew attention to the counterclaim and said:-

“What is clear from that paragraph (of the counterclaim) and Part 3 of the Schedule is that although the markups are challenged, there is no challenge to the sum claimed for labour of £385,001.46. That sum is admitted.”

He went on to say:-

“On the face of it, there was undoubtedly a claim for a taking into account or an abatement of an excessive markup on what had been paid for already, but there was no claim and no seeking of a re-evaluation of the actual labour rates on which that markup was charged. So, in determining what the reasonable markup was, I had to reach two findings: first of all, on what base figure (as it has been called in argument today) should the markup be charged; secondly, what markup should be charged; and then, thirdly, I had to apply those findings to the 18 valuations that were before the court, the 16 on which payments had been made and the 2 on which payments had not been made. Since this was a reasonable remuneration case, the markup and the base rate and how the base rate was made up were all necessarily interrelated because clearly what had been paid before the markup is vitally affecting the size of the markup. If profit and overheads are already contained within the rates, that must inevitably shape the amount of the markup, profit and overheads then to be allowed. As I see it, I reach clear findings on those three questions, namely on what part of the work, what rates and what markup and those findings are set out in paragraphs 40 and 41 …”

He explained paragraphs 40 and 41 of his January judgment and said:-

“On the face of it, I have reached three clear findings. The first is that it is not open to revisit valuations 1-16 at all. Secondly, the labour rates that are claimed by the claimant, both in relation to the first 16 valuations and in relation to valuation 17 and 18, are those that should be taken as the basis upon which the claimant’s valuations and entitlement to be paid should be based and on which any subsequent markup should be calculated. Thirdly, on that basis, the markup for the surviving claim, namely on valuations 17 and 18, should be 15%. As I see it, it would not have been possible to answer the posed questions unless findings on those three questions had been made. It was therefore a necessary function in a judicial exercise involved in answering question 5 to make those findings. It is against that background that I now consider whether, on the hearing in which the judgment was handed down, I indicated that any or all of those questions were open for further argument or indicated that findings that I made that I have now summarised should be revisited.”

Despite confirming those findings he did address the question whether he should revisit the judgment but held:-

“Taking all that material in the round, I do not see that there was any intention, (let alone indication) by me that it was to be open to the Defendant to revisit the first 16 valuations or revisit the labour rates upon which the later, unpaid valuations had been arrived at and that the 15% was to apply to those rates. If and insofar as it was not clear from the exchanges and since the judgment has not been entered as an order as yet, it is of course open to counsel to seek to persuade me to revisit my reasoning in paragraphs 40 and 41. If I am wrong in the approach that I have so far adopted and I turn to the question whether I should revisit paragraphs 40 and 41, I concluded that I should not since to do so would be to undermine that part of the trial that has led to my finding. I do not find that there is any material now before me that persuades me that either I was incorrect in the approach that I adopted to the material in evidence before me on the last occasion or that new material should be admitted, particularly as to how the labour rates were made up, as a means of seeking to persuade me that those findings are incorrect.”

He also clarified why he had refused to allow the defendants to re-open the paid invoices. He said:-

“There was a time lag between submission of invoice and payment. Not all the payments that were made were directly related to the invoices, but it is clear that overall what was being paid for was being paid by reference to those invoices. If it is now contended that there were overpayments, it is incumbent on the Defendant as the purported over-payer to identify a cause of action on which an abatement or reclaimed payment may be made, be it mistake of fact, mistake of law, fraud or some other basis which allows what on the face of it is a settled, commercial arrangement, namely a payment towards a defined element of the work can be re-opened. Each payment is in the nature of a compromise or agreed settlement on analysis of the work carried out in the preceding period to which it relates. … Therefore, for those reasons I conclude that there is no surviving dispute as to the value of the work carried out up to the end of valuation 16 and as to the sums that had been paid towards those 16 valuations; or as to the rates that may be charged for on valuation 17 and 18; or as to the markup that may be charged for labour on those two valuations.”

In the result he held:-

“The surviving disputes that must be resolved relate to the so-called Scott’s Schedule items that relate to defects and possibly to two much smaller items, I suggest a discrepancy in a payroll summary and so-called Part 14 items about which I am not yet clear whether there remains any surviving dispute.”

At the end of that analysis he gave judgment for the claimant for some £186,000 which is now the subject of this appeal.

The appellant’s appeal challenges four findings of the judge, namely:-

i) that there was no contract;

ii) that the respondent was entitled to retain all sums which had been paid and that the appellant was not entitled to re-open the interim applications for payments numbered 6-16 inclusive;

iii) that the reasonable mark-up was 15%; and

iv) that the appellant was not entitled to re-open the labour costs and assert that a “base line” figure should first be established before any markup was applied to it.

The appellant therefore seeks to have the matter returned to the court below for the determination of true cost component on each of the interim and final applications for payment, specifically what the base line labour costs should be, the calculation of price applying the markup and what damages if any should be set off for defective work.

The respondent was granted permission by Buxton L.J. to serve a respondent’s notice raising these issues:-

“1. The judge should have found there was a contract to carry out the work on a time and materials basis.

2. There was a course of trading between the parties leading to a term of the contract that the markups should be as provided for in the previous applications for payment.”

Was there a contract?

This was a question the judge posed and although he says it was agreed, counsel tell us they were surprised the judge raised the question because on the pleadings of both parties it was common ground that there was some contract, though the terms of it were in dispute. That is a correct analysis of the pleadings, though one has to say that they are hardly models of clarity. The amended particulars of claim referred to ACT’s engagement to carry out remedial works at Clarke’s depot at Minden Road for which work it submitted interim invoices and a final invoice with differing markups for labour charges, the cost of plant and material etc. So far as the work at Kangley Bridge Road is concerned, ACT pleaded that in about November 1990 Clarke engaged it “on a time and materials contract to conduct and assist with the preliminary works associated with the purchase and planning application for the proposed new site at Kangley Bridge Road”. It was said that there were express and/or implied terms that this new contract would be on the same terms as the previous time and material contracts and the course of dealings between the parties was relied upon. Then it was said that “in or about Feburary 1992 the said contract to conduct and assist with the preliminary works was extended on the same terms to cover detailed design and construction of the Kangley Bridge Road site following the grant of planning permission and the subsequent completion of the purchase”. Reference was then made to the ten interim applications (numbers 7 dated 17^th April 1992 to 16 dated 20^th October 1993) showing that ACT were charging 25% on the cost of labour, 20% on the cost of plant and materials, 15% on the cost of subcontractors and 10% on the cost of professional fees and for some subcontractors. It was said that because those were paid “without question or complaint” there was a course of conduct and previous dealings incorporating those terms into the contract. I must investigate this aspect of the case later.

In its re-amended defence and counterclaim Clarke pleaded that:-

“… Mr Blake for the claimant agreed orally with Mr Clarke for the defendant that the claimant would design and build a new coach depot in accordance with the defendant’s requirements in the planning permissions obtained at a total cost which would not exceed the price the defendant paid for the Kangley Road site which price was, as Mr Blake knew, £815,000. … In the premises it is averred that the claimant was entitled to be paid a reasonable sum for the works, not exceeding £815.”

As the judge found, Mr Clarke and Mr Blake conducted their business on an informal basis, each seeming to have a high degree of trust and respect for the other. Mr Clarke wanted a “state of the art” coach station and Mr Blake was ready, willing and able to provide it. As at April 1992, when the final decision was taken to go ahead with the project, there was, as the judge found, some lack of precision. Mr Blake had prepared a schedule of works for phase 1 but that omitted the roofing work to cover the yard where the coaches would be parked, the paving of that area and the refurbishment of the existing two storey office block. He found, correctly in my judgment, that the precise content of phase 2 had not been finally agreed. An application to amend the existing planning permission in vital respects required by Mr Clarke had only just been submitted and the scope of the work could not be finalised until that permission had been obtained. Contracts to purchase the property were only exchanged after this first stage of work had commenced and completion did not to take place until planning permission had been agreed, in the event, not until June 1992. The judge was entitled to conclude that there was no “building contract” to design and build, and particularly to complete, a state of the art or top quality coach station. But he also took the view that the actions of the parties belied there being an intention to create legal relations with immediate effect. That led the judge to conclude that ACT started on the site “on an informal basis without any contractual framework” and that the work would therefore “be paid for as and when it was carried out on the basis of a reasonable remuneration” In his May judgment he summarised his conclusion in this way:-

I concluded that there was no contract between the parties. The parties’ relationship was not a contractual one, with the consequence that the value of the work carried out by the claimant could be recovered and paid for, but on the basis of a quantum meruit, a reasonable sum, a restitutionary basis in fact.”

I cannot accept that finding by the judge. As Henry L.J. observed when granting permission to appeal, the decision that there was no contract came as a surprise. In my view, the proper conclusion was to find that there was, as Mr Munro for Clarke submits, “a contractual quantum meruit”. In focusing on the essential ingredients for “a building contract of some complexity” the judge may have lost sight of the fact that even if there is no entire contract, and especially even if there is no “formal” contract, there may still be an agreement to carry out work, the entire scope of which was not yet agreed, even if a price has not been agreed. Provided there is an instruction to do work and an acceptance of that instruction, then there is a contract and the law will imply into it an obligation to pay a reasonable sum for that work. That is what happened here.

Whether or not there was a contract and if so what the terms of that contract were had greater significance for the appellant at the trial than it seems to me it has before us. At the trial Clarke was contending that the contract was, in effect, to design and to build to completion this state of the art coach station. Clarke was contending that the price would not exceed £815,000. They were also contending that an implied term of the contract was that it be completed within a reasonable time. ACT did not complete the work and so Clarke was seeking to reduce the value of its entitlement to below £815,000. The judge rejected that part of Clarke’s case. Clarke does not seek to appeal against those findings. In other words, although at times Mr Noble did not appear to grasp the fact, Clarke accepts before us that ACT is entitled to be paid a reasonable sum for the work which it did. There is no longer any question of a cap. There can be no counterclaim for damages for failure to complete the work in time. Clarke wishes to assert that there was an implied term that the work be done to a good workmanlike standard and as I understand it, there is no dispute about that. ACT submit that the judge in fact dealt with all those issues. I shall return to that question later. From Clarke’s point of view, therefore, reversing the judge and finding that there was a contract to carry out work does not advance Clarke’s case any further in this court.

ACT were anxious to establish a contract in order to assert that an express or implied term of that contract was that the price to be paid for the work was to be calculated on “a time and materials” basis, i.e. at the cost of labour, plant and materials, subcontractors, professional fees, etc., with the markups ranging from 25% to 10% on those elements of the cost. Whether there was such a term is an issue raised by the respondent’s notice and is a live issue in this court.

The judge was satisfied there was no express term to that effect. That was a finding he was entitled to make and so Mr Noble’s submissions were directed to establishing that there was a course of dealing between the parties leading to the implication of that term. To understand that argument fully, I must look at the pleadings a little more closely.

The amended particulars of claim made reference to earlier work done at Clarke’s depot in Minden Road, alleging that was done on a time and materials basis. Then in paragraph 8 the allegation was made, as I have already set out, that in November 1990 Clarke engaged ACT on a time and materials contract to conduct and assist with the preliminary works associated with the purchase and planning application at the new site at Kangley Bridge Road. That was said to be expressly or impliedly on the same terms as the previous time and materials contracts at Minden Road and there was reliance on the course of dealing. The judge dealt with that part of the case in this way:-

“10. It was suggested by Mr Blake that these three separate jobs created a course of dealing between ACT and Clarke which provided the basis for the method of charging for work carried out at the Kangley Bridge site in subsequent years. However, no such course of dealing evolved as a result of these contracts. The first job was a minute one-off piece of work which resembled the kind of call-out any householder or small business makes on a regular basis to repair or remedy a specific defect or blockage. Thus, this was a normal daywork based contract. The second job was undertaken on a quantum meruit basis. A budget estimate, not broken down, led to the work being carried out without a formal contract being made and to a time and materials basis of charging being adopted. The budget estimate would have provided a guide as to the overall sum to be charged. The third job was undertaken as a conventional fixed price contract with a defined scope of work and clear cut contract terms. There is no evidence that Clarke was shown or provided with the breakdown of the lump sum price and this did not form one of the contract documents. It follows that each of the jobs was carried out under very different bases of working and pricing and that no course of dealing could have arisen.”

I can find no fault with that analysis and reasoning. In my judgment the judge was absolutely correct to find as he did. There was no course of dealing which led to the implication of a time and materials basis being implied into the engagement of ACT in November 1990 to carry out those preliminary works.

The contract upon which ACT rely in the action and in the appeal is the contract pleaded in paragraph 17 of the re-amended particulars of claim which I have already set out, namely that “in or about February 1992 the said contract to conduct and assist with the preliminary work was extended on the same terms to cover detailed design and construction of the site…” Further and better particulars were given and in answer to the question whether it was alleged that the extension pleaded was a variation of the contract for the preliminary work, ACT replied that “the instructions given were a variation of that contract … although it could well have been a separate contract but on the same terms”. Further information was given that it was expressly agreed on a time and materials basis, but that, as I have indicated, was rejected by the judge. The particulars of claim then make reference to the work done between 1^st April 1992 and 20^th May 1994 and refer to the ten “interim applications … for payment of its fees for the preliminary works and later development will full supporting documentation in each case in respect of the costs and charges from the defendant (showing) the uplifts charged by the plaintiff in respect of each category of work …” It was then alleged that each of those applications “was paid without question or complaint”. So,

“By reason of the said course of conduct in previous dealings between the parties the said terms were accepted by the defendant and incorporated into the contract.”

If and insofar as the agreement made in February 1992 to extend the scope of the work operated as a variation of the agreement made in November 1990 and was otherwise “on the same terms” then, if no course of dealing was to be implied into the November 1990 agreement, it could not be implied into a February 1992 variation which simply extended the work to be done. If the February 1992 agreement was a separate contract “but on the same terms”, the same position would apply. If the agreement was made in February 1992, then its terms would be fixed by reference to what was said at that time or by the course of dealing prior to that time. The claim is therefore misconceived in seeking to rely on the interim applications raised after the contract had been made. No term can be implied from a subsequent course of conduct.

The position taken by ACT with regard to the interim applications for payment made between November 1990 and March 1992 is less clear. Mr Munro protests that the matter was hardly investigated at the trial at all. I have done my best to understand the position on the papers presented to us. Interim application number 1 dated 31^st December 1990 seems to charge only the cost of a full site survey carried out by the architect D.E. Hicks & Associates. Interim application number 2 dated 10^th January 1971 claims planning fees for the application for planning permission submitted on 14^th January 1991 and professional fees of £2,000, whose fees those are not being apparent on the face of the document. Interim application number 3 dated 5^th February 1991 charged further architect’s fees and consulting engineer’s fees. So far as I can tell no uplifts have been added in respect of those three applications. Invoice 607 dated 6^th February 1991 charges for attendance at the site during November and December 1990 and this may be application number 4. Interim application number 5 dated the same date charges for work carried out on the site in January 1991. They refer to the worksheets which upon close examination do charge labour costs plus a 25% uplift. Interim application number 6 dated 16^th March 1992 is for a mixture of architect’s fees and other professional fees (without any uplift) and for work done on site as detailed in worksheets which again showed labour costs plus the uplifts. There is also reference in the papers to a payment of £10,000 having been made to ACT in June/July 1991 but it is far from clear to what work that payment related. It seems to me, therefore, that various means of charging were deployed and no sufficiently coherent and settled practice seems to have emerged to justify the allegation of a course of dealing, even if, which is not the case, it was pleaded that the preliminary works established the course of dealing. There being no issue on the pleadings, it is hardly a surprise that the judge did not deal with this.

As so often happens when the contracting parties appear to be working on good terms, there was too high a degree of informality and too much laxity for the court to draw any certain conclusions about the terms of engagement. None of the arrangements appear to have been confirmed in any letter. No attempt was made to agree and to record the basis on which ACT were to do the work. In those circumstances I conclude that the only finding open to the judge was the finding he made that the work was to be done for a reasonable remuneration.

What is the reasonable remuneration?

The judge held it was cost plus 15%. Clarke challenges that conclusion. Mr Munro submits that, because the judge rightly rejected the evidence of ACT’s expert engineer on the basis that an engineer could not properly deal with matters within the area of expertise known to quantity surveyors, and because there was no support from the pricing books, there was, accordingly, no other evidence upon which he could act but the evidence of Clarke’s quantity surveyor who said the right figure was in the region of 8%-12%. (In fact in the joint expert’s statement Clarke’s expert said that the markup was “typically in the region of 5%-12% with 8% being an average indicator”.)

The judge gave reasons for selecting 15%. He found that it was “slightly higher” than the bracket advanced by Clarke’s expert but that that bracket was based on defined building contracts whereas dayworks were being charged for with higher uplifts in 1992/1994. He also took account of the higher percentages charged out and paid for pursuant to the earlier invoices. Mr Munro complains that the judge should not have had regard to the prices actually paid. I do not see why they were not factors to take into account as facts of this case. Averaged out the uplift was about 20%. That was a fact of this case. Mr Munro complains that an increase from 8% (Clarke’s figure) to nearly double that at 15% can hardly be described as being “slightly higher” or a “modest uplift”. Semantically that is correct but in the overall context of the question the judge was faced with there was enough material before him to enable him to settle on 15%. This court should be very slow indeed to interfere with a judgment on an issue like this made by an experienced judge in a specialist tribunal and I am unpersuaded by Mr Munro’s submissions that the judge erred in this respect. I would uphold his finding that the uplift is 15%.

Is that uplift to be applied only to the last two applications for payment, as the judge held, or to all applications submitted for work done in and after April 1992?

The judge concluded that it was not appropriate to re-open the “settled and not previously challenged” invoices. He gave further reasons in May when Mr Munro invited him to revisit that decision. In essence he held that payments were being made overall by reference to the invoices and that each payment was in the nature of a compromise or agreed settlement on analysis of the work carried out in the preceding period to which it related.

We have been provided with a schedule called “Reconciliation of applications for payment up to 24^th May 1997 and monies paid to date”. It lists applications 7-16 and the last two being application 17 and the final account. Application number 7 was dated 17^th April 1992 seeking payment of £42,653.45. It correctly records that £10,000 had been received on account on 10^th April. The balance of £32,653.45 was paid on 22^nd April. This is the only application which was paid in full. Application number 8 dated 5^th May claimed £52,106.97 but only £35,075 was paid on 8^th May. Application number 9 dated 21^st May was for £66,833.18 and £74,000 was paid on 26^th May. Thereafter, save for an odd payment of £25,976.15 on 30^th September, the payments were in round figures bearing no relation whatever to the account which had been submitted. The accounts were not paid in full. There was nothing, therefore, to support the judge’s view that the accounts were settled or agreed. They were called “interim” applications. They were capable of being treated as interim payments on account. ACT seemed to have treated them in that way themselves. For example, on 26^th April 1994 Mr Blake wrote enclosing “an updated reconciliation of invoices submitted including invoice number 708 and a reconciliation of applications for payment against monies paid to date”. That is not the language of settled accounts. On 27^th October 1994 he enclosed “a reconciliation” in respect of works carried out up to 26^th September 1993 noting that the sum of £19,367.46 was owing against the invoices submitted up to 20^th October 1993. He asked Clarke to settle that amount together with £25,000 on account in respect of works carried out between October 1993 and when ACT left the site in April 1994. He wrote:-

“With regard to the fully substantiated account I still have some loose ends to finalise but should have this to you shortly.”

Clarke only paid £19,000 and awaited the final account. That was not forthcoming until 9^th January 1997. It is no surprise Mr Blake had to begin his letter trusting that Clarke would remember who he was. Even then he had “yet to finalise” all aspects of the account although the bulk is complete”. The “final application” was not delivered until 23^rd May. On 28^th May 1997 Mr Blake wrote to Mr Clarke enclosing “a schedule of all invoices submitted together with a reconciliation schedule of the applications for payments against sums paid “on account” by Clarke”. The letter ends:-

“Could I suggest the following steps are now taken to conclude the account:-

(a) Agree schedule of invoices …

(b) Agree schedule of monies paid …

(e) Produce list of queries in relation to the account and arrange meeting to discuss any queries if necessary.

(f) Arrange payment plan for remaining monies owed.”

We have not been able to investigate the detail of these accounts. Mr Munro submits that as Mr Blake worked through the final figures, the amounts on previous applications change from time to time, some going up and some going down. I did not understand Mr Noble to dissent.

In my judgment the earlier applications for payment represented about the best estimate of the value of the work being done at that time. ACT reserved the right and exercised the right to review the whole operation of the account at the conclusion of the work. The figures did not purport to be final figures until then and even then it was recognised that the account was subject to debate. There is nothing, in my judgment, to suggest settled or agreed accounts. If the interim application number 17 and the final application were capable of having a 15% uplift imposed upon them, as the judge found, I cannot for my part see any reason why the other accounts are not likewise subject to the same adjustment. In my judgment the judge was wrong to limit Clarke’s case in that way. In my judgment all costs from April 1992 are subject to a 15% uplift on the finding of the judge that that was the reasonable markup. It is 15% whether ACT charged 25% or 20% or 10%. I would, therefore, allow the appeal in this respect and remit that matter back to the court below for the calculations to be made in default of agreement. We have not explored this in any great detail. The prospect of re-opening the amounts upon which the 15% uplift is to be attributed is too ghastly to contemplate. I must, however, leave that to the court below hoping that the court may be able to treat the counterclaim and Part 3 of the schedule as containing admissions which obviate the need for that particular enquiry. I hope (and it is no more than a hope) that it is simply a matter of arithmetic.

Can Clarke challenge the labour cost figures and argue that only the base line cost is subject to the 15% uplift?

The judge refused to revisit that part of his judgment because, in summary, Clarke was seeking to raise a case which had not been pleaded; insofar as there was reference to the labour costs Part 3 of the schedule to the counterclaim did not challenge the sum claimed for labour and the judge treated it as admitted; and finally he took the view that if profits and overheads were already contained within the labour costs, then that would inevitably have shaped the amount of the markup which he had allowed. In my judgment he was right in all respects. This was a wholly new case being advanced. Mr Munro now complains that whereas the documents show that ACT were actually paying some labourers at £2.25 per hour, it was charging that labour out at £4.80 per hour as a notional figure for wages and overtime paid per annum. In my judgment it is too late to re-open this. Clarke cannot enjoy not only the benefit of the judge’s 15% uplift (as against 25% claimed by ACT) but also the added advantage of reducing the cost of labour by perhaps up to 100% in some cases. There has to be finality to all litigation, this piece of litigation in particular. In my judgment that ground of appeal fails.

Conclusions.

In the result, both appellant and respondent have succeeded on their respective appeal and cross-appeal insofar as they have persuaded me that the judge was wrong to find there was no contract relating to this work. Reversing the judge on this point does not seem to me significantly to advance either case. Clarke’s appeal that the reasonable amount should be 8% fails, as does ACT’s cross-appeal that the reasonable markup was established by the course of dealing. Clarke’s appeal against the judge’s order limiting the application of a 15% markup to the last two applications for payment only, and not to the ten preceding applications succeeds and the appeal should be allowed to that extent and the matter remitted to the Construction and Technology Court for that enquiry to be conducted there. I am uncertain whether there is any outstanding issue about defective work: Clarke seek an order that that be remitted to the court below but Mr Noble submits all matters were dealt with by the learned judge. We do not have a full sight of the papers nor of the judgment on those aspects. I would be reluctant to send the issue back but will be prepared to hear further argument on whether anything is still outstanding or not. Clarke’s appeal against the calculation of the labour costs is dismissed. If my Lords agree with this judgment, then I would ask counsel to make a serious effort to achieve what might be unique in this case, namely a measure of agreement about anything. I would like counsel to try to agree the order which this court is to make to give effect to this judgment.

Lord Justice Laws: I agree.

Lord Justice Keene: I also agree.

Order: Appeal and cross-appeal allowed in part; if counsel are unable to agree the resulting calculation, the matter must be restored before Ward LJ by the parties notifying him by the close of business on Friday; he will then direct a time when they can appear before him as a single Lord Justice to deal with that dispute; the case to be remitted to His Honour Judge Thornton QC to determine the extent (if at all) to which the claim for defective workmanship is still alive; if the judge is satisfied that he has been wrongly troubled by having to look at this litigation again, the court invites him to consider whether he should exercise the power to order indemnity costs in respect of that rehearing; so far as the costs are concerned, the appellant should have two-thirds of his costs of the appeal, but there should be no order on the cross-appeal; the costs of the matters remitted to the judge are costs in the case for Judge Thornton to determine.

(Order does not form part of the approved judgment)