England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE TAUNTON COUNTY COURT
HHJ HARINGTON
Case No 3QT09432

		Royal Courts of Justice Strand, London, WC2A 2LL
		04/02/2016

Lord Justice Floyd:

Introduction

1. Between 6 and 11 June 2012 the claimant partnership, Gartell & Son ("Gartell"), who specialise in ground works to sports fields, carried out work for the defendant, Yeovil Football and Athletic Club Limited ("Yeovil") on their pitches. When Gartell issued the present claim based on their final invoice, Yeovil declined to pay because the works had not been carried out satisfactorily. In addition, Yeovil counterclaimed for the cost of works said to have been rendered necessary by the breach of contract.
2. By his decision of 11 August 2014, HHJ Harington dismissed Gartell's claim for the contract price and, in addition, awarded damages on the counterclaim. Gartell now accept that they were in breach of contract, but maintain on this appeal that the judge ought not to have found that there was a total failure of performance on their part justifying Yeovil's refusal to pay the contract price. They argue, further, that the judge was wrong both to dismiss the claim for the price and allow the entirety of the counterclaim, because he thereby over-compensated Yeovil.

The facts

3. Yeovil Town is a successful professional football club. At the end of the 2011-2012 football season it was playing in League 1 of the Football League, with aspirations to be promoted to the Championship, the league above League 1, and which is one below the Premiership. In addition to its main pitch, which is at Huish Park, Yeovil had a number of training pitches. The training pitch at Alvington is relevant for the purposes of this appeal. I will call this "the training pitch".
4. Andrew Sparkes is a self employed project manager who trades under the name Rhotodrain and who acted as a salesman and project manager for Gartell. On 5 April 2012, shortly before the end of the 2011-2012 season, Mr Sparkes provided Yeovil with a quotation for extensive renovation works to the main pitch. These works included the use of a machine known as a Koro which would remove the top 25 to 50 mm of the pitch surface, thereby removing unwanted growth such as meadow grass (Poa Annua), and leaving ideal conditions to allow the growth of the remaining and newly seeded grass and for fertilising. In addition the quotation would have involved the use of a "Vertidrainer", a machine which makes holes in the surface and allows sand and rubber crumb to be spread on the surface and brushed into the holes, thereby improving drainage. The 5 April quotation was not accepted by Yeovil as the chairman, John Fry, did not feel that such extensive works were called for at that time.
5. In about May 2012 Yeovil had discussions with a new football manager, Gary Johnson. Gary Johnson had requested that the pitches be brought up to "Championship standard". There was a meeting on 28 May between Andrew Sparkes of Gartell, and John Fry and James Hillier of Yeovil at which John Fry reported the request from Gary Johnson to raise the standard of the pitch and the training pitch. He asked Andrew Sparkes what needed to be done for that purpose. Andrew Sparkes recommended top dressing rather than re-turfing. However, it would not be possible to do this all at once. Nevertheless, applying this top dressing would, over a three year period, enable the pitches to come up to Championship standard. Yeovil asked for a written quotation for the works to the main pitch, the training pitch and one other pitch (which subsequently was excluded from the works).
6. The meeting on 28 May 2012 led to a second quotation from Gartell dated 30 May 2012 for a programme of top dressing works in relation to the three pitches. There was to be no Koro treatment (removal of the top surface) but the use of a Vertidrainer was still included.
7. On 31 May a third and the final quotation was presented to Yeovil. On 6 June Yeovil approved all the items in respect of the main pitch, certain items in respect of the training pitch and indicated that they did not require any work at all on the third pitch. The total costs of the work included in the third quotation was £16,159.20 including VAT.
8. The work on the main pitch commenced immediately on 7 June and continued until 11 June. It was however carried out in very wet conditions. The process of brushing sand and rubber crumb into the holes made by the Vertidrainer will not work satisfactorily if the ground and sand are wet, and there is a danger that the layer of sand will remain on the surface and inhibit vertical root growth. Instead the roots will grow horizontally along the sand/soil boundary, and create an unstable surface.

The proceedings

9. Yeovil complained to Gartell that the work had not been done to the requisite standard and declined to pay Gartell's invoice. The present proceedings were issued on 23 January 2013. The particulars of claim relied only on the invoice for "services, works and materials supplied". The defence denied liability and counterclaimed, at least initially, for a sum in excess of £80,000 for remedial works to reinstate the pitches and for overtime said to have been paid to members of Yeovil's staff. The defence and counterclaim relied on a breach of the term implied by section 13 of the Supply of Goods and Services Act 1982 to use reasonable care and skill. Paragraphs 4 and 5 of the defence read together also alleged that it was an express term of the contract that the works proposed by Gartell "would (subject to annual maintenance) achieve a far better and more durable playing surface with no ruts or other faults".
10. On 31 July 2013 District Judge Corrigan made an order which, amongst other things, confined the permissible expert evidence to certain closely defined topics. The parties subsequently exchanged written reports: the claimant relying on a Dr Richard Gibbs and the defendant on a Mr Gordon Jaaback.
11. In its amended defence and counterclaim dated 26 April 2013 Yeovil added a claim in negligent misrepresentation, including a claim that Gartell had represented that the dressing applied by them would "improve the playing [surface] and its durability and if applied yearly for 3 or 4 years would produce a pitch appropriate to the standard for a Football League Premiership side". The representation had been false because the top dressing had not improved the performance of either the main pitch or the training pitch, but had made their performance substantially worse. The judge did not find it necessary to reach any conclusions on this aspect of the misrepresentation claim, and I need say no more about it.
12. By its re-amended defence and counterclaim dated 21 March 2014 (in respect of which permission to amend was given on 2 April 2014) Yeovil reduced the amount of the counterclaim from the figure of over £80,000 to one of about £28,000. This reduction was the result of a reduced claim for remedial works to the pitches. The claim was now in the sum of £16,494.00 in respect of an invoice to a company called Ecosolve Ltd who had carried out certain works to the pitches in 2013 ("the Ecosolve works"). There remained in addition the claim for £11,577 in respect of overtime paid to employees.
13. On 2 April 2014, when the trial was only a few weeks away, there was a hearing before District Judge White at which both sides were represented by counsel. Gartell succeeded in obtaining an order striking out parts of the report of Mr Jaaback which related to the costs of remedial work, as it did not fall within the topics for which District Judge Corrigan had given permission.

The decision of HHJ Harington

14. HHJ Harington heard the trial over 4 days from 13 to 16 May 2014. Following the trial he prepared a draft of his judgment which he circulated to the parties in the usual way. In his draft judgment the judge appeared to recognise that Gartell were entitled to be paid the contract price, but concluded that the quantum of the counterclaim, adding the Ecosolve invoice to a small sum for overtime paid to Yeovil employees, was sufficient to extinguish the quantum of the claim. He therefore proposed that the claim be dismissed. He indicated that he would hear further argument on whether Yeovil was entitled to receive any further sums on its counterclaim.
15. At the hearing arranged for the handing down of the judgment on 11 August 2014 counsel for Yeovil argued that the judge's findings amounted to a conclusion that there had been a total failure of consideration. Yeovil was accordingly discharged from the obligation to pay the price, but Gartell were nevertheless liable on the counterclaim. The judge gave an extempore judgment indicating that he accepted this analysis of his findings. He later produced an amended judgment in which he incorporated the revised approach. It is of course this final judgment which is for consideration on this appeal. However Gartell submit that the judge's initial approach was, at least so far as the claim is concerned, the correct one.
16. The judge set out his findings at paragraph 55 onwards in the judgment. As to the terms of the contract, it is clear that the judge accepted (as indeed was common ground) that the contract included the statutory implied term to use reasonable care and skill, and that Gartell were in breach of it. It also appears that the judge thought that there was a further term of the contract. Thus in paragraph 55 the judge finds that, at the meeting on May 28 2012, Gartell agreed through Mr Sparkes to bring the pitches up to Championship standard by top dressing. This can only have meant over three years. In paragraph 57 the judge found that in performing their contractual obligations Gartell were obliged to give Yeovil sound/reasonable advice. Then, in paragraph 59, the judge finds that the advice given by Gartell that the top dressing would improve the playing surface was wrong, and that a top dressing would not, if applied over about three years, produce a pitch suitable for playing in the Championship.
17. The judge then turned to the question of whether there had been a total failure of consideration. He said that the starting point was to consider the terms of the contract "as I found them to be". They were that Gartell agreed to bring the pitch and the training pitch up to Championship standard and the recommendation was that that should be done by top dressing the pitches rather than re-turfing them. The judge concluded that the effect of the evidence was that the standard of the pitch was worse than if Gartell had not done any work at all. It had been of no benefit to Yeovil. There had accordingly been a total failure of consideration: Gartell had not delivered any part of the performance which Yeovil had bargained for.
18. Finally the judge turned to the issue of damages. Having alluded to the principle that the injured party in a case of breach of contract was entitled to be placed in the position it would have been in if the contract had been performed, he concluded that Yeovil was entitled to recover the costs of any "remedial works" that had to be carried out by reason of Gartell's breach of contract. Thus the defendant was entitled to recover the cost of employing Ecosolve to carry out remedial work in 2013. As to the overtime claim, no figures had been produced to allow him to quantify it. Nevertheless he concluded that, given the evidence that some work had been done by Yeovil employees, for example removing top dressing, and removing excess sand from around the goal mouth, he should award a "significant sum" for the overtime. Whilst he was not prepared to award the unsupported figure of £11,000 in the counterclaim, £5,000 was a reasonable sum. The judge also resolved in favour of Yeovil a further issue concerned with whether Yeovil could recover the VAT element of Ecosolve's invoice.
19. In the result the judge dismissed the claim and awarded Yeovil the sum of £21,494 plus interest, made up of the Ecosolve invoice for the main and training pitches (including VAT), and £5,000 for overtime.

The Ecosolve works

20. As they formed the basis for the judge's disputed award of damages on the counterclaim, I should explain a little more about the Ecosolve works, said to be rendered necessary by Gartell's breach. On 17 April 2013 Mr King of Ecosolve wrote to Mr John Fry of Yeovil reporting on an inspection of Yeovil's pitches. He said that there were two main issues contributing to the current unstable surface on the main pitch. The first was the presence of annual meadow grass (Poa annua). The shallow rooting property of meadow grass meant that, although it provided grass cover, divots were easily kicked out during play. The second cause was poorly ameliorated/mixed sand dressing from a previous (i.e. Gartell's) renovation programme. This had created a layer of sand approximately 25 mm deep which had not been properly incorporated and bound together with the native soil. The letter went on to propose remedial action. This would involve removing the meadow grass by stripping the surface. As for the sand, this would not be removed. Instead, it was proposed that there be a "thorough amelioration … in conjunction with the addition of a dressing that will add to improved traction." The letter went on to say that a renovation package for the training pitch had also been prepared.
21. The quotation for the main pitch listed the works to be carried out. The first item reads:

"Fraise mow using Koro FTM to a depth that removes Poa meadow grass species and existing sward and tip on site …."

22. The next item of work was to apply a top dressing and ameliorate it into the surface. The third item read:

"Hollow tine and Aera-vate to assist amelioration process of the existing dressing sand and rubber crumb applied as a layer in the 2012 renovation."

23. In all there were seven items of work in the main pitch quotation, but they were not individually priced. Instead a global figure of £9,989 excluding VAT was given.
24. There was no proposal for Koro treatment in the training pitch quotation. Instead there was proposed a scarifying treatment. There was also a "hollow tine" treatment to assist with incorporation of top dressing sand. Those works were again priced globally at a figure of £3,756 excluding VAT.
25. The judge's award of damages on the counterclaim of £16,494 was arrived at by adding together these two quotations plus 20% VAT.

The grounds of appeal

26. There are (or were) seven grounds of appeal. These were:

1. the judge was wrong to dismiss the claim on the basis of a total failure of consideration;

2. in the alternative, in dismissing the claim, the judge was wrong to allow the counterclaim for a sum in excess of that required to restore Yeovil to the position it would have been in absent performance of the contract;

3. the judge was wrong to allow Yeovil, which is registered for VAT, to recover compensation for the VAT element of the cost of remedial works;

4. the judge was wrong to treat works carried out for Yeovil by Ecosolve as remedial works. He should have disallowed the claim for the cost of remedial works to the extent that they were not shown to be reasonably necessary in consequence of Gartell's breach;

5. the judge erred in failing to acknowledge that the so-called remedial works, or works similar thereto, would have been carried out in any event such that Yeovil was not put to any, or any equivalent, additional expense;

6. the judge's finding that £5000 had been incurred in overtime payments to Yeovil employees was unsupported by the evidence;

7. in awarding the costs of the proceedings to Yeovil, the judge was wrong to decline to make any adjustment to reflect the fact that the counterclaim was amended one month before trial.

27. Yeovil now accepts that the judge was wrong in the respects identified in grounds 3 and 6. In my judgment it was entirely right to do so. The point raised by ground 3 is simply a recognition of the fact that a party who claims lost expenditure with a VAT element does not suffer a loss of the VAT when he is able to reclaim that VAT from the Revenue. The claim for overtime which is the subject of ground 6 suffered from the disadvantage, which the judge recognised, that there was simply no evidence on which it could be quantified. The fact that employees of Yeovil had done work rectifying the state of the pitch did not mean that they had earned overtime in doing so. If it was overtime, it was necessary for Yeovil to produce some evidence from which it could be quantified. There was none.
28. We did not hear argument on ground 7 at the hearing of the appeal, recognising that it would be preferable to decide on the appropriate order for costs in the light of submissions the parties may wish to make (in writing, at least in the first instance) when the parties have had time to consider our judgments on the substantive issues.

Total failure of consideration

29. Mr Hugh Sims QC, who appeared for Gartell on the appeal with Mr Steven Ball, submitted that the judge had not been entitled to find that Gartell's performance under the contract, or lack of it, had amounted to a total failure of consideration. There had never been any dispute that Gartell's operatives had attended the main and training pitches and carried out the work identified in Gartell's final quotation. The materials specified in the contract had also been supplied and applied to the pitches. The judge had wrongly asked whether Yeovil was better or worse off as a result of the works performed, when the true question was whether the Claimant had "performed any part of the contractual duties in respect of which payment is due": per Lord Goff in Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574 at 588. Moreover the judge had confused the aim or target of the works, which was to achieve Championship standard pitches, with a contractual warranty that such pitches would be achieved. This confusion had played a part in his acceptance that there was a total failure of consideration. The contract between the parties had merely specified the "input", by which he meant the goods and services to be supplied, and not the output, i.e. any particular result.
30. Mr Graeme Sampson, who appeared for Yeovil as he did below, submitted that the judge's finding of total failure of consideration had been amply justified on the evidence, essentially for the reasons the judge gave. It was entirely possible for a party to receive something under a contract, but for there nevertheless to be a total failure of consideration, because what the party receives is not the performance which he bargained for. The judge had also been entitled to make the findings which he did about the additional express term.
31. The starting point in deciding whether there is a total failure of consideration (or "failure of basis" as it is sometimes called) is to determine what the contractual performance should have been. The first obligation was to use reasonable skill and care in carrying out the work. As to the rest, I agree with Mr Sims that this was not a contract where Gartell warranted any particular result, not least because what they proposed was a three year programme. Nevertheless, and as the judge found, Gartell were bound to use a treatment which was fit for purpose in the sense that it was at least capable of improving the pitches in the manner discussed.
32. I do not accept Mr Sims' argument that the judge was precluded from finding a total failure of consideration because work had been done on the pitches and materials supplied. This is to look at the performance of the contract at the wrong level. The performance which Yeovil bargained for was one where the work was done with reasonable care and skill, and was a treatment capable of making an improvement to the playing surface. No part of this contractually agreed performance was in fact delivered. It is true that this was a contract where the performance was to be measured in terms of "input", but the vital elements of the input were that the work should comply with the term as to reasonable care and skill, and that it should be capable of making an improvement to the pitch. The judge was entitled to find that the breaches of these terms were so serious that Yeovil had received no part of the contractual performance which it had contracted for.

Damages on the counterclaim

33. The significance of the finding of total failure of consideration was that Yeovil was discharged from its obligation to pay the price. On a different analysis one might say that there had been a breach of a condition, or of an intermediate term where the breach was so serious as to deprive Yeovil of substantially the whole benefit of the contract. Either way, Yeovil was not, in addition, then entitled to insist that Gartell pay for the full cost of renovation works. Gartell's primary obligations under the contract were replaced by an obligation to compensate Yeovil for the loss sustained as a result of their non-performance of the contract. Those damages could be assessed by reference to the additional cost to Yeovil of arranging for the work contracted for to be done by someone else, but Gartell cannot be denied payment and then rendered liable for the entire cost of obtaining a substitute performance. The situation is analogous to the case of non-delivery of goods. The purchaser is not liable for the price, and has suffered damage in the additional amount he reasonably has to pay for the goods from another supplier. The purchaser does not get the substitute goods for nothing.
34. The judge did not subject the Ecosolve invoice to this type of scrutiny, because he concluded that he was entitled to award the amounts claimed for the main and training pitch in full, in addition to holding that Yeovil did not have to pay Gartell the price. For the reasons I have given that conclusion was wrong.
35. Mr Sampson submitted that the Ecosolve works were merely those made necessary by Gartell's failure to perform, i.e. there was no element of renovation, and the works merely restored the pitches to the condition they would be in had there been no intervention. He relied on the fact that Mr Hillier, the stadium manager of Yeovil, had produced the quotations and invoices and described them as "relevant to the remedial work in relation to the work previously completed by Gartells". If he was right about the nature of the work, the judge's award was not inconsistent with the finding of a total failure of consideration.
36. I cannot accept these submissions. The Ecosolve works plainly went further than restoring the pitches to the condition they would have been in had Gartell done nothing. One need look no further than the fact that the works included Koro treatment and scarifying. Koro treatment was described by Yeovil's expert Mr Jaaback as "the ideal treatment", although expensive. Scarifying was less costly, and would not remove 100% of the meadow grass. The combined costs of Koro treatment on the main pitch and scarifying the training pitch was £4950 (£3250 on the main pitch and £1700 on the training pitch). This was a significant part of the sums claimed in the counterclaim. In addition, Yeovil would have had to carry out annual maintenance even if Gartell had carried out the works correctly. No credit has been given for the cost of maintenance, which it should have been.
37. Mr Sampson frankly acknowledged that Yeovil was in considerable difficulty in adducing evidence of the necessary work given the restrictions which had been placed on the scope of its expert evidence by the order of DJ White. In my judgment, there was as a result no basis for holding that the Ecosolve works were those necessary to leave the ground in the unsatisfactory condition it was in before the Gartell work started.
38. It is clear that the Ecosolve works were in reality an alternative treatment of the pitches, aimed at achieving an improvement in the pitches. Approaching the matter in this way, the most that Yeovil could recover on the counterclaim was the amount by which the cost of Ecosolve works reasonably exceeded the contract price. That would be the proper measure of the damage which Yeovil had suffered by reason of Gartell's failure to perform the contract. The judge's award of damages on the counterclaim in the full amount of the Ecosolve invoice cannot stand. It over-compensated Yeovil by awarding them the costs of a substitute performance of the contract when they were relieved altogether of their obligation to pay.
39. Although a respondent's notice was served, it does not ask, in the event that the appeal succeeded on this ground, that we substitute a judgment for the amount by which the cost of the Ecosolve works reasonably exceeded the contract price. There would be obvious difficulties in the way of this court undertaking such an exercise, not least that the "face value" of the Ecosolve works was only some £335 more than Gartell's price (on a VAT inclusive basis). This relatively modest sum must therefore represent the maximum recoverable on this basis, before any analysis of whether the works were equivalent to those which Gartell should have supplied. However, as the matter is not before us, Yeovil having only sought to uphold the judge's award of the whole invoiced sum, I need not consider it further. It follows that the counterclaim will be dismissed.
40. I would therefore allow the appeal, set aside the judge's order and substitute an order dismissing both claim and counterclaim.

Lord Justice Bean

41. I agree.

Lord Justice Laws

42. I also agree.