England and Wales High Court (Technology and Construction Court) Decisions

32. The right of Ellis Tylin to terminate the agreement pursuant to clause 1.8 only arose if Ellis Tylin first took the action described in clause 1.8.1. That action was the making of a written proposal for the alteration of the amount of the fees. The proposal was clearly to be a proposal for alteration of future fees, not an alteration of fees payable in the past, because the alteration in the fees was to take effect from a date not earlier than 2 months after the date of the proposal. The written proposal was to be made after the expiry of 10 months from the date specified in Clause 10, that is, after the expiry of 10 months after 5th February, 1996.

33. By their Statement of Claim, Ellis Tylin allege:

34. By paragraph 29 of its Defence, CRS stated that "By letter dated 15.11.96 Ellis Tylin ...submitted its proposals for year 2 of the Contract. The letter was for the purpose of clause 1.8.1 premature". The line taken in cross-examination and argument was inconsistent with that plea, but no objection was taken on that ground.

35. There has been much dispute between the parties

36. Despite the terms of paragraph 29 of the Defence, I take the view that the letter dated 15th November, 1996 was not a proposal for the second year at all. Accordingly, on the footing of the pleaded case, the 2 month period for agreement of a proposed alteration in fees did not begin to run and so the right to terminate under clause 1.8.2 did not arise. However, justice requires that I take a broader view. I hold that a proposal was made for the second year by a later letter dated 26 November, 1996. Because of the form of the pleadings, I gave counsel an opportunity after the close of the trial to make further submissions and I have received further submissions in writing.

37. On 7 November, 1996 Mr. Blanco prepared a draft letter which began with the words, "In accordance with clause 1.8.1 we now propose an alteration in the amount of the fee which will take effect on the anniversary date of the contract." That draft set out losses for the first year. It is common ground that the letter was not sent.

38. On 15 November, 1996 Mr. Blanco wrote and sent the letter relied on by Ellis Tylin. That letter began: "At our meeting of 5th November, Ellis Tylin confirmed they would submit a summary of costs for 1996, and proposals for second year contract costs in accordance with clause 1.8.1.". That letter repeated (with some variations of wording) a number of points made in the previous draft which were summarised as "our fiscal proposals for 1966". The letter contained expressions of a wish to co-operate for the coming year. The letter as a whole was summarised by the last paragraph:

28. An example of the "ideas for the coming year" was a suggestion that CRS might have direct access to Ellis Tylin’s computers to give them on-line access to Ellis Tylin’s fiscal information. While the letter of 15 November did contain ideas for the coming year, it did not put forward any proposal for alteration in the amount of the fees for the coming year.

39. In cross-examination, Mr. Blanco accepted that the letter of 15 November, 1996 did not contain any proposal for the fee for the second year: Counsel referred to the letter:

46. The last of those questions and answers referred to a sentence in Mr. Blanco’s witness statement in these terms:

47. It was the last phrase of that sentence which Mr. Blanco agreed should be deleted.

40. The letter of 15 November, 1996 not being a proposal, premature or otherwise, within the meaning of clause 1.8.1 one looks to see whether such a proposal was made later.

41. By letter of 22 November, 1996, Mr. Gartside told Mr. Blanco that he was unable to extract from the letter of 15 November, 1996 any proposals for year 2. Mr. Blanco said, and I accept, that he discussed the matter with Mr. Gartside and agreed to submit proposals at the end of November.

42. By letter dated 26 November, 1996, Mr. Blanco for the first time made a proposal for the second year. In that letter he wrote:

48. By that proposal, Mr. Blanco simply added his 1966 figure for "losses" or "costs" to the contract sum and also added an uplift for cost of living increase. A meeting was proposed for 27 November, 1996 to discuss the matter.

43. At the meeting on 27 November, 1996 Mr. Gartside regarded the proposal that Ellis Tylin should receive a 25% increase in fee for the second year as unrealistic and he believed that Ellis Tylin were looking for termination of a contract which they found unprofitable and which neither party regarded as being performed satisfactorily by Ellis Tylin. I agree that the proposal was unrealistic and it was not substantiated by detailed figures, but it was a proposal. Mr. Gartside asked for substantiation of the figures and for assurance that Ellis Tylin intended to continue with the contract in 1997. He repeated those requests in his letter dated 2 December, 1996. In that letter he also said he was willing to consider adjusting the fee to take account of an increase in the equipment owned by CRS and to be maintained:

44. Despite Mr. Gartside’s request for a written response to that letter, no reply was written.

45. There was produced a letter dated 18 December, 1996 typed on Ellis Tylin’s headed notepaper and addressed to Mr. Gartside by Mr. Blanco. On enquiry, it appeared that that document came from documents disclosed by Ellis Tylin and had been found in the file of a Mr. John Beeston (an employee of Ellis Tylin) to whom it had been copied. Mr. Gartside denies having received the letter. There is no direct evidence that the letter was sent, and I find that it was not. The letter refers to Appendices 1, 2, and 3, said to substantiate various costs. Those appendices were not disclosed, and I infer that although the letter was written it was not sent because the Appendices were not prepared. Later, a different schedule was prepared, being a schedule of increased assets and was sent with a letter of 11 February, 1997.

46. There was a meeting on 19 December, 1996 between Mr. Blanco and Mr. Gartside together with a Mr. Scutt of CRS. On 20 December, 1996, Mr. Blanco sent to Mr.Gartside a brief letter mentioning the meeting and looking forward to Mr. Gartside’s "further instructions". Mr. Gartside wrote a longer letter of 23 December, 1996, which I accept accurately summarised what passed at that meeting. Mr. Gartside expressed willingness to negotiate an increased fee for the second year to take account of both RPI adjustments (2%) and increased assets. Mr. Gartside also expressed concern about failures of performance on the part of Ellis Tylin and said that CRS would closely monitor performance in January and February. Mr. Gartside did not record in his letter that he had formed the view that Ellis Tylin had made a substantial loss on the first year and were looking for a way to get out of the contract.

47. It is evident from a memorandum sent by Mr. Blanco to his Managing Director, Mr. Arrowsmith, on 24 December, 1996 that the letter from Mr. Gartside caused him to fear that CRS might terminate the contract for "non-performance" and it was necessary to "respond vigorously" first. Despite some prevarication from Mr. Blanco, I find that he was fully party to a letter sent by Mr. Arrowsmith dated 24 December, 1996 while Mr. Blanco was on holiday. In that letter, Mr. Arrowsmith said that an RPI adjustment was unacceptable and even an adjustment for additional assets would be inadequate. The letter proposed that the adjustment for the second year should be considered fixed for the third year, and asked for CRS’s proposals. The letter then continued:

48. In the absence of Mr. Gartside, on 31 December, 1996, Mr. Scutt wrote a holding reply to that letter. Then on 2 January, 1997 Mr. Blanco wrote again to Mr. Gartside stating that he had put forward a fee proposal on 26 November, 1996. That I regard as a correct statement of fact. He then wrote:

49. On 6 January, 1997, Mr. Gartside replied to Mr. Blanco’s letter of 2 January and Mr, Arrowsmith’s letter of 24 December. Mr. Gartside did not contest Mr. Blanco’s statement that the proposal of 26 November 1996 was intended to be effective from 5 February, 1997. That date was the first day of the second year of the contract.

50. In his letter of 6 January, 1997, Mr. Gartside reiterated his previous stance on any increase in fee and wrote:

51. On 10 January, 1997, Mr. Gartside wrote to Mr. Blanco and his colleague Mr. Beeston complaining of unacceptable and uncompleted work, requiring the deficiencies to be put right. He made the point, "I have not to date withheld any payments regarding this incomplete work" and also warned, "We may need to review the cumulative payments made with respect to the overall quality of work carried out".

52. By letters of 16 and 20 January, 1997, Mr. Gartside raised with Mr. Beeston further matters regarding deficiencies in Ellis Tylin’s work. Then on 20 January, he wrote to both Mr. Beeston and Mr. Blanco regarding proposed adjustment downwards of the fee for the previous year to take account of works not completed.

53. On 21 January, 1997 Mr. Blanco replied to Mr. Gartside’s letter of 6 January, 1997 stating:

54. On 3 February, 1997 Mr. Arrowsmith wrote to Mr. Scutt of CRS giving notice of termination in the following terms:

55. On 4 February, 1997, Mr. Blanco wrote to Mr. Gartside a letter received by him on 6 February, 1997 in the following terms:

56. As mentioned in those letters, there had been a meeting on 3 February 1997 at which Mr. Gartside had outlined the basis on which CRS would be willing to revise the fees for 1996 and 1997. Ellis Tylin were to provide more information, and there was to be a further meeting on 14 February, 1997.

57. By two letters dated 6 February, 1997, Ellis Tylin sent to CRS detailed proposals for adjustments to the fees for 1996 and 1997 respectively. On 7 February, 1997, Mr. Gartside replied that he considered those proposals premature since the parties had not yet met for a review meeting on 13 February at which the valuation of the first year works was to be discussed, and he set out various heads of deficiencies in the work for the first year which he considered needed to be discussed. In a second letter of that date, he commented on the fee adjustment proposal for 1997. On 11 February, Mr. Blanco sent a long schedule of additional assets.

58. On 14 February, 1997 there was a meeting at Rochdale at which were present Messrs. Tony Smith, Scutt, and Gartside for CRS and Messrs. Arrowsmith and Blanco for Ellis Tylin. Mr. Scutt took minutes of that meeting and distributed them to all present at the meeting. Both Mr. Blanco and Mr. Gartside said in evidence that those minutes were accurate. On 2 June, 1997, Mr. Blanco made a note for his file recording the outcome of that meeting.

59. There is a dispute between the parties as to whether there was at the meeting an agreement made for the fee for 1997.

60. Having heard the evidence of Mr. Gartside and Mr. Blanco as to what took place at the meeting of 14 February, 1997, and considering that evidence in the light of the surrounding documents, I accept the evidence of Mr. Gartside. I find that at that meeting, CRS and Ellis Tylin agreed the fees payable for the second year of the contract.

61. At the meeting on 14 February, there was a lengthy discussion about difficulties of the previous year. This led to and included a discussion of the meaning of the word "comprehensive" in the contract. Mr. Blanco has contended that in this discussion, CRS put forward a new term for the second year. I do not accept that contention. There were differences of view as to how the contract should be interpreted, but there was no proposal that the contract should be altered in that regard.

62. The cover to be provided under the agreement was varied in that store lighting was to be removed from the cover for the second year since Ellis Tylin did not have the expertise or capacity to deal with it, and the removal of the store lighting was to be reflected in the adjustment to the second year contract fees. This is not controversial.

63. At the meeting of 14 February, 1997, it was agreed:

64. There was a further meeting on 27 February, 1997 between Messrs. Gartside, Arrowsmith, Beeston and Blanco at the Bristol offices of Ellis Tylin. The purpose of the meeting was to discuss the definition of "comprehensive" under the contract and there was such a discussion. A mechanism for monthly fee adjustments was agreed. There was some discussion about the outstanding invoices for the first year. It was again confirmed that the second year fee was ...547,767.

65. Mr. Gartside’s understanding was that as the second year fee had been agreed, the notice to terminate given by Ellis Tylin was overridden by that agreement in accordance with the terms of Mr. Blanco’s letter of 4 February, 1997.

66. I agree with Mr. Gartside’s understanding of the position. Even if the notice (or notices) of termination were valid, they were withdrawn by the agreement made on 14 February 1999 for the second year, that agreement being backdated to the first day of the second year.

67. Mr. Blanco’s file note made on 2 June 1997 contained the following:

"The meeting was positive and productive:

Discussion took place on interpretation of "Comprehensive" and a proposal was to be made by DG to clarify this interpretation (never formally done but ET have a copy of draft for reference).

To maintain momentum, as MB was on jury service, JAA was to meet with DG and John Beeston to ratify the agreement. (Subsequently this was arranged for 27th February 1997 in Bristol)."

68. In his evidence, Mr.Blanco said that his file note, "Fee proposal 1997 was agreed" meant only that the figure was agreed and that this was subject to a counter-offer made by CRS as to the meaning of "comprehensive". I do not accept that as a correct account of what took place at the meeting. Neither party suggested that the terms of the contract as to "comprehensive" should be altered, though there was discussion as to its meaning. Nor do I accept that the agreement made on 14 February was expressed to require any ratification, though if ratification were required, it was in fact given on 27th February. As a matter of detail, although it had been anticipated that Mr. Blanco would be unable to attend the meeting on 27 February, he was released early from jury service and did attend.

69. On 17 February, 1997 Mr. Arrowsmith wrote to Mr. Gartside confirming the agreement reached on 14 February. His letter included the following:

49. That is the clearest indication that the notice of termination was withdrawn and that the contract was proceeding in the second year.

50. After referring to the agreement about payment for the first year, Mr. Arrowsmith continued:

51. That is a clear confirmation of the oral agreement for the second year fee.

52. Mr. Arrowsmith then stated that there were a few points raised which required clarification and he mentioned those.

53. Mr. Arrowsmith then referred to the discussion about "comprehensive":

54. That accords with Mr. Gartside’s understanding. Neither party was seeking to change the contract. Both parties were affirming the contract but discussions as to its interpretation in practice continued. Mr. Arrowsmith then again indicated that the contract was on foot for the second year:

70. Mr. Gartside on behalf of CRS confirmed the agreement of 14 February by his letter dated 18 February, 1997. That letter included the following:

71. A letter dated 20 February, 1997 was produced which in the light of the preceding letters is quite extraordinary. The letter was typed on Ellis Tylin note paper with Mr. Arrowsmith’s name at the foot but was unsigned. It is in the following terms:

56. CRS deny receiving that letter and I find that it was another letter which was not sent. It is quite inconsistent with what had happened.

72. The primary contention put forward on behalf of CRS regarding termination is that if Ellis Tylin are to rely on the termination provisions of Clause 1.8 they must show strict compliance with its terms as to time and they have not done so. Ellis Tylin’s first answer to that is that strict compliance with time limits is not required by law.

73. Counsel for CRS submitted that Clause 1.8 of the contract may be construed either as a determination clause or as a break clause comparable to the type of provision found in leases. Strict compliance, he submitted, is required: the act of contractual determination is one which deprives the other party of the benefit of the contract it has concluded.

74. Counsel cited passages from text books relating to contractual rights to determine:

Chitty on Contracts (27th Ed.), at 22.046:

86. By paragraph 3.5 of the Amended Statement of Claim, Ellis Tylin allege:

87. CRS admits that there was an agreement made on 6 September, 1996 in the terms set out in paragraph 3.5(a) of the Amended Statement of Claim but deny that the agreement had the effect alleged in paragraph 3.5(c). The letter of 10 September, 1996 referred to in paragraph 3.5(b) of the Amended Statement of Claim is a long letter discussing the contractual rights of CRS to withhold payments on account of lack of progress or failure to perform agreed tasks and the manner in which those contractual rights should be applied. Apart from points of detail, that letter added nothing to the agreement pleaded in paragraph 3.5(a) of the Amended Statement of Claim.

88. The right of CRS to withhold payment is set out in clause 2.4.6 of the contract:

89. As stated in the letter of 10 September, what was agreed was a formula for the application of that right. I reject the submission made on behalf of Ellis Tylin that it was intended by the agreement to compromise any right of CRS or to "close the transaction". The evidence, including the evidence of Mr. Blanco in cross-examination shows that the nature of what was agreed was accurately set out in two paragraphs of the letter of 10 September:

64. Ellis Tylin had been much concerned at difficulties in their cash flow due to their invoices being rejected. The agreement reached was intended to mitigate those difficulties. There was no intention to compromise any rights of the parties.

90. Lord Diplock, in Gilbert Ash (Northern) Ltd. v. Modern Engineering (Bristol) Ltd [1974] A.C. at p. 718 said:

65. ASo when one is concerned with a building contract one starts with the presumption that each party is to be entitled to all those remedies for its breach as would arise by operation of law, including the remedy of setting up a breach of warranty in diminution or extinction of the price of material supplied or work executed under the contract. To rebut that presumption one must be able to find in the contract clear unequivocal words in which the parties have expressed their agreement that this remedy shall not be available in respect of breaches of that particular contract.@

91. No such clear and unequivocal words were used by the parties either orally on 6 September, 1996 or in the letter dated 10 September, 1996. In particular, it remains open to CRS to pursue allegations:

92. By paragraph 8(e), (f),and (g) of the Reply, Ellis Tylin allege a further agreement as follows:

93. By paragraphs 43 to 46 of the Defence, the Defendants plead an abatement (1) alleging loss of value consisting of the difference in value between what Ellis Tylin contracted to perform and what CRS received, (2) claiming the costs of remedial works to put right work which ought to have been done by Ellis Tylin, and (3) claiming the value of work which Ellis Tylin contracted to perform but did not perform.

94. A meeting took place on 24 March, 1997 between Mr. Blanco and Mr. Gartside. No notes were taken of that meeting, but Mr. Blanco says that he drafted a letter at that meeting, namely, the letter referred to in paragraph 8 (f) of the Reply. The letter is date stamped 15 April, 1997 but the typed date is 14 April, 1997. The letter was written by Mr. Blanco to CRS for the attention of Mr.Gartside and was in the following terms:

95. Taking that letter at its face value, it is saying that at the meeting of 24 March, 1997:

96. In response to that letter, CRS did not send any confirmation, so on the face of that letter, there was no agreement (on Ellis Tylin’s case) for either Year 1 or Year 2. The penultimate paragraph began, "On confirmation of the above agreements" in the plural. Ellis Tylin’s case on this is confused, but one contention seems to be that it was only the agreement as to Year 2 which required confirmation and that there was a binding agreement for Year 1 but no agreement for Year 2. In accordance with that contention, Mr. Arrowsmith on behalf of Ellis Tylin wrote on 22 April, 1997:

97. As I have already found, the letter of 4 February, 1997, like the letter of 3 February, 1997, was conditional only on agreement of the fees for the second year, and the termination from 4 May, 1997 was wrongful because the fees for the second year had been agreed on 14 February, 1997. Ellis Tylin’s contentions as to what was agreed on 24 March, 1997 is inconsistent with those findings of mine, and also inconsistent with Mr. Blanco’s letter of 14 April, 1997. However, I turn to the evidence concerning the meeting of 24 March, 1997 to see what was agreed (if anything) and the effect of any agreement.

98. Leading up to the meeting of 24 March, 1997, there were discussions between the parties particularly about invoices for the first year fees. In particular, there was a meeting on 27 February, 1997 between Mr. Gartside for CRS and Messrs. Arrowsmith, Blanco and Beeston for Ellis Tylin at Ellis Tylin’s Bristol offices. The purposes were, so far as Mr. Gartside was concerned, to discuss the meaning of "comprehensive" for the purpose of the contract, and the mechanism for valuing Ellis Tylin’s performance for the purpose of assessing the under-performance retention. A mechanism was agreed for monthly fee adjustments, and there was discussion about payments to be made for the first year contract. It was again confirmed that the second year fee was agreed at ...547,779 and Mr.Gartside thought that as the second year fee had been agreed the determination notices were overridden and the contract was going ahead. There followed some correspondence in which there was dispute about what had been agreed about the first year fees. Mr. Gartside arranged the meeting for 24 March to restore relations and to re-establish the basis on which the first year fee was agreed.

99. In his written witness statement, Mr. Blanco said of the meeting of 24 March, 1997:

67. Mr. Blanco then continued:

100. Although Mr. Blanco said that in his conversation with Mr. Arrowsmith they spoke of getting confirmation only of the Year 2 proposal, when he spoke to Mr. Gartside, he said, the requirement was that "the terms" needed to be confirmed. Mr. Blanco said that he was drafting the letter of 14 April, 1997 at the meeting as it progressed, and after speaking to Mr. Arrowsmith he added to the letter the penultimate paragraph, "Upon confirmation of the above agreements .....". Mr. Blanco said that Mr. Gartside also made some contribution to the draft. Mr. Blanco said that after the letter of 14 April had been typed, he threw away the draft. The delay in typing and sending the letter was due to the death of Mr. Blanco’s father-in-law on 23 March, 1997. Mr. Blanco said that at the meeting Mr. Gartside took a photocopy of the draft and kept that copy.

101. In cross-examination, Mr. Blanco again said that at the meeting on 24 March, 1997 there was provisional agreement but it had to be confirmed in writing. In cross-examination, Mr. Blanco did not seek to suggest that one agreement was subject to confirmation and the other not subject to confirmation.

102. In his written witness statement, Mr. Gartside said that at the meeting of 24 March, Mr. Blanco repeated his agreement to the first year service valuation of ...411,00 plus VAT and reiterated Ellis Tylin’s acceptance of the second year contract fee of ...547,7676 with chargeout rates being amended in accordance with Ellis Tylin’s letter of 6 February, 1997. Mr. Gartside denied that any compromise was made which would preclude CRS from pursuing a claim against Ellis Tylin for failure to perform its contractual obligations. Mr. Gartside said that the agreement as to the sums to be paid for the first year was a repetition of what had been agreed at the meeting on 14 February.

103. In his oral evidence in chief, Mr. Gartside said that at the meeting of 24 March, he and Mr. Blanco reiterated what had previously been agreed as to how they would deal with various invoices, and they agreed the figure of ...411,000 "which was just this arithmetic process", and they agreed certain other payments would be made and that if there were any difficulties with order numbers they would take a fairly lenient view to finalise the figure at ...485,000. He did not recall discussing the second year’s fees. He did not recall that a letter was drafted out by Mr. Blanco. In cross-examination on the same day he did not materially depart from that evidence. In cross-examination after the adjournment, Mr. Gartside again said that he did not recall Mr. Blanco drafting the letter of 14 April in his presence. Mr. Gartside did, however, accept the suggestion that the letter "fairly and accurately records the matters that were discussed and agreed on 24th March", while saying that he certainly did not recall being asked on 24th March to confirm the agreements.

104. While Mr. Gartside’s acceptance of the terms of the letter of 14 April was inconsistent with the remainder of his evidence, I did not understand that answer to be intended as resiling from the remainder of his evidence. I prefer Mr. Gartside’s account of the meeting of 24 March to that given by Mr. Blanco. Mr. Gartside’s evidence was consistent with the remainder of his evidence and consistent with my other findings. The evidence of Mr. Blanco and the case of Ellis Tylin on the other hand contained inconsistencies and were not credible. For what it is worth, I also found the demeanour of Mr. Gartside in giving that evidence more convincing than that of Mr. Blanco.

105. Even if one were to accept the evidence of Mr. Blanco, it does not amount to evidence of an agreement with the effect alleged in paragraph 8 of the Reply. I cite again the speech of Lord Diplock, in Gilbert Ash (Northern) Ltd. v. Modern Engineering (Bristol) Ltd [1974] A.C. at p. 718.

106. I reject the allegations of fact and the contention contained in paragraph 8 of the Reply.

107. In this Judgment, I have answered all of the issues put before me. No useful purpose would be served by setting out again each of the issues put before me and answering them point by point. In summary: