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

THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		5 September 2007

Introduction

1. In this case the Claimant, a Russian national resident in Moscow, claims the recovery of sums of money which she has allegedly overpaid to the Defendants in respect of building works carried out at a house in West London known as 29 Rivercourt Road, London, W6 ("the Property"). The First Defendant, George Evans ("Mr. Evans") resists the claim and denies that he personally ever had any contractual relations with the Claimant. The Second Defendant, Dezigner Living Limited ("DZL") is a small company of which Mr. Evans is the principal director and is the vehicle through which he carried out the business of property development. By way of counterclaim DZL claims from the Claimant the sum of £641,200 plus VAT representing a number of invoices which the Claimant has allegedly declined to pay. Mr. Evans is the fiance or partner of Miss Natasha Yuschenko who, at all material times, was the personal assistant to Mr. Alexey Golubovich, the Claimant's husband, and was also employed to assist the Claimant with the running of her family and her London home situated at 28 Upper Mall, Hammersmith, London, W6 9PA ("the Boathouse").
2. In brief, the matter arises in this way. In early 2005 the Claimant bought the Property as an 18th birthday present for her son, Arcadiy. The garden of the Property backs onto the Boathouse. The Claimant intended to refurbish and extend the Property so that it was finished to the highest standard. The Claimant is an extremely successful and wealthy businesswoman who spends a great deal of time travelling on business and also between her various homes and her yacht in the Mediterranean. As a result she was often difficult to contact and Miss Yuschenko was a principal means of communication with her.
3. Mr. Evans aspired to become a property developer on the strength of having successfully developed two flats in Portobello Road, West London which he had completed to a high standard. But he had no other relevant experience so far as property development at the high end of the market in London was concerned. Mr. Evans was introduced to the Claimant by Miss Yuschenko and after many informal discussions between them, it was agreed, in June 2005, that Mr. Evans would be engaged to carry out stage 1 of the proposed works which involved the stripping of the house and clearing the garden and the excavation for an extended basement. The parties had agreed that the development of the Property would be divided into three stages: Stage 1, as referred to above; Phase 1 which was to be the construction of all the living areas in the Property and Phase 2 which was to comprise the finishing and decoration of the Property and the installation of state of the art audio and visual equipment. Each stage was to be dealt with separately. Mr. Evans together with his partner, Mr. Jason Coates, who was engaged for this purpose and, under the auspices of DZL, commenced work on Stage 1 in mid-June 2005. It was his intention to carry out the whole development as developer by engaging professional men, suppliers and sub-contractors as necessary to carry out the works. Later, at the end of July 2005 the parties agreed that Mr. Evans would also commence Phase 1 of the works once planning permission and building control approval had been received In order to finance the commencement of these works, the Claimant paid to DZL an advance payment in respect of Stage 1 of £175,000 plus VAT, an advance payment in respect of Phase 1 of £397,000 plus VAT and various professional fees amounting to £40,755 plus VAT. By early August 2005 the Claimant had therefore paid to DZL sums to a total of £612,755 or £719,987.12 including VAT.
4. By early November the Claimant had become concerned at the lack of progress of the works and asked Mr. Evans to account for the sums which he had received and to explain how they had been spent. The Claimant also wished the arrangements between the parties to be recorded in a formal contract. In late November the Claimant appointed Messrs. Streathers, solicitors, and Mr. Robert Horner, an experienced chartered surveyor, to advise her and help her get the project moving forward. However, the Claimant refused to pay any further sums of money to DZL until such time as a schedule of payments, linked to progress of the works, was agreed. Unfortunately this was never agreed so that, by the end of March 2006, the Defendants indicated that they could not continue with the work much longer without further payments since they were running out of funds and were not prepared to finance the rest of the project themselves. Thus an impasse was reached at this stage. As a result of an exchange of letters between solicitors in early April 2006 each party alleged that the other had repudiated any contract which might exist between them and the Claimant ordered the Defendants off the site and changed all the locks at the Property. After an exchange of pre-action Protocol letters, on 26^th September 2006, the Claimant instituted these proceedings in which she claimed an account of all the monies received by the Defendants and also the recovery of the sum of £526,112.12 as money had and received by the Defendants being the alleged difference between the total sums paid by the Claimant and the value of the works carried out by the Defendants.
5. The principal issues between the parties (apart from quantum) are the following:

(1) Was any binding contract or contracts made between the parties in respect of the works?

(2) If so, with which Defendant were the contracts made and what were their terms?

(3) Was either party in breach of any such contract and/or did either party repudiate the same?

(4) If so, what damages is the innocent party entitled to?

(5) If there was no binding contract made between the parties, what sum are the Defendants entitled to in respect of the work carried out at the Claimant's request and is the Claimant entitled to a repayment from the Defendants in respect of sums overpaid by her?

6. On 18 July 2007, the last day of the hearing of this matter, when the parties' quantity surveyor experts were to be heard, it became apparent that those experts had relied upon certain documents given to them on the basis that they were contemporaneous documents showing how the alleged fixed price sums for the work had been calculated. However, the evidence in the case had shown conclusively that the dates shown on those documents were incorrect and in fact they had been created after the Defendants had been ejected from the site, and at the request of the Defendants' solicitors. Having raised this problem with the parties and, having heard submissions from their leading counsel as to the best course to adopt, I concluded that it would not be safe or prudent to proceed with the expert evidence on this basis, so I adjourned all questions of quantification for later consideration. This Judgment is therefore limited to questions of liability and the principles for the assessment of damages and, once the parties have absorbed it, they can then decide (with the assistance of the Court, if necessary) how to proceed thereafter.

The Principal Witnesses of Fact

7. The dealings between the parties were characterised by extreme informality. The Claimant, being a very busy businesswoman, dealt with matters at informal meetings and usually in a hurry. She relied upon Miss Yuschenko to keep things in good order and to provide her with the necessary documents. Similarly Mr. Evans dealt with this matter informally and frequently failed to record important matters in writing. He relied on his memory to a surprising degree. He did not believe in keeping a diary or keeping notes of meetings with anyone, not even the Claimant, who was his first client in his new business as property developer. Unfortunately Mr. Evans' memory as to dates was consistently inaccurate and even the documents which he produced, of which there were very few, were frequently wrongly dated, sometimes by many months. This all led to considerable confusion in the minds of Mr. Evans and Miss Yuschenko and also, to some extent, in the mind of the Claimant. Coupled with that, the documentation produced by Mr. Evans at various stages to record the terms upon which he was carrying out the development was sparse in the extreme. To some extent this is understandable since Mr. Evans considered that he was carrying out the work on the basis of lump sum fixed price contract so that it was, in his view, not necessary to provide detailed breakdowns of the fixed price or indeed of the sums spent by him on the project.
8. In these circumstances, where the contemporaneous documentation is sparse or nonexistent and, in any event, the Court, in carrying out its fact-finding exercise, is heavily dependent upon the oral evidence given by the principal protagonists. On the Claimant's side, the Claimant herself was the only witness who could speak to the dealings between herself and Mr. Evans which led to the agreements (whether legally binding or not) under which the works were carried out by the Defendants. Similarly, for the Defendants only Mr. Evans and Miss Yuschenko could speak to those matters from first hand knowledge. It is therefore necessary for me to express generally my findings on the reliability of these three principal witnesses.

The Claimant

9. The Claimant is a highly intelligent and successful businesswoman with a commanding presence. She expects complete obedience and prompt results from her staff members and is used to retaining a lot of information in her head. But she does not remain in any one place very long at any one time. She is used to negotiating deals but, coming from her culture, does not expect to enter into binding legal agreements without formal contract documents being in place. So far as her evidence was concerned, I am afraid that I did not find it satisfactory. She was surprisingly guarded and non-committal about what had taken place and frequently said that she could not remember being shown important documents or, for example, the Defendants' website. Her evidence frequently contradicted the terms of contemporaneous documents. She gave the impression that she was amazed when it was suggested that she had entered into contract with the Defendants yet her actions were otherwise. Her explanation of how the sum of £466,000 was paid to DZL being the first 50% payment in respect of Phase 1, namely that it had been paid by her staff in error due to the pressure exerted by Miss Yuschenko was frankly incredible, particularly since 1 find that the Claimant did not raise the matter of the allegedly unauthorised payment with the Defendants. Her evidence matured as it went along and frequently was inconsistent with the pleadings and with both her two witness statements. On the whole, I regret to say that I did not find the Claimant to be a reliable witness.

Mr. Evans

10. Mr. Evans had no previous experience of a project of this nature carried out for a demanding client and I am afraid he bit off more than he could chew. He tried his best to be as businesslike as possible and his decision to bring Jason Coates on board was a very good one since Mr. Coates provided the experience, knowledge and track record that Mr. Evans lacked. Mr. Evans saw this project with the Claimant as a great opportunity to get his new business launched and he was prepared to make the most of it. The prices which he charged the Claimant were very high indeed by any standards. His understanding of how projects of this sort work was not very good and, as I have said, his paperwork was sparse. However, on the whole, I find that Mr. Evans' recollection of what took place was, with the exception of dates, reasonably accurate. It was largely consistent with the contemporaneous documents and was generally supported by Miss Yuschenko. This case means a great deal to Mr. Evans and it has obviously put him under considerable pressure. But, on the whole, I find that he was a reliable witness whose evidence the Court can safely rely upon, save in respect of matters of detail like dates and figures.

Miss Yuschenko

11. Miss Yuschenko is a young woman who was, I believe, a loyal employee both of the Claimant and of her husband. She helped the Claimant a great deal with the family arrangements in London and with the paperwork and detailed arrangements that the Claimant was too busy to undertake herself. I do not believe that Miss Yuschenko allowed her relationship with Mr. Evans to interfere with the proper conduct of her duties so far as the Claimant is concerned and I don't think that she actually took part in or understood the detail of the arrangements made between the Claimant and Mr. Evans. When Miss Yuschenko attended meetings she did so more as an observer and as an assistant to the Claimant than as a participant. She left the employment of the Claimant under unhappy circumstances in November 2005 but I do not find that her evidence was biased or intentionally adverse to the Claimant. On the whole I find that Miss Yuschenko was a reliable witness, although like Mr. Evans, her recollection of dates and some details was poor.

Were any legally binding agreements made between the parties?

12. The Defendants assert that they entered into legally binding agreements with the Claimant on two occasions, viz. in early June 2005 in respect of the Stage 1 works and in late July 2005 in respect of the Phase 1 works. It is not suggested that any agreement was ever entered into in respect of the Phase 2 works which, as a result, play only a peripheral part in this case. The Claimant's case, on the other hand, is that no binding agreements were ever made between the parties and that she paid sums to Mr. Evans on account in order to get the works started in the expectation that a properly drawn up and priced contract would be entered into at a later date. She said that, in Russia, that is how matters proceed and she would not expect to enter into a contract informally. In evidence the Claimant said:

"In my life and in my culture accept that it is different, and all my experience all over Europe, tells me - and now 1 am really, frankly, sincerely telling you this -may be it helps to understand each other — that in my life the verbal agreement and the verbal promise does not mean anything. It is not a substantial thing you can follow It is nothing. It does not exist and in our courts in Russia you cannot even bring the email paper to the judge. "

13. My findings on these matters are as follows.

The June 2005 Agreement

14. The first important contact that Mr. Evans had with the Claimant over the project was when Miss Yuschenko, at the Claimant's request, asked him if he could recommend an architect to the Claimant to prepare outline designs for the project. Mr. Evans recommended Mr. Philip Coffey who was duly appointed by the Claimant to prepare preliminary designs in early February 2005. Mr. Coffey, who was a recently qualified young architect, produced some preliminary designs of high quality which he sent to Mr. Evans and to Mr. Golubovich on 29^th April 2005. They were discussed at a meeting at the Boathouse on that date with Mr. Golubovich and Mr. Evans. Meanwhile, during a weekend away in Wiltshire in April, Mr. Evans had had a conversation with the Claimant in which the Claimant responded favourably to Mr. Evans' suggestion he should be given the opportunity to make a proposal to the Claimant for running the project. This was followed up by a meeting between the Claimant and Mr. Evans at the Boathouse in early May 2005 when the Claimant expressed some disappointment with the designs produced by Mr. Coffey and asked Mr. Evans if he could provide an alternative design for her consideration. Mr. Evans also said that he would return to the Claimant with a proposal to provide a "turnkey" prestige design and build a solution of high quality. It was after this meeting that Mr. Evans realised that he had a real prospect of securing this highly prestigious and lucrative commission.
15. Prior to this time Mr. Evans had been trading as "Dezigner Living" in his personal capacity and had created a website in this name which showed photographs of the developments which he had carried out in Portobello Road. Mr. Evans had bought an off the shelf company called Jasmine Services Limited with a view to carrying on business as a developer and, on 19th May 2005, he caused that company to change its name to Dezigner Living Limited, the Second Defendant. This change was registered at Companies House on 24^th May 2005. Mr. Evans realised that he had neither the experience nor the skill to be able to carry out this project alone and so he approached an acquaintance in the property development world, Mr. Jason Coates. After discussions between them, it was agreed that Mr. Coates would become a director and 50% shareholder in DZL with a view to managing the project on the construction side. Mr. Evans would be principally responsible for client liaison. As part of their discussions, Mr. Evans and Mr. Coates agreed that they would only pitch for projects at the top end of the market and would only be interested in providing the highest standards in the market. They also agreed that they were not prepared to take any avoidable commercial risks so that they could only contract on terms whereby the costs and liabilities which DZL incurred would be paid for in advance by the client. These arrangements were put into effect and, on 26th May 2005, there was a Board Meeting of DZL at which Mr. Coates was appointed a Director. These steps were taken by Mr. Evans following a meeting which he had with the Claimant and her son Arcadiy which was held at the Boathouse and they show clearly, in my judgment, that Mr. Evans at least intended that this job would be undertaken by DZL.
16. This meeting was held on some date between 19^th and 22^nd May 2005 and was attended by the Claimant, her son Arcadiy, Miss Yuschenko and Mr. Evans. Both Mr. Evans and Miss Yuschenko originally stated that the meeting took place on Saturday, 28^th May 2005 but, when confronted with the Claimant's passport which showed that she was not in Britain on that date, they modified their evidence to the meeting having taken place when the Claimant was in this country i.e. between 19^th and 22^nd May 2005. I don't think anything turns on this and I accept their explanation. At this meeting or possibly at an earlier meeting, Mr. Evans showed the Claimant and Arcadiy his website on his computer and then had detailed discussions with them both over how the project would unfold and each stage that would have to be completed. He also showed them the initial designs which Mr. Fahey, the replacement architect, had produced for DZL. Both the Claimant and her son preferred these new designs and she asked Miss Yuschenko to notify Philip Coffey, the previous architect, that his services were no longer required. Ultimately Miss Yuschenko delegated this unpleasant task to Mr. Evans who duly dismissed Mr. Coffey in a manner which Mr. Coffey found, I think justifiably, rude and unprofessional. After this meeting Mr. Evans was delighted since he appreciated that he had probably secured this valuable commission subject to the agreement of the price with the Claimant.
17. The next important meeting between the parties took place on an uncertain date between 7^th and 9th June 2005. At this meeting Mr. Evans explained that the project would be delivered in three stages and he handed to the Claimant a green plastic folder which contained certain documents all of which had the DZL logo at the top and details of DZL at the foot including the company address and registration number and the identification of Mr. Evans and Mr. Coates as directors. The Claimant could not remember being handed any documents at this meeting but I find that she was handed the folder which contained the following documents:

(1) The Schedule of Works dated 3rd June 2005. This three page document described the work to Stage 1 (the basement) in outline and stated the project cost to be £350,000 plus VAT. At the foot of the first page it is stated:

"Payment terms: 50% of contract value on commencement. Remainder of contract value payable 10 weeks from commencement."

(2) Project Update dated 3^rd June 2005. This was a brief summary document showing where the project had got to by this date.

(3) Invoice No: 10035 dated 24^th May 2005 in the sum of £175,000 plus VAT, stated to be "initial payment of 50% of contract value".

(4) Invoice No: 10037 dated 30^th May 2005 in the sum of £7,505 plus VAT in respect of architect's services for the production of concept drawings and full plans. These services had been provided by Mr. Fahey.

(5) Invoice No: 10038 dated 4th June 2005 in the sum of £32,250 plus VAT also in respect of architect's services. This invoice represented an estimate of the future works likely to be carried out by Mr. Fahey up to the end of the project.

18. Mr. Evans went through these documents carefully with the Claimant and explained them to her. As she agreed in evidence, he explained that professional fees would be in addition to the sum of £350,000 plus VAT which he was quoting for Stage 1.
19. On 8th June 2005 Mr. Evans sent an email to Miss Yuschenko in which he attached copies of the three invoices and also a copy of the detailed Schedule of Works. On 10^th June 2005 Miss Yuschenko sent these documents by email to Andrey Lysianskey , the Claimant's lawyer, with a message as follows:

"Please find enclosed three invoices for renovation of Arcadiy's house. OM accepted them yesterday.

I'll call you later today to confirm the receipt."

20. Finally, on 10th June 2005, the three invoices were paid to DZL by Irina Szufarska, the
    Claimant's accountant.
21. The Claimant's case on all of this is that she agrees that invoices were paid by her but denies that any binding agreement was made with either Defendant. She says that she understood this to be an informal arrangement made simply to get the work started and that the money was being paid on account. She anticipated that a proper formal contract would be drawn up later which would take these payments into account. She points out that she would have been mad to agree the terms of payment which would mean that she was paying 100% of the project cost well before it was likely to be finished which would mean that there would be no incentive for Mr. Evans to complete the work as she would have no leverage over him. She also denies that she had any intention to make any agreement with DZL since all her dealings were with Mr. Evans in his personal capacity. She denies ever having seen the DZL website or that Mr. Evans ever told her that he would be acting through DZL. She explains the payments being made to DZL rather than to Mr. Evans personally simply by the fact that, from her own business dealings, she is familiar with contracts being paid for out of bank accounts held by entities other than the contracting parties.
22. I am unable to accept the Claimant's evidence. Anyone in the Claimant's position would have realised that this was an important meeting and that she was being asked to make a legally binding agreement. The documents which Mr. Evans presented to her made this plain even though they were brief in the extreme. The invoices, on DZL notepaper also made it plain that significant sums were being requested from her. It would have been obvious to anyone who read these documents, or even looked at them cursorily, that they represented a formal proposal made by DZL which was capable of acceptance. The fact that it was only the first stage of the project was quite clear and does not detract from the contractual effect derived from the documents. Accordingly I conclude that, at the meeting in early June, the Claimant accepted the proposals put forward by Mr. Evans in full and entered into an agreement for the completion of Stage 1 on the terms set out in the documents. Viewing the matter objectively, the Claimant was contracting with DZL and not with Mr. Evans personally and I find that, contrary to the Claimant's evidence, he had made this quite clear in earlier conversations, although not, 1 think, as often as he said he did. The fact that the documents are brief does not, in my view, prevent a contract coming into being since all the essential terms are identified. The parties are identified and the work to be done is described in general terms and the price to be paid is certain. No date for completion of the works was agreed, although a completion date for the whole project of March 2006 had been discussed. That being so, the law will imply an obligation to the contract for DZL to complete the works within a reasonable time in all the circumstances.
23. It is true that the terms of the agreement were extremely favourable to DZL, particularly the terms as to payment. However Mr. Evans had made it plain to the Claimant that he could only work on the basis of advance payment and this was the basis of the partnership formed between Mr. Evans and Mr. Coates from the outset. It is also noteworthy that the Claimant accepted the "contract value " of £350,000 without seeking any alternative quotations or even seeking to negotiate the cost downwards. I reject the Claimant's denial that she ever accepted it or that she regarded it only as a "rough estimate". However it must be remembered that the Claimant is an extremely wealthy woman and was dealing with people whom she knew well and trusted. She would have expected that, if anything went wrong in the future, she would be able to sort it out between friends in an informal way. It was advantageous to her to have the project carried out by Mr. Evans with Miss Yuschenko keeping an eye on things whilst she was away. For these reasons I expect that the Claimant did not pay a great deal of attention to the detailed terms or the cost so long as she was confident of receiving a first class result. In any event, whether wisely or not, I am satisfied that the Claimant did enter into the contract as asserted by the Defendants. The fact that the Claimant was not asked by Mr. Evans to sign anything merely shows, as he stated, that he did not think she would respond well to such a request.
24. Shortly after the three invoices were paid by the Claimant, DZL started work on Stage 1
    in mid-June 2005.

The agreement for Phase 1

25. On 15^th July 2005 Mr. Evans sent a long email addressed to Arcadiy/Olga. He sent it to Arcadiy's email address. Arcadiy certainly received it since he emailed back the words "got it!!!". In that email Mr. Evans gave a project update as to how the works were proceeding and stated that he wished to seek approval for the "Stage 2 build attached" (he meant Phase 1) so that they could commence work on it on 20th July. He attached to the email a Schedule of Work for Phase 1 and 2 and concluded the email as follows:

"I believe we are making excellent progress and foresee no major problems in keeping the programme moving at a good pace. I seek your approval for Phase 2 at your earliest opportunity as we would like to begin the work as early as next Wednesday, 20^th.

If you would like to discuss any of the points raised or the detail of the attached Schedules then feel free to call me on my mobile..."

26. The Claimant admits seeing the email and the attachment at about this time. The detailed Specification of Works is dated 6^th July 2005 and runs to five pages and includes what is described as a "Detailed Specification of Works" for both Phases 1 and 2. The specification for Phase 1 consists of 35 bullet points in the most general terms e.g. "build ground and first floor extension" and "install air conditioning system to all levels" and "build and install three custom terraces from steel and glass". By no stretch of the imagination could these descriptions be properly described as "detailed specifications". They are merely item headings of great generality. So far as the cost of the works is concerned, only Phase 1 was costed under the heading "Project Cost Projections". The cost quoted for Phase 1 was £794,000 (184/sq. ft). There was no mention on this document of payment terms.
27. Mr. Evans heard nothing back from the Claimant for 10 days or so and so he attempted to speak to her on her mobile phone since he needed the go ahead for Phase 1. He eventually managed to speak to the Claimant, who was on holiday, and they had three short telephone conversations on 27* July. However Mr. Evans was unable to complete the conversation since the line was very poor so he called again on his landline and completed his conversation with the Claimant. Mr. Evans has produced his mobile phone records which corroborates his evidence although there is no corroboration for his assertion that he later spoke to her by landline. However, I accept his evidence on this point. During the conversation Mr. Evans explained the documents which he had sent to the Claimant and, as a result, he maintains that she agreed to proceed with Phase 1 on the basis of those documents. The Claimant denies entirely Mr. Evans' account of these short conversations.
28. On the strength of these conversations Mr. Evans sent invoice No. 10039 being the first 50% of the "contract value" for Phase 1 in the sum of £397,000 plus VAT. He sent this invoice to Miss Yuschenko who passed it on in the usual way to the Claimant's lawyers for payment. Ultimately it was paid on 1st August 2005 by the Claimant's accountant, Mrs. Irini Szufarska, by a cheque in the sum of £466,475 made payable to DZL. The invoice itself is unfortunately dated 30 May 2005 and refers to Phase 2 rather than Phase 1. Mr. Evans explained these errors by saying that he had used as a template the earlier invoice for Stage 1 and had forgotten to change the date to July. The reference to Phase 2 was a simple error. There is no evidence that the Claimant herself ever saw this invoice.
29. The Claimant maintains that in the telephone conversations, she never agreed to award Phase 1 to Mr. Evans or DZL and alleges that she never agreed to the payment of the first 50% of the contract value. She explains that it was not until November 2005 that she discovered that the payment had been made without her authority. She maintains that Irini Szufarska told her that she had made the payment in August because Miss Yuschenko had persuaded her that the Claimant had already approved it which was not the case. The Claimant repeated this assertion in the witness box. However, I reject this explanation as being incredible. There is no documentary or witness evidence before the court (apart from the Claimant's evidence itself) which supports this assertion. Miss Yuschenko has denied it hotly and I accept her denial. It is inherently incredible that it would have taken the Claimant over three months to discover that a sum not far short of £1/2 million had been paid out of her account and even more incredible that she would not raise it with Mr. Evans at any time.
30. It was not until the pre-action protocol letter was sent by the Claimant's solicitors on 26 April 2006 that this allegation was first aired by the Claimant. Even now she has failed to explain how the Defendants could expect to get away with the alleged subterfuge of the unauthorised payment. I am afraid that I have been driven to the conclusion that, on this issue, the Claimant has simply fabricated a false story in order to seek to explain what is for her an embarrassing fact, namely that she authorised the first 50% stage payment for Phase 1 of the project, thereby indicating her acceptance of Mr. Evans' proposal to carry it out.
31. On the whole of the evidence I have no hesitation in concluding that Mr. Evans' account of these events is to be preferred and that, during the telephone conversations with the Claimant on 27^th July 2005, a further contract was concluded between them for the execution of Phase 1 of the project for a total sum of £794,000 plus VAT, otherwise the terms were on the same basis as for Stage 1 including terms as to payment. Whilst the Schedule of Work for Phase 1 does not refer to terms of payment, Invoice No: 10039 does state "balance of 50% to be paid in October 2005.," In the light of the course of dealing between the parties and of this reference, I am satisfied that that term as to payment also became part of the agreement between the parties for Phase 1.
32. Miss Yuschenko strongly denies the account given by the Claimant. On the contrary she told me that when she saw Irini Szufarska in London the latter confirmed to Miss Yuschenko that she had sought the Claimant's authorisation to pay the invoice directly, and, having received it, she authorised the payment. I accept this evidence as reflecting accurately what actually took place. Having seen the Claimant I consider that it is not only highly improbable but inconceivable that any of her staff would pay out nearly £½ million without her prior authority.

Subsequent Events

33. The work on Phase 1 commenced in early August 2005 and thereafter work on both Stage 1 and Phase 1 proceeded as far as possible. However, it could only go so far in the absence of both a party wall award with both sets of neighbours and also planning permission from the local authority. Both of these took a considerable amount of time and effort to achieve. Mr. Edward Heath, an experienced party wall surveyor, was engaged by DZL on behalf of the Claimant to conduct the party wall negotiations. This he did successfully with his opposite number, Mr. Martin Hayes. Ultimately their negotiations were successful and the agreed party wall award was concluded on about 24^th November 2005.
34. So far as planning permission was concerned, the local authority, the London Borough of Hammersmith, turned down the original proposal on 12^th September 2005 but invited DZL to submit a revised proposal which might receive favourable consideration if it was submitted very quickly, within 24-48 hours. This deadline was achieved by DZL so that full planning permission was received on 19^th September 2005.
35. The Claimant was understandably most concerned at the delays in completing these essential procedures and enquired of Mr. Evans whether there was any way to avoid them. Mr. Evans assured her that, in the UK, this was not possible and this gave rise to understandable frustration on the part of the Claimant. Mr. Evans explained the position to her at a meeting held in mid-September 2005 at which the Claimant reluctantly accepted the revisions to the plans which had been made at the suggestion of the local authority. Mr. Evans explained that these revisions to the plans would also involve changes to the party wall award and would lead to delay to the project. The Claimant was far from happy to hear this. The situation was not improved by the fact that Mr. Evans often failed to get urgent decisions from the Claimant due to her absences and her apparent indecision. Further delays were occasioned by changes of mind on the part of the Claimant in relation to finishes and furnishings.
36. On 3rd November 2005, in a telephone conversation, the Claimant, who was most angry, informed Mr. Evans that she wished to cancel the project due to the delays in getting the necessary approvals and that she wanted a full refund of the monies she had paid. She said that Mr. Evans had stolen her money and used it to buy a property for his own use. She called for a meeting on the following Monday, 7th November. This call came as a complete surprise to Mr. Evans since, apart from her considerable frustration at the delays, the Claimant had given no previous indication that she was considering cancelling the project.
37. The meeting took place on 7th November 2005 at the offices of the Defendants' solicitors, Pettman Smith. Also present was Miss Irini Szufarska, her accountant. At this meeting the Claimant asked Mr. Evans to submit a formal progress update and told him that she wanted to enter into a formal contract for the works. Mr. Evans told her that there already was a binding contract in existence but he agreed to consider whether the existing contract could be amplified by further documentation. The Claimant never suggested at the meeting that there was no contract in existence between her and DZL nor did she mention that the first 50% payment for Phase 1 had been made without her authority.
38. On 9th November 2005 the Claimant instructed that the work being carried out to remove a tree in the garden should be halted immediately. It was necessary to remove this tree in order to enable the underpinning works to be completed to both the party wall and the basement extension. It was the unanimous view of the professionals that to retain that tree would involve considerable re-design and might delay the project by as much as 12 weeks. By email dated 10^th November 2005 Mr. Evans made this clear to the Claimant but she maintained her decision that the tree must remain.
39. On 13^th November 2005, Mr. Evans emailed the Claimant saying that he was in the process of preparing a set of terms and conditions to include a detailed billed schedule, stage payment milestones for remainder of the contract and copies of all supporting paperwork relating to the contract. He made it clear in this email that " these documents are in support, and in no way supersede, your current contractual obligations as agreed and supported by the Schedule of Works documents already in your possession"
40. On 16^th November 2005 Mr. Evans wrote again to the Claimant giving her a report on progress to date. He estimated that completion of the project would be around June 2006. He also made proposals in the letter in relation to the payment for additional works such as the works required by the decision to retain the tree. The letter enclosed a pack of documents including drawing schedules and a programme showing the percentage completion of various stages of the works. The pack also contained three invoices from DZL as follows:

(1) Invoice No: 10041 in the sum of £397,000 plus VAT being the second stage payment due in respect of the Phase 1 works.

(2) Invoice No: 10042 in the sum of £175,000 plus VAT being the second stage payment due in respect of Stage 1.

(3) Invoice No: 10043 in the sum of £64,660.22 plus VAT in respect of professional services, viz. structural engineering designs and the Building Control Notice in respect of Phase 1.

These invoices were never paid by the Claimant and form the basis of the counterclaim by DZL.

41. At the Claimant's suggestion, the parties again met at the offices of the Defendants' solicitors on 18^th November 2005. On this occasion solicitors were present together with Miss Szufarska and Mr. Nicholas Bowbanks, the captain of the Claimant's yacht. At the meeting the Claimant expressed dissatisfaction with the continuing delays and the absence of a party wall award. She also expressed unhappiness with the existing contract between herself and DZL and wanted it restructured and formalised with a revised payment schedule. The Claimant indicated that she would appoint a representative to look after the project for her. Mr. Evans said that DZL would be happy to listen to any suggestions as regards stage payments for the balance of monies due so long as DZL's overriding principle of payment in advance was not compromised. But Mr. Evans was not happy at the suggestion that the Claimant would appoint a representative to act for her since this would add complication and increase the reporting obligations on DZL. The meeting concluded with Mr. Evans saying that he would be prepared to give proper consideration to any variations to the contract proposed on behalf of the Claimant and she confirmed that she wanted DZL to continue with the project.
42. After this meeting the Claimant appointed Mr. Robert Horner, an experienced chartered surveyor, to act on her behalf in relation to implementing what had been agreed at the meeting on 18^th November and expediting progress of the works. From this time on relations between the parties were far more distant and discussions took place between Mr. Horner on behalf of the Claimant and Mr. Evans at one level and between solicitors for the parties at a more formal level.
43. On 25^th November 2005 Streathers, the Claimant's solicitors, wrote a detailed letter (no doubt inspired by Mr. Horner) setting out what their client required in relation to formalisation of the contractual arrangements. It is a long list of formal contractual documentation that one would expect to find in an agreement which had a very different genesis than the instant agreement. A sequence of inter-solicitor correspondence followed in the course of which, on 9^th December 2005, Streathers confirmed that one of the matters that were agreed between the parties was that: "There is a contract between your client and mine to carry out works." and that "... the price quoted for parts of those works is fixed as per the documentation". This admission, which is flat contrary to the case advanced by the Claimant before the court, has never been explained. In my view it is cogent evidence which corroborates my finding that there existed a contract (or contracts) between the Claimant and DZL to carry out the works in question for a fixed price.
44. Meanwhile the work on site continued as Mr. Evans had discussions with Mr. Horner as to how they could proceed. Mr. Horner was satisfied with the standard of work being carried out and also agreed that the tree would have to be removed. But he wanted to secure a detailed programme of works from DZL showing dates for completion of each stage of the works and of the overall project. At a meeting between Mr. Horner and Mr. Evans on 18th January 2006 Mr. Evans made it clear that there were large invoices outstanding which the Claimant had not paid and that he (Mr. Evans) did not believe that she would ever make any further payments to DZL. He told Mr. Horner that, accordingly, DZL was working to a "guillotined plan" meaning that they were planning the works so that they did not expend more monies then they had received from the Claimant, whilst preserving DZL's own margin or mark up on those monies. As to this, Mr. Horner agreed that the best course was for the Claimant to deposit funds with her solicitors which could then be defrayed by instalments, on Mr. Horner's advice, according to the progress of the works.
45. At a further meeting between Mr. Horner and Mr. Evans on 25th January 2006 Mr. Horner confirmed that he was making good progress in his discussions with the Claimant in relation to the deposit of additional funds with Streathers for the second tranche payments in respect of both Stage 1 and Phase 1. He also confirmed that the settlement of the outstanding professional fees would not be a problem.
46. On 31^st January 2006 Mr. Evans wrote to Mr. Horner providing him with the information which he had been seeking including a bar chart programme. In his letter Mr. Evans confirmed that he needed additional funds in order to be able to carry out major procurement activities which were due to take place in February. On 6^th February 2006 Mr. Horner replied to this letter. He did not consider that the bar chart programme was sufficient to provide a basis for agreed stage payments and asked for further detail and documentation from Mr. Evans. For his part, Mr. Evans did not consider that Mr. Horner's request was reasonable or that he was sufficiently motivated to try to reach agreement with DZL on stage payments as a matter of urgency.
47. On 9^th February 2006 Mr. Evans provided further information and an up to date programme of work in the form of a bar chart with associated notes. In his reply of 22^nd February 2006, Mr. Horner again criticised the bar chart programme saying that it was of no use because it did not follow any logical sequencing or costing. The tenor of this email is critical of DZL in general.
48. By the end of March 2006 DZL felt that they were getting nowhere with negotiations with Mr. Horner and they were apparently approaching the end of the funds which they had received from the Claimant, subject to preserving their own margin on those funds. Accordingly, and, in order to bring matters to a head, DZL instructed their solicitors to write a letter to the Claimant's solicitors drawing attention to the seriousness of the situation. Pettman Smith wrote as follows on 30th March 2006:

"Despite numerous attempts to resolve all issues raised by your client or, more recently, Mr. Robert Horner, in connection with the contract between our respective clients relating to works to the above premises, your client has still failed to make any further payments, let alone payments as and when due pursuant to that contract. Our clients are saddened at your client's attitude bearing in mind that they have continued to progress matters so far as they are able in accordance with their contract promptly and efficiently.

My clients have also always made it clear that once the funds, which your client paid before any difficulties between them arose, had been committed and/or spent, they would not be in a position to continue with any further works and would not even be able to complete any part of the works that they were in the process of carrying out, unless and until the outstanding monies due from your client were paid. In the absence of receipt of the monies which are due and have been outstanding for a considerable time, as soon as the existing funds have been committed and/or spent, as mentioned above, our clients will leave the site. Clearly it is important that, in those circumstances, there is an orderly handover to Mr Horner or, if it is preferred, your client. Our clients will therefore be preparing a Schedule of Works completed and a Statement of Account. "

49. Streathers replied to this letter by letter dated 4 April 2006 which contained the following passages:

"Your client has not been paid any further sums because it is not entitled to any further payment from our client, whether under any contract between the parties or as a quantum meruit. There therefore has been no failure (whether as alleged or otherwise) on the part of our client.

Further, our client has made it clear that farther payments (as may be required under any contract between the parties or as a quantum meruit) will be made when your client provides information which accounts for all the payments made by our client to your client, shows exactly how the sums paid to your client have been used for the development, and shows that further sums are due.

....

Repudiatory Breach

You state in your letter that your client will leave site and arrange to handover the works to Mr Horner and/or our client if it does not receive any further funds. In other words your client is saying it will determine any contract with our client if it does not receive any further funds

As stated above, no further sums are properly due to your client. In any event, even if further sums were due to your client, non-payment by our client will not entitle your client to stop work on site.

It follows that your client has no grounds for determining the agreement and leaving site. By purporting to determine the contract when your client is not entitled to do so and by leaving or refusing to return to site, your client has made it clear that it has no intention to be bound to any contract between the parties and to complete the works.

In addition, your client has failed to make any substantial progress with the works and has failed to complete the development by 31 March 2006 in circumstances where time was of the essence.

Your client has thereby acted in repudiatory breach of the contract. By this letter our client exercises her common law rights and accepts your client's repudiation and terminates the contract.

.....

We will contact you shortly with a view to arranging the orderly handover to Mr Horner that you have proposed. In the meantime, your client should not attend the property unless accompanied by Mr Horner and solely for the purpose of the handover. "

50. Pettman Smith replied to Streathers' letter by letter dated 7 April 2006 as follows:-

"It appears that you have misconstrued our client's position.

It was agreed that payment for the works would be an advance. Your client has failed to make the payments due in and before October 2005. Notwithstanding the promise of structured payments which our client was prepared to consider, no payments have been forthcoming. We have sought to put you on notice that unless our client receives funds, our clients cannot employ contractors, let alone commission work and/or purchase materials etc.

Our client has not repudiated the contract and is certainly not in breach of it.

We do not believe that your client has any basis for determining the contract in a situation where our client remains ready, willing and able to proceed with the contract provided that your client performs her obligations and discharges the overdue payments without further delay.

Please would you clarify your client's position. In the event that your client seeks to determine the contract our client will regard her as being in breach and reserves its position in regard to any and all losses it incurs as a result."

51. On 10 April 2006 Pettman Smith again wrote as follows:

"It has come to our client's attention that various members of the professional team and their contractor have been informed by a letter from yourselves and also by telephone calls from Mr Horner, that the contract between our respective clients has been determined, yet neither our client nor we have received any notification of determination.

Your client is in breach of contract. By virtue of your actions and those of Mr Horner your client has clearly repudiated the contract. Our client is suffering loss as a result of your client's actions and therefore places your client on notice that the claim for damages will be made."

52. Finally on 11^th April 2006 Streathers wrote:

"Our client's position should be clear from our letter dated 4^th April 2006. In short, no further sums are payable by her in the circumstances. We deny that your letter sets out the terms of any agreement between our respective clients and similarly deny that there has there been any failure by our client whether as alleged or at all.

There is obviously a fundamental dispute between our respective clients. However on either parties case your client can play no further part in the development of the property. "

53. Following this correspondence, the Claimant ejected DZL from the site and changed the locks. Thus the short and unhappy relationship between these parties finally came to an end.
54. In these circumstances, each party alleges that the other party repudiated the contract between them (if any). Having considered the competing arguments as carefully as I can, I have reached the clear conclusion that it was the Claimant who repudiated both contracts between the parties by instructing her solicitors to write in the terms they did. It was always known to the Claimant from the outset that DZL was a small company and that Mr. Evans had insisted that he could only carry out the project if he were to receive advanced payment. That included payment of the whole of the agreed contract sum within only ten weeks of the commencement of works. This payment term, whilst highly advantageous to DZL, was agreed by the Claimant. Accordingly the Claimant was in breach of contract in failing to pay the two second instalment payment invoices submitted on 16^th November 2005. Mr Evans did agree to consider revised terms of payment and instalments but these terms were never agreed and the Claimant never deposited any funds with her solicitors in order to allow such payments to be made. In my view, the Claimant felt very badly let down by the Defendants and, as from 3^rd November 2005 she never had any intention of making any further payments to the Defendants unless they agreed to her demands as to the execution of a new formal contract obtaining agreed provisions for staged payments. In my view, in these circumstances, it was quite reasonable for the Defendants to write in the terms of Pettman Smith's letter of 30^th March 2006.
55. The letter of 30^th March 2006 correctly pointed out the Claimant's breaches of contract by failing to make further payments and stated that, unless further payments were made, the Defendants would have no funds with which to continue work. In the circumstances, I consider that a reasonable and accurate statement. The reply from Streathers of 4* April 2006 wrongly characterised the letter of 30th March as a repudiatory breach of contract which they accepted on behalf of the Claimant. In my view it was no such thing. DZL was not evincing an intention not to be bound by the contract between the parties but merely stating that they could not continue with work unless and until the client met her obligations as to advance payments. They had previously written in similar terms on 13^th January 2006. By wrongly accepting DZL's conduct as being repudiatory and requiring DZL to vacate the site, in my judgment, the Claimant herself repudiated the contracts between the parties. In fact she repudiated them in two respects, firstly by continuing to fail to make the payments which had been invoiced in November 2005 and secondly in wrongly accepting the Defendant's conduct as being repudiatory and, as a result, requiring DZL to vacate the site.
56. Accordingly I find that, in the circumstances set out above, the Claimant was in breach of and repudiated the two contracts between the parties in respect of the Stage 1 and Phase 1 Works.

Damages consequent upon the Claimant's repudiation

57. In paragraph 64 of the Defence and Counterclaim, the Defendants plead as follows:-

"64. .... Upon the Claimant's repudiatory breaches, the Claimant is obliged to pay the sums already due to DZL by way of instalments together with loss and damage flowing from those repudiatory breaches (including, for the avoidance of doubt, any loss of profit, if the instalment payment/payments is/are not found to be due). "

58. In paragraph 70 of the Defence and Counterclaim the Defendants set out the four invoices amounting to a total sum claimed of £641,200 plus VAT as follows:

(1)	As per Invoice No. 41	£397,000 plus VAT
(2)	As per Invoice No. 42	£175,000 plus VAT
(3)	As per Invoice No. 43	£64,660 plus VAT
(4)	Party Wall Surveyor's Fees:	£4,540 plus VAT
	TOTAL:	£641,9.00 plus VAT

Instalment Payments

59. The first two invoices represent the second and final instalment payments due under the Phase 1 and Stage 1 Contracts respectively. These were due for payment 10 weeks after commencement of the Works but the invoices were not in fact rendered until 16^l November 2005. The Claimant never paid these invoices and that, ultimately, was the reason for the termination of the contracts on account of the Claimant's repudiation.
60. Normally, where an employer repudiates a construction contract at a time when instalment payments have become due and remain unpaid, the contractor, who accepts the repudiation as discharging the contract, can recover the unpaid instalments from the employer. See Chittv on Contracts (29th edition) Vol. 1 at para. 24-051 and Hudson on Building and Engineering Contracts (11^th edition) at para. 4-228. However the Claimant asserts that, although the above statement is a correct statement of the law, an exception to this rule applies if there has been a total, but not a partial, failure of consideration in respect of the unpaid instalments. In support of this proposition the Claimant relies upon the decision of the House of Lords in Hyundai Heavy Industries Co. Ltd v Papadopoulos (1980) 1 WLR 1129 and, in particular, passages in the speech of Lord Fraser at pages 1148G and 11l50A.
61. The Defendants accept this proposition for, in footnote 97 on page 36 of the Defendants' Closing Submissions it is stated:

"... Ds accept, (as suggested in paras. 47/48 of C's written opening) that this would not apply if there was a total failure of consideration, but no case is advanced of total failure of consideration".

The last part of this quotation appears to be in error since in both the Claimant's opening statement at paras. 48 and 50 and in her closing statement at para. 137 it is made plain that the Claimant does advance the case that there has been a total failure of consideration in respect of both unpaid instalments. Accordingly, I proceed upon the basis of the proposition of law relied by the Claimant to the effect that, after a repudiation, unpaid instalments which were due prior to the repudiation remain payable by the party repudiating unless there has been a total failure of consideration in respect of those instalments.

62. Normally, of course, it will not be possible to show, in any given case, that there has been a total failure of consideration in respect of an instalment since, usually, it is not possible to be so precise so that one can link work done by the Contractor with instalment monies paid. But here the position is different. For DZL made it plain that it would only contract on the basis that it was paid in advance for the work and the record shows that DZL insisted on this condition throughout. In fact it was the cause of the repudiatory breach by the Claimant which arose from the Defendants refusal to carry out more work without further payment once the monies already received had been expended, subject to a buffer of £200,000, which Mr. Evans said he at all times maintained in his bank account. In fact the Defendants, in their closing submissions assert that, as at the end of March 2006, DZL had the sum of £247,846 cash in the bank from the proceeds received from the Claimant. The submission, at paragraph 7.3 continues:

"... it was plain from Dl 's evidence that by end March 2006 (hey had not even got to the stage where they had begun to consider the calculations they would have to undertake in order to decide how much more work to do ".

63. These passages show clearly that, as at the date of repudiation, DZL had only expended on the works approximately two-thirds of the funds received from the Claimant and that they were still prepared to continue working on the basis of those funds. It must follow from this that no work had been done by DZL which was referable to the second instalments payable under either the Stage 1 or Phase 1 Contracts. These facts lead, in my judgment, to the conclusion that, on the special facts of this case, it can be shown that there has indeed been a total failure of consideration in respect of the two final instalments. The result in law is that, although DZL might technically be entitled to payment of those paid instalments, the Claimant would have a clear restitutionary right to recover them immediately due to a total failure of consideration. In these circumstances the law does not require the instalments to be paid and then recovered.
64. Accordingly, in my judgment, DZL is not entitled to recover the sums under the first two invoices set out above, but is entitled, in the alternative, to claim damages from the Claimant representing the loss of profit which DZL would have made on Stage 1 and Phase 1 of the project had the Claimant not repudiated the contracts. This claim for loss of profit will have to be the subject of further evidence and argument at a later date.

Professional Services

65. Invoice No. 10043 claims the sum of £64,660.22 plus VAT in respect of Professional Services viz. structural engineering design work. This invoice raises the whole question of DZL's charging for Professional Services which was raised at the hearing.
66. It will be remembered that, in early June 2005, the Claimant paid two invoices (Nos. 10037 and 10038) amounting to a total of £40,755 plus VAT in respect of "Architect Services". It transpired that these invoices represented the work carried out by Mr. Fahey, the second architect brought in by DZL to design the project But it emerged in the evidence that the sums charged to the Claimant by DZL in respect of Mr. Fahey's services were considerably in excess of the sums charged to DZL by Mr. Fahey for those very services. Apparently Mr. Evans and Mr. Coates felt that it was appropriate to take Mr. Fahey's fees and add significant mark-ups on them before passing them on to the Claimant for payment to represent the amount of liaison work carried out by DZL with Mr. Fahey. These mark-ups were carried out by increasing the hours allegedly worked and by increasing Mr. Fahey's hourly rate by over 100% to £95.00 per hour. All this was done without any explanation being given to the Claimant who was unaware that this was taking place. Although the Claimant accepted that she had agreed to pay for professional services in addition to the fixed price for each phase, it was not suggested to her that thereby she was agreeing to pay, not only for the professional services rendered to DZL but also for their own very significant mark-up on those services.
67. In these circumstances the Court is not prepared to order payment of Invoice No. 10039 since the Claimant never agreed, and, therefore it never became a term of the contracts, that she would pay for DZL's mark-up on any professional services rendered to DZL. Accordingly, when the final accounting is done in this case, the sums paid or payable by the Claimant in respect of professional services will have to be taken into account. In doing so DZL will only be entitled to recover from the Claimant the cost of professional services actually carried out by the architects and the structural engineers without any mark-up in DZL's favour. This will be a matter for DZL to establish by evidence.

Party Wall Surveyors' Fees

68. There are two claims under this head viz. £2,140 plus VAT in respect of the fees of Boyle & Co and the sum of £2,400 plus VAT in respect of the fees of Dunphy & Hayes. Without deciding the point, on the face of it, if they have not already been paid, these fees would appear to be payable since they represent the fees of Chartered Surveyors who dealt with and finally agreed the Party Wall Awards.

Conclusion

69. For the reasons set out above in my judgment the Claimant entered into two binding agreements with DZL in respect of Stage 1 and Phase 1 of the Works respectively. The terms of those agreements are set out in the documents produced by Mr. Evans on behalf of DZL and constitute fixed price contracts for the sums indicated on those documents. In addition the Claimant agreed to pay such professional fees as were incurred by DZL in carrying out the project, from the planning stage to completion. No contractual arrangements were made between the Claimant and Mr. Evans personally. The Claimant repudiated both these agreements when, in April 2006, she wrongly purported to accept DZL's alleged breach of contract as a repudiation itself. DZL had not been in breach of contract by sending their solicitor's letter dated 30th March 2006. On the contrary, the Claimant had been in repudiatory breach herself by failing to pay the second instalments due under each contract. DZL is not entitled to recover the two unpaid second instalments since there was a total failure of consideration in respect of them. However DZL is entitled to recover damages from the Claimant on account of her repudiation of the agreements, representing the loss of profits which DZL would have made had both agreements been completed. This will have to be the subject of further evidence and argument in due course. All other issues such as the quantum of DZL's counterclaim, interest and costs are reserved to myself for a further decision. I shall, at a later date, on the application of either party, give further directions for the expeditious conclusion of this matter.

RICHARD FERNYHOUGH QC

5 September 2007