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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MANCHESTER DISTRICT REGISTRY
TECHNOLOGY & CONSTRUCTION COURT

		20 November 2009

 


JUDGE RAYNOR QC

1. In this action the Claimant, Jim Ennis Construction Ltd ("JEC"), seeks declaratory relief against Combined Stabilisation Ltd ("CSL") in relation to a final account agreement allegedly made between the parties on 28 July 2009. In short JEC seeks declarations that a binding final account agreement was made between the parties on that date, that CSL is bound by the final account value stated therein and thus is not entitled to open up or revise that figure or to receive any further payment under its subcontract with JEC. For its part, CSL denies entering into any binding final account agreement or alternatively says that any such agreement was discharged by the accepted repudiation of JEC.

The facts

2. The material facts in the case are substantially agreed and the resolution of the issues between the parties essentially turns upon the construction and effect of documents passing between them.
3. In 2008 CSL was engaged by JEC to carry out ground works at a site in Wigan, JEC being subcontractors of Bovis Lend Lease. The terms of CSL's subcontract are agreed between the parties.
4. The sub- contract works were completed on or about 12 May 2009; thereafter the parties engaged in negotiations in an endeavour to settle the amount of CSL's final account. The material dealings were conducted on behalf of the parties by JEC's Quantity Surveyor, Michael Duffy, and CSL's Commercial Director, Peter Hart.
5. By e-mail sent on 8 July 2009 CSL offered without prejudice to settle the final account value in the sum of £735,000 whilst maintaining that its true entitlement was substantially higher. That offer was made "on the express understanding that the outstanding sums are certificated with immediate effect."
6. Thereafter, in an e-mail sent without prejudice on 21 July 2009, Mr Duffy proposed a final account figure of £700,000 in full and final settlement, stating that the following provisions would apply:

"A payment will be processed in conjunction with our expected payment from BLL. We anticipate (subject to your agreement), that we would be in a position to release payment to you on, if not before, the completion of the current calendar month.

Retention Value would be reduced to 1.5% in conjunction with the payment detailed above (Resultant retention amount £10,500.00)."

On 22 July 2009 Mr Duffy offered an increased amount of £705,000.

7. On 23 July 2009 a compromise figure of £707,500 was agreed in principle by JEC's Construction Director, Philip Barnes, and CSL's joint Managing Director, Nigel Rea, during the course of a telephone conversation. It is not alleged that a binding agreement was thereby concluded.
8. Following the above conversation, Mr Duffy, by e-mail sent at 9.44am on 24 July, sent a Certificate of Final Agreement dated 23 July 2009 to Mr Hart stating the total value of the subcontract works in the sum of £707,500 as agreed by Messrs Rea and Barnes. The precise terms of the Certificate are set out in paragraph 13 below. In his e-mail Mr Duffy stated that: "A payment will be processed based on the Final Account figure less 1.5% Retention. We expect payment to be released in the next 7-10 days max."
9. By e-mail sent at 10.33 on 24 July Mr Hart sought confirmation as follows:

"We wish to confirm that the agreement excludes the issue with respect to damage to the CSL roller which is subject to a separate settlement.

Please can you confirm back your acceptance of this and that the sum due for payment within the next 7-10 days (10 days the maximum duration) is £142,901.13".

10. By e-mail sent on 27 July 2009 Mr Duffy stated "Confirm agreement excludes damage to roller. Current sum due for payment is £142,910.13".

It will be noted that Mr Duffy in his e-mail did not provide any confirmation regarding the time for payment. His explanation for this is set our in paragraph 32 below.

11. At 10.57am on 28 July 2009 Mr Hart sent Mr Duffy an e-mail to which there was attached the completed Certificate of Final Agreement, a covering letter dated 28 July 2009 and copies of the e-mails dated 24 and 27 July referred to in paragraphs 9 and 10 above.
12. The covering letter stated that the certificate "is signed on the express understanding that the e-mail as dated 27/07/09 (copy enclosed) is incorporated with the agreement".

It will be noted that that letter made no reference to Mr Hart's e-mail of 24 July, albeit, as I have stated, that a copy of that e-mail was attached to the covering letter.

13. The Certificate of Final Agreement was signed by Mr Hart on behalf of CSL (and dated 27 July 2009) and was in the following terms:

"CERTIFICATE OF FINAL AGREEMENT FOR

Unity College, Burnley

Sub Contract Reference: C796/SC/003

This is to certify that we have carefully examined the final statement of account, which shows the total value of these works at:

£707,500.00 (Seven Hundred and seven thousand, five hundred pounds) Nett

We agree accordingly that this sum is accepted by us to include all omissions, additions, variations, claims and other amendments requiring cost adjustment properly effected under the terms of the sub-contract, and is full and final settlement of all sums due to us under the terms of the above mentioned sub-contract. This is subject to us retaining as our responsibility, liability for all defects, shrinkages, or other faults occurring in the sub-contract works, in accordance with the terms of the sub-contract, the Main Contract and at Common Law."

14. On receipt of Mr Hart's e-mail and its attachments Mr Duffy telephoned him because a problem had arisen with regard to damage to a gas main for which it was suggested that CSL was responsible. In the course of this telephone conversation Mr Duffy told Mr Hart that CSL would not be receiving the sum of £142,901.13 since there would be deducted a sum (the amount having not yet been ascertained) in respect of the damage to the main. In his witness statement Mr Hart stated that he "took that as rejecting my proposal", by which he was referring (so he said in oral evidence) to what he considered was the proposal constituted by his submission of the completed Certificate for Final Agreement together with the covering letter. In evidence Mr Duffy accepted that Mr Hart was "not pleased" with the news that CSL would not be receiving payment of the sum that had been stated as due.
15. When he gave evidence Mr Duffy alleged (for the first time) that he had made Mr Hart aware of the damage to the gas main in the course of a conversation on 24 July. Mr Hart in evidence stated that he had no recollection of any such conversation on 24 July and stated in terms that the first that he knew of the damage was when he was told of it in the course of the conversation on 28 July. I have no hesitation in preferring the evidence of Mr Hart and I find that there was no conversation regarding the gas main and no knowledge of the same possessed by Mr Hart prior to the conversation on 28 July.
16. Mr Duffy followed up the conversation of 28 July in an e-mail sent on 29 July in the following terms:

"Further our discussion yesterday we require your acknowledgement of CSL liability in respect of the damage to the gas main laid by PN Daly on behalf of Bovis Lend lease. We are not in a position to confirm a final cost for the remedy of same but as an interim measure we propose to adjust the Final Account Figure to £701,000.00. Upon receipt of a definitive charge from BLL this Final Account figure will be adjusted accordingly".

17. The same morning (29 July) Mr Hart replied by e-mail, stating that CSL considered that the damage should be dealt with as an insurance matter and pointing out that retention monies were held by JEC and that an adjustment could be made to the retention if it was established that CSL was liable for the damage to the main.
18. By e-mail dated 31 July Mr Hart sought Mr Duffy's confirmation that payment of the "Agreed Final Account value" would be made by 5 August 2009. By this he meant payment of the sum of £142,901.13.
19. Mr Duffy replied by e-mail dated 5 August, seeking confirmation that Mr Hart accepted the contents of his e-mail dated 29 July 2009. In reply (also on 5 August 2009) Mr Duffy stated that CSL's response remained as previously stated in the e-mail dated 29 July.
20. On 7 August 2009 JEC paid the sum of £135,538.25 to CSL. Thus JEC had unilaterally deducted the sum of £7,362.88 from the amount stated previously as being due for payment.
21. By e-mail dated 14 August Mr Hart wrote to Messrs Duffy and Barnes in these terms:

"We wish to note that the Final Account Agreement expressly states that the "Agreement" is subject to caveats as attached to the letter with respect to payment of sums due and dates of payment.

We note that Ennis have failed to comply with either of the requirements and therefore request a meeting in order to reassess the account status and gain resolution of the account for works undertaken at Unity".

In evidence Mr Duffy stated that he inferred from this e-mail that Mr Hart was saying that the final account agreement was off.

22. By e-mail sent on 20 August 2009 Mr Duffy informed Mr Hart that the cost of repairing the gas main would be in the region of £8,000 and that to "facilitate the release of the outstanding monies currently retained from the Final Account Agreement we require confirmation from your Insurers that they have/will take the matter in hand".
23. The following day (21 August 2009) Mr Hart replied as follows:

"We note from the email and subsequent telephone conversation that Ennis we not be releasing sums due with respect to the previously agreed Final Account to the above stated project.

As a direct consequence of Ennis's failure we [will] comply with the agreed terms of the Final Account CSL consider that the settlement is now null and void".

24. On 26 August 2009 CSL sent a revised final account to JEC claiming the increased final account value of £1,030,000.
25. On 28 August 2009, having taken legal advice, JEC sent the unpaid balance of the previously agreed sum (£7,362.88) to CSL's factors. By e-mail dated 28 August Mr Hart stated that this sum was accepted "on a purely on account basis" and not in full and final settlement of the revised final account.
26. On 3 September 2009 CSL served Notice of Adjudication on JEC by e-mail. This provoked a response by Halliwells, the Solicitors instructed by JEC, contending that the Notice was invalid because (it was claimed) CSL was bound by the Final Account Agreement to accept a final account value of £707,500.
27. Mr Hart responded by letter dated 10 September 2009, asserting in effect that there was no concluded agreement. This letter was followed up by a letter dated 16 September 2009 sent by Farleys, the Solicitors instructed by CSL, to Halliwells. That letter stated as follows:

"Our Client asserts that the figure referred to in the Certificate of Final Agreement did not accurately reflect the value of the work and indeed there had been ongoing discussions with your Client prior to agreement being reached.

Agreement was eventually reached due to our Client being under economic constraints and as such attached certain conditions to the agreement.

We enclose herewith copy letter from our Client which states that the Certificate was only signed on the basis that the email which was enclosed was incorporated. This clearly made the agreement conditional.

The conditions were that the final sum of £143,901.13 was transferred within 7-10 days. This meant that payment should have been made no later than 4^th August 2009. Payment did not arrive until 7^th August 2009 and the sum of money paid in was short by £6000 of the agreed sum.

On that basis as the conditions of the agreement were not adhered to the Certificate of Final Agreement is void and therefore our Client is entitled to re-evaluate the cost of works carried out".

It will be seen that this letter is premised on an agreement having been made, albeit conditionally.

28. By letter dated 18 September 2009 CSL served further notice of intention to refer the dispute between the parties to adjudication. The adjudication has proceeded but is now stayed pending the determination of the present action. If CSL is bound by the final account agreement, then the adjudicator has no jurisdiction to determine the dispute referred to him.

The issues

29. On the following grounds CSL says that it is not bound by the alleged final account agreement:

(a) It asserts that no binding contract was concluded between the parties because their agreement was incomplete, in that no agreement was reached on an essential term, namely the time for payment.

(b) It is asserted that CSL's e-mail and attachments sent on 28 July 2009 amounted to a counter offer, which was not accepted by JEC, who did not accept CSL's proposals as to the time for payment or the amount to be paid.

(c) Alternatively, it is alleged that if there was a binding final account agreement:

(i) the agreement to accept the final account value, on its true construction, was conditional, being an agreement by CSL to accept the sum of £707,500 as the final account value in return for the payment (not merely the promise of payment) of £142,901.13; that JEC wrongfully repudiated that agreement, which repudiation was accepted by CSL, thereby determining the agreement as to the final account; or

(ii) that it was a condition of such agreement that the sum of £142,901.13 would be paid in full, and that in breach of that condition only £135,538.25 was paid with JEC making it clear that it refused to pay the balance. CSL alleges that as a result of the breach of condition it was entitled to determine and be discharged from the final account agreement.

30. All of CSL's contentions are denied by JEC, whose case is that "there was an agreement between the parties ("the Final Account Agreement") pursuant to which CSL agreed to accept £707,500 (ie the Final Account Sum) in full and final settlement of sums due to it under the Subcontract in return for JEC's promise to pay the Final Payment (namely £142,901.13) to CSL" (paragraphs 24(3)(b) and 6(a) of the Particulars of Claim).
31. I shall deal with each of CSL's contentions in turn.

Incomplete agreement

32. It is CSL's case that not only was no agreement reached as to the time for payment, but that JEC could not commit itself to a time because it was dependent on receipt of monies from Bovis. Support for that proposition is indeed to be found in the first witness statement of Mr Duffy, who says (in paragraph 12) that he was not in a position to promise to pay within the time frame sought by CSL because JEC "was dependent on the conclusion of our negotiation of our Final Account with Bovis and that had not been concluded" on 27 July 2009.
33. Notwithstanding that evidence, JEC accepts and avers that it was under a binding obligation to make payment within a reasonable time, that being an implied term of the final account agreement.
34. The courts are very reluctant to hold void for uncertainty an arrangement intended to have legal effect. I am perfectly satisfied that both parties, on 28 July 2009, intended their arrangements to have legal effect, Mr Duffy when he submitted the Certificate of Final Agreement for Mr Hart's signature and then provided the confirmation he gave in his e-mail of 27 July 2009, and Mr Hart, when he signed and returned the Certificate with his covering letter of 28 July 2009.
35. I am also perfectly satisfied that the agreement between the parties was not void for uncertainty. Although no express agreement was reached as to when payment would be made, and although Mr Duffy had refrained from providing the confirmation sought by Mr Hart that payment would be made within at most 10 days, I have no doubt that a term falls to be implied as to the time for payment. CSL never agreed to wait indefinitely for payment to be received by JEC from Bovis and I accept JEC's submission that, no time having been expressly agreed, it was implicit that payment would be made within a reasonable time having regard to all the circumstances (see Chitty on Contracts, 30^th ed, vol 1, para 21-020). In the context of this case, in my view that required payment to be made within a short period of time: CSL had made it clear that it was willing to settle for a lower sum than the full works value in return for certification [not payment – my comment] "with immediate effect" (its e-mail of 8 July 2009), and JEC indicated and thus knew that CSL expected that payment would be released "in the next 7-10 days max" (Mr Duffy's e-mail of 24 July 2009).

Counter offer

36. In my judgment, the submission of the covering letter of 28 July 2009 with the signed Certificate of Final Agreement did not constitute a counter offer by CSL. All that was recorded in that letter was that Mr Duffy's e-mail of 27 July (not Mr Hart's of 24 July) was incorporated in the agreement between the parties. In my view, as a result of the exchange of e-mails of 24 and 27 July, there were in any event and irrespective of a covering letter terms of the agreement between the parties that such agreement excluded damage to the CSL roller and that the current sum due for payment was £142,901.13. In my judgment the covering letter added nothing to what had already been agreed.
37. As to the particular matters said by CSL not to have been agreed (as stated in paragraph 29(b) above)

(a) by implication, as already stated, the agreement made provision as to the time for payment; and

(b) it is common ground that £142,901.13 was payable under the final account agreement (paragraph 24(6)(a) of the Particulars of Claim).

Conditional agreement and repudiation

38. Notwithstanding that £142,901.13 was payable under the final account agreement, JEC initially withheld and made it clear that it would not be paying the sum of £7,362.88. Before that sum was paid CSL made it clear to JEC that it treated the agreement as discharged by reason of JEC's breach.
39. The questions which arise in those circumstances are:

(a) Whether its initial refusal to pay the balance entitled CSL to be discharged from the agreement; and

(b) Whether JEC was guilty of a repudiatory breach of contract as alleged by CSL.

40. JEC rely upon various legal propositions which are summarised in The Law and Practice of Compromise by David Foskett QC (as he then was) (6th edition). These principles are set out in paragraphs 8-02, 8-03 and 8.07 of the work:

"8-02 Given the normal meaning, the purpose and effect of a compromise, the natural inference is that the common intention of the parties is that the compromise will henceforth govern their legal relationship in connection with the disputes in which they had been engaged and that, accordingly, those disputes would still be regarded as "dead" even in the event of breach of the compromise. In these circumstances, it is submitted that recourse to the original claims will not be permitted unless, upon a true construction of the compromise, it is clear that this is what the parties intended. In this context, whilst the matter is primarily one of construction, the nature of the consideration furnished by the party answering the claims being made by the claimant will operate as a pointer.

Promised or actual acts

8-03 In the discussion on consideration, attention was drawn to the fact that the usual consideration furnished in the context of a compromise is that promised or actual forbearance of one party to pursue a claim against another in return for some promised or actual act by the other. If the promised or actual forbearance to pursue the claim is construed as being in return for the promised performance of some act by the other party, such agreement will be regarded as one involving the immediate discharge of the claim. Where, however the promised or actual forbearance is construed as being in return for the actual performance of some act by the other party, the claim forborne will not be discharged until such performance takes place. The propositions may be illustrated by reference to two simple examples:

(a) A agrees not to pursue his claim against B in return for B's promise to pay A the sum of £1,000 within 28 days;

(b) A agrees not to pursue his claim against B if B pays to A the sum of £1,000 within 28 days.

If B fails to make the payment within the period specified, A's remedy under (a) would merely be to sue B for damages upon the compromise. Under (b) he would have the option of accepting B's repudiation of the agreement, treating himself as discharged from further performance of his obligations and reasserting his original claim, or of affirming the compromise and suing upon it.

8-07 Generally speaking, therefore, an agreement of compromise will discharge all original claims and counterclaims unless it expressly provides for their revival in the event of breach. Where a party wishes to be able to revive his original claim in the event of the other party's failure to comply with his obligations under the compromise, he would be well-advised to insist that a term to that effect should be incorporated."

41. CSL submit that this case is within proposition (b) as stated in paragraph 8-03, ie that the compromise was on the basis of the actual, and not merely the promised, payment of the entire sum of £142,901.13.
42. However, I do not construe the agreement of the final account value as being made in return for the actual payment of the sum of £142,901.13 – the documents passing between the parties do not so provide and indeed Mr Hart's e-mail of 24 July contemplates a concluded agreement providing for payment thereafter. Nor do I construe the agreement of the final account as being conditional upon the agreed sum being paid in full. There is no such express stipulation, and I do not consider that such provision falls to be made by implication: it is neither a necessary nor an obvious implication on the facts. To revert to the passage in Foskett, it is in my view far from clear that the parties intended that there should be recourse to the original claim in the event of payment not being made in full and I do not accept that that was intended.
43. Nor do I consider that JEC wrongfully repudiated the final account agreement.
44. In this context I remind myself of various legal principles regarding the issue of repudiation, as stated in the speeches in the House of Lords in the case of Woodar Investment Development -v- Wimpey [1980] 1 WLR 277.

(a) As stated by Lord Keith (at page 294)

"In deciding the issue of repudiation which arises in this appeal, the guiding principle is that enunciated by Lord Coleridge, CJ in Freeth v Burr, LR 9 CP 208, 213:

"… in cases of this sort, where the question is whether the one party is set free by the action of the other, the real matter for consideration is whether the acts or conduct of the one do or do not amount to an intimation of an intention to abandon and altogether to refuse performance of the contract".

The matter is to be considered objectively:"

(b) As stated by Lord Scarman (at page 298)

"To be repudiatory, the breach, or threatened breach, must go to the root of the contract. If an anticipatory breach is relied on, the renunciation must be "an intimation of an intention to abandon and altogether to refuse performance of the contract"; or, put in other but equally clear words, "the true question is whether the acts and conduct of the party evince an intention no longer to be bound by the contract": Lord Coleridge CJ in Freeth v Burr LR 9 CP 208, 213."

(c) Invoking a provision of a contract in good faith but in error is not in general a repudiatory act: see the Woodar case itself.

45. In this case I do not consider that JEC was guilty of a wrongful repudiation of the contract when it withheld payment of the sum of £7,362.88. In other words its conduct did not indicate an intention to abandon and altogether refuse performance of the final account agreement:

(a) £135,538.25 of the agreed sum (ie 95%) was paid and paid promptly (within 10 days of the making of the agreement).

(b) I am satisfied, as stated by Mr Duffy, that JEC (acting by him) considered in good faith that the provisions of the final account agreement (and in particular the provisions set out in its final sentence of the Certificate of Final Agreement ) entitled it to apply the set off. Although as a matter of law I do not consider that the withholding of the sum was in accordance with the contract (because in my judgment the sum of £142,901.13 was to be paid thereunder, as indeed averred by JEC – see paragraph 24(6) of the Particulars of Claim) I do not consider that the application of the set off at the same time as paying 95% of the agreed sum amounted to a repudiatory act.

Breach of condition

46. Mr Singer, Counsel for CSL, also submits, if I have understood him correctly, that not only was it a term of the final account agreement that £142,901.13 would be paid in full, but that that term amounted to a condition of the contract, as opposed to a warranty or innominate term, with the consequence that any failure of performance, or any threatened failure – ie anticipatory breach – entitled CSL to elect to treat the agreement as at an end.
47. I reject that submission. Although I have accepted that it was a term of the agreement that the agreed sum would be paid within a reasonable time, I do not accept that "the parties are to be regarded as having agreed that any failure of performance, irrespective of the gravity of the event that has in fact resulted from the breach, should entitle the other party to elect to put an end to" the contract (see Chitty, op cit, paras 12-025—026). There might, for example, be an inconsequential delay in payment or a shortfall which, whilst more than de minimis, was of modest amount. The remedy in either case would be to sue for damages or debt on the final account agreement and, for the reasons given in paragraph 42 above, the breach of the agreement would not enable recourse to the original claim.

Conclusion

48. It follows, in my judgment, that CSL remain bound by the final account agreement, including the final account sum of £707,500, with the result that JEC is entitled to the declaratory relief claimed.