Management

Ann Wright: Called to account

9 February 2010

Jim Ennis Construction Ltd v Combined Stabilisation Ltd

TCC 20 November 2009

From 2008, CSL carried out groundworks for JEC at Bovis Lend Lease’s site at Unity College, Burnley. CSL’s work was completed in May 2009 and final account negotiations were then conducted mostly between Mr Duffy, the QS at JEC, and Mr Hart, CSL’s commercial director.

On 8 July 2009 CSL emailed a without prejudice offer to settle at £735,000 “on the express understanding that the outstanding sums are certified with immediate effect”. JEC responded on 21 July proposing £700,000 and the next day it increased its offer to £705,000.

In a phone call on 23 July, JEC’s construction director and CSL’s joint MD compromised in principle on £707,500.

On 24 July, Mr Duffy emailed a final agreement for the £707,500 to Mr Hart. This stated that it included “all omissions, additions, variations, claims and other amendments”. CSL also retained responsibility for defects. Mr Hart emailed seeking confirmation that the sum due for payment within 7–10 days would be £142,901.13 and on 27 July Mr Duffy confirmed this sum would be paid. Mr Hart returned the agreement on 28 July.

Mr Duffy then told Mr Hart there was a problem with a damaged gas main and JEC was holding CSL responsible and it would not receive the full £142,901.13. By email on 29 July, Mr Duffy asked CSL to acknowledge liability for the damaged main. Until the costs were finalised, JEC proposed a final account figure of £701,000.

Mr Hart responded that this was an insurance matter that could be dealt with by adjusting the remaining retention.

He requested payment of £142,901.13 by 5 August.

On 7 August JEC paid only £135,538.25, unilaterally deducting £7,362.88.

As JEC had failed to comply with the agreement, on 14 August Mr Hart emailed JEC asking for a meeting. When Mr Duffy asked for confirmation that CSL’s insurers were involved, Mr Hart replied on 26 August by increasing CSL’s final account to £1.03m. JEC paid the remaining £7,362,88 on 28 August which CSL accepted “on account” but not in full and final settlement.

CSL served an adjudication notice on 3 September on the grounds that JEC had unilaterally broken the final account agreement, and that it was therefore entitled to re-evaluate the final account figure. JEC’s solicitors responded that it was invalid as CSL was bound by the agreement of £707,500.

CSL said that as JEC had not stuck to the agreed conditions, any agreement was void. A second adjudication notice was issued. The adjudication was placed on hold until the court could determine the correct position.

Analysis

JEC was asking the court to declare that CSL was bound by the final account agreement made on 29 July 2009.

If there was a binding agreement, CSL said it was for the actual payment of £142,901.13 (ie not just the promise of payment) and JEC had repudiated that agreement by only paying £135,538.35.

However, the question remained as to whether JEC’s initial refusal to pay the full sum meant it had repudiated the agreement and/or allowed CSL to treat it as discharged.

The court considered the principles set out in the Law and Practice of Compromise (Foskett, 6th edition).

Briefly, unless a compromise agreement expressly provides for the revival of any original dispute in the event of it being breached, the original disputes would be “dead”. There was no such provision here.

Second, there is a distinction between the promise to do something and the actual act of doing it. JEC had not indicated its intention to abandon the agreement and its initial failure to pay the full sum was not repudiation as it did not go to the root of the contract.

Therefore, CSL remained bound to the agreement for the sum of £707,500.

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