Case notes... from Ann Wright

A matter of trust

Bodill was converting a warehouse for Mr Mattu in Hinckley, Leicestershire. The £3.79m contract was based on the Standard Form of Building Contract, Private Edition 1998 with Contractor’s Design Portion Supplement. Clause 30.5.3 said that on the contractor’s request, the employer was obliged to place any retention it had withheld into a separate bank account on trust for the contractor. The completion date was 12 February, 2007.

By 12 October 2007, the gross amount certified was £3.97m with (as calculated by the judge) retention of £124,207.93. Although Bodill had not asked before, in the last week of September 2007, it had asked Mattu to set up a separate bank account and pay the retention into it. By 19 October Mattu had instructed the Royal Bank of Scotland to set up an account and transfer the funds. However, apparently due to an oversight by the bank, it took some time for these instructions to be actioned.

Following two letters from Bodill’s solicitors the bank wrote that it had received instructions to open an account for ‘Harmail Singh Mattu, trading as Urban Suburban re Bodill Retention Money Account’ and that £123,207.93 was to be transferred into it.

However, as Bodill did not receive confirmation that the account had been opened or the money transferred it sought an injunction for Mattu to comply with his obligations. The court held that although there was no evidence Mattu had been behaving badly deliberately, he had taken too long to comply. Further, the account name did not clearly show the money was on trust and the account had to be re-designated as a trust account.

Moral: Retentions can be trusted.

Case: Bodill & Sons (Contractors) v Harmail Singh Mattu (TCC, November 2007)

Stormy seas for Columbus

Petrobas wanted to use its oil production platform, The Spirit of Columbus, in the South Marlim Field off Brazil. However, it needed an upgrade.

A general technical specification was prepared and priced, but this was a performance specification without construction details.

By the end of 1996 Petrobas was thinking of using Spirit in the newly-opened Roncador Field. This would require an upgrade to the specification, but the field was so new that the design could only be developed while construction was in progress.

Contractor Petromec and Petrobas had a long working relationship with a high degree of trust between them. Therefore, as Petrobas had assured Petromec’s Mr Efromovich that it would bear the whole of the costs resulting from the upgrade, he was happy to start work without any formal record of the terms on which it was to be carried out. The terms certainly were vague.

In June 1997, partly for Petrobas’s funding arrangements, the parties signed an agreement that Petromec ‘would prepare the Spirit’ to the then outdated South Marlim specification. It was only in July 1998 that the Roncador standard was formally applied in an agreement. This allowed Petromec to recover the reasonable extra cost of upgrading to the Roncador standard (clause 12.1) and its reasonable costs of any other alterations or amendments that Petrobas instructed (clause 12.2).

However, Petrobas insisted Petromec give full details of all its costs claimed, together with the instructions and full effects, and that the costs were reasonable.

The lower court held that Petromec had to identify the differences between the South Marlim and the Roncador specifications. Petromec insisted that with only an initial performance specification, this was impossible and anyway as Petrobas had audited the costs, it knew them to be reasonable.

The Appeal Court generally agreed, but held that Petromec could take the simpler route of deducting the costs it might reasonably have incurred in working to the South Marlim specification from the reasonable costs it actually incurred in the Roncador specification.

However, for any other costs, under clause 12.2 Petromec would need to identify the instructions and work content.

Moral: Keep detailed records of work carried out.

Case: Petromec v Petroleo Brasileiro Petrobas and others (Court of Appeal December 2007)

An Education in contracts

Creating a contract needs agreement, contractual intention and consideration. Sometimes an apparent agreement may not provide a binding contract because the agreement is incomplete or uncertain.

It is this point Felton relied on when it claimed £4,133,214 on a quantum meruit basis for its work at Stockton Wood Primary School in Liverpool. However, Liverpool City Council contended that a contract existed and the final account was only worth £3,240,111.

In December 2002, the council’s quantity surveyor, Markhams, sent out tender documents for the work at the school. Felton submitted its tender on 3 February 2003, for £3,191,800. On 26 February 2003, Markhams produced a one-page document giving savings of £133,765.70, mostly omitting some external works.

Over the next two months Markhams discussed other savings with Felton including precast flooring, patent glazing, ironmongery and other items. Markhams summarised the savings in its letter of April 16, 2003 which included a reference to the February 26 reduction for external works.

On 25 April 2003, the executive director of Liverpool council wrote to Felton confirming the council’s acceptance of £2,981,800, which was Felton’s original tender less the reduction in the 16 April letter, and that a contract existed.

Felton’s MD signed and returned the letter on 30 April 2003 and subsequently it generally acted as if the JCT contract was in existence. However, when the contract documents were issued a considerable time later, Felton refused to sign them.

In October 2005, Felton argued there was no executed contract, that there were four items which could never be reconciled (including the £133,765.70 external works saving) and there was no contract.

The court, however, disagreed. It said there had been a clear meeting of minds in April 2003 and a contract had been formed at that time.

Moral: Establish whether a contract exists before doing work.

Case: Felton Construction v Liverpool City Council

(TCC December 2007)