Case notes

The letter of the law

In November 2002 Larchpark started working for Hart at Queen’s Lodge in Muswell Hill. The contract was a letter of intent dated November 1, 2002, which Hart’s agent Chinmans sent to Larchpark. This said Hart would pay Larchpark’s reasonable costs for work done in accordance with the letter pending issue of the JCT IFC 98 contract documents. The letter was to terminate on December 2, 2002.

On December 2, 2002 Chinmans sent another letter which started “further to the letter of intent” and said it extended the validity of that letter to December 16. However, this second letter had been written on behalf of a different client, Belsize Park Hotel Ltd. Although Larchpark signed the second letter and continued with the work, the formal contract was never agreed or signed by the parties. Then disaster struck on February 5, 2004 when a large part of the property’s flank wall collapsed.

After the collapse, Larchpark tried to get money from Hart through two adjudications. Both were aborted as Larchpark wrongly argued there was a JCT contract in place. It then tried under the Scheme for Construction Contracts, based on the argument that the letters of intent were a contract in writing. The adjudicator agreed and on April 18, 2005 he decided that Hart should pay Larchpark £145,192.52 and that Larchpark was not responsible for the wall collapse due to “lack of proof”.

Meanwhile Larchpark went into liquidation and Hart won a judgment in default for £700,000 for the collapsed wall. Larchpark’s liquidator failed to get the judgment overturned and the court also decided that as the letters of intent were uncertain as to parties, workscope, price and time, there was no written contract capable of adjudication.

Moral: Work under letters of intent at your peril.

Housebuilders’ extension discord

Knapman was building two houses for Richards at Broadlands House, Bascombe Road in Churston, Devon.

The JCT IFC 98 contract was signed on September 24, 2004, and the date for completion was September 16, 2005.

Liquidated damages were £200/day and the usual clause 2.6 required that the contract administrator issue a certificate of non-completion before the damages could be deducted. The job ran late and Richards withheld damages, so in July 2006 Knapman went to adjudication to decide that:

• Richards was responsible for the supply of the doors and windows;
• Practical completion had been achieved on April 29, 2006;
• Knapman should have an extension of time to April 29;
• Richards should repay the damages of £41,600.

However, the adjudicator decided Knapman was responsible for the doors and windows, that they were faulty and Knapman had prevaricated about the repairs. He did consider Knapman’s points about extensions of time and awarded 13 weeks to December 9, 2005. He decided that Richards should repay damages of £18,200.

Richards did not pay and Knapman sought court enforcement of the £18,200 plus interest of £1,139.93.

In court Richards argued that Knapman was trying to get the benefit of the adjudicator’s decision without taking on the burden of repairing the windows and doors. Anyway, Richards thought it could continue to deduct damages after April 29 as that was the extension the adjudicator had decided.

The court disagreed. It held that it was clear the extension to April 29 was not final and that as no clause 2.6 certificate of non-completion had been issued (or had been asked for in the adjudication by either party) Richards could not deduct damages.

If Richards was unhappy about the repairs to the doors and windows it had remedies under the contract.

Moral: Benefits and burdens may eventually go together.

The ties that bind

The Hart Investments case (see opposite) showed that for adjudication you have to have all the terms agreed in writing to form a contract. The Bell v Rekon case shows that even the vaguest of terms can form a contract for other purposes.

In 1996 Bell Australia set up an agreement under which Rekon shipped scaffolding to Australia and Bell hired it for two years. In 1997 Mr Bell set up a UK company, Scaffolding Systems (later Bell Scaffolding UK) and then other companies in the north of England and Scotland.

The Bell/Rekon Australian hire agreement was renewed in 1998 for two more years. On August 30, 2000, Mr Bell and Mr Taylor of Rekon and Alba met at Moor Hall in Sutton Coldfield, near Birmingham.

They agreed that Bell (Scotland) would hire scaffolding from Rekon on a long-term basis. The agreement was made orally but they exchanged notes resulting in a memorandum of September 11, 2000 reflecting the agreement. This read in part:

3) Alba to increase the stock gradually to Bell Scaffolding to approx £12,000 per month. Rekon will buy transom ends from Scaffold Systems. Items purchased from Scaffold Systems to be at agreed prices on an individual basis.

5) All new scaffold products required by Rekon/Alba will be purchased from Scaffold Systems in self-colour. Rekon will continue to manufacture “specials” for clients and also Scaffold Systems.

Although the intention was for this to refer to Bell’s Kwikstage Scaffolding, the agreement was not specifically limited to Kwikstage.

The parties fell out in August 2003.

Mr Bell closed Bell Scaffolding blaming Rekon for not buying scaffolding from him which was contrary to the memorandum. In court Rekon argued that the memorandum only recorded an agreement to agree and was too vague to be enforceable.

The judge disagreed, saying that the agreement was binding and adding that the parties had acted as if it were a binding agreement and the memorandum had not been headed “Subject to Contract”.

Moral: Add the words “Subject to Contract” to avoid a binding contract.