A repair and maintenance contract based on NEC3 was signed months after work started but, by agreement, was applied retrospectively. Before it was signed, however, the parties agreed to use a set of rates that were not in the contract and over 12,000 jobs were paid for at these rates.
Originally, the employer had said that there was no need to amend the contract but, after the contract was signed, it decided that these rates should not have been used and deducted £300,000 that it claimed had been consequently overpaid. Could it do that?
No, said the court, because there was estoppel by convention and, almost completely overlapping on the facts, estoppel by representation. Estoppel by convention can arise when parties to a contract act on an assumed, communicated and shared state of facts or law. The party claiming the benefit of the convention must have relied on, or have been materially influenced by, the common assumption (although both parties will almost invariably have relied upon it) and a key element will be unconscionability or unjustness on the part of the person said to be estopped. It can only be used as a shield, and not as a sword, and analysis is required to ascertain in which way it is being used. Once the common assumption is seen to be wrong, estoppel by convention can come to an end.
The court was also referred to the trust and partnering language of NEC3 but it was not satisfied that the obligation to act in a spirit of mutual trust and cooperation or even in a “partnering way” would prevent either party from relying on any express terms of the contract freely entered into. In addition, the “entire agreement” clause did not exclude or limit reliance on any effective estoppel.