Mears Ltd v Shoreline Housing Partnership Ltd  EWHC 1396 (TCC)
In the case of Mears Limited v Shoreline Housing Partnership Limited  EWHC 1396 (TCC), a court has decided that an employer was estopped from recovering alleged overpayments under the NEC3 Term Service Contract, and has provided useful guidance on the principle of estoppel by convention.
The doctrine of estoppel prevents a party from asserting something contrary to what has previously been implied, either by conduct or words, which it has encouraged or permitted another party to accept.
Shoreline Housing Partnership Limited (“Shoreline”) engaged Mears Limited (“Mears”) under the NEC3 Term Service Contract Option C (target contract with price list), which contained an ‘entire agreement’ clause. The parties subsequently departed from payment mechanism provided for under the contract. Shoreline considered it had been overpaying Mears and, as a result, then sought to rely on the contractual payment mechanism. Shoreline further sought to make a deduction under the contract in order to recoup the alleged overpayment. Mears commenced legal proceedings against the deduction. The court held that there was an agreement, or ‘convention’, under the original payment mechanism that both parties had acted on for six months. As a result, Shoreline was prevented from seeking to rely on the contractual payment mechanism to try to recover any alleged overpayments due to estoppel by convention.
The decision in Mears provides the following useful summary of the requirements for estoppel by convention:
- estoppel by convention can arise when contracting parties act on an assumed set of facts or law. A concluded agreement is not required but may amount to a ‘convention’;
- the parties must share the assumption or at least one party must make an assumption in which the other acquiesces. The assumption must be communicated between the parties;
- the party claiming the benefit of the convention must have relied upon the assumption and have been materially influenced by it;
- a key element is “unconscionability or unjustness on the part of the person said to be estopped”;
- the estoppel can come to an end and will not apply to future dealings if the assumption is found to be incorrect.
In addition, the decision confirms that parties can alter their legal relationship by conduct even if their contract contains an ‘entire agreement’ clause. The court held that an ‘entire agreement’ clause does not exclude or limit reliance on estoppel, either expressly or by way of interpretation.
Finally, the decision provides a reminder regarding the conduct of litigation. In Mears, the judge was critical of the conduct of the case and commented that it should “never have been fought all the way through to trial”. It was a dispute worth £300,000, had already gone to the Court of Appeal on strike-out, there had been heavy amendment of the pleadings and senior QCs had been engaged by both parties.