EWHC 3275 (TCC)
A competition to develop a 20-acre area of contaminated land in East London was won by LPG. The site was owned by the London Development Agency, which granted a short-term lease to LPG on 2 December 2011, expiring 1 November 2014. The timescale became progressively squeezed and there was a lack of interest from commercial investors.
This created a problem for the London Borough of Newham (“LBN”) which was looking strategically for the Olympics to be a powerful stimulus for regeneration and improvement in the Borough. It therefore decided to take on the role of funder and made a loan to LPG to enable LPG to engage contractors to carry out the necessary works on site. The idea was that revenue-generating activities would fund the repayment of the loan.
LPG and LBN entered into the Loan Agreement on 30 March 2012 for the sum of £3 million. The mechanism for the drawing down of the loan had the effect that LBN had control of any payments that LPG wished to make over £10,000 (later reduced to £2,000). In addition to the payment of interest, LPG agreed to pay 20% of its anticipated profits as a royalty to LBN. LBN increased its funding to LPG, providing a total of £3.3 million before deciding in early August 2012 that no further support would be provided. Squibb contracted with LPG to carry out extensive groundworks on the site. The works were carried out properly and on time, such that the site was open by late June in advance of the Olympics and substantial payment became due to Squibb from LPG under the terms of the contract. Squibb agreed to do some additional works, which did not fall within the terms of the original contract, and for which it was paid in advance.
However, the project was not commercially successful and LPG went into administration in August 2012, after LBN declined further financial support beyond the £3.3 million it had already provided. This left the funder’s loan and Squibb’s remaining payments under the building contract outstanding. Squibb said that LBN was liable to pay the sums of money that had fallen due for the work it did pursuant to its contract with LPG.
Squibb advanced its claim on the basis of:
- A collateral contract arising at the time of the conclusion of the contract between LPG and Squibb on 17 May 2012; and
- A contract or collateral contract on the basis of meetings that occurred on 5 and 11 July 2012.
Squibb alleged that, at the same time as Squibb and LPG entered into the construction contract (known as the “CMTC”), it entered into a collateral contract with LBN (or LBN gave an enforceable contractual warranty) under which, in consideration of Squibb entering into the CMTC, LBN agreed (or warranted) that it would cooperate and/or participate in, and not frustrate, hinder or prevent the performance of the Payment Mechanism established by the CMTC.
Squibb also asserted that LBN further agreed that in the event that Squibb provided an interim valuation application or a Final Account Valuation, LBN would cooperate and participate in the process by giving any necessary approvals and releasing any necessary funds to LPG to enable payment to Squibb and would not frustrate or hinder the process by refusing to cooperate or to release the relevant funds to LPG to enable it to pay Squibb.
While the evidence concerning the building contract negotiations was relatively straightforward, the allegation that a collateral contract arose at the first of two meetings held between the parties depended largely on the evidence of the individuals involved at that time. Mr Justice Stuart-Smith held that the collateral contract did not come into force at the time the building contract was concluded and did not come into force at the meetings. Squibb’s purpose as it approached the first meeting was to try to obtain payment of its outstanding account, using the threat or reality of proceedings if necessary, while LBN’s primary purpose was to ensure that Squibb took no action that would jeopardise the prospects of keeping LPG as a going concern at least until after the start of the Olympics.
The Judge rejected the contractor’s allegation that the funder had agreed to guarantee all sums owing under the building contract. The Judge did, however, hold that at their second meeting the funder did agreed to pay £250,000 of the £424,000 owed by LPG. However, the funder had already made that payment, so no further amount was due from it. The building contract did not subject the funder to any obligations on which Squibb could rely. Likewise, nothing in the loan agreement pointed to the funder warranting or guaranteeing LPG’s payment obligations under the building contract.
The funder did not give Squibb any actual or implied assurance that it would guarantee payment or that it would “not allow the project to fail.” The problem here for Squibb was the nature of the evidence. As Mr Justice Stuart-Smith noted, although contractually binding assurances could be implied rather than express: “it would require clear and cogent evidence to establish an implied assurance with suitable and sufficient clarity”.
On the facts of this case, no such assurance was given.