Kilker Projects Ltd v Purton (t/a Richwood Interiors) [2016] EWHC 2616 (TCC)

Summary

A decision awarding a payment in a "smash and grab" adjudication does not prevent an Employer referring the issue of the true value of the final account to a second adjudication.

The Key Facts

Purton carried out works under an oral construction contract with Kilker, to which the Scheme for Construction Contracts 1998 applied. Purton submitted a final account, however Kilker failed to serve a payment notice and/or pay less notice. Accordingly, Purton referred the issue to adjudication, which confirmed that Purton was entitled to payment of the full sum applied for in the final account in accordance with ISG v Seevic and the other "smash and grab" adjudication decisions.

Subsequently, Kilker referred the valuation of the final account to a second adjudication at which it was determined that Purton was required to repay c.£55,000 to Kilker and the Adjudicator's fees. Purton refused to pay and the matter was referred to the TCC. Purton argued that the first adjudication had determined the value of the final account. Therefore, the Adjudicator in the second adjudication did not have the jurisdiction to determine the value.

The Decision

Following a successful smash and grab adjudication, the payer is entitled to refer the merits of the valuation for determination in another adjudication. Miss O'Farrell QC stated in her decision that the purpose of the Scheme and the Construction Act was to assist with issues of cash flow, it did not however "affect the ultimate value of the contract sum that the parties have agreed is the price for the works". Accordingly the decision in the second adjudication was enforced.

Practical implications

Following a smash and grab adjudication, an Employer remains entitled to have the final account valued in accordance with the terms of the contract as negotiated between the parties. This demonstrates how an Employer may successfully claw back overpayments as a result of falling foul of a contract payment procedure.

Arcardis Consulting UK Ltd v Amec (BSC) Ltd [2016] EWHC 2509 TCC

Summary

The Court will not imply terms into a Contract in the absence of a clear intention between the parties to contract on those terms.

The Key Facts

Amec appointed Arcadis to undertake the design of a car park in 2001, which it then subsequently built. After construction, Kier, the Employer, alleged that the car park design was defective and would require demolishing and rebuilding. Amec's liability to Kier was stated at c.£40 million. Amec sought to recover its losses from Arcadis.

Arcadis denied any liability to Amec or, in the alternative, asserted that any liability was limited to £610,515 by virtue of the terms of the Contract.

However, Amec disputed the terms of the Contract as no agreed form of contract was ever expressly concluded. Rather, Amec and Arcadis had exchanged a substantial amount of correspondence debating the proposed terms of the Arcadis contract. Included within those exchanges were various references to a cap of the designer's liability. The Court was therefore asked to determine the applicable terms of the contract based on the contemporaneous documents.

The Decision

The Court found that there was a great deal of uncertainty and too much not agreed between the parties for it to determine on an objective analysis that any cap on liability had been agreed. Instead it found that merely a simple contract had arisen from the letter of intent issued at the commencement of the project and therefore the Claimant's liability was not limited. Coulson J accepted that whilst the Court should:

"strive to find a concluded contract where work has been performed… the court is not entitled to rewrite history so as to incorporate into that contract express terms which were not the subject of a clear and binding agreement".

The Practical implications

This case emphasises the importance of ensuring that key terms to a contract are unambiguously agreed and recorded between the parties. Coulson J criticised Arcadis for the way in which it conducted the contract negotiations, as the terms were frequently rejected or amended with limited justification. Coulson J warned that this case "starkly demonstrates the commercial truism that it is usually better for a party to reach a full agreement … through a process of negotiation and give-and-take, rather than to delay and then fail to reach any detailed agreement at all".

Graham Leslie v Farrar Construction Ltd [2016] EWCA Civ 1041

Summary

Overpayments made by an Employer where no investigation has been made into the sum applied for by a Contractor as part of a conscious commercial decision are unrecoverable.

The Key Facts

Mr Leslie and Farrar Construction entered into an oral Framework Agreement which provided that:

(1) land would be identified for Mr Leslie to acquire;

(2) Farrar Construction would be instructed to design and construct housing on that land to an agreed budget;

(3) Farrar Construction would be paid its "build costs" (which were not defined); and

(4) the parties would split the profit made on the site when sold on the open market.

Five sites were developed in accordance with the Framework Agreement. During the course of the five developments Farrar Construction submitted applications to Mr Leslie for round sums without supporting evidence. Mr Leslie accepted the sums on the basis that they were in accordance with the agreed budgets. On the completion of each site the build costs and profit share were agreed without any further information being provided. Mr Leslie accepted that the build costs were within the agreed budgets and made significant profits on each site sale.

The relationship between the parties subsequently broke down and Mr Leslie sought to reclaim sums which he alleged were overpayments. The court of first instance held that an Employer could not recover overpayments which it made at the Contractor's request without further investigation. Mr Leslie appealed the decision.

The Decision

The Court of Appeal upheld the decision. The Court found that Mr Leslie's key concern was to ensure that build costs stayed within the budget in order to protect the large profit anticipated (and achieved) on each site. Mr Leslie did not audit the build costs claimed as they fell in line with the projected budget costs as it was more time and cost effective to accept the sums claimed for without further analysis. Therefore, as there was no allegation of fraud or misrepresentation, the Court found that Mr Leslie made the final payments as a conscious commercial decision to close off each site and allow him to realise each profit. As such he was not entitled to claim an overpayment.

The Practical implications

This case serves as a warning to Employers looking to deal with a final account quickly. Where a commercial decision is made to accept a sum applied for without further line of enquiry, the Employer will lose its right to challenge the sum at a later date. Therefore, it is worth taking the time to consider sums applied for in order to protect against unrecoverable overpayments.