The two main issues before the court were whether the settlement agreement which the parties entered into post practical completion in relation to the final account was intended to replace the contractual final account procedure in clause 30 of the JCT standard form of contract and if so, whether the settlement agreement between the parties amounted to a full and final settlement of all claims and cross-claims arising between the parties.
YJL London Ltd v Roswin Estates LLP  EWHC 3174 (TCC)
The employer engaged the contractor to carry out the refurbishment and extension of an office block in London under the terms of the JCT Standard Form of Building Contract, With Contractor’s Design, 1984 edition (the Contract).
Practical completion was certified on 25 June 2007, following which the contractor and the employer’s agent negotiated the contractor’s final account claim. Negotiations were protracted and an agreement was finally recorded in writing on 15 December 2008.
The dispute in this case centred on the final account provisions set out in clause 30 of the Contract.
The Final Statement and Final Account
Clause 30 of the Contract provided that:
- Final Account - the contractor was required to submit the Final Account and Final Statement for agreement by the employer within 3 months of practical completion.
- The Final Statement - was to set out: (i) the amounts already paid by the employer to the contractor; (ii) any adjustments made to the contract sum as a result of operation of the contract conditions; and (iii) the difference (if any) between (i) and (ii) expressed as a balance due to either party.
- The Final Account and the Final Statement - as submitted by the contractor was to become conclusive as to the balance due between the parties one month after the date of submission.
- Employer’s Final Account and Statement - if the contractor failed to submit the Final Account and the Final Statement, the employer could put the contractor on notice to provide the same within two months, failing which the employer was able to prepare an Employer’s Final Account and Employer’s Final Statement, which would become conclusive as to the balance between the parties one month after the date of submission.
The Settlement Agreement
The Final Account Agreement (the Settlement Agreement) recorded that:
“The Contractor hereby acknowledges that the payment of £3,144,045 shall be in full and final settlement of all demands, claims for extensions of time or otherwise, requests, liabilities, costs, expenses whatsoever and howsoever owed to the Contractor by the Employer under the Contract or otherwise implied by law or arising in tort and whether in relation to events arising which have accrued prior to the date hereof and which arise or could arise in the future.”
The Settlement Agreement also recorded that the contractor agreed that the Settlement Agreement represented full and final settlement of all its obligations for work executed under the Contract including but not limited to compliance with the following:
- all drawings, requirements and schedules detailed in the contract documents;
- instructions issued under the Contract;
- making good all defects during the defects liability period; and
- all contractual responsibilities under the Contract.
The Final Account Summary (attached to the Settlement Agreement) demonstrated how the final figure of £3,144,045 was calculated. This document set out a variety of items and potential disputes which had been taken into account and included within the final figure.
It was common ground that under the Settlement Agreement there was a final balance of £136,395.60 which was due and owing to the contractor. The employer failed to pay this outstanding balance.
Was the Settlement Agreement intended to replace the contractual clause 30 process?
The employer sought to argue that the Settlement Agreement was not intended to displace clause 30 of the Contract, that the contractor was in breach of clause 30 because it failed to submit a Final Account or a Final Statement in accordance with clause 30, and that therefore no sum was payable by the employer.
The court rejected this argument and held that the parties had sensibly chosen to arrive at the Final Account and the Final Statement by a process of agreement. That agreement was clearly reflected in the Settlement Agreement.
Further, if there was any doubt that this was the correct answer the judge referred to two well-known rules of contract construction:
- First, the court’s interpretation was the only interpretation of the documents that was in accordance with business common sense (Antaios Compania Naviera SA v Salen Rederierna AB  AC 191). The judge held that the expressions used by the employer’s agent in the Settlement Agreement: “Final Account Agreement”, “Final Account Statement” and “Final Summary” were designed to be considered by the reasonable businessman to be final - they plainly denoted the end of the accounting process under clause 30.
- Secondly, if there was any ambiguity in the words used by the employer’s agent, then that ambiguity must be resolved against the employer (because the employer’s agent was acting on the employer’s behalf in preparing and sending the settlement agreement to the contractor) in accordance with the contra proferentem principle (Lexi Holdings v Stainforth  EWCA Civ 988).
Did the Settlement Agreement amount to a full and final settlement or did it permit the making of further claims?
The employer sought to argue that the Settlement Agreement was not in full and final settlement of all claims and cross-claims between the parties and that it was entitled to raise allegations of defective work in respect of: cracked glazing; misaligned structural columns; bowed flooring; damaged cladding; and a failure to provide health and safety files and sub-contractor warranties.
The court rejected the employer’s argument and held that:
- The Settlement Agreement (and the Final Account Summary) were documents intended to comply with the provisions of clause 30 and so they were conclusive as to the balance due between the parties.
- The words in the Settlement Agreement were intended to convey that no further claims for money (whether by way of damages or sums due under the contract) could be made. This was strengthened by the use of the words “represents full and final settlement in respect of his obligations for work executed under the contract”.
- Similarly, the Final Account Summary expressly included a number of items of work which the contractor had not completed and items of defective works which still required attention. Again this suggested that incomplete or defective items of work were intended to be incorporated into the settlement agreement however and whenever they arose.
- It was difficult to see what claims for defects could survive the Settlement Agreement. It was very clear that any claims arising from patent defects (namely defects that were either known about as at December 2008) or defects which could reasonably have been discovered at that time were intended to be settled.
The court accepted that it was more difficult to say with any certainty that claims in respect of latent defects were in the parties’ minds at the time of the settlement and that as a result it was harder to say that, in the absence of any express reference to them, the Settlement Agreement encompassed such defects.
However, it was unnecessary to decide this point as the employer had not pleaded such a case. Many of the employer’s listed defects were expressly identified in the Final Account Summary and fell under the category of patent defects as they appeared to be either snagging items or items which were or could have been seen well before the Settlement Agreement. Consequently the employer’s listed defects fell within the scope of the Settlement Agreement.
This case is a reminder to parties to think about the scope of liability when recording the terms of a settlement agreement particularly in relation to the question of whether a contractor is to remain liable for latent defects. Even though in this case the court accepted that it was difficult to say that claims in respect of latent defects were in the parties’ minds at the time of the settlement agreement, the failure to plead any case of latent defects meant that this question was left open. It would have been better to address the issue of latent defects expressly in the settlement agreement.