Nothing due to either party; should ADR have been considered more closely by the parties?

The Sky’s The Limit Transformations Ltd v Dr Mohamed Mirza [2022] EWHC 29 (TCC)

In The Sky’s The Limit Transformations Ltd v Dr Mohamed Mirza the Technology and Construction Court had to address various issues in the context of a building contract for a domestic renovation. Many of the issues that arose are common in these types of disputes. In our second article on the case, we look in more detail at the issues before the judge. Click here to view our previous article.

The claim related to a building contract for alterations to a residential property entered into between the claimant building contractor and the defendant houseowner. The defendant had acquired the property in 2015 and the claimant building contractor was engaged in 2016. Before the works had been completed, the building contract was terminated by the claimant in April 2017.

The claimant issued proceedings in December 2019 for the payment of outstanding invoices and damages for loss of profit on the remaining works. The main issues in dispute were the formation of the contract and its terms; termination of the contract by the claimant building contractor and the final account, which had to be determined.

 

Contract formation and terms

The principal elements of the contract were in writing. The dispute over its terms related to (a) whether the contract as formed was a fixed price contract based on a fixed price quotation or a contract for a reasonable price based on an estimate; and (b) what the terms were relating to interim valuations and the payment of interim bills.

In respect of (a), the Judge considered the well-established legal principles of contractual construction. The judge was satisfied that on proper construction of the documents in this case that it was a fixed price contract. The judge was referred to s69(1) of The Consumer Rights Act 2015, which provides that “if a term in a consumer contract, or a consumer notice, could have different meanings, the meaning that is most favourable to the consumer is to prevail”. The judge noted that where the term estimate and the term quotation are used without clear differentiation by the parties and where the Federation of Master Builders standard building contract refers simply to “the price”, the meaning most favourable to the consumer, namely that it is a fixed price quotation should prevail.

In respect of (b), a standard Federation of Master Builders building contract for domestic work was used in this case but it was not fully completed. For example, the time period for raising interim bills and the time period for the payment of interim bills was not completed. The judge held that the contractual position in this respect was concluded on 29 November 2016 at the latest when the defendant must be taken to have accepted by words and/or conduct the terms of a revised payment schedule and accompanying email sent by the claimant on 14 November 2016. This was then varied and agreed by further emails between the claimant and the defendant on 20 November 2016.

The payment terms in the Federation of Master Builders contract included at clause 2.1.2 “We will send you interim bills for the value of any work we have carried out up to that date, together with the cost of all goods and materials delivered to the site and for any payments made to our suppliers for goods not yet delivered to the site but intended just for the work”.  The payment date at clause 2.1.3 was intended to run from the date of receipt of the interim bill.

Clauses 2.4 and 2.6 of the contract included provisions relating to payment notices and pay less notices, allowing a payment notice to be given by the defendant within 5 days of receipt of an interim bill and allowing a pay less notice to given by the defendant no later than 5 days before the final date for payment of an interim bill.

It was difficult for the judge to ascertain when the final date for payment was as no specific period was identified either in the revised payment schedule or in the accompanying email dated 14 November 2016. The judge held that the contract could only make sense and be workable whilst being consistent with the intent of the FMB terms if the 10 days ran from the date of receipt of the interim bill. The judge gave an example; if an interim bill was received on a Monday, then the notices would have to be given by the Saturday and the bill would have to be paid by the following Thursday. 

 

Termination

An issue arose in this case as to whether the claimant was entitled to suspend and then terminate the contract due to the defendant’s failure to pay interim bill number 4. The key question was whether the defendant had given a timely and effective payment notice in response to interim bill number 4.

Interim bill number 4 was dated Friday 3 March 2017 but was sent by email to the defendant on Monday 27 February 2017. Given the judge’s findings above, the payment of interim bill number 4 was due on Thursday 9 March 2017 and any payment notice should have been given by the defendant by Saturday 4 March 2017. The defendant responded by email on Monday 6 March 2017 stating it would only be paying around half of interim bill number 4. This was not an effective payment notice as it was sent two days too late.

A large amount of interim bill number 4 was left unpaid. The claimant left the site on 21 March 2017 and the claimant gave formal notice of termination on 11 April 2017. The judge held that the defendant had no answer to the termination based on the non-payment of interim bill number 4. The defendant’s obligation was to pay what was claimed in interim bill number 4, since he had failed to give a timely payment or pay less notice.

 

Final Account Valuation and Conclusion

The judge started with the agreed contract sum of £156,370, then decided upon and added £8,762.73 for the claimant’s justified variations claim and then deducted the reasonable costs of completing the outstanding work and remedying the defective work in the sum of £44,721.63, giving a final account of £120,411.10. The defendant had already paid £144,213.76 pre-termination and thus was held to have overpaid the claimant. The judge also allowed the claimant’s claim for damages for loss of profits in the sum of £3,797.88.

The judge concluded that there was nothing due to the claimant under the final account and in the absence of a counterclaim, there was nothing due to the defendant either.

 

Learning Point

The judge thought it a great shame that the parties were not able to resolve their dispute out of court and was aware that the outcome would likely be expensive and unrewarding for both parties. The comments from the judge in this case highlight the importance of attempting to resolve disputes such as these via alternative dispute resolution means prior to any final hearing.

The case also highlights the need for contractors dealing with consumers to ensure that they use clear contractual wording and documentation, particularly around when distinguishing between estimates and quotations and when setting out payment schedules.