More on final account agreements

The defendant, CSL, was engaged by the claimant, Ennis, for ground works on a site in Wigan. Ennis was the subcontractor to Bovis Lendlease. The works were completed in May 2009, after which the parties endeavoured to settle the final account. By an e-mail dated 8 July 2009, CSL offered to settle the final account for, although it maintained that the sum actually due was considerably more. The offer was made

“on the express understanding that the outstanding sums are certificated with immediate effect.”

In a without prejudice e-mail, Ennis’ quantity surveyor, Mr. Duffy, proposed a figure of £700,000 in full and final settlement, which was later increased to£705,000. A compromise figure of £707,500 was agreed in principle by Ennis’ Construction Director, Mr Barnes and CSL’s joint MD, Mr. Rea, during a telephone conversation. After this, Mr. Duffy e-mailed a Certificate of Final Agreement stating that the Final Account would be £705,000 as agreed by Messrs. Barnes and Rea. Payment was to be made, less 1.5% retention. There was an issue as to damage to a CSL roller, which CSL’s Mr. Hart wanted specifically excluded from the agreement, and in an-email, on 24 July Mr. Duffy confirmed that it had been excluded, making the current sum due for payment £142,910.13. Mr. Duffy requested confirmation that CSL agreed this was the sum due. Mr. Duffy confirmed this in an e-mail on 27 July.

Mr. Hart sent Mr. Duffy an e-mail attaching a completed Certificate of Final Agreement. Attached to this was a letter stating that the certificate had been signed on the express understanding that the e-mail of 27 July was incorporated with the agreement. Mr. Hart signed the Certificate of Final Agreement.

There was then a problem over a damaged gas main which Ennis considered CSL to be responsible. Mr. Duffy informed CSL that it would not be paid the £142,901.13, as a deduction would be made in respect of the damage to a gas main, for which it believed CSL to be responsible. In evidence, Mr. Duffy stated that he had made Mr. Hart aware of the damage to the main during a conversation on 24 July, although Mr. Hart said he had no recollection of it. Tthe court preferred Mr. Hart’s evidence, satisfied that Mr. Hart had not been aware of the damaged main before the conversation with Mr. Duffy on 28 July.

CSL’s view was that the damage to the main was an insurance matter, and pointed out that if it proved to be responsible for the damage, an adjustment to the retention could be made. Mr. Hart e-mailed Mr. Duffy again, seeking an assurance that the “Agreed Final Account Value” i.e. the £142,901.13 would be paid by 5 August 2009. On 7 August, however, Ennis paid only £135,538.25. It informed CSL that the cost of repairing the main would be about £8,000. Because Ennis had failed to release the sums previously agreed, CSL treated the agreement over the final account as being at an end, and it sent a revised final account, claiming the increased sum of £1,030,000.

Having taken legal advice, Ennis paid the £7,362 which had been deducted from the final account to CSL’s factors. CSL informed Ennis that it was accepting this on an “on account” basis and not in full and final settlement of the revised final account.

CSL served an Adjudication Notice on Ennis, which responded that the Notice was invalid because CSL was bound by the Final Account Agreement to accept a final account value of £707,500. CSL argued that there was no concluded agreement as to the amount of the final account because the Certificate had been signed on the basis that the accompanying e-mail was incorporated. This had, therefore, made the agreement conditional upon a number of items which Ennis had failed to comply with.

CSL served a further Notice of Adjudication, but the adjudication proceedings were stayed pending the outcome of the present action because if it were held that CSL were bound by the Final Account agreement, then the adjudicator would have no jurisdiction.

CSL submitted that there was no binding contract between the parties because the agreement was incomplete since there had been no agreement on one of the essential terms: the time for payment. Further, CSL’s e-mail plus attachments of 28 July amounted to a counter offer which Ennis had not accepted. Alternatively, if there were a binding agreement, it had been conditional, and Ennis had wrongfully repudiated it.

The court was satisfied that, on 28 July, both parties had intended their arrangement to have legal effect when Mr. Duffy had sent the Certificate of Final Agreement, and Mr. Hart had signed and returned it with the covering letter. The agreement was not void for uncertainty even though there was no express agreement as to when payment would be made. Mr. Duffy had not confirmed that payment would be made in 10 days as requested by Mr. Hart, and a term should be implied that payment would be made in a reasonable time. CSL had not agreed to wait for payment indefinitely, and since no payment date had been agreed, it was implicit that payment should be made in a reasonable time having regard to the circumstances. In the context of the present case, payment should be made within a short time. CSL had been willing to accept a lower final account sum in return for certification “with immediate effect”. Ennis had indicated and knew that CSL would expect payment within 7-10 days of that.

CSL’s covering letter accompanying the Certificate of Final Agreement had not been a counter offer; it added nothing to what had already been agreed.

The agreement on the final account value had not been made in return for the payment of £142,901.13, nor had it been conditional upon the agreed sum being paid in full because there had been no express term to that effect and no such provision fell to be implied because it was neither necessary nor an obvious implication on the facts. It was not clear that the parties had intended that CSL should have recourse to the original claim if payment were not made in full.

Ennis had not wrongfully repudiated the contract when it withheld the £7,362.88. Its conduct had not indicated an intention not to abandon or refuse to be bound by the final account agreement. Although, the court had concluded that it had been a term of the agreement that payment would be made in a reasonable time, the parties had not agreed that any failure by one party would entitle the other to elect to end the contract.

Author: Ann Glacki

December 2009

Commentary

The case really deals with a common scenario and applies well established contract principles to a new set of facts.

If anything the case highlights the point that if Parties do conclude a "final account" type agreement then it should be clear and certain and that if it is the Courts will enforce it.

For more information please contact Lorne Alway by telephone 01295 275 975 or by email on lorne.alway@alway-associates.co.uk

Author: Lorne Alway

Date: February 2010

Lorne Alway

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