Court rules on effect of final Account Agreement
YJL claimed payment of £136,395.60 as being due under a Final Account Agreement made with the defendant in December 2008. The defendant was an SPV which engaged YJL to refurbish and extend an office block under a contract which incorporated the JCT Standard Form of Building Contract, With Contractor’s Design, 1984 edition with home made amendments. Clause 30, which dealt with the final account was amended. After practical completion was certified on 25th June 2007, there were protracted negotiations until 15 December 2008 about the final account, when an agreement was recorded in writing.
Tweeds, on the defendant’s behalf, sent YJL the Final Account Statement, which comprised two documents. The Final Account Agreement stated that YJL was to acknowledge the payment of £3,144,045 was to be in full and final settlement of all demands, claims for extensions of time, all requests, liabilities and expenses owed by the employer to the contractor under the contract. The accompanying Final Account Contract Sum Analysis showed how the figure had been calculated. A deduction of £36,000 was made by the defendant as liquidated damages, leaving a total of £3,144,045. Expressly included in this sum were items to be carried out by the client which were to be deducted, items not completed by YJL and items which were identified as still requiring attention.
YJL’s parent company, Renew Holdings signed and returned the agreement. It was common ground that the agreed Final Account value of £3,144,045 meant that a final balance was due and owing to YJL of £136,395.60. However, despite efforts by YJL and its solicitors, this sum was not paid.
By an order dated 4 November 2009, Ramsey, J. identified a number of preliminary issues to be determined, including the true meaning and legal effect of the agreement.
The judge rejected the argument that the agreement replaced clause 30 of the contract. Clause 30.5 envisaged the provision of a final account and a final statement, and if the contractor did not provide this, clause 30.6 enabled it to be provided by the employer. Here, the parties had opted to arrive at a final account by agreement and the parties had intended it to be final, not the start of an accounting process under clause 30.5. There was no ambiguity in the words used.
The judge rejected the defendant’s argument that because there was no reference to payment in the documentation of 15th December, YJL were not entitled to be paid the balance of £136,395.60. This interpretation failed to take into account the opening words of the Final Account Agreement in which YJL acknowledge payment of £3,144,045. The entire Final Account Agreement was based on that assumed payment. If, at the time of the agreement, the defendant had paid YJL less than the £3,144,045, YJL were entitled to be paid the outstanding balance as expressly stated in the Final Account Agreement. The defendant’s argument failed to appreciate that the purpose of the Final Account Agreement was to agree the amount of the Final Statement. It was true that it did not show what the defendant had already paid and the difference between the two amounts, but this had been an omission by Tweeds and could not offer the defendant a defence because they would then be seeking to benefit from their own breach of contract. It didn’t really matter that the amount of the balance was not stated, how much had already been paid had been agreed. A sensible interpretation of the agreement was that £136,395.60 was due and payable to YJL.
The agreed Final Account and Agreed Final Statement were intended to comply with clause 30.5.5 of the contract, and were, therefore, “conclusive as to the balance due between the parties”. The agreement relieved YJL from liability for all defects which had been identified at December 2008, or which could reasonably have been identified at that date. The issue of latent defects had not been pleaded in the defence or counterclaim, and therefore that issue did not arise.
Author: Ann Glacki
Date: December 2009
Commentary
The important issue to be drawn from this case is the need to be precise in the wording of all agreements, including an agreement reached as to the value of the final account. Consideration should be given to such matters as the amounts previously paid and amounts to be paid, and whether rights in relation to latent and / or patent defects are to be retained.
Further, where parties do not follow precisely the terms of the relevant contract, any recorded agreement is likely, nevertheless, to be binding.
For more information please contact Richard Silver by telephone 01992 576440 or by email on richard.silver@alway-associates.co.uk
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