Did you get that? The importance of documenting agreements

This article is from December’s edition of Aggregate, which featured a month-by-month review of 2021. This is November’s entry. To read the complete newsletter as a PDF, click here.

Picture the scene: a contractor, engaged to extend and refurbish student accommodation but struggling to complete in the wake of covid, phoned its employer to discuss the problem. The contractor later claims that an agreement was reached during that phone call (made between two managing directors, while they were both driving) whereby the employer agreed to forego its claim for liquidated damages (LDs) in exchange for the contractor abandoning its loss and expense claim. The employer denies any such agreement was made.

Despite it being impossible to ever prove what was agreed, in November 2021 the TCC held that an agreement had been reached, and the employer could not pursue its claim for LDs.

The relevant case is Mansion Place Ltd v. Fox Industrial Services Ltd. The dispute between the parties was initially referred to adjudication, wherein the adjudicator determined that the parties had agreed to waive LDs and loss and expense respectively. The employer, dissatisfied with the decision, then issued proceedings in the High Court seeking a declaration that such an oral agreement had not been reached.

The three-day hearing saw witnesses giving evidence in person on the point, before the court found in favour of the contractor. It held that it was able to make a finding as to the gist of the conversation on the balance of probabilities, ultimately finding that the contractor’s recollection of the conversation was more reliable than the employer’s.

In addition to finding the contractor’s witness evidence to be more reliable, the other significant factor was that the employer’s internal documents showed that it was concerned the contractor would either leave site or deliberately delay the works and was very anxious to avoid that consequence. In those circumstances the agreement to drop its claim for LDs was less surprising – and anecdotally is one that has been made on lots of projects where parties have agreed a ‘time but no money’ approach to covid issues is a reasonable apportionment of risk.

This case also considered some of the more common arguments surrounding LDs, with the Court confirming that:

• The contractor’s notice of delay and claim for an extension of time did not preclude the employer from issuing a non-completion notice and claiming LDs;
• The LDs did not constitute a penalty. The employer’s interest in completing the works on time was a very significant one, and the contractor could have negotiated changes to the rates before entering into the contract; and
• There is no automatic presumption that LDs are unenforceable where there is sectional completion or partial possession but the contract provides a single rate of LDs. This was something that had been confirmed in August in Eco World – Ballymore Embassy Gardens Co Ltd v. Dobler UK Ltd, as mentioned in Hanna’s article. In any event, in this case clause 2.34 of the JCT DB 2016 did provide a reduction in the rate of LDs in such circumstances.

This case came as a surprise to some in the industry, and it highlights the importance of setting out all agreements in writing. As a bare minimum, a follow up email to confirm a conversation can speak volumes in any subsequent dispute, but a signed agreement will should prevent disputes all together.