The case of Mansion Place Ltd v Fox Industrial Services Ltd [2021] EWHC 2972 (TCC) is a timely reminder of the importance of keeping contemporary records.

Mansion Place Ltd (“MPL”) contracted with Fox Industrial Services Ltd (“FIS”) for FIS to carry out works on student accommodation (“the Works”). The contract was an amended JCT Design and Build Contract (2016 edition) (“the Contract”).

There were delays to the Works, and the reasons for the delays were disputed.

Timeline

• May 2020 – FIS sent emails highlighting its concerns about not being given possession of a number of bedrooms.
• August 2020 – MPL argued that it was entitled to liquidated damages, and the delay was due to FIS’s design failure, which required a change in the steelwork to be installed.
• September 2020 – MPL sent a notice of non-completion for one section. FIS repeated its entitlement to an extension of time and stated that the deduction of liquidated damages would be considered a default whereby FIS could terminate the Contract.
• October 2020 – MPL sent further non-completion notices. FIS sent an internal email highlighting that it was determined not to seek an extension of time and cost if MPL abandoned their liquidated damages claim; FIS mentioned this to MPL in May 2020.
• 7 October 2020 – Mark Kite (the managing director of FIS) and Shankar Ramanathan (a director of MPL) had a meeting on site.
• 14 October 2020 – MPL’s agent sent a letter to FIS stating its extension of time request was being considered and requested further information. At 6pm, both directors spoke on the telephone, which lasted around 10 minutes. Neither party took a note during or after the conversation. During the call, FIS argued that MPL agreed to forgo its liquidated damages entitlement; in return, FIS agreed to forgo its right to claim for loss and expense due to the delay in the Works (“the call”).
• 19 October 2020 – Mr Kite and Mr Higginbottom (FIS’s consultant) spoke on the phone. Mr Higginbottom stated that in this conversation he was informed that both MPL and FIS agreed to abandon their competing claims mutually. Mr Higginbottom sent a follow-up email to Mr Kite saying it was encouraging that MPL had called and hopefully MPL would be “good to their word” to conclude the project amicably.¹

Subsequently, FIS served Interim Payment Application 10, which was certified at £367,103.44. In November 2020, MPL served a Pay Less Notice to deduct liquidated damages. FIS disputed the deduction and referred the dispute to adjudication.

FIS argued that the oral agreement made on the call was a binding agreement. Therefore, MPL was not entitled to deduct liquidated damages from the sums due to FIS. MPL disputed this and argued that there was no such agreement.

Adjudication

In January 2021, the adjudicator ruled that the telephone conversation on 14 October 2020 resulted in a binding agreement whereby MPL agreed to forgo its liquidated damages claim. The adjudicator decided that the sum of £367k plus interest was due to FIS.

MPL subsequently commenced legal proceedings; it sought a declaration that no such agreement was made by telephone on 14 October. FIS counterclaimed, seeking declarations whereby the call was a binding agreement affecting the parties’ rights under the Contract. 

TCC

The judge noted that this took place against the background of the COVID-19 pandemic and found that there were two central issues:

1. Did the telephone conversation on 14 October 2020 result in a binding agreement? If so, did it preclude MPL from seeking liquidated damages?
2. If it did not result in a binding agreement, was MPL precluded from seeking liquidated damages? This involved the following issues to be considered:

1. It had served valid notices of delay under clause 2.24, and such service coupled with MPL’s failure to respond under clause 2.25 indicated that MPL was not entitled to serve a non-completion notice and thereby not entitled to seek liquidated damages under clause 2.29;
2. Whether clause 2.29 is a penalty thereby unenforceable; and
3. Clause 2.29 is unenforceable on the ground of uncertainty or by application of the principle set out in Bram Bramall & Ogden v Sheffield City Council (1983) 29 BLR 73.

1. Did the telephone conversation on 14 October 2020 result in a binding agreement? If so, did it preclude the MPL from seeking liquidated damages?

The two directors involved in the call gave conflicting witness statements. The judge acknowledged that both parties were not seeking to mislead the court and looked at “the witnesses' evidence through the prism of the contemporaneous documents; of their subsequent actions; of those events which are accepted or clearly demonstrated to have happened; and of inherent likelihood.” ²

MPL’s argument

MPL argued that in the call, both parties merely agreed to put legal stances to “one side for the time being with a view to resolving those issues amicably once the works had been completed… that there had been no suggestion let alone any agreement that the Claimant would drop its claim for liquidated damages.” ³

MPL outlined objective factors that could support its account, and these were grouped under three general heads:

• The conduct of MPL following the call.

If there were an agreement, Mr Ramanathan would have informed MPL. In addition, none of MPL’s internal documents referred to such an agreement and it continued with the preparation of its claim for liquidated damages.

• The commercial unreality of the agreement.

MPL argued that it would have been “strange for the Claimant to abandon a substantial claim for liquidated damages in the face of a poorly articulated argument for an extension of time which the Claimant did not accept and which was likely to involve markedly smaller sums than the liquidated damages claim.” ⁴ It was further argued that “liquidated damages was a powerful weapon in persuading the Defendant to progress the works quickly and it would lack commercial sense for the Claimant to abandon that weapon.”⁵

The internal documents revealed that MPL was concerned that FIS would leave or deliberately delay the works. It could be considered that dropping the liquidated damages claim was a price worth paying to ensure the project reached completion.

• FIS failed to state promptly and clearly that an agreement had been formed.

Mr Higginbottom’s email to Mr Kite on 19 October 2020 did not expressly state that a definitive agreement had been reached; instead, it indicated that they wanted to conclude the project amicably. Only on 16 November 2020, FIS had emailed MPL that there had been an agreement.  

FIS’s argument

FIS argued that on the call, MPL stated that “it would be better if both sides dropped their legal claims and moved forward to get the project completed” ⁶; in response, FIS stated that it was not a contractual company.

FIS’s external or objective evidence was its internal communication.

In an email dated 19 October 2020 between Mr Kite and Mr Higginbottom, though the email did not expressly state that an agreement had been formed, it did state that MPL was being “good to their word.” ⁷

On 9 November 2020, Mr Higginbottom emailed with his understanding of the call, which was to the effect that an agreement had been reached on the phone, and he was advising FIS on how to put forward its stance to MPL as strongly as possible. The court accepted that Mr Higginbottom was seeking confirmation that his understanding was correct, and his interpretation of the call was correct based on what Mr Kite had told him.

The fact that Mr Kite did not contradict Mr Higginbottom’s understanding was significant; this showed that this was also Mr Kite’s understanding of the call at that time. The court rejected MPL’s argument that FIS adopted a false account.

FIS stated in its letter dated 16 November 2020 to MPL that there had been an agreement for mutual abandonment of competing claims. On the same day, MPL proposed a meeting, but MPL did not correct and never corrected FIS’s account of the call. The judge noted that the adjudicator regarded MPL’s failure as “telling” ⁸. The court was not persuaded by MPL’s argument that it did not correct the account because it did not wish to antagonise FIS further.

Held

The judge found FIS’s recollection of the conversation more reliable, and Mr Ramanathan’s comments “went beyond saying that the parties should get on with the works with a view to having an amicable resolution of the legal issues at the end of the project.” ⁹  Furthermore, FIS’s recollection is the only “realistic explanation” based on its evidence and its actions after the call.¹⁰

The judge doubted the reliability of Mr Ramanathan’s recollection of the call. MPL claimed that after the call, Mr Ramanathan had a conversation with Mr Maunders (Employer’s agent), in which Mr Maunders authorised the despatch of an email. The email did not refer to any agreement and treated the extension of time issue as still live. However, it transpired that the email was sent before the call, indicating that Mr Ramanathan’s recollection was mistaken in some respects.

The court noted that it would be rare for a court to find the precise words used if a conversation was brief and lacked supporting evidence. Instead, “the court will make a finding as to the gist of the conversation on the balance of probabilities then objectively consider the effect of the gist of the conversation.¹¹

Having considered all evidence, the court held that “there was an exchange in the context of both parties wishing to move forward to a rapid completion of the project in which the Claimant agreed to drop its potential claim for liquidated damages in return for the Defendant agreeing that it would not seek to claim loss and expenses consequent upon an extension of time… [the judge was] satisfied that the abandonment of the respective claims was on a final and not a provisional basis.” ¹²  MPL was denied the declarations sought, and FIS was entitled to a declaration as to the existence and effect of the agreement.

2a. Was the Claimant precluded from serving a Non-Completion Notice and seeking Liquidated Damages under the Terms of the Contract?

The court found that MPL was not precluded from serving the notice.

2b. Was the Contractual Provision for Liquidated Damages void or unenforceable as a Penalty Clause?

The court found that the liquidated damages provision was not a penalty clause as FIS could have obtained an amendment when it was proposed initially. Nevertheless, they did not and accepted the Contract.

2c. Was the Provision for Liquidated Damages inoperative and unenforceable by Application of the Approach in Bramall & Ogden v Sheffield City Council?

The court found that the mechanism for calculating the reduction for liquidated damages was cumbersome but capable of being operated.

What does this mean in practice?

• Where a dispute involves a conversation without sufficient records, courts cannot provide findings as to the precise words used. Instead, they will find the gist of the conversation on the balance of probabilities.
• Any supporting evidence will be judged objectively, having regard to the surrounding circumstances, putting aside undisclosed subjective intention or beliefs.
• This case is a helpful reminder that it is vital to record any agreements in writing. If this is not possible, ensure your conduct aligns with your belief and records are kept (e.g. email correspondence, meeting notes, witness statements) to show that an agreement has been reached.

References

¹Mansion Place Ltd v Fox Industrial Services Ltd [2021] EWHC 2972 (TCC) [65]
²Mansion Place Ltd v Fox Industrial Services Ltd [2021] EWHC 2972 (TCC) [55]
³Mansion Place Ltd v Fox Industrial Services Ltd [2021] EWHC 2972 (TCC) [56]
⁴Mansion Place Ltd v Fox Industrial Services Ltd [2021] EWHC 2972 (TCC) [62]
⁵Mansion Place Ltd v Fox Industrial Services Ltd [2021] EWHC 2972 (TCC) [62]
⁶Mansion Place Ltd v Fox Industrial Services Ltd [2021] EWHC 2972 (TCC) [57]
⁷Mansion Place Ltd v Fox Industrial Services Ltd [2021] EWHC 2972 (TCC) [65]
⁸Mansion Place Ltd v Fox Industrial Services Ltd [2021] EWHC 2972 (TCC) [70]
⁹Mansion Place Ltd v Fox Industrial Services Ltd [2021] EWHC 2972 (TCC) [72]
¹⁰Mansion Place Ltd v Fox Industrial Services Ltd [2021] EWHC 2972 (TCC) [71]
¹¹Mansion Place Ltd v Fox Industrial Services Ltd [2021] EWHC 2972 (TCC) [77]
¹²Mansion Place Ltd v Fox Industrial Services Ltd [2021] EWHC 2972 (TCC) [78]