Dispute - matters relating to a construction project - the existence of a
contract - financial consequences
[2020]JRC179
Royal Court
(Samedi)
8 September 2020
Before :
|
T. J. Le Cocq, Esq., Bailiff, and Jurats Blampied and Thomas
|
Between
|
Sir Bob Murray C.B.E.
|
Plaintiff
|
And
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Camerons Limited
|
Defendant
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Advocate N. M. C.Santos-Costa
for the Plaintiff.
Advocate S. M. J. Chiddicks
for the Defendant.
judgment
the bailiff:
Introduction
1.
This is a
dispute between Sir Bob Murray CBE (“the Plaintiff”) and Camerons
Limited (“the Defendant”) concerning the construction of a dwelling
house known as L’Orangerie (“the
Project”) which is situated on the land to the west of Les Lumieres, La Route Orange, St Brelade,
Jersey. The Project was described
as Les Lumieres West as well as Coeur du Nord and L’Orangerie.
The Plaintiff lived at Les Lumieres prior to
the construction of L’Orangerie which was
designed for the Plaintiff and Lady Susan Murray (Lady Murray) as their main
residence.
2.
The
matters in dispute relate to the existence of a contract between the parties in
connection with the Project, the terms of that contract and the financial
consequences that flow from the relationship between the parties. The dispute encompasses the basis on
which payment should be made for works done in and around the Project, and
whether any monies are still to be paid or indeed to be repaid.
3.
The
Plaintiff is a businessman with significant experience in building projects
mainly in the North East of England where he lived prior to moving to
Jersey. He resides in Jersey and
has made Jersey his home and has lived here for more than fifteen years.
4.
The
Plaintiff engaged the following professionals for the Project
(i)
Identity
Consult, based in Sunderland to manage the Project (“IC”);
(ii) Godel Architects based in Jersey;
(iii) RNJ Partnership LLP based in Newcastle upon
Tyne to act as Quantity Surveyor (“RNJ”);
(iv) Turner & Townsend Cost Management Ltd,
based in Leeds (“T&T”) from January 2015.
Representatives of IC and T&T gave
evidence, but there was no evidence from GodelArchitects
or RNJ.
5.
The
Defendant is a substantial building contractor with over 60 years’
experience in Jersey. It was
represented during the Project by Mr Marc Burton (“Mr Burton”), the
Managing Director who gave evidence on its’ behalf. The Defendant was the main contractor for
the Project from commencement in March 2014 until the Plaintiff removed it from
the site in February 2016. Mr
Burton is a member of the Chartered Institute of Building and has worked in the
construction industry in Jersey for over 24 years. He has worked on pre-construction
negotiations and the delivery of major construction projects including
commercial buildings and high-end residential properties.
The Nature of the Dispute
The Plaintiff’s Case
6.
It is the
Plaintiff’s case that in or about April 2014 he entered into a JCT
intermediate form of contract (“the Intermediate Contract”) with
the Defendant to enable the Defendant to commence certain Enabling Works
(“the Enabling Works”) on the Project. The Enabling Works comprised, amongst
other things, sub-structure work, including excavation and earth works, piling,
service diversions and drainage work.
In order to complete the Project, once the Enabling Works were
concluded, the building would then need to be erected and there would need to
be internal finishing, mechanical, electrical installations and other
associated external works and landscaping (“the Main Works”).
7.
Whilst the
Defendant was carrying out the Enabling Works it also undertook certain
measurement and pricing of the Main Works required to complete the
Project. It was anticipated, so it
is pleaded, that the Defendant contemplated commencing such works in and around
November 2014. The
Defendant’s pricing for the remainder of the Main Works was considered by
the Plaintiff’s Quantity Surveyor, RNJ, who carried out an assessment and
reported in a cost report to the Plaintiff on the 29th October 2014
(“the RNJ Cost Report”).
8.
The RNJ
Cost Report indicated a recommended potential works cost for the Project in the
sum of £5,548,172 (excluding GST) which was inclusive of the sum paid by
the Plaintiff in respect of the Enabling Works and part construction of the
house under the Intermediate Contract (which, at that time, amounted to
£1,783,242). The RNJ Cost Report included £1,161,400 in respect of
provisional sums and allowances .The Plaintiff and the Defendant then entered
into an agreement which, so the Plaintiff alleges, was constituted by a Letter
of Intent issued and signed by the Plaintiff on the 4th November
2014 (“the Letter of Intent”) subject to certain amendments
recorded in an exchange of emails with Mr Burton both dated the 7th
November 2014 (“the November 2014 emails”) to which reference will
be made hereunder.
9.
It was the
intention of the parties that the agreement would ultimately be covered by a
JCT Standard Form of Contract (“the JCT Standard Contract”) but one
was never executed because, so it is alleged, of the delays in the Project, the
Defendant’s reduced performance on site, and the Defendant’s
attempts to seek additional costs over and above the costs specified in the RNJ
Cost Report. The Plaintiff alleges
that the Defendant commenced main works on the site on the 24th
November 2014. Negotiations
concerning the price for the Main Works proceeded in parallel with the work
being undertaken under the Intermediate Contract. There were a number of factors that
presented, potentially, a risk to the certainty of the costing identified in
the RNJ Cost Report and the Plaintiff alleges that it was his intention that
the risks would be discussed and negotiated, and the costs and timescale of the
works, amongst other things, would be agreed and set out in the JCT Standard Contract. It is alleged that the Defendant failed
to prepare and present to the Plaintiff a proper and fully considered proposal
and instead adopted a piece meal approach with the cost of every item being
considered as it arose.
10. Negotiations and discussions failed and at the
end of the process, so it is alleged, there were amongst other things:-
(i)
no agreed
contract signed;
(ii) no agreed basis for the measurement of the
costs of changes;
(iii) no agreed basis for the measurement of the cost
of any additional work;
(iv) no agreed programme for the works;
(v) no agreed completion date;
(vi) no identified sum for liquidating and assessing
damages;
(vii) no contract administrator who would be required
to act impartially between the Plaintiff and the Defendant.
11. It is further alleged that the Defendant’s
conduct undermined the Plaintiff’s trust and confidence in the Defendant
and was unreasonable. A number of
allegations are made by the Plaintiff in his amended Order of Justice.
12. In a meeting between Mr Burton and Mr Darren
Laybourn (“Mr Laybourn”) of T&T held on the 20th
August, 2015, Mr Laybourn advised Mr Burton that the Project was reaching a
critical phase and that the Plaintiff was alarmed in the escalation of
costs. He asked for Mr
Burton’s assistance in seeking a way forward and for him to take a
commercial view. Mr Burton was
informed, so it is alleged, that if there was no improvement on the costs then
the Plaintiff would be left with no alternative but to terminate the
Defendant’s involvement.
13. There was a meeting on the 2nd
September, 2015, which the Plaintiff, Mr Laybourn and Mr Dent and Mr Burton
were present. Mr Burton was asked
to produce his “very best
price”. On the 28th
September, 2015, the Defendant submitted an updated estimate which details an
adjusted contract sum of £7,731,038.
After further discussion on the 8th December 2015 Mr Burton
provided Mr Laybourn with four further cost options which range from
£7.99 million to £8.27 million. These cost options were not acceptable
to the Plaintiff and he terminated the Letter of Intent without any expressed
reasons on 26th February 2016.
The Plaintiff alleges a number of losses, defective works and other
costs including the repayment of £210,143 paid under Architects
Certificates in respect of which the Plaintiff alleges he was overcharged.
14. In essence, the Plaintiff claims that the
Defendant was not entitled to charge on any basis other than that set out in
the Letter of Intent.
The Defendant’s Case
15. The Defendant pleads that the November 2014
emails qualify the Letter of Intent and meant that the Letter of Intent was
governed by the JCT Standard Contract.
The Defendant alleges that the Letter of Intent and the November emails
were based upon the RNJ Cost Report, the quantities rates and prices used as
the basis for the figures contained in that report, a document entitled
‘Pricing and Measurement of Works dated the 19th August
2014’ referred to in the RNJ Cost Report and the terms of the JCT
Standard Contract.
16. It was understood that the parties were to
finalise the contract for the Main Works by the end of November 2014, and the
Letter of Intent was a holding measure following the imminent completion of the
Intermediate Contract which had been extended to 21st November
2014. Notwithstanding the fact that
the contract had not been finalised, the works on the property continued giving
effect to a number of changes and variations effected by agreed measurement,
revision of drawings and Change Control Requests (referred to hereunder)
included within architect’s instructions. These were works, so it is alleged,
outside the steps provided for under the Letter of Intent.
17. The Defendant alleges that at all times with
the prior instruction, approval and agreement of the Plaintiff it undertook the
Main Works on the understanding that this was in accordance with a JCT Standard
Contract and the agreed amendments to that contract. The Defendant submitted interim
valuations on the basis of agreed values which had been agreed and which, so
the Defendant alleges, were subject to the terms of the JCT Standard
Contract. It is alleged that the
Plaintiff, through his professional agents and advisers, valued and certified
the Main Works on the same basis, issuing interim certificates pursuant to which
the Plaintiff made interim payments in accordance with the JCT Standard
Contract. This is referred to as
the “agreed value basis”. It is the Defendant’s case that
the Letter of Intent to the extent that it refers to the Defendant’s
entitlement to “all direct and
actual costs properly incurred” does not cover the Defendant’s
entitlement to payment for work or services under the agreed valuations and in
accordance with the JCT Standard Contract and/or is restricted to the
reimbursement of the costs of the work expressly provided for by the Letter of
Intent.
18. The Defendant goes on to allege that in any
event the Plaintiff is estopped by convention or representation from denying
the Defendant’s entitlement to payment in accordance with the agreed
valuation basis, the agreed values and the terms of the JCT Standard Contract
or, alternatively, the Defendant is entitled to payment on a quantum meruit or by virtue of the
doctrine of “unjust enrichment”.
19. The Defendant also advances a counterclaim for
balance owing under the contract between it and the Plaintiff in the sum of
£623,752.79.
The Factual Matrix and Evidence
20. We have before us affidavit evidence and have
heard a significant amount of oral testimony on behalf of the Plaintiff. For the Defendant, as we have said, we
heard from Mr Burton. We also heard
expert evidence to which we will make some reference later in this
judgment.
21. Although we do not refer to all of the evidence
that we have read and heard, all has been considered by us, and the Court has
had the opportunity to assess the witnesses through their oral testimony.
22. In or around 2013 the Plaintiff had engaged Mr
David Dent (“Mr Dent) of IC to manage three building projects (including
the Project at L’Orangerie
) on his behalf in Jersey. On 14th
October 2013, Mr Dent emailed Mr Burton of the Defendant to invite the
Defendant to tender for all three projects. The Defendant’s tender for one of
the projects (La Pinede) appeared to be successful.
The Parties did a significant amount of work amending the JCT Standard Contract
that was to apply to that project, but the Plaintiff changed his mind and
appointed JP Mauger. The Defendants
were successful, however, in securing the tender for the Project and the
various amendments to the standard JCT contract discussed for the La Pinede
contract were utilised in agreeing the Intermediate Contract for the
Project. Those amendments were
referred to by the Defendant as the “Agreed Amendments”. The Defendant’s pricing for the
works on the Project was based upon drawings and specifications and
measurements prepared by RNJ. RNJ checked and amended the Defendant’s
pricing as appropriate.
23. On the 10th February 2014, Mr Burton
emailed Mr Stephen Box (“Mr Box”) of RNJ giving details of the
preliminary costs (which at that stage amounted to £677,610) for the Enabling
Works. In his email it is clear
that the Defendant intended to charge overhead and profits (“OHP”)
at a rate of 6.5% and this would be applicable on the net construction costs
and the preliminaries. It is, so we
are informed, standard practice in the construction industry to add a
percentage to the net cost for OHP.
24. On the 20th February 2014, Mr Dent
emailed the Defendant indicating the Plaintiff’s wish for work to
commence on the site on the 24th March 2014, and in his email he
stressed the need to meet the Plaintiff’s target cost of £4 million
excluding preliminaries, OHP, professional fees and GST. On the 28th February 2014, Mr
Box emailed Mr Dent and other professionals to discuss the Enabling Works and
the Main Works. He set out the
scope of the works and the quantum for the Enabling Works and stated that he
had agreed with the Defendant that the Intermediate Contract (with
contractor’s design portions) would be appropriate. It is clear that elements of design of
the Project had not yet been finalised.
25. On the 25th March 2014, Mr Box
emailed the Defendant attaching the price document produced for contract
purposes. He also attached the
schedule of amendments prepared in accordance with discussions with the
Defendant which were the amendments that had been proposed, as indicated above,
when the Defendant was tendering for a different project. The amendments relate to JCT Standard
Contract, although the contract for the Defendant to deal with the Enabling
Works was to be the Intermediate Contract.
26. Work commenced as anticipated on the 24th
March 2014. On the 15th
April, the parties signed the JCT Intermediate Building Contract with
Contractor’s Design 2011 in order to complete groundwork by the 16th
May 2014 at a contract price of £535,256. This contract included a Schedule of
Amendments to the JCT Standard form of Building Contract 2011 edition without
quantities. As we have said this
schedule of amendments was more extensive than for an intermediate contract and
would be seen as appropriate for the main contract. This schedule was signed by the
Plaintiff and witnessed by Mr Dent.
27. On the 28th April 2014, the Enabling
Works had been completed and it was agreed to extend the Intermediate Contract
to permit work to start on building the house. The contract was extended to the 21st
November 2014 by way of architect’s instruction and the work (by this
time, part of the Main Works) continued uninterrupted in anticipation of a
signed contract.
28. On the 28th April 2014, the
Defendant wrote to Mr Dent to say that they had reviewed the interface between
the Enabling Works and the Main Works to ascertain the necessary requirements
for the continuation of the works.
Post the Enabling Works the Defendant required ground work, block work
and form work contractors to be on site and undertaking their work together with
the necessary materials and products.
It is important to note that by the time the Intermediate Contract, as
extended, eventually expired in November 2014 the Defendant had constructed the
basement structure, the basement walls and columns, and ground and first floor
slabs, walls and columns, which was work in addition to the basic Enabling
Works and added a total of a £1,200,000 to the final cost of the
Intermediate Contract. This, in our
view, suggests that the Main Works - the construction of the property that the
Plaintiff wanted – had started in May of 2014, and that the Defendant had
been working on it well in advance of the Letter of Intent.
29. On the 1st May 2014, IC started a
Change Control Request (“CCR”) procedure. This had been agreed between the
Plaintiff and his professional advisers, and was in effect presented to the
Defendant as a fait accompli. The process, in short, involved RNJ
sending a short description of the proposed work to the Defendant for pricing.
The price would then be checked by RNJ and sent to the Plaintiff for approval. Once the approval was given, the
architect would issue an architect’s instruction (“AI”) which
the Defendant would execute. It
seems to us that process had become necessary because there were a number of
items in the specification that had not been finalised and the Plaintiff, from
time to time, changed his mind on what he wanted. The CCR’s all included a 6.5% OHP
element.
30. On the 17th June 2014, a meeting was
held on site. The Plaintiff and his wife, Lady Murray and their daughter, who
is an interior designer, were present as was Mr Dent, Mr Andrew Milnes
(“Mr Milnes”) of IC and Mr Godel, the architect, and Mr Burton and
others from the Defendant. During
the meeting, a presentation was given by the Defendant and the design team
which indicated a total estimate construction cost (excluding contingency) in
the sum of £5,434,567. This
was slightly above the figure of £5,250,000 which the Plaintiff had as
the target construction cost. At
the meeting, the Plaintiff confirmed the construction programme for completion
at Christmas 2015, and the Plaintiff confirmed that the contract should be put
in place to action, other than the contract sum which at that point remained to
be settled.
31. In his evidence before us, the Plaintiff
indicated that he had never seen a breakdown of the contract sum. However, we note that the meeting
suggests that he was asking for a breakdown of some elements and was already
seeking to reduce the projected cost.
RNJ produced a cost overview summary for that meeting and continued to
produce updates until the Letter of Intent was signed by the Plaintiff. These
cost overviews gave breakdowns of the total estimated construction cost and
formed the basis of the cap incorporated in the Letter of Intent. We also note
that this meeting suggests that the Defendant would have been led to understand
that the contract would be put in place very shortly thereafter.
32. On the 4th August 2014, Mr Milnes of
IC wrote to Mr Box of RNJ requesting a full copy of the Schedule of Amendments
as he was working up a clean copy of contract amendments prior to agreeing the
contract sum. Mr Box confirmed that this full version had been incorporated
into the set of contract documents issued to the Employer and the
Contractor. It seems to us to be
clear that all parties were proceeding on the basis of the schedule of
amendments already incorporated in the Intermediate Contract.
33. Following a client meeting on the 28th
July, RNJ issued an updated cost overview showing a recommended potential works
cost of £5,404,956 after deducting £55,000 for adjustments and
recommended discounts. In Note (vi)
of that Report they say:-
“RNJ have sought
adjustments and commercial discounts / better buy in respect of preliminaries,
windows, glazed façade and stone cladding; to date Camerons have not
offered any such adjustments; the amounts noted above are purely notional
reductions in cost inserted by RNJ; RNJ cannot guarantee that reduction in this
magnitude will be achieved.”
34. On the 3rd October 2014, RNJ issued
an updated costs overview and recommended potential costs of £5,458,665
which included the cost of the Enabling Works and the other work done under the
intermediate contract. The notes to
this costs overview provide that no allowance was made for cost implications of
ongoing design, development of works or contractor’s design. The provisional sums and allowances are
stated at being £1,161,400 net, and reference is made to the works
associated with completion of the Project to be procured in accordance with JCT
Standard Contract incorporating client amendments and priced in accordance with
the document “Pricing and Measurement of the Works dated the 19th
August 2014”. This document
was sent by Mr Dent to the Defendant on the 6th October 2014 and
amongst other things, in the email Mr Dent indicates that the Plaintiff is keen
to enter into a contract for the Project with a Letter of Intent being issued
this week and a contract entered into soon after. In the email, Mr Dent says:-
“The ability of the
family to enter into contract is however subject to Camerons being able to
accept an overall price of £5,375m…..”
Mr Burton responded on 7th
October asking:-
“Could you give me an
idiot’s guide to how you get from RNJ’s figure of £5.458 to
your proposal of £5.375, please?”
35. The difference between the figure proposed by
RNJ and that figure as suggested by Mr Dent is unexplained. In his oral evidence the Plaintiff
stressed his wish to have “value for money”. It seems to us that this exchange is a
good example of what the Plaintiff meant by seeking value for money.
36. On the 22nd and 23rd
October 2014, an exchange took place between Mr Burton and Mr Dent starting
with the Defendant’s request to add a percentage for contractor’s
design portion supplements. This
was never agreed. In his email of
the 23rd October, Mr Burton says this:-
“The bigger issue here
is, does the client understand that the price will fluctuate up or down? We are not signing a lump sum contract
and as I have previously advised we think there will be a number of additional costs
that will become apparent once the construction drawings have been issued as
the design has changed / developed since February, with two good examples being
the underground drainage and the steel reinforcement in the concrete
structure.”
37. It was clear, at this point, that the Defendant
was not agreeing to a fixed price contract.
38. On the 4th November, RNJ revised the
cost overview dated the 29th October in manuscript. It shows the sum of £3,764,930 for
the main contract and a cost of £1,783,242 for the Intermediate
Contract. The total cost remained
the same at £5,548,172.
39. On the 4th November 2014, Mr Burton
attended on site with Mr Box and the Plaintiff. The Intermediate Contract was due to
expire on the 21st November 2014. At the meeting the Plaintiff handed a
copy of the signed Letter of Intent to Mr Burton. There is no evidence that this letter
had been shown to the Defendant previously, nor had they been asked for their
comments. It was presented as a
“fait accompli”. It
appears to us that as work on building the property had started in May 2014,
following completion of the Enabling Works, both parties wished to continue to
work on the building without interruption.
It also appears to us that Mr Burton anticipated that the JCT Standard
Contract for the Main Works would be signed very shortly afterwards. The Letter of Intent was to enable the
Main Works to continue, which as we have indicated we believe to have started
in May 2014. So far as the Defendant
was concerned it was intended as a provisional holding document prior to the
early finalisation of the JCT Standard Contract, but at the same time it
purported to place a cap on the total project cost of £5,548,172 in
accordance with the RNJ cost overview.
The Letter of Intent
40. We set out certain provisions of the Letter of
Intent as it has been examined during the course of this dispute in some
detail.
41. After the heading “Letter of Intent – Coeur du Nord”, the Letter of
Intent contains the following introduction:-
“I would confirm that
subject to completion of the final contract documentation it is my intention to
award a contract for the above works to Camerons Ltd which will be let under
the JCT Standard Form of Building Contract Without Quantities 2011 complete
with Client amendments and Contractor Design Portion Supplements for the design
and completion of Coeur du Nord along with associated swimming pool, external
works and landscaping.”
42. There are then a series of numbered paragraphs
which we set out in full:-
“1. This letter
authorises Camerons Ltd to commence Site Mobilisation, Procurement of
Materials, and Engagement of Supply Chain to commence 24th November
2014.
2. The Contract Completion
date will be the 26th February 2016.
3. The scope of works is as
defined within the tender documentation and any updated design information received
to date.
4. Camerons will be
reimbursed for all direct and actual costs properly incurred by you after the
date of this letter including cancellation costs provided that our aggregate
total maximum liability under this letter of intent shall not exceed the sum of
£3,764,930 excluding GST.
5. Contractor Design Portion
Supplements are defined within the tender documentation to date.
6. Upon receipt of this
letter you will provide certificates of insurance cover confirming that all
insurances that you are required to obtain are in place and where appropriate
in the joint names of Camerons Ltd and Sir Bob Murray.
7. An appropriate Health and
Safety Plan will be put in place and you will warrant to us that you are
competent and have allocated or will allocate adequate resources to ensure
compliance with Health and Safety issues.
8. You hereby grant us an
irrevocable, non-exclusive royalty free license to use and reproduce all
drawings, details, plans, calculations, specifications and other work prepared
by you and or on your behalf by any consultants or subcontractors pursuant to
the instruction contained within this letter of intent for any purposes
whatsoever.
9. You will endeavour to
obtain on our behalf a Collateral Warranty from sub-contractors who are
carrying out a design function in connection with the works pursuant to this
letter of intent.
10. In accordance with the terms of the
draft contract you hereby indemnify us against claims for death or personal
injury or damage to real or personal property arising out of or in connection
with any activities carried out under this letter or by any act, negligence or
default by you or your sub-contractors, suppliers or agents.
11. If and when the Contract is entered
into between us the terms of the Contract will supersede this letter which will
thereupon cease to have any further effect save as set out herein.
12. I reserve the right to terminate this
instruction at any time and for any reason immediately on written notice where
upon you will deliver to us all proprietary material associated with this
letter of intent.”
43. The Letter of Intent concludes with the words:-
“Kindly acknowledge your
acceptance of this letter and your agreement to proceed in accordance with its
terms by signing and returning the letter.”
44. Under the Plaintiff’s signature there is
a typed space for the signature of Mr Burton as Managing Director of the
Defendant acknowledging receipt and accepting the terms of letter. Mr Burton signed the letter on 11th
November but added the following manuscript endorsement to his signature:-
“The above is agreed and
amended by the wording stated within the emails dated the 7th of
November 2014, copy attached.”
On 12th November Mr Milnes of IC
forwarded the Letter of Intent as countersigned by Mr Burton with attachments
to the Plaintiff. At no time did the Plaintiff or his agents seek clarification
as to the meaning of Mr Burton’s amendments to the Letter of Intent.
The November 2014 emails
45. The emails referred to in the manuscript
endorsement of the Letter of Intent were both dated the 7th November
2014. The first was timed at 8.50
a.m. Mr Burton wrote to Mr Dent in
the following terms:-
“Following receipt of the
Letter of Intent on the 4th November, I can confirm that we will be
willing to sign the document on the basis of the following:-
(1) Item 4 – to clarify the
overall sum of the combined letters of intent is £5,548,172 as per RNJ
Cost Overview Report dated the 29th October 2014;
(2) Item 5 – CDPS we note the
above figure excludes the contractor’s risk of 3%. We cannot agree that this item is zero,
therefore this item remains to be agreed and once agreed the sum will be added
to the above figure;
(3) Item 12 – termination
should be by notice to terminate within 28 days notice,
as we will need time to demobilise from the site;
(4) Extra item – the Letter of
Intent will be governed by the terms of the proposed standard form of contract
and agreed amendments.
General note. I understand there may be sums included
within the Letter of Intent relating to what will become domestic
sub-contractors where we are yet to receive a copy for the quote for
verification. An example being
Herrington Gate, where the sum of £88k is included but we have no copy of
the quote. We will need all quotes
and back-ups for review before accepting on a domestic arrangements so could
you ask Stephen Box to release the necessary information please.
If you could confirm agreement
to the above I will then sign the document and email copies back to you
appending this email.” (“Mr Burton’s November 2014
email”)
46. A response was received from Mr Dent on the
same day, timed at 13.44 (“Mr Dent’s November 2014
email”). That email is copied
to Mr Box of RNJ and Mr Milnes of IC.
It reads:-
“In principle we are
comfortable with the points raised given that this relates to an LOI.
Please can you add in the
additional point we reference to the amended JCT and initial. Can you also amend the termination period
to 28 days and again initial and forward the signed LOI to our offices.
With regard to the overall
combined contract sum I will leave that up to Stephen and David to finalise,
albeit I believe that discussions have taken place already so hopefully this
will not prove to be contentious.
I also note your point in
relation to the CDPS and as discussed on Tuesday we will need to give this
matter some further thought as to how we wish to proceed, i.e. does the client
take the risk or is it passed across to CL. We will revert back to you on this.
Look forward to receiving the
signed LOI in due course.”
47. It appears to us that the purpose of the Letter
of Intent was to enable work to continue on the site uninterrupted. To an extent Clause 1 of the Letter of
Intent is somewhat strange given our understanding that much of the work it
references had been in progress since May 2014. Given that the authority it grants is
limited it is not apparent that the Defendant was authorised by it to go beyond
those works stated in it.
48. Clause 3 identifies the scope of Main Works
which seem to have been accepted by the parties as capable of ascertainment and
would be updated.
49. The cap in Clause 4 appears to us to be the
full contract price as certified by RNJ which is surprising as the evidence
before us was that such caps in letters of intent are generally limited to
between 10% and 20% of the full contract price. Given that prima facie the ambit of the Letter of Intent under Clause 1 was
relatively narrow in the work it authorised the Defendant to carry out this is
again strange. What this appears to
demonstrate to us, however, is that the Plaintiff and Defendant both agreed
that the full tender price and cap was based on the RNJ Cost Report, which was
itself based on the Defendant’s figures. The evidence before us, as we refer to
later in this Judgment, was that the Plaintiff wanted the cap to remain,
notwithstanding alterations to the design brief and delays in completion. The cap was never agreed by the
Defendant as applicable to the whole Project notwithstanding changes but rather
to the works provided for in the RNJ Cost Report.
50. Clause 5 of the Letter of Intent defines the
contractor design portion supplements as within the tender documentation to
date. It is clear, therefore, that
the Letter of Intent refers to the tender documentation prepared by the
Defendant. This documentation was
itself extensive and supported the price quoted by the Defendant. Clause 10 makes reference to ‘the terms of the draft
contract’ which appears to us to be a reliance upon the terms of the
JCT Standard Contract which was then in the process of finalisation.
51. The evidence before us was that the Defendant
did not seek legal advice on the Letter of Intent before responding with Mr
Burton’s November 2014 email.
Mr Burton’s reference to ‘agreed
amendments’ appears to us to be those amendments that were attached
to the Intermediate Contract and which had been agreed between the Defendant
and the Plaintiff previously. In Mr
Dent’s November 2014 email, he does not seek to clarify what was meant by
‘agreed amendments’ and
we assume therefore that these amendments and their nature were understood by
Mr Dent.
52. We note that in evidence the Plaintiff denied
ever having seen Mr Burton’s amendments to the Letter of Intent. We find this difficult to accept but, in
any event, there was no doubt that the nature of the amendments were understood
by the Plaintiff’s agents and those negotiating on his behalf. We also note that the Plaintiff refers to
the Letter of Intent (in his letter
to Mr Burton dated 3rd November 2015) as “…our
signed letter of intent dated 4th November 2014 and the emails
attached to it dated 7th November 2014”.
53. Work continued thereafter on the draft JCT
Standard Contract which appears to have been largely agreed by the 3rd
December save with regard to the Defendant’s request for a 3% uplift for
contractor’s design portion
supplements (CDPS), the Defendant’s loss of profits on items removed from
the contract, the parent company guarantee, and a final price.
54. On the 7th January, Mr Box forwarded
by email to Mr Burton copies of schedules identified with contract drawings,
and Mr Burton asked one of the Defendant’s employees to check that the
drawings were the same as those which had formed the basis of the tender. It was established that these drawings
were done in November 2014 and that there was a material difference from the
February 2014 drawings on which the tender had been based. Those differences would affect the
tender price. In his evidence
before us, Mr Burton said that these drawings were a surprise to him and he put
the contract on hold.
55. By the 21st January 2015, the
Defendant had become concerned at the cost implications of the new
drawings. In evidence before us,
the Plaintiff asserted that the building had not changed. This assertion is difficult to
accept. In evidence, the Plaintiff
relies on the fact that the ‘footprint’ of the Project had not
changed, but it is clear to us from a review of the comments on the revised
drawings circulated by Defendant that the changes were potentially substantial.
56. In January, so we understand, the Plaintiff
appointed T&T as his quantity surveyors, but retained RNJ in place as
well. The Plaintiff, in his
evidence, told us that he engaged T&T as he was “terrified by what was going on”. It was obvious to him, so he said,
that the Defendant was taking advantage.
He thought that RNJ were not up to the struggle and that T&T, and
particular Mr Laybourn, was able to deal with it.
57. On the 23rd January 2015, Mr Burton
emailed Mr Dent listing fifteen issues and suggesting seven proposals to
rectify them. One of the issues
that he listed was that the Project was falling behind, the reason for which,
in part, was that progress on the site was ahead of the design for the
interior. He was concerned about a
withdrawal by the architect of an instruction to the builder and difficulties
that were arising with the CCR process.
He says this:-
“I must advise that works
previously instructed are now uninstructed and will be stopped immediately
which will incur us in abortive costs and have severe programme
implications”.
He also says at item 9,
“ I am deeply concerned
that owing to current status of the design we are at risk of having to work in
both an inefficient and uneconomical manner which will incur us in additional
management and other costs which will need to be recovered.”
He also says to Mr Dent:-
“David, if you do not act
fast the Project will descend into further chaos.”
Mr Dent’s response did not appear to
engage with the Defendant’s concerns and instead asks for the Defendant’s
contractor’s proposals for each of the CDPS elements which “are
essential for completing the contract documents”.
58. On the 21st February, Mr Burton
emailed again to say that the site is effectively on hold and a lot more work
needs to be done before the Defendant can commence work again. He indicates that the Project urgently
needs a manager. We have not noted
any reply to this email.
59. It appears to us that the Project was, as Mr
Burton feared, descending into chaos.
The Project had not been properly thought out and there were a number of
difficult features including the imposition on the Defendant of sub-contractors
who did not meet their standards and had no experience of working in Jersey,
the engagement of the Plaintiff’s daughter as interior designer, and the
disinclination to engage with the Defendant’s concerns. The Plaintiff, to us, appeared to be
focussed on having a fixed price and did not appear to wish to accept the
consequences of the change in instructions and the difficulties with the Project.
60. On the 13th March, the Defendant
submitted a revised bill of quantities to RNJ in the sum of
£7,003,940. That figure was
backed up by detailed schedules and the variations to the contract reflected
the revised drawings and the developing interior of the finished project.
61. On the 26th March, Mr Burton wrote
again to Mr Dent reporting on a meeting with Mr Laybourn, The email refers to
Mr Burton’s understanding that Mr Laybourn had informed him that he had
advised the Plaintiff not to rush into the contract and not to accept any other
form of contract other than a lump sum fixed price.
62. On the 27th April, Mr Burton sent
another email repeating the points he had made in January and February. We were not shown any response and
conclude that there was no response at all. The Defendant was expressing concerns
about cost delays and delaying decisions on design.
63. On Friday 8th May, T&T issued
RNJ’s interim assessment of the 2nd April 2015. This adjusted the Defendant’s bill
of quantities down to £6,428,127 from the £7,003,940 mentioned
above. The Defendant then issued a
quotation in the sum of £6,882,796.
This suggests to us that both sides of the contract accepted that the
price had moved from the price originally anticipated in the RNJ Cost Report to
a different price and that, on the assumption that the cap in the Letter of
Intent was intended to be a maximum figure for the Project then that cap was no
longer realistic and could not be the basis for the cost of the Project. The cap in the Letter of Intent, tied as
it is to the RNJ Cost Report, was based on an earlier specification for the
Project. It appears to us that it
must have been in the Plaintiff’s anticipation that new plans and
specifications were being drawn up (given that they were sent by Mr Box to Mr
Burton on the 7th January), when the Letter of Intent was prepared
and signed by the Plaintiff. The
Plaintiff must have known that the cap in the Letter of Intent was de facto tied to the RNJ Cost Report
which itself was based on a different specification for the Project. On the basis, which we think likely to
be the case, that the Plaintiff knew at the time of the Letter of Intent that
the specification was in the process of changing or would in the future change
(as indeed it did) he could not have believed that the cap would represent the
overall and final cost of the Project.
64. On the 2nd June, RNJ was removed
from the Project leaving T&T as the sole quantity surveyor. On the 11th June, T&T
sent a draft contract to the Defendant complete in every detail apart from the
price. A meeting was arranged
between Mr Burton and Mr Laybourn to discuss the contract but this was deferred
following the death of Mr Burton’s father.
65. The deferred meeting took place on the 20th
August 2015 in Newcastle (“the August 2015 meeting”). Mr Burton asked for an agenda, but none
was provided. According to Mr
Burton’s affidavit, Mr Laybourn stated that the Defendant was working for
a very litigious client and that therefore, as part of the Defendant’s
commercial offering, they should offer a £500,000 discount which would be
the equivalent of legal costs in the event of a dispute and that it would be
less painful to settle matters at that stage. Mr Laybourn denies that he made
these comments, but he refused to put anything in writing despite Mr
Burton’s request that Mr Laybourn repeat what he had said at the meeting.
66. On the same day, Mr Burton asked the Plaintiff
for a one-to-one meeting but the Plaintiff declined. This suggests to us that the Plaintiff at
this point knew that there was to be a difficult conversation with Mr Burton
and preferred that to be handled by Mr Laybourn who was “able to deal with it”. A meeting was held on the 2nd
September at the Murray family office in Jersey, organised by the Plaintiff,
who was present together with Mr Dent, Mr Laybourn and Godel Architects. It appears from that meeting that Mr
Burton agreed to submit a review of the progression of the contract sum from
£5.5M to £7M.
67. At the 2nd September meeting, the
Plaintiff produced a written complaint about cost escalation, lack of progress
on site, and demanding a value for money construction cost. He says in that letter:-
“During the summer of
2014, the scheme was heading nearer to £5.5 million. This was regrettably accepted.”
68. The Plaintiff made it clear that he was not
willing to accept any increase over £5.5M on the basis that the
family’s requirements had not changed which appears to us to reflect at
the very least an unrealistic position taken by the Plaintiff.
69. On the 25th August, in between the
two meetings referred to above, the Defendant issued formal notice that the
works had been delayed by 118 calendar days and gave their reasons. Notification was given of additional
costs as a consequence of the delay and that the Defendant would recover those
costs through the contract.
70. On the 28th September, Mr Burton
issued a document known as ‘Progression of the Contract Sum’ and a
revised programme for completion on the 31st July 2016. The above numbers were based, so Mr
Burton states, on the agreed OHP recovery, agreed preliminaries, agreed
contract sum for the Enabling Works, agreed CCRs and architect’s
instructions, plus the Defendant’s own assessment on known variations and
works to be instructed. The
forecast contract sum was said to be £7.7 million.
71. On the 14th October, Mr Burton
requested that the cap included in the Letter of Intent was increased to
account for changes in the scope of work, the CCRs and the AIs issued thus
far. He noted in his communication
that the scope and value of the works had increased considerably since the
Letter of Intent was issued.
72. On the 3rd November, the Plaintiff
wrote to the Defendant rejecting the proposed sum of £7.7 million,
rejecting any increase in the cap included in the Letter of Intent and
requesting a full review by T&T of the Enabling Works contract sum, and
blaming the Defendant for the delays.
73. On the 10th November, T&T
emailed the Defendant to make significant reductions to the interim valuation
number 11. For the first time, it
appears, the Defendant was informed that the Letter of Intent was the contract
for the Main Works, and that the Defendant was only entitled to be paid on the
basis of “direct and actual costs
directly incurred”.
74. On the 16th November, Mr Burton
responded to the Plaintiff’s letter of the 3rd November at
some length.
75. On the same day, Mr Burton issued a formal
letter explaining why the Letter of Intent cap is no longer appropriate. In the letter Mr Burton talks about the
history of the way that the prices were assessed and how they had increased
and, indeed, the warnings given by the Defendant on, for example, the 23rd
January 2015 where they stated “we
are concerned that the projected final account is now in excess of
£6m”.
76. Mr Burton went on to say that he had requested
in February 2015 that the cap should be raised by the value of the AIs issued
and in the future to be issued. The
Defendants were committing themselves to the supply chain on the basis that
they were working towards agreeing a contract sum. The letter, and indeed the facts and
circumstances on which it is based, tell a story of a Project that was
increasing in cost because the specifications were changing. The Defendant was warning about the
increase in cost and AIs were being issued on a regular basis which reflected a
cost that would take the Project above the cap. The Defendant had responded to requests
to provide updates on the contract sum to account for the latest set of AIs
issued in July of 2015. The letter
then talks about the August 2015 meeting.
It says this:-
“I attended a meeting
with T&T at their office in Newcastle.
The meeting lasted 35 minutes whereby Darren Laybourn spoke on behalf of
the client, Identity Consult and T&T.
In this discussion Camerons were reminded that we were working for a
litigious client who did not understand why the contract sum had increased from
the figures referred to under the Letter of Intent. The client’s current expectation
was to therefore pay circa £5.55 million for a project valued by Camerons
of circa £6.8 million. Camerons
advised that this figure was subsequently out of date. T&T stated that Camerons would be
well advised to take a “commercial view” when considering the
revised and updated contract sum.”
77.
The
letter goes on to say that at the August 2015 meeting Mr Burton had said that
the Defendant would not be bullied or intimidated and Mr Laybourn had then
indicated that “in the absence of a
commercial adjustment that they were to revalue the works back to first
principles ignoring any previously agreed measured rates, sub-contract quotes
or agreed and authorised values on the CCRs and / or AIs”.
78.
It was
on that occasion that Mr Burton had sought a one to one meeting with the
Plaintiff but, as we have indicated above, that meeting had been refused. In the letter the Defendant sets out in
a schedule broken down into various items the difference between the sums
provided for within the Letter of Intent and the latest cost and the difference
between them. It is clear that all of
the items had significantly increased in cost. To give two examples, the internal
doors, as a result of a change to specification, had increased from
£83,635 to £145,768.
The sanitary ware had increased from £27,000 to
£112,907. There were many
other examples of the change of price and none led to a reduction in any
element. The letter did not suggest
that the schedule contained within it was final but referred to it instead as
an “extract of the changes, and by
no means comprehensive”.
79. The letter concludes by stating:-
“The value of variations
issued under the architect’s instructions now needs to be added to the
original sum. Again we advise that
we have now placed orders to the level of the original sum of £5,548,172
(as defined under our email of the 7th November 2014) and request an
extension. Without this we will be
unable to comply with any further architect instructions issued after the date
of this letter.”
80. In our judgment this letter provides an
accurate summary of what had transpired and how the price had moved.
81. On the 8th December, the Defendant
issued their best and final offer for a contract sum. The Plaintiff on the 18th
December issued a letter drafted by his English legal adviser terminating the
contract and requesting that no further work be undertaken.
82. On the 4th January 2016, Mr Burton
responded and said:-
“We have never had
notification of any matters you may consider were delays to the contract caused
by Camerons nor have we had any feedback on the rates, prices and make of our
assessment of the contract sum / potential final account. Given the hard work put into the Project
it does seem odd to terminate without any disagreement on time or money.”
83. On the 21st January, T&T issued
a draft deed of termination which was the first indication that the Plaintiff
intended to pay for the contract on the direct and actual costs basis as
referred to in Clause 4 of the Letter of Intent, rather than the JCT Standard
Contract basis of assessment which had been adopted during the progress of the
Main Works.
84. On the 17th February 2016, the
architect submitted an interim certificate payment and repeated the contents of
T&T’s letter justifying substantial deductions from the
Defendant’s claim.
85. On the 24th February 2016, Mr Burton
wrote to the Plaintiff suggesting a face-to-face meeting and negotiating to a
point of mutual satisfaction. The
Plaintiff responded by terminating the Letter of Intent under Clause 12.
86. On the 10th March 2017, T&T
issued a report to the Plaintiff which summarised the main areas of
change. This, to us, demonstrated the
level of costs were rising from the development of the design, and is support
in our view for the proposition that the costs for the work were increasing and
that this was largely attributable to the Plaintiff.
The Oral Evidence
The Plaintiff
87. The Plaintiff is clearly an astute businessman
with extensive experience in the construction industry. He is a qualified accountant and had
been so for almost fifty years. He
told us that the Intermediate Contract was for the Enabling Works and that was
defined and quantified within an agreed scope of works and an agreed
timeframe. The second contract, for
the Main Works, was different from the Intermediate Contract. The Plaintiff maintained that they were
different projects.
88. We do not accept that at the time that the
Letter of Intent was executed this was relating to a completely different
contract for the work covered by the Intermediate Contract. By November 2014, as can be seen from
the review of the documentary evidence above, the Defendant had been working for
approximately six months on the construction of the main house, and the
original scope of works covered by the Intermediate Contract had been completed
by May of that year. It had been
extended in time so that the Defendant could commence work on building the
house which was part of the Main Works.
The agreement dated 15th April, 2014, was for enabling works,
at a contract sum of £535,256, comprising excavation and associated
earthworks, piling, services diversion and drainage works to achieve ground levels
suitable for subsequent construction of a detached dwelling house. The final
account under this agreement as extended to incorporate part construction of
the house was for £1,783,242.
89. The Plaintiff told us that the Letter of Intent
was an interim document to get the job underway, and that it was always
intended to get a formal contract as soon as possible once the price was agreed
and the scope of work was known.
Again, for the reasons that we mentioned above, we cannot accept that
the Letter of Intent was simply “to
get the job underway” as the job had been in process for a
significant period. Nor can we accept that the scope of works was yet to be
agreed. The Defendant had been on
site since March, and the enabling works completed in May. Since then work had continued unabated on
constructing the house.
90. The Plaintiff maintained that the build of the
new house never changed and the house always had the same footprint, although
the price had escalated very quickly.
He felt that he had been taken advantage of and that the Letter of
Intent was always expressed as being dealt with on a without profit basis and
that the Defendant was accordingly doing work without a profit element. He pointed out there were a large number
of provisional sums. He was anxious
to sign a JCT Standard Contract for the main works, but he could not do so as
the price had quickly moved from £5.5 million to £8.2 million.
91. His assertion that there were very few design
changes other than altering the location of two pillars in the master bedroom,
and accordingly the increases proposed by the Defendant were unjustified is not
in our view borne out by the contemporaneous paperwork. The Plaintiff’s quantity surveyor
report from the 10th March 2017 summarised the variations implemented by the
Defendant from the original tender.
The variations related to the sub-structure, roof, stairs and guarding,
external walls, windows and external doors, internal doors, floor and ceiling
finish, fittings and furnishings, sanitary appliances, hard landscaping,
drainage and preliminaries which were among the reasons for the increase in the
tender price. Only certain
variations to wall finishes, mechanical and electrical and the pool were
reasons for a decrease. It is for
these reasons that we cannot accept the Plaintiff’s assertion that there
were very few variations to the original design. There were many, and it is clear to us
that they were and must have been understood, by both parties, to have a
financial consequence.
92. The Plaintiff was asked in cross-examination
why the RNJ cost report had included a sum, 6.5%, for OHP. His response was that the figure was
intended to be added to the cost price in the final contract and had nothing to
do with the Letter of Intent.
93. When he was referred to the last paragraph of
an email from T&T in relation to CCRs and the fact that there is reference
there to OHP, the Plaintiff indicated that this was best practice and was
agreed in anticipation of entering into the JCT Standard Contract. Nonetheless, he maintained that the
understanding between him and the Defendants was that OHP would be paid when
the final contract was entered into, and prior to that everything was done as
best practice to anticipate the transfer to the final contract. He accepted that it was perfectly
reasonable for the Defendant to claim OHP if they had been under contract and
he accepted that he would have paid overhead and profit in relation to the
value of the Architect’s Instructions, but only if the parties had
entered into a final contract.
94. The Plaintiff confirmed that he had taken
retentions. These were taken
automatically and he could not imagine anyone instructing a builder and not
holding back a retention. In
cross-examination he was asked why the Letter of Intent does not refer to a
retention system and he responded that it was not a “full blown contract” and not a JCT contract and that
he and T&T had “implied terms
into it”. As to the CCR
process mentioned above, this was the idea of his representative IC, and it was
put in place to ensure that the Defendant had cash. They only represented a small percentage
of the overall costs and were designed to cover works which were outside the
RNJ Cost Report. It was a process
to allow the Defendant pay sub-contractors and he accepted that the overall use
of CCRs worked to everyone’s benefit.
95. It appears to us that neither of the parties
treated the Letter of Intent as representing the entirety of the agreement
between them. The Plaintiff
asserted that terms were implied and work was clearly taking place that was not
preliminary in nature and represented changes to the cap put in place by
reference to the RNJ Cost Report.
Undoubtedly, it was intended that a final contract would be finalised
and signed, but it is equally clear to us that the parties operated de facto as if one was in existence in
certain material respects. Neither
the Plaintiff nor the Defendant treated the Letter of Intent as the definitive
and encompassing statement of what went on between them.
96. The Plaintiff told us that he had become
increasingly mistrustful and dissatisfied with the Defendant. He was referred in cross-examination to
site minutes as the agenda for site meetings which included an item under the
heading of “Client care”. It is clear from those minutes that the
Plaintiff did not raise any dissatisfactions or complaints. We find it strange that a man of the
Plaintiff’s experience, ability and apparent strength of personality did
not explain his concerns and dissatisfactions when they arose. His explanation in evidence was that he
wished to maintain harmony between the parties.
97. At some stage in his evidence, the Plaintiff
appeared to us to suggest that he was unaware of some of the actions of his
agents. For example, he suggested
that he had not initially seen the November 2014 emails that had qualified the
Letter of Intent, nor was he aware of all of the detail of the actions of IC
and T&T. We view some of these
assertions with an element of scepticism, and it may be that the Plaintiff had
forgotten the precise time in which he had seen some of the documentation and
became aware of things. However, be
that as it may, there is no doubt that the professionals dealing directly with
the Defendant, on behalf of the Plaintiff, were his agents and when something
is agreed and accepted it was agreed and accepted on his behalf unless there
was a qualification to such an acceptance.
98. The email of the 23rd October 2014 between Mr Burton and Mr Dent was
put to the Plaintiff. In that email Mr Burton had raised a number of concerns
and made the observation that the client needed to understand that the price
would fluctuate and that they were not signing a lump sum contract. Notwithstanding the Letter of Intent,
therefore, the Plaintiff must have understood that the Defendant was not
prepared to agree a fixed price contract. The Plaintiff accepted in
cross-examination that he anticipated that there would be variations and that
was why the CCR process had been put in place. He confirmed that the Letter of Intent
had been drafted by IC, but also maintains that he would have consulted his
legal advisors, Ogier, on it and would never sign a contract worth some
£5 million without legal advice.
This assertion was not supported by the evidence of his legal adviser. He accepted that there were drawings,
but said that the final drawings and the price had not been agreed at that
point. He maintained in
cross-examination that he had never seen Mr Burton’s amendments to the
Letter of Intent before, and he did not accept that the terms saying that it
was subject to the JCT contract were known to him. He surmised that his secretary might
have received a full copy of everything and filed it, but he had not seen
it. He was adamant that he had not
seen the manuscript changes and he did not agree them.
99. We find this difficult to accept. In our judgment the Plaintiff did see
the Letter of Intent, its amendments and the November 2014 emails at around the
time that they were settled. He may
have forgotten now in evidence before us that he did so, but we think it highly
unlikely that these would have passed him by at the time given the clear
oversight that he maintained over what was an important personal project to him
and his experience in the construction world. We think it highly unlikely that his
agents would have omitted to draw that to his attention but, even were we
wrong, there is no doubt that Mr Dent was held out by the Plaintiff as being
able to conclude and agree matters on his behalf.
100. In searching for the reality of the contractual
relationship between the parties, we must take into account not only what was
signed and sent but, because the documentation does not in our view provide
clarity and certainty in material respects, we must look to how the parties
conducted themselves to identify how they understood the contract and how it
would be performed.
101. With regret, therefore, we cannot in the round
accept the Plaintiff’s assertions as to his understanding, and whilst
there were matters still to finalise in our view the true nature of the
contract between the parties, as it was understood by them, was that the Letter
of Intent as qualified by the November 2014 emails would form the basis on
which the parties continued for the time being, but subject to the provisions
of the JCT Standard Contract which would undoubtedly have been signed once the
final price and other aspects had been agreed.
102. Again in cross-examination the Plaintiff
accepted that Godel Architects had done a monthly valuation which was in
accordance, as he asserted, with best practice and it was natural to do a
valuation and prepare a certificate.
He did not mind that it included OHP because they were anticipating or
pre-empting the contract that would be signed.
103. It was pointed to him that in the Letter of
Intent that sum of £3,764,930 was a reference to the RNJ Cost Report
which included profit. His response
was that profit would only have been allowed when the final contract had been
signed. He accepted that no builder
would build without profit. He
accepted that the CCRs all featured OHP.
Lady Murray
104. Lady Murray told us that she and the Plaintiff
wished to get the work started but that not all of the decisions had been made
on the design or finishing and so they split the works and the Intermediate
Contract for the Enabling Works allowed the Defendant to begin work.
105. She confirmed that the Letter of Intent was
drawn up as both she and the Plaintiff wanted to get started.
106. She explained that she found the
Defendant’s attitude to be strange and they would never help to find
alternatives. Clearly there had
been disputes between Lady Murray and the Defendant, and she referred to the
Defendant’s refusal to work with her preferred audio visual company.
107. The CCR process had been suggested by Mr
Dent. She accepted that she had
originated a number of CCRs but she was not sure why that was. She did not understand how the costs
were always increasing.
108. She confirmed that she had seen Mr
Burton’s email of the 7th November 2014 but did not agree, in
cross-examination, that the agreed schedule of amendments referred to in that
email was the agreed schedule of amendments relating to the Main Works.
Mr Milnes
109. Mr Milnes is a director of IC and has worked
there for a number of years and is a member of the Royal Institute of Chartered
Surveyors and had been since 2015.
110. Although the matter had primarily been dealt
with by Mr Dent also of IC he was too ill to attend trial having had a stroke
some three years ago. He had,
however, worked under Mr Dent and supported him in his duties relating to the
Project.
111. He maintained that the agreed overall price of
the contract was £5,548,172 and whilst the price of the work done under
the Intermediate Contract had gone up that meant that the residual value went
down (as incorporated in the Letter of Intent) resulting in the total cost
remaining the same. He indicated
that the Defendant had worked alongside RNJ to come up with the figure of
£5,548,172 as at 4th November 2014 and, with regard to Clause
4 of the Letter of Intent, he informed the Court that the figure of
£3,764,930 was the cost of the remainder of the works after subtracting
the final cost certified for the intermediate contract. Clause 4 of the Letter
of Intent allowed a ceiling figure that would not be exceeded unless
instructed. He accepted that if
there was an Architect’s Instruction for additional work that could raise
the cost cap. He was referred to
the JCT Standard Contract and indicated it was a very different contract from
the Intermediate Contract. With
regard to the “extra item”
in Mr Burton’s amendments to the Letter of Intent he said that the
amendments to the JCT Standard Contract had never been agreed.
112. He referred to his affidavit of the 6th
November 2019 in which he had confirmed, amongst other things, that
negotiations had continued in connection with the amendments to the JCT
Standard Contract and lasted until January 2015. Three points were not agreed,
specifically:-
(i)
The
Defendant’s uplift on the contractor design portion supplement;
(ii) An issue relating to the Defendant’s
losing profit on items instructed as being removed from the draft JCT contract;
(iii) A guarantee from the parent company of the
Defendant to the Plaintiff.
113. As to the CCR process, Mr Milnes confirmed that
it was not part of a building contract, but rather was a project management
tool to enable the client and contractor to understand cost implications. Whilst it was not part of the contract
it was good practice to monitor changes and manage the process. He confirmed that the CCR process could
work alongside a JCT Standard Contract.
Mr Milnes confirmed that if the Letter of Intent had not been in place
all of the works would have stopped.
114. Mr Milnes indicated that he remembered sending
the email of the 7th November 2014 received from Mr Burton to the
Plaintiff, but cannot remember whether they had specifically discussed its
content. He did not know whether Mr
Dent had done so.
115. He confirmed that some aspects of the
parties’ conduct was consistent with the JCT Standard Contract, for
example, interim valuations being certified and pay less notices. Mr Milnes replied that these things were
entirely consistent with a JCT Standard Contract and had been put in place
early in anticipation of moving to the JCT Standard Contract.
116. When it was put to him that no problems with
regard to the Defendant had been raised by the Plaintiff in site meetings, he
said that in his experience the Plaintiff liked to raise things on a one-to-one
basis.
Mrs Katherine Marshall
117. We heard from Mrs Marshall who was the
Plaintiff’s legal adviser.
She had become involved when the Plaintiff had asked her to look at the
amendments to a JCT contract. She
had prepared a schedule of amendments.
118. She informed us that she received an email from
Mr Dent dated the 26th March 2014 instructing her to advise and to
assist the Plaintiff in the finalisation of the terms of the main JCT contract
with the Defendant. The proposed
amendments were provided to her in that email.
119. She had no recollection of being involved in
the Intermediate Contract. She had
at no stage held the view that the main JCT Standard Contract with amendments
had been agreed in final form. She
had responded to the request for advice and had heard nothing further.
120. She told us that she had not been asked to
advise in relation to the Letter of Intent. This would seem to conflict with the
Plaintiff’s recollection and understanding.
Mr Laybourn
121. T&T is a construction consultant and deals
with project management. Mr
Laybourn is a quantity surveyor by profession and a member of the Royal
Institute of Chartered Surveyors.
He was appointed to assist the Plaintiff in achieving a satisfactory
outcome with the Defendant.
122. He was not involved with the project at the
time of the agreement of the Enabling Works Intermediate Contract which was
entered into prior to his appointment.
123. He had seen the Letter of Intent and informed
us that such a letter was put in place to provide a mechanism to commence a
project before a full agreement is in place. He was directed to paragraph 11 of the
Letter of Intent and explained that in his view that meant the letter would in
effect fall away and the executed new contract would take precedence. If a new contract had not been executed
then, in Mr Laybourn’s view, the Letter of Intent would be the only basis
of any contract.
124. His view of Mr Burton’s email of the 7th
November 2014, and specifically the extra item listed in it, is simply that the
parties were intending to get into a JCT formal contract for the main works,
but it was never finally agreed.
Had one been agreed, then the Letter of Intent would have fallen
away.
125. In relation to OHP, Mr Laybourn acknowledged
there was no reference to that in the Letter of Intent but he had in the past
seen Letters of Intent which made reference to OHP and that it was unusual for
such not to be included, and generally an amount for OHP would be included in a
Letter of Intent.
126. He was referred, in cross examination, to an
email from T&T to the Defendant of the 23rd November 2015,
referring to it having been agreed “that
a percentage of 6.5% would be added to variations to include for Camerons
overhead and profit…”.
Mr Laybourn expressed the view that the 6.5% was a basis of the parties
moving to a JCT Standard Contract for the Main Works. That is not provided for within the Letter
of Intent. He was also referred to
the RNJ Cost Report where provision is made for overheads and profits.
127. With regard to the CCR process, Mr Laybourn
agreed that it was good project management and parties could at any point then
record changes. The CCR process
records any change whether from the contractor or client.
128. Mr Laybourn informed us that much had to be
negotiated to finalise a contract and that certain essential elements were
missing from any agreement for the final contract in this matter. With regard to the 26th
August 2015 Meeting between Mr Laybourn and Mr Burton, Mr Laybourn explained to
us that it had been arranged by T&T on behalf of the Plaintiff to raise
concerns with Mr Burton with regard to price and scope. In effect, he agreed that the purpose of
the meeting was to obtain a reduction in the contract price otherwise the
Plaintiff would terminate the contract.
Mr Burton did indeed seem rather surprised at this. Mr Laybourn, in his affidavit of the 1st
November 2019, had explained the concerns that the family had with some of the
Defendant’s pricing and that all of the prices were subject to various
caveats and qualifications. It was
put to him that Mr Burton had set out four different cost options in an email
of the 8th December 2015, but Mr Laybourn said that they were all to
be adjusted to reflect variations and provisional sums and therefore even if
the Plaintiff had accepted one of them he would not have known the final
price. A certain amount of
evidence provided by Mr Laybourn dealt with a number of allegations of wrongdoing
made by the Plaintiff against the Defendant in respect of which Mr Laybourn
gave at best indirect or hearsay evidence.
We do not find any of those allegations of wrongdoing established.
129. Mr Laybourn disputed Mr Burton’s
assertion that he had demanded a decrease of £500,000 at the August 2015
meeting.
Mr Burton
130. Mr Burton gave evidence on behalf of the
Defendant.
131. He confirmed that the Defendant had worked with
RNJ in relation to the RNJ Cost Report but that, in his view, this was always
subject to possible increases. He
believed that there were in fact three contracts. The first was the contract for the
Enabling Works (the Intermediate Contract), the second was the Letter of Intent
modified by his email of November 2014, and the third was the JCT Standard
Contract for the main works.
132. In his reference to the Letter of Intent, Mr
Burton said that this was only intended to last for a short time whilst the
main contractual documentation was finalised. The third contract, the JCT Standard
Contract, would be a full contract as was the Intermediate Contract. He was asked about the amendments
contained in the Letter of Intent in his email of the 7th November
2014. With regard to item 4, he
indicated that the Defendant was working on an aggregate sum and they wished to
link the RNJ Cost Report of the 29th October 2014, which provides
for OHP, and contains a re-measurement clause.
133. As to item 5 from his email, Mr Burton
explained that CDPS remained to be negotiated at a later date.
134. As far as the “extra item” was
concerned, he thought that this was to protect both parties and put them in a
position not dissimilar from the Intermediate Contract. He expressed the view that the agreed
amendments referred to in the November 2014 email were those amendments that had
been agreed in respect of the Enabling Works contract. He had not taken legal advice and
matters were dealt with in-house.
135. When Mr Burton received the Letter of Intent he
reviewed it but felt that it was unusual in that the value it gave was
£3.5 million for what would have been a four week period. Normally Letters of Intent were
restricted to 10% of the total value of the works. The Letter of Intent, so far as Mr Burton
was concerned, was to enable continuity of work from the 24th
November so that the Defendant could remain on site until a formal contract had
been executed.
136. We also agree that the Letter of Intent was an
unusual document and that it was expected that the full JCT Standard Contract
would be in place within a month.
It was unusual in part because the Main Works had already been in
progress for some six months under the JCT intermediate contract, and, as we
have said elsewhere, the work was continuing. The Letter of Intent makes no direct reference
to the RNJ Cost Report, but the price incorporated in it is clearly the same
aggregate sum as shown in the RNJ Cost Report and it is not therefore difficult
for us to determine that the contract price was agreed and it is quite
straightforward to see how the contract price was calculated. The figure of £3,764,930 is to be
found in the RNJ cost overview of the 28th October 2014, amended in
manuscript on the 4th November 2014 which shows a total cost of
£5,548,172. The amount paid
under the Intermediate Contract was £1,783,242. We also accept that the agreed
amendments referred to by Mr Burton are those incorporated into the
Intermediate Contract, as they were related to a full JCT contract, not just an
Intermediate contract.
137. Mr Burton accepted that the Defendant was
involved in the original pricing of the project and worked with RNJ on the cost
report and broadly agreed with the pricing set out in it. He believed at the time that the house
could be built for £5.5 million although he maintained that it was not,
and was never intended to be, a fixed price.
138. We have no difficulty in accepting that the
price of £5.5 million was carefully worked through with RNJ and was a
genuine attempt to assess the cost of the Project. Mr Burton had, in our view, made it
clear to Mr Dent, however, that the price was not fixed. We do not see how it could have been
given that so much remained to be decided on with regard to the works. Mr Burton was asked about Mr
Laybourn’s email of the 1st March 2016 in which Mr Laybourn
had sought certain categories of information to review the Defendant’s
final account. The final account
had been based on the Letter of Intent and Mr Burton said that this was on an “agreed value basis”. He was then asked where it states in
the Letter of Intent that costs would be valued on that basis, and he responded
that it would be governed by the JCT Standard Contract. He was pressed as to where the basis of
a calculation on an “agreed value basis” is to be found in the
Letter of Intent, and he responded that the Letter of Intent, taking on board
the amendments that he had added to it says “it
will be governed by the standard form of contract. All parties proceeded on that
basis. The contractual mechanism
was the AI”.
139. In his evidence, he also stated to us that his
amendments were intended to achieve that the Letter of Intent would be governed
by the JCT form. He had wanted a
JCT contract and he wanted the Letter of Intent governed by JCT to provide for
continuity. When the final contract
had been settled, the Letter of Intent would have fallen away.
140. Mr Burton also indicated that in his view
paragraph 4 of the Letter of Intent should be read as taking out the reference
to all and direct and actual costs and superimposing the agreed value basis
because this is what had been qualified by his reference to a JCT
contract.
141. It is fair to say that in his response to a
number of questions put to him by counsel and cross-examination, and indeed by
the Court, Mr Burton was unable to assist as to how a JCT form of contract
should be read in conjunction with the Letter of Intent, which might take
priority and which applies where there is a conflict.
142. Mr Burton accepted that the JCT Standard
Contract had not been finalised and he further accepted that the agreed value
basis of calculation only in fact applied to the AIs. The Court asked Mr Burton whether he
accepted that if something was not covered by an AI then paragraph 4 of the
Letter of Intent applied, a proposition which he appeared to accept.
143. We accept that he was genuinely shocked at the
meeting with Mr Laybourn on 20th August 2015 and that Mr
Burton’s version of what transpired at the meeting, specifically that he
was asked to give a substantial discount, was correct. Mr Burton gave evidence that he
had been on good terms with the Plaintiff to the extent that the Plaintiff had
entertained Mr Burton and his wife on more than one occasion, and yet had no
inkling of what Mr Laybourn told him at that meeting. So much so that Mr Burton
could not believe that Mr Laybourn was acting on the Plaintiff’s
authority.
144. Much of the Plaintiff’s closing
submissions to us sought to highlight inconsistencies and lack of clarity in
some of Mr Burton’s answers and in particular to an error in Mr
Burton’s first affidavit
dated 9th March 2017 in support of the Defendant’s
application to arbitrate the disagreement over their final account. This, it was suggested, undermined his
credibility and we should treat his answers with caution.
145. Having heard the evidence of Mr Burton at some
length and, indeed, his cross-examination, we do not accept the
Plaintiff’s invitation in that regard. In our judgment, whilst Mr
Burton’s evidence was not perfect and clearly in his affidavit errors had
been made, his evidence before us appeared to be frank and honest as was his
correspondence.
The experts
146. We heard a significant amount of expert
evidence and, indeed, have read the reports of the experts carefully. They do not, to our mind, assist us as
much as might be hoped, because the basis of the valuation or assessment of
costs had not been agreed. There
were quite simply conflicting reports applying different bases of calculation.
147. We do not suggest by these observations that
the experts who gave evidence did anything other than offer their own expertise
honestly to the Court. But they
appear to have based their calculations and indeed much of their evidence
applying the thesis argued for by their respective clients. We shall come on to the method of
calculation in due course.
The Law
Interpretation
148. The principles that the Court applies in
interpreting contracts are well known.
149. In The Parish of St Helier v The Minister
for Infrastructure [2017] JCA 027, the Court of Appeal at paragraphs 12 et seq of the Judgment said this:-
“12. The Royal Court set out extensively the principles
applicable to the construction of documents, primarily by reference to the
decisions of this Court in Trilogy Management v YT Charitable Foundation
(International) Ltd [2012] JCA 152 and La Petite Croatie
Ltd v Ledo [2009] JCA 221. Those
principles, which are well-known, may be stated as follows:
(1) the
aim is to establish the presumed intention of the makers of the document from
the words used;
(2) the
words must be construed against the background of the surrounding circumstances
or matrix of facts existing at the time of execution of the document;
(3) the
circumstances relevant and admissible for this purpose are those that must be
taken to have been known to the makers of all parties to the document at the
time, and include anything which would have affected the way in which the
language of the document would have been understood by a reasonable man;
(4) evidence
of subjective intention, drafts, negotiations and other matters extrinsic to
the document in question is inadmissible as an aid to construction, but may be
admitted to resolve a latent ambiguity (that is to say, an ambiguity that only
becomes apparent when otherwise clear words are related to the surrounding
circumstances);
(5) evidence
of events subsequent to the making of the document is inadmissible as an aid to
construing the original meaning of the document;
(6) words
must be read in the context of the document as a whole;
(7) words
should so far as possible be given their ordinary meaning; and if the language
is unambiguous the Court must apply it unless the result is commercially
absurd;
(8) if
the words used are ambiguous, in the sense of being capable of more than one
construction, the court should adopt the construction that appears most likely
to give effect to the commercial purpose of the agreement and to be consistent
with business common sense; but there is a correlation between the degree of
ambiguity and the persuasiveness of a common sense construction, so that the
greater the ambiguity the more likely it is that the court will adopt a
construction based on business common sense, and vice versa.
13. Subject
to one point, both parties accepted that the Royal Court had correctly stated
the relevant principles. Advocate
Williams suggested, however, that the recent decision of the United Kingdom
Supreme Court in Arnold v Britton [2015] UKSC 36 was of relevance to the
question of adopting a construction by reference to business common sense. Although the majority judgments in that
case certainly do discuss that question, in particular between paragraphs [16]
and [22], they do not appear to me to contain anything that contradicts or goes
further than the principles I have stated above. It is nevertheless worth quoting,
because the point it contains was one relied on by Advocate Williams, part of
paragraph [19] of the majority judgment, delivered by Lord Neuberger of
Abbotsbury PSC:
“The third point I should
mention is that commercial common sense is not to be invoked retrospectively.
The mere fact that a contractual arrangement, if interpreted according to its
natural language, has worked out badly, or even disastrously, for one of the
parties is not a reason for departing from the natural language. Commercial
common sense is only relevant to the extent of how matters would or could have
been perceived by the parties, or by reasonable people in the position of the
parties, as at the date that the contract was made.”
150. In terms of incorporating a document (in this
case the JCT Standard Contract) by reference, in Calligo Limited v
Professional Building Systems CI Limited [2017] 2 JLR 271, there is an
example of where the court has incorporated a document by reference. In identifying whether standard terms
and conditions issued by the plaintiff formed part of the contract, the court
took the view that they had been incorporated having been expressly referred to
in two of the other contractual documents.
The court, at paragraph 131, said this:-
“Accordingly, we also find that the STC’s of Calligo
form part of the contract. They
were referenced in every iteration of SOW001 and in SOW002 and we cannot think
that Mr Le Tiec did not know that he would be bound
by them. Whether or not he read
them in detail we cannot say but the evidence that we heard was to the effect
that it is normal practice that terms and conditions are referenced by way of a
hyperlink and in our view Mr Le Tiec would have been
aware of this.”
151. In Sabah Flour and Feed Mills v Comfez Limited [1988] 2 Lloyds Reports, the Court at
page 3 of the Judgment said this:-
“For Mr Gruder
reliance is place on the case of Adamastos Shipping Co Ltd v Anglo-Saxon
Petroleum Co Ltd [1959] AC 133. Two
passages were relied on, the first in the speech of Viscount Simonds at page
155 and the second in the speech of Lord Keith at pages 178 and 179. Those passages lend support to the
proposition that if an incorporated document contains provisions which conflict
with provisions of the written document, then the terms of the written document
would, in the ordinary way, prevail.
For my part I am prepared to accept that that is one rule of
construction which may be applied in circumstances such as these. But it is not the only rule of
construction, and no rule of construction as far as I know is a rule of such
importance that it may be regarded as paramount. In the present case, unlike the
Adamastos case, the conflict is not between what the parties have written and
the incorporated documents. It is a
conflict between the provisions of the incorporated documents themselves, and
at the very lowest it can, in my judgment, be said that the position is not
clear.”
152. In RTS Flexible Systems Limited v Molkerei Alois Muller Gmbh &
Company KG (UK Production) [2010] UK SC 14, at paragraph 47, the Court
said:-
“47. We agree with
Mr Catchpole’s submission that, in a case where a contract is being
negotiated subject to contract and work begins before the formal contract is
executed, it cannot be said that there will always or even usually be a
contract on the terms that were agreed subject to contract. That would be too simplistic and
dogmatic an approach. The court
should not impose binding contracts on the parties which they have not
reached. All will depend upon the
circumstances. This can be seen
from a contrast between the approach of Steyn LJ in the Percy Trentham case,
which was relied upon by the judge, and that of Robert Goff J in British
Steel Corporation v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER
504, to which the judge was not referred but which was relied upon in and by
the Court of Appeal.”
153. Although not available to the parties when the
matter was discussed before us, we have also had the benefit of the Judgment of
Trico Limited v Anthony Buckingham [2020] JCA 067 in which the Court of
Appeal considered the construction of a document called “A Side
Letter” and, at paragraph 56, said this:-
“56. We consider it incontrovertible that the terms of
the Side Letter are not felicitously drafted and it is unsurprising that the
proper construction is disputed, on the bases summarised above. In proceeding to approach a question of
the construction of the terms of a contract, we have noted the views of the
Supreme Court, as set out by Lord Hodge in Wood v Capita Insurance Services
Limited [2017] AC 1173. He said
this:-
“10. The Court’s task is to
ascertain the objective meaning of the language which the parties have chosen
to express their agreement. It has
long been accepted that this is not a literalist exercise focussed solely on a
passing of the wording of the particular clause and that the Court must
consider the contract as a whole and, depending on the nature, formality and
quality of the drafting of the contract, give more or less weight to elements
of the wider context in reaching its view as to that objective
meaning….. Lord Wilberforce
affirmed the potential relevance to the task of interpreting the parties
contract of a factual background known to the parties at or before the date of
the contract, excluding evidence of the prior negotiations. When in his celebrated judgment in
Investors Compensation Scheme Limited v West Bromich
Building Society [1998] 1 WLR 896, 912 – 913 Lord Hoffman reformulated
the principles of contractual interpretation, some saw his second principle,
which allowed consideration of the whole relevant factual background available
to the parties at the time of the contract, as signalling a break with the
past. Lord Bingham of Cornhill in
an extra judicial writing, ‘A New Thing Under the Sun? The Interpretation
of Contracts and the ICS Decision’ (2008) 12 Edn
LR 374, persuasively demonstrated that the idea of the Court putting itself in
the shoes of the contracting parties had a long pedigree.
11. Interpretation is, as Lord
Clark JSC stated in the Rainy Sky case (para 21), a unitary exercise; where
there are rival meanings, the Court can give weight to the implication of rival
constructions by reaching a view as to which construction is more consistent
with business common sense. But, in
striking a balance between the indications given by the language and the
implications of the competing constructions the Court must consider the quality
of drafting of the clause….. and it must also be alive to the possibility
that one side may have agreed to something with which hindsight did not serve
his interests…. Similarly, the Court must not lose sight of the
possibility that a provision may be a negotiated compromise or that the
negotiators were not able to agree in what precise terms.
12. This unitary exercise involves an
iterative process by which each suggests that interpretation is checked against
the provisions of the contract and its commercial consequences are
investigated….. To my mind once one has read the language in dispute and
the relevant part to the contract that provides its contexts, it does not
matter whether the more detailed analysis commences with the factual background
and the implication of rival constructions or a close examination of the
relevant language in the contract, so long as the Court balances the
indications given by each.
13. Textualism and contextualism
are not conflicting paradigms in a battle for exclusive occupation of the field
of contractual interpretation.
Rather, the lawyer and the judge, when interpreting any contract, can
use them as tools to ascertain the objective meaning of the language which the
parties have chosen to express their agreement. The extent to which each tool will
assist the Court in its task will vary accordingly to the circumstances of the
particular agreement or agreements.
Some agreements may be successfully interpreted principally by textual
analysis, for example because of their sophistication and complexity and
because they have been negotiated or prepared with the assistance of skilled
professionals. The correct
interpretation of other contracts may be achieved by a greater emphasis on the
factual matrix, for example because of their informality, brevity or the
absence of skilled professional assistance…..”
57. We are perfectly content to adopt
this thorough and considered exegesis as part of the law of Jersey. A constant, to which Lord Hodge adverts,
is that many issues in the construction of contracts are subtly different. Here, the creation of the Side Letter
and the advisory agreement as part of the same negotiations may add an unusual
complexity. For the reasons which
we now address, we consider that the creation of the Side Letter falls squarely
within Lord Hodge’s category of contracts, the correct construction of
which may be achieved by greater emphasis on the factual matrix, because of
their informality, brevity or the absence of skilled professional
assistance…..”
This approach, articulated by the Court of
Appeal, seems to us to be apposite as the Letter of Intent is brief; its’
purpose was to enable work to continue uninterrupted: and it is not in any
sense a contract appropriate for the remaining work to be done on the Project.
Further, Mr Burton’s amendments to the letter were informal and prepared
without any skilled professional assistance. There are conflicts between the Letter
of Intent and the November 2014 emails.
Thus we place a greater emphasis on the factual matrix in our
interpretation of the contract entered into between the parties.
154. It seems to us that the correct approach,
taking the principles from the above cases, should be that if there is clear
documentation which is designed to encapsulate the agreement between the
parties then any provisions which are clearly worded should be applied. But if provisions are not clear, or
indeed opposed by other alternative words within the documentation, then we must
look at the position more broadly to identify the nature of the understanding
between the parties. One important
way of understanding the realities of any contract between the parties is to
look at how they operated in carrying out any contract.
Formation
155. The constituent elements of a Jersey contract
are well understood and were set out in the case of Selby v Romeril
[1996] JLR 210, in which the court said this:-
“In our judgment, it may now be asserted that by the law of
Jersey, there are four requirements for the creation of a valid contract,
namely (a) consent; (b) capacity; (c) an ‘objet’; and (d) a ‘cause’.”
156. We will come on to deal with some of the
elements identified in Selby v Romeril.
157. It is clear that a contract must be
sufficiently certain and an agreement to agree is insufficient. In the Minister of Treasury and
Resources v Harcourt Development Limited [2014] (2) JLR 353, the Court of
Appeal said, at paragraph 17 of that Judgment:-
“17. He further submits, we think correctly, that the
Jersey authorities, set out and discussed by the Bailiff in his judgment (2014
(1) JLR 472, at paras 29 -36), are clear that neither an agreement to agree nor
an agreement to negotiate is enforceable in Jersey law (see Osment v St Helier
(9) (see particularly 1975 JJ at 212-215); Jersey Automatic Co Ltd v H A Gaudin
& Co Ltd (6) (1980 JJ at 166-167); and Bennett v Lincoln (3) (2005 JLR 125,
at paras 34 – 36). The reason
such agreements fail is that there is no sufficiently certain
‘objet’ for there to be a Jersey contract. Reference was made to dicta in the
decision of the Royal Court in Mirpuri v Bank of India (7) ([2010] JRC 129 , at
para 29), where it was held that a term ‘to monitor the deposits in just
the same way as it had done in 2005’ and ‘to protect the
margin’ was ‘not sufficiently certain. It would not necessarily be possible
from such a vague term to establish whether the plaintiff was or was not in
breach of the term in any particular case.”
Consent
158. Given the issues between the parties it is
necessary to consider the question of consent. There is no doubt that both the
Plaintiff and the Defendant thought that they were in a contractual
relationship with each other but, in the evidence before us, the Plaintiff’s
assertion as to what the contract comprised is different from that of the
Defendant. We must accordingly deal
with the question of consent and what the parties consented to as part of
establishing whether or not there was a valid contract and if so what its terms
were. How then do we determine that
question? Do we turn first to the
expressions of historic intent of one party or another, and together with
supporting evidence if any, seek to determine, subjectively, what that party
intended? Or do we look at the
circumstances in the round and ask ourselves what a third party looking at the
paperwork in the matter and how individuals behaved and their evidence would
think that the parties intended for their contractual relations? In other words do we assess the matter
using the subjective test or the objective test? It may be in some circumstances that
that would produce the same result but not necessarily.
159. In dealing with this matter, as we think is
necessary, we are acutely aware that there are conflicting lines of authority
and indeed arguably conflicting cases within the Court of Appeal itself on this
very issue. We must therefore look
at some of the arguments that have been placed before the Court and some of the
cases to which reference has been made.
We deal with these in date order.
160. There appear to be a number of authorities
dating from the 1960s in which the Court clearly applied the objective approach
to identifying the question of consent in contract. In Leech v Leech [1969] JJ at
1118 Ereaut, Deputy Bailiff, said this:-
“We have considered
nevertheless whether we can, by applying an objective test to the statements
and conduct of the parties and their lawyers and by endeavouring to draw a
reasonable inference from the whole of the circumstances leading to the
settlement, impugn to the parties an intention that one or the other of them
should take the disputed items. We
have regretfully concluded that we cannot.”
161. In Mobil Sales and Supply Corp v Transoil (Jersey) Limited [1981] JJ at 163, Ereaut, Bailiff, in the context of a contractual dispute
said:-
“The
question which the Court has to determine is not what the parties had in their
minds but what reasonable third parties, “disinterested
spectators”, would infer from their words or conduct. It has to determine “the sense of the
promise”, that is to say, whether a sensible third party would take the
agreement to mean what A understood it to mean or what B understood it to mean,
or whether indeed any meaning can be attributed to it at all. If whatever a party’s real
intention may be, he so conducts himself that a reasonable man would believe
that he was assenting to the terms proposed by the other party, and that other
party upon the belief enters into the contract with him, the man must thus
conducting himself will be equally bound as if he had intended to agree to the
other party’s terms, notwithstanding that there had been a material
mistake.”
162. In La Motte Garages Limited v Morgan
[1989] JLR 312, Hamon, Commissioner, in considering the issue of mistake, at
page 316 of the Judgment said this:-
“Mistake has long been
accepted as negativing agreement.
Pothier puts it this way (1 Traité des
Obligations, paras 17-18, at 21-22 (1821 ed)):
“17. L’erreur
est le plus grand vice des conventions: car les
conventions sont formées
par le consentement des parties; et il ne peut pas y avoir de consentement lorsque les parties ont erré sur l’objet de leur
convention….
18. L’erreur
annulle la convention….”
It is perhaps somewhat
disappointing that neither party chose to mine the rich lodes of our ancient
French law but to rely on English law.
It may well be that their conclusions would have been the same if they
had.”
163. He then went on to say, on the same page:-
“As to the mistake, we see it
as a mutual mistake. If we have to
ascertain ‘the sense of the promise’ it seems to us that we must
ascertain by the objective test what a reasonable man would have assumed it to
mean.”
164. From these excerpts it seems clear that for a
protracted period, and indeed from the time when judgments of the Court were
reported from the 1950s, the Royal Court applied an objective test to the
analysis of contractual intent.
165. There matters on the question of the correct
test stood until the Court of Appeal judgment in Marett v O’Brien
[2008] JLR 384 (Sumption, Nutting, Pleming JJA). At paragraph 55 et seq
of that judgment the Court said:-
“55. As noted
above, Advocate Sinel submits that there was no consent, under Jersey law, and
therefore no enforceable compromise agreement. This is not the time for a detailed analysis
of the Jersey law of contract – for some of the difficulties in relation
to this topic see Kelleher, The Sources of Jersey Contract Law, 3 Jersey Law
Review, at 1-21 (1999). The general
principles can be taken from the helpful summary in Advocate Sinel’s contentions on this issue (to which there was
no objection by Advocate O’Connell).
56. There
are four elements necessary to constitute a contract under Jersey law: (i) capacity; (ii) consent; (iii) cause; (iv) objet.
57. Ignoring
capacity, which is not in issue, the Jersey law of contract determines consent
by use of the subjective theory of contract (see Pothier, Treatise on the Law
of Obligations or Contracts, transl. Evans, para 4 at 4; para 91 at 53; para 98
at 59 and Appendix V at 35 (1806) and Selby v Romeril (34). And see Mobil Sales & Supply Corp
v Transoil (Jersey) Ltd (24) and La Motte
Garages v Morgan (14) (which must now be considered per incuriam on this
specific point in the light of Selby v Romeril).
58. It
follows that, ‘for a contractual theory based on the subjective intention
of the parties, a mistake is the principle obstacle to a valid contract’
(Sefton-Green, Mistake, Fraud & Duties to Inform in European Contract Law,
at 72 (2005).
59. Consent
is prevented, amongst other things, by erreur/ error
(Pothier, Traité des Obligations, paras 17-20,
at 13-16 (1827 ed); Domat, 1 The Civil Law in its
Natural Order, book 1, title 1, at 53-54 (Strahan tansl.,
1722); French Civil Code, arts. 1109-1110). In turn, erreur
may be of two kinds; erreur obstacle (erreurs that prevent the meeting of minds necessary to
constitute a contract’s creation and cause a contract to be a nullity absolue) and erreur vice du consentement (a defect of consent where there is consent /
meeting of minds but consent is impeachable for some other reason and which
causes a contract to be a nullity relative: as to which see French Civil Code,
arts. 1109 and 1118). Steelux Hldgs Ltd v
Edmonstone (née Hall) (36) is recent Jersey authority for the
proposition that a vice du consentement (and,a fortiori, erreur obstacle)
will render a contract void ab initio, that is to say, it never existed. Erreur vice du
consentement is said to be relevant in this case.
60. As
to erreurs obstacle, such erreurs
may themselves be of three kinds: erreur sur la
nature du contrat (mistake as to the nature of the
agreement); and erreur sur l’existence
de la cause (mistake as to the basis or purpose of the agreement). Each of these erreurs
obstacle will prevent the subjective meeting of minds that is fundamental and
necessary to the existence of consent and the creation of a contract under
Jersey law. Returning to erreurs vice du consentement,
these erreurs are of two kinds: erreur
sur la personne and erreur
sur la substance.
61. Cause
is the basis of or the reason for the contract. It is thus constituted by the
interdependence of promises or the mutual performance of obligations. Hence, where the basis upon which a
party enters an agreement (the cause) either fails or never comes to pass at
all, the agreement is, according to Jersey law, null (Pothier, op cit, paras 42-46, at 24-28; Domat,
at 35; and French Civil Code, art 1131).
62. Objet
is a party’s obligation of performance under a contract (Pothier, op cit, para 53, at 32; French Civil Code, art 1126). It is what a party promises to do under
the contract by way of performance / discharge of his or her obligations. If there is to be objet under a
contract, the promised performance must be: (i)
certain; (ii) possible; and (iii) lawful.
63. As
to certainty, the promised performance must be sufficiently certain if this
particular requirement is to be satisfied (see Selby v Romeril (34),
where the contract failed because the objet was not defined or was
uncertain). Alternatively, objet
must be capable of determination (see Groom v Stock (8)
(employee’s right to bonus unenforceable because no means provided for
its determination)).”
166. Here was an unambiguous statement from the
Court of Appeal that the “Jersey law of contract determines consent by
use of the subjective theory of contract”. Generally, such a statement from that
court would be taken as settling the matter, at least until the matter was
appealed to a higher court. However
that did not occur.
167. It is to be noted in Marett that no
argument as to the basis on which consent is to be established was put before
the Court. The Court of Appeal
simply proceeded on the basis of a summary of the position put forward by one
side which was not objected to by the other. Accordingly, and with the greatest of
respect to that court, it does not seem to us to be persuasive in considering
the correct approach in this case.
168. We are supported in that view that the above
authority is and was not binding on the Royal Court because the point on which
the Court proceeded was not argued before it by the case of FSHC Group
Holdings Limited v GLAS Trust Corp Limited [2019] EWCA Civ
1361; 2020 1 All ER in which the Court of Appeal of England and Wales, at
paragraph 136 of the judgment in a case involving the English law of contract
said this:-
“Subsequent authorities have clearly established that the
suggestion which attracted the Court of Appeal in Joscelyne v Nissen is
a correct approach and that a court is not bound by a proposition of law which
was not the subject of argument because it was not disputed in an earlier case
(even if that proposition formed part of the ratio decidendi of the case). In Re
Hetherington (decd), Gibbs v McDonnell [1989] 2
All ER 129 at 133, [1990] Ch 1 at 10, Sir Nicolas Browne-Wilkinson V-C held
that, as a first instance judge, he was entitled to decline to follow even a
decision of the House of Lords in which a proposition of law necessary for the
decision was not disputed. After a
review of the authorities, he concluded that:
“…the authorities therefore clearly establish that even
where a decision of a point of law in a particular sense was essential to an
earlier decision of a superior court, but that superior court merely assumed
the correctness of the law on a particular issue, a judge in a later case is
not bound to hold that the law is decided in that sense.”
See also R (on the application of Kadhim) v Brent London BC
[2001] QB 955, [2001] 2 WLR 1674 (para [33]); Rawlinson v Hunter Trustees SA
(as Trustee of the Tchenguiz Family Trust) v Director
of the Serious Fraud Office (No 2), Tchenguiz v
Director of the Serious Fraud Office [2014] EWCA Civ
1129, [2015] 1 WLR 797 (para [43]).”
169. It might, of course, be argued that the same
criticism could apply to the earlier cases that are mentioned above. The objective / subjective argument was
not argued before those Courts.
That is indeed the case. However,
the distinction between Marett, and the other, earlier cases before the
Royal Court, is that in Marett, with the greatest of deference to the
highly eminent judges of appeal sitting in that case, none of them were steeped
in Jersey law. In the cases before
the Royal Court, which span decades, the Court in each instant was presided over
by judges of law who were qualified in the law of Jersey and had previously
practised as lawyers here. It is
arguably the case that the fact that issues of consent were not addressed to
the Court was of little moment because the judges would have proceeded to apply
what they knew to be the received understanding of the approach of Jersey law
on such matters.
170. The next judicial contribution to the law of
Jersey in this regard is to be found in Flynn v Reid [2012] (1) JLR 370
where William Bailhache, Deputy Bailiff (as he then was) touched on the issue
of “true consent” or “adopting a French word “volonté””. In an orbiter observation the Court said
this at paragraph 21:-
“In Selby v Romeril (26), this court set down four
requirements for the creation of a valid contract in Jersey, namely the consent
of the party undertaking an obligation; his legal capacity to enter into the
contract; an ‘objet’ or subject matter of the contract; and
finally, a legitimate ‘cause’ or reason
for the obligation to be performed.
We do not in any way dissent from that summary of essential
requirements, but we add that, in relation to the requirement for consent of
the parties undertaking the obligations, there must be shown a true consent, a
true desire, or, adopting the French word, “volonté”
that the arrangement become legally binding between them.”
171. The issue of the subject / objective approach
was again touched on by the Court of Appeal (differently constituted (Crowe,
Logan Martin & Birt JJA) in the case of Home Farm Developments Limited
and Others v Le Sueur [2015] JCA 242, in which the Court, in considering
the question of a unilateral erreur, at paragraph 44-47 inclusive said this:-
“44. Mr Holmes argues that there
was no meeting of minds since he was in erreur
because of his belief that the Settlement Agreement included a requirement for
Mr Le Sueur to procure the Strata creditors to agree to accept part payment in
full and final settlement of their claims.
45. We accept for the purposes of this
appeal that a unilateral erreur by one party to a
contract may prevent the required meeting of minds or amount to a defect of
consent as described in Marett. However, we do not agree that a
misunderstanding as to the meaning of a contract can amount to such an erreur. The example given in Pothier Traité des Obligations, Part 1, Chapter 1,
§18, p. 22, of the sale of a pair of candlesticks is of a very different
character, because that was not dealing with a question of
interpretation.
46. The consequences of holding that
the misunderstanding of a contract by one party is sufficient erreur to invalidate the contract would be startling. Let us take a simple case where a
plaintiff and defendant disagree over the meaning of a contract. The plaintiff argues for interpretation X
and the defendant for interpretation Y. Applying the approach set out in §32
above, the court rules that interpretation X is correct. If an erreur as
to interpretation by the defendant were held to be sufficient to avoid the
contract, he would have lost the battle but won the war, because his
interpretation of the contract would have been rejected but notwithstanding
that defeat he would be entitled to have the contract declared void on the
basis of his own misunderstanding of its effect. Conversely, the plaintiff
would be in a lose-lose position, despite having correctly understood the
contract and being unaware of the defendant’s misunderstanding. That cannot be the law.
47. Accordingly we hold that a
misunderstanding or mistake by one party to a contract as to its correct
interpretation is not an erreur which prevents the
contract being formed or gives any ground for it being declared void on the
grounds of a vice du consentement. The erreur must be of a different nature.”
172. The Court went on to say in a postscript at
paragraph 59, in relation to Marett, the following:-
“59. We have mentioned in §43
above that Advocate Taylor drew our attention to the decision in Marett.
Although the point was not argued
in this appeal, and we do not need to decide it, we would nevertheless observe
that the question whether an objective or a subjective test should be adopted
was not argued in Marett either:
It was simply assumed by the court to be correct (see §55), and
indeed the court expressly said that “This is not the time for a detailed
analysis of the Jersey law of contract”. Advocate Taylor drew our attention to
earlier case-law such as Leach v Leach [1969] JJ 1107 where an objective
approach had been adopted. We would
therefore be concerned if a body of opinion were to develop regarding Marett
as the last word on this point. We
would be concerned because we consider that there are potentially powerful
arguments against the adoption of a subjective test. We cannot express a concluded view as to
which arguments ought to prevail, but we do express the view that the arguments
have yet to be deployed, and as a result the point has not yet been
definitively resolved.”
173. The question fell to be addressed squarely at
first instance in Calligo Ltd v Professional Business Systems CI Ltd
[2017] (2) JLR 271(Le Cocq, Deputy Bailiff, (as he
then was)) in which the Court considered the case law on the matter of consent,
referred to the judgments set out above, and noted at paragraph 22 of the
Judgment:-
“22. Accordingly there appears to us to
be two competing lines of authority.
Those of the older cases which clearly applied an objective test in
assessing the question of consent and Marett v O’Brien (based in
part upon Selby v Romeril) which puts forward a subjective test.”
174. Then, at paragraphs 24 et seq,
the Court said:-
“24. We respectfully agree with the
cautionary words of the Court of Appeal in Home Farm Developments Limited. The question of whether Jersey law
analyses questions of consent by the application on the objective test or the
subjective test has not yet been definitively resolved. In the absence of adversarial argument
before it on the point, we respectfully express the view that the weight that
can properly be placed on Marett is limited.
25. It seems to us that an important part of
this Court’s role is to develop the law of contract so far as it may be
open to us to do so to suit the needs of a modern community which is also a
sophisticated international finance centre. Although it has been said that:
“Pothier (for example) is a “surer guide” to
discovery of the law of Jersey than is the law of England.”
That cannot mean that the Court looks to the text in Pothier and
follows it without further consideration. There may in those words be found a
predisposition to find the law of Jersey within the principles articulated by Pothier
or by even older authors but that does not mean that this Court must
necessarily adopt those principles if they do not appear to serve the needs of
Jersey in the 21st century.
26. As suggested by the Court of Appeal in Home
Farm there are, so it seems to us, arguments of some force that might be
deployed in favour of the objective approach. It seems to us that such an approach is
more likely to provide legal certainty for commercial transactions than would
the subjective approach. It is not
necessary, if one approaches the matter objectively, to enquire into the actual
state of mind of a party to the contract. The state of mind in so far as
it relates to consent is to be established by reference to what the parties did
and/or said or the surrounding circumstances which point to what they intended.
It would it seems to us be
unsatisfactory, if adopting the subjective approach, to reach a result where a
party to a contract who believes that he has entered into a binding arrangement
finds that it is of no effect because of some unknown but private intention of
the other party. There is the risk,
of course, that a contracting party may change his mind ex post facto with all
the uncertainty that that might bring.
27. There is also the public policy
consideration that English law is used regularly as the preferred system of law
in international commercial contracts because of its clarity and legal
certainty. It seems to us that it
would be to the advantage of Jersey to develop its law, where it is permissible
for it to do so, in those directions, namely clarity and certainty, as well. In short it seems to us that a subjective
approach will lead to greater uncertainty than will the approach that has traditionally
been adopted by the Courts of Jersey, namely the objective approach.
28. We were referred to an introduction to
the Law of Contracts (5th Edition 2009), page 9 by P Atiyah, discussing
the English law of contract, who says this:-
“It is one of the most fundamental features of the law of
contract that the test of agreement is objective and not subjective. It matters not whether the parties have
really agreed in their innermost minds. The question is not whether the parties
have really agreed, or what they really intended, but whether their conduct and
language are such as would lead reasonable people to assume that they have
agreed.”
29. In our view, the preponderance of
jurisprudence in Jersey shows that the Royal Court has applied an objective
test in considering the question of consent. There does not appear to be anything in Selby
v Romeril that calls into question the continued use of the objective
standard. The fact that the
elements of the Jersey law of contract have been identified by reference
amongst other things to Pothier does not mean that the means of
ascertaining whether those elements exist must equally be subject to the
strictures of that body of law. It
is open to us, we think, to apply a different approach if we believe that that
represents the current law of Jersey and is better suited to the needs of a
modern society. For the reasons
that we have articulated, we prefer the approach of the Jersey courts in Leech
v Leech and Others and in subsequent cases and adopt the objective standard
for determining whether or not consent exists in a contract. In other
words the parties to a contract will be taken to have meant what on
consideration of the evidence as a whole a reasonable man would have taken them
to mean.”
175. In Foster v Holt [2018] (1) JLR 449
(William Bailhache, Bailiff), the Royal Court differed in its view from the
Court in Calligo, criticising the fact that the authorities provided to
the Court in Calligo were not complete, and indicating that the Court in
that case should have found itself bound by other judgments of the Court,
particularly Marett, finding the postscript in Home Farm Development
Limited puzzling. Calligo
is further criticised for lacking reference to the maxim la convention fait la loi des parties or
to erreur or to “deception d’outre moité”,
“volonte” or “dol”. The Bailiff suggested that the
Court, in Calligo, in holding that the test for whether a party consented to a
contract was objective and not subjective, was to remove the cornerstone on
which those various principles are built.
At paragraph 13 of the judgment, having made the points mentioned above
(to which we concede we have not done justice in that brief synopsis), stated
as follows:-
“13. It is
regrettable that on a number of occasions the Royal Court, as apparently the
Court of Appeal, has given contrary indications as to what the law is in such a
fundamental area, although for the reason just given it may not matter so very
much in practice, at least in most cases.
It is very much to be hoped that at some point the question of objective
or subjective consent in contracts will come to the attention of the Court of
Appeal in a contested case which can lead to a fully reasoned decision which
will clarify the way for the future.
This is not that case, not just because the value of the loan in dispute
does not justify taking the matter forward to the Court of Appeal but because
regardless of whether one applies an objective or a subjective test, we find
that there was a contract of loan as the plaintiff has claimed. We have applied the subjective test to
the issue of consent as the defendant has requested us to do, and still find
against the defendant on the evidence, and now go on to explain why.”
176. As we have said, in Foster and Holt, the
Court was of the view that it was not open to the Court in Calligo to
disregard Marett, a judgment of the Court of Appeal. For the reasons that we have set out in
paragraph 168 and 169 above, we respectfully disagree with that assertion. It was, in our judgment, open to the
Court in Calligo to disregard Marett as the point had not been
argued before it.
177. There the question of consent would have
remained, but for the judgment of the Court of Appeal in Booth v Viscount of
the Royal Court [2019] JCA 122 in which the judge giving the lead Judgment,
Martin JA, in what is described in the Judgment as an Excursus (between
paragraph 43 and 79 of the judgment), carried out a learned and, to our mind,
thorough and compelling examination of the argument concerning whether or not
the subjective or objective test should be applied to the issue of
consent. Whilst we accept of course
that the Excursus is not part of the ratio
decidendi of the decision and is not binding (and indeed the point was not
fully argued) we adopt with gratitude that careful analysis. The Excursus dealt with, amongst other
things, the question of la convention
fait la loi des parties. It quotes from Incat
Equatorial Guinea Limited v Luba Freeport Ltd [2010] JLR 287, a Judgment of
William Bailhache, then Deputy Bailiff, and goes on, at paragraphs 57 and 58:-
“57. It does not seem to me
obvious that the undoubted existence of the maxim as part of the law of Jersey
results in the subjective approach to contractual consent being part of that
law also. On its face, the maxim means no more than that the parties will
be held to their bargain. There is authority that this is the extent of
how it had previously been understood in Jersey. In Basden Hotels Ltd
v Dormy Hotels Limited [1968] JJ 911, 919 the Royal Court said this:
“But we cannot leave this matter without referring to another
maxim. It is the often quoted maxim 'La convention fait la loi
des parties'. Like all maxims it is subject to exceptions, but what it amounts
to is that courts of justice must have high regard to the sanctity of contracts
and must enforce them unless there is good reason in law, which includes the
ground of public policy, for them to be set aside.”
A similar principle of the binding nature of contracts exists in
English law, which takes an objective approach to consent. It is
therefore difficult to see that the maxim is anything other than neutral on the
question whether the subjective or the objective approach is to be adopted.
58. Even assuming
that the maxim encapsulates the notion of will or volonté,
it leaves open the question how the existence of the will is to be determined. French and English law provide different
answers to that question. It does not seem to me that either answer is
inherently impossible. Sir Philip
asks rhetorically how an objective approach to the existence of
misunderstanding would impact upon questions such as the distinction between erreurs obstacles and erreurs sur
la substance, saying that it would lead to impossible confusion. But I find it difficult to see that there
is a fundamental problem. An erreur obstacle is an erreur that
prevents there being consent at all: for example, one party thinks the
transaction is one of gift, the other that it is one of sale. In such a
case, the objective approach would assess what an observer apprised of the
facts would consider the transaction to be. That would mean that the subjective view
of one of the parties would be defeated; but the outcome is not in principle wrong.
Similar considerations apply to an erreur sur la substance, which – as the Royal Court
in the present case recognised – will often equate to what English law
would regard as a fundamental mistake. An objective approach is as capable of
providing consistency of approach to such matters as a subjective approach.”
178. As indicated above, the time honoured and
central maxim of Jersey in contract law, la
convention fait la loi des parties, was cited in Foster
v Holt as support for the subjective approach to the issue of consent. We do not think that it does lend
support in that way. The maxim was
well-known by all practitioners of Jersey law and would undoubtedly have been
in the minds of the Court in the various cases cited above in connection with
consent. In other words, it was
thought by the judges to be equally in play whether the subjective approach to
the issue of consent was taken or whether the objective approach was
applied. It seems to us that the
maxim simply means that in the law of Jersey contract a high level of regard
and value is placed on the terms of a contract intended by the parties to it
once those terms have been identified. It, the maxim, has nothing to say about
how intention or consent is to be determined, by what test or against what
standard – the subjective or objective approach.
179. At paragraph 65 the Excursus went on to say:-
“65. The crux of the comments in Foster v
Holt – and, indeed, the crux of the subjective/objective debate
generally – is the proposition that the requirement for subjective
consent to the formation of contract is a central plank of Jersey contract law
and a cornerstone of the other principles of that law, such that the law of
contract is a cohesive whole which was certain for centuries and rested on the
writings of the commentators expounding the customary law. I respectfully consider this to be an
overstatement, for three main reasons. First, as an illuminating early
article by Advocate Kelleher - The Sources of Jersey Contract Law (1999)
3 Jersey Law Review 1 – demonstrates, identification of the foundations
of Jersey contract law is not straightforward, Jersey having historically taken
an eclectic approach to sources without seeking a unifying theory. As Advocate Kelleher put it:
“Where then does this leave Jersey law? If we are to be
restricted to pre-1204 customary law we are left without a theory of contract
law, without even a concept of consensual obligations. The answer is that we
cannot be and have not been so restricted. Poingdestre and Le Geyt make it clear that Jersey law had, by the seventeenth
century, quite pragmatically, moved on: in some respects Jersey had developed
its own law, but in other respects it continued to follow developments in
Normandy and this included looking into the ius commune on matters of contract
law.”
In this context, it is significant that Advocate Kelleher, in his
later article, speaks only of “past efforts to establish a coordinated
framework” of contract law, not of a cohesive law of contract that has
existed for centuries. Secondly,
although it is no doubt the case that when the French commentators on the
customary law spoke of consent they meant actual, subjective consent, this does
not appear to have been made explicit. Moreover Pothier, the most influential of
the commentators, was at one stage regarded as authoritative in England: in Cox
v Troy (1822) JB & Ald 474, Best J described his status as "as
high as can be had, next to a decision of a court of justice in this
country", and he is said to have had a major influence on the terms of the
Sale of Goods Act 1893. The subjective theory implicit in Pothier’s
writings did not stop English law from adopting the objective approach; and,
although the significance of Pothier to the Jersey law is of course far greater
than his significance in English law, I do not think that his status in the
Island means that Jersey law cannot have adopted an objective approach to
consent. Thirdly, many of the
concepts said to be underpinned by the subjective theory of consent have
counterparts in English law. This applies at least to the theory of the
sanctity of contract, to mistake and to fraud. In English law, they too are underpinned
by the concept of consent; and it is not at all self-evident to me that the
difference in approach to the similar concepts is dependent on the different
approaches to the existence of consent.”
180. In addition, the Excursus referred to the text,
Comparative Law in Practice: Contract Law in a Mid-Channel Jurisdiction
(2016) by Professor Fairgreave at paragraph 66-68 of the Excursus in the
following terms:-
“66. Sir Philip Bailhache (in the conclusion to
his article) and Advocate Kelleher (in the second reason given in his more
recent article) both suggest that the French application in practice of the
subjective theory may be modified in the interests of contractual certainty.
The Royal Court in Foster v Holt suggests that there may often be
little difference in practice between the subjective and objective
approaches. The point is expressed by Professor Fairgrieve, op cit, p 42 as follows:
“French law illustrates the occasional compromise between the
desire to enforce the parties’ real intentions and the need for
contractual security. Although consent itself is largely determined
subjectively in the process of assessing the content of the contract, the
characterisation of consent as such is the result of an objective determination.
In concrete terms, this means that the existence of mutual consent is assessed
from an objective standpoint. For example, the fact that the contracting
parties put their signatures on the document is considered evidence of the
parties’ agreement to its content and its effect, irrespective of the
parties “real” understanding of the terms. This is particularly
true when the contract takes place between professionals acting in the scope of
their field of activity.
Similarly, it is an exaggeration to present the rules of contractual
interpretation is imposing a purely subjective approach. Whilst Article 1156 of
the French Civil Code (now Article 1188 of the new Code) may invite judges to
seek the parties’ common intent, other provisions alongside it have definitely
objective end. For example, Article 1135 of the Civil Code (now Article 1194 of
the new Code) proposes a broad conception of the contractual agreement,
incorporating not only the express provisions, but also matters of equity,
usage and the nature of the obligation.
Third, objective elements have been injected into the French law
notion of erreur within the context of vice de consentement. Whilst, as we shall see, the French approach
to erreur is very much a subjective one, elements of
objectivity may nonetheless be detected in the case law, or instance where the
importance of the subject-matter (in respect of which the mistake was made) was
known to the other party (or that he ought to have known it), or whether the erreur in question was “excusable” or
not.”
67. I interpolate that, quite apart from the
question of the extent to which these mitigations apply in the law of Jersey,
modification of, or “occasional compromise” in relation to, an
approach that has built into it the likelihood of uncertainty is no answer if
certainty itself is the primary object.
68. Professor Fairgrieve goes on, at p 43, to
give a fourth example, as follows:
“French procedure is characterised by a predominantly written
procedure with, at its centre, the judicial dossier composed of the
parties’ respective written pleadings, supplemented by documentary
evidence. Whilst the civil courts may hear witnesses, this in practice rarely
actually occurs. Unlike the common law trial, the French civil justice system
is characterised by a distrust of testimonial over documentary evidence. This
has a corresponding impact on the evidence that can realistically be presented
during litigation to elucidate the parties’ actual intentions in
contracting. In practice, contemporaneous written documentation will be
required to support what that intention really was. This therefore illustrates
a very different approach to civil procedural patterns in the common law, and
in effect also entails an inbuilt limitation on the subjective approach in the
sense that the proof of the parties’ intentions must be apparent from
written documentary evidence. This may not always be possible to adduce.”
He returns to this point at p 47, in a passage which to my mind
emphasises the difficulty of maintaining a subjective approach to contract in
the context of an essentially common law procedural system:
“The shift [in Jersey] to the subjective approach also raises
challenges beyond the domain of substantive law. There may also be an impact in
procedural terms. In adopting the subjective approach, Jersey lawyers will have
to adapt to the need to enquire into the state of mind of the contractual
parties. It could clearly be an important factor in litigation if one party can
bring forth credible evidence as to the understanding at the time of the
contractual arrangements. As we have seen in French law, the limited use of
testimonial evidence and consequential reliance on documentary evidence
provides an inbuilt limitation on the subjective approach in the sense that the
proof of the parties’ intentions must be apparent from written evidence.
That limitation does not exist in the very different civil procedural
environment in Jersey, which is inspired predominantly by adversarial
traditions. This shows that reinforcing the centrality of consent and the
subjective approach to contracts will not only have wide repercussions
throughout the substantive law, but will also make it necessary to take account
of the impact of different procedural traditions.”
181. This, to us, appears to point to a practical
difficulty with the subjective approach.
182. At paragraph 73 of the Excursus, Martin JA
said:-
“73. There can be no doubt that the subjective
approach to consent in the law of contract produces uncertainty. The idea
that contracts may fail because of a defect in the consent of one party that is
unknown to the other is on the face of it incompatible with a modern commercial
jurisdiction. French law may mitigate some of the consequences of a
rigorous application of the subjective approach; but one way in which it does
so depends upon the existence of a procedural regime which simply does not
exist in Jersey. The subjective approach appears, at least in modern
times, to have been introduced into Jersey law without explanation and without
consideration of modern authorities preferring the objective approach. It
may be that justification for that introduction lies in a theory of the primacy
of the will implicit in the French law which provided the background to the
commentators on the customary law, which may perhaps also be implicit in the
maxim la convention fait la loi des parties; but that
theory, which logically entails that a defect of actual consent must vitiate a
contract, has by no means been consistently applied in Jersey. Moreover, it
falls to be applied in an island where, as the Jersey Law Commission pointed
out, decreasing numbers of people speak French, the lawyers are increasingly
English-trained, and the commercial interests of the Island increasingly align
with those of England.”
183. It is right to observe that William Bailhache,
Bailiff, sitting on the same Court, indicated that in his view the Court should
not consider itself well-placed to reach conclusions on the issue of the
subjective or objective test. He
indicated that he had also in past cases expressed views which were
inconsistent with the conclusions of Martin JA in the Excursus.
184. It is also right, in order to reflect the
current state of discussion on this important question, to note that Sir Philip
Bailhache in his article “More on Subjectivity in the Formation of a
Contract” in the Jersey and Guernsey Law Review was critical of the
excursus in Booth. In his
article he considers the Roman law roots citing from Professor Nicholas’
work “An Introduction to Roman Law”:-
“The Roman lawyers, with their habitual disregard of questions
of evidence, gave a little attention to matters such as this, but seemed
tacitly to assume a subjective interpretation, qualified only by such
principles as that a man may not profit from an ignorance which comes from his
own gross carelessness.”
185. Sir Philip states that the approach of Roman
lawyers, which is based in the concept of autonomy of the will, is consistent
with the work of Pothier who remains influential in the Jersey law of
contract. The learned author, a
former Bailiff, analysed and commented upon the Excursus. We do not in this judgment seek to
address the arguments put forward in his learned article.
186. Irrespective, however, of what Pothier might
have said and the attitude that he might have had, it was Sir Philip himself in
Selby v Romeril who says:-
“It is true that Pothier has often been treated by this court
as a surest guide to the Jersey Law of Contract. It is also true, however, that Pothier
was writing two centuries ago and that our law cannot be regarded as frozen in
the aspic of the eighteenth century.”
187. It is true that the court then followed that
statement with an analysis of the position under more modern French law but in
our judgment in looking for the answer to this question of the subjective or
objective approach under Jersey law we are not constrained to fix our thinking
on the position that may or may not have been taken by Pothier.
188. In this connection we refer to the observations
of Birt, Deputy Bailiff (as he then was) in re Amy [2000] JLR 80 at
pages 93 – 95 in which he said:-
“It has, on a number of
occasions, been said by the court that, in one context or another, Pothier (for
example) is a “surer guide” to discovery of the law of Jersey than
is the law of England. What exactly
does this mean? In my judgment it does
not mean that the court looks to the relevant text and follows it without more
ado. By definition, in such cases,
the law of Jersey is silent. The
court therefore has a choice. In
the absence of local authority, it must look for guidance elsewhere. In matters such as succession, where the
customary law of Jersey is derived substantially from Norman law, it is natural
that the court should look first to writers on Norman law and that, in the
absence of guidance from the law of Normandy, the court should look to Pothier
and to authorities on French law such as Dalloz. But it is not bound to follow these
authorities. The court’s sole
duty is to declare the law of Jersey and it must do so for a community of the
21st century. To insist
on adopting some rule laid down or derived from principles laid down several
centuries ago, if they are clearly inappropriate for modern times, would in my
judgment be an unsatisfactory way of proceeding and is not required by
authority……..
In my judgment, the use of phrases
such as “a surer guide” means simply that there is an inclination
or predisposition to follow the source said to be the surer guide. But the court has a choice as to whether
to follow the “surer guide” or whether, in a particular case, not
to follow it and adopt principles from some other system of law (usually, in
this context, although not necessarily, English law). For example in the law of contract,
Jersey law has chosen to follow principles of Pothier or modern French law in
some areas (e.g. cause, penalties) and principles of English law in other areas
(e.g. remoteness and measure of damages).
189. In our judgment, there are a number of reasons
that cause us to hold that the objective test is the test that applies in
Jersey. We have already set out the
arguments to a significant extent above but in summary our reasons for so
determining are as follows:-
(i)
Since
Royal Court began to give reasoned judgments in the 1950s the Royal Court has
expressly applied, at least until the case of Marett, the objective
test. Although the question of the
correct test was not argued before the court in those cases ,we take it that
the adoption of that test indicates that those Jersey judges presiding saw no
difficulty with the objective test as part of the law of Jersey and applied it;
(ii) The identification of French principles in
determining the constituent parts of the Jersey law of contract does not mean
that it is necessary to look to the same source for determining the methods by
which those principles or constituent parts are established. It does not seem to us to ineluctably
follow that the recasting or reanalysis in some respects of the Jersey law of
contract in French terms means that the test thereby altered;
(iii) We note that the system of resolving disputes
before the Jersey courts, during an adversarial process, with high regard
placed on testimony and on documentation, does not as far as we are aware have
a direct counterpart in the French process;
(iv) It would appear that even under the French
system there need to be a number of qualifications to address the vigorous of a
strict application of the subjective approach. In other words the subjective approach
does not necessarily reach a satisfactory answer. In our judgment the need for certainty
in contractual matters points strongly towards the objective approach.
(v) Whilst we could not simply adopt such an
approach were we to determine it to be at odds with long-standing Jersey law
and principle, we do not so regard it.
It appears to us to have been the principle applied by the court in the
majority of the earlier jurisprudence.
Jersey law has often picked its principles from different jurisdictions
and we do not think that a striving for a purity in a system (no matter how
unsatisfactory an aspect of that system might be) is a valid reason to
disregard the course followed by Jersey courts for many decades.
(vi) We do not think that it is essential that all
of the Jersey law of contract should be derived from the source of the civil
law. Thus, in matters of contract
law such as remoteness of damage, mitigation of loss (see for example, Denny v
Hodge 1971 JJ 1915 (Sir Robert Le Masurier, Bailiff) in which the Court applied
Hadley v Baxendale (1843) 60 All ER 461; and Viberts
v Golder 1995 JCR 223) and; as referred to hereafter, some aspects of
termination of contract, the Court does not look to the civil law. There is authority that Jersey law has,
in these aspects, followed English law.
(vii) Furthermore, outside of the law of contract in
other matters where Jersey law undoubtedly looks to English law for guidance,
it does not necessarily apply all aspects of the relevant English law. This does not in our judgment, prevent
the relevant law of Jersey from forming a coherent body of law.
(viii) The objective test has the virtue of producing
certainty by an objective assessment of the relevant circumstances to determine
what had been agreed between the parties.
This has the virtue not only of certainty but in our judgment of
simplicity and does not lead to the potential difficulty of ex post facto changes of mind which are
a risk if the court has to determine the question of consent using the
subjective approach. It avoids the
risk referred to by Martin JA of a person finding that a contract by which he
thinks he is bound is invalid merely because, completely unknown to him, there
is some subjective defect in the consent of the other party.
(ix) We should also point out that we have not been
referred neither to case law, nor to any Jersey text that might be viewed as a
source of Jersey law to suggest that the Jersey approach to consent has in the
past been subjective rather than objective.
190. This is not the first occasion in which the
Court has elected an English approach in contract matters over what might be
termed a French approach. In the Hotel
de France (Jersey) Limited v Chartered Institute of Bankers [2002] JLR Note
5 it is clear that the court, in a statement that was obiter, indicated that
the case before it was an exceptional one in which there was an insufficient
opportunity to apply to the court for the remedy of “résolution”. An argument had been placed before the
court that it was not open to a party to treat the contract as an end but had,
in accordance with what might be termed the French model, to apply to the court
for a declaration of the contract was at an end. The Court said:-
“We have no doubt that there
was not time to apply to court.
This was “an exceptional case”. Furthermore we are satisfied the matter
was sufficiently serious to justify termination of the contract.”
191. This statement led to observations in the
Jersey and Guernsey Law Review but the matter was resolved in the case of RA
Rossborough (Insurance Brokers) Limited v Boon & Aziz [2001] JLR 416
when Birt, Deputy Bailiff (as he then was), after considering the law of
constructive dismissal and identifying it as an example of a “well
settled principle of English law of contract under the rubric “discharge by breach”, went
on to say, at paragraph 20:-
“20. Both
parties asserted that this principle forms of Jersey law. Mr Thompson had included in his
authorities the case of Hotel de France (Jersey) Limited v Chartered Institute
of Bankers…..but neither side made any reference to the case in oral
argument. In that case, the court
said this:-
“Mr Barry Nicholas in his ‘The French Law of
Contract’ 2nd Ed 241 (1992) advances the matter:-
“There is obviously a broad similarity of function between the
remedy of resolution and the common law remedy of rescission or avoidance for
breach, but there are two marked differences;
(1) save in certain exceptional cases, the creditor
must normally apply to the court for an order resolving the contract; he may
not, as in the common law, simply treat the debtor’s breach as
discharging the contract.
(2) there is no legal criterion for distinguishing
those breaches which are sufficiently serious to justify the termination of the
contract and those which are not.
The matter lies in the pouvoir souverain of
the trial judge.”
This extract would suggest that the English doctrine referred to
above has no place in modern French law but the court made no ruling as to
whether the law of Jersey was to like effect.
21. To
insist that, however serious the breach by the other party, a party to a
contract cannot treat the contract as being at an end so that he is relieved of
his obligation to continue to perform his side of the bargain, but has to go to
court to seek a discretionary decision as to whether the contract should in
fact be ended, would seem to be very undesirable. It would mean that the innocent party
would not know where he stood until a decision by the court some months or even
years later. We must emphasise that
we have not heard any argument on this matter but our initial reaction is that
we would be reluctant to find that the law of Jersey was to such effect unless
there were binding precedent to say so.
The court should develop the law of contract in accordance with the
requirements of a modern society insofar as it is open for it to do so. The French approach would appear to
leave all parties in a state of complete uncertainty. Disputes concerning contracts of
employment are cases where there is a particular need for parties to know where
they stand immediately. Be that as
it may, both parties were agreed that the court should consider whether the
defendant was constructively dismissed on the basis of the test described by
Lord Denham, and that is what we have done.”
192. Although the Royal Court in Rossborough
was quite clear that argument had not been deployed before it, it nonetheless
declined to apply the French law and instead was content to accept the
submissions of counsel and apply the English principles. As far as we are aware, this approach on
the matter of the termination of a contract has not been subject to further
judicial comment and it appears that this aspect of English contract law is
accepted as being part of the law of Jersey.
Objet
193. We turn now to the question of ‘objet’.
194. In Osment v Constable of the Parish of St
Helier [1974] JJ 1, Ereaut, Deputy Bailiff (as he
then was) said, at page 25:-
“We must concede that there is some force in the argument put
forward by counsel for Mr Osment, but we cannot ignore the legal principles
governing the formation of a contract.
Two of those principles have particular relevance here.
First, Cheshire & Fifoot’s Law
of Contract (7th ed) (1969) states at page 26-
“An offer, capable of being converted into an agreement by
acceptance, must consist of a definite promise to be bound provided that
certain specified terms are accepted.
The offeror must have completed his share in the formation of a contract
by finally declaring his readiness to undertake an obligation upon certain
conditions, leaving to the offeree the option of acceptance or refusal. He must not merely have been feeling his
way towards an agreement, not merely initiating negotiations from which an
agreement might or might not in time result. He must be prepared to implement his
promise, if such is the wish of the other party.”
Chitty on Contracts (23rd ed) (1968) states at para 43,
at 23 –
“The offer is a definite undertaking made with the intention
(which may often be objectively ascertained) that it shall become binding on
the person making it as soon as it is accepted by the person to whom it is
addressed.”
Secondly, there is no contract unless there is certainty as to the
terms, Chitty states, para 83, at 43 –
“It is a well-established rule that the parties must make
their own contract, and this means that they must agree as to its terms with
sufficient certainty. If the terms
are unsettled or indefinite, there will be no contract.”
One of the examples given of an alleged agreement held to be too
uncertain to create a contractual obligation is that of a lease which fails to
specify the date of commencement.
Although the courts seek to uphold bargains wherever possible, they
cannot make a contract for the parties, nor go outside the words the parties
have used, except in so far as there are appropriate implications of law.
Paragraph 86, at 45, states –
“There is no contract if a vital term which has not been
agreed upon can be determined only by a future agreement between the
parties. As Lord Dunedin said in May
& Butcher Ltd v R, [1934] 2 KB 17: ‘To be a good contract there
must be a concluded bargain and a concluded contract is one which settles
everything that is necessary to be settled and leaves nothing to be settled by
agreement between the parties. Of
course, it may leave something which has still to be determined but then that
determination must be a determination which does not depend upon the agreement
between the parties’.
Accordingly it was held in that case that there was no contract where an
agreement for the sale of tentage provided that the price, dates of payment and
manner of delivery were to be agreed from time to time.”
195. We pause to note that quite clearly Ereaut, Deputy Bailiff proceeded on the basis that the
matter of intention was one for objective ascertainment. This further example may be added to
those cited in paragraphs 160,161 and 162 hereof.
196. In Selby v Romeril the Court said:-
“In essence, the objet of a contract
(or more precisely the obligation which the contract creates) is the content of
what the party undertakes. As to
the content of the undertaking, it is the rule that it must be sufficiently
certain. Pothier (op. cit., Part 1,
Chapter 1, para 137 at 59) states: “Pour qu’un
fait puisse être l’objet d’une
obligation, il faut aussi que ce
que le débiteur s’est
oblige de faire, soit quelque chose de
determine.”
197. In Marett the Court, at paragraph 62,
stated:-
“62. Objet is a party’s obligation of performance under
a contract (Pothier, op cit para 53, at 32; French
Civil Code, art 1126). It is what a
party promises to do under the contract by way of performance / discharge of
his or her obligations. If there is
to be objet under a contract, the promised performance must be: (i) certain; (ii) possible; and (iii) lawful.”
198. The requirement for certainty in a contract is
well-established and accepted as a part of Jersey law.
Estoppel
199. The Defendant argues that the Plaintiff is
estopped from denying a contract in the form as alleged by the Defendant.
200. In the case of Sutton v Insurance
Corporation of the CI Limited [2011] JLR 80 (William Bailhache, Deputy
Bailiff) at paragraph 34 the Court says:-
“34. It is
clear from case law that the Royal Court does apply the doctrine of promissory
or equitable estoppel. It may be
that the doctrine of estoppel by convention also forms part of our law,
although the court doubts whether that is so in its entirety as applied by the
courts in England and Wales. This
is because the mutual understanding as to the basis upon which the contract is
to be performed, which is a sine qua non for the purposes of the doctrine of
estoppel by convention, is already drawn into the contract by the application
of the principles relating to the requirements for the creation of a valid
contract – the mutual understanding goes to the true consent of the
parties undertaking the obligations, as an expression of their will or volonté to make the transaction; and if in any
particular case it can be shown that the assumption upon which the parties
proceeded simply cannot be made to hold good against them, then the remedy will
probably lie in a claim that the contract should be set aside for erreur.”
201. In the case of the Minister for
Infrastructure v The Parish of St Helier [2016] JRC 153, (Clyde-Smith,
Commissioner) the Court said:-
“125. We
start with these general observations by Kerr LJ giving the judgment of the
English Court of Appeal in The August Leonheart
[1985] 2 Lloyd’s Rep 28 at 34-5:-
“All
estoppels must involve some statement or conduct by the party alleged to be
estopped on which the alleged representee was entitled to rely and did rely. In this sense all estoppels may be
regarded as requiring some manifest representation which crosses the line
between representor and representee, either by statement or conduct. It
may be an express statement or it may be implied from conduct, e.g. a failure
by the alleged representor to react to something said or done by the alleged
representee so as to imply manifestation of assent which leads to an estoppel
by silence or acquiescence. Similarly, in cases of so-called
estoppels by convention, there must be some mutually manifest conduct by the parties
which is based on a common but mistaken assumption. The alleged representor’s
participation in this conduct can then be relied upon by the representee as a
basis for this form of estoppel.”
126. In his review of the general principles Dorey, Commissioner,
in Pirouet v Pirouet
[1985/6] JLR 151 at page 159 quoted with approval this extract of the judgment
from Lord Denning MR in Moorgate Mercantile Credit Company Limited v Twitchings [1975] 3 All ER at 323:-
“Estoppel is
not a rule of evidence. It is not a cause of action. It is a
principle of justice and equity. It comes to this. When a man, by
his words or conduct, has led another to believe in a particular state of
affairs, he will not be allowed to go back on it when it would be unjust or
inequitable for him to do so.”
127. In his collective summary of estoppel principles
(although in particular proprietary estoppel, which is not asserted here)
Bailhache, Bailiff said this in Flynn v Reid [2012] JRC 100 at paragraph
49:-
“Now there is
no doubt that in cases of equitable estoppel, the remedy is provided because
the law forbids the party from exercising his legal rights by resiling from a
representation he has made to the defendant on which the defendant relied to
his detriment. Equity in the
classic sense there mitigates the rigours of the law; but although the
boundaries are not always as clear as one might wish, it is possible to say
that the law has not changed. The
legal rights remain the same, but in equity, they cannot be enforced.”
128. In his review of estoppel in Amalgamated
Property Co v Texas Bank [1982] QB 84, Robert Goff J gave this overview:-
“The basis of
all these groups of cases appears to be the same – that it would, despite
the general principle, be unconscionable in all the circumstances for the
encourager or representor not to give effect to his encouragement or
representation. The first group
concerns cases where equity would regard it as fraudulent for the party against
whom the estoppel is alleged not to give effect to his encouragement or
representation; an example of such a case is where, on the principle stated by
Lord Kingsdown in Ramsden v Dyson, L.R. 1 H.L. 129, a party has
encouraged another in the expectation that he shall have an interest in the
encourager’s land, and the other party has, on the faith of that
encouragement, expended money on that land. The second group consists of
cases concerned with promissory estoppel, in which one party represents to
another that he will not enforce his strict legal rights under a legal
relationship between the parties. The representation may be no more than a
gratuitous promise; but it may nevertheless be unconscionable for the
representor to go back upon it, because a representee may reasonably be
expected to act in reliance upon such a forbearance, without going to the
extent of requiring a contractual variation. The third group concerns
cases where one party has represented to the other that a transaction between
them has an effect which in law it does not have. In such a case, it may, in the
circumstances, be unconscionable for the representor to go back on his
representation, despite the fact that the effect is to reduce his rights or to
enlarge his obligations and so give effect to what is in fact a gratuitous promise;
for the effect of the representation may be to cause or contribute to the
representee’s error or continued error as to his true legal rights, or to
deprive him of an opportunity to re-negotiate the transaction to render it
legally enforceable in terms of the representation.”
202. The Court did not find that the facts in that
case gave rise to a promissory estoppel or estoppel by representation.
Implied Terms
203. The situation with regard to implied terms is
settled law. The main case on the
principles to apply is that of Grove and Briscoe v Baker [2005] JLR 348,
where at paragraph 15 et sec the Court said:-
“15. We turn next to the law relating
to implied terms. Pothier’s rules for the interpretation of contracts, to
be found in his Traité des
Obligations, part I, chapter I, 5th rule, provide, in translation –
Usage is of so much authority in the interpretation of agreements,
that a contract is understood to contain the customary clauses although they
are not expressed; in contractibus tacite veniunt ea qua sunt moris et consuetudinis.
For instance, in a contract for the lease of a house, though it is
not expressed that the rent shall be paid half-yearly at the two usual feasts,
and that the tenant shall do such repairs as are usually done by tenants; these
clauses are understood.
So in contract of sale, although the clause that the seller shall be
bound to warrant and defend the purchaser from evictions, is not expressed, it
will be understood.
16. The rule that terms may be implied
into a contract if it is the custom of the trade to include them has been
developed by the courts. In Sibley
v Berry, 9th July 1987 unreported 111, the Court of Appeal considered an
appeal by the widow of a man who had lent money to the respondent free of
interest in order to enable her to buy a house. There was no written contract. The
evidence was, however, that it was an indefinite loan, made in friendship,
which was repayable upon the sale by the respondent of the house which she had
purchased. The principal question
for the court was whether a term could be implied into the contract requiring
the respondent to sell the house or, alternatively, stipulating that the loan
was repayable on reasonable notice. The Court of Appeal examined the
principles applied in England as laid down by the House of Lords in Liverpool
City Council v Irwin and another [1977] AC 239, citing a passage from the
speech of Lord Wilberforce beginning at page 253 –
“There are varieties of implications which the courts think
fit to make and they do not necessarily involve the same process. Where there is, on the face of it a
complete bilateral contract, the courts are sometimes willing to add terms to
it as implied terms: this is very common in mercantile contracts where
there is an established usage: in
that case the courts are spelling out what both parties know and will, if
asked, unhesitatingly agree to be part of the bargain. In other cases where there is an
apparently complete bargain the courts are willing to add a term on the ground
that without it the contract will not work – this is the case, if not of
“The Moorcock” (1889) 14 PD 64, itself on its facts, at least of
the doctrine of The Moorcock, as above, as usually applied. This is, as
was pointed out by the majority in the Court of Appeal, a strict test –
though the degree of strictness seems to vary with the current legal trend
– and I think they were right not to accept it is as acceptable here. There is a third variety of implication,
that which I think Lord Denning MR favours, or at least did favour in this
case, and that is the implication of reasonable terms. But though I agree with many of his
instances, which in fact fall under one or other of the preceding heads, I
cannot go so far as to endorse his principle. Indeed, it seems to me, with respect, to
extend a long and undesirable way beyond sound authority. The present
case, in my opinion, represents a fourth category, or I would rather say, a
fourth shade on a continuous spectrum. The Court here is simply concerned to
establish what the contract is, the parties not having themselves fully stated
the terms. In this sense the Court is searching for what must be
implied”.
17. Le Quesne JA continued –
It remains to consider whether the case can be brought within the
second of Lord Wilberforce’s categories, that is, the category of cases
in which something must be implied because without it the contract “will
not work”. Lord Wilberforce
himself remarked further about this category of case on page 254, “In my
opinion such obligation should be read into the contract as the nature of the
contract itself implicitly requires, no more, no less. A test in other words of
necessity.” He went on, on
page 205, to refer to the judgement of Bowen L J, in the earlier case of Miller
–v- Hancock. In that judgement, referring to the term which, in
that case, it was sought to imply, which in fact he held should be implied,
Bowen L J, said that the term to be implied was something without which the
whole transaction would be futile, something the absence of which would render
the whole transaction inefficacious and absurd.”
Quantum meruit / unjust enrichment
204. In the alternative the Defendant argues that it
should be entitled to a quantum meruit / unjust enrichment. The law has been considered recently.
205. In Flynn v Reid, William Bailhache
Deputy Bailiff (as he then was) carried out a careful analysis of the law
relating to unjust enrichment, or enrichissement sans
cause, and concluded that the Royal Court was prepared to recognise the
doctrine of unjust enrichment in principle. In considering authority to reach the
rules that applied at paragraphs 107 and 108 the Court concluded:-
“107. So there we have a
reference from Lord Hope to two Scottish cases where the law of unjust
enrichment has been applied. In Mckenzie
v Nutter (14), Sheriff Principal Lockhart, having summarised the relevant
law, described his approach as follows (2007 SLT (Sh
Ct)17, at para 33):
“On the basis of the law which I have set out it is clear that
the court may allow an equitable remedy in circumstances where one party has
been unjustly enriched at the expense of another party. I propose to deal with this matter under
four headings:
a. Has
the appellant been enriched at the expense of the respondent and what is the
nature of that enrichment?
b. If
so, was that enrichment unjust?
c. If
so, what remedy, in particular circumstances of this case, is open to the
respondent?
d. Is
that remedy equitable?
108. In our view,
this approach to the questions of unjust enrichment is one which is not
inconsistent with such slender authority as can be ascertained in Jersey law
from the cases and is consistent with principle. It also provides a modern statement of
an approach currently adopted by French courts to questions of enrichissement sans cause. The starting point is the legal
interest. The court then looks at
whether there has been enrichment which benefits the legal owner or owners or
perhaps some of them at the expense of the claimant in a way that is
unjustifiable. We also think that
approaching the problem in this way will enable the court to consider
enrichment problems holistically, rather than in separate compartments. We apply these principles to the facts
of the instant case.”
Discussion
206. Having referred to the core documents, the
evidence before us and the principles that we believe apply in this case, we
turn to determine whether or not a contract existed between the Plaintiff and
the Defendant, what were its terms, and what may be due from one to the other
under it.
207. In our judgment, the Letter of Intent was an
expedient entered into to enable work to continue without interruption
following the termination of the Intermediate Contract pending completion of a
JCT Contract.
208. What then is the meaning of the Letter of
Intent, as qualified by the November 2014 emails? It seems to us that the documentation
appears to provide:-
(i)
The
contract for the building of the Project was to be let under the JCT Standard
Form;
(ii) The ambit of the Letter of Intent extends to,
but is limited to, the commencement of site mobilisation, procurement of
materials, and engagement of the supply chain;
(iii) The Project will be concluded on the 26th
February 2016, the scope of work for the main Project is as defined within the
tender documentation and any updated design to that date;
(iv) The Defendant is entitled to be reimbursed for
all direct and actual costs for works covered by the ambit of the Letter of
Intent;
(v) There will be a cost cap in the sum of
£3,764,930 excluding GST under the Letter of Intent which does not cover the costs paid under the
Intermediate Contract;
(vi) If the JCT Standard Contract was entered into
then that contract will supersede the Letter of Intent;
(vii) The cost cap referred to under item 4 of the
Letter of Intent is that cost set out in the RNJ Cost Report dated 4th
November 2014. This was based on the February 2014 Architect’s drawings;
the Defendant’s Bill of Quantities prepared in detail; and RNJ’s
verification and adjustment of the Bill of quantities;
(viii) The contractor’s risk element is still to
be negotiated;
(ix) Termination should be after a period of
twenty-eight days’ notice;
(x) The Letter of Intent is to be governed by the
JCT Standard Contract and agreed amendments. The meaning of the term “standard
form of contract” is to us clear – it means the JCT Standard
Contact. The agreed amendments
appear to us to mean the schedule of amendments incorporated into the Intermediate
Contract.
209. As we have said the Letter of Intent was itself
somewhat strangely drafted even without considering the qualifications
contained in the November 2014 emails.
It provided for a cap which related to the payment of the full price of
the Project as identified in the RNJ Cost Report which was clearly inappropriate
for dealing with an arrangement which was to be of short duration. Furthermore in its terms it expressly
authorised the Defendant to deal with what we term preliminary works which had
in fact been completed months earlier and was not on its terms intended to last
for the entirety of the building Project.
210. Because its duration was to an extent uncertain
however the qualifications were introduced by the Defendant as set out in the
November 2014 emails. These it can
be readily seen derive from the practical concerns of a contractor and not from
someone who is carefully considering the interplay between what they say in an
email and what is said in a Letter of Intent. There are inconsistencies and difficulties. However, what is clear is that the Defendant
intended, and the Plaintiff agreed, to make the arrangements provided for in
the Letter of Intent subject to the JCT Standard Contract with agreed
amendments. Neither the Plaintiff nor his agent sought to clarify what the
Defendant meant by the amendments to the Letter of Intent. We believe that they were understood.
211. The Plaintiff, in the light of the changed
plans and specification must have understood that the Defendant would not be
willing to cap the cost of the Project and that these changes would result in
substantial additional costs. In our view, perhaps because he was preoccupied
with what he viewed as “value for money”, the Plaintiff was
unwilling to accept these additional costs and tried to force through a
substantial discount. The Defendant’s
refusal to accept that position was the death knell of the relationship between
them.
212. The direct and actual cost basis, expressly
referred to in the Letter of Intent, was only applicable for what was
understood to be a short period pending the main contract, but if this was to
be given effect to at all it was only given effect to for a very short period
because the Plaintiff authorised and paid interim valuations on the agreed
valuation basis, notwithstanding the fact that there was no signed contract.
213. The JCT form of contract had all but been
agreed and a figure had been identified by Mr Box as to the price based upon
the February 2014 drawings. There
may have been further variations but there was in our judgment a clear
understanding as to how matters should and would proceed with regard to the
Project, and the Defendant was entitled to believe that the formal contract
would be signed soon after the Letter of Intent had been issued by the
Plaintiff
214. To the outside observer the Plaintiff at all material
times, after the Letter of Intent, proceeded not on the basis of the provisions
of the Letter of Intent, but rather on the basis of the JCT Standard
Contract. Mechanisms were put in
place which would be usual to see within the JCT Standard Contract such as the
fact that CCRs and variations were formally agreed by AIs. Although it is possible to incorporate
such mechanisms in another form of contractual arrangement they are entirely
consistent with the operation of the JCT Standard Contract.
215. There are further steps that were taken that
are only consistent with the JCT Standard Contract. The inclusion of OHP in any cost claim
on an ongoing basis by the Defendant is but one of them. The provision of retentions and pay less
notices are others. The Plaintiff
maintains that these should be implied into the contract set out by the Letter
of Intent, but we see no basis on which we should do so. We think they reflected a different
contractual arrangement – that the parties were operating under the JCT
Standard Contract.
216. In our judgment, objectively speaking, by all
that they did the parties agreed that they were operating under the JCT
Standard Contract at a price that was based on revised drawings and was
significantly in excess of the cap in the Letter of Intent. The cap in the Letter of Intent had
become irrelevant because the Letter of Intent had ceased in our view to govern
the relationship between the parties.
217. In our view, notwithstanding any subjective
belief on the part of the Plaintiff there was a contract between the Plaintiff
and the Defendant on the terms of the JCT Standard Form. The price had in effect originally been
agreed in November 2014 and was based upon the RNJ Cost Report and the
documentation underpinning that.
Once those specifications had changed the price referred to in November
2014 as the cap or otherwise became irrelevant. It was and must have been understood by
both parties that the price would change.
The programme had been agreed as had the completion date. The works were to be conducted in
accordance with JCT Standard Contract and the Defendant had made it entirely
clear at every point that this was not to be a fixed price contract and they
would not be providing any discount.
Whatever the Letter of Intent may have been intended to achieve when it
was initially created in our judgment the contractual arrangement had
significantly mutated to the JCT Standard Contract and the Plaintiff and the
Defendant had conducted themselves, and were content to do so, in the manner provided
for by that JCT Standard Contract.
This to us is demonstrated by the parties’ acceptance of and
adoption of retentions, pay less provisions, architect’s instructions,
OHP and interim valuations and certificates. Although a final price had not been agreed
a mechanism for establishing cost, through CCR’s, AIs, certifications
(including 6.5% OHP) had been established and the reasonable observer would
have concluded that this was the agreed method of proceeding and agreed as
applying to the work that the Defendant was doing.
218. The delays and escalation in costs were, in our
judgment, almost entirely attributable to the Plaintiff and his family. The Defendant gave a number of warnings
as to the delay relating to the Project.
After the Letter of Intent was executed, the Defendant was presented
with plans that were materially different from the plans which formed the basis
of the cap in the Letter of Intent.
219. In our judgment, the Defendant is entitled to
the 6.5% OHP. In our judgment
however, there should no up lift for CDP as the
Plaintiff had always refused this.
There should be no uplift for potential claims from sub-contractors,
unless the Defendant can show that bills have been submitted by those
sub-contractors. Furthermore, there
should be no up lift in the contract sum for legal costs. That in our view is how the price falls
to be calculated. We see no basis
to revisit sums already paid before certified.
220. In the alternative we are asked to consider the
question of estoppel.
221. For the reasons that we have set out above
there seems little doubt in our minds that by reason of the acceptance of the
November 2014 qualifications to the Letter of Intent and the basis on which the
Plaintiff and the professionals advising him and dealing with the Project conducted
themselves with regard to the Project, changes, and claims for payment and AIs
the Defendant was entitled to assume and believe that it was operating
consensually under the JCT Standard
Contract in these respects. We
think it likely that the Defendant continued to permit the formalisation of
such a contract to slide and to continue on site because it drew substantial
comfort, potentially to its detriment, from the belief that the JCT form of
contract applied.
222. We think that the tests for an estoppel are met
and that even were we wrong in the other assessments that we have made in our
judgment the Plaintiff would be estopped from reneging on the representation
that the JCT Standard Contract would apply.
223. In the circumstances we do not need to go on to
consider unjust enrichment and we do not do so.
Conclusion
224. It seems to us that the four elements set out
in Selby above, are present in the instant case. There is no issue raised about the
capacity of the parties nor about cause and the Objet and Cause may be identified by reference to the duty on the
part of the Defendant to build the property in accordance with the various
plans and specifications as they evolved from time to time in exchange for the
payment agreed initially or subsequently certified and that that obligation
continued until the relationship between the parties could be effectively
terminated.
225. In conclusion, therefore, there was a contract
(or the Plaintiff is estopped from denying that there was a contract) between
the Plaintiff and Defendant after the Intermediate Contract for the
continuation of the Main Works.
226. The contract as to its terms is identified by
the way in which the Plaintiff and the Defendant and those professionals
representing the Plaintiff dealt with values, costings and payment. The cap referred to in the Letter of
Intent had ceased to apply. The
Defendant had made it clear that it would not agree to a fixed price contract
and the Plaintiff knew this.
227. Accordingly in our judgment the Defendant is
entitled to be paid for its work on an agreed value basis, with OHP, and to the
extent that that work is covered by AIs then on that basis.
228. We do not think that there was to be an uplift
for CDP as this appears to be an aspect that the Plaintiff had always refused
to accept and similarly there was not to be an uplift for potential claims from
sub-contractors unless the Defendant can show that bills have been submitted by
those sub-contractors. There was to
be no uplift in the contract sum for legal costs.
229. For the avoidance of doubt, however, we do not
find on the evidence before us that there is any basis to revisit the
Intermediate Contract and the sums paid for the Enabling Works nor, as we have
indicated above, do we find the allegations made by the Plaintiff against the Defendant
established.
230. Having identified what, in our judgment, is the
contractual position between the parties and the correct approach to
quantification, we do not feel we that we have sufficient information before us
to carry out that quantification exercise without the benefit of further
submissions and possibly further evidence from the parties.
231. We observe, however, that if agreement cannot
be reached between the parties in the light of contents of this judgment as to
the appropriate quantum then it may well be more cost effective for the parties
to agree a reconciliation of the financial aspects outside the Court process by
some form of alternate dispute resolution such as arbitration or mediation or
otherwise in accordance with JCT contract provisions.
232. However, if the parties cannot agree that
method, then we will sit to give directions for the further quantification of
the financial aspects of this case.
Authorities
The
Parish of St Helier v The Minister for Infrastructure [2017] JCA 027.
Calligo
Limited v Professional Building Systems CI Limited [2017] 2 JLR 271.
Sabah Flour and Feed Mills v Comfez Limited [1988] 2 Lloyds Reports.
RTS Flexible Systems
Limited v Molkerei Alois Muller Gmbh
& Company KG (UK Production) [2010] UK SC 14.
Trico
Limited v Anthony Buckingham [2020] JCA 067.
Selby
v Romeril [1996] JLR 210.
Minister
of Treasury and Resources v Harcourt Development Limited [2014] (2) JLR 353.
Leech v Leech [1969] JJ
Mobil Sales and Supply Corp v Transoil (Jersey) Limited [1981] JJ.
La
Motte Garages Limited v Morgan [1989] JLR 312.
Marett
v O’Brien [2008] JLR 384.
FSHC
Group Holdings Limited v GLAS Trust Corp Limited [2019] EWCA Civ 1361; 2020 1 All ER.
Flynn
v Reid [2012] (1) JLR 370.
Home
Farm Developments Limited and Others v Le Sueur [2015] JCA 242.
Calligo
Ltd v Professional Business Systems CI Ltd [2017] (2) JLR 271.
Foster
v Holt [2018] (1) JLR 449.
Booth
v Viscount of the Royal Court [2019] JCA 122.
Incat Equatorial Guinea Limited v Luba Freeport Ltd
[2010] JLR 287
Comparative Law in Practice: Contract
Law in a Mid-Channel Jurisdiction (2016) by Professor Fairgreave.
re
Amy [2000] JLR 80.
Hotel
de France (Jersey) Limited v Chartered Institute of Bankers [2002] JLR Note
5.
RA
Rossborough (Insurance Brokers) Limited v Boon & Aziz [2001] JLR 416.
Osment
v Constable of the Parish of St Helier [1974] JJ 1
Sutton
v Insurance Corporation of the CI Limited [2011] JLR 80.
Minister
for Infrastructure v The Parish of St Helier [2016] JRC 153.
Grove
and Briscoe v Baker [2005] JLR 348.