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The colour of money

J S Bloor was building 478 homes on part of its land at Okus Road, Swindon. In 2004, it sold part of the site to Pavillion for a care home.

Within three months of the sale contract to Pavillion, Bloor had to build an access road from Okus Road. This road, known as the Yellow Road, had only to be built to base course tarmac without street lighting or kerbs. Only after the site was developed did Bloor have to complete the kerbs and street lighting to adoption standard.

Pavillion also had an obligation to build a road running east from the Yellow Road along the southern boundary of the care home. Known as the Orange Road, it was to be finished with kerbs and lighting to adoption standard within three months of the Yellow Road being built.

Unfortunately, Bloor’s surveyor included the contruction of the Orange Road within its groundworks package at a cost of £93,072.73 and in February 2006, Bloor billed Pavillion for £104,158.46 inc VAT for the road. Pavillion argued it had no obligation to pay, citing, among other things, that it had not agreed to Bloor building the road, it had lost the opportunity to design and procure the road to its own specification, it now had no contractual relationship with the road constructor, and it had received an estimate of only £32,069.66 for the road.

The judge noted that Bloor had used the Orange Road for a short time for its own access and for constructing a sub-station. Bloor had not proved it had built the road by mistake.

The judge held that there were significant disadvantages to Pavillion in Bloor’s building the Orange Road and it could not be said that Pavillion had received an incontrovertible benefit from Bloor.

Quantum was still to be decided.

Moral: Read your own contract.

Case: J.S Bloor Ltd v Pavillion Developments Ltd. (TCC March 2008)

Redress on address

Epcot is a small but ambitious provider of professional IT training. Between January 2001 and October 2004 it rented serviced office space from Regus, first at Heathrow and later at Stockley Park after the Heathrow location was closed.

Epcot complained about the costs of reprinting brochures and stationary following the forced change of address. It also complained about the inadequate air-conditioning at Stockley Park, which made staff and trainees feel unwell, particularly on summer afternoons.

Eventually Epcot stopped paying its rent, left the premises and relocated to a competitor in Stockley Park.

Although the parties were only £7,000 apart during negotiations, when Regus sued for £30,200.04 of unpaid rent, Epcot initially counter-claimed £626m. The court described Epcot’s CEO as an intelligent and experienced businessman with a tendency to exaggerate both in his business dealings and his evidence.

There had been several rent renegotiations between Regus and Epcot. Initally Regus charged £368/day or £2,162 for a five-day week. This became £5,500/month and was later reduced to £1,500 because of Epcot’s poor cash flow and its threats to go to a rival provider. The final rent was £1,651/month.

The appeal court used these negotiations as evidence that, although Epcot was small, the parties had equal bargaining power.

The case turned on the validity of Regus’ clause 23, part of which, numbered by the court as 23(3), said Regus had no liability for any consequential loss whether it was negligent or otherwise and advised Epcot to insure against such loss. Another part, numbered by the court as 23(4), effectively limited Regus’s liability for all losses to £50,000.

At first instance, the judge had found the air-conditioning was defective, Regus was in breach of contract and clause 23 was unreasonable and unenforceable under the Unfair Contract Terms Act. In the appeal, Epcot reduced its counter-claim to £50,000.

However, the Court of Appeal held that sub-clause 23(3) was reasonable and advised the parties to settle on the basis of diminution in value for the faulty air-conditioning and possibly other matters.

Moral: Don’t overplay your hand.

Case: Regus (UK) Ltd v Epcot Solutions Ltd. (Court of Appeal April 15, 2008).

Three times no

On Valentine’s Day this year, the adjudicator decided Sharba Homes should pay Avoncroft Construction £56,380 by February 21. Relations had been bad for some time – including a dispute over £20,000 in September, which led to Avoncroft barricading Sharba’s show home.

Sharba attempted to avoid paying the £56,380 due to several reasons. It first claimed it was entitled to deduct liquidated damages (LADs) as the adjudicator had referred to them in his decision.

However, the judge ruled the adjudicator had only made a statement about Sharba’s normal remedy for delay under the contract and LADs had neither been argued nor decided in the adjudication. Furthermore, as Sharba had taken over parts of the works and there was no sectional completion clause, Avoncroft had a defence to the deduction of LADs.

The judge also held that Sharba’s withholding notice of February 15 was ineffective as it had not been issued seven days before the final date for payment of February 21 and Sharba was prohibited from withholding any money awarded by the adjudicator’s decision.

Sharba’s original withholding notice of September 19, 2007, was also of no use as it expressly related to sums withheld from payment application number 13, not those withheld from the adjudicator’s decision.

Sharba then argued that Avoncroft's finances were cause for concern. In addition, Sharba referred its own claim of more than £880,000 to adjudication and that decision was expected about two weeks after the court hearing. The judge held the credit score was of little relevance as it only referred to a willingness to lend money. Furthermore, Avoncroft’s parent company, which had assets of more than £300,000, had given Sharba a guarantee.

The judge rejected Sharba’s application for a stay.

Moral: Pay on judgment day.

Case: Avoncroft Construction Ltd v Sharba Homes (CN) Ltd. (TCC April 2008)

Ann Wright is an adjudicator and quantity surveyor. Tel: 01675 466 009