Mansion Place Ltd v Fox Industrial Services Ltd  EWHC 2972 (TCC)
In November 2021, the TCC held that parties had made a binding agreement during a telephone conversation whilst each was driving. Under the agreement the property developer had abandoned its right to claim liquidated damages against the contractor. The background of the COVID-19 pandemic, coupled with the developer's concerns over completion, were crucial to the court's decision. Those in the construction industry should be cautious about what is discussed during seemingly casual conversations; the outcome may be a binding agreement.
The Claimant ("Mansion") had engaged the Defendant ("Fox") in February 2020 to refurbish and extend student accommodation pursuant to an amended form of the JCT Design and Build Contract (2016 Edition) (the "Contract"). There were delays in the works. Fox said that these were a result of the failure of Mansion Place to give timely possession of the site and, to a lesser extent, of the COVID-19 pandemic and the national lockdown. Mansion Place said that Fox failed to progress the works and to commit sufficient labour and resources to the works.
The situation was discussed by the managing directors of each company during a pre-arranged telephone call which took place whilst each was driving. Each had completely different accounts of the conversation and, of course, neither had been able to take any notes at the time. Fox said that the conversation resulted in a binding agreement that Mansion Place would forego any entitlement to liquidated damages and, in return, Fox would forego any right to claim payment for loss and expense as a result of the delay. Mansion Place said that there was no such binding agreement. The dispute was referred to adjudication where the Adjudicator found that there was. Mansion Place commenced proceedings in the TCC seeking a declaration that there was no binding agreement. Fox counterclaimed seeking, amongst other things, a declaration giving effect to its interpretation of the agreement.
The court heard evidence from both managing directors: Mr Ramanathan of Mansion Place and Mr Kite of Fox. Despite a completely different account of events from each witness, the court was able to determine the gist of the conversation which took place over the phone. The court was satisfied that Mr Kite's belief that an agreement had been reached was based on what had been said by Mr Ramanathan. For example: that it would be better if both sides dropped their legal claims and moved forward to get the project completed; and, agreeing to a mutual abandonment of competing claims. Mansion Place argued that Mr Kite had read too much into what had been said by Mr Ramanathan. However, the court found that Mr Ramanathan's comments went beyond saying that the parties should get on with the works with a view to having an amicable resolution of the legal issues at the end of the project. More fundamentally, the court noted that any other reading into Mr Ramanathan's comments would have involved a fundamental misunderstanding which the court viewed as being very unlikely given that it involved such an important matter.
Ultimately, the court preferred the evidence of Mr Kite for Fox, but it made clear that no undue weight should be placed on the demeanour of a witness and that the evidence of each witness must be looked at in its context: …through the prism of the contemporaneous documents; of their subsequent action; of those events which are accepted or clearly demonstrated to have happened; and of inherent likelihood. Thus, the context of the conversation – not just the conversation itself – should be considered.
The court found that the parties had reached a binding agreement that Mansion Place agreed to forego its rights to liquidated damages under the Contract and that this was a final abandonment of those rights. Critical to the finding, were the background circumstances of: (1) the COVID-19 pandemic and the impact which that had had on construction work generally, and (2) internal documents of Mansion Place which showed that, given the critical timing of completion for the return of students, it was anxious to avoid a situation where Fox would abandon site or deliberately delay the works. Indeed, the court heard evidence that Mansion Place was keen to ensure that its bank was "on board". Evidence was also presented in which the bank had indicated to Mansion Place that every effort should be made to maintain the relationship with Fox since the project was entering into a critical period and no one wanted this to drift any further than it already had.
Mansion Place sought to argue that the alleged agreement did not make commercial sense: why would it have abandoned a substantial claim for liquidated damages which provided a powerful weapon in persuading Fox to progress the works quickly? Surely that would lack commercial sense? This argument held considerable force with the court, but its strength was reduced when the context of the pandemic and the express concerns of Mansion Place over Fox potentially leaving site were both considered.
In these circumstances, the dropping of the liquidated damages claim is not necessarily as surprising an act as it might be in other circumstances and could be seen as having been regarded by the Claimant as a price worth paying to ensure the project continued to move to completion.
This was a classic "he said/he said", but the court found in favour of one: a binding agreement had been made. Critical to that finding was the background of the pandemic and the developer's clear concerns about completion. Claims for liquidated damages can indeed be a powerful weapon but it would seem that foregoing them will be viewed as a price worth paying if the background circumstances are right. Such circumstances could be the particular nature of the project itself, the actions or concerns of one party, or indeed something much wider.
Anecdotally, it would seem that most claims for liquidated damages and loss and expense arising from the national response thus far to COVID-19 – and in particular the lockdown of 2020 - have been settled directly between the parties. However, the case of Mansion Place v Fox may signal the beginning of those disputes which have not settled now making their way through the court system.
For now, attention is on the current variant of COVID-19 and its potential to cause delay or disruption to construction works as a result of labour shortages at every point in the contractual chain. It can be all too easy to casually agree something over the phone simply to allow progress to be made in the short term. This case brings the longer terms effect of these casual conversations into sharp focus. Parties should be mindful of what is said in conversation, particularly when the background scene is already set. If a conversation is of importance, then consideration should be given to recording it in correspondence immediately thereafter.