Ted Lowery on the perils of indifference to contract formation
- Everwarm Ltd vs BN Rendering Ltd  EWHC 3060 (TCC)
- Before Mr Alexander Nissen QC sitting as a deputy High Court judge in the Technology and Construction Court
- Judgment delivered 18 November 2019
During 2014 the Scottish government established a programme for installing external wall insulation to domestic premises. Everwarm, a company specialising in energy efficiency advice, engaged BN Rendering to provide labour for insulation installation works. The works consisted of fixing insulation boards to a building’s external surfaces and applying a spray-on coating.
At a meeting in December 2013 Everwarm tabled and BN signed a subcontract for the first batch of installation works. Thereafter, Everwarm engaged BN to provide labour at several sites across Scotland but it was not until December 2015 that Everwarm began to issue written subcontract orders, by which time BN had already carried out some £8m of work.
During early 2016 BN first raised concerns about alleged underpayments. In subsequent discussions it became clear that a significant proportion of the discrepancies between Everwarm and BN’s valuations concerned the costing of insulation works to external window and door reveals, referred to by the parties as the “ingoes”.
BN suspended all works in March 2017 and during May 2017 gave notice that the works under each of the 38 discrete subcontracts were complete and that the retention release, in an aggregate sum of £406,000, was now due. In response, Everwarm contended that significant overpayments had been made and, relying upon clause 4.9 in its written subcontract terms, contended that it was entitled to make an assessment of the value of the works and recover as a debt, within seven days, any overpayments.
During 2018, Everwarm commenced proceedings claiming some £798,000 in overpayments as a debt due together with interest, pursuant to clause 4.9. In its defence, BN maintained that clause 4.9 did not apply to the majority of the 38 subcontracts, which had been made verbally and therefore did not include Everwarm’s standard terms. Alternatively, if clause 4.9 was included in any agreed subcontract terms, it was void and/or unenforceable. BN therefore rejected Everwarm’s case and counterclaimed the retentions.
What terms were included in the subcontracts? Was Everwarm entitled to a refund or BN to a further payment?
The judge found on the facts that the very first subcontract included oral and written conditions, but the latter, as set out in the document signed by BN in December 2013, did not include Everwarm’s subcontract standard terms. The judge noted that the following 25 subcontracts made during 2014 and 2015 were all agreed on a verbal basis only. Since none of these subcontracts included any due and final dates for payment nor any mechanism for payment notices, the necessary provisions from the Scheme for Construction Contracts would be applied.
Although Everwarm had provided BN with its standard terms on 21 December 2015, the judge decided that the next two subcontracts entered into in early 2016 did not incorporate these terms, as there was no evidence to suggest this. The judge considered that the final 10 subcontracts did incorporate Everwarm’s standard terms albeit different versions had been used.
The judge found there was no agreed method of payment for the ingoes, meaning BN was entitled to be paid a reasonable sum for any additional work, to be determined by reference to expert evidence, if there could be no agreement.
The judge rejected BN’s submission that clause 4.9 should be construed to preclude any assessment after completion of the works. The judge, however, concluded that Everwarm’s case on clause 4.9 failed as, on the facts and contrary to an express/implied term, Everwarm’s assessments had been carried out arbitrarily and capriciously.
Finally, the judge decided that where no evidence of an alternative substantive valuation had been offered by Everwarm, no set-off could be applied and BN was therefore entitled to retentions release in the sum of £406,000 plus £81,000 in interest.
Given the parties’ consistently casual approach to the contractual arrangements, the judge was required to undertake a forensic analysis of the background facts and circumstances particular to several of the individual subcontracts in order to establish basic principles. This was before going on to consider more mundane questions such as whether those payment terms that were in place complied with the Construction Act. As noted, the valuation of the ingoes remained undecided.
As the judge observed early on in the 65-page judgment, given the informal approach and the volume of work undertaken it was obvious that the parties would find themselves in dispute over the amounts to be paid. This judgment demonstrates on multiple levels the unfortunate repercussions of contractual uncertainty.
Ted Lowery is a partner at Fenwick Elliott