Goliath won

In His judgment on the wembley stadium case last week, Mr Justice Jackson ruled that Multiplex had won the key points in its High Court battle with Cleveland Bridge (CBUK). But before I analyse the judgment, here's a brief recap of the case.

CBUK entered into a £60m lump sum contract in September 2002. At trial Multiplex argued that CBUK had underpriced the job. In any event, by February 2004 a financial deal was done, complete with heads of agreement covering payment and a deadline for erecting the arch by 21 April 2004. A supplemental agreement was signed on 14 May 2004. In an attempt to agree the valuation, an oral agreement to pay CBUK £32.66m was arrived at. At trial, the subcontractor argued this was an agreed settlement. Multiplex said it was "on account" and subject to counterclaims for damages. By July 2004, Multiplex was exercising its right to withhold payment and seeking to recover money paid. On 2 August 2004, CBUK left the site, alleging breach of contract.

Each side alleged that the other was in repudiatory breach of contract - meaning it had acted in such a way that it did not intend to honour its obligations under the contract, thus entitling the innocent party to end the contract. The trial centred on four key areas:

• What had been settled in the supplemental agreement between the parties?

It appears that the detail of the supplemental agreement incorporated a full and final settlement of CBUK's claims but left Multiplex free to contracharge. This exclusion clause, under which CBUK could ultimately end up owing Multiplex money, turned out to be a poor commercial bargain from CBUK's point of view.

• What were CBUK's contractual obligations regarding progress?

Issues included whether programme dates were contractually binding and whether a term of due diligence should be implied. Multiplex lost its argument that CBUK was required to execute the works with "such diligence and expedition as were reasonably required" to meet the programme dates attached to the heads of agreement. The judge found that the programme applied in part, but that CBUK did not have to carry out activities in sequence or by particular dates. CBUK was also able to claim for an extension of time for the arch.

• What can be claimed by the parties?

CBUK's argument that it could claim damages for "loss of chance", meaning the opportunity to recover further sums of money had they been able to renegotiate the programme, failed. Multiplex could have taken account of its own commercial self-interest and not reached any such further agreement.

The judge said Multiplex's claims for abatement were not correct in law but could be amended so as to constitute a valid reduction in CBUK's valuation. He went on to decide the way in which that reduction should be measured. This will mean Multiplex will be able set off their costs of remedial work carried out by Hollandia and others against CBUK's valuation of the works, reducing the value considerably. Both parties next step is to revisit the valuation of CBUK's work and Multiplex's counter claims for damages and set-off.

It appears the supplemental agreement incorporated a full and final settlement of CBUK’s claims but left Multiplex free to contracharge

Any oral agreement on the sum of £32.66m could not be relied upon by CBUK because it was not incorporated into the subcontract. On the evidence it was accepted by CBUK that there was an express refusal by Multiplex to have the valuation agreement within the supplemental agreement.

On the key issue as to whether Multiplex orally agreed that the final valuation of CBUK's work to 15 February 2004 would be £32.66m, the judge found in Multiplex's favour. He concluded that £32.66m was a figure Multiplex was prepared to pay in valuation certificates but not as a final valuation figure. He found that if CBUK had negotiated a final figure it would have insisted it be included in the formal agreement. No such agreement was made.

• Who was in repudiatory breach?

As to whether Multiplex was in repudiatory breach the judge held no. Its actions, though "deplorable", were lawful. Multiplex did not have to pay £32.66m, as the figure was not agreed. It could refuse to make payments applied for because it could properly offset other sums and deduct costs. Any possible breach for failing to renegotiate a programme and price was far from repudiatory. Failing to consult CBUK before issuing certificates for the lowest valuations it believed it could defend was in breach, but was not a repudiatory breach. The strategy, although "ruthless", was lawful.

Because Multiplex's actions in not paying CBUK were lawful, it followed that CBUK's own action of leaving site on 2 August 2004 was not an entitlement and therefore was in repudiatory breach of contract.

CBUK now face an uphill battle in recovering any further cash after the judge's decision. Its most likely course of action is to resort to a damage limitation exercise to limit the amount that it has to give back to Multiplex.