Variation, and a theme

It is reassuring to note that contractual problems do not just exist in construction. There are no obvious parallels between building and the fashion industry, but recent litigation concerning supply agreements relating to the Yves Saint Laurent "Variation" clothing range is a warning to contractors entering into framework agreements.

The relevant case – Marako vs C Mendes SA – concerned fixed-term written agreements between Marako and stores such as Harvey Nichols, Harrods, Dickens & Jones and Selfridges. The clothing was supplied to Marako by Mendes, which was heavily involved, alongside Marako, in the negotiation of each of the concession agreements – Mendes was sent drafts and its lawyers commented on them before they were signed. Mendes also contributed to the running of concessions in the stores.

There also existed a written supply agreement between Marako and Mendes, albeit in relatively informal terms – exactly the sort of letter agreement used between partners in construction. Inevitably, the letter did not contemplate what could go wrong and, just as inevitably, Yves Saint Laurent decided to move upmarket and ceased to produce the range. The concession agreements entered into by Marako said the stores would be paid a commission on sales of up to 30% (perhaps that is where the similarities with the construction industry cease!) and also with minimum guaranteed income figures for each year. All of these figures were known to Mendes.

Marako had to give notice terminating the concession agreements after the discontinuation of Variation. In relation to one of the concession agreements, it then faced a claim for loss of guaranteed minimum income. Marako argued that there was an implied collateral warranty to the effect that Mendes would continue to supply Marako with the Variation range for the duration of each of the concessions, or up to the earliest date when Marako could terminate them without breach. On the facts, the court was not able to conclude with confidence that the parties intended to create contractual relations giving rise to such a guarantee, notwithstanding the heavy involvement by Mendes in the negotiations of the concession agreements. Indeed, when asked for reassurance on this point in correspondence, Mendes suggested to Marako that it "should add a paragraph saying that this agreement is broken if and when [Mendes] can't deliver".

The consequences of failing to put in place the formal contract agreements are utterly predictable

And the parallels for the construction industry? If entering into fixed term commitments or call-off contacts, it is not enough to imagine that relationships will be all right on the night down the supply chain. If the framework agreement calls for a particular product, it is vital to ensure that you have a guaranteed supply of that product, or to "add a paragraph". If the framework needs subcontracts at a particular price, subcontractors should be tied into arrangements at that price. It may be easier to write a letter than to negotiate a formal contract, but the consequences of failing to put in place the agreements are utterly predictable.

Closer to home, there has been litigation recently about long-term relationships for maintenance between Bentley Construction and Somerfield. Here, again, there was no formal framework agreement, but it was Somerfield's practice to produce a programme of works detailing which stores were to be refurbished. After the cost plan was fixed for the works, the formal order would be raised by Somerfield and a letter sent.

Bentley received a programme showing work on Crawley, Battersea and Maidstone stores and, accordingly, started to do some preparatory work in relation to each of the three stores but never received a specific order from Somerfield, the parties having fallen out in the meantime about overcharging. In the end, Bentley recovered nothing.