Clarke & Sons v Act Construction

Factual and Procedural Background

This dispute arises from an extensive redevelopment project undertaken by Company A, the respondents, to convert a former cold store located on Kangley Bridge Road into a 24-hour coach depot for Company B, the appellants. Company B appealed against a judgment entered by His Hon. Judge [Last Name] in the Technology and Construction Court, dated 24th May 2001, awarding Company A £186,567.02. The appeal was granted permission by Lord Justice [Last Name].

Company B operated a coach business from a depot at Minden Road, which became inadequate due to fleet expansion. Company A, civil engineers and builders, had previously undertaken various works for Company B, initially on a time and materials basis and later on a fixed price basis. Company B agreed to purchase the Kangley Bridge Road site subject to planning permission, with Company A involved in preparing professional documents and expected to carry out the redevelopment works if the project proceeded.

The redevelopment involved demolition, construction, and refurbishment works, with contracts exchanged after work commenced. Interim payment applications were made by Company A, and payments were made by Company B, though difficulties in selling the Minden Road site caused delays and eventual suspension of work. A final account was not received until 1997, leading to a dispute over sums claimed by Company A and counterclaims by Company B for overpayments and damages for delay and defects.

The trial was initially set for 16 days, but the judge decided to determine certain crucial preliminary issues first, including whether a contract existed, its terms, entitlement to mark-ups, and any illegality or unenforceability of payment claims.

Legal Issues Presented

1. Whether a contract was entered into between the parties;
2. If so, the terms of that contract concerning:
   1. Payment;
   2. A cap on overall recovery by the claimant;
   3. The scope of the work;
   4. The contract period;
3. Whether the claimant was entitled to the claimed mark-ups or reasonable mark-ups and their amount;
4. Whether any contract or entitlement to payment was illegal and unenforceable.

Arguments of the Parties

Appellant's Arguments

• Company B contended that Company A agreed to construct the project, including equipment installation, for no more than £815,000.
• Company B argued the contract included an implied term for completion within a reasonable time and sought damages for delay and defective work.
• Company B challenged the mark-up percentage claimed by Company A, proposing a lower figure based on expert quantity surveyor evidence.
• Company B sought to re-open payments made on interim applications and to establish a baseline labour cost before applying mark-ups.

Respondent's Arguments

• Company A denied any fixed price agreement, asserting work was to be charged on a time and materials basis with mark-ups applied.
• Company A claimed a course of dealings between the parties established terms for mark-ups consistent with previous invoices.
• Company A contended that no contract had been formed at the outset and that work was performed on an informal basis pending formal contract documentation.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court examined whether a binding contract existed, noting the informal nature of negotiations and lack of precise agreement on scope, price, and contract duration. The judge found no contract was formed at the time work commenced, as planning permission was not finalized and the parties anticipated a formal contract in the future. Work was undertaken on a non-contractual, quantum meruit basis, payable on time and materials with reasonable mark-ups.

The court analyzed prior dealings and concluded no course of dealing existed that could imply contractual terms regarding mark-ups. The judge rejected Company B's expert evidence on mark-ups due to hearsay concerns and accepted a 15% mark-up as reasonable, slightly above Company B's proposed range, based on the nature of daywork charges and actual payments made.

The court refused to allow re-opening of paid interim invoices, reasoning payments constituted agreed settlements absent any pleaded cause of action to challenge them. However, the court found the judge erred by limiting the 15% mark-up to only the last two unpaid applications, holding all applications from April 1992 should be subject to this uplift. The court also rejected Company B's attempt to challenge labour cost figures as a new, unpleaded case.

Holding and Implications

The court REVERSED the judge's finding that no contract existed, concluding there was a contractual quantum meruit arrangement. However, this reversal did not materially advance Company B's case because Company A was entitled to a reasonable sum for work done regardless.

The court UPHELD the 15% mark-up as reasonable but ALLOWED the appeal to the extent that the 15% mark-up applies to all interim and final applications for payment from April 1992 onwards, not just the last two unpaid applications. The matter was remitted to the lower court for calculation accordingly.

The court DISMISSED Company B's appeal to re-open labour cost figures and establish a baseline labour cost for mark-up calculation, emphasizing the need for finality in litigation.

No new precedent was established beyond the specific factual and contractual context of this case. The decision primarily affects the parties by clarifying the application of quantum meruit principles and the scope of mark-ups in informal construction engagements.