A verbal agreement not to require payment of liquidated damages – is it binding?

Introduction

In the case of Mansion Place Limited (Mansion) v Fox Industrial Services Limited (Fox), the Technology and Construction Court in England had to consider whether an alleged verbal agreement between an employer (Mansion) and a contractor (Fox) resulted in Mansion abandoning its right to require payment of liquidated damages for delay.

Background

In February 2020, Mansion engaged Fox to complete refurbishment works and an extension at student accommodation in Nottingham. The contract for the works incorporated on the JCT Design and Build Contract (2016) and provided for sectional completion and liquidated damages for delay.

Completion of the works was delayed, with the cause of the delay being disputed. Fox blamed (amongst other things) the impact of the Covid-19 lockdown and an alleged failure, on Mansion’s part, to give timely possession of the site. Mansion blamed a failure, on Fox’s part, to adequately resource the works.

The “Agreement”

On 14 October 2020, the directors of both parties had a telephone conversation on which it was allegedly agreed that:-

• Mansion would forego any entitlement to liquidated damages; and
• Fox would forego any right to claim for reimbursement of loss and expense.

Both directors were driving whilst on the call, meaning that neither (understandably) took a note of what was said.

Fox then served an interim payment application which was met by a pay less notice from Mansion, which also gave notice of its intention to deduct liquidated damages.

Mansion disputed that a binding agreement was reached during the call on 14 October 2020 and the dispute was subsequently referred to adjudication.

The adjudicator decided that the parties had reached a binding agreement during the call on 14 October 2020, meaning that Mansion could not deduct liquidated damages. Mansion was ordered to pay Fox the sum of £524,300.

Mansion disagreed with the adjudicator’s decision and commenced court proceedings seeking repayment of the sums paid out on foot of the adjudicator’s decision.

Questions for the Court

Amongst other issues, the Court was tasked with determining whether the conversation on 14 October 2020 resulted in a binding agreement which precluded Mansion from seeking payment of liquidated damages.

Both parties agreed that there was a conversation after 18:00 on 14 October 2020, during which both directors were driving and using hands-free. The parties also agreed that the conversation was short and pleasant. Other than that, the parties’ recollections of the conversation largely differed.

Both parties provided documentation alleged to support their version of events, including emails and letters. The Court also had the benefit of evidence from both directors.

The Law - Adjudication

The Construction Contracts (Northern Ireland) Order 1997 (the 1997 Order) is the legislation that governs adjudication and payment in ‘construction contracts’ in Northern Ireland.

Under the 1997 Order, a party to a ‘construction contract’ has a statutory right to refer a dispute to adjudication at any time. An independent adjudicator is appointed and gives a decision within 28 days from the referral of the dispute. That decision is then binding on the parties on an interim basis, this is until the dispute is finally resolved through litigation, arbitration or agreement.

Decision

The Court preferred Fox’s evidence and found that a binding agreement had been reached during the call on 14 October 2021, by which Mansion had abandoned its right to require payment of liquidated damages for delay, in exchange for Fox abandoning its loss and expense claim. The Judge was “satisfied that the agreement was a final abandonment of those rights”.

Carson McDowell View

Whilst the circumstances of the agreement between Mansion and Fox were particular to this case, that claims for sums in excess of half a million pounds could be settled during a hands-free telephone call is a valuable reminder that agreements do not necessarily need to be signed or in writing to be binding and enforceable.

It is also clear that both parties would have benefitted from committing their agreement to writing. Whilst it was understandable that neither party took a contemporaneous note of a telephone call whilst driving, either could have followed up the conversation with a note of what had been discussed and agreed.

If you would like further information or advice, please do not hesitate to contact the Construction Law team at Carson McDowell.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.