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20 January 2020
 EWHC 3488 (TCC)
Amey were a main contractor on the Sheffield Streets Ahead PFI project. Aggregate undertook surfacing and other civil engineering works. Although the works had come to an end, Aggregate had not yet submitted a final statement. Amey said this was a breach of the subcontract and sought a declaration setting out a time by when a statement should be provided and further declarations relating to the extent of Aggregate's right to apply for further payment. Aggregate accepted that it had an obligation to provide a final statement but said that the requirement was that it did so within a reasonable period. Clause 17 of the subcontract contained the payment terms and provided for interim payments being made by reference to the particular Works Orders. The parties did not, however, operate the contract on that basis. Instead, single composite monthly interim payment applications were made by reference to the works that had been performed. Clause 17 said that:
"The Subcontractor shall issue its final statement to the Contractor within one month following the completion of the Services.
Clause 8 of Schedule 1 dealt with "Final Accounts":
"Notwithstanding clause 17 (b) the Subcontractor shall submit his final statement for each Works Order together with full substantiation as required by the Contractor to the Contractor within one month of completion of the Works Order."
There was also a variation which dealt with additional payments to Aggregate in respect of the removal of asphalt waste. However, no agreement was formally concluded. Payments were made in accordance with the variation, but Amey said that the variation had no contractual effect. Aggregate accepted that there was no formal agreement of the proposed variation but said that by their conduct the parties agreed those terms, at least as to payment, and that it took effect as a contract agreed by conduct.
Aggregate served notice of termination on 31 January 2017 terminating the subcontract on 31 July 2017. All the services to be performed under extant Works Orders had been completed by then although some remediation works were undertaken thereafter. Aggregate incurred some further costs after 31 July 2017 but this had stopped by October 2017. The last of the monthly payments under the variation was made in April 2018.
Amey accepted that as the parties continued after 31 July 2017 with the exercise of seeking and making interim payments and of making and receiving the payments in relation to the asphalt materials an estoppel arose whereby Amey was not entitled to call for the final statement while those arrangements were still in hand. However, this was brought to an end in July 2018 when Amey called for the final statement.
Aggregate said that the conduct of the parties amounted to an agreement to vary the subcontract in respect of the arrangements for payment in respect of the asphalt materials. One effect of this was that Aggregate was no longer obliged to provide a final statement within one month; instead it was obliged to provide such a statement within a reasonable time and that period had not yet expired. Mr Justice Eyre thought that it was of "considerable significance" that the draft deed of variation was never executed. This was not through inadvertence or oversight; it was the consequence of a deliberate decision on the part of Aggregate who repeatedly took issue with the proposed provisions in relation to the cost of dealing with the asphalt materials. This meant that in reality Aggregate was contending that by their conduct the parties had agreed a contract in the terms of some but not all of the provisions of the draft deed of variation.
The Judge looked at the entirety of Aggregate's actions, including the refusal to sign the draft deed and the assertions that its terms were not acceptable, and held that it was not possible to see the conduct as an agreement of the totality of the terms of the draft deed. Further, Amey's conduct did not amount to an agreement to abandon some terms of the draft deed while accepting that the others had contractual effect.
Where did this leave the provision of the final statement? The Judge could see no grounds for finding that the obligation to provide a final statement within one month had been transformed into one to provide such a statement within a reasonable period. The subcontract made express provision for the period of one month – a "potent indication" that the parties regarded one month as a reasonable period. The estoppel operated to preclude Amey from requiring a final statement until the payments for the asphalt materials had all become due and were capable of being calculated. However, those preconditions had been met by the time of Amey's letter calling for a final statement written on 1 June 2018. Accordingly, Aggregate should have provided a final statement by 1 July 2018, but did not do this and so was in breach of its obligations.
Here, work had not started on the final statement until April 2019 - a deliberate decision by Aggregate. The principal reason for this delay was the belief that a final statement would not be needed because the parties would reach a commercial compromise. The Judge noted that in doing this, Aggregate was deliberately choosing to take the risk that a deal would not be done and that it would have failed to provide a final statement at the due time.
What did this mean? The subcontract did not provide for a further period after the expiry of one month within which a final statement could or should be served. Nor did it include any default provision setting out the consequences of a failure to supply the final statement within the one-month period. There was no provision enabling Amey to submit a final statement when Aggregate was in breach. The court could not "rewrite the parties' bargain". However, Aggregate could no longer make interim payment applications and its payment entitlement was confined to payment pursuant to the final statement.
For further information on this topic please contact Jeremy Glover at Fenwick Elliott Solicitors by telephone (+44 20 7421 1986) or email (email@example.com). The Fenwick Elliott Solicitors website can be accessed at www.fenwickelliott.com.
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