Thameside Construction Company Ltd v Arthenella Ltd [2011] EWHC 2695 (TCC)

[2011] EWHC 2695 (TCC)Case No 2011-TCC 121543; HT-10-186;HT-10-432
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 20/10/2011
Before
THE HON. MR. JUSTICE RAMSEY
Between
Thameside Construction Company LimitedClaimantArthenella LimitedDefendant
Robert Stokell (instructed by Silver Shemmings LLP) for ClaimantAlexander Hickey (instructed by Wilson Davies & Co) for DefendantHearing Hearing date: 6 th October 2011
Judgment

Introduction

[1]In these proceedings a three day trial has been fixed for 24 October 2011. There were discussions between the parties in an attempt to avoid the costs of the trial. As a result of those discussions the Claimant (“Thameside”) contends that there was a binding settlement agreement entered into by the parties during a telephone conversation on 9 September 2011. The Defendant (“Arthenella”) on the other hand denies that such an agreement was made.[2]Thameside applied to the court for the determination of the issue of whether the claims had been settled by agreement on 9 September 2011. After the hearing I informed the parties of my decision and this judgment now deals with my reasons. Background[3]The claims between the parties relate to the valuation of works carried out by Thameside on a listed Victorian manor house known as Frogmore Hall situated at Watton at Stone, Hertfordshire. The work consisted of the conversion of the property into a number of residential units, including refurbishment of the buildings.[4]The works were divided into Phases 1 and 2 and there are issues between the parties as to the proper valuation of Phase 2 works and whether Arthenella was entitled to liquidated damages for delay. These proceedings consist of two claims; one commenced by Thameside and one commenced by Arthenella. There have also been a number of adjudications on disputes arising between the parties.[5]There was a mediation on 3 August 2011 and, following that mediation, Thameside’s solicitors made an offer on 11 August 2011. On 22 August 2011 Arthenella’s Solicitors wrote making a “without prejudice save as to costs” offer in the sum of £275,000. It said that it was “a very serious offer” which had been carefully considered having regard to the reports of the quantity surveying experts. It said it took into account the counterclaim made by Arthenella and stated that it was a “Calderbank” type of offer and it was not intended that any additional sums would be due over and above £275,000. It said that if the offer was not accepted within a reasonable period, which was suggested to be by 9 September 2011, then Arthenella reserved the right to draw the offer to the attention of the court when costs were considered.[6]On 2 September 2011 Thameside’s solicitors wrote to Arthenella’s solicitors offering to accept the sum of £270,000 inclusive of interest, together with its costs in respect of the two claims, such costs to be assessed if not agreed, to settle the proceedings. They said the offer took into account Arthenella’s counterclaim but did not take into account any VAT that might be due.[7]There was no written response by either party to either of those offers. In his evidence Mr David Harris, the managing director of Thameside explained that Thameside were concerned about the costs of the litigation and at a board meeting held on 7 September 2011 it was agreed that he should approach Mr Tony Rogers, the managing director of Arthenella, with a view to settling the matter. He said that Arthenella’s offer was discussed and he was given authority by the Board to accept that offer or a higher figure if that could be negotiated.[8]On the next day, Thursday 8 September 2011, Mr Harris spoke to Mr Rogers on the phone and offers were discussed. One of the issues between the parties was the prospect of Thameside succeeding in their claim for preliminaries which formed some £90,000 of the sum claimed. Mr Rogers said he had received advice from his barrister that Thameside had no chance of succeeding in this claim, whereas Mr Harris disagreed and said that the advice that he had received was that Thameside was strong on that point. Mr Rogers said that he would think about the issues overnight but that he needed to be convinced.[9]There were then two telephone calls on 9 September 2011. First, in the morning, Mr Rogers phoned Mr Harris. This was the day which Arthenella’s solicitors had set out as the last day for acceptance of the £275,000 offer in their letter of 22 August 2011. There is a dispute as to what was said about that existing £275,000 offer. Mr Harris said that Mr Rogers repeated that he thought Thameside were unlikely to win on the preliminaries issue and therefore his offer of £275,000 stood. Mr Rogers said that the sum of £275,000 was discussed but the reason it was discussed was because he, Mr Rogers, felt it was too high. Mr Rogers said that he told Mr Harris that there was a £90,000 dispute over preliminaries and his lawyers believed Arthenella’s position was strong on that issue so that the offer of £275,000 was “way too high” and he was looking to pay much less than £275,000.[10]It is, however, common ground that Mr Rogers said that if Thameside could convince him that he was wrong on the preliminaries figure he would be prepared to settle at £300,000.[11]Mr Rogers then spoke to his legal advisors and rang Mr Harris in the afternoon. Mr Harris had referred to the fact that he had an opinion from his barrister saying that Thameside’s position on preliminaries was very strong. In fact, as Mr Harris accepted in evidence, he did not at that stage have a written opinion although he had been given oral advice. There was discussion between Mr Harris and Mr Rogers about the provision of Counsel’s advice and a settlement sum of £300,000. Mr Harris said that Mr Rogers had said that, if Mr Harris could obtain the opinion which said that Thameside was strong on the preliminaries point, then the agreed settlement figure would be £300,000. Mr Rogers says that what he said was that if Mr Harris was able to provide him with the opinion on the preliminaries issue which the barrister had provided and that opinion was sufficient to convince his lawyers that they were wrong on the issue, then he would pay £300,000 in full and final settlement of the claims.[12]The major dispute is what was said or understood by the parties as to the position in relation to the offer of £275,000 which had been made on 22 August 2011, discussed on 8 September 2011 and for which a reasonable time for acceptance was stated to expire on 9 September 2011. Mr Harris said that it was agreed that if he could not provide the necessary opinion “the agreed deal was at £275,000.” Mr Rogers says that “I certainly did not agree that if he failed to provide the opinion then I would still pay £275,000.”[13]Mr Harris said that at the end of the telephone call on 9 September 2011 there was a discussion about an email being sent and Mr Rogers said that he was unable to send an email as he was at home. Mr Harris stated that he then said that, in those circumstances, he would confirm the position by email later that day. Mr Harris then did this by sending an email to Mr Rogers at about 3pm saying as follows:
“Following our discussions today regarding settlement of the outstanding court cases regarding the Frogmore project I confirm that you have agreed to a final payment of £275,000 but this is to be increased to a final figure of £300,000 if we can provide a written opinion from our Barrister regarding the payment of preliminaries past the 17th Sept date till the end of the project in April 2007. This should be available on Monday as discussed.”
This should be available on Monday as discussed.”[14]Mr Harris then sent another email a few minutes later changing the date from April 2007 to April 2008. Mr Rogers did not see that email until Monday morning, 12 September 2011, following the telephone conversation which had taken place the previous Friday, 9 September 2011. Mr Rogers said that he contacted Arthenella’s solicitors who then sent a letter to Thameside’s solicitors in the following terms:
“For the avoidance of doubt, the provision of your Counsel’s opinion on a WP basis has been sought because both sides appear adamant that their respective positions are correct. … Our offer of £275,000 included a sum of money for prelims. It was exceedingly generous and we do not believe that if this matter goes to trial, your client… will recover anything like that sum. If, the opinion is provided, then Arthenella will consider the matter further. No agreement has yet been reached, and our instructions are that this matter is to proceed to trial in October.”
[15]On the same day, 12 September 2011, Mr Rogers also replied to Mr Harris’s email sent on 9 September and said :
“I look forward to seeing your barrister’s legal opinion on the “prelim issue”
. As far as moving forward, especially in view of the short period of time before the court hearing, do you think it best for you and I to meet to try to resolve the major issues between us before any more legal costs are incurred?”[16]Mr Harris replied to that email saying that the opinion from Thameside’s barrister would be sent to Mr Rogers later that day. He later sent through that opinion which, he said, “confirms our position despite what your legal team say.”[17]Mr Harris and Mr Rogers then arranged to meet on Tuesday 13 September 2011. Mr Harris thought the meeting was in respect of the increase of £275,000 to £300,000. He said that Mr Rogers stated that the opinion did not address the issues and that it was incorrect and that he was not prepared to settle the claim. Mr Harris said that all that Mr Rogers wanted to talk about was the many issues that, according to Mr Rogers, remained in dispute. Mr Harris said he left the meeting on the basis that Mr Rogers would talk to his legal team and come back to Mr Harris within 24 hours. He said that Mr Rogers phoned him half an hour later to say he had discussed the issues with his solicitors and it would cost £70,000 each to get to court and he made a new offer of £200,000, deducting £75,000 from the sum of £275,000.[18]Mr Harris then sent an email to Mr Rogers at just after 11am in the following terms:
“Following our meeting yesterday could you confirm to me what you believe is deficient in the opinion of our Barrister which prevents you paying the further 25k as per our call on Friday. I want to go back to him to clarify any points you have”
I want to go back to him to clarify any points you have”[19]Also on the same day, 14 September 2011, Thameside’s solicitors wrote to Arthenella’s solicitors in the following terms:
“This litigation was settled by oral agreement between Mr Harris and Mr Rogers on Friday, 9 September 2011, as evidenced by Mr Harris’ emails of that day. The figure agreed in final settlement of both actions, inclusive of costs and interest, was £275,000, or £300,000 if our client provided your client with an Opinion from our Counsel, Mr Robert Stokell on the prelims point. This Opinion was provided on 12 September 2011, and therefore we expect payment by your client of the £300,000 agreed.”
[20]There was a further discussion between Mr Rogers and Mr Harris on the morning of Thursday 15 September, following a telephone call between the parties’ solicitors which indicated that Mr Rogers was prepared to discuss the matter.[21]It is common ground that Arthenella’s lawyers were not convinced by the opinion and that Mr Rogers said he was offering £225,000 for that day only and that the offer would be £200,000 from then on. The call was then terminated. An email was sent on the same day by Arthenella’s solicitors to Thameside’s solicitors in the following terms:
“Apparently Mr Harris and Mr Rogers are unable to reach agreement on the sum offered by Arthenella of £225,000 in full and final settlement. The offer of £275,000 made previously has already been withdrawn, in conversations that have taken place with between[sic] Mr Harris and Mr Rogers, but for the avoidance of doubt, if there is to be any doubt, it is confirmed that the offer of £275,000 made by Arthenella is withdrawn. A new offer will be made ... either today or tomorrow in the sum of £200,000.”
The conversation on 9 September 2011[22]On that basis I now turn to consider what was said or agreed on 9 September 2011. In doing so I approach the matter on an objective view of the evidence of what was said and done, applying the conventional analysis of offer and acceptance.[23]In order to decide this issue Witness Statements were provided by Mr Harris and Mr Rogers and there was also a witness statement from Mrs Sarah Shemmings, a partner in Thameside’s solicitors, whose evidence was not challenged.[24]I therefore heard oral evidence both from Mr Harris and Mr Rogers. Mr Harris clearly had a more detailed recollection of what occurred between 8 and 15 September 20111 than did Mr Rogers. Mr Harris accepted that although he had said he had a written opinion to the effect that Thameside’s case was strong on preliminaries, he did not in fact have a written opinion until one was produced on 12 September 2011. He also accepted that VAT had not been discussed during his conversation with Mr Rogers. Although in the context of the negotiations he had incorrectly stated he had Counsel’s opinion I found him an honest and open witness who was evidently sure he had reached a settlement agreement with Mr Rogers on the afternoon of Friday 9 September 2011.[25]Mr Rogers was more guarded in his evidence, his recollection of the events did not seem as good and, as set out below, his evidence as to the position of the offer of £275,000 on 9 September 2011 I found to be unsatisfactory.[26]When Mr Harris and Mr Rogers spoke on the afternoon of 9 September 2011, the offer of £275,000 was still open for acceptance according to the terms of the letter of 22 August 2011 and nothing that was said or done affected that position, as Mr Rogers accepted in his evidence. I do not accept Mr Rogers evidence that he told Mr Harris that he was looking to pay much less that £275,000. This was inconsistent with the offer made on 22 August for £275,000 which, as it stated, was based on a careful consideration of the expert quantity surveying evidence on both sides. I find that Mr Harris’s evidence that the offer of £275,000 stood is both consistent with the position set out in the letter of 22 August, as indeed Mr Rogers accepted in evidence, and also consistent with there being an increase to £300,000, if an opinion could be produced which would convince Arthenella’s lawyers and Mr Rogers that there was greater strength in the preliminaries claim than they thought.[27]In his evidence Mr Rogers did refer to an agreement. He said that there was an agreement to settle at £300,000 if the preliminaries issue was strong in favour of Thameside. On that basis, I had difficulty with Mr Rogers’ evidence that, if the opinion supplied by Thameside did not provide strong support for the preliminaries claim, the parties’ position was entirely open as to what settlement there might be. Given that the £275,000 had been offered on Arthenella’s current view as to the strength of the preliminaries claim and there was an agreement for a settlement at £300,000, if there was a strong opinion, even on Mr Rogers’ evidence, there was evidently still the existing offer of £275,000. I consider that in the context of there being that existing offer of £275,000 capable of acceptance on 9 September 2011 and in the context of there being an agreement to settle at £300,000 if Arthenella were to be convinced on the preliminaries point, the only possible interpretation of what occurred in the telephone conversation is that there was an acceptance by Thameside of the sum of £275,000 but with an agreement that there would be an increase to £300,000 if the opinion supplied by Thameside convinced Arthenella of the strength of the preliminaries issue.[28]I do not consider that the £300,000 flowed automatically from the production of an opinion, whatever it said, or that it flowed from the production of an opinion that gave a certain level of support to the preliminaries claim. Rather, as Mr Rogers said, if the opinion produced a new argument or evidence to support the preliminaries claim and this persuaded Arthenalla’s lawyers and Mr Rogers that the claim was stronger than they previously thought, then it was in those circumstances that they would pay £25,000 more than the £275,000.[29]As in all cases of an oral agreement, especially one not made face to face but by way of a telephone conversation, it is necessary to look at what was said and done afterwards in order to see whether it is consistent with there being an agreement.[30]It is common ground that during the telephone conversation Mr Harris disclosed to Mr Rogers that Thameside had problems with their bank overdraft and needed to settle before January 2012. Mr Rogers said he thought it strange that he was being told this but I find that it was entirely consistent with and supports there being an agreement settling the case. In such circumstances Mr Harris would feel able to disclose this information which, as an experienced managing director of a construction company he would be very unlikely to do if there was continuing litigation. Equally, he would disclose that information after the settlement by way of explaining that the settlement reached by the parties allowed Thameside to overcome those banking difficulties.[31]Secondly, at the end of the telephone conversation I accept that it was agreed that there would be an email to confirm what had been said. If the only matter agreed was that an opinion was to be produced and that might lead to a settlement £300,000 then it is difficult to see why that would need to be confirmed. Rather, the need to confirm the position by sending an email is consistent with the need to confirm an agreement by way of settlement.[32]Thirdly, a few minutes after the telephone conversation Mr Harris sent the email which confirmed in clear terms an agreement to a final payment of £275,000 which would be increased to £300,000 depending on the opinion being produced. That contemporaneous document sent so soon after the conversation is inherently more likely to record what happened.[33]Fourthly, this has to be balanced with Mr Rogers’ reaction on the Monday morning after seeing the email. He clearly discussed the matter with his solicitors and took the position that there had been no agreement. Arthenella’s solicitors then wrote the letter referred to the offer of £275,000 being “exceedingly generous” and to Arthenella considering the matter further on receipt of the opinion. It said that no agreement had been reached but does not mention the £300,000 which clearly was dealt with during the telephone conversation on 9 September 2011.[34]I note that Mr Rogers’ own email responding to the email sent by Mr Harris on 9 September 2011 does not directly challenge what Mr Harris said in his email as to there being an agreement. Rather it referred to receipt of the opinion and proposed a meeting “to resolve the major issues between us”.[35]Both the letter from Arthenella’s solicitors and the email from Mr Rogers seem to be attempting to draw back from the offer of £275,000 and leave matters more in the air than they clearly were on 9 September 2011. It is clear that the revelation by Mr Harris of the financial position of Thameside had an effect on Mr Rogers’s approach, as shown by his discussion of Thameside’s accounts with the accountant on the afternoon of 12 September. It seems that, in the context of the discussions which were envisaged after Thameside supplied the opinion, Mr Rogers thought that he could open up matters but, in doing so, he is taking a position which, even on his own evidence as to the £300,000, is inconsistent with the conversation on 9 September. It is clear that by the Monday morning and as a result of the telephone conversation with Arthenella’s lawyers Mr Rogers wanted to leave matters open. I have no doubt that he thought by that stage that the figure of £275,000 was too high but that was not something which had been communicated to Thameside and it also ignored what had been said during the telephone conversation on 9 September 2011.[36]Fifthly, Mr Harris, in sending Mr Rogers an email enclosing the opinion, agreed to meet Mr Rogers “with the intention of agreeing this once and for all to avoid any further costs.” This is consistent with some further discussion being necessary to resolve the issue of preliminaries and whether this led to a settlement at a figure £300,000. Equally, as matters developed on Monday afternoon there was a difference of view as to the position on whether there had been a settlement.[37]Sixthly, at the meeting on 13 September 2011, it was clear that Mr Rogers did not consider that the opinion was sufficient to justify the settlement at £300,000 and he raised the underlying issues in the dispute. Mr Harris’ position can be seen from his email sent after the meeting asking Mr Rogers to say what he believed was deficient in the opinion “which prevents you paying the further 25k as per our call on Friday”. Again that is consistent with Mr Harris’ email sent on 9 September 2011, even if, as Mr Rogers states, Mr Harris did not expressly refer to the agreement made on 9 September 2011 in subsequent conversations.[38]My overall conclusion is that the evidence of what happened after the conversation provides support for there being an agreement in the terms of the email from Mr Harris which left open the possibility of the settlement sum being increased to £300,000 if the opinion was sufficiently strong. In my judgment what happened after the conversation on 9 September is that Mr Rogers had second thoughts about whether £275,000 was too much and wanted to keep the negotiations going.[39]On the basis of the evidence of Mr Harris, which I prefer, I consider that the contractual position was that during the telephone conversation on 9 September 2011 Mr Harris by his words and conduct accepted the offer made in the letter of the 22 August 2011 which, as Mr Rogers stated, still stood but that the parties agreed that the settlement sum would be increased to £300,000 if Thameside could produce an opinion from their Counsel which convinced Arthenella, through their lawyers and Mr Rogers, that there was strength in the preliminaries issue from Thameside’s point of view.[40]That did not occur and in those circumstances, on an objective view of the evidence of the conversation on 9 September 2010, there was an agreement to pay £275,000 in accordance with the terms of the letter of 22 August 2011.[41]During the course of submissions Mr Stokell adopted an alternative way of putting the case on behalf of Thameside. He submitted that even if, contrary to the conclusion to which I have come, there was no agreement during the conversation on 9 September, then the e-mail sent at about 3pm on 9 September 2011 was itself an acceptance of the offer of £275,000 to the extent that there was not already such an agreement between Mr Harris and Mr Rogers. If I had not come to the conclusion that there was an agreement I consider that this alternative way of putting the case has merit. The email clearly refers to the figure of £275,000 and confirms an agreement to a final payment of that sum. In my judgment that email can only be construed, on the basis that there was not an agreement, as itself being an agreement accepting the offer made on 22 August 2011.[42]The agreement made on 9 September 2011 settled both the claims made by Thameside and the counterclaim made by Arthenella and was inclusive of costs and interest, as it was an acceptance of the offer of 22 August 2011. So far as VAT is concerned, the letter of 22 August 2011 did not expressly mention VAT. Being an all-inclusive sum covering costs, interest, and sums for the works, I do not consider that the previous conduct in paying a proportion of VAT applicable to the works under the underlying construction contract can be taken to apply to that sum. Rather, as stated in the letter of 22 August 2011 “it is not intended that any additional sums be due over and above £275,000.” I consider that as a result any VAT liability was included within the sum of £275,000. In any event, it is not clear what, if any, VAT would be payable on the settlement sum, but to the extent that VAT is payable it would be included within the sum of £275,000.[43]In those circumstances the declaration I propose to make is as follows: That as a result of a conversation between Mr Harris of the Claimant and Mr Rogers of the Defendant on 9 September 2011 and in the light of counsel’s opinion provided by the Claimant to the Defendant on 12 September 2011, there was an agreement between the parties that the Defendant would pay the Claimant £275,000 in full and final settlement of the claims and counterclaims, including costs, interest and any VAT.[44]In the light of this judgment, I would ask the parties to submit to a draft order to the court for approval. I understand that Thameside will seek summary assessment of costs and, if matters cannot be agreed, I will deal with that issue and any other issues at the handing-down of judgment or at a later date.