In Mi-Space (UK) Limited (Mi-Space) v Bridgewater Civil Engineering Limited (BCE) [2015] EWHC 3360 (TCC), the High Court considered whether the parties had reached a valid and binding agreement, settling a dispute, by email exchange. The judgment emphasises the importance of parties being clear on the exact terms of any settlement or they risk being bound by terms that they did not intend to be bound by.
As this is an English decision, it is not technically binding in Scotland but it is highly persuasive.
Facts
Mi-Space (as the contractor) and BCE (as the subcontractor) entered into a subcontract to carry certain groundworks at a residential development in Plymouth. The agreement was a standard form JCT Design and Build Sub-Contract 2011.
BCE made a payment application for the sum it deemed due to it from Mi-Space. Under the contract, in the event that Mi-Space disputed the amount due, it was required to give notice before a set date. Mi-Space did not dispute the sum applied for before the deadline nor did it make the payment required. Consequently, BCE referred the matter to the adjudicator and notified Mi-Space of its intention to suspend work.
At adjudication Mi-Space argued that the dispute had already been settled by way of an email exchange between the parties on 3 March 2015 or, alternatively, by way of the parties’ conduct during that week.
In this email exchange, Mi-Space offered to BCE an interim payment of £79,862.62 (plus VAT) in return for BCE immediately withdrawing its payment application claim and returning to work on-site. Following this, Mi-Space made such payment and BCE resumed work. However, when Mi-Space circulated a draft Deed of Variation to the original subcontract which proposed to capture the agreement reached in the email correspondence of 3 March 2015, BCE refused to sign it and argued that no settlement had been reached.
The adjudicator rejected Mi-Space’s defence that the dispute had been settled. His decision stated that BCE was entitled to be paid the full £346,177.54 (plus VAT) it had applied for. The adjudicator also concluded, however, that in the event that Mi-Space’s defence was a good defence then it would have overridden BCE’s claim for payment.
Mi-Space did not make the payment ordered by the adjudicator and BCE began court proceedings for enforcement. Mi-Space, in response, sought declaratory relief from the court, arguing the same defence of settlement that it had raised during the adjudication.
Decision
The High Court found in favour of Mi-Space. The judge, Mr Justice Edwards-Stuart, concluded that whether a binding agreement was made in the email exchange turned on the question of whether what was communicated (either by words or conduct) would have, in the reasonable expectation of an honest and sensible businessman, led to the conclusion that the parties intended to create legal relations. In this case, the email exchange conveyed a clear offer and acceptance, which had been subsequently acted upon by the parties.
Although the email correspondence referred to the need for formal acceptance of the offer in writing, this did not require a formal Deed of Variation. “Formal acceptance” in this context meant acceptance must be clear and properly recorded. An offer was made by Mi-Space and accepted by BCE in the email exchange. Therefore the dispute had been settled prior to the adjudicator’s decision.
In making his decision, the judge placed weight on the detailed nature of the email exchange, which did not state that the agreement was subject to contract (i.e. the execution of a varied or new agreement by the parties). He determined that the main witness for BCE, whilst not dishonest, had an unsophisticated understanding of commercial contracts – in particular the meaning of “subject to contract”“subject to contract”. He had made a deal on 3 March 2015 which he had later come to regret and whilst looking for a way out of the agreement, he persuaded himself that the agreement had been made on a basis.
Comment
This judgment was highly fact specific. However, it demonstrates the importance of parties ensuring that they are clear on what they have agreed and when they agreed it. It also highlights the need to make contemporaneous notes demonstrating the agreement and any prior negotiations; in this case only Mi-Space was able to produce such evidence.
Rachael Johnston is a contributing author.
