Case Nos: HT-2024-CDF-000004 - [2024] EWHC 933 (TCC)

The central principles of contractual interpretation are clear. In short summary, “The contract should be given the meaning it would convey to a reasonable person having all the background knowledge which is reasonably available to the person or class of persons to whom the document is addressed”: Dairy Containers Ltd v Tasman Orient CV [2005] 1 WLR 215, per Lord Bingham of Cornhill at [12]. The law so summarised has been explained in detail by the Supreme Court in Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900; Arnold v Britton and others [2015] UKSC 36, [2015] AC 1619; and Wood v Capita Insurance Services Ltd [2017] UKSC 24; [2017] AC 1173. A useful distillation was provided by Carr LJ in ABC Electrification Ltd v Network Rail Infrastructure Ltd [2020] EWCA Civ 1645, [2021] BLR 97, at [18]-[19]. I have the judgments and the principles in mind but it is unnecessary to set out passages from the judgments here or to offer my own summary of the principles.

One point worth mentioning expressly is that, in construing a written agreement, the court does not generally, and subject to certain qualifications, receive evidence of the pre-contractual negotiations. On the other hand, “A concluded antecedent agreement may be relied upon in interpreting a later instrument made pursuant to the agreement” (Lewison, The Interpretation of Contracts, 8^th edition, chapter 3, section 5). It was common ground between the parties before me that evidence of the email exchange in November and December 2021 was admissible, whether for the purpose of establishing a prior agreement or in order to explain the meaning of the manuscript addition to the Sub-Contract.

In my judgment, the submissions for Birkemp are materially correct in respect of the contractual position, though not in respect of estoppel.

Balfour Beatty was, in my view, a case that turned on the precise terms of the parties’ agreement. The parties there may have envisaged and intended that further interim payments would be made but they had not actually reached agreement on essential matters; see the passage from Jackson LJ’s judgment set out above. I cannot see that the case establishes any significant wider propositions of law. The question before me concerns the extent and limits of the agreement between Morganstone and Birkemp. The parties doubtless envisaged and intended that payment schedules would continue to be agreed for all periods during the currency of the development. However, they failed to agree a schedule for the period after March 2023. The question then becomes whether or not they had any applicable contractual agreement for that period. Morganstone answer that they had not. I do not agree.

It was common ground—and in my view rightly so—that clause 10 of the Sub-Contract was preserved but that its operation was modified; the parties differed as to the manner of the modification. Morganstone’s position was that clause 10 was preserved simply as providing the mechanism by which the monthly payment schedule (or any subsequently agreed schedule) was to be implemented: thus, in the absence of an agreed schedule, clause 10 had nothing to which to apply. Birkemp’s position was that clause 10 remained in force, save only that in the case of a conflict between it and the monthly payment schedule (or any subsequently agreed schedule) the schedule was to prevail: thus, in the absence of an agreed schedule, the provisions of clause 10 took full effect. Having regard to the provisions of clause 10 and the nature of the monthly payment schedule (ND.8), I regard the manuscript words appended to clause 10 as having their natural and ordinary meaning: that in the case of conflict between the monthly payment schedule and clause 10—any such conflict being necessarily limited to timetabling—the monthly payment schedule would take precedence. This means that, once the schedule and any further agreed schedule ended, there was nothing to displace the timetable provided by clause 10. Morganstone’s contention, that if Birkemp did not agree to the timetable in the 2023 payment schedule it would lose its right to interim payments, is in my view to get things the wrong way around: rather, if the parties did not mutually adopt a new payment schedule, the timetable in clause 10 would be operative, because there would be nothing to which it would cede precedence. Not only is this the straightforward interpretation of the contract; it also gives full force to the essence of clause 10.1, which is that stage payments should be made throughout the currency of the contract.

In my view, there is no merit in Morganstone’s alternative contention based on the dictum in Pagnan S.p.A. v Feed Products Ltd [1987] 2 Lloyd’s LR 601, at 611 (see paragraph 31 above). That dictum was concerned with the process of identifying whether any contract has been made, the Court emphasising the need to read the entirety of a sequence of relevant communications. The position in the present case was that a contract had been made; there is no issue in that regard. It is true that in August 2023 neither party was looking to implement the timetable in clause 10: Morganstone was seeking to implement the 2023 payment schedule, whereas Birkemp wanted a new schedule that continued the timetable in the 2022 payment schedule. However, the parties never reached agreement, as Morganstone has been at pains to emphasise. In those circumstances there is no basis for alleging a variation or revocation of existing contractual terms. The passage relied on by Mr Smith in the Pagnan case has nothing to do with the matter.

In the circumstances, it is unnecessary to say much about Birkemp’s alternative estoppel argument. If it had arisen for decision, I would have rejected it for the reasons advanced by Mr Smith. First, the argument seeks to use estoppel as a sword rather than merely as a shield: cf. the first instance decision in Balfour Beatty [2016] EWHC 168 (TCC), 165 ConLR 153, at [40] per Stuart-Smith J. Second, after March 2023 the parties did not share any expressed common assumption as to interim payments, because there was an express dispute between them. Third, as to the suggestion that the parties shared at least a common assumption that there was an entitlement to interim payments, the grounds advanced for this suggestion amount simply to the fact that further payments were made in May, June, July and August 2023. However, I agree that such payments, without more, are equivocal, because they are not a clear indication of anything more than a willingness to make further payments and a desire to maintain a working relationship with the sub-contractor: cf. the same paragraph in Stuart-Smith J’s judgment; also Kersfield Developments (Bridge Road) Ltd v Bray and Slaughter Ltd [2017] EWHC 15 (TCC), 170 ConLR 41, per O’Farrell J at [47]; and A&V Building Solutions Ltd v J&B Hopkins Ltd [2023] EWCA Civ 54, 206 ConLR 184, per Coulson LJ at [65].

For the reasons given above, the Part 8 claim fails.