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

Morganstone rests its case on the decision of the Court of Appeal in Balfour Beatty Regional Construction Limited v Grove Developments Limited [2016] EWCA Civ 990 (“Balfour Beatty”). Grove had engaged Balfour Beatty under a JCT standard form Design and Build Contract, subject to a number of bespoke amendments, dated 11 July 2013. The contract specified 22 July 2015 as the date for practical completion. The contract also provided for stage payments at the completion of each stage specified in the contract particulars, in accordance with Alternative A in the contract (an alternative arrangement being provided in Alternative B). However, in the gap for a list of stages in Alternative A, the parties had written: “To be agreed within 2 weeks from date of contract.” In the event, the parties were unable to agree any list of stages for incorporation. Instead, after some weeks they agreed that Grove should make interim payments to Balfour Beatty in accordance with a schedule listing the relevant dates in the months from September 2013 to December 2015 inclusive (“the Tumber schedule”). The interim payments proceeded smoothly until July 2015. It became apparent that the project would overrun substantially beyond the contractual completion date of 22 July 2015. The parties discussed the arrangements for interim payments beyond the final date in the Tumber schedule; however, although they both expected that interim payments would continue, they were in disagreement about the appropriate dates for applications, valuations and payments. That disagreement was never resolved. Eventually, Grove asserted that Balfour Beatty had no entitlement to receive interim payments beyond the final date in the Tumber schedule and it brought a Part 8 claim seeking a declaration to that effect. At first instance, Stuart-Smith J granted the declaration sought. By a majority (Jackson and Longmore LJJ; Vos LJ dissenting) the Court of Appeal dismissed Balfour Beatty’s appeal against that decision. The leading judgment was given by Jackson LJ.

In Balfour Beatty, it was common ground that by agreeing the Tumber schedule the parties had amended their contract and abandoned Alternative A. Jackson LJ and Longmore LJ rejected Balfour Beatty’s argument that by agreeing the Tumber schedule the parties had adopted Alternative B: the timetable in the Tumber schedule was inconsistent with that in Alternative B. Jackson LJ said:

“36.

In my view, it is not possible to say that in September 2013 the parties simply agreed to adopt Alternative B. What they agreed was a hybrid arrangement which had elements of Alternative B (in particular valuation under clause 4.14) and a timetable of their own invention. That timetable ended on 22^nd July 2015, the contractual date for practical completion.”

For Morganstone, Mr Smith submitted as follows. The manuscript words appended to clause 10—“payment schedule takes precedence”—meant that the mechanism provided by clause 10 was to apply, subject to the use of the dates and timetable in the monthly payment schedule rather than the timetable in clause 10 itself. The manuscript words were not time-limited (for example, by the words “until March 2022”). The monthly payment schedule, however, was time-limited; it did not, for example, provide that the pattern of applications, notices and payments should continue until completion of the development. It was impossible to interpret the Sub-Contract as meaning that, when the monthly payment schedule expired, the timetable in clause 10 would apply, because the post-tender review document showed that applications and payments were to be made in accordance with the monthly payment schedule (ND.8) and the email exchange in November and December 2021 recorded the parties’ agreement that a new payment schedule would be issued when the original schedule expired. The parties agreed to the 2022 payment schedule, which therefore had contractual effect. But they never agreed a payment schedule for the period after March 2023; therefore, as shown by Balfour Beatty, there was no ongoing right to interim payments. Any lack of “commercial common-sense” in the resulting position was simply the consequence of Birkemp failing to make an advantageous bargain—cf. Balfour Beatty at [39]—and it is not the function of the court to rewrite the parties’ agreement. In the alternative, if the proper interpretation of the Sub-Contract was that clause 10 would apply by default, the position by August 2023 was very different, as neither party was seeking to rely on clause 10: Morganstone was relying on the 2023 payment schedule and Birkemp was relying on the pattern in the original monthly payment schedule and the 2022 payment schedule (cf. Pagnan S.p.A. v Feed Products Ltd [1987] 2 Lloyd’s LR 601 at 611).

For Birkemp, Mr Wygas submitted as follows. Clause 10 was not deleted from the Sub-Contract; its operation was modified only. Clause 10 is an express provision for interim monthly payments during the progress of the Sub-Contract Works. The words “takes precedence” are clear: where there is a conflict between the monthly payment schedule—that is, in the months to which the monthly payment schedule relates—and clause 10, the former prevails. Balfour Beatty simply held that the parties were bound by the terms of their agreement. In that case, Alternative B was struck through and Alternative A was never agreed; instead the parties reached a different, time-limited agreement. That is not so in the present case. In the alternative, Morganstone is estopped from denying Birkemp’s entitlement to continuing interim payments, in circumstances where the initial email exchange contained express affirmation that a further schedule would be issued and where, after expiry of the 2022 payment schedule, Morganstone continued to make interim payments and did not before the parties’ relationship broke down contend that Birkemp’s right to continued interim payments was dependent on agreement to the new schedule.