Purpose-built flats — Long leases — Company set up to acquire freehold — Contract to carry out building works — Cash flow problems — Supplemental agreement to enable works to continue — Dispute over moneys due under building — Construction of supplemental agreement — Judgment for plaintiff
Wymering Mansions, Maida Vale, London W9 (“the building”), was a purpose-built block of 200 flats held on long leases. The defendant was set up as a company with the object of acquiring the freehold titles (of which there were several) to the land on which the building stood. The reversion to 190 of the 200 flats was vested in the defendant. The long leases contained covenants on the part of the lessor to keep the building in good repair and on the part of the lessees to pay a service charge to the lessor to defray the costs incurred by the lessor in complying with the lessor’s covenant to keep the roof, structure and common parts in good repair. On February 15 1993 the plaintiff and the defendant entered into a contract in the JCT standard form, whereby the plaintiff agreed to carry out major repair works to the building. During the course of the works further defects were discovered and certain additional works were carried out. This affected the original contract price and the defendant experienced cash flow difficulties.
The works stopped but recommenced after a supplemental agreement was entered into in November 1993. Under that agreement, the plaintiff agreed to adjust its programme of works and accept delays in payment due under the terms of the building contract. In return the defendant agreed to set up joint signatory banking arrangements to receive moneys raised by way of service charges and rent. All sums received from the leaseholders were promptly to be paid into the accounts. The agreement stated that: “Sums identified as relating to matters other than service charges relating to major works under the building contract were to be treated as senior debts” by the plaintiff. The plaintiff claimed an injunction to restrain the defendant from dealing with funds received from leaseholders save in accordance with the supplemental agreement and damages for its breach. The defendant counter-claimed for a declaration that the plaintiff had breached the agreement by wrongly procuring its nominated joint signatory to the designated accounts to refuse to sign the various cheques. A question of construction arose as to the meaning of “senior debts”.
Held Judgment for the plaintiff.
1. In construing the supplemental agreement the court had to consider its provisions as a whole against the circumstances existing and known to the parties at the time the agreement was entered into. If clear, the wording agreed by the parties determined the matter. If, however, the wording was unclear or ambiguous the court had to construe the agreement so as to reach a commercially sensible result.
2. The purposes of the agreement was to deal with the defendant’s inability to meet its obligations to the plaintiff as they fell due while ensuring that the building works proceeded.
3. The language used strongly suggested that the phrase “senior debts” was confined to debts which were incurred by the defendant and which were recoverable by the defendant from its tenants under the service charge provisions contained in the leases of the building, other than debts which related to the major works under the building contract.
4. The phrase “service charges”, properly understood, qualified the word “matters” (in the sense of service charge matters) and was not confined simply to those items which related to major works under the building contract.
Alan Steynor (instructed by Hardwick & Co) appeared for the plaintiff; Michael Daiches (instructed by Edward Lewis) appeared for the defendant.