Fees–Claim by quantity surveyors for professional fees–Dispute with property development company–Appeal by defendant company from decision of judge who had dismissed defendants’ appeal from a deputy master–Claim related to plaintiffs’ professional work on two development projects of substantial contract value–Position of quantity surveyor when project is prematurely terminated–Whether entitled to a fair and equitable proportion of fees–Defendants’ criticisms of judge’s decision in favour of plaintiffs rejected–Appeal dismissed
which the defendants sought to impugn was that they were liable for payment of
the sums due as instalments prior to the termination of the relevant
contracts–Leggatt LJ, who gave the leading judgment, examined the figures of
the claim in detail–The Vice-Chancellor, who agreed with the result, made it
clear that all that the court was deciding was that the premature termination
of the project did not put an end to the contractual obligation to pay the
instalments due to the plaintiff surveyors–The court was not giving a complete
judgment on the construction of clauses in the plaintiffs’ appointment–One of
these clauses provided that the termination of the project did not affect the
accrued rights or claims of the parties, while another provided that on such
termination the surveyor would be paid a fair and equitable proportion of the
fees to which he would have been entitled if the project had been completed–The
defendants argued that on one construction no sum would be payable to the
plaintiffs and that, in fact, a repayment by them was due–The court rejected
this submission and other points made in support of the appeal–The appeal was
dismissed
No cases are referred to in this report.
This was an appeal by the first
defendants, Brookmount Estates Ltd, from the decision of Judge Phelan, sitting
as a judge of the High Court, giving judgment in favour of the plaintiffs,
William G Dick Partnership, quantity surveyors, against the defendants for the
sum of £377,982.90, together with interest at 15%, in respect of professional
work carried out by the plaintiffs. The second defendants, Ford Sellar Morris
Developments Ltd, gained control of the Brookmount group of companies,
including the appellant first defendants, while the present dispute was in
progress.
John Dyson QC and Dr Jane Davies
(instructed by Taylor Joynson Garrett) appeared on behalf of the appellants
(the first defendants); Philip Naughton QC and James Watson (instructed by
Hempsons) represented the respondents (plaintiffs).
Giving the first judgment at the
invitation of Sir Nicolas Browne-Wilkinson V-C, LEGGATT LJ said: This
appeal arises out of a claim by quantity surveyors for fees for services
rendered. The appeal is by the first defendants, Brookmount Estates Ltd,
against an order of June 28 1990 of Judge Phelan sitting as a deputy judge of
the High Court, whereby he dismissed the first defendants’ appeal from an order
of Mr Registrar Lipton sitting as a deputy master on April 30 1990, in which he
gave judgment for the plaintiffs, the firm of quantity surveyors called William
G Dick Partnership, for the sum of £377,982.90, together with interest at 15%.
The balance of the claim was ordered to be transferred to the official referee.
The total sum that I have mentioned related to work done in respect of two
projects known respectively as the ‘Western Avenue’ and ‘Stockton’
developments. The sum relating to Western Avenue was £218,500, while that
relating to Stockton was £159,482.90, itself composed in a manner that I shall
consider in a little more detail later in this judgment.
The plaintiffs’ claims were for fees
rendered at a stage when the first defendants were no more than proposed
developers of the sites in question. The terms upon which, in relation to each
project, the plaintiffs were engaged were in the form of, or upon the terms
contained in, a document described as ‘Quantity Surveyor’s Appointment —
‘Design and Build”. It provided by clause 2 that ‘the Employer shall pay the
Quantity Surveyor fees on the basis set out in Appendix 3. The fees shall be
paid by instalments as set out in Appendix 3’. That appendix, after making
provisions for the total amount of fees payable to the quantity surveyor and
the instalments by which that total should be paid, provided:
Payments will be made by the Employer
against invoices submitted by the Quantity Surveyor not less than 14 days
before the due date for payment of the relevant instalment. If invoices are
submitted late the Employer shall have 14 days from the date of submission in
which to pay.
The appendix also provided that fees were
to be inclusive of disbursements and other expenses and that the employer would
pay VAT on the fees.
It is convenient to refer separately to
the two projects. I shall take the Western Avenue project first. The contract
was formed by an exchange of letters between the parties. First came a letter
of May 3 1989 from the quantity surveyors to the first defendants, in which it
was made plain that the contract would be made by reference to the formal
contract of which I have read the salient terms.
The letter continued:
Whilst the budget for the project is
still under revision, we will base our proposals on an assumed single Contract
Value of £75,000,000.00, and our fee would be calculated as follows:
£75,000,000.00 × 1.50% = £1,125,000.00
To this amount would be added
disbursements (ie printing costs) and value added tax.
Ultimately, the fee will be calculated
against the Guaranteed Maximum Cost plus Estimated Prime Cost (equalling the
Contract Sum), and would be subject to adjustment only if the Employer were to
increase the scope and value of the work.
The letter also said: ‘We would request
your consideration for a fee payments schedule as detailed below.’
There then was set out two main parts for
the fees due: first, those in respect of pre-contract and then those in respect
of post-contract. The pre-contract fees, with which this appeal is concerned,
were expressed to amount to a total fee of £1,125,000 x 55%, making £618,750 in
all. The relevant tranches were then set out as consisting, first, of
‘preparation of budget estimates up to planning application’, £15,000, followed
by ‘tranches (as set out below) during the preparation of the first stage
tender documentation and reporting on tenders received (i) Upon production of
first draft
stage tender documentation’, £100,000, ‘(iii) Upon receiving and reporting on
first stage tenders’, £63,750, making for those latter tranches a total of
£338,750, which when added to the first figure I mentioned of £15,000 makes a
total of £353,750. With the remaining provision of the balance of the
pre-contract total fee of £618,750 we are not now concerned.
After making provision for the
post-contract fee and the tranches by which it was to be payable, the letter
said:
The above total fee and payment schedules
will be dependent upon the value of the Contract Sum, and the reimbursement of
disbursements will be on a net cost basis from time to time as they arise.
That letter was acknowledged by the first
defendants’ letter of May 1 1989, in which on their behalf Mr Francis Kenyon
said:
I am in agreement with your proposals for
the percentage to be used for assessing a lump sum fee namely 1.5% of the
construction value of the Contract. However, I think that £75m is a little over
ambitious at present and we certainly need to keep the Contract Sum below that
value.
I would therefore suggest that the fees
due for the production of first stage tender (including the budget estimates
prior to the planning application) should remain as £353,750.00 (as indicated
in both quantum and timing in your letter) leaving a balance of approximately
£223,750.00 which will be ascertainable upon the reporting on the final
contract sum, at the end of the 2nd Stage Tender and negotiations.
Payment of the subsequent tranches for
the post contract work will be adjusted by both the guaranteed maximum cost and
the eventual timing of the contract.
That, then, constituted the basic
contract. Pursuant to it, the plaintiffs rendered two invoices. The first, and
the material invoice, was that of July 6 1989. It was in the sum of £218,500,
composed as to £15,000 for ‘preparation of budget estimates up to planning
application’ and as to £175,000 for ‘production of first draft of Employer’s
Requirements’, that is, the first two tranches contemplated by the contractual
letter which I have read. To the total of those two sums there was added value
added tax at 15%, so as to produce the total amount due. That letter received a
response from the first defendants on the following day, when Mr Kenyon said:
‘I confirm that I have approved your first interim fee account . . . in the
gross sum of £218,500.00 and this has been passed to Belfast for payment.’
A few days later, however, the second
defendants, Ford Sellar Morris Developments Ltd, gained control of the Brookmount
group of companies, including the first defendants, with the result that the
vendor of the Western Avenue development site withdrew from the sale of the
site and the plaintiffs’ retainer was accordingly terminated.
The claim made by the plaintiffs was, as
I have indicated, for the sum of £218,500, the subject of their invoice. The
defendants raise a defence against payment of that sum by reference to the
relevant term of the formal contract, which provided at clause 8(g):
In the event of termination or suspension
of this Agreement under this Clause (subject to any set-off or claim which the
Employer has against the Quantity Surveyor arising from this Agreement) the
Employer will pay to the Quantity Surveyor a fair and equitable proportion of
the fees to which the Quantity Surveyor would have been entitled if the
Services which the Quantity Surveyor was then obliged to perform had been
completed having regard to:
(i)Â
the Services actually performed by the Quantity Surveyor at the date of
the relevant notice compared with
(ii)Â
the amount of work which the Quantity Surveyor would have carried out if
the Services which the Quantity Surveyor was at that date obliged to perform
had been completed.
It is pertinent to note at this stage,
and in contrast with the paragraph I have read, that clause 8(f) provides:
Any termination or suspension under this
Clause shall not prejudice or affect the accrued rights or claims of the
parties to this Agreement . . .
The clause did indeed make provision for
termination of the agreement in the way that it had in fact been terminated.
In the light of clause 8(g), Mr Dyson
contends not only that there should be no sum payable to the plaintiffs but
that, on the contrary, upon a proper construction and application of that provision
there is money due by way of repayment from the first defendants to the
plaintiffs. It is said that, in the circumstances in which the instalments were
payable, such part of the fee as they constituted was paid provisionally and
was subject to adjustment in the light of the total or final contract sum when
it became completed.
On behalf of the first defendants, Mr
Dyson contrasts the position according to whether there was or was not
termination. He argues that, had there been no termination, the final contract
sum by reference to which the plaintiffs’ fees were to be calculated was
impliedly subject to recalculation and consequential adjustment. He further
argues that it cannot have been intended by the parties that the plaintiffs
should be better off if the contract was terminated in accordance with its
terms than if it was completed.
The short answer for present purposes to
these submissions appears to me to be that nothing in the language of clause
8(g), which I have read, relieves the defendants from their contractual
obligation to pay the instalments due. It became apparent, from the way in
which Mr Dyson developed his argument, that he was primarily concerned to
resist any suggestion that the defendants would not be entitled to contend,
when this case is resumed before the official referee, that the total fees are
still subject to adjustment or readjustment. In my judgment, it is not
necessary, or indeed appropriate, for this court at this stage to attempt to
determine what the aftermath may be and to what extent, if any, the contract
entitles the defendants to demand a recalculation of the plaintiffs’ fee should
the plaintiffs prove when the final contract sum is determined to have been
paid for a larger proportion of their work than had been completed at the date
of termination.
The position in relation to the Stockton
development is somewhat similar, though it is necessary to look at the
documents that particularly relate to that project. The first letter that is
relevant from the quantity surveyors was of July 19 1988, once again addressed
to the first defendants. It concerned what was termed a ‘proposed retail park
development, Stockton’ and, at that stage, only that development. The letter
was in similar terms to the corresponding one relating to Western Avenue. It
similarly began by incorporating the standard document for design-and-build
contracts, and it proceeded:
Whilst the budget for the project is
still under revision, I will base our proposals on an assumed Contract value of
£20,000,000.00, and our fee would be calculated as follows:
£20,000,000.00 x 1.75% = £350,000.00.
To this would be added disbursements and
value added tax. There then followed a paragraph referring to the ultimate
calculation of the fee, by reference to the contract sum.
It also asked for consideration for a
fee-payments schedule relating both to pre-contract and post-contract stages,
which was then set out. In relation to pre-contract, the sum was the total fee
of £350,000 x 55% = £192,500, and provision was made for tranches payable not
merely by stages but by dates. Those dates were August 1988, £50,000; in each
of October 1988, December 1988 and February 1989, £40,000; and April 1989,
£22,500, making the total fee first mentioned. Provision was then made for the
fee payable in respect of post-contract work, and once more there was reference
to that total fee and the payment schedules being dependent upon the value of
the contract sum.
The first three of those tranches were
duly paid. But there came a stage, in April 1989, when the scope of the
development was expanded so as to incorporate a leisure complex. By letter of
April 24 1989 the plaintiffs wrote to Mr Kenyon of the first defendants about a
single contract package for both the leisure complex and retail warehouse park
at Stockton. So far as material it read:
Whilst the current estimated cost for the
Leisure Complex is under review, for the purposes of our revised fee proposals
I am assuming a Contract value of £20,000,000.00. Thus (again, for fee purposes
only) the revised total for the single contract package is approximately
£40,000,000.00.
Our fee agreement was 1.75% on an assumed
Contract Sum of £20,000,000.00. I would propose a revised fee of 1.65% based
upon an assumed Contract Sum of £40,000,000.00 and our fee would be calculated
as follows:
£40,000,000.00 x 1.65% = £660,000.00
To this amount would be added
disbursements . . . and Value Added Tax.
This was followed by the paragraph
relating to ultimate fee calculation when the contract sum was known and a
request for a fee payments schedule which was once more set out.
The revised pre-contract total fee was in
the sum of £660,000 x 55%, making a total of £363,000. The tranches were once
more specified, though adjusted so as to take account of the revised total. The
figures of £50,000 for August 1988 and £40,000 for each of October and December
1988 were retained. The tranches then proceeded: May 1989, £80,000 — thus far
the tranches total £210,000 — and that was followed by July 1989, £100,000, and
August 1989, £53,000, making a total of the tranches amounting to £363,000.
The letter then went on to deal, by
reference to the revised figure, with the post-contract total fee and concluded
as had the corresponding earlier letters.
To that Mr Kenyon responded on May 15
1989 by a letter in which he said:
I am in agreement with your proposals for
the percentage to be used for assessing lump sum fee namely 1.75% for the
retail and an overall fee of 1.65% if the retail and first phase leisure
proceed together. However, I would rather use a proposed contract sum of
£35,000,000 as opposed to the £40,000,000 in your letter.
As discussed in our telephone
conversation on Friday 12th May the invoice submitted by you on the 9th May in
the net sum of £80,000.00 is acceptable and has been processed for payment but
the following payments due in July or August should be adjusted to reflect the
proposed contract sum in the first instance . . .
Those words are important. The letter
proceeded:
. . . and hopefully guaranteed maximum
cost for the second!
Payment of the subsequent tranches will
also be adjusted by both the guaranteed maximum cost and the eventual timing.
Later that year, on September 1 1989, the
quantity surveyors wrote to the first defendants, enclosing their interim
invoice, a letter in which they said:
We refer to our conversation with Mr Dunn
regarding the position on contract and programme, and his instruction that the
situation regarding second stage negotiations is now being reassessed.
Accordingly, we have reduced the August tranche for the portion of negotiation
remaining.
Future fee arrangements, as discussed
with Mr Dunn at our meeting, will be subject to review dependent on further
instructions regarding forms of contract and programme.
The enclosed note of fees bore a date
September 1 1989 and, under the heading ‘Retail Park and Leisure Development,
Stockton, August 1989’, the pre-contract services were set out in this form:
Total fee for pre-contract services
(based upon assumed Contract Sum of £37,776,000.00) = £342,800.00
Amount received to date £210,000.00
Amount remaining £132,800.00
Then as a separate calculation,
constituting the current demand, the plaintiffs’ document said:
Amount for July 1989 tranche £100,000.00
Amount on account for August 1989
tranche, say 90% x £32,800.00 £29,520.00
making a figure to be carried forward of
£129,520.00.
It is convenient to say that,
notwithstanding the use of the term ‘on account’ by reference to the tranche
demanded for August 1989, it appears to me that that document had the effect on
the plaintiffs’ part of waiving the balance between the figure claimed and the
total of which it constituted 90%. To the brought-forward figure on the
following page there fell to be added first a sum by way of fees in respect of
a tip removal contract (which has not been the subject of any dispute in the
course of the current proceedings) amounting to £5,714.12, followed by the
outstanding balance of expenses incurred to date, amounting to £3,446.66. Adding
those two figures to the figure brought forward gave a total of £138,680.78, to
which, when VAT at 15% had been added, there was an amount due of £159,482.90.
The derivation of the assumed contract
fee is made plain by a letter sent on October 13 1989 by the plaintiffs to the
second defendants, in which, with reference to the Stockton development, it was
said in particular:
Our fee invoice . . . dated 1st September
1989 adjusted our total fee for pre-contract services in accordance with our
Budget Estimate dated 22nd May 1989 on an assumed Contract Sum of
£37,776,000.00
In the circumstances revealed by those
documents, Mr Dyson, on behalf of the defendants, first relies upon the same
arguments as to the construction of clause 8(g) of the formal contract as he
did in relation to the Western Avenue development. He does so, so far as I am
concerned, with the same result in relation to the Stockton project. He also
raises two other arguments directed to the quantum of the sum due.
First, he seeks to impugn the adoption by
the plaintiffs of the assumed contract sum, as in its invoice of September 1
1989, of £37,776,000. That, he contends, never was an agreed figure. He points
to the letter from the first defendants in which Mr Kenyon had said that he
would rather use a proposed contract sum of £35,000,000 as opposed to the
£40,000,000 which was being mentioned in the letter to him. But it will be
recalled that in the same letter Mr Kenyon contemplated that there would be an
adjustment to reflect the proposed contract sum in the first instance. In my
judgment, when one turns to the letter of October 13 1989 it is plain that both
the proposed figures of £35,000,000 and £40,000,000, which had been the subject
of discussion, had, by the time the invoice of September 1 1989 was sent out,
been supplanted by the sum of £37,776,000 as constituting the proposed contract
sum, as by then it had become.
That assumption is fortified by the
knowledge that neither at the time nor in affidavits exchanged for the purposes
of the present proceedings has it ever been suggested, except in the course of
argument in this court and in the court below, that the figure of £37,776,000
did not constitute the figure by reference to which the fees due to the
plaintiffs ought to be calculated. Mr Dyson did also rely upon a subsidiary
argument to the effect that the tranches due to the plaintiffs for July and
August were not themselves the subject of agreement. Accordingly, when the
total fees of which they constituted the last two tranches came to be reduced,
those tranches might have been differently distributed than they were, that is
to say, the tranche of £100,000 due in July might have been reduced and the
whole of the reduction might not have been attributed to the August tranche.
It seems to me that that argument is not
only technical but bad. There remains due by the instalments agreed between the
parties the aggregate of the instalments for July and August and it is to that
total that, so far as relevant, the plaintiffs’ claim has for present purposes
been confined. I would, therefore, leave undisturbed the sum for which judgment
was given in relation to Stockton as well as the sum for which judgment was
given in relation to Western Avenue and would accordingly dismiss the appeal.
Agreeing, SIR NICOLAS BROWNE-WILKINSON
V-C said: I only add a word to make it clear what we are not deciding in
this appeal. We are deciding that, since there were accrued rights to the
instalments which fell due prior to the termination of either the Western
Avenue or the Stockton contract, the termination did not put an end to, and
could not put an end to, the contractual obligation to pay the instalments due.
That was sufficient to determine this appeal, since the only judgment against
the defendants is for the payment of the sum due as instalments prior to
termination of the relevant contract.
In particular, we are not deciding what
is the effect of clause 8(g), whether it can give rise to any further payment
due from the defendants to the plaintiffs or can give rise to an obligation on
the plaintiffs to repay any amount of the sums that they are receiving under
this judgment in respect of the instalments. That matter is completely at large
and, unless the parties can come to terms, will have to be resolved in the
litigation which will continue as to the rest of the claim. I, too, would
dismiss the appeal.
The appeal was dismissed with costs.
