Alan Auld Associates Ltd v Rick Pollard Associates & Anor

This is an appeal from the judgment of Recorder Deborah Sherwin given in the York County Court, in which she dismissed the claimant’s claim and gave judgment for the defendants on their counterclaim for £11,250.19 plus interest and compensation under the Late Payment of Commercial Debt (Interest) Act 1998. The question raised by the appeal is whether, by its persistent late and non-payment of amounts due to the defendants under an engineering sub-consultancy agreement, the claimant repudiated the agreement.

Dr Alan Auld and the second defendant, Dr Pollard, are chartered engineers and respectively the principals of the claimant company and the first defendant firm. Dr Auld and Dr Pollard were friends and had worked together on a number of projects before 2004. In June 2004 the claimant was asked by the United Kingdom Atomic Energy Authority to tender for a consultancy to advise the authority about an aspect of a project to remove radioactive waste from a shaft at the Dounreay Power Station. To isolate the shaft it had to be sealed by grouting to protect it against the ingress of groundwater. Advising on such projects was Dr Pollard’s speciality. Although he is the principal of the first defendant and both he and his firm are named as defendants in the proceedings, I will refer to them collectively (since they are effectively one and the same) as “Dr Pollard”.

The claimant’s successful tender contemplated that the grouting advisory work would be carried out by Dr Pollard. The claimant’s involvement was only necessary to provide him with managerial support and professional indemnity insurance. The tender rate for providing this independent technical advice to the authority was £70 per hour plus expenses.

The oral agreement between the claimant and Dr Pollard was similar to earlier agreements between them. He was to be paid £50 per hour plus expenses. There were issues at trial as to when Dr Pollard was to be paid, but it was common ground that he would invoice the claimant at the end of each month with the number of hours he had worked and his expenses, which would then enable the claimant to invoice the authority. The authority were prompt payers -- the evidence was that they paid within three to five weeks of invoice. The judge found that it was an implied term of the agreement that the claimant would pay Dr Pollard immediately it received payment from the authority. She also found that through Dr Auld the claimant knew the following facts:

Despite all this the claimant manifestly failed to meet its payment obligations to Dr Pollard. None of his nineteen invoices, issued between 31 December 2004 and 30 April 2006, were paid on time. A schedule produced by Dr Pollard, on the generous basis that payment should have been made to him eight weeks after the date of his invoice, showed substantial and increasing periods of delay ranging between one and nine months with more than half of the invoices paid over four months late. By the end of May 2006 he was owed £21,000. Dr Pollard’s evidence which the judge accepted was that he had repeatedly complained to Dr Auld face to face, over the telephone and in emails about late payment. Despite promises to the contrary the position had deteriorated. The only reason ever given by Dr Auld for the late payment was that the claimant had no money due to late payment of its invoices by clients other than the authority. In June 2005 Dr Pollard had complained about this saying:

By mid 2006 Dr Pollard was understandably fed up with the way he was being treated. He did no work on the project in May 2006. On 7 June Dr Auld phoned him to ask where his May invoice was, no doubt to get it paid promptly by the authority, but with no intention of passing on the part due to Dr Pollard straight away. By this time, as I have said, Dr Pollard was owed £21,000, which included expenses which he had had to bear himself. Dr Pollard’s evidence, which the judge accepted, was that on being asked for his May invoice he replied that he could not afford to invoice through the claimant anymore to which he had, as he noted in his diary, the “usual platitudes from him! Another couple of months…”

Now at the trial there was argument about what Dr Pollard meant when he said that he was not going to invoice through the claimant anymore. But the judge concluded that he must have meant that he would not continue to provide services to the claimant and indeed that is how both parties proceeded following this telephone conversation. The judge said she was satisfied that “he expressed those words to Dr Auld and that Dr Auld understood them to be a termination of the contract.”

After 7 June, Dr Pollard continued to provide advice to the authority through another consultant, URS, who had also been retained to provide independent technical advice to the authority for the project. This lead the claimant to start these proceedings, in which it claimed the £20 per hour which it had lost for the remainder of the project because of Dr Pollard’s defection to URS which it alleged was in breach of implied terms of mutual trust, confidence and loyalty in the agreement between them. Dr Pollard’s response was that the agreement with the claimant had been terminated on 7 June 2006 by his acceptance of the claimant’s repudiatory breach of its terms by persistently paying late and with every prospect of continuing to do so in the future.

Another possible line of defence for Dr Pollard had been suggested by the claimant’s solicitor advocate, Mr O’Reilly, which was to the effect that time was or had become of the essence of the obligation to pay. Needless to say, this was a possibility which he said should be rejected but, as I shall explain, although this point was put by him as the devil’s advocate, it obviously appealed to the judge. In paragraph 15 of her judgment, having inevitably found that the claimant had been in breach of contract for late payment, the judge said:

She went on to conclude that time was or became of the essence of the contract in this case. Under the heading “Conclusions” at the end of her judgment, after saying that the agreement required payment to Dr Pollard upon receipt by the claimant of payment from the authority, she said:

Relating these conclusions to the alternatives which the judge had set out in paragraph 15 of her judgment it seems to me that paragraphs 22 and 23, although very succinctly expressed, are findings that the contract had been repudiated by the claimant -- that is to say, the alternative set out by the judge in paragraph 15a). Her alternative conclusion “in any event” in paragraph 24 is based upon her finding at paragraph 17 that time was or had become of the essence in the agreement.

The claimant’s Notice of Appeal attacked the alternative conclusion and the finding upon which it was based. By reference to well-known principles, it was argued that, absent express agreement, time for performance was not generally of the essence in a contract of this kind and that Dr Pollard had not made it so. I need not elaborate upon this because – rightly in my view -- Dr Pollard, through Mr Derek Sweeting QC, does not seek to support the judge’s decision on this basis. He relies on the case which he put before the judge, which is succinctly summarised in the respondent’s notice as follows:

Now, in what circumstances will such conduct be repudiatory? Chitty considers the question under the heading of renunciation. At paragraph 24-018 of the 29^th edition the editors say:

It is not suggested that persistent late or non-payment can never be repudiatory where time for payment is not of the essence or a fundamental term of the agreement, but Mr O’Reilly argues, by reference to a number of cases, that such repudiatory conduct is very difficult to show. He referred us to Decro-Wall SA v Practitioners in Marketing Ltd [1971] 1 WLR 361 and Dalkia Utilities Services plc v Celtech. International Ltd [2006] EWHC 63 (Comm), in which the courts had rejected arguments that late payments were repudiatory. I do not need to refer to Dalkia, but in Decro-Wall the plaintiff sought to contend that the defendants who had contracted to market their goods in England were in repudiatory breach because of short delays in the payment of bills of exchange which they had accepted to pay for the goods supplied to them by the plaintiffs. This court upheld the trial judge’s conclusion that these breaches were not repudiatory. However, the judgments make it clear that, where the terms of the contract itself do not provide the answer, the court must examine the impact of the breaches in the context of the transaction as a whole in order to decide whether they are repudiatory (see the passages at pages 368D, 374F and 380C). At page 369F Salmon LJ said:

We were also referred to Rice (T/A The Garden Guardian) v Great Yarmouth Borough Council [2000] All ER (D) 902, an unreported decision of this court given on 30 June 2000 in which the leading judgment was given by Hale LJ with which the other two members of the court agreed. That was a case in which it was held that the claimant had repudiated its maintenance contracts with the council for a variety of breaches of those contracts. At paragraph 35 Hale LJ said:

Dealing with the facts of that case, at paragraph 38 she said:

Finally at paragraph 39, Hale LJ emphasised that the trial judge was best placed to evaluate the true importance of the proven breaches in the context of the contracts as a whole and all the circumstances of the case. The court said that the judge was entitled to reach the conclusion he did in that case because he had had the advantage of assessing the seriousness of the course of the breaching in the trial. Provided the judge properly directs himself this court should not interfere with such an assessment.

Mr Sweeting submitted that this case was analogous to an employment contract. He referred to what this court said in Cantor Fitzgerald International v Callaghan and Ors [1999] ICR. Judge LJ, who gave the leading judgment with which the other two judges agreed, said at page 419-420:

Mr Reilly submits that the evidence in this case did not justify a finding that the claimant had repudiated the agreement. Despite the delay £70,000 had been paid to Dr Pollard by the end of May 2006 and there was no evidence that there was any risk, actual or perceived, that he would not be paid at all. The breaches were not sufficiently grave or severe and did not deprive Dr Pollard of a substantial benefit under the agreement. He had not complained loudly enough or made it clear that if the claimant did not pay on time the agreement would be terminated. Such a warning would have tested whether the claimant was really evincing an intention not to be bound by the agreement.

I do not accept these submissions. The context in which the breaches in this case occurred is important. This was not a transaction in which the parties had a raft of mutual obligations to perform. Dr Pollard was to do the work for the authority through the claimant and the claimant was to pay him for it. It was Dr Pollard’s only source of earned income. Although this was not a contract of employment, the analogy is a close one. The judge found that the term as to the time for payment lay at the heart of the agreement. The breaches of this term were substantial, persistent and cynical. Not one payment was made in time; most were made inordinately late; by the end of May 2006 over £21,000 was owing. These breaches occurred against a background of repeated complaints by Dr Pollard and broken promises by the claimant. Dr Pollard was entitled to assume that he would be treated in the same way for the remainder of the project which still had a year or so to run. As Dr Pollard said he was being used to fund the claimant’s business. The judge suspected that this was because he was seen as a soft target. In these circumstances, I think the judge was perfectly entitled on the facts as she found them, to conclude that the claimant was in repudiatory breach of the agreement, which entitled Dr Pollard to bring it to an end, as he did on 7 June 2006. For those reasons I would dismiss this appeal.

I agree and there is nothing I can usefully add.

I also agree.