Bell Scaffolding (Aust) Pty Ltd v Rekon Ltd & Anor

In 1983 Mr. Kevin Bell set up the claimant company (“Bell Australia”) to carry on business as scaffolding manufacturer and hirer. It has now become one of the leading manufacturers and contractors operating in the Eastern States of Australia

In 1996 Bell Australia wished to take advantage of the comparatively lower hire costs for scaffolding in the UK and on 27 November 1996 entered into an agreement (“the Australian Hire Agreement”) with the first defendant (“Rekon”). Under that agreement scaffolding was hired and was shipped to Australia for an initial period of two years.

Mr. Philip Taylor is the managing director of Rekon which is in the business of manufacturing, reconditioning and selling scaffolding products to be used in the construction industry. He is also managing director of the second defendant, Alba, which hires out and sells scaffolding products.

In 1997 Mr Bell decided to commence business in the UK and set up a company called Scaffolding Systems (UK) Limited which later changed its name to Bell Scaffolding (UK) Limited (“Bell UK”). Mr Bell was the managing director of Bell UK but his daughter, Ms Nicole Bell, was appointed as a director. She lived in the UK from 1996 to 2002 and was responsible for the day to day management of Bell UK.

Bell UK had a factory at Tividale in the West Midlands which manufactured Kwikstage System Scaffolding using automated welding processes. Kwikstage uses a number of standard parts such as vertical “standards” and horizontal “ledgers” and “transoms” to provide the scaffolding system.

In 1999 Mr. Bell set up Bell Scaffolding Limited (“Bell Scotland”) to trade in Scotland and Northern England as a scaffolding contractor and a sales outlet for the manufactured scaffolding. Mr Bell was managing director of this company. Ms Bell was also a director and responsible for the day to day management of the company, with another director, Mr David McFarlane.

The Australian Hire Agreement had been renewed in 1998 for another 2 years. There then followed various discussions and meetings between Mr. Bell and Mr. Taylor in the UK and Australia. These discussions included the possibility of setting up a joint venture between their companies.

In April 2000 Mr. Bell discussed with Mr. Taylor the possibility of Bell Scotland hiring out scaffolding from Rekon or Alba on a long term basis. On 19 April 2000 Mr. Bell sent Mr. Taylor a list of quantities of standards, ledgers, transoms, braces and screw base jacks which he wished to hire. After an initial offer from Mr. Taylor on 25 April 2000 for rates for a 3 year hire period, Mr. Bell and Mr. Taylor agreed rates for a 2 year hire period and Alba commenced the hire of the scaffolding to Bell Scotland. I will refer to the agreement under which that scaffolding was supplied by Alba to Bell Scotland as “the April Agreement”.

There were further discussions on cooperation between Mr. Bell’s companies and Mr. Taylor’s companies and a meeting then took place between Mr Taylor and Mr. Bell at Moore Hall, near Birmingham, on 30 August 2000 when Mr. Bell was visiting the UK.

At that meeting it is common ground that an oral agreement was reached on certain matters. Following that meeting, Mr. Bell sent Mr. Taylor a typewritten list of “points agreed”. Mr. Taylor marked it up in manuscript and then had a new version re-typed. Mr. Taylor sent Mr. Bell a fax on 11 September 2000 under the title “Agreement”, enclosing Mr. Taylor’s version and stating:

“Per our conversations over the weekend please find herewith my version of the points agreed in August in Birmingham.

As you can see there is no essential difference from the one you sent me and assuming you agree to this we will proceed”

In these proceedings, Mr. Taylor’s version of the memorandum, which I shall refer to as “the Memorandum”, has been agreed by the parties as setting out the terms of the matters discussed at the meeting. It is common ground that certain matters were the subject of a binding agreement but there are disputes as to the scope of the agreement, as to whether a binding enforceable agreement was reached on certain aspects and as also to liability under the agreement. These disputes under “the August Agreement”, form the main subject matter of this action.

The particular focus of these proceedings is paragraphs 3 and 5 of the Memorandum which are in the following terms:

“Points agreed.

…

3.

Alba to increase hire stock gradually to Bell Scaffolding in Scotland to approx 12,000.00 pounds per month. This is on the understanding that all future stock will be purchased from Scaffold Systems – except as long as stocks last for the production of ledgers and transoms Rekon will continue to produce these items. Rekon will buy transom ends from Scaffold Systems. Items purchased from Scaffold Systems to be at agreed prices on individual basis.

…

5.

All new scaffolding products required by Rekon/Alba will be purchased from Scaffold Systems in self colour. Rekon will continue to manufacture “specials” for clients and also for Scaffold Systems.”

The main area of dispute is whether paragraphs 3 and 5 of that document gives rise to a binding agreement. The claimant contends that it does; the defendants contend that it does not because it was insufficiently certain to be enforceable, it was only an agreement to agree in the absence of any agreement as to price and it was not intended to give rise to legal relations between the parties.

In these proceedings the claim is brought by Bell Australia who acquired the rights of Bell UK under the August Agreement by a Deed of Assignment dated 5 July 2004.

After the exchanges relating to the Memorandum, the first relevant exchange between the parties occurred on 5 December 2000 when Mr. Bell wrote to Mr. Taylor to notify him of his intention to “off hire the equipment we have from you in Australia”. He referred to a downturn of activity in Australia. He then added “In regard to the hire we have with you in the UK, I am disappointed you are unable to comply with the terms of that agreement”.

Mr. Taylor responded the same day. In relation to the hire of equipment in Australia he said there was an agreement until the end of February 2001 which Mr. Bell had renewed for 2 years. He then said:

“Concerning the hire in the UK, we have complied with the terms of that Agreement in full; with this in mind I must say that it is Bell Scaffolding that has not complied with the terms of the agreement up to date.”

There then followed further correspondence concerning the Australian Hire Agreement. On 15 February 2001 Mr Taylor raised a question on the April Agreement in the UK. He said:

“… we have not received an Agreement on the 2 year deal with Bell Scaffolding in Motherwell as yet. Perhaps you would be good enough to write to confirm this and that it will be under the normal terms and conditions as previously agreed”

There does not appear to have been a response to that letter, but on 23 February 2001 Mr. Bell wrote to Mr. Taylor in these terms:

“We are quite concerned that the agreement made on 30 August 2000 is not being complied with by Rekon/Alba so far as it requires:-

a)

All new scaffolding products required by Rekon/Alba will be purchased from Scaffold Systems in self colour. Rekon will continue to manufacture “specials” for clients and also for Scaffold Systems

b)

All future stock will be purchased from Scaffold Systems.

We are aware that Rekon continues to carry on manufacturing contrary to the agreement which with one exception requires manufacturing to be carried out exclusively by Scaffold Systems

Phillip, so we may calculate the adjustment necessary to reimburse Scaffold Systems for losses flowing from this agreement, please provide copies of all sales documents of Alba/Rekon from 30 August 2000 to date and also all documentation as to material purchases made during the same period.

After an audit has been carried out and the deficit calculated an adjustment in favour of Scaffold Systems is to be made.

Our ongoing agreement requires Scaffold Systems to be the exclusive supplier to Rekon/Alba”

Mr. Taylor replied on 27 February 2001 and said this:

“Concerning the Agreement of the 30^th August 2000, Rekon are complying with this in so far as we are purchasing items for which we have no materials vis standards. Return transoms are being ordered this week; we will continue to order as required.

I would, however, refer you to item 3 on the list which relates to existing stocks for the production of ledgers and transoms being used prior to any purchase of these items from you; this may be complicated for you because we would also require our own transom profiles to be used and also we would insist on cast ends, nevertheless, we would be happy for you to manufacture these, assuming of course you buy the capital equipment from us to do so and are competitive.”

He concluded that letter with:

“Finally, I do not feel that the last three sentences of your fax are to be taken seriously. If anybody has broken the arrangement of last August it is Bell. We will continue to use Scaffold Systems as suppliers for our Kwikstage items so long as they are economic, up to standard and there is a requirement”

Mr Bell responded to Mr. Taylor on 18 March 2001 and said:

“(3)

Rekon/Alba are not complying with the agreement of 30^th August 2000. As recently as two weeks ago one of your firm’s trucks was observed with two bins of “V” pressings on board not sourced from Scaffold Systems in accordance with the agreement of the 30^th August 2000. You suggest that you will continue to do so when the price is less than that offered by Scaffold Systems. In fact Scaffold Systems price is fair and reasonable and the agreement to cease manufacture and source product solely from Scaffold Systems was based on the capacity of Scaffold Systems to supply your requirements at a fair and reasonable price. You must in future comply with the terms of the 30^th August 2000 agreement and we expect strict compliance with the terms of that agreement from now on and await your future orders.

…

(10)

In our letter to you of 23^rd February 2001 we seriously proposed an audit as the only satisfactory means by which Scaffold Systems can be fully satisfied as to the compliance with the 30th August agreement. We are happy to listen to your proposals as to some other means by which compliance with the exclusive manufacturing agreement can be measured. As you will appreciate, some seven months have now transpired since the agreement was struck and apart from your recent disclosure as to the purchase of product in contravention of the agreement there have been very few orders for product from Scaffold Systems. We can only conclude from this that the agreement is not being fully complied with.”

Mr. Bell also said at paragraph 1 of that letter:

“(1)

There is no agreement for scaffolding hire in Scotland although I expect Bell Scaffolding Limited will continue to hire scaffolding from Alba as demand requires. At the moment no additional hire equipment is required. As you know the monthly rental in February is over 11,000 pounds.”

Mr. Taylor replied to Mr. Bell’s numbered paragraphs on 19 March 2001 in these terms:

“To say that there is no agreement for scaffolding hire in Scotland is not true, Item 3 of the August meeting is clear on this…

Immediately I must ask you whether in your opinion there was an agreement made in August 2000-in (1) you say there wasn’t in (3) you say there was-which is it to be? We will continue to order items from you as and when we have a requirement. Always assuming of course that we can agree on price per point (3) of August agreement.”

On 29 March 2001 Mr. Taylor wrote to Mr Bell about the hire of scaffolding between Alba and Bell Scaffolding following an earlier exchange between Mr. Roberts of Alba and Bell Scotland’s manager. He said:

“Dave Roberts is being told by your man in Motherwell that unless we lower the rates to an (unacceptable) level, he will off hire all the equipment. Obviously this cuts across our agreement of August. You must remember that we painted the Scaffolding in Bell blue on the basis of it being on a long term hire per your fax of April 2000. Also again I have to mention the problems with the steelstage that has been delivered.”

In a letter dated 24 April 2001 Mr Taylor expressed disappointment at Bell Scotland’s decision to off-hire scaffolding but set out proposed charges for shotblasting and painting or reconditioning of the scaffolding when it was returned. Mr McFarlane and Mr Taylor then exchanged correspondence concerning hire rates and proposed terms for the off-hiring of scaffolding.

Mr McFarlane resigned as a director of Bell Scaffolding in July 2001. Mr Bell then decided to close Bell Scotland. In October 2001 Mr Taylor was appointed as a director of Bell Scotland, to assist in the closure of Bell Scotland. The scaffolding hire by Bell Scotland from Alba was therefore taken off hire over the succeeding months and this left a sum owed by Bell Scotland which Alba now claims in these proceedings from Bell Australia, the claimants.

Bell had difficulty meeting the hire charges in the Australian Hire Agreement and late payment by Bell Australia to Rekon was a constant theme of correspondence between the parties in late 2001 and 2002. A meeting then took place between Mr. Bell and Mr. Taylor at Mr. Taylor’s house in Inverness on 14 March 2002 which appeared to resolve uncertainty as to the future of the Australian Hire Agreement, although late payment and failure to pay by Bell Australia remained a constant source of complaint by Rekon

On 9 April 2002 Mr. Bell confirmed a further agreement reached at a meeting which had taken place at Mr Taylor’s house in Inverness on 14 March 2002 and concluded the letter by saying:

“Philip, I am sure we both see the benefits of expanding the amount of scaffolding Rekon has in Australia and also the benefits of a partnership in manufacturing in the UK. I am happy to expand and strengthen our alliances on the basis of a mutual trust and respect for each other’s positions. I believe we entered into this agreement on that basis and I look forward to working together in the future.”

In September 2002 Mr. John Tate became involved in dealing with the Australian Hire Agreement on behalf of Mr Bell. He was in communication with Ms Samantha Heesome at Rekon to agree the outstanding sums due from Bell Australia to Rekon.

Later that year Mr Bell decided to stop production of scaffolding in the UK and on 30 November 2002 Bell UK ceased trading.

In February 2003 Mr Bell and Mr. Taylor met in Hong Kong. That meeting was accepted by both of them to have marked the end of the previously good working relationship which they had enjoyed.

Following that meeting, Mr. Taylor wrote to Mr. Bell on 20 February 2003 (wrongly dated January) concerning the sums owed to Alba by Bell Scotland. Mr. Tate responded on 24 February 2003 and said:

“Scotland Debt. I make no comment in relation to the issues raised between Bell Scaffolding Ltd and Rekon as this debt has nothing to do with Bell Scaffolding (Aust) Pty Ltd. I am only dealing with the contractual issues between Bell Scaffolding (Aust) Pty Ltd and Rekon Ltd.”

Mr. Taylor responded in March 2003 and said:

“Concerning Scotland- Bell Scaffolding Pty Ltd is the ultimate parent Company of Bell Scaffolding Ltd therefore it is responsible for debts owed to Alba. At the recent Hong Kong meeting Kevin intimated that he had no problem with the hire charges but complained about the re-painting costs. I explained that it was he who required the painting to be carried out in the colour blue and therefore he would be required to pay for it either at the time or when they came off hire. We remain convinced of this.”

On 19 March 2003 Ms. Nicole Bell, on behalf of Bell UK, wrote to Mr. Taylor raising the matter of a claim against Rekon and Alba. She said:

“On 20 August 2000 agreement was reached between Rekon Ltd and Alba Ltd to purchase scaffolding product from Bell Scaffolding (UK) Limited. Throughout our discussions the intent and bonafides of this agreement have never been disputed.

However, we consider you are in breach of this agreement as you have not proceeded with the agreed purchases and we hold you in breach of the agreement.

The breach of this agreement has resulted in substantial business losses being incurred by us.

Further, from discussions and information in our possession Rekon/Alba has purchased substantial quantities of Kwikstage compatible scaffolding from sources other than Bell Scaffolding (UK) Limited.

We hereby make demand for reimbursement for the loss of profits, which we were reasonably entitled to under the exclusive agreement. Our estimate based on volumes of scaffolding is GBP433,000.00 since the agreement date and the subsequent factory closure.

Whilst our intent is to settle this claim amicably I request discussion/reply within 21 days.”

Mr Taylor replied on 27 March 2003 in these terms:

“I have had a look at what was actually done by-way of purchase and it would appear that we spent approximately £170,000 with you during the period from 1^st September 2000 to May 2001. I do not know where you get the £433,000 from but it is irrelevant in any event.

Going back to the agreement of August 2000 I enclose a copy of this for your perusal. You will see that whilst there was an agreement to purchase material from Bell, item 3 on the agreement is clear i.e that Rekon would continue to produce ledgers and transoms while existing stocks lasted and this is in effect what happened, therefore I cannot see how you can complain. On the other hand, we have a problem with Bell as there is something like £68,000 of debt owed to Alba; the number of steel boards which you delivered to Glasgow far exceeded the 3,000 originally agreed and for which we paid you but turned out to be something of a white elephant because we did not receive any hire revenue from the last load.”

On 28 March 2003 Ms. Bell responded and said:

“In response to your letter of 27^th March 03, firstly I must say that our claim is both relevant and bona fide, the intent of the agreement is quite evident.

The alleged debt of 68,000 GBP of Alba is owed by Bell Scaffolding Ltd a wholly owned subsidiary of Bell Scaffolding Pty Ltd. The latter company has no direct relationship with the Australian trading companies. As you are aware Bell Scaffolding Limited ceased trading and has no means of paying this debt.

You refer to “Bell disappearing in November” we contend that the failure of Rekon/Alba to honour the agreement to purchase scaffolding as agreed has been pivotal to the decision to close the manufacturing plant in the UK. Over two years has lapsed since the agreement was consummated.

I reiterate my closing sentence and I am sure that neither party wishes to commence action burdening all of us with unnecessary costs

I strongly urge you to consider meeting in Australia with Kevin to resolve these issues.”

On 31 March 2003 Mr. Tate wrote to Mr. Taylor to seek a reduction in the hire charges under the Australian Hire Agreement. In response, on 3 April 2003, Mr. Taylor referred to the available options for Bell Australia as being to purchase the equipment, for the hire to continue at the contractual rate or for hire to cease in accordance with that agreement.

A process of negotiation between Mr. Tate and Mr. Taylor then commenced in relation to the termination of the Australian Hire Agreement. Mr. Taylor constantly raised what he described as the “Scotland debts”, being sums owed by Bell Scotland to Rekon. Mr Tate treated them as a matter which was not the responsibility of Bell Australia.

On 18 July 2003 Ms. Bell wrote to Mr Taylor and drew attention to what she had said in her letter on 28 March 2003 and added.

“I specifically stated that the closure of the manufacturing operation in the UK was a direct result of Alba Ltd’s and Rekon Ltd’s failure to honour the agreement to purchase scaffolding from Bell Scaffolding (UK) Limited. This agreement was essential to the viability of the manufacturing operation in UK.”

Mr. Taylor responded on 22 July 2003 and said:

“I note its content, and with this in mind have looked up Rekon/Alba’s spending with Bell from September 2000 to June 2001. This amounted to £152,420.65, a not inconsiderable sum, and one that I think will stand us in good stead should you wish to institute proceedings against us.

Please also be aware, that apart from manufacturing activity within the company due to existing stocks we purchased solely from Bell up until your unheralded withdrawal from the UK. …. I think it is time you faced up to your responsibilities and honoured your debts including ones outstanding to Alba as long ago as 2001”

In the meantime Mr. Tate and Mr. Taylor continued to negotiate the termination of the Australian Hire Agreement. Lawyers were instructed. This culminated in a final draft agreement being produced on 21 October 2003.

When it was ready for signing Mr. Taylor said that he wanted to speak to Mr. Bell before he signed the agreement. This led to Mr. Taylor and Mr. Bell having lunch together in London. There was a discussion at that lunch about the sum due from Bell Scaffolding to Alba. There is a dispute as to the outcome of that discussion and whether Mr. Bell agreed to make 48 payments of A$3500.00 to Mr Taylor in exchange for Mr. Taylor signing the agreement.

In any event an agreement was signed by both parties on 21 October 2003 which led to the termination of the Australian Hire Agreement.

On 20 October 2003 a resolution was passed for the voluntary winding up of Bell UK and Mr Cork of Smith & Williamson was appointed liquidator at a meeting of creditors. On the following day, 21 October 2003, a resolution was passed for the voluntary winding up of Bell Scotland and, again, Mr Cork was appointed as liquidator.

These proceedings were subsequently commenced by a claim form dated 25 October 2005 with Particulars of Claim. A Defence and Counterclaim was served on 1 December 2005 and a Reply and Defence to Counterclaim was served on 26 January 2006.

At the hearing, Mr Robert Clay appeared on behalf of the claimant, Bell Australia and Mr. Andrew Grantham appeared on behalf of the defendants, Rekon and Alba.

The parties have helpfully been able to agree upon the issues to be determined in this case. They are as follows:

The Claimant called evidence from Mr. Kevin Bell and Mr. John Tate. The Defendants called evidence from Ms Samantha Heesome, Mr. Philip Taylor and Mr Malcolm Ferguson.

The main witnesses were evidently Mr Bell and Mr Taylor. There were unsatisfactory aspects in the evidence of both of them. Mr Bell’s witness statement did not, in the event, correctly reflect his oral evidence on certain important points. In addition, as Mr Grantham explored in cross-examination, there were certain passages in Mr Tate’s evidence which were in almost identical wording to Mr Bell’s evidence. Whilst this may have reflected the process undertaken in producing witness statements for people living overseas, it obviously leads to the unsatisfactory position where doubt is cast over the accuracy of the contents of the witness statement as reflecting what these witnesses recalled, in their own words. However, having observed Mr Bell giving oral evidence, I consider that he generally tried to recall what he honestly recalled of events and, on occasion, this evidence did not reflect his witness statement or, indeed, matters which supported the Claimant’s case. I also formed the same view of the evidence of Mr Tate. In both cases, though, the inconsistency with the witness statement greatly devalued that evidence.

Mr Taylor’s evidence was also unsatisfactory. Much of his evidence consisted on his contentions on the matters in dispute. When it came to facts, I formed the impression that he generally did not have a clear recollection of what happened and certain parts of his witness statement were not supported by his recollection in oral evidence.

On a number of aspects, given the period of time since the matters occurred, there was a conflict between the recollection of Mr Taylor and that of Mr Bell. In such circumstances, I have relied more on the contemporaneous documents to help me resolve the conflict.

Both Mr Bell and Mr Taylor were asked about failures to disclose documents. Mr Bell only disclosed, at a late stage, the liquidators’ reports in respect of Bell UK and Bell Scotland. They were clearly material on the issue of the cause of Bell UK ceasing trading and should have been disclosed previously.

Mr Taylor was asked a number of questions about the records and accounting documents of Rekon and Alba. The very late disclosure and granting the claimant access to the Sage system evidently caused a good deal of wasted work for the claimant. In addition, I found Mr Taylor’s evidence on what he said in relation to the claimant’s requests for information and documents to be at odds with what appeared from the documents. I put this down to a lack of recollection of the detail and a failure by him to conduct a proper analysis of the position or have that analysis conducted by others. However, whilst it was put to both witnesses that they had deliberately concealed documents, I do not accept that this accurately reflects what happened. Rather, there were serious failures in giving proper timely disclosure on both sides.

In relation to the evidence of Ms Heesome and Mr Ferguson, I consider that both gave evidence which reflected their honest recollection of the facts.

Witness statements were also submitted by Mr Gordon Pilling, on behalf of the Claimant and Mr David Roberts, on behalf of the Defendants. Neither witness was called and, in the case of Mr Roberts, this is explained by his illness. In the event, the evidence in the statements of these witnesses has not been relied on to any material extent and such reliance is limited to matters which appear in the documents.

Expert evidence was given by Mr Richard Indge (a partner in the Forensic and Investigations Services Department at Grant Thornton UK LLP), called on behalf of the claimant and Mr Michael Mason (a director in the Forensic Accounting Department at the Southampton office of BDO Stoy Hayward), called on behalf of the defendants. They both presented their evidence in the manner expected of experienced experts assisting the court and they are to be commended in being able to come to sensible agreements on the majority of the issues, as reflected in their joint statements of 30 June, 10 July and 19 July 2006. As a result, their oral evidence was brief and I only have a few issues of quantum to deal with. Otherwise, I adopt the suggestion of the parties that, following this judgment, the experts should then meet further to see whether, as I hope, they can agree quantum entirely or substantially.

I now turn to consider the issues.

There is no dispute that the Memorandum of the August 2000 meeting reflects the contents of the matters discussed at the meeting which took place on 30 August 2000. The question is whether certain parts of that document record matters which were uncertain or were “agreements to agree” or on which the parties did not intend to create legal relations. It is accepted by the defendants that certain paragraphs recorded binding agreements but they submit that other parts did not. The claimant submits that the Memorandum records enforceable agreements on every aspect.

The approach to be applied in resolving matters of construction must, in my judgment, reflect the modern tendency to construe agreements more liberally than at one stage. Thus, as set out in the often cited passages from the speech of Lord Hoffmann in Investors Compensation Scheme v. West Bromwich Building Society [1998] 1 WLR 896, the courts will apply principles to make contracts work rather than find insurmountable problems of construction.

In relation to the Defendants’ submission that the obligations in the Memorandum are uncertain, the classic authorities of May and Butcher v. The King [1934] 2 KB 17; Hillas v. Arcos (1932) 147 LT 503 and Scammell v. Ouston [1941] AC 251 were considered by the Court of Appeal in Mamidoil-Jetoil Greek Petroleum Co SA v. Okta Crude Oil Refinery AD [2001] 2 Lloyd’s Rep. 76 and Rix L.J., giving a judgment with which Schiemann L.J. and Sir Ronald Waterhouse agreed. He referred to the judgment of Steyn L.J. (as he then was) in G. Percy Trentham v. Archital Luxfer Ltd [1993] 1 Lloyd’s Rep. 25 at 27:

“The fact that the transaction was performed on both sides will also make it unrealistic to argue that there was no intention to enter into legal relations. It will often make it difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or alternatively, it may make it possible to treat a matter as not finalised in negotiations as inessential.”

Rix L.J then said this at page 89 as to the principles to be applied:

“In my judgment the following principles relevant to the present case can be deduced from these authorities, but this is intended to be in no way an exhaustive list:

Each case must be decided on its own facts and on the construction of its own agreement. Subject to that:

Where no contract exists, the use of an expression such as “to be agreed” in relation to an essential term is likely to prevent any contract coming into existence, on the ground of uncertainty. This may be summed up by the principle that “you cannot agree to agree”.

Similarly, where no contract exists, the absence of agreement on essential terms of the agreement may prevent any contract coming into existence again on the ground of uncertainty.

However, particularly in commercial dealings between parties who are familiar with the trade in question, and particularly where the parties have acted in the belief that they had a binding contract, the Courts are willing to imply terms, where that is possible, to enable the contract to be carried out.

Where a contract has once come into existence, even the expression “to be agreed” in relation to future executory obligations is not necessarily fatal to its continued existence.

Particularly in a case of contracts for future performance over a period, where the parties may desire or need to leave matters to be adjusted in the working out of their contract, the Courts will assist the parties to do so, so as to preserve rather than destroy bargains, on the basis that what can be made certain is itself certain. Certum est quod certum reddi potest.

This is especially the case where one party has either already had the advantage of some performance which reflects the parties’ agreement on a long term relationship, or has had to make an investment premised on that agreement.

For these purposes, an express stipulation for a reasonable or fair measure or price will be a sufficient criterion for the courts to act on. But even in the absence of express language, the Courts are prepared to imply an obligation in terms of what is reasonable.”

In this case, it is not disputed that there was an agreement between the parties. The meeting on 30 August 2000 was held between Mr Bell and Mr Taylor, each of whom was anxious to co-operate with the other in order to benefit their respective companies. Mr Bell was acting on behalf of Bell Australia, Bell UK (referred to as “Scaffold Systems”) and Bell Scotland (referred to as “Bell Scaffolding”). Mr Taylor was acting on behalf of Rekon and Alba. They were both looking forward to a continuing business relationship and there was mutual trust and co-operation between them.

At the time, it is evident that both Mr Bell and Mr Taylor considered that they had an agreement and they started to perform certain clauses of that agreement which called for immediate performance. Other provisions called for future performance.

It is convenient to consider the paragraphs of the Memorandum sequentially. Some paragraphs can conveniently be considered together. It is to be noted at the start that no general words are put in to say that it is “subject to contract”. Rather, the Memorandum commences with the words: “Points agreed.”

1.

Bell Scaffolding to extend hire period for further 2 years from February 2001 for scaffolding in Australia.

2.

Bell Scaffolding to pay hire of 26,000.00 pounds per month for the Australian scaffolding starting February 2001.

It is common ground that this gave rise to a binding agreement between the Claimant and Rekon to extend the duration of the Australian Hire Agreement between them from February 2001 at a price of £26,000. There is therefore no issue raised on the enforceability of this provision.

3.

Alba to increase hire stock gradually to Bell Scaffolding in Scotland to approx 12,000.00 pounds per month. This is on the understanding that all future stock will be purchased from Scaffold Systems – except as long as stocks last for the production of ledgers and transoms Rekon will continue to produce those items. Rekon will buy transom ends from Scaffold Systems. Items purchased from Scaffold Systems to be at agreed prices on individual basis.

4.

Alba will supply 3000 x 8’ steel boards to Bell Scaffolding in Scotland at a hire rate of 10p per week. Scaffold Systems will supply these boards to Alba at a cost of 9.25 pounds each.

5.

All new scaffolding products required by Rekon/Alba will be purchased from Scaffold Systems in self colour. Rekon will continue to manufacture “specials” for clients and also for Scaffold Systems.

These clauses lie at the heart of the dispute between the parties. It is clear that they relate to two matters: the hire of scaffolding by Bell Scotland from Alba and the purchase of scaffolding by Rekon and Alba from Bell UK.

In relation to the hire of scaffolding by Bell Scotland from Alba, the evidence shows that there was an existing relationship between the two parties which I have set out above and referred to as the April Agreement. Scaffolding was supplied by Alba to Bell Scotland under this agreement from about July 2000.

In the context of that agreement, paragraph 3 provided: “Alba to increase hire stock gradually to Bell Scaffolding in Scotland to approx 12,000.00 pounds per month” and paragraph 4 provided that “Alba will supply 3000 x 8’ steel boards to Bell Scaffolding in Scotland at a hire rate of 10p per week.” The Defendants submit that the obligation to increase the figure “gradually” to “approx 12,000.00 pounds” is too uncertain. I do not accept that. I consider that, as submitted by Mr Clay, the fact that the invoice totals in December 2000, January 2001, February 2001 and March 2001 were £11,993.47, £11,932.37, £12,492.46 and £13,118.73 show that Bell Scotland did gradually increase the hire gradually to approx £12,000 and no complaint was made by Mr Taylor at the time that these figures were a breach of that agreement. This makes it unrealistic, in my judgment, for the Defendants now to argue that there was any uncertainty.

The Defendants also point to Mr Taylor’s fax of 15 February 2001 in which he said:

“… we have not received an Agreement on the 2 year deal with Bell Scaffolding in Motherwell as yet. Perhaps you would be good enough to write to confirm this and that it will be under the normal terms and conditions as previously agreed”

I do not consider that this affects the enforceability of the agreement. This merely sought confirmation of the agreement which Mr Taylor stated in his oral evidence was made in April 2000 and which was quantified in the August Agreement.

The reference to the supply of “3000 x 8’ steel boards to Bell Scaffolding in Scotland at a hire rate of 10p per week” is again part of that agreement. It can be seen that the documents exchanged between the parties in April 2000 made no mention of scaffold boards being required. This provision therefore added the hire of such boards to the April Agreement.

The counterclaim raised by Alba relates to unpaid hire charges owed by Bell Scotland under the April Agreement (which it contends are now due from Bell Australia) and also contains a claim essentially for damages for breach of contract on the basis that Bell Scotland took scaffolding off-hire before the end of the two-year period.

In relation to the purchase of scaffolding by Rekon and Alba from Bell UK, this forms the central basis for the claim made by the claimant against Rekon and Alba.

The background to this provision was that Mr Taylor was to cease manufacture of certain scaffold products and was going to purchase his requirements from Mr Bell who had set up the factory in the West Midlands for that purpose. This was linked to the agreement by Mr Bell that his company would increase the amount of scaffolding hired from Mr Taylor’s company. In paragraph 3, the two obligations are linked by the phrase “This is on the understanding…”.

The definition of what was to be purchased by Rekon and Alba from Bell UK was initially described as “all future stock” in paragraph 3 of the Memorandum. It was then subject to further definition in the following wording:

Various issues arise on these provisions. First, there was no inventory taken of the stocks “for the production of ledgers and transoms”. I consider that this does not affect the position. The stocks would have to be established to the satisfaction of the court on the balance of probability and this would not affect the underlying obligation.

Secondly, the defendants submit that their obligation was limited by paragraph 4 to the purchase of only 3000 steel scaffold boards. I do not consider that to be correct. The reference to “all future stock” was general. Paragraph 4 referred to the purchase of 3000 boards from Bell UK which were going to be hired to Bell Scotland. That provision dealt with a particular addition to the April Agreement and confirmed that Rekon was to purchase the boards from Bell UK. It did not, in my judgment, create an exception or limitation on the clear obligation for Rekon and Alba to purchase all future stock from Bell UK.

Thirdly, an issue arises as to whether the reference to “self colour” creates a limitation to “all future stock”. The background to this is that Rekon specialised in the reconditioning of scaffolding and, as a result, had facilities for painting scaffolding. The defendants rely on the reference to “self colour” as limiting the products to be purchased to those which were bare metal and therefore excluding any which were galvanised or plated. This applied, in particular to scaffold boards and base jacks. I do not read the reference to “self colour” as creating such a limitation. I accept that, as the claimant submits, the importance of this provision was that Bell UK was not the party who was going to paint the scaffolding, in so far as it is needed.

As I set out below, I accept Mr Bell’s evidence that by the time of the meeting on 30 August 2000, Mr Taylor had seen the Price List prepared by Bell UK dated 24 August 2000 addressed to him. That document had the heading “self colour”. It included such items as “Galvanised Board” and “Screw Base Jacks”, both were galvanised or plated items. I therefore do not consider that this created any limitation; it provided that the products supplied would be unpainted and therefore bare metal or galvanised or plated or whatever finish was usual for that item.

A separate question arises as to Climastage, which is a similar type of system to Kwikstage but uses a somewhat different connection system. I do not consider that Climastage is excluded on the basis that it is galvanised and therefore not “self colour”. As Mr Taylor accepted the transoms/standards of Kwikstage and Climastage are interchangeable and, in practical terms, the components of Kwikstage and Climastage could be “mixed and matched”. I therefore consider that the obligation to purchase “all scaffold stock” referred to system scaffolding and whilst Kwikstage was contemplated, the obligation was not limited to Kwikstage. Rather it covered all system scaffolding which could be used with Kwikstage. Thus, in my judgment, Rekon and Alba could not buy in Climastage, which was interchangeable with Kwikstage, and thereby overcome the obligation to purchase all scaffold stock from Bell UK.

Fourthly, the defendants submit that the reference to “specials” created a limitation to “all scaffold stock”. I accept that submission. The question is then what products are described as specials. It is common ground that Standards (uprights with “v” pressings); Ledgers and Transoms (horizontal members); Screw Base Jacks and Braces are standard components and not “specials”. The Claimant submits that Transom Returns; Steel Stage/Boards; Stage Board Brackets/“hop ups” and Tie bars are also standard and not “specials”.

I have come to the conclusion that all of those items, except Transom Returns, are standard components and not “specials”. In paragraph 41 of his witness statement Mr Bell excludes 6’, 8’ and Return Transoms from standard scaffolding products. Otherwise, I consider that the other items are standard components. First, they are all included on Bell UK’s price list of 24 August 2000. Secondly, I was referred to a Kwikstage catalogue which listed standard components and included those components in the list. Thirdly, I accept that the word “special” refers to items which are not generally manufactured or not used in general scaffolding operations. I have been referred to the Kwikstage Handbook which shows that Steel/Stage Boards; Stage Board Brackets/”hop ups” and Tie Bars are in general use.

I therefore do not see that any difficulty is caused by the definition of the scaffold product which Rekon and Alba have to purchase from Bell UK under paragraphs 3, 4 and 5 of the Memorandum.

The Defendants however rely on the final sentence of paragraph 5 as making the obligation unenforceable. That states “Items purchased from Scaffold Systems to be at agreed prices on individual basis”. The Defendants submit that this is a classic case of an agreement to agree which the courts will not enforce and I was referred to May and Butcher and Walford v. Miles. The Claimant submits that this is a reference to “agreed prices” and that the prices agreed were those in the Bell UK list dated 24 August 2000 addressed to Mr Taylor. In any event, the claimant submits that this would not be a ground for finding that the agreement was unenforceable and it relies on the decision of the Court of Appeal in Mamidoil.

Mr Bell states in his witness statement that at the time of the August Agreement Mr Taylor was aware of the price list of 24 August 2000 and agreed that Rekon and Alba would purchase the listed products at the listed prices. He states that, although his initial version of the memorandum did not refer to the price list, he clearly recalls that there was no question but that he had an agreement on prices. Mr Taylor says in his witness statement that prices were still to be agreed.

In oral evidence, Mr Taylor accepted that he had the price list and that, at the time, he was happy to pay those prices. He says that prices were not discussed at the meeting but that they were to be discussed in the future as he could not “stick Kevin Bell with the prices” if, for instance, the price of tube doubled. He said this is why the prices had to be agreed on an individual basis. Mr Bell in his evidence accepted that it would have been better to refer to the price list but they were both working under the existing price list. He says that is what he understood by “agreed prices” in paragraph 5 of the Memorandum. He accepted that, as time went on he might have to increase prices although, in fact, he maintained the prices in the price list of 24 August 2000 throughout the period when Rekon and Alba were purchasing scaffolding up to May 2002.

It is clear that Mr Taylor had the price list dated 24 August 2000 and was happy with those prices. Indeed the price of £9.25 in paragraph 4 of the Memorandum is a reference to the relevant price for 8’ Boards in that document. I am satisfied that the parties made reference to that document and that those were the prices which were agreed for the purpose of paragraph 5 of the Memorandum. As a matter of construction, the phrase “agreed prices” is different from “prices to be agreed” which is the language used in paragraph 11. I consider that the reference to “agreed prices” was indeed a reference to the prices in the price list of 24 August 2000.

Further, I note from the fax of 18 March 2001 from Mr Bell and the reply of 19 March 2001 from Mr Taylor evidences that the prices were agreed. Mr Bell says that the prices for items purchased have been agreed and Mr Taylor says “I agree that your current price list is acceptable”. Even if I had not found that the prices in the 24 August 2000 Price List were not agreed at the meeting on 30 August 2000, this is a case where the parties did agree the price and no question of uncertainty therefore arises.

So far as future price changes were concerned, it is evident that both parties envisaged that the prices in that list might change. However, in my judgment, unless and until there was agreement on new prices, the prices in the price list of 24 August 2000 would remain. I do not need to consider whether a term might be implied in the event that at some time in the future there was no agreement, as the point does not arise in this case. However, I consider that the court, as set out in Mamidoil, would strive to preserve the contract once there had been performance.

In this case, no dispute arose as to prices. I accept Mr Bell’s evidence that the prices charged by Bell UK to Rekon and Alba remained the prices in the 24 August 2000 list.

There are two other issues which arise in relation to Rekon’s entitlement to produce ledgers and transoms whilst stocks lasted. First, there is an issue whether this includes items other than ledgers and transoms. Secondly, there is an issue whether Rekon could purchase extra components which it did not have in stock (apart from transom ends which are specifically dealt with) so as to use up all the stock which related a particular standard component.

I can see no reason why, under the August Agreement, any components other than those expressly mentioned could be manufactured by Rekon. The obligation was to purchase “all scaffold stock”, subject to the exception in relation to ledgers and transoms whilst stocks of component parts lasted. The exception did not apply, for example, to standards or boards.

I consider that the underlying intention was that Rekon and Alba would buy “scaffold stock”, that is standard scaffolding components and not parts which might be used to make components. The exception was transom ends because this was expressly dealt with: “Rekon will buy transom ends from Scaffold Systems.” Otherwise, Rekon was entitled to buy component parts such as “v” pressings from elsewhere to make up components while stocks of other components, in stock in August 2000, lasted.

As a result, I do not consider that there is any uncertainty or an “agreement to agree” which makes the August Agreement unenforceable in whole or in part. In relation to the defendants’ submission that the there was no intention to create legal relations, adopting the wording used by Steyn LJ in Archital Luxfer, I consider that the fact that the August Agreement, including this provision, was performed on both sides makes it unrealistic to argue that there was no intention to enter into legal relations.

6.

Scaffolding purchased from Scaffold Systems by Rekon/Alba will be paid 60 days or earlier if possible.

7.

Hire stock sent to Bell Scaffolding in Scotland will go on hire on the date of despatch.

8.

Bell Scaffolding Scotland will pay transport on all hire stock.

9.

Rekon/Alba will pay transport on stock purchased by themselves and delivered to Haydock.

These provisions cause no difficulty. Paragraphs 6 and 9 are further provisions which relate to the obligation on Rekon and Alba to purchase all scaffold stock from Bell UK. Paragraphs 7 and 8 are similar provisions which deal with the obligations under the April Agreement.

10.

Scaffold Systems will engage Rekon to paint their excess material and in some cases pack into containers for export.

The provision relates to matters which are not in dispute. However, the reference to painting being carried out by Rekon is an acknowledgement that Rekon had the facilities to carry out painting in preference to Bell UK, a matter relevant to the reference to “self colour” in paragraph 5 of the Memorandum.

11.

Scaffold Systems will purchase some of the manufacturing equipment owned by Rekon at prices to be agreed.

The defendants submit that this obligation is an “agreement to agree” and is therefore too uncertain to be enforced. The defendants also contend that this obligation for Bell UK to purchase this equipment was a condition precedent to the obligation on Rekon and Alba to purchase scaffold stock from Bell UK.

This background to this provision was that Rekon had equipment which they used to manufacture ledgers and transoms. That equipment included a transom or tacking machine and a ledger machine. Because Rekon was going to cease manufacture when it had exhausted its stocks used to manufacture ledgers and transoms, Rekon foresaw that at a future date it would have some equipment to dispose of. The equipment was not defined and therefore the price could not be defined. Also, as it was a future sale, the condition of the equipment might vary.

I deal first with the condition precedent argument. In my judgment, there are no grounds for such a condition precedent. First, there is no link between this provision and the requirement to purchase scaffold stock in paragraphs 4 and 6 of the Memorandum. I consider that there would have to be clear wording for one obligation to be conditional on another obligation. There is no such wording, clear or otherwise.

Secondly, the requirement to purchase equipment would not logically be a condition precedent to the obligation for Rekon and Alba to purchase scaffold stock as there would be no reason to postpone the obligation to purchase such items as standards. Rekon would need the equipment to use up stocks of components in the case of ledgers and transoms but once those stocks were used up there would be no reason to make the obligation to purchase ledgers and transoms conditional on the purchase of Rekon’s equipment.

In relation to the alleged uncertainty, I consider that this again is a case where the parties were performing the obligations in the Memorandum and the court would strive to preserve the agreement. On the facts, it is not alleged that any problem arose on the sale of equipment. The two items of equipment which were dealt with in evidence were a transom machine, a jig where components were tack welded before being fully welded and a ledger machine, a machine which looks like a lathe, where the ledger ends and tube were located and welded. They was also reference to a “tacking” machine which appears to be the same or similar to the transom machine and can be used to make standards.

Mr Bell recalled that he discussed the ledger machine with Mr Taylor and offered to buy it but it was not for sale because Mr Taylor still had ledgers to make. Mr Bell said that he expected to get the ledger machine which was quite a good machine.

On 27 February 2001, Mr Taylor wrote to Mr Bell and referred to paragraph 11 of the Memorandum. He said that he had offered the “tacking” machine to Mr Bell before Christmas 2000 but Mr Bell had declined saying that he was not purchasing any more capital equipment. In reply on 12 March 2001 Mr Bell said that, if Rekon required Bell UK to purchase some of the Rekon capital equipment then it should provide a list of equipment with a fair market value for Bell UK’s consideration. He added that as Bell UK used robotic welding there was no need to purchase the manual “tacking” machine. In response Mr Taylor said “I am open to offers on the tacking machine over £18,000 – no other equipment is up for sale at this time”. Mr Bell says that he had seen the tacking machine and had a fair idea of what it was worth - what a reasonable price would be for it. He believed it was worth £5,000.

I consider that paragraph 11 of the Memorandum was a provision which looked to the precise equipment and price being determined in the future. This left the provision to be worked out in the future and, on the facts, Mr Taylor only offered one piece of equipment and the parties were unable to agree a price. In those circumstances, I do not accept the Defendants contention that this clause renders the remainder of the agreement recorded in the Memorandum unenforceable.

There is no claim made by Rekon or Alba for a failure by Bell UK to purchase equipment under paragraph 11 of the August Agreement. It seems to me that if there were to be any such claim and the parties could not agree then, as Rix LJ said in Mamidoil, on the basis that once a contract has come into existence, particularly a contract for future performance over a period, where the parties may desire or need to leave matters to be adjusted in the working out of their contract, the courts will assist the parties to do so, so as to preserve rather than destroy bargains, on the basis that what can be made certain is itself certain. In such circumstances, the courts may even, in the absence of express language, imply an obligation in terms of what is reasonable.

I therefore do not consider that the provision of paragraph 11 renders the August Agreement unenforceable, in whole or in part and neither do I consider that it is realistic to submit that there was no intention to create legal relations.

12.

Rekon/Alba and Bell Scaffolding will form an alliance to undertake large scaffolding contracts in the UK.

13.

Rekon/Alba and Bell Scaffolding will work with Complete Site Services in Perth to increase both companies business in that location.

These two provisions have not been raised as causing any particular difficulties in relation to the Memorandum.

In those circumstances, in summary, I consider that the August Agreement gave rise to enforceable obligations on Rekon and Alba to purchase scaffolding from Bell UK, as set out above. There was, in my judgment, nothing uncertain or in the nature of an “agreement to agree” or any intention not to create legal relations which would render that obligation unenforceable.

In this case, the issues of liability and quantum are inextricably linked. The question is whether Rekon or Alba purchased scaffold stock elsewhere than from Bell UK. The evidence to prove the breach is evidence that a quantity of scaffolding was purchased elsewhere and this then forms the quantum.

The experts’ joint statement of 30 June 2006 substantially agreed the methodology to be applied. Attached to their supplementary joint statement of 10 July 2006 were schedules which represented their agreed position on the quantity of stock and stock movements that were readily identifiable from the defendants’ available accounting information. In their second supplementary joint statement they identified those issues on which they differed. Some have only a small financial impact and so can be resolved by the parties. Other issues call for a decision. The parties are agreed that two of the issues on the list of issues, Issues 12 and 14 should not be dealt with in this judgment.

The following three issues of quantum therefore arise, in addition to questions concerning the cause of the liquidation of Bell UK and the end date for calculating quantum:

In the second supplementary joint statement at paragraph 1.21, the experts have agreed that the differences between their gross profit percentages arise because of differences in the treatment of three items of cost. Mr Mason has made deductions for additional “light and heat” costs, “clothing” costs and inward “freight” charges on raw material purchases by Bell UK but Mr Indge has not made these deductions.

In relation to “light and heat” and “clothing” costs, Mr Mason states that the amount of light and heat used in the factory varies with turnover and so does the amount of clothing used by the employees. He therefore considers that these costs should be deducted so as to reduce the level of profit. Mr Indge did not accept that, although he did accept that if the factory was open for longer hours more light and power might be used.

I consider that there might be some circumstances in which changes in turnover will cause the amount of light and power and of clothing consumed to increase. However, as can be seen from the 2000, 2001 and 2002 accounts of Bell UK, for a large range of turnovers these costs have remained substantially constant. In those circumstances, I do not consider that a deduction should be made from the profit percentage for light and power or for clothing.

In relation to inward freight charges on raw material purchases, Mr Mason contends that as turnover goes up, so will the level of freight charges on raw materials. He accepted that if in accordance with paragraph 9 of the Memorandum the goods were sent to Haydock then these charges would be borne by Rekon/Alba. In his evidence, Mr Indge did not seriously challenge that inward freight of raw materials would increase.

I consider that a deduction should be made from the profit percentage to remove these variable freight charges on raw materials.

In paragraph 1.14 of the second supplementary joint statement, the experts refer to the fact that they have identified several invoices which reflect the apparent sales of quantities of scaffolding products between Rekon and Alba, to which no sales value was attributed. Mr Indge has included these quantities in his calculations. Mr Mason has not.

In his sixth witness statement, Mr Taylor has explained the system of nil transfers. He says that these transfers have occurred where there is a transfer from Rekon to Alba of Alba’s own stock. In order to supply scaffolding to a particular Alba depot, if Rekon did not have sufficient itself it would take a quantity from another Alba depot to make up the quantity ordered and then transport the whole quantity as one assignment. The amount of the consignment obtained from Alba’s depot is then treated as a nil value transfer. Mr Taylor states that, on this basis, Mr Indge is wrong to treat this as a quantity to be included as a sale.

Whilst this method of dealing with such transfers is not entirely logical, I accept Mr Taylor’s evidence of the practice which was adopted by Rekon. In those circumstances, the quantity of scaffolding which is shown in these “nil transfers” should not be used as part of the claim.

In the second supplementary joint statement at paragraph 1.8, the experts have agreed that, in principle, there should be an allowance for wastage but they are not able to agree the percentage. Mr Indge has used 3% whilst Mr Mason has made no allowance.

Neither expert has any experience of wastage in the scaffolding business. Mr Taylor’s evidence is that he would lose and gain about the same amount. It seems to me that, as the experts agree, there should be some allowance for wastage. Whilst I accept that there will be losses and gains, I do not accept that they will even themselves out. Rather, overall there are bound to be losses arising on construction sites, through such things as theft or loss due to carelessness in the construction process. I consider that an allowance of 3% (3 in 100) is likely to represent the loss.

This raises two issues:

Bell UK ceased trading on 30 November 2002. In the liquidator’s report dated 20 October 2003 Mr Cork stated that Bell UK’s production started on 1 July 1998 and production soon built up to full capacity with the price of a 3m standard being £11.50. He then stated:

“Shortly after, imported scaffolding from India and the Middle East started to flood the UK market. The imports were made cheaper by a strengthening pound. The average price for 3m standard was now £10.25. The Company could no longer compete with the imported scaffolding and had to export most of the production to [Bell Australia]. In November 2002, the Directors decided to cease trading and close the business. The price for a 3m standard was now £7.50.”

Within the accounts was an allowance for an extraordinary item: “Claim against Rekon Ltd & Alba Ltd” in the sum of £400,000. Even with this the total deficiency was £194,144. Without it the deficiency would have been £594,144. The note stated that Mr Bell had advised that Bell UK had a claim against Alba and Rekon “for failure to honour an agreement which resulted in substantial losses to the Company.”

I was also referred to what the liquidator had said in his report of 23 October 2003 in relation to the liquidation of Bell Scotland. He stated that after several months of trading the results were very disappointing.

In his witness statement, Mr Bell stated that at the time of entering into the August Agreement, he believed that Bell UK’s sales revenue would have increased by 50 to 80% over a period of 12 months as a result of Rekon and Alba purchasing all of their new scaffolding products from Bell UK. He was taken to the profit and loss account which showed that up to 30 June 2000 the turnover was about £2m. He had earlier said that he thought that the turnover from Rekon and Alba would build up to £½m per year but accepted that he could not recall exactly his thoughts at the time. In addition, no documents were produced which showed what he had predicted.

I was however referred to a projection for Bell UK’s profit and loss account for July 2002 to June 2003 which I understand was prepared by Mr Taylor’s accountant in 2002, with a view to Mr Taylor investing in Bell UK. That showed turnover of about £1.5m from sales to Bell Australia, £500,000 as sales to Alba and also £500,000 to Others.

Overall, therefore it seems that the predicted increase in turnover was about £½m. Obviously the profit would be less. In addition, the projection indicates that only 20% of the turnover was to come from Alba.

Mr Indge, in a report dated 18 July 2006 responded to Mr Mason’s report at paragraphs 13.2.2 to 13.2.7 where, in summary, Mr Mason had calculated that, on the basis of his figures of the claim, Bell UK would still have suffered a loss in 2001 of £29,498 and in 2002 of £50,506. Mr Indge puts forward figures of £9,642 profit in 2001 and £6,491 loss in 2002. On this basis Mr Indge says that it is possible that Bell UK would have continued trading beyond 30 November 2002.

Another important factor can be derived from the turnover of Bell UK. Up to June 2000 it was £2,066,311; to June 2001 it was £1,192,991 and to June 2002 it was £1,183,359. It can be seen that the major cause of this was the loss of third party sales from about £1.75m in 2000 to £0.5m in 2001. Mr Indge accepts that this affected profitability and impacted on Bell UK’s cashflow. However, he says that an increase in turnover of £0.5m from Rekon and Alba may have provided Bell UK with the cashflow it needed to retain and expand its customer base.

Of relevance to this question are the communications between Mr Bell and Mr Taylor at the time. There was a meeting held between them at Mr Taylor’s home in Inverness on 14 March 2002. Mr Bell accepted that the matters discussed were accurately recorded in his letter of 9 April 2002. It can be seen that the main item discussed was payment under the Australian Hire Agreement. The letter concluded by Mr Bell saying: “I am happy to expand and strengthen our alliances on the basis of a mutual trust and respect of each other’s positions. I believe we entered into this agreement on that basis and I look forward to working together in the future.”

During 2002 Rekon had continuing problems with the receipt of sums from Bell Australia in respect of the Australian Hire Agreement. In September 2002 Mr Tate became involved in dealing with this agreement.

On 30 November 2002 Bell UK ceased trading and I consider it significant that up to and including that date, as Mr Bell accepted, Bell UK had not written to Mr Taylor indicating that the survival of Bell UK was contingent on further orders. I accept Mr Taylor’s evidence in his third witness statement where he refers to a meeting with Mr Bell on 8 November 2002 at which he was told that Bell UK was shutting up shop and pulling out of the UK, citing continuing losses.

By 18 December 2002 Mr Taylor was complaining that Mr Tate was only dealing with the Australian Hire Agreement and was not dealing with the sums which Mr Taylor said were owed by Bell Scotland.

In February 2003 (or possibly January 2003) there was a meeting in Hong Kong between Mr Bell and Mr Taylor which, as I have said, both now accept marked the end of the good relationship between the two of them.

In his witness statement Mr Bell states that he agreed to meet Mr Taylor to “settle all of our business affairs and move forward”. He says that progress was made on the Australian Hire Agreement but “when I raised the issue of Rekon and Alba’s breaches of the August 2000 Agreement, Mr Taylor became angry and stormed out of the meeting.”

Mr Taylor in his third witness statement says that relations were very strained and the meeting in Hong Kong was “to try to sort out the mess”. In his oral evidence he said that the purpose of the meeting was to deal with the Australian Hire Agreement and it was not his recollection that the Bell Scotland debt and the claim by Bell UK was mentioned. When it was suggested to him that the claim by Bell UK was the matter that caused him to storm out of the meeting, he said that this was totally untrue. It was instead a suggestion by Mr Bell that Rekon should be paid under the Australian Hire Agreement what Bell Australia was paid in Australia which caused him to storm out. He said “I was so exasperated with Kevin Bell’s intransigence that I walked out”.

It is however clear that matters other than the Australian Hire Agreement were discussed at the meeting in Hong Kong. When Mr Taylor wrote to Mr Bell on 20 February 2003 (wrongly dated 20 January) he referred to the Hong Kong meeting and said that he had “now taken the opportunity to look into all elements of the debt owed by Bell to Rekon, along with the items purchased from Bell as a result of Bell leaving the business in the UK together with other matters which were discussed.” He attached a sheet which set out that a sum of £8315 represented the value of scaffolding received by Alba from Bell Scotland.

It is evident that the matters which were discussed at the meeting in Hong Kong went wider than the Australian Hire Agreement. I am satisfied that Mr Bell did mention a claim by Bell UK and this is what caused Mr Taylor to storm out. There had been a number of discussions on the Australian Hire Agreement and I do not consider that the suggestion made by Mr Bell, which Mr Bell accepted was made, would have caused Mr Taylor to storm out. Mr Taylor did not strike me as a person who would react generally in that way. A mention of a claim by Bell UK would, however, have been precisely what would have been likely to cause that reaction.

The first detail of the claim was provided in Ms Bell’s letter to Mr Taylor of 19 March 2003, when a claim was made for £433,000. Mr Taylor’s response of 27 March indicates, in my view, that the claim was not being mentioned for the first time. However, as Mr Taylor points out, “Bell disappeared in November last year without any reference to Rekon…”. It was only on 28 March 2003, in response to that comment, that Ms Bell said “we contend that the failure of Rekon/Alba to honour the agreement to purchase scaffolding as agreed has been pivotal to the decision to close the manufacturing plant in the UK.”

On the basis of those matters, I do not consider that the claimant has established that the failure of Rekon and Alba to purchase scaffold stock from Bell UK can be said to be a cause of the failure of the business in November 2002 and the subsequent liquidation in 2003. My reasons are as follows.

First, as the drop in turnover from 2000 to 2001 shows and as the liquidator’s report of 2003 confirms, the underlying problem with the Bell UK business was the flooding of the market with cheap imports from India and the Middle East. It is clear that the cheaper price combined with the strong pound meant that a business in the UK could not hope to compete in this highly competitive market.

Secondly, the major remaining sales would have been from Bell Australia and Rekon/Alba. Bell Scotland no longer required scaffolding and other third parties who might purchase scaffolding would necessarily move their custom to cheaper alternatives. Equally, with Bell Scotland not requiring scaffolding, Rekon/Alba would not be purchasing further scaffold stocks to supply to them or to other customers who would be seeking cheaper hire options based on the imports.

Thirdly, as Mr Bell accepted, the claimant was the banker for the continued existence of Bell UK. It was a major customer. The financial problems in the Australian market were well reflected in the constant theme of late payment and the wish for Mr Bell to renegotiate the Australian Hire Agreement. Given the underlying market position, I consider that Mr Bell, independently of any turnover or profit from Rekon/Alba, had decided that the time had come for Bell UK to cease trading.

Fourthly, a powerful point is made by the Defendants that Mr Bell did not at any time in 2002 seek to blame the lack of income from Rekon/Alba as being the cause of Bell UK ceasing to trade. I consider that this taken with the reasons set out in the Liquidator’s report point strongly to the fact that the loss of income from Rekon/Alba was not seen as being causative at the time when Mr Bell and Ms Bell made the decision to cease trading. Indeed the first suggestion appears to have been made by Ms Bell as an afterthought.

Finally, even on Mr Indge’s figures, the loss of income would not have caused Bell UK to cease trading. Indeed an allowance was made in the liquidator’s report for the sum which was claimed by Bell UK and still it showed a deficit. Rather, it was the long term prospects of the business which, in my judgment, were causative.

I therefore conclude that the Defendants’ breaches of the August Agreement did not cause or contribute to the decision that Bell UK should stop trading in November 2002. Instead, Bell UK stopped trading for reasons unconnected with the claim against Rekon and Alba.

In my judgment, the relevant provisions of the August Agreement therefore terminated when Bell UK ceasing trading on 30 November 2002 as they could no longer supply Rekon and Alba with scaffolding. In relation to issues 18 and 19, I do not consider that the agreement to purchase from Bell UK would have terminated, in any event, when the Australia Hire Agreement referred to at paragraphs 1 and 2 of the August Agreement was terminated. Neither do I consider that it would have terminated automatically at any other date.

The Counterclaim relates to a claim for payment by Alba for sums which were owing from Bell Scotland, following the demise of that business.

Following the Hong Kong meeting, Mr Taylor wrote on 20 February 2003 to say that he had looked in more detail at the debt owed by Bell to Rekon. In that letter he set out a calculation for the sum of £8,315 which he accepted Alba owed Bell Scotland for the value of the scaffolding which Alba had received on the closure of Bell Scotland. In his letter of 27 March 2003 Mr Taylor referred to a debt of about £68,000 owed to Alba.

In 2003 the main matter concerning Mr Tate on behalf of the claimant and Mr Taylor was the negotiation of the termination of the Australian Hire Agreement. On 5 June 2003 Mr Taylor wrote to Mr Tate and apart from the debt under the Australian Hire Agreement stated “Bell in the UK owe £67,704.41 less £8115.00 for the purchase of secondhand materials, in accordance with our letter of the 20^th [February] this year, and this brings the total down to £59,589.41.” Mr Tate did not go into detail but said that Bell Scotland would be unable to pay. Mr Taylor sought Mr Bell’s agreement to pay “what is right and proper as an honest business man”.

In the Liquidator’s report for Bell Scotland, there are two creditors: Alba Scaffolding Glasgow for £1,433.84 and Alba Scaffolding Merseyside for £47,615.37.

By 21 October 2003 Mr Tate and Mr Taylor, with the assistance of Australian lawyers had drafted an agreement to resolve their disputes under the Australian Hire Agreement. This gave the claimant options to purchase the scaffolding over 48 months.

It then transpired that Mr Taylor would not sign the draft agreement unless there was an agreement with Mr Bell in relation to the debt owed by Bell Scotland to Alba. Mr Tate could not deal with this and a lunch was therefore arranged on 21 October 2003 between Mr Taylor and Mr Bell. There is a dispute as to what happened at that lunch, although the scope of that dispute was narrowed after the oral evidence.

In his witness statement, Mr Bell said that at the lunch Mr Taylor had raised the issue of the alleged liability of £67,704.41 and asked that the claimant pay this liability. Mr Bell says the value was in dispute. He also said that he would not agree to the claimant making itself liable for Bell Scotland’s debt to Alba; that he would have needed board approval and that he did not seek or obtain it.

At paragraph 95 of his witness statement Mr Bell had said:

“Notwithstanding the clear legal position, I am a reasonable man and said to Mr Taylor that, as a gesture of goodwill only, I would consider the alleged but disputed Bell Scotland debt to Alba and would consider payment of what I believed was due to Alba. I also explained to Mr Taylor that Bell Scotland’s disputed debt to Alba was an entirely separate issue to the Australia Hire Agreement between Bell Australia and Rekon. I did not look at or review the disputed invoices nor did I agree any sums of money would be paid to Alba during this conversation.”

In his oral evidence, Mr Bell accepted that Mr Taylor had said that he was not prepared to sign the agreement unless Mr Bell discharged arrears for the Scottish hire. He accepts that Mr Taylor mentioned instalments which he thinks were 48 instalments of AUD 3,500. That figure would come out at AUD 168,000 or, as Mr Bell accepted, about £68,000 or £69,000. Mr Bell said that he could not add up the figures over lunch to know what it was. He said he did not owe him that amount and he would not agree to pay Mr Taylor more than he owed him. He then said: “I said I would pay him what was outstanding in Scotland. I said I would pay it but it would have to come through the company”, that is Bell Australia, the claimant. Mr Bell said he had the authority. He accepted that he agreed to pay what was owing but said “I did not agree to pay 48 instalments of AUD3,500.” Mr Bell said that he had seen reference by Mr Taylor in subsequent correspondence to such instalments but he said that he intended to deal with it all at the same time, including the breach claim against Rekon and Alba.

Mr Tate was not at the lunch but he joined Mr Taylor and Mr Bell at the end of the lunch. He said in his witness statement that it was at this point that Mr Taylor signed the agreement. He then states at paragraphs 20 and 21 of his witness statement:

“20.

After the lunch, when Phillip Taylor had left us, Kevin Bell informed me that during the course of the discussions over lunch Phillip Taylor had raised the issue of Bell Scotland’s alleged debt to Alba and asked that Bell Australia pay this debt. Kevin Bell informed me that he had explained to Phillip Taylor that Bell Australia and Bell Scotland are two separate entities and that Kevin Bell could not agree to Bell Australia accepting Bell Scotland’s alleged debt, which was in dispute anyway. However as a gesture of goodwill only, Kevin Bell would consider Bell Scotland’s alleged debt and Bell Australia would consider making a payment to Alba of what Bell Australia believed was due from Bell Scotland to Alba.

21.

Kevin Bell informed me that his gesture of goodwill in respect of Bell Scotland’s alleged debt was an entirely separate issue to the Agreement in respect of the Australia Hire which was signed at the lunch and Phillip Taylor was fully aware of this.”

In his oral evidence, Mr Tate initially said that that represented his recollection. He then said that he recalled a discussion with Mr Bell on the discharge of Bell Scotland’s liability. His evidence was that “He said that he had agreed to pick up the liability of Bell Scotland”. He said that when he got back to the office after about a week, he had seen the email from Ms Heesome on behalf of Mr Taylor saying: “Just to confirm that the hire rate has increased by 3,500 AUD per month for the next 48 months as per the agreement with Kevin in London on Tuesday. Your acknowledgement of this would be much appreciated.” Mr Tate says that Mr Bell said that there was no agreement to add AUD3,500.

Mr Taylor in his witness statement says that “over lunch Kevin Bell and I came to the agreement that [Bell Australia] would, in consideration of my signing the sale agreement, pay 48 instalments of $3,500 Australian to clear the debt that [Bell Scotland] owed to Alba”. He said that he left London by train for Berkshire and on the train he phoned Ms Heesome and asked her to fax/email confirmation of the deal to Australia immediately. He explains that this led to the email of 23 October 2003 from Ms Heesome to Mr Tate referred to above.

It is evident that the witness statements of Mr Bell and Mr Tate do not properly reflect the evidence which was given orally. As Mr Clay now submits the question is whether there was an agreement to pay what was due or an agreement to pay 48 instalments at AUD3,500.

I have come to the conclusion that there was an agreement by Mr Bell, on behalf of the claimant, to pay the sum owing by Bell Scotland to Alba by way of 48 instalments of AUD3,500. Mr Bell recalls these figures being mentioned at the meeting. He has also changed his evidence so that he now accepts that, on behalf of the claimant, he agreed to pay Bell Scotland’s debt.

I accept Mr Grantham’s submission that given the background of Mr Tate not dealing with the claim by Alba against Bell Scotland, it would have been irrational for Mr Taylor to agree that some indefinite sum would be paid at some indefinite time. I also consider that Mr Taylor’s evidence is supported by the email from Ms Heesome of 23 October 2003 and the series of reminders of 4, 6, 17 and 27 November 2003, 2 December 2003, 12, 15 and 16 January 2004. The only response came on 19 January 2004 when Mr Tate said that: “As you are well aware the disputed UK Company debt and any compromise must be separately addressed.”

If Mr Bell and Mr Tate considered that no agreement had been made to pay the 48 instalments of AUD3,500 they could easily have said so and, in my judgment, would have done so. I do not accept that they simply wanted to avoid further correspondence with Mr Taylor. Mr Taylor’s subsequent correspondence repeats the assertion that there was an agreement. Mr Tate said, for instance, on 11 February 2004 “there has been no agreement nor a requirement that [the claimant] be liable for this debt”, a statement which is now contradicted by the evidence of both Mr Bell and Mr Taylor.

I therefore conclude that there was a binding agreement made on 21 October 2003 between Mr Bell on behalf of the claimant, Bell Australia and Mr Taylor on behalf of Alba, by which Mr Bell agreed that the claimant would discharge the sums owed by Bell Scotland to Alba by the payment of 48 instalments of AUD3,500.

In summary, in relation to the issues: