Sydenhams (Timber Engineering) Ltd. v CHG Holdings Ltd.

Introduction.

This case arises out of the development and construction of a hotel at 43 Christchurch Road in Bournemouth in 2003/2004, ("the property"). The developer was the defendant, CHG Holdings Limited ("CHG"). A considerable part of the design and construction work, including the timber frame, the windows and the internal joinery was carried out by the claimant, Sydenhams Timber Engineering Limited ("Sydenhams"). In these proceedings, Sydenhams claim from CHG the sum of £136,863.83 in respect of the unpaid element of their work at the property, together with interest. In response, CHG contend that there was never a direct contract between themselves and Sydenhams and that, in fact and in law, Sydenhams were subcontractors to the main contractors, Rybarn Limited ("Rybarn"). Thus, say CHG, it is Rybarn and not themselves who are liable to Sydenhams.

As is sadly all too common in the UK construction industry, Rybarn are in administration and are simply not in a position to make any payments to anybody. Thus the outcome of the dispute that has arisen between Sydenhams and CHG has potentially serious consequences for the losing party. If Sydenhams are right, and there was a direct contract or contracts between themselves and CHG, then CHG will be liable for the sums claimed, despite their suggestion that they have already paid these sums to Rybarn. And if CHG are right, and Sydenhams were only ever subcontractors to Rybarn, Sydenhams will not be paid for a major element of the work at the property which has long since been completed.

Accordingly, the principal issue with which I must deal is whether or not there was a direct contract or contracts between CHG and Sydenhams which gives rise to a liability on the part of CHG to pay to Sydenhams the sums sought in these proceedings. That, in turn, depends on my analysis of the factual background and, much more importantly, the documents relied on by Sydenhams as setting out the various contracts between the parties. In consequence I propose to set out below my assessment of the factual position up to the end of December 2003 (section B); from January to 23rd April 2004, (section C); and thereafter (section D). I then go on in section E of this Judgment to analyse the contractual disputes and set out my conclusions on those issues. At section F I deal with the issues that arise out of the deed of warranty. The remaining issues are then addressed in section G before a short summary of my conclusions at section H below.

Before embarking on this exercise, I should do two things. First I must acknowledge the considerable assistance I have received from both counsel, whose clear presentation of the many points that arise in this case has enabled me to give this oral Judgment the day after their closing submissions.

Secondly, I should make one general observation on the evidence which I heard on Monday and Tuesday of this week. Sydenhams called four witnesses: Mr Fairweather, their estimator; Miss Blamire, their office manager; Mr Orchard, their managing director; and Mr Pride, their finance director. I considered that each was a clear witness with a reasonably good recollection of the specific events with which they were concerned. CHG called two witnesses, Mr White of the architects, Trinick Warr, whose evidence was not of any particular relevance save on one point, and Mr Leslie Pink, a director of CHG. In the round I have concluded that Mr Pink's recollection was less reliable than those of the Sydenhams witnesses, doubtless because he was dealing with all aspects of the development of the property rather than the limited issues that arose out of the timber frame. In particular, as to the critical events between February and April 2004 (section C below), I am in no doubt that Mr Pride's recollection is to be preferred. I should also say that, on occasions during his cross-examination, I felt that Mr Pink was arguing his case, rather than answering the questions that were being put to him.

Factual Position up to end of December 2003.

CHG obtained conditional planning permission for the development of the property on 4th June 2001. In February 2002, Mr Pink met Mr Orchard and asked him to quote for the design, supply and erection of the timber frame for the property. The quotation was sent on 11th February 2002. Nothing further of any significance happened until October 2002, when Mr Pink provided Sydenhams with further information and sought an updated quotation. This was divided into a number of different work packages, including package 6, the external joinery, which included windows, doorframes and doors.

It was CHG's case that, from the outset of their dealings with Sydenhams in 2002 and thereafter, it was clear to Sydenhams that they would ultimately be engaged as a subcontractor employed by a main contractor, rather than being in a direct contractual relationship with CHG. When pressed on this in his cross-examination Mr Pink said that this was "common knowledge", and that "billing was always going to be through Rybarn because they were the main contractor". It was unclear if he could recall ever referring directly to this possibility. The difficulty with this case was that there was absolutely no indication of it in the contemporaneous documentation. Although Mr Pink's witness statement suggested that the main contractor/subcontractor point was made clear in a number of the documents to which he there made express reference, even a quick perusal of those references demonstrated that he was quite wrong, and that there was in truth no reference at all in those documents to the position for which he contended. As both Mr Fairweather and Mr Orchard observed in their own evidence, it was just as likely that Mr Pink would self-manage the development of the property and engage and pay Sydenhams direct. They denied that, at any time in 2002 or early 2003, any mention was made of a main contractor, much less that Mr Pink had said that the main contractor was going to be Rybarn.

I have concluded on the evidence that Mr Pink made no mention of the involvement of a main contractor, much less Rybarn, during 2002 and the first part of 2003. Had he done so, I am confident that there would have been a reference to such a possible arrangement in the contemporaneous documentation; there is not, as Mr Pink was obliged to accept in cross-examination. In addition, for the reasons explained in paragraph 27 below, if Rybarn had been mentioned, then Sydenhams might have baulked at any further involvement in the development, given their longstanding concerns as to Rybarn's financial stability.

Turning back to the 28th November 2002 documentation, it is worth perhaps taking a moment to consider the component parts of that material. At that date, Sydenhams prepared four separate documents:

Following a meeting in late November/early December 2002, Mr Pink completed the OFM by putting a tick against packages 1 to 4 and 8 and the erection price, and then signed and returned the OFM to Sydenhams. Under his signature he added the words "CHG Holdings Limited".

This was the first of a number of OFMs signed by Mr Pink between December 2002 and August 2003 which are not said by either party to give rise to (or evidence) a contract between CHG and Sydenhams. However, I regard the fact that Mr Pink was prepared to sign this and other similar documents on behalf of CHG as consistent with my earlier finding that, at least at this stage, there had been no mention of a main contractor or Sydenhams' possible role as a subcontractor. The legal significance, if any, of these earlier OFMs is dealt with in section E2 (paragraphs 58-70) below.

During the early part of 2003 the design was developed, but on 24th April 2003 Mr Pink signed a second OFM entitled "Rev E". The document stated that the client was CHG Holdings Limited. Mr Pink ticked the prices for each package. By this stage, the quotation for package 6 was £94,200. Again the OFM instructed Sydenhams "to proceed with manufacture at the quoted prices".

It is CHG's case that they had selected Rybarn as their main contractor by late 2002. Again, there is no documentary evidence to support that assertion, which is a surprising omission given the importance of such a decision. At all events, I find that Sydenhams first became aware of Rybarn and their role as prospective main contractors in May 2003. On 12th May 2003, shortly after Rybarn had started work on site, there was a meeting between Mr Orchard and Mr Pink. Mr Orchard's contemporaneous note of that meeting reads:

It was Mr Orchard's evidence in cross-examination that he did not really understand what point Mr Pink was making about the Customs & Excise. He told me:

It was clear from his cross-examination that Mr Pink had difficulty in recalling this meeting, although despite that he maintained that Mr Orchard's contemporaneous note was wrong, and that he had made it clear to Mr Orchard that Sydenhams would be a subcontractor to Rybarn. There was no other contemporaneous document of any relevance to this debate.

I find that, as recorded in Mr Orchard's contemporaneous note, Mr Pink's mention of Rybarn at this meeting, and their possible role in the proposed project, was vague and unspecific and related only to the possible payment machinery. It certainly did not amount to a statement that Sydenhams would be definitely paid through Rybarn. In any event, I find that the reference to Rybarn was limited to the question of the mechanics of payment; how CHG might pay Sydenhams for their work. I find that there was no mention by Mr Pink of any possibility that Sydenhams would be a subcontractor, and/or that they would have no contractual relationship with CHG.

It does not appear to be suggested that the possibility of Sydenhams acting as a subcontractor to Rybarn was raised again between 12th May and 12th August 2003, when there was a meeting at Sydenhams' offices attended by Mr Orchard, Mr Pink, Mr Bradley of Rybarn and a number of others including Mr Fairweather of Sydenhams. It seems clear that, certainly by this stage, Sydenhams knew that Rybarn were acting as the main contractor for the development of the property and that it was an obvious assumption, as Mr Fairweather accepted in cross-examination, that Sydenhams might well become Rybarn's subcontractor. However, there was no discussion at this meeting to this effect, or that Sydenhams would cease to have any contractual link to CHG. Again consistent with the absence of any express suggestion that Rybarn would enter into a subcontract with Sydenhams, there were further direct discussions as to design and price between Mr Fairweather and Mr Pink, in which Rybarn played no part at all. These discussions led to a third OFM, signed by Mr Pink on 22nd August 2003 and described as Rev F. Mr Pink confirmed in his cross-examination that he did not sign this OFM until after he had negotiated the price contained on the front page.

There was a further meeting between the three parties on 29th August, at which design and programming issues were discussed. Again, it is not suggested by either side that there was any discussion at that meeting about the proposed contractual arrangements. Of greater concern were potential changes to the design. One of the causes of these potential changes were the terms of the planning permission. In this regard, minute 5 of the meeting said:

The second potential cause of specification/design changes resulted from CHG's decision to sell the property to Travelodge. Extensive changes to the specification were potentially required. These led to a further quotation, Rev G, which was sent by Sydenhams to CHG and dated 15th September 2003. This was promptly superseded by further design changes.

On 3rd October 2003, following a meeting with Mr Pink, Sydenhams provided what was described as a "final revision" of their quotation in the total sum of £574,000 plus VAT. This was in similar form to the documents referred to in paragraph 7 above. Package 6 was quoted at £100,000. For the first time, this final quotation indicated, under the heading "Terms", that these would be "as per our standard terms and conditions". The quotation letter concluded with the words "we trust that this quotation will meet with your approval and look forward to hearing from you". It went on to say that delivery to site would be "within three calendar months".

Sydenhams provided with the quotation a Customer Schedule and an OFM, also a "final revision", both in the same form as before. The OFM therefore included the express instruction to manufacture. The OFM was signed and dated by Mr Pink on 3rd October 2003. It is Sydenhams' case that these documents comprised and/or evidenced a contract between themselves and CHG. It is CHG's case that these documents merely signified their agreement to the figure quoted at that time, and that the OFM was no more than a letter of intent. I deal with that issue of law in section E2, paragraphs 58 to 70 below.

Although it appears that Rybarn were progressing with the work on site during this period, there was no main contract in place between themselves and CHG. Indeed, from the documents it appears that Rybarn did not provide a formal quotation for the main contract work for CHG to consider until 13th October 2003. Sydenhams played no role in the production of this extensive Rybarn quotation, nor did they have any involvement in the subsequent discussions between CHG and Rybarn, which eventually led to a main contract dated 12th January 2004. Indeed, I accept the evidence of the Sydenhams witnesses that they never at any time saw the main contract documentation.

Despite this, Rybarn's quotation and the eventual terms of the main contract appear to include the work to be carried out at the property by Sydenhams, although precise correlation between the two different sets of documents is not always easy. And whilst it was apparent that other parties involved on the CHG side, such as the funders, Barclays, and their advisers, Edward Symmons and Partners (ESP) assumed that Rybarn would "take a liability for Sydenhams ... as his own domestic subcontractors" (Footnote: ¹) there was nothing in the evidence to suggest that this assumption was ever expressly shared with Sydenhams during the latter part of 2003.

Sydenhams' standard terms and conditions included payment provisions, at clause 4. Despite that, it was clear that both parties wanted to agree a bespoke payment schedule in respect of Sydenhams' work at the property. The evidence of Mr Fairweather, Miss Blamire and Mr Pride was that, whilst not every contract had a payment schedule, and the schedule often came some time after the OFM, such payment schedules were an important feature of most of Sydenhams' contracts. On 28th November 2003 Sydenhams wrote to CHG identifying various lump-sum stage payments and their payment dates. However, these stage payments related to only some of the packages. The letter made clear that "external joinery and internal joinery will be paid on account". Mr Fairweather explained that this part of the proposed work was to be treated differently from the packages that were the subject of the installment payment provisions, because this part of the work was going to be carried out by subcontractors, and Sydenhams therefore needed to be able to pay them promptly. Thus, he said, such payments needed to be paid on account by CHG: that way, Sydenhams could ensure that, once they were paid promptly by their own employer, they could be onwardly transmitted to their subcontractors.

Before the payment dates had been agreed on 5th December 2003, Sydenhams themselves started work on site. There was a meeting a few days later on 9th December which Sydenhams attended. I am in no doubt that the other parties present assumed that Sydenhams were there as Rybarn's subcontractors. The proposed payment dates were then discussed in detail at a meeting on 18th December 2003 attended by Mr Fairweather and Miss Blamire of Sydenhams, Mr Pink of CHG and Mr Bradley of Rybarn. It is worth noting that, as Mr Pink admitted in cross-examination, this was the very first time that Sydenhams had been involved in any discussions at all which were not solely with himself at CHG. As a consequence of these discussions, a tripartite agreement was reached which was recorded in Sydenhams' letter of 18th December 2003. I find that, at the request of Mr Pink the letter was addressed to Rybarn, and then signed by all three parties. The letter referred expressly to "your order dated 3rd October 2003". The letter read as follows:

It is Sydenhams' case that this letter simply varied the terms of their original contract of 3rd October 2003 with CHG, by providing that stage payments, but not the 'on account' payments, would be made through Rybarn. It is CHG's case that this letter constitutes the best evidence of Sydenhams' legal position as a subcontractor to Rybarn, rather than as a party in a direct contractual nexus with CHG. I deal with that issue of law in section E3 paragraphs 71 to 78 below.

Factual position from January 2004 to 23rd April 2004.

Unhappily, Sydenhams suffered payment problems with Rybarn from the outset. This was particularly galling for them since, not only had they had no involvement in introducing or recommending Rybarn for the project, but they had also, through Mr Orchard, expressly warned Mr Pink that Rybarn were too small to undertake such a major development. (Footnote: ²) Mr Pride had the same concerns, describing Rybarn as an "unreliable customer" whom he suspected "would not be in business very long". That Sydenhams were right to be concerned about Rybarn's financial position was immediately borne out by the events on site.

Installment 1 should have been paid on 26th January 2004. It was in fact paid on 5th February, when the relevant cheque was postdated to 4th March 2004. Miss Blamire of Sydenhams had to drive to Rybarn's offices and get them to change the cheque.

Meanwhile there was a meeting on 6th February 2004 at Sydenhams at which various design changes were discussed by Sydenhams, Rybarn and ERMC, another of CHG's consultants. The minutes do not indicate that Sydenhams were receiving instructions from Rybarn on the usual main contractor/subcontractor basis. Just by way of an example, minute 6 reads:

As a result of the fiasco over the payment of the first installment to Sydenhams, Mr Pride, the finance director, wrote to Rybarn on 11th February 2004 in the following terms:

The letter that was enclosed, and which was sent to Mr Pink on the same day, read as follows:

Installment 2 was paid on 17th February, just two days late although, as indicated in the first of Mr Pride's letters of 11th February, it appears that this was only because CHG made out a cheque directly in favour of Sydenhams and then gave it to Rybarn for onward transmission to Sydenhams. That was certainly Mr Pink's evidence. Installment 3, which was due on 8th March, was again not paid on time. On 12th March, Sydenhams wrote to Rybarn in these terms:

That Sydenhams' suspension of work was due to their non-payment by Rybarn was well known to Mr Pink. Indeed on the very day Sydenhams suspended work, Mr Pink was, in his words, "actually talking to Rybarn about forwarding their authority for me to give payments directly to Sydenhams." The contemporaneous documents showed that Rybarn were content to grant CHG this consent, because there are a series of written consents relating to future stage payments signed by Rybarn and dated 12th March 2004. It is not clear why CHG did not simply adopt this course from then on, and tell Sydenhams that that is what they proposed to do. However, that did not happen.

On 16th March, there was a meeting between Sydenhams, CHG and Rybarn. At that meeting two options were discussed, both of which involved the making of direct payments by CHG to Sydenhams. One such option was accepted by Rybarn but, according to Mr Pink, they later reneged on their agreement. This is again not easy to follow on the evidence, given that on 19th March Rybarn again provided a series of written consents to the making of direct payments by CHG to Sydenhams. Again, it is unclear why these consents were not acted upon, although, as was the case with the consents of a week earlier, they related to stage payments due later in the spring.

On 18th March 2004, Sydenhams wrote to CHG, not Rybarn, to confirm their suspension of work. They said:

The suggestion that was put to Mr Pride in cross-examination was that, thereafter, Mr Pink tried to mediate between Rybarn and Sydenhams in order to broker a deal. Mr Pride rejected that suggestion.

From the tone and terms of Mr Pink's subsequent e-mails and letters in the following days, he continued to maintain that the fault lay with Rybarn because, so he claimed, they had been paid by CHG but had failed to pass the money on to Sydenhams. His letter to Trinick Warr of 24th March 2004 complained about "the untenable position I am in". His letter to Rybarn of 30th March, 2004, appeared to put the blame fairly and squarely on them:

However, Mr Pink's letter, which set out figures which purported to demonstrate that he had put Rybarn in sufficient funds to pay Sydenhams, was not entirely accurate, as he himself accepted in cross-examination. In particular, as he admitted, it overstated the sums that he had at that stage paid by way of direct payment to Sydenhams by at least £51,000-odd, the amount of the outstanding third installment. There was also at least the possibility that his payment of Sydenhams' second-stage payment was counted twice. Thus, even without hearing any evidence from Rybarn I was left with the strong impression that the arguments between CHG and Rybarn were not all in CHG's favour, and that Mr Bradley's reported complaints that he had not been paid by Mr Pink cannot be dismissed out of hand. Be that as it may, it is plain that the real disputes were between CHG and Rybarn (Had Rybarn been paid enough to pay Sydenhams?), and Sydenhams were simply caught in the middle.

On 30th March, Mr Pride of Sydenhams wrote to Rybarn. He said this:

It had been clear since mid-February 2004 that the only safe way out of the payment problems (and to get Sydenhams back to site) was for CHG to make direct payments to Sydenhams, and indeed this is what happened. On 7th April 2004 CHG paid £13,624.91 to Sydenhams directly, and a week later, on 14th April, they again paid directly another £51,249.83, the missing Installment 3. However, Sydenhams indicated that they would not return to site without something more. As Mr Pride put it in cross-examination, during the weeks of the suspension:

Mr Pink accepted that he knew that this was Mr Pride's position. During his cross-examination, there was this exchange:

There was then the meeting on 20th April between Mr Pride and Mr Pink. Mr Pink accepted that Mr Pride had said at the outset that Rybarn's payment performance was unacceptable and that he was not prepared to entertain any proposal where Rybarn were involved in payment. Following discussions, an agreement was reached between the two men and that agreement was recorded in an exchange of letters both dated 20th April. The first was from Mr Pink in the following terms:

Mr Pride replied to Mr Pink's letter on the same day in the following terms:

It is Sydenhams' case that the agreement of 20th April 2004 constituted a new contract, pursuant to which it would be CHG who would be making payment direct to Sydenhams’ with there being no question of any continuing contractual relationship between Sydenhams and Rybarn. CHG dispute this, contending that the main contract (and therefore the subcontract between Sydenhams and Rybarn) largely continued as before. I consider that this is the most important issue of law in this case, and I analyse it in section E4, paragraphs 79 to 90 below.

A few days later, on 23rd April, CHG and Rybarn came to a separate agreement. That agreement allowed CHG to make direct payment to Rybarn's subcontractors in accordance with a detailed mechanism set out in clause 2. That mechanism required Rybarn to demonstrate that they were able to pay any particular sum that might be due to the subcontractor, with the direct payment provisions being triggered if Rybarn were unable to provide the reasonable proof required.

There was a dispute as to whether this supplemental agreement between Rybarn and CHG was ever seen by Sydenhams. There was certainly no evidence that it was ever sent to Sydenhams by either CHG or Rybarn. Mr Pink's statement suggested that he had shown it to Mr Pride which was something that Mr Pride denied. In cross-examination, Mr Pink said that he had taken a copy to Mr Orchard's office and shown him. That new case, which was not put to Mr Orchard, was wholly unsupported by the contemporaneous documents, or indeed the witness statements, and I am therefore bound to reject it. I conclude that the agreement between CHG and Rybarn was never shown to Sydenhams.

Perhaps more importantly, I have been provided with no evidence at all of the 23rd April 2004 agreement in operation. I have seen nothing to demonstrate that either CHG or Rybarn ever complied with the terms of clause 2, or ever attempted to operate the direct payment machinery.

Factual position after 23rd April 2004.

After the agreements were reached on 20th and 23rd April 2004, a number of important things happened. First, and most importantly of all, Sydenhams returned to the site and completed the entirety of their work that had been the original subject of the OFM of 3rd October 2003, subject to the subsequent variations. Secondly, CHG made a direct payment of £73,608 to Sydenhams, the first installment due under the 20th April agreement. Thirdly, from this time onwards, Rybarn made no further payment to Sydenhams whatsoever. By contrast, CHG made a total of 32 separate payments direct to Sydenhams after 23rd April in the total sum of £291,722.03. This was apparently despite the fact that, for whatever reason, Sydenhams sent some invoices to Rybarn and others direct to CHG.

Once the work had recommenced, it became apparent that CHG wanted to make a few changes to the window specification. This eventually led to a further OFM signed by Mr Pink and dated 11th May 2004 and marked Rev H. This was in respect of package 6. Again the figure was £100,000, although certain works were now omitted. The OFM was in the same terms as the earlier documents, although it included these words in Mr Pink's handwriting:

It is Sydenhams' case that this was a confirmatory order in respect of the windows. Mr Fairweather said that he took it as an order. Mr Pink confirmed that it was a variation to the window order, which expressly confirmed the agreed exclusion of certain elements of the work. I address the significance of this OFM at section E5 paragraph 91 below.

On 18th May, Sydenhams completed, at least in part, a performance warranty and sent it to CHG. This is a part of the case which CHG originally relied on quite heavily, although it has subsequently diminished in importance. I deal with the remaining issues arising out of the warranty in section F below.

The last issue of fact, at least at the outset of the case, concerned whether or not CHG had paid Rybarn all or any part of the £100,000 in respect of package 6. CHG originally indicated that they had made such payment because the total amount that they paid to Rybarn was very close to Rybarn's original contract sum, and must therefore have included the £100,000 in respect of the windows. By contrast, Sydenhams said that CHG did not pay Rybarn the £100,000 and they relied on the certificate for payment dated 6th July 2004, which included the following deduction for sums otherwise due from CHG to Rybarn:

In my judgment this dispute was really resolved by Mr White, the architect, who in his cross-examination admitted that the money in respect of the windows, the £100,000, was not paid to Rybarn. The exchange in full was as follows:

Thus I find as a fact that CHG did not pay the £100,000 to Rybarn. The certificate of payment, together with Mr White's clear oral evidence, is the best evidence that the sum was not paid to Rybarn, and was actually deducted from sums otherwise due to be paid to Rybarn. The mere fact that the total sum paid by CHG to Rybarn was close to their original contract sum does not begin to prove that the £100,000 was somehow paid, because such an equation ignores the extensive variations that increased the sums otherwise payable to Rybarn, but which would not have been included in the original contract sum.

It seems that the bulk of the windows were delivered in July and August 2004. There were defects in some of the windows and some had to be sent back. The replacement windows were not provided to site until November 2004. The relevant invoices in respect of the windows were dated July and October 2004. The difficulties with the windows gave rise to a cross-claim on the part of CHG against Sydenhams in these proceedings which was compromised on 9th February 2007 in the sum of £35,000 including interest.

Rybarn went into administration in November 2004. Mr Pink's witness statement indicated that he had been advised that, in consequence, he could no longer make payments direct to Sydenhams. This advice and the reasoning behind it was not disclosed or elaborated upon. It does not appear to be advice that Mr Pink relied on, because the evidence was clear that, after November 2004 and well into 2005, he continued to make direct payments to Sydenhams.

Analysis of the contractual situation.

Happily, this is not a case in which the parties are separated by any great differences on the law. For the avoidance of doubt I have approached the issues as to contract formation or contract construction with the following passages in mind:

In accordance with the principles noted above, it seems to me clear beyond doubt that the documents dated 3rd October 2003, particularly the OFM signed by Mr Pink, constitute a binding contract between CHG and Sydenhams. There was certainty as to the parties: both CHG and Sydenhams were referred to expressly in the quotation and the OFM. There was certainty as to work scope: it was set out in the quotation and the customer schedule and then summarised by reference to the various package numbers on the face of the OFM. Mr Pink confirmed in cross-examination that he knew what the proposed scope of the works ("the elements" he called them) would be. There was certainty as to price because the figure, the £574,300 plus VAT was broken down in the OFM. Mr Pink again confirmed that he knew what that price was and that it was the price that he had agreed for the stated work scope. There was even agreement as to a delivery date to site because of the agreement that this would be within three calendar months. There was therefore clear agreement on all of the basic elements required for a construction contract.

As I observed during argument, there was during the course of the trial a rather liberal use of the word 'contract', without there being any analysis of the different sorts of contracts that might eventuate in any given circumstance. Often on a construction project there might be a simple contract containing only the basic ingredients described above. On other occasions there will be a more complex type of contract, with detailed provisions setting out the specific apportionment of risk between the parties. For the reasons which I have given, I am in no doubt that, at the very least, a simple contract containing the basic contractual ingredients came into existence on 3rd October 2003. However, to the extent that it is relevant, it seems to me that the better view is that in truth a complex contract was created at that time. Why? Because the quotation of 3rd October 2003, which Mr Pink accepted by signing the OFM, provided expressly that the terms of the contract would be Sydenhams' standard terms and conditions. That was not challenged by Mr Pink at the time; nor did he qualify his acceptance of the OFM in any way. Thus, on a proper construction of the documents I am led inexorably to the conclusion that, not only was there agreement as to parties, work scope, price and the like, but there was also agreement as to the detailed provisions of the contract between Sydenhams and CHG as at 3rd October 2003.

In my judgment, the words in the OFM, in particular the instruction to Sydenhams to manufacture the frame etc, can only be construed as giving rise to a series of binding rights and responsibilities for both parties. For what it is worth, such a conclusion is consistent with the evidence of Mr Fairweather, who said that he would have taken the November 2002 OFM as "an order from my client to proceed with the works" and described it as "an order to proceed with the job" and who also said that the 3rd October 2003 OFM was "an order to proceed". Similarly, Mr Orchard said that the 3rd October 2003 OFM "could quite easily be the final contract".

CHG say that the document merely identified Mr Pink's agreement to the quoted price, which would then form part of Sydenhams' subcontract with the main contractor; that it was, in Mr Pink's words, no more than "an acknowledgment of the prices that we had received at that time". The suggestion was that therefore, at this stage, there was no intention to create legal relations. However, there is nothing, either on the face of the OFM or in any other document, in which such critical qualifications are expressed, or even hinted at. In my judgment they are entirely negated by Mr Pink's express instruction to Sydenhams on the face of the OFM to manufacture the frame and windows. This can only be consistent with a binding contract having been agreed between Sydenhams and CHG. I have already found that, prior to 3rd October, CHG only referred on one occasion to the possibility that Rybarn might have a role to play in the payment of Sydenhams. That was at the meeting on 12th May. There had been no further reference to that possibility, and certainly no mention of Sydenhams acting as Rybarn's subcontractor. That is again consistent with the conclusion that the OFM of 3rd October was a direct contract between CHG and Sydenhams and no one else.

On behalf of CHG, Ms Lee endeavoured to draw an analogy with the well-known case of British Steel v Cleveland Bridge [1984] 1 All England 504, where Robert Goff J, as he then was, concluded that there was no contract because, on the facts of the case a raft of fundamental matters such as price, delivery dates and the terms of the proposed contract, remained outstanding. But in my judgment that was nothing like the situation in the present case, where all those matters had been agreed by 3rd October, and recorded in the documents. On the true construction of the 3rd October documentation there was not a statement of a future intention to contract, but an express instruction to carry out work in the present.

CHG also argued that there was no essential difference between the OFM of 3rd October 2003 and the earlier OFMs that Mr Pink had signed, and that since Sydenhams were not alleging that a contract or contracts came into existence as a result of those earlier OFMs, they could not point to anything different about the OFM of 3rd October 2003 in support of their case that there was at that stage a contract. I consider that argument to be based on a false premise.

Merely because Sydenhams have not asserted that there was a contract at any earlier stage because, for example, such an argument is of no assistance to them, does not mean that there was no such contract. In any event, given that both parties were aware before October 2003 that design changes were ongoing, it might have been easier to say that, at any earlier stage, there was no certainty as to contract work scope. By 3rd October, the work scope was known, and that was confirmed by the use of the words "final revision" on both the quotation and the OFM. However, whatever the position prior to 3rd October 2003, I have to address the legal position at that stage, because that is when Sydenhams say the first contract came into existence. I have to do that by reference to the OFM and the other documentation of that date, when set against the factual background, and for the reasons that I have given, I conclude there was a contract between the parties at that date.

Furthermore, to the extent that the parties' treatment of other OFMs is of any relevance at all, I note that the OFM of 11th May 2004 was regarded by Mr Pink as being "a variation", a deliberate exclusion of certain elements of the originally agreed work scope, and that the OFM of 21st July 2004 was also treated by him as a variation, which he authorised by signing the OFM. That strongly suggests that Mr Pink himself considered that the signing of an OFM was intended to have a legal and contractual effect.

The final point taken by CHG is to say that until a payment schedule was agreed, there could be no contract. I reject that argument. There was nothing on the face of the OFM, and nothing raised in any of the contemporaneous meetings, to that effect. In any event, I find on the evidence that the discussions about the payment schedule represented fine-tuning of the detailed operation of a contract that had already been agreed. The detail of when and how interim payments might be made was not a matter that was so essential that, until it had been agreed, it could be said there was no contract at all.

In any event, as noted above, on 3rd October 2003 there were two alternative positions. Either the OFM evidenced a simple contract, in which case the absence of an agreement as to when staged payments would be made could not prevent the creation of a binding contract; alternatively the OFM evidenced a complex contract, incorporating Sydenhams' standard terms and conditions. If so, because clause 4 of those terms and conditions set out detailed provisions as to payment, a payment schedule might be regarded as redundant and unnecessary.

It is perhaps worth testing my conclusion that, as at 3rd October, there was a direct contract between Sydenhams and CHG, by considering what would have happened if, in December, CHG had said they were going ahead with a different timber frame contractor. Sydenhams would have incurred costs as a result of the instruction to manufacture the frame set out in the OFM of the 3rd October. In my judgment CHG would have had no defence to a claim for those costs by reference to the express terms of that OFM. Indeed, Ms Lee fairly accepted in argument that such costs would have been payable by CHG, although she put it by way of a quantum meruit, rather than a sum due under the contract. In my judgment, CHG would also have had no defence to a claim for damages by way of lost profit arising out of the cancellation of the contract.

Moreover, it would have been quite impossible for CHG to have argued that such costs or such damages were the responsibility of Rybarn. At that point, there was no contract between CHG and Rybarn, and Sydenhams had had no discussions whatsoever, let alone any contractual dealings, with Rybarn. Liability for Sydenhams' costs and losses must have rested with CHG. Indeed, it is important to note that by the end of trial, notwithstanding her pleaded position, Ms Lee properly accepted that she could not say that, as at October 2003, there was a binding subcontract between Rybarn and Sydenhams.

Accordingly, in my judgment it is clear that as at 3rd October 2003 there was a contract between CHG and Sydenhams pursuant to which Sydenhams would carry out the work summarised in the OFM of 3rd October 2003, for the price of £574,300 plus VAT. It is equally clear that there was no contract of any sort between Rybarn and Sydenhams.

In my judgment the letter of 18th December 2003, evidencing a tripartite agreement, was unusual in certain respects. First, it plainly was a three-way agreement, reached between CHG, Rybarn and Sydenhams. Further, it varied the terms of the contract of 3rd October, as to how and when certain payments would be made to Sydenhams. It made plain that in respect of some of the packages listed in the letter, totalling £385,300, Sydenhams would be paid by way of the installments listed on the second page of the letter. Such payments would come from Rybarn, having originally been paid to Rybarn by CHG. The external and internal joinery, along with the additional floor joist zone, were not included in that arrangement.

These works, which included the windows, were the subject of a separate agreement: sums for this work would be paid by way of what was described as "an approved account". This was expressly said to be outside the payment agreement contained in the rest of the letter, because it was only packages 1-4, 5, 7 and 9 which were said to be "accepted under the payment agreement". Since the 'payment agreement' was varying the contract of 3rd October 2003, anything not within the 'payment agreement' therefore continued to be subject to the contract of 3rd October 2003. Thus, as a matter of construction, I accept Sydenhams' case that the excluded work (which included packages 6 and 9) fell outside the 18/12/03 variation and remained the responsibility of CHG. Thus CHG had to make direct payment for this work in any event.

Such a construction of the tripartite agreement of 18th December 2003, that it excluded packages 6 and 9, is also consistent with one of the key elements of the factual background referred to in paragraphs 24 and 27 above, namely that because the package 6 work would be carried out by subcontractors to Sydenhams, who would then have to be paid promptly, Sydenhams had to ensure that there was in place a different and prompt payment mechanism as compared to those packages, like packages 1 to 4, which Sydenhams were doing themselves. Thus, it is not at all inconsistent for Sydenhams to agree that payment for the work they themselves would do would be via Rybarn, whereas payment for work which they would have to sublet to and pay subcontractors to carry out would remain the subject of a direct obligation on the part of CHG.

As to packages 1-4, 5, 7 and 8, I do not consider that the variation to the payment arrangements relating to those packages meant that the contract between CHG and Sydenhams of 3rd October 2003 had been cancelled or novated in favour of Rybarn. There was nothing in the letter of 18th December, or in the surrounding discussions, which could support any such analysis. Indeed, no mention was made, either in the letter or the discussions, of any such possibility. The change related to how the work scope agreed on 3rd October would be paid for: no more and no less. The letter made no mention of the work scope, contract price, delivery dates and the like, because these were all matters that were the subject of the agreement between CHG and Sydenhams of 3rd October, and which were unchanged by the December variation.

For the same reasons, I conclude there was nothing in the letter, or in the surrounding discussions, which supports the suggestion that at this point Sydenhams were somehow magically transformed into Rybarn's subcontractor. It would have been very easy, if that had been the intention, for the document to make that plain, or for CHG or Rybarn to write to Sydenhams stating that they intended that Sydenhams would be Rybarn's subcontractor. That never happened. There was no discussion, let alone agreement, between Sydenhams and Rybarn, about matters such as work scope, price or any of the other normal issues arising between main contractor and subcontractor. In my judgment it is wrong now to try and tease out of the tripartite letter such a fundamental shift in the parties' agreed rights and obligations.

Again, it is worth considering why there was no reference to an alleged subcontract in this letter and what Sydenhams would have said if there had been. I conclude that there could not have been a binding subcontract at that stage because, as at 18th December, Rybarn were not themselves in a position to engage Sydenhams as their subcontractors. At that time there was no main contract between CHG and Rybarn. Rybarn would therefore not have been in a position to take on a contractual liability for Sydenhams' work before CHG had taken on a liability for their own main contract work.

Furthermore, if a possible subcontract had been raised with Sydenhams, I consider that, on the balance of probabilities, they would not have entered into such a subcontract. For the reasons set out in paragraph 24 above, they had already raised their concerns about Rybarn's financial position with CHG, and that was when they thought such difficulties were ultimately for CHG to worry about. The likelihood must be that, if it had been suggested that Sydenhams themselves, would have to worry about such matters (because they would be in a direct contrast with Rybarn) they would have refused to be further involved at all.

For these reasons, I conclude that the letter of 18th December changed the payment arrangements as between CHG and Sydenhams and meant that certain payments to Sydenhams, but by no means all, would now be made through Rybarn. But I do not consider that this letter cancelled or novated the contract of 3rd October, which was in any event still the governing document for the packages that were excluded from the 'payment agreement' of 18th December and for all matters such as work scope, price and the like. And it certainly did not amount to, or even evidence, any sort of intention on the part of Sydenhams and Rybarn to enter into a subcontract.

The parties are agreed that:

The factual background is set out in detail in 27 to 41 paragraphs above. I note in particular:

As a matter of construction, the two letters of 20th April can only be read as confirming CHG's promise to Sydenhams to pay them directly for the work. As to the CHG letter:

Were there any doubt about it, Mr Pride's reply makes the point crystal-clear. In particular:

Accordingly, for these reasons, I am in no doubt that, on a true construction of the agreement of 20th April, CHG agreed to make all future payments direct to Sydenhams, in order to get Sydenhams back to the property. Thus, provided that Sydenhams can show that the claims in the present case arise under this agreement, CHG would be liable to pay any outstanding sums.

This conclusion also fits easily into my earlier findings, under sections E2 and E3 above, that there was, at the 3rd October 2003, a contract between CHG and Sydenhams, with the only role for Rybarn being as a conduit for certain payments (which was introduced by the 18th December tripartite agreement). On one view, all that happened in April 2004 was a further variation to the underlying contract to cancel the 18th December 2003 arrangement and to revert to the original position, with CHG making direct payments to Sydenhams. But it seems to me that, whatever conclusions I had come to concerning the preceding contracts of 3rd October 2003 and 18th December 2003 (and even if I had concluded that there was no contract in October, or that the agreement of 18th December was a subcontract between Rybarn and Sydenhams) it could not affect my conclusion that, by reference to the agreement of 20th April, there was a new, freestanding, clear-cut agreement between the parties, to the effect that CHG would pay Sydenhams direct for the work that they undertook at the property.

During the course of her helpful submissions Ms Lee put a slightly different gloss on CHG's arguments in relation to the 20th April agreement. She said that, whilst the agreement may have given CHG the power to make direct payments, it did not require them to do so, and that ultimately it was a matter for CHG as to whether they made such direct payments to Sydenhams or not.

I cannot accept that submission. First, it is not what the words of the letters say. In my judgment, they make clear that there was a promise of direct payment, not just the possibility that there might be such direct payment. Secondly, if Ms Lee was right, it would mean that, following the conclusion of the agreement, Sydenhams were in no better position than they were when they suspended work six weeks earlier, and that they had agreed to give up entirely what Mr Pink said was a strong bargaining position to get nothing in return. I am bound to conclude that such a result would make no commercial sense whatsoever.

However, let us suppose, contrary to my view, that Ms Lee is right, and that CHG agreed merely to reserve to themselves the right to make direct payment to Sydenhams in accordance with the detailed provisions of the supplemental agreement with Rybarn of 23rd April. In my judgment, even if that were the position, it would still not create a defence to the claims now made. Take by way of example the principal claim, in respect of the windows. As we have seen, the architect certificated in early July 2004 that the £100,000 for the windows (which would have otherwise been paid to Rybarn for onward transmission to Sydenhams) had been expressly deducted from the certificate because it was being paid directly to Sydenhams by CHG. That seems to me, therefore, to be the best evidence that, in respect of the windows, CHG exercised their right to make direct payment to Sydenhams. But they have not done so, as Mr White confirmed. Their failure to do so therefore constituted a breach of the 20th April agreement, even if, which I do not accept, it only had the limited effect for which Ms Lee contended.

Presumably as a result of this potential difficulty, Ms Lee was obliged to take a related point to the effect that, once Rybarn had gone into administration, CHG were not permitted to make direct payments to Sydenhams in any event, and that therefore this was the reason why the monies in respect of the windows had not been paid. In support of this contention, she relied on Mullan & Sons Contractors v John Ross and Malcolm London [1998] 86 BNR 1. There, a main contractor had gone into liquidation and the main contract had been automatically determined. The Court of Appeal in Northern Ireland held that, following liquidation, the employers were not entitled to exercise the right of direct payments to the subcontractors, whose work was ongoing.

However, as I pointed out in argument, this is a completely different case. Here, there was an express agreement between -- to use these terms -- the employer, CHG, and the subcontractor, Sydenhams, pursuant to which the employer would pay the subcontractor direct. Moreover, that agreement predated by many months the administration of the main contractor. That agreement, at the very least, expressly permitted direct payments to be made. Moreover, again taking the windows as an example, the £100,000 was deducted from the July certificate, because CHG were going to pay that sum to Sydenhams and Rybarn did not, indeed could not, object to such a course. But for CHG's breach of contract in not making the promised payment at that point, the sums would and should have been paid. They therefore would and should have been paid before Rybarn went into administration. Manifestly,CHG cannot now rely on their own breach to give rise to a defence to the claims now made by Sydenhams. Thus, for all those reasons, I consider that the point in Mullan is of no application here, and does not give rise to a defence on the part of CHG. Further, and in any event, I consider that the argument is irrelevant on the facts, since the evidence demonstrated beyond doubt that CHG had made direct payments to Sydenhams long after Rybarn's administration: see paragraph 56 above.

For all these reasons, therefore, I consider that Sydenhams had a direct contract with CHG as at 20th April, and that pursuant to that contract Sydenhams were entitled to make a claim for the sums incurred in respect of the windows and the retention monies.

In the light of my conclusions under section E4 above, the argument about the OFM of 11th May is largely redundant. However, for completeness I conclude that the OFM of 11th May confirmed the new agreement of 20th April in respect of the windows and that there was a direct contractual relationship between Sydenhams and CHG in respect of this work. The document confirms that CHG accepted a total liability of £100,000 in respect of package 6 and records a particular variation which amounted to an omission of certain works in respect of that package. It plainly had contractual effect and it was treated by Mr Pink as having such effect, which is why he said he authorised the variation by signing the OFM.

The deed of warranty.

As previously noted, the main contract between CHG and Rybarn was signed on 12th January 2004. That included a set of detailed employer's requirements. Section 1(g) of that document provided that the contractor would obtain collateral warranties from appropriate subcontractors.

At appendix 8 of the employer's requirements there was a draft of that warranty. It would be unnecessarily wearisome to set out the full terms of that draft warranty here. Suffice to say that there was a recitals section which included draft words that assumed the existence of both a main contract and a subcontract; a section described as 'operative provisions' whereby the beneficiary would pay £10 to the subcontractor for the warranty; a clause, clause 1, dealing with the standard of care; and a lengthy set of provisions at clause 5, under the heading of "Substitution", which appears to be concerned with determination and the possibility of the subcontractor being replaced by another subcontractor or receiving money direct from the beneficiary. It appears to have been the original intention that the beneficiary would be Travelcrest Services Limited, that the main contractor would be Rybarn, and that the warranty would be sent to Rybarn's subcontractors.

No copy of the warranty was provided to Sydenhams and they were not asked to complete it at any stage prior to the agreement of 20th April. Later in April 2004 Sydenhams were sent a copy of a draft warranty that was in slightly different terms. The version that they were sent had been completed to an extent, in that they were now named as a subcontractor and Rybarn were named as the contractor. However, no details of the alleged subcontract were identified in the draft that was sent. CHG was now said to be the beneficiary and the consideration had been reduced to £1. The date of the deed was not filled in.

On 18th May 2004, Mr Pride of Sydenhams signed and dated the deed. He did not complete the date of the subcontract in recital B. He returned the deed on or shortly after 18th May. At the same time he also completed another warranty in favour of Travelodge; again, he left the date of the alleged subcontract blank. Thereafter, and for the remainder of their time at the property, Sydenhams heard no more about either warranty. There was no evidence that the sum of £1 was paid in respect of either of the two warranties.

It appears that, thereafter, at different dates but prior to 4th April 2005, CHG or those acting on their behalf made various alterations to this deed of warranty. The date was amended in manuscript to 4th April 2005. Somebody filled in the date of 3rd October 2004 as being the operative date of the subcontract. Mr Pink signed it, although he could not remember when. A signature was also procured from Rybarn, although the signature was that of the joint administrator and after the words 'Rybarn Limited' were added "its joint administrator, acting as agents of the company and without personal liability". As I have indicated, this altered deed was never provided to Sydenhams.

At the outset of the trial it seemed that CHG placed considerable reliance on the issues that arose out of this warranty. They sought to rectify the terms; in particular, to correct the date of the subcontract to the 3rd October 2003 or 18th December 2003 -- not the 3rd October 2004 -- in order to strengthen their case that Sydenhams were estopped from denying that there was an effective subcontract between themselves and Rybarn. They also relied on the words of clause 5 of the warranty in support of their case that they were not obliged to make direct payments to Sydenhams.

By the end of the trial, however, Ms Lee realistically accepted that the arguments based on the warranty were not in the forefront of her case, particularly because when Sydenhams had signed and dated the deed they had not filled in any date for the alleged subcontract. In the light of her realistic assessment of CHG's position, I deal as swiftly as I can with the points that now arise out of the warranty.

It was not clear to me what CHG's claim for rectification was or could be pursued. Whilst the date of 3rd October 2004 was plainly an erroneous attempt to refer to 3rd October 2003, I have already found that there was no subcontract at that date, nor could there have been. I also note that CHG did not ultimately contend to the contrary. There is nothing to suggest that CHG ever intended to refer to the 18/12/03 date, and even if they had had that intention, for the reasons set out above I have concluded that that was a tripartite agreement, and not a subcontract in the conventional sense. There is therefore no basis for rectifying the warranty to add in possible dates for the subcontract that, for the reasons I have reached, are unarguably wrong.

On behalf of Sydenhams, Mr Selby accepted that, although Sydenhams were bound by the terms of the warranty, as they completed it on 18th May 2004, that merely consisted of a standard reference to a subcontract, with no date or other details of the subcontract provided. In those circumstances, and it seems to me for obvious reasons, Ms Lee did not appear to pursue the estoppel argument with any real enthusiasm. In any event I have concluded that, to the extent the argument was maintained, it would be quite wrong to suggest that Sydenhams were estopped from making the arguments noted above, because of the reference in the standard words of the warranty to the existence of a subcontract, particularly in circumstances where no date or details have been (or could have been) filled in.

Moreover, as a matter of law I am satisfied that no question of an estopppel can arise. Ms Lee referred to paragraph 1-091 of volume 1 of Chitty On Contracts, 29th edition. That states "‘a party who executes a deed is estopped in a court of law from saying that the facts stated in the deed are not truly stated’. The principle has been extended to statements in recitals in a deed”. (Footnote: ³) Ms Lee therefore argued that, given that there was a statement in the deed to the effect that there was a subcontract, Sydenhams were now estopped from denying the existence of a subcontract. However, it is important to read the rest of the paragraph in Chitty, because they go on to say:

There are at least three reasons why in my judgment the estoppel argument could not apply to this deed. First, it seems clear that the reference to the subcontract was ambiguous since the standard form of words contained a gap for the date to be filled in and that date was never completed. The deed therefore begs the question as to whether there was a subcontract at all. Secondly, this is not an action to enforce rights arising out of the deed. That is the only place where the estoppel argument could arise. Thirdly, if this estoppel is, as the learned editors suggest, akin to an estoppel by representation or by convention, then it would require the usual evidence of reliance and detriment, and there has been no such evidence. For all those reasons, therefore, it seems to me that the estoppel point is not available to CHG in this case.

Finally, there is an argument that clause 5 of the warranty indicated that CMG would not make direct payments to Sydenhams, and that this somehow took precedence over the terms of the 20th April agreement. Again, it is unclear the extent, if at all, to which this argument is still pursued by CHG, but to the extent it is, I again reject it. The non-payment provisions of the warranty are specific to the express circumstances of substitution envisaged under the warranty, and not otherwise. They have no application to the situation which arose in the present case, where there was a separate agreement based on the promise to make direct payment. Moreover, if there is any conflict between clause 5 of the warranty and the terms of the 20th April agreement (which I do not believe there to be), then the latter must prevail. The agreement of 20th April was a specific agreement expressly negotiated between the parties, as opposed to the words of clause 5, which were simply in a standard form of words and incomplete. For the rule that a specific agreement must override a standard form provision, see Homburg Houtimport BV v Agrosin Private Limited[2003] 2 WR 711 House of Lords.

Accordingly, I do not accept the proposition that the terms of the warranty, as completed by Sydenhams, made or can make any difference to my clear conclusion that there was, by 20th April 2004 (if not before), a direct contract between CHG and Sydenhams, pursuant to which CHG would make direct payments to Sydenhams for their works at the property.

The Other Issues.

It is common ground that the windows were included in package 6. On the basis set out in section E above, I have concluded that, throughout, CHG agreed to pay Sydenhams £100,000 plus VAT for package 6. That was part of the agreement of 3rd October 2003. It was unaffected by the variation of the 18th December 2003 and it was expressly recorded in the agreement of 20th April 2004 and the OFM of 11th May 2004. The unchallenged evidence from Mr Orchard (Footnote: ⁴) was that Sydenhams had received £10,000 plus VAT in respect of this claim and that £90,000 plus VAT was outstanding.

In cross-examination CHG suggested that, even if there was a direct contractual link between Sydenhams and themselves Sydenhams had failed to discharge the necessary burden of proof in respect of the £90,000. I do not accept that proposition. Sydenhams had demonstrated an entitlement in law to £100,000 plus VAT for package 6. All that then matters is to see whether or not that work has been completed -- and it is not disputed that the windows have been delivered -- and what sums have been paid on account. There is no evidence that more than £10,000 has been paid, thus entitling Sydenhams to the balance of £90,000 plus VAT. It is quite unnecessary for Sydenhams to demonstrate how the £100,000 or £90,000 was made up and/or justified. The whole point of a lump sum agreement like this is that, if the work is done, the lump sum is due without further argument.

For these reasons I find that CHG are liable to pay Sydenhams £90,000 plus VAT, a total of £105,750, in respect of the windows.

I can deal with this issue even more shortly. Sydenhams' letter of 20th April 2004 stated in terms that "the retention payment of £19,625 plus VAT will be paid by CHG Holdings on completion of the timber frame." The timber frame was completed on 6th July 2004. The retention monies have therefore been due since a short time after the 6th July (to allow for an invoice to be raised and a certain period for payment). Thus since, say, 1st August 2004, there can have been no defence to the claim for retention monies.

Thus I find that CHG are liable to Sydenhams in the total sum of £22,636.38 in respect of retention.

This claim was originally advanced on the basis that, because there were an excessive number of changes in specification and design, Sydenhams had to undertake structural calculations over and above the normal level. The claim was made on 20th September 2004. In the evidence, it was suggested that this claim arose because calculations had to be done on the structural effects of the balconies and canopies which were not part of Sydenhams' works. There was some rather unclear evidence about an oral instruction which is not reflected in the contemporaneous documents.

I reject this claim on the facts. There is insufficient evidence before me to justify the conclusion that the changes were so excessive in number that an additional charge for calculations was justified. Moreover, there is no clear evidence of any instruction to carry out additional calculations because of the balconies. Neither is there an explanation as to why Sydenhams would not have had to do those calculations in any event. It seems to me that, given they were designing the timber frame, they would have to do these calculations whether or not they were separately responsible for the provision of the balconies. I therefore reject this head of claim.

There was a good deal of confused evidence as to how the trade account was operated, what was charged against it, how it could be said to be CHG's responsibility, and how and why it could be said to relate to this project. The high point of Sydenhams' case was that it was covered by the 20th April agreement and that the words "outstanding account £10,337" there covered this particular head of claim. However, there was nothing to say that this was a reference to the particular trade account in question and no evidence that any earlier payments had been made against it.

In those circumstances, I am unable to say that Sydenhams have demonstrated an entitlement to be paid this sum by CHG. I do not consider that this claim has been made out and I reject it.

The parties have agreed that CHG's cross-claim for defects which was compromised in the sum of £35,000 inclusive of interest falls to be deducted and set off against the sums otherwise due to Sydenhams. Mr Selby submits that this deduction should be carried out once interest has been added to the sums due to Sydenhams, otherwise CHG would receive interest twice on this cross-claim. Subject to the caveat that the deduction should be done as at 9th February 2007, which was when judgment on the cross-claim was entered, I accept that submission.

Interest is due under the Late Payment of Commercial Debts (Interest) Act 1998 at 8 per cent over base. I consider that interest is due on the £105,750 in respect of the windows from 1st November 2004. That is a date which reflects the dates of the two invoices, and the problems with the windows which meant that not all the windows were properly delivered to the site until about that date. Interest will be due on the £22,636.38 retention monies from 1st August 2004, being about 21 days after the completion of the timber frame.

CHG are therefore liable to Sydenhams for the following:

In order to take proper account of the £35,000 the parties must calculate the sum due to Sydenhams including interest as at 9th February 2007. From that figure they should then deduct the £35,000. That will then give rise to a net figure due to Sydenhams. Interest should then be calculated on that net figure from 9th February 2007 up until today's date. I reject the submission that a different rate of interest should somehow apply after 9th February 2007.

There was a direct contract between CHG and Sydenhams on 3rd October 2003. That contract was varied on 18th December 2003 but only in respect of the mechanism of payment for some, not all, of the work. There was never a conventional subcontract between Rybarn and Sydenhams.

Even if both of those conclusions were wrong, the agreement of 20th April 2004 constituted a new and freestanding agreement between CHG and Sydenhams, pursuant to which CHG agreed to make direct payments to Sydenhams in respect of the work at the property.

Sydenhams' claims in respect of the windows and the retention monies arise expressly under the agreement of 20th April and therefore CHG can have no defence to those claims. Sydenhams' claims in respect of the additional calculations and the unpaid trade account have not been made out on the evidence and they fail.

Sydenhams are entitled to £105,750 together with interest from 1st November 2004 and £22,636.38 together with interest from 1st August 2004. A deduction of £35,000 must be made to reflect the sum agreed in respect of CHG's cross-claim. On this basis, the parties can calculate the final sum inclusive of interest due to Sydenhams.