Husband and Brown Ltd v Mitch Developments Ltd

In this case the Claimant, Husband and Brown Limited are claiming the sum of £51,350 as an outstanding fee due under an oral agreement made between the Claimant and the Defendant, Mitch Developments Limited in relation to the acquisition by the Defendant of a Site known as Redhouse Garage Doncaster (the “Site”) together with the adjudicators’ fees and associated solicitors’ costs incurred in relation to the adjudication which took place in December 2013 in relation to this matter. The Defendant has abandoned its counterclaim for the recovery of its adjudication costs but seeks a declaration that the adjudicator had no jurisdiction to make his award and accordingly that the award is of no effect.

The Defendant is engaged in commercial property development. The Defendant intended to purchase the Site in order to construct a care home which would be operated by a company, Willow Park Healthcare Limited, which was the operational arm of the Defendant. The Defendant identified the Site at Doncaster, a former petrol station, which they thought would be suitable. The Claimant is engaged in the business of land acquisition planning and development. Over the preceding couple of years the Claimant had looked at a number of potential Sites as agent for the Defendant but none of the Sites had come to fruition.

The Defendant initially agreed to purchase the Site in March 2012 and the Claimant made an offer on their behalf for £500,007. For reasons which go to the heart of this dispute the Defendant eventually purchased the Site for £325,000 on 21 September 2012. At the start of the trial the defence were relying on a defence to the effect that no agreement had been made between the parties as to the fee payable and that the Claimant would only be entitled to a fee based on quantum merit. In the course of the trial having heard the evidence of one of the directors of the Defendant, Mr Dixon, in cross examination, the Defendant has accepted that an agreement did exist in relation to the fee and that the terms of that oral agreement reached in April 2012 are as set out in an email of 11 July 2012 from Mr Lee Brown of the Claimant to Mr Dixon and Mr Murphy of the Defendant. [B 45]. An application was made after the evidence had been completed to amend the defence and after hearing argument from counsel on both sides and for the reasons given in that ruling, I granted the application.

Accordingly the primary issue which I now have to decide is the entitlement of the Claimant to an incentive fee payment from the Defendant in relation to the reduction in price paid for the Site from the initial offer of £500,007 to the price paid on completion of £325,000.

Mr Dixon of the Defendant received details of the Site on 24 February 2012 from the Vendor’s agent, PPH Commercial. Mr Dixon responded expressing interest in the Site but stating that the Site was not worth £600,000 and asking what would be an acceptable offer as the land would have to be cleaned up.

On 2 March Mr Dixon emailed Mr Brown of the Claimant asking him to approach the Vendor’s agent on behalf of the Defendant. The Claimant then made an offer of £500,007 for the Site which was accepted. The offer was conditional on obtaining planning permission, subsoil and technical investigation and vacant possession [B 15]. This offer letter was made on 20 March 2012 and accepted by the Vendor as is evident from the notice of sale dated 23 March 2012 [A166]

After the offer was made the Defendant wanted to renegotiate the fees which the Claimant would be entitled to receive in connection with the Site. The agreement at that point was that the Claimant would receive 2% of the purchase price. The Defendant wanted different fees to apply in the situation where the Defendant had found the Site rather than the Claimant. An email was sent by Mr Murphy of the Defendant on 12 April [B 17] to Mr Brown proposing a meeting to discuss the Claimant's fees going forward. He outlined "his thoughts" and suggested that where the Claimant was “commissioned to check out an area, find a site and negotiate an offer the fee would be 2% plus expenses. Where sites are found and [the Claimant is] asked to make an offer on behalf of [the Defendant] 1% +10 – 20% +? share of any reduction of previously agreed price (a sliding scale to suit size of reduction)”.

On the following day, 13 April there was a meeting between the parties and the parties now agree that the agreement reached at that meeting was as stated in the email of 11 July sent by Mr Brown [B 45] to Mr Dixon and Mr Murphy. The email states:

At the beginning of August the Defendant's solicitors informed the Claimant and the Defendant that they had been informed that the Vendor was about to go into liquidation. The solicitor stated that the liquidator was expected to be appointed on 14th August and "obviously that will change the way in which the contract will proceed – the liquidators will not want any obligations to do anything and there may need to be a discussion on the conditionality. The impression I get however, is that the liquidators would still be willing to sell and the seller's solicitor is hoping that he will be instructed to deal with it." [B 46]

On 6 August 2012 Mr Dixon emailed Mr Murphy and copied Mr Brown stating "hi boys receivers might want to sell prior to planning. Have spoken to [Mr Brown] and suggested we could possibly get site for £300,000 unconditional. Iain is this worth perusing” (sic).

On 20 August Martin Grange noted that the liquidator wanted to do an unconditional deal and this was followed up by the solicitors by email on 23 August. The solicitor said that she had spoken to the liquidator who said he will be getting the valuations undertaken and is interested in an offer from the Defendant [B 55]. Mr Husband (a director of the Claimant) immediately responded by email to the solicitor: “thanks Alison any ideas on timescales for doing the [valuations] would be appreciated if poss.”
12. On 29 August 2012 the solicitor wrote an internal email:

Mr Brown emailed in response asking whether they should mention that they had taken into consideration clean up costs and Mr Husband responded.

On 30 August 2012 Mr Husband emailed Philip Robertshaw at PPH, the liquidator's agent's, the offer in the form of the earlier draft offering a purchase price of £280,000.

On 5 September 2012 Mr Brown sent an email to Mr Dixon and Mr Murphy. [B 67]. This stated:

By 10 September the deal was agreed with an exchange on 12 September at a revised purchase price of £325,000 and a completion date no later than 24 September 2012. The purchase was in fact completed on 21 September and planning permission was obtained subsequently.

On 24 September Mr Husband submitted his invoice for 1.5% of the purchase price and an incentive-based 25% of the difference between the originally agreed purchase price (£500,000) to the actual negotiated contracted acquisition price (£325,000).

On 27 September 2012 Mr Murphy emailed Mr Husband raising the issue of the fee. He said:

The fee remained unpaid and the Claimant issued a notice of adjudication on 22 November 2013. The initial adjudicator resigned on 28 November 2013 and a new adjudicator was nominated on 28 November 2013. The Defendant challenged the jurisdiction of the adjudicator but the adjudicator concluded that he had jurisdiction and issued his decision on 13 December 2013 finding in the Claimant's favour.

The issue which the court has to resolve is whether the Claimant is entitled to an incentive fee based on the reduction from the initial agreed offer of £500,007 to the price paid on completion for the Site of £325,000.

The Claimant says that the Defendant negotiated the purchase of the Site from start to finish and is therefore entitled to the fee in accordance with the agreement that the Claimant should receive 25% of any negotiated savings from the gross price to the actual net price paid on completion.

The Defendant says in paragraph 10(6) of the amended defence:

the Claimant's offer did not result in "any negotiated saving from the gross price accepted to the actual net price paid upon completion"; alternatively that the Defendant's purchase of the property for £325,000 was a fresh deal between the Defendant and the Seller on an unconditional basis; and/or

on a true construction of the terms agreed on 13 April 2012 the incentive referred to in the last sentence of the email from the Claimant to the Defendant would only apply to sales which were negotiated by the Claimant which were conditional and the price of which the Claimant was then able to renegotiate downwards due to issues arising with reference to the conditions of sale e.g. costs associated with obtaining planning permission for the proposed development and/or costs relating to site conditions.
23. In relation to the defence put forward in paragraph 10(6)(a) Miss Jarron for the Defendant submitted that this was not a defence based on the contention that the Claimant was not the effective cause of the reduction – an argument which had been raised in the adjudication but not in the defence. Her submission was that there were no savings negotiated from the gross price of £500,007. Her contention is that the gross price of the property was £500,007, the price changed to a price of £325,000 when the vendors went into liquidation and it was at the price of £325,000 that the property was ultimately purchased. There were no savings negotiated from the gross price. It was a submission that there was no savings negotiated rather than a submission that any savings were not due to the actions or efforts of the Claimant.

The alternative way in which the defence put forward in paragraph (a) is now expressed is that the offer of £325,000 was a new deal. The contention is that the circumstances changed with the liquidation of the vendors and the old conditional deal at a price of £500,007 was replaced with an unconditional deal at £325,000.

In relation to the defence put forward in paragraph (b) Miss Jarron submitted that as a matter of true construction the incentive only applied to conditional sales and the price which the Claimant was able to renegotiate downwards due to issues arising with reference to the conditions of sale. Miss Jarron expressly rejected the suggestion that she was advancing her case on the basis that there was any ambiguity in the agreement or that she was seeking to introduce an implied term.

Mr Hussain submitted that the whole transaction was a single transaction and the negotiations by the Claimant on behalf of the Defendant continued from the offer made in March to the completion in September. Mr Hussain relied on the email exchanges in August which I have referred to above and which make it clear that the original offer remained on the table but it was thought the liquidator might find an unconditional offer more attractive and that the Claimant was involved in the discussions that took place both with the Defendants solicitors and with the liquidator’s representative PPH to see at what price and on what terms a deal could be struck.

Mr Hussain also relies on the email from Mr Brown on 27 September to which I have referred above that in the Claimant's view the vendor’s agent was quite happy to go through the planning process and generate a better land value but the Claimant forced the issue with the receiver and obtained a better deal.

In my view the negotiations for the Site which took place from March to September have to be viewed as part of a single transaction at least from the perspective of the dealings between the Claimant and the Defendant. Although the identity of the vendor changed from the original company to the liquidator, Begbies, there was no break in the relationship between the Claimant and Defendant and the subject matter of the deal, that is the Site, remained. It is also clear from the email chain referred to above that the original offer of £500,007 remained on the table as part of the negotiation. It was not withdrawn although ultimately it was superseded. That this March offer remained adds weight to the Claimant's argument that this was one transaction namely the purchase of the Site and weighs against the proposition advanced by the Defendant that this was a new deal. It seems to me that circumstances arose, namely the liquidation of the vendors, which meant that the parties saw a way to structure the purchase in a different way. The fact that the offer which was not conditional on planning permission and site investigation proved more attractive to the liquidator than the original offer– although it is not clear from the evidence whether the liquidator would not have been prepared to proceed with the purchase on the original conditions – in my view does not change the characterisation of the dealing as a single transaction. I accept the description of the transaction in Mr Brown’s email of 27 September : “Eric's instruction to me was to acquire the Site ASAP on the best possible terms”. In my view it was a continuous deal as far as the Claimant and the Defendant were concerned, with the purpose of acquiring the site and therefore the gross price for the purposes of the agreement was £500,007.

Giving the term "saving" its normal meaning it seems to me that there was a reduction in the price from the agreed offer price of £500,007 to the price paid of £325,000. It was not argued before me that any part of that reduction should not be regarded as a "saving" in the sense that the Defendant would have to pay out certain costs and expenses in relation to obtaining planning and carrying out the site investigation. It seems to me therefore that the Defendant had to pay less for the Site than they originally agreed to pay in March and the difference between £500,007 and £325,000 must therefore in the circumstances be treated as a saving.

Was it a negotiated saving? Counsel for the Defendant expressly rejected any reliance on an argument that the Claimant was not the effective cause of the saving. From this I infer that counsel for the Defendant contends that the saving was not as a result of any negotiation by the Claimant. Counsel pointed out that the initial price offered to the liquidator was £280,000. This offer was unacceptable and the offer was increased to £325,000. Counsel therefore submits that rather than saving the Defendant money through its negotiation the Claimant increased the amount payable.

I accept that the negotiations in September moving from a price of £280,000-£325,000 could be said to be an increase rather than a saving but in my view that is not the correct approach. The negotiations in relation to the price to be paid for this Site have to be viewed in their totality from their inception in March to completion in September and in my view the test is whether there were negotiated savings from the gross price of £500,007. This conclusion is supported in my view by the statement in the email of 11 July and accepted by the parties that the deal was on a “no hay no pay” basis. No fee was payable unless the purchase of the site went through. The Claimant bore the risk from the outset that their work may be without any compensation and that the purchase may not complete even though this might be for reasons over which they had no control. If they took the downside risk from the outset it seems to me they also took the upside benefit from the outset.

Counsel for the Claimant submits that the Claimant was advising the Defendant and negotiating with the vendor’s agent throughout. Counsel for the Defendant submits that the Claimant did not do anything once it became known that the liquidator was to be appointed and from that point matters were handled by the Defendants solicitors. Although the correspondence that I have referred to above does show the involvement of the Defendant’s solicitors at the point when the liquidator was appointed through to the making of the revised or alternative offer, in my view it is also supports the contention of the Claimant that the Claimant was involved and negotiating with the vendor’s agent throughout this phase. The exchanges which I have quoted above between the Claimant and "Phil", the agent for the liquidator clearly demonstrate the role which the Claimant took in the negotiations. I accept that on the evidence of these emails the negotiations by the Claimant with PPH were not the “11 days intensive negotiations” suggested by Mr Brown in paragraph 13 of his witness statement dated 22 August 2014 but they are clear evidence of the Claimant negotiating the deal on behalf of the Defendant.

For the reasons stated above in my view there were savings negotiated by the Claimant from the gross price of £500,007 to the net price paid of £325,000 and the Claimant is entitled to receive an incentive fee on this basis.

For the reasons indicated above I do not think the alternative basis on which paragraph 10(6)(a) is advanced in the amended defence namely that the second offer should be viewed as a new deal for the purposes of determining the amount of the incentive fee succeeds. The original offer remained on the table and the Claimant negotiated on behalf of the Defendant an alternative offer which in the event was accepted and on the basis of which the purchase was concluded. It was all part of the same transaction as far as the Defendant and Claimant were concerned.

Turning to deal with the amended defence put forward in paragraph 10(6)(b) namely that on the true construction of the terms agreed the incentive would only apply to sales which were conditional and the price of which the Claimant was then able to renegotiate downwards due to issues arising with reference to such conditions.

Miss Jarron in advancing this defence expressly rejected any suggestion that this was an argument based on the proposition that the language was ambiguous or that she was seeking to imply a term into the agreement

Support for the Defendant’s interpretation can be found in the witness statement of Mr Murphy at paragraph 8 of his second witness statement [A 110] where he states by way of explanation for his email of 12 April which I have set out above:

Mr Dixon describes the position at paragraph 26 [A89] of his witness statement:

For the Claimant Mr Hussein submitted that there was no basis on which the entitlement to an incentive fee could be said to be limited to matters raised in the conditions of sale such as planning permission and site conditions. He submitted that it was open to the Claimant to seek to achieve a reduction in the price in any way they chose including for example by precluding a sale on the open market. He said that there was no basis on which it could be read into the agreement a limitation that any reduction of the net price was solely due to the value of the conditions.

Mr Hussain stressed that the commercial purpose of the agreement was that the Claimant was working on a "no hay no pay basis”. He submitted that this meant that the Claimant expended time on potential sites with no recompense unless the site progressed to completion. He contended that this supported his argument that the incentive fee was payable in relation to any saving which the Claimant achieved and was not to be interpreted as limited to matters which were expressed as conditions in the contract.

It seems to me that the objective meaning of the words does not lead to a limitation of the scope of the fee in the way in which the Defendant contends. The background that the Claimant had worked on a number of potential Sites previously and that these had not come to fruition so no fee had been payable is in my view admissible background and supports the Claimant's interpretation that the fee was not limited to matters listed as conditions in the contract. The Claimant in my view was employed as an agent to secure the best possible price for the Site and as an incentive was to receive a proportion of any reduction achieved from the original agreed price. The Claimant was paid a fixed fee in relation to the price of the Site the amount of the fixed fee being dependent on the role of the Claimant in finding the Site. The incentive fee was payable on any reduction which the Claimant achieved after the original offer had been accepted. In this case in the circumstances it became possible for the Claimant to negotiate a lower price for the Site albeit on different terms. It is clear from the email on 5 September [B67] quoted above that the negotiating tactics of the Claimant to secure the Site included suggesting to the vendor’s agent that alternative sites might be purchased in preference to the Site if a satisfactory deal could not be struck quickly. In my view set against this factual background the objective meaning of the words as set out in the email are clear and there is no basis for an interpretation which limits the scope of the incentive fee as the Defendant contends.

For the reasons set out above this claim succeeds.

In relation to the claim for adjudication costs, the Claimant says it is a foreseeable and recoverable consequence of the breach. The Claimant relies on the authority of National Museums and Galleries on Merseyside v AEW Architects Limited [2013] EWHC 2403 and in particular the dictum of Akenhead J:

Relying on that authority Counsel for the Claimant submits that causation would only be broken if the Claimant had acted unreasonably or the solicitors had acted negligently. In this case the Claimant issued the invoice on 24 September. The Claimant says that the Claimant delayed chasing until after planning permission had been received in March 2013. The Claimant sought repeatedly to have the invoice paid before issuing an adjudication notice in November 2013.

The Defendant submits that this was not a “construction contract” within the Housing Grants Construction and Regeneration Act 1996 and therefore should not have been referred to adjudication.

For the purposes of this claim the relevant sections of the Act are s104 and 105

the carrying out of construction operations;

arranging for the carrying out of construction operations by others, whether under sub-contract to him or otherwise;

providing his own labour, or the labour of others, for the carrying out of construction operations.”

construction, alteration, repair, maintenance, extension, demolition or dismantling of buildings, or structures forming, or to form, part of the land (whether permanent or not);

construction, alteration, repair, maintenance, extension, demolition or dismantling of any works forming, or to form, part of the land……;

installation in any building or structure of fittings forming part of the land…..;

external or internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration;

operations which form an integral part of, or are preparatory to, or are for rendering complete, such operations as are previously described in this subsection….;

painting or decorating the internal or external surfaces of any building or structure.”

Further the Defendant relies on the decision in Total M&E Services Ltd v ABB Building Technologies Ltd [2002] EWHC 248 (TCC), para 24. In that case it was said that a claim for legal costs would subvert the adjudication scheme.

In my view the Defendant is correct in its interpretation that this was not a construction contract within the meaning of the Act. It was not an agreement to carry out construction operations or to arrange for the carrying out of construction operations. Further the dictum of Akenhead J on which Mr Hussein seeks to rely is in relation to a completely different fact pattern and therefore should be distinguished. In that case adjudication fees were incurred in an adjudication of a dispute between the contractor and the Museum. The question which Akenhead J was addressing in the dictum quoted above was the issue of foreseeability and causation linking the breaches of contract of AEW and the adjudication between the contractor and the Museum. He was not addressing a situation where as here, it is contended that there was no jurisdiction for the parties to go to adjudication under the Act.

In this case the matter did not fall within the scope of the Act and in my view this means that it was not reasonably foreseeable that the costs of adjudication would result. Even if I am wrong on this to allow the Claimant to recover its costs of adjudication would subvert the statutory scheme which does not allow for such costs. The costs of the adjudicator and the associated legal fees are not therefore recoverable.

The Defendant seeks a declaration that the adjudicator Mr Baldwin had no jurisdiction to make his award dated 13 December 2013. A declaration is a discretionary remedy and in the circumstances of this case I can see no purpose in making such a declaration.

After this judgment had been circulated in draft form to the parties and prior to judgment being handed down the parties agreed terms for settlement of the dispute and sought an order that the proceedings be stayed on the terms set out in the Settlement Agreement dated 15 October 2015. Notwithstanding that I will make the Tomlin order in the form sought, I have exercised my discretion to hand down judgment on 16 October 2015.