Leslie v Farrar Construction Limited

In 2008 the claimant, Mr Graham Leslie (“Mr Leslie”), was interested in building up a residential property portfolio, to be financed from the proceeds of the sale of his pharmaceutical company. He had previously worked successfully with Neil Farrar, the owner of the defendant company, Farrar Construction Limited (“Farrar Construction”), on certain commercial building projects. Discussions ensued between the two men which, it is common ground, materialised into an arrangement under which, in short: (i) suitable sites would be identified and agreed as suitable for development; (ii) those sites would be acquired by Mr Leslie; (iii) Farrar Construction would design and construct housing on the sites to an agreed scheme design and budget; (iv) Mr Leslie would pay Farrar Construction its build costs expended on the development; (v) on completion the open market value of the development would be agreed, the acquisition and build costs would be deducted, and the resultant profit share divided equally. The arrangement has been referred to in the statements of case as “the Framework Agreement”.

Regrettably the parties failed to heed the sensible advice of Farrar Construction’s accountant to draw up a formal agreement, so that the arrangement proceeded on the basis of oral agreement. That was not a problem for the first few years, when the relationship between Mr Leslie and Mr Farrar was extremely good, and when the developments proved profitable. However by early 2013 the personal relationship had deteriorated, and the developments were not proceeding as smoothly or as profitably as they had been. Eventually, in July 13, there was what transpired to be a final parting of the ways, in circumstances which are now hotly disputed. Mr Leslie contends that the parting of the ways was by mutual agreement, whereas Farrar Construction contends that it was a unilateral decision by Mr Leslie, which amounted to a repudiatory breach of the Framework Agreement.

Over the period 2008 – 2013 five developments were undertaken and completed, known respectively as Dandy Mill Court, Manor Drive, Rowan Tree Court, Woodlesford, and Cornlands. It is common ground that the terms of the Framework Agreement applied to all five developments, although there is a dispute as to whether or not Farrar Construction can now claim a profit share on Cornlands. A further site, Moverley Way, was also acquired in a part developed state, which Mr Leslie denies was subject to the Framework Agreement and further denies that Farrar Construction can now claim a profit share in relation to it. As at July 13 two further sites to which the Framework Agreement applied were still under development, known as Methley and Minsthorpe. Prior to July 13 Mr Leslie had also acquired a number of other sites which, for various reasons, had not been developed by the time the parties fell out, namely Newmillerdam, Talbot Road (Footnote: ¹), Aketon Road, Holywell Lane, and Lindley. Farrar Construction contends, but Mr Leslie denies, that these sites were also subject to the Framework Agreement. Thus there are a total of 13 sites which Farrar Construction claims fell within the Framework Agreement, whereas Mr Leslie’s position is that only 7 fell within the Framework Agreement.

Farrar Construction also undertook work: (i) for Mr Leslie at some other sites which are not said to be within the Framework Agreement but for which some modest claims, totalling £55,000, are made, viz. Moorends Lane, Honley and Toll Bar Cottage; (ii) for a charitable sporting organisation, founded by Mr Leslie’s son, at a site known as Storthes Hall. Furthermore, a pension fund founded by Mr Leslie also made a loan to Mr Farrar to enable him to develop a property known as Parkfield Farm, a farmhouse and outbuildings at Pontefract.

After the parting of the ways in July 13 Farrar Construction swiftly launched a claim by way of adjudication (Footnote: ²) against Mr Leslie, seeking payment for monies which it said it was owed in relation to Methley, both for unpaid work and its share of profit. Mr Leslie contested the claim on a number of grounds. Although the adjudicator found against Mr Leslie in relation to the profit share claim, it is common ground between the parties that his decision, which under statute is expressly made subject to any final determination of the court, is not in any way binding upon the parties in these proceedings.

Mr Leslie refused to comply with the adjudicator’s decision, making it clear that he would resist any attempt to enforce it on the grounds that the adjudicator allegedly lacked jurisdiction. He also very swiftly launched the current action in which, as initially constituted, he sought the repayment of VAT which he claimed Farrar Construction had wrongly included in the build costs he had been charged and paid. The total value of his claim as pleaded, giving credit for the enhanced half share profit to which Farrar Construction would have been entitled in relation to the four completed sites (Footnote: ³), was said to be £263,701.

Farrar Construction by its defence denied having included or charged VAT in its build costs. By its counterclaim it alleged that Mr Leslie had wrongfully repudiated the Framework Agreement in relation to all of the outstanding developments, and that Mr Leslie was liable to pay all its outstanding build costs and its profit share, including the profit it would have earned from those remaining sites which had been acquired but not yet developed. In its amended form Farrar Construction claims as its primary case the sum of £1,368,937.50, being the total of what it says is due (£6,919,067.50) less the total of what it says has been paid (£5,550,130).

By his defence to counterclaim Mr Leslie denied wrongful repudiation, contending that the Framework Agreement had been brought to an end by mutual consent at a time when it was clear that Farrar Construction was simply unable to complete the construction of the two current developments. He further contended that Farrar Construction had been paid all that it was entitled, and that it had no legally enforceable entitlement to participate in the development of sites which had been acquired but in respect of which no development had been agreed or begun. Mr Leslie admitted that Farrar Construction was entitled to share in any profit in relation to Methley and Minsthorpe, but contended that until those developments had been completed there was no present entitlement. He denied that Minsthorpe would be a profitable development, and he contended that he was entitled to set off his losses on Minsthorpe against what might be due on Methley.

Finally, by relatively late amendment to his Particulars of Claim, permitted only after substantial argument, Mr Leslie introduced a further claim, which was that on proper analysis Farrar Construction had been overpaid, because it had claimed and received payment for items which were outside the scope of what are, on proper analysis, legitimate build costs. He claimed the repayment of such sums, which he contended amounted to £1,147,522. The legal basis for this repayment was said to be by way of unjust enrichment, on the basis that the overpayment was made under a mistake of fact and/or for no consideration. This claim is vigorously disputed by Farrar Construction both on the facts and on the law.

The parties have given disclosure, in Farrar Construction’s case including some 27 lever arch files of invoices, and have produced and exchanged witness statements. Both have been permitted to rely on expert evidence in the fields of accountancy, quantity surveying and valuation. The valuation evidence was almost entirely agreed, but there remained some significant disputes between the quantity surveyors and the accountants. Moreover there remain significant factual disputes between the parties, as well as disputes as to the precise terms of the Framework Agreement in relation to matters which had not been the subject of any or any detailed consideration at the time of the agreement.

The issues which fall to be decided can be summarised as follows:

My conclusions in relation to each of these issues are as follows. I give my reasons below.

Mr Leslie gave evidence himself and called Mr Richard Smith, Ms Nicola Hale, Mr Neil Battye, Mr Michael Cummings and Mr Matthew Cummings as his lay witnesses. Farrar Construction called Mr Farrar, Mr Andrew Throssell, Mr Ian Stevenson, Mr Nick Beighton and Mr Steven Newdell as his lay witnesses. Mr Leslie called Mr Stephen Lewis as his expert accountant and Mr Jim Wilson as his expert quantity surveyor; Mr Farrar Construction called Mr Raymond Davidson as his expert accountant and Mr France as his expert quantity surveyor.

Mr Leslie built up an extremely successful pharmaceutical business which he sold in Jan. 08, receiving £24.7 million for his share. Although in his 60’s he chose not to retire, and became involved in a number of other business and other activities, including the process of building the property portfolio with which this case is concerned. He says that he has remained extremely wealthy, with ready access to funds when necessary. In cross-examination it was suggested to him that there were times when he did not have access to funds, and that this was one of the reasons for the problems Farrar Construction faced in completing Methley and Minsthorpe. He denied this. There is contemporary documentary evidence which indicates that at one point he put a hold on development whilst he was undertaking a refinancing exercise. Insofar as it is relevant however I do not accept that this was because he was short of funds or could not have afforded to complete the developments without refinancing.

It was also suggested to him in cross-examination that he had, with the encouragement and assistance of Mr Smith, planned and executed a ruthless exercise to cut Farrar Construction out of the Framework Agreement in July 13, in order to replace it with an alternative contractor which would do the same work for a much smaller profit share, and that the claims he has brought in these proceedings are simply devices to avoid having to pay his due. I do not accept that Mr Leslie is a ruthless businessman who would have acted, or did act, in this manner. I am satisfied that instead he finally lost patience with what he perceived to be Farrar Construction’s failure to deliver on time and to budget in relation to Methley, and what he also perceived was Mr Farrar taking advantage of him. Mr Smith described Mr Leslie on a number of occasions in evidence as being too soft to Mr Farrar, liable to blow his top at him in an e-mail but then relenting and giving him another chance. I accept that description as consistent with a number of the contemporaneous e-mails and my own assessment of him.

The more important question is whether I can place significant weight on the oral evidence of Mr Leslie. He was in my view a poor historian, with a limited recollection of the detail of events. His recollection of events was largely impressionistic and in my view adversely affected by his falling-out with Mr Farrar, leading to his viewing and recollecting matters very much through a partisan prism. There were a number of occasions where his evidence was inconsistent with the contemporaneous documents or hopelessly confused or contradictory. I make it clear that in my view he is a decent and an honest man, and I have no doubt that he was not seeking to mislead the court. Nonetheless it follows that I have to treat his oral evidence with appropriate caution, testing it by reference to the contemporaneous documents where available, the evidence of the other witnesses whose evidence on points bearing on a particular issue I accept, and my assessment of the likely probabilities.

Mr Smith is a chartered accountant who has worked for a number of organisations before becoming a consultant to Mr Leslie in Sept.12. Although he was not initially expected to have any particular involvement with Mr Leslie’s property portfolio or in his dealings with Farrar Construction, it is clear that fairly soon after he began working for Mr Leslie he did become involved with Methley and Minsthorpe, and has had a significant degree of involvement with the developments and the dispute with Farrar Construction ever since. He accepted that he did not have the degree of expertise in construction projects that a construction professional would have but he said, and I accept, that his previous roles had given him a reasonable familiarity with development projects in general.

It was implicit, if not explicit, in Farrar Construction’s case that the deterioration in the relationship between Mr Leslie and Mr Farrar coincided with the arrival on the scene of Mr Smith, who was keen to impress his new employer by getting tough with Farrar Construction and, ultimately, by persuading Mr Leslie to replace it with a contractor introduced by Mr Smith to do the work for a much smaller profit share. Whilst I have no doubt that Mr Smith is a much tougher character than Mr Leslie, and was less prepared to accept at face value Mr Farrar’s assurances, I do not think that Mr Smith set out with or came to develop an antagonism to Mr Farrar or a determination to impress Mr Leslie by getting rid of Farrar Construction and replacing it with a more compliant contractor. The impression I received was that Mr Smith was keen to demonstrate a professional financial approach in all his dealings with Mr Leslie and Farrar Construction, and that whilst he was certainly prepared to advise Mr Leslie to take a harder line with Farrar Construction, he had no ulterior motive in doing so.

Mr Smith also came across to me as having a generally good and accurate recollection of events. There were occasions where he was mistaken in his recollection, but he was usually ready in cross-examination to acknowledge such mistakes when drawn to his attention. There were however some elements of his evidence, particularly in relation to some of the more important meetings involving Farrar Construction, where his contemporaneous records were not completely consistent with his oral evidence, and it seemed to me that his oral recollection was not wholly reliable in such specific instances and, in certain respects, affected by his role in the dispute between the parties. Accordingly, I treat him as an honest witness upon whose evidence I can place reasonable, but not uncritical, weight.

Ms Hale has a background in property sales and management, and started working for Farrar Construction in Nov. 08 as its company secretary and property manager. She ceased working for Farrar Construction in July 13, shortly after the relationship between Mr Leslie and Farrar Construction came to an end, and began employment with a firm of estate agents where she has been responsible for sales and lettings on a number of the completed properties with which this case is concerned.

It is clear from her evidence that she now has little regard for Mr Farrar. It is also clear that she obviously has a commercial motive to support Mr Leslie in his dispute with Farrar Construction, although I do not consider that this affected her evidence. It was however also clear that she had been willing to make a witness statement which contained certain allegations which, when she was taken through them in cross-examination, she had to accept she was unable to speak to personally. The most significant area where this was so was her evidence in her witness statement about Farrar Construction charging invoices including VAT to Mr Leslie when, as she accepted in cross-examination, in fact she was unable to say whether or not this VAT was actually passed on to him. Her recollection also seemed to me to be rather more impressionistic than clear or precise. She admitted that the quality of her recollection of events had been affected by the passage of time.

For all of these reasons I am unable to place great weight on her oral evidence. She had however produced a contemporaneous note of the significant meeting of 4 July 13 which I am satisfied is reliable and upon which I can rely.

Mr Battye is a self-employed builder who was recruited by Mr Smith to take over and complete the building works at Methley. Earlier in 2013 he had been working on a job at Mr Smith’ home, and once that job had ended he had no specific new job to start on. His evidence was that he had not been approached before July 13, and had only first visited the site on or around 15 July 13, starting work the following week.

He was employed on a labour only dayworks basis, with timesheets being submitted to Mr Smith for agreement and payment. Mr Smith procured or paid for all materials direct on Mr Leslie’s behalf. It was also agreed that he should receive a 15% profit share which, as is evident, is significantly less than that which Farrar Construction received under the Framework Agreement. Having completed Methley he is now working for Mr Leslie on the Newmillerdam development.

As with Ms Hale, therefore, he has a motive to support Mr Leslie, but it did not seem to me that this had any demonstrable effect on the evidence which he gave, both in his witness statement and orally. My assessment of him is that he is an obviously honest witness with a reasonable recollection of events, whose evidence I can and do largely accept.

The one principal exception is that I am not persuaded that his first visit to the site at Methley was not until after 4 July 13. I am satisfied that he did have some preliminary discussions with Mr Smith before that, and visited the site to assess it before then, and that on the balance of probabilities he had already indicated his willingness to take over and complete the job if asked before the meeting of 4 July 13.

His witness statement also included criticisms of the work at Methley undertaken before he took over. When cross-examined he did not seek to embellish or exaggerate his criticisms, nor to suggest that it must have been the personal responsibility of Mr Farrar, as opposed to the sub-contractors who were working for Farrar Construction, and I found his evidence credible and reliable in that respect.

I can take these two witnesses together. Michael Cummings is a self employed builder, carrying on business under the trade name Mill Dam Construction, and his son Matthew works for him as a labour only contractor, although it is clear that he has a reasonable knowledge of and involvement in his father’s business. They had worked as subcontractors to Farrar Construction on Woodlesford and then on Minsthorpe, before being transferred to Storthes Hall early in Jan. 13. They worked for Farrar Construction until Aug. 13, despite complaints about late payment, but after ceasing working for Farrar Construction they took over and completed the site at Minsthorpe for Mr Leslie. More recently they have instructed Mr Leslie’s solicitors to pursue a claim against Farrar Construction for what they claim is still due to them for the work done at Storthes Hall.

Again, therefore, it is apparent that they have a motive to give evidence adverse to Farrar Construction and a motive to support Mr Leslie. Indeed, as Michael Cummings frankly accepted, they were very keen to get further work from Mr Leslie on other projects. Again, however, they came across to me as honest genuine men who were not demonstrably motivated either by hostility to Mr Farrar or a desire to ingratiate themselves with Mr Leslie. In short, I accept their evidence as reliable.

There is no suggestion that they were approached to work for Mr Leslie on Minsthorpe before July 13, and there is no suggestion that they are working on anything other than a dayworks basis, with no profit share. I also accept their evidence in relation to the defective state of the works at Minsthorpe as left unfinished by Farrar Construction. It is supported by the photographic and other evidence referred to by Mr Wilson in his report on Minsthorpe, and consistent with the picture which I am satisfied appears from the evidence as a whole, which is that this development was effectively abandoned by Farrar Construction in around spring 2013 in order to attempt to complete Storthes Hall.

Mr Farrar is the sole or principal director of and shareholder in Farrar Construction Limited which is, in substance, his company.

In the same way as with Mr Leslie I am satisfied that the reliability of his evidence has been adversely affected by the partisan prism through which he now views his relationship with Mr Leslie. It also seemed to me that he was no better than Mr Leslie in his recollection of the detail of disputed events. For both those reasons I do not think that I can safely place a great deal of weight on his uncorroborated oral evidence. In the same way as with Mr Leslie I have to treat his oral evidence with caution, testing it by reference to any relevant reliable contemporaneous documentation, the evidence of the other witnesses whose evidence I accept, and my assessment of the likely probabilities. Nonetheless, I also accept that he is a decent and honest man who was not seeking to mislead the court.

Mr Throssell is an accountant and a partner at the firm of Hebblethwaites, Farrar Construction’s accountants, and he has had responsibility for producing Farrar Construction’s accounts since 2008. He also had some involvement in the initial discussions between the parties which led to the Framework Agreement. He was plainly an honest and reliable witness.

Mr Stevenson was a self-employed project manager for Farrar Construction who worked on a number of the sites with which this case is concerned. He was rather unconvincing in his evidence in relation to the one matter on which he was cross-examined, which related back to 2008, but I do not think that I was in a position to form a strong view one way or the other as to his overall reliability.

Mr Beighton is the office manager of Farrar Construction, a position he has held since Dec. 09. He dealt with financial matters, including VAT and the production of internal purchase ledger documents recording costs incurred on individual developments. It emerged during his cross-examination that he had also been responsible for producing other internal purchase ledger documents, recording materials costs incurred on a monthly basis in relation to all developments. The former summarise expenditure on materials and sub-contract labour on individual developments in 3 monthly blocks, and I will refer to them as “PL development cost summaries”. The latter identify all materials invoices received in a particular month, and seek to allocate each invoice, under the column headed “code”, to individual developments, and I will refer to them as “PL invoice summaries”.

Mr Beighton’s evidence was that he produced the PL development cost summaries on an ad hoc basis, rather than on a regular basis, as and when he was asked to do so by Mr Farrar. Accordingly, and regrettably, there is not a separate PL development cost summary for every development relevant to this case. Although he told me in evidence that he had produced a PL invoice summary for every month, describing them as “back up” for the PL development cost summaries, copies of these documents for each month in question had not been disclosed, and when Farrar Construction was asked to provide PL invoice summaries for each month they were unable to do so, producing only such summaries for the months March – Nov. 11 and March – May 12. This is extremely unsatisfactory, not to say surprising, because it begs the question in my mind as to how Mr Beighton was able, for example, to produce a PL development cost summary showing material costs incurred for Methley, when (save for a small number of invoices relating to preliminary work items) none of the PL invoice summaries cover the time period when Farrar Construction was working on Methley, or identify invoices as relevant to Methley. Whilst I do not consider that I am in a position to draw a conclusion that relevant documents have deliberately not been disclosed by Farrar Construction, I am able to and do conclude that I have not been given a full explanation as to Farrar Construction’s internal cost accounting processes and how it has been able to produce or to verify the financial claims which it has made in this case.

Mr Beighton’s evidence was also that he allocated individual invoices to individual projects by looking at the individual invoices and applying his own knowledge of what developments were currently being worked upon and which invoice related to which development. He did however say that when Farrar Construction was working on more than one development at a time he would have to make a decision which invoice related to which development, and that sometimes it could be hard to make that decision.

Mr Newdall is a solicitor and a partner with the solicitors acting for Farrar Construction, who produced a witness statement during the course of the trial in relation to a visit he had made to the site at Holywell Lane. I accept his evidence, although in the end nothing of significance turns on it.

Mr Lewis is a chartered accountant and a partner with Mazars LLP, Birmingham, specialising in forensic and investigation services. He had undertaken an initial review of the invoices disclosed by Farrar Construction and had produced an initial joint statement with Farrar Construction’s accountancy expert, Mr Davidson, on 1 Oct. 14 in accordance with the directions given by the court. He had subsequently produced his own report dated 6 Oct. 14 and produced a second joint statement with Mr Davidson on 21 Nov. 14.

It was suggested both to him and to Mr Smith that Mr Lewis had, effectively, adopted Mr Smith’s own views as to what should and should not be allowed as build costs. Mr Lewis made clear in his report [§4.2.3-4] that he had been provided with the analysis and summary produced by Mr Smith and discussed the invoices disclosed by Farrar Construction with Mr Smith, but insisted in his evidence that he had undertaken his own review and reached his own conclusions in relation to the individual invoices and categories of disputed invoice. His evidence in this respect was supported by Mr Smith, who made clear his view that in certain respects he disagreed with Mr Lewis’ conclusions. Whilst I think that it would have been better for Mr Smith’s analysis to have been appended to his witness statement or otherwise disclosed, so that the comparison could have been seen, I am quite satisfied that Mr Lewis has indeed undertaken his own expert analysis and reached his own expert conclusions, and that he has not simply adopted Mr Smith’s views.

It also seemed to me that his approach was broadly reasonable and, indeed, in some significant respects gave the benefit of the doubt to Farrar Construction. Thus he accepted that where the content of the invoice was consistent with it being property development related, but did not identify the expenditure as being related to one of the 13 specific developments to which Farrar Construction contended the Framework Agreement applied, it should nonetheless be included [§4.2.6(iii)]. It can be seen from a review of the PL invoice summaries that this approach would thus include expenditure on Mr Farrar’s own property at Parkfield Farm and on Farrar Construction’s office. It may also, although not shown on the PL invoice summaries because they do not go this far, include expenditure on Storthes Hall.

In cross-examination Mr Myerson QC, appearing with Mr Ryan for Farrar Construction, was able to point to some aspects of his report where he had made errors, for example in classifying certain disputed invoices in the wrong category, or in misreading a reference to the location of the auction site as a reference to a non Mr Leslie development site, but overall they did not seem to me to be such as to cause me seriously to question the skill and care which Mr Lewis had evidently brought to bear when undertaking his analysis.

However it also seems to me that neither Mr Lewis nor Mr Davidson had the expertise to be able to give expert opinion on what was meant by “build costs” or, indeed, as to what categories of expenditure fall within that definition, and I have not sought to place any reliance on their opinion in that regard. What they could do is to separate out the invoices into categories, and give reasons why in their expert opinion as accountants a particular item should or should not fall within the allowable build costs, assuming that their respective client’s case as to what that meant was accepted by the court and, by and large, there was little or no dispute between them in that regard.

Mr Davidson is a chartered accountant and a partner with Bartfields LLP, Leeds, specialising in providing forensic accounting services. He had undertaken the same process as Mr Lewis, his report being dated 14 Oct. 14.

His approach, as he stated in examination in chief, had been to start with the presumption that an individual invoice should be included unless there was evidence from which he could conclude that it should not be included, on the basis that his instructions had been that all of the invoices disclosed by Farrar Construction related to relevant expenditure. This assumption was, so far as I can see, not stated explicitly in his report. Moreover it was, as it transpired, undermined by Farrar Construction’s subsequent acceptance that all of the invoices disclosed had not, apparently, been disclosed on that basis. It also seemed to me, with respect to Mr Davidson, to be a presumption which there was no compelling basis for adopting in a case such as the present, especially once it became apparent to him from his initial review that there were many invoices which could not conceivably on their face be related to individual development sites. Indeed, since he says in his report [§4.7] that he was provided with a schedule of expenditure by Farrar Construction, itself showing total net expenditure of £2,744,141, including £459,500 not supported by invoices, that would appear to have been a more logical starting point for his analysis. However, for reasons which are not very clearly explained, he did not attach the schedule to his report nor seemingly place any reliance upon it, other than as some form of rough cross-check. In my view, this was all rather unsatisfactory.

He also accepted in cross-examination that he had included in full allowances for head office overheads and the capital costs of acquiring plant and machinery without having considered the extent to which Farrar Construction had been engaged on other developments over the relevant period. He said that he had worked on the assumption that Farrar Construction had worked “primarily” for Mr Leslie over the relevant period, but even if this was so it begged the question in my view as to how even on that basis 100% of the cost of these items could be recovered from Mr Leslie, unless he was also able to form and state an opinion, on instructions or his own investigation, that the extent of non Mr Leslie work was so minimal it could properly be ignored. He does not properly engage with the issue of the amount of work done over the relevant period for what appear to have been significant developments at Storthes Hall and Parkfield Farm, leaving to one side the other more modest developments. He also accepted in cross-examination that he had not asked whether or not any items of plant and equipment had been sold after July 13 and, if so, what had been received for them, even though one item had been purchased as recently as May 13 and thus may well have had some considerable residual value as at July 13 for which credit ought to have been given.

I would not wish to be overly critical of Mr Davidson, because in my view he was placed in a difficult position in having to attempt to reconcile in a relatively short period a vast number of invoices, without having been provided with any clear instructions as to how, if at all, many were said by Farrar Construction to be properly claimable as build costs. Nonetheless, it does seem to me that on balance he was a less convincing expert witness than Mr Lewis and, therefore, that where I have to prefer the evidence of one over the other, I prefer that of Mr Lewis.

Mr Wilson has been a chartered quantity surveyor since 2007, having practised as a quantity surveyor for 13 years, and is currently with the Watts Group plc, providing (amongst other things) cost consultancy and expert witness services.

He had produced separate quantity surveying reports in relation to each of the developments in question. Those reports were detailed and comprehensive. He had also discussed the issues with Mr France and they produced a joint report together with supplemental statements each giving their reasons for disagreeing.

Mr Wilson was cross-examined on the basis that, as regards Newmillerdam, his estimate was above the cost estimate produced by Mr Leslie in May 13. He accepted that this was the case, and he gave reasons for his opinion. I found his reasons clear and well-argued even though, for reasons I give in addressing the costs to undertake that development, I do not accept that they are all applicable in this case.

I found his evidence, both written and oral, clear and compelling, and more so than Mr France, so that where there is a dispute I prefer his evidence, save where there are cogent reasons not to do so.

Mr France is a chartered quantity surveyor with Battye France. He is also a member of the chartered institute of arbitrators. He produced a report dated 8 Oct. 14, and engaged with Mr Wilson to produce a joint and his supplemental report.

In his report and in his evidence he had adopted a uniform construction cost of £1,000/m², although he also considered that Farrar Construction had provided “persuasive evidence” that this was overstated by reference to the figures provided by them of their actual build costs set against plot sizes.

I was not quite so impressed with his evidence as I was with that of Mr Wilson for the following reasons:

ON A TRUE CONSTRUCTION OF THE FRAMEWORK AGREEMENT WHAT ITEMS ARE RECOVERABLE AS BUILD COSTS?

Applicable principles of construction

It is common ground that the Framework Agreement was an oral agreement, and that there was no express discussion or agreement as to the particular cost items properly claimable by Farrar Construction.

It is also common ground that the court’s task is to ascertain the terms of the agreement, in this case by reference to the words used by the parties in reaching their agreement, and to interpret those terms by the same rules as would be applied in interpreting a written document (Footnote: ⁵). It is agreed that the principles are to be found in the review conducted by Lord Clarke JSC in Rainy Sky v Koomin [2011] 1 WLR 2900 [§14-30].

It also seems to me that in a case such as the present, where the precise words used at the time are I am satisfied incapable of precise recollection, that the process of construction and the process of implication, by reference to what the parties agree or the court concludes was the gist of the express agreement reached, ought to provide the same answer: see the discussion by Lord Hoffman in the Privy Council of the inter-relationship between the two processes in Attorney General of Belize v. Belize Telecom Ltd [2009] UKPC 10.

The respective cases

In the Particulars of Claim Mr Leslie pleaded [§1] that:

“In July 2009 Mr Leslie and Mr Neil Farrar of Farrar Construction orally agreed that Mr Farrar of Farrar Construction and Mr Leslie would work together to identify sites which were suitable for residential development, that Mr Leslie would purchase the land, and that Farrar Construction would (in consultation with Mr Leslie) design, get planning permission, and build on the land. Mr Leslie would pay Farrar Construction the build cost incurred by Farrar Construction of the building works and half of the profit on the site, after all costs were taken into account and deducted. It was agreed and envisaged that this arrangement would cover several sites, as and when the opportunities arose, which it did.”

In the Defence and Counterclaim Farrar Construction pleaded that the Framework Agreement was made in Jan. 08, and that [§2.6]:

“There were express, alternatively implied, terms of the Framework Agreement that:

(a)

Farrar Construction would arrange the design of the properties and carry out the construction works at each site subsequently identified by the parties.

(b)

Mr Leslie would provide the funds to purchase the identified sites.

(c)

Mr Leslie would pay Farrar Construction its costs of designing and constructing the properties on each identified site.

(d)

Farrar Construction would request payment of the costs incurred or due to be incurred at interim stages, and Mr Leslie would make such interim payments.

(e)

Upon completion, the parties would commission an independent valuation report of the development. Mr Leslie’s costs in purchasing the land and Farrar Construction’s costs in designing and constructing the properties would then be subtracted from the valuation figure obtained. The parties agreed to take the resulting figure as the profit figure of each development (“the Profit”).

(f)

Mr Leslie would pay Farrar Construction 50% of the Profit following which Mr Leslie would retain title to the new development to exploit as he saw fit.”

By amendment the following was added [§2.6A]:

“As set out above, the parties agreed that Mr Leslie would pay to Farrar Construction it costs of designing and constructing the properties on each identified site. On the true construction of the parties agreement, under this term Mr Leslie was liable to pay to Farrar Construction the costs it incurred in fulfilling its obligations under the Framework Agreement, including:

(a)

The costs incurred in respect of each site for materials, labour and subcontracted labour.

(b)

The common costs of developing the sites incurred by Farrar Construction, including (i) the purchase and hire of vehicles and plant, (ii) costs of repairing vehicles; (iii) the cost of fuel; (iv) costs of training of labourers.

(c)

The administrative costs incurred by Farrar Construction in order to carry out its obligations under the Framework Agreement.”

It follows that the parties were agreed on the face of the statements of case that the relevant words used at the time the Framework Agreement was entered into – whenever that was - were “build costs” or “construction costs” or something similar (Footnote: ⁶), with no further discussion or agreement at the time as to what that meant. The witness statements and oral evidence did not in my view add anything material in relation to the question of what, if any, express words were used in that respect. I note that in his last witness statement Mr Farrar stated [§5] that it was discussed and agreed between himself and Mr Leslie from Jan. 08 onwards that build costs meant all costs incurred by Farrar Construction, both direct and indirect, but I am unable to place any weight on that evidence, which I regard as self-serving and unreliable, not least because: (a) it refers to an agreement being reached in Jan. 08, when I am satisfied it was not; (b) it was never previously articulated, notwithstanding its obvious importance; (c) in cross-examination Mr Farrar did not suggest that there had been any such specific discussion, not surprisingly because the gist of his evidence was that he had always agreed a budget in advance and limited his claim for build costs to the budget figure, so that he had never had to prepare, present or justify a claim for actual build costs prior to these proceedings. He accepted in terms that he had never discussed with Mr Leslie whether or not Farrar Construction would be entitled to charge its head office overheads.

Review of the relevant evidence

However, because of the debate as to when the Framework Agreement was entered into, and also because it is said by Farrar Construction that there was a discussion about build costs after completion of Dandy Mill Court which is relevant to the question of construction, it is necessary for me to review such relevant evidence as there is which might assist in the process of construction. This review, although unavoidably a little lengthy, will also be of relevance to issues 2 and 3.

In terms of contemporaneous documentation, there is very little to assist. There is nothing dating from Jan. 08, which itself tends to undermine in my view Farrar Construction’s case that this is when the terms were initially agreed. The first relevant documentation in time is some correspondence in May 08 passing between Mr Reader, Mr Leslie’s tax adviser (who was not called to give evidence), and Mr Throssell, following an earlier meeting, which was copied to the parties. In short, Mr Throssell had produced a spreadsheet which was intended to “clarify the potential position relative to the [Dandy Mill Court] development and the profit apportionment therefore under the basis we eventually agreed would be applied”. Frustratingly, despite the other 3 men having been sent a copy, the only version disclosed is extremely poorly copied so that it is virtually impossible to discern individual words. All that can be said with confidence is that it does not give any indication that any different words or more detailed description of “build costs” was used at that point.

At this time Dandy Mill Court was yet to be purchased. Mr Farrar says [§14-16 WS3] that before this meeting took place he had identified the site, and he and Mr Leslie had produced a scheme for building 11 dwellings for which they believed planning permission could be obtained, and it was at this point, and before the site was purchased (on 30 June 08) that the May 08 meeting took place. Mr Leslie did not give evidence disagreeing with this.

Mr Farrar also said [§10(d), 22 WS3] that a budget would be agreed at the outset for each development. In the case of Dandy Mill Court his position now is that a budget of £600,000 was agreed (Footnote: ⁷). Mr Leslie agreed [§8 WS1] that they had “projected the likely costs”. In §10(d) Mr Farrar said that it was agreed that Farrar Construction would stick to the agreed budget, whereas in §22 he said that it would “make every effort” to stay within the budget. In his oral evidence he insisted that a budget was always agreed in advance, arrived at on the basis of an estimated cost of £70/ft², but did appear to waver in his evidence as to whether that was a guaranteed maximum price or no more than an estimate. He did not suggest that he had explained to Mr Leslie how his budget price was made up, or whether it included (or excluded) any specific cost items. The contemporaneous documents contain many references by Mr Leslie to budgets – see for example the email at [p.1536] referring to Mr Farrar having produced a spreadsheet showing “the budgeted costs for each project” the previous year.

There is no evidence that any other sites had yet been specifically identified as at May 08. Nonetheless it is clear that the parties were not discussing Dandy Mill Court as a one-off project, but the first of what was hoped would be many others. Although Mr Leslie said, and I accept as correct, that at that time he would not have been prepared to commit to further developments until he had seen how well Dandy Mill Court had gone, it is clear in my judgment that Mr Leslie was interested in building up a substantial property portfolio through development, his plan being to rent out the houses once completed. It is also clear that he wanted to use Farrar Construction to do far more than simple building works, because it was agreed that it should (a) identify suitable sites; (b) assist with their acquisition; (c) procure the necessary design input and statutory consents; (d) provide a development budget for his agreement; (e) undertake the construction works through to completion. (Indeed subsequently it was also agreed that Ms Hale would manage the rental of the completed properties for Mr Leslie as well.) It is also clear that it was envisaged that Farrar Construction would be used on every such site, because there was no suggestion that it would need to put in a competitive bid at any stage either before acquisition or before the build began.

By around December 2008 Farrar Construction had, through architects instructed by it, obtained planning permission for Dandy Mill Court, and works had already begun.

By this time Mr Leslie had also acquired two other properties. The first is Manor Drive, which it is agreed fell within the Framework Agreement, and in respect of which Mr Leslie agreed he and Mr Farrar “projected” the likely costs. The second is Newmillerdam, as to which there is a dispute to which I shall return.

There is one contemporaneous document from this time, which is a file note made by Mr Throssell of a meeting he had with Mr Farrar and Ms Hale. It does not assist, save that it records that Ms Hale, who had recently begun working for Farrar Construction, would be responsible for producing “spreadsheets of receipts and payments and outstanding sales and purchase invoices for reconciliation purposes”. Thus it was clearly envisaged at that time that proper records of costs relative to each site would be produced. However there is no contemporaneous documentation showing how the build costs were dealt with during the build stage. It is common ground that a number of interim lump sum payments were requested, and payments made, on an informal basis with no interim invoice or supporting valuation or other detail being provided. Mr Leslie claimed [§12, WS1] that he made round sum payments when asked, on the basis that he trusted Mr Farrar, and that things would be sorted out when the project was completed and they both knew what the final cost was.

Dandy Mill Court was completed by May 09. It is clear that at that point some information as to costs was provided by Farrar Construction, because Mr Reader was able to produce a spreadsheet showing the projected profit share by reference to various figures, including what were described as “Farrar build costs”. This is of potential relevance for a number of reasons:

What is of some significance to Mr Leslie’s restitutionary claim is that neither in relation to Dandy Mill Court nor any of the other subsequent completed developments did he ask Farrar Construction to provide a detailed breakdown of its build costs at the conclusion of the project, prior to agreeing the profit share. There is no suggestion that he was told that one could not or would not be provided for him. When asked why he had not done so, Mr Leslie repeatedly stated that it was because he trusted Mr Farrar.

Whilst I have no doubt that Mr Leslie did trust Mr Farrar at the time, I am also satisfied that another equally important reason for Mr Leslie not seeking a breakdown was that he was not concerned so long as Farrar Construction was not claiming actual build costs in excess of the budget figure. Mr Farrar’s evidence is that he did not seek payment in excess of the budget costs. That is what he said in his email of 1 March 12. It is also what he said in his evidence. It is also consistent with the contemporaneous documents. Thus:

In short, I am satisfied that so long as Mr Leslie was happy that Farrar Construction was standing by the budget figure, and the profits were good, he saw no need to require Farrar Construction to take the time and trouble to provide supporting back-up, especially since he would doubtless have needed to pay someone to audit the material anyway if he was to make any use of it.

The final point to note about Dandy Mill Court is that the documents show clearly, as Mr Throssell had stated in his evidence, that it was agreed that the invoice submitted by Farrar Construction to Mr Leslie was to be kept as simple as possible, so that the final approved version did not break the invoice down into build cost and profit share, but instead simply claimed a composite figure of £955,000 for what was described as build costs. Although there was some suggestion in cross-examination of Mr Leslie that this was part of some deliberate ploy to maximise the tax relief which he could claim, no basis for a submission that there was anything unlawful or improper about any of this has been asserted or established.

By July 09, when Mr Leslie contended that the Framework Agreement was concluded, planning permission had been obtained in relation to Manor Drive, so that work was due to start on that development shortly. Moreover, Rowan Tree Court was acquired by Mr Leslie on 2 July 09, and Moverley Way was purchased by Mr Farrar at auction on behalf of Mr Leslie on 30 July 09, so that by this time both had already been identified and agreed upon as suitable properties for development. Thus it seems to me that what Mr Leslie was really saying when he identified July 09 as the date when the Framework Agreement was concluded was that it was at this stage, when Farrar Construction had completed Dandy Mill Court to his satisfaction, when other sites had been acquired, when work was due to start on Manor Drive and there were other sites in the pipeline, that a clear agreement that the joint venture agreement would operate as envisaged going forwards was reached. For what it is worth, it seems to me that the evidence shows that by May 08 the terms of the Framework Agreement had been settled as regards Dandy Mill Court, and by July 09 the parties were happy that those terms had worked well in relation to Dandy Mill Court and could thus be applied without the need to revise them in relation to the contemplated further developments, although they were also both aware that in practice so long as Farrar Construction was happy to stick to the original agreed budget it was unlikely that Mr Leslie would seek to insist on Farrar Construction providing a detailed breakdown of the actual build costs incurred.

There is no need to delve further into the chronology at this point, other than to mention some particular points which are, or are said to be, of relevance to issue 1, which appear from subsequent documents:

The competing arguments and my decision

Mr Leslie’s case is that build costs include site specific costs only, and not office overheads, nor does it include capital purchases such as plant and machinery.

Farrar Construction’s case is that build costs include direct and indirect costs, the latter including office overheads and capital purchases, in circumstances where it says that over the duration of the relationship it was devoting almost all its time and effort on Mr Leslie’s developments.

In my judgment it is reasonable to assume that the parties in this case, Mr Leslie as an experienced businessman with at least some prior knowledge of construction projects, and Farrar Construction as experienced builders, both advised by accountants, would have knowledge in general terms of the types of cost which a building contractor might incur on a development project such as this, namely:

It is also reasonable in my judgment to assume that the parties in this case would have knowledge in general terms that if a building contractor was to tender for a construction project, or to seek to recover payment under a contract on a reasonable price or a cost plus basis, it would be likely to: (a) quantify its direct costs of materials and labour; (b) depending on its size and organisation, either quantify or estimate its preliminary costs; (c) estimate a percentage (typically based on its accounts) addition to reflect its head office overheads; and (d) add a percentage addition for its profit element.

It is also reasonable in my judgment to assume that the parties in this case would have knowledge in general terms that in the case of a building contractor of the size and nature of Farrar Construction undertaking relatively modest projects of this kind the direct costs of materials and labour would be likely to be the most significant element of cost, followed by the preliminaries and then followed by the head office overheads. The quantity surveyors in this case gave evidence to the effect that they would expect overheads and profit in this type of project to be somewhere in the region of 10% and 5% respectively. I have no doubt that Farrar Construction would know this, and I consider it reasonable to assume that Mr Leslie would have a reasonable idea in general terms about this. I am also satisfied that both parties must have known that a 50% profit share was obviously very high in comparison with what a typical building contractor would expect to make as profit on projects of this kind. Of course they would know that a design and build contractor would expect a higher profit than a straight builder, and they would also know that in this case Farrar Construction was being incentivised to find suitable sites and take a significant role in the scheme design, statutory consent and cost management process, as well as in the construction management role. Nonetheless I am satisfied that they must have known that this was a generous profit share, which doubtless explains why Farrar Construction was willing to absorb its budget cost overrun on Dandy Mill Court and other developments and also to forego its profit share on Acomb and Moverley Way.

Furthermore, it seems to me that both parties must have been proceeding on the basis of mutual trust and confidence. Otherwise they would have taken up Mr Throssell’s advice to draw up a suitable agreement spelling out in more detail how the Framework Agreement would work. One can see that without that relationship there would be endless scope for disagreement, not least because whatever is counted as a cost gives that party a 100% return on that cost, as opposed to having to fund it from his 50% profit return. So for example Mr Leslie might have been tempted to argue that he should be entitled to add his indirect land acquisition costs, such as survey or legal fees, or even bank interest on the purchase price, to the acquisition costs, and Farrar Construction might have been tempted to add every conceivable head of indirect cost of its organisation to the costs. That is obviously not how it was intended that the relationship should work, in that the arrangements proposed by the accountants, and followed through in relation to Dandy Mill Court and subsequent developments, proceeded on the basis of taking the land acquisition cost and budget build cost alone, with the separately negotiated one-off project management fee for Dandy Mill Court, and thus on the basis of trust and an expectation that both parties would fund their indirect costs from their profit share.

Finally, it is obvious that whilst in general terms direct material and labour costs can relatively easily be allocated to a specific site, as can site specific preliminary items, it is much more difficult, if not impossible, to do the same in relation to head office overheads and other non-site specific indirect costs.

It follows, I am quite satisfied, that Farrar Construction was not entitled to add any element of head office overheads or non-site specific general business costs to its build costs, on the basis that: (i) they do not naturally fall within the ordinary meaning of the word build costs; (ii) the commercial context strongly suggests that the parties, objectively, intended that they would be covered by the profit share. Furthermore, this is not a case where it can be said that it was known and accepted at any relevant time that Farrar Construction was only working on developments within the Framework Agreement over the whole of the relevant period, so that it could be said that Mr Leslie must have known that all costs incurred by Farrar Construction related to the cost of building these developments. Moreover, even if they were, the need under the Framework Agreement for the costs to be allocated to individual developments in order to ascertain the profit share militates against any conclusion that they could all simply be treated as build costs in some more general sense.

So far as preliminaries (indirect site specific costs) are concerned, I am satisfied that they would, both on the basis of the ordinary meaning of the words, and in the commercial context, be included as build costs, because they are directly attributable to the process of building on that site, and can be demonstrated to be such.

However, so far as the capital cost of plant and machinery is concerned, it seems to me that the whole cost of these purchases cannot properly be included. That is because: (a) it is not said that the value of the plant and machinery in question has diminished to nil over the period of time in question, so that it retains no residual value for which credit would have to be given; (b) Mr Farrar accepts, and the evidence shows, that over the period in question Farrar Construction was not working solely on developments for Mr Leslie. Thus it was on any view undertaking a substantial amount of work on Storthes Hall, which has nothing to do with the Framework Agreement, and on his own farm. It was also engaged on other projects, albeit I accept modest in comparison with these developments. Thus it cannot be said that the capital cost is entirely, or even almost entirely, incurred in relation to the developments being undertaken for Mr Leslie.

It would, I accept, be proper in principle to include an allowance for depreciation, pro rata’d to the time over which and the extent to which specific plant and machinery had over the relevant financial period been used on a specific development. Alternatively, Farrar Construction could claim for the notional hire cost of plant and machinery over the period on which it had been used on site. Indeed, Farrar Construction could have attempted to prove, by reference to appropriate evidence, what is its case, namely that claiming the capital cost on some suitable apportioned basis results in a claimed cost which is less than the depreciation or hire of equivalent cost, but in my view all of these possible approaches are different in principle from seeking to recover the actual cost of purchase.

It follows that the answer to issue 1 is that Farrar Construction can recover as build costs in relation to each development: (1) the direct cost of labour and materials employed on that development; and (2) site specific indirect costs (preliminaries) incurred in relation to that development, but that (3) it can not recover as such the purchase cost of plant and machinery employed in relation to that development, nor non-site specific general business costs including head office overheads.

AT WHAT POINT AND IN WHAT CIRCUMSTANCES WOULD THE FRAMEWORK AGREEMENT APPLY TO A PARTICULAR DEVELOPMENT?

The real issue between the parties, as it seems to me, is whether: (a) as Mr Leslie claims, it was necessary for there to be a specific agreement to the effect that the Framework Agreement would apply to a particular site or development before its terms applied thereto, or; (b) as Farrar Construction claims, so soon as a particular site was identified, it was agreed that it should be acquired and developed, and it was acquired, the terms of the Framework Agreement applied to that site. It is relevant because as part of his case that some of the disputed developments do not fall within the Framework Agreement Mr Leslie relies upon the absence of an express agreement to the effect that they should, whereas Farrar Construction says that there was no need for an express agreement each time a site was acquired.

There is no suggestion by either party that they expressly discussed or agreed upon this issue at the time each says that the Framework Agreement was concluded. Thus this is not an issue, unlike issue 1 above, which can be answered by construing the words used by the parties in reaching their agreement, because they used no words specifically directed to this issue. In my judgment therefore what the court has to do is to construe the whole of the agreement made by the parties so as to answer the issue by the approach of interpretation or implication identified by Lord Hoffman in the AG of Belize case (above).

Resolution of this issue has to some extent been complicated by the fact that it previously arose in the different context of the previous adjudication, where it suited both parties at the time to contend for a somewhat different position from that which they now adopt. Thus:

It does not seem to me that I can place any reliance on what either party said in the adjudication; their respective positions were clearly highly artificial and driven by their respective interests at the time. The same is true, in my judgment, of their evidence on this issue in this case. I am not assisted by retrospective and self-serving purported recollections in relation to an issue which, I am satisfied, did not arise directly or indirectly at the time the terms of the Framework Agreement were agreed or at the time when the individual sites were identified or acquired.

Moreover, as was observed in closing argument, there are obvious commercial difficulties in the positions taken by both parties.

Thus on Farrar Construction’s case, as soon as a site identified by Mr Farrar was acquired by Mr Leslie it fell within the Framework Agreement and Mr Leslie came under a binding obligation to develop it under that agreement, thus committing himself to development by Farrar Construction, funded by him, and to sharing any eventual profit equally with Farrar Construction. Mr Leslie can say with some force that:

However Farrar Construction can say with some force that Mr Leslie’s case is equally commercially unsatisfactory by reason of the following matters:

In considering this issue I have been assisted by the helpful analysis of the adjudicator, Mr Pye, who also had to attempt to decide this issue in order to decide whether he had jurisdiction to entertain the claim by Farrar Construction in relation to Methley. He decided [§41-46] that the Framework Agreement was not an agreement which bound the parties in relation to all, or any, future dealings, because it was insufficiently certain to do so in the absence of agreement in relation to any individual site as to matters such as scheme design, budget cost and timescale, and because Farrar Construction was not obliged to locate specific sites and Mr Leslie was not obliged to acquire or to develop them.

In my judgment the Framework Agreement does not, whether expressly or by any proper process of interpretation or implication, provide a complete answer to this issue. At the time they entered into the Framework Agreement in relation to Dandy Mill Court all that the parties needed to do was to reach agreement as to the terms which would apply to that development. They also undoubtedly expected that the same terms would apply to any subsequent development but, I am satisfied, neither had any intention at that stage of being bound to commit to subsequent developments, or indeed to those terms, as regards any such subsequent developments. I am satisfied that Mr Leslie is correct when he says they would want to see how Dandy Mill Court worked out before committing themselves to further developments. All that can be said is that what was contemplated at the time was that if the Dandy Mill Court development undertaken under the Framework Agreement worked well the parties would enter into further development agreements on the same terms. There is no indication that there was any further discussion or agreement in relation to this matter either as at May 09, when Dandy Mill Court had completed, or July 09, when the further development at Manor Drive was about to begin and further sites were being acquired. All that can be said is that by that time, the parties not having agreed to revise the terms of the Framework Agreement, they would have assumed that those same terms would govern further developments, but that does not answer the essential question as to at what point they would apply.

It follows, in my judgment, that the question as to whether the Framework Agreement applied to a further development can only be answered by reference to what was said and done in relation to that particular development. However, importantly, I am also satisfied that it would not be necessary for there to be an express agreement that the Framework Agreement should apply to a particular development in order that it should apply. That is because:

In my judgment the fact that the Framework Agreement might apply to a particular development without express agreement to that effect at the time, and before construction had begun, would not operate unfairly on Mr Leslie by reason of the following matters: (a) the Framework Agreement could never apply to sites which Mr Leslie had acquired without reference to or input from Farrar Construction without his express agreement; (b) it would always have been open to Mr Leslie to make it clear at the time of acquisition that he was not intending that it should be developed under the Framework Agreement; (c) the Framework Agreement did not impose any obligation on Mr Leslie to develop the site, either at all or within some specified time. Thus if, before construction began, the parties were unable to agree the scheme design or budget costs or timetable or some other important matter, Mr Leslie could simply decline to proceed; (d) if Farrar Construction’s conduct in relation to a particular development was such as to amount to a serious or persistent failure to act in accordance with the express and/or implied terms of the Framework Agreement, Mr Leslie would have the option of terminating its performance of the building works and/or terminating the development agreement for repudiatory breach.

I do not suggest that these factors are a complete answer to all of the objections raised by Mr Leslie. I can see that some difficult questions might have arisen as to the nature and extent of the parties’ respective obligations to each other in relation to a Framework Agreement development in certain circumstances. In particular one point which arises in this case is this: what happens if Mr Leslie acquired a site to which the Framework Agreement applies on the above basis, but that at some stage, either before construction begins or subsequently the parties fell out and Mr Leslie no longer wished to allow Farrar Construction to complete the build works, whether for good reason or bad. Was he entitled to use other contractors without owing any obligation to Farrar Construction either to allow it to undertake the build or to pay the 50% profit share?

In my judgment the answer, based on a true construction of the Framework Agreement, must be as follows:

One further potentially difficult question which arises is whether or not in such circumstances the 50% profit share is to be calculated on the basis of what it would have cost Farrar Construction to undertake the work, or what it would have cost Mr Leslie to employ other contractors to undertake work. In my judgment that would depend on whether Mr Leslie could prove that he was entitled to exclude Farrar Construction’s right to undertake or complete the works. If he could, as a result of Farrar Construction’s anticipatory or actual breach of the Framework Agreement (i.e. that it was simply unable to undertake or complete the build to a reasonable cost or standard or timetable), then it seems to me that he would be entitled to deduct the extra costs to complete, which has the effect that Farrar Construction only receives 50% of the actual profit, as opposed to the profit it would have received had it undertaken the development itself. If however he could not prove that, then he would have to pay Farrar Construction based on such lesser cost as it can prove it would have incurred to complete.

In summary, therefore, my answer to issue 2 is that the terms of the Framework Agreement only applied to a particular development if that conclusion can be drawn by reference to what was said and done in relation to that development, but that it is not necessary for there to be an express agreement that they should apply to that development before they can do so.

TO WHICH IF ANY OF THE DISPUTED DEVELOPMENTS, VIZ: (i) NEWMILLERDAM; (ii) TALBOT ROAD; (iii) AKETON ROAD; (iv) HOLYWELL LANE; (v) LINDLEY DID THE FRAMEWORK AGREEMENT APPLY?

Adopting the approach in (2) above, I now proceed to consider and decide to which of the disputed developments the Framework Agreement applies.

Newmillerdam was acquired in Nov. 08. Mr Farrar says, and I accept, that he had located and bid for it at auction, paying the deposit. He says that it already had planning permission, and that it was agreed that it should be developed under the Framework Agreement but that it was also decided, in view of the then prevailing difficult economic conditions, that the build itself would be put on hold. Mr Leslie’s evidence was that whilst Mr Farrar was keen to develop the site, he was not prepared to do so in light of the economic conditions, and that there was no agreement to proceed with the development under the Framework Agreement. He also denies that Mr Farrar ever produced a budget. Mr Farrar’s position is that a £850,000 budget was agreed.

Mr Throssell’s file note of Dec. 09, to which I have already referred, records Mr Farrar’s expectation that work on Newmillerdam would start in Feb. 09. It is clear however that this did not happen. I am satisfied that this was because Mr Leslie wanted to see Dandy Mill Court successfully completed before starting another development. It appears from the evidence (see Mr Leslie §18 WS1 and see also the purchase ledger at [p.2439]) that the next development to proceed was Manor Drive, where work started in June – July 09. It appears that for some reason, which is not explained in the contemporaneous documents or in the evidence, it was decided that this should be developed next in preference to Newmillerdam. The most likely explanation, I infer, is that the extant planning permission for Newmillerdam was for 5 bedroom detached houses, which may not have suited Mr Leslie’s then desire to develop housing for rental.

The contemporaneous documents do however record that in or around Oct. 09 Farrar Construction was contacted in relation to the local authority’s concern that a retaining wall at Newmillerdam was in danger of collapsing and that urgent works were required. (Although at one point Mr Leslie had suggested that this was not the case, and that Mr Farrar had lied about this, it seems clear that he was completely mistaken about that.) The end result was that the work was done and paid for by Farrar Construction at a cost of some £8,000.

The correspondence also shows that there was a realisation that if work was not commenced by Aug. 10 the extant planning permission would lapse. That is relevant because on 1 July 10 Mr Leslie emailed Mr Farrar [p.1432] asking for confirmation that “works have commenced on [Newmillerdam]”. That seems to me to be inconsistent with Mr Leslie’s evidence that Newmillerdam was nothing to do with Farrar Construction or the Framework Agreement.

Moreover, in the same month, on 21 July, Mr Leslie sent an email to Mr Farrar [p.1435] recording a meeting held the previous day at which there had clearly been a high level discussion about the relationship moving forwards and in which, at §13, he set out “land ownership details with approximate costs and provisional capital expenditure amounts to develop”, including Newmillerdam with a site development cost of £800,000. In my judgment that email is consistent with Mr Farrar’s evidence that this was, at the time of acquisition, the subject of an agreed budget estimate, and seen as a site which would be developed under the Framework Agreement, albeit that an immediate start was not discussed or agreed and, as matters transpired, development was then deferred in favour of Manor Drive. It also seems to me to be clear from §11 & 12 of that e-mail that Newmillerdam was seen as falling within the “land bank” which had been assembled and was scheduled to be developed within the next 2 – 3 years.

It is evidently the case that after Manor Drive was completed other developments were begun and completed, again in preference to Newmillerdam. It is also evidently the case that as at July 13, some 3 years after that e-mail, development had still not begun. However, there is no evidence that at any time from July 10 to July 13 there had been any discussion let alone agreement to the effect that Newmillerdam was no longer included within the sites which it was agreed should, when conditions were right, be developed under the Framework Agreement. Moreover since Mr Leslie has proceeded to employ Mr Battye to undertake the building works at Newmillerdam, in accordance it appears with the original planning permission, it cannot be said by Mr Leslie that he never had any intention to develop the site in accordance with the planning permission with which it was acquired.

It follows in my judgment that as at July 13 Newmillerdam was a development to which the Framework Agreement applied.

Talbot Rd was acquired in March 2010. It was conveyed to Farrar Construction, but agreed that the company should hold the property on trust for Mr Leslie, who provided the purchase monies, and this was accomplished by deed of trust dated 1 Feb. 11. Mr Leslie says [§21 WS1] that this was at his suggestion, to allow Mr Farrar to develop it independently. Mr Farrar says [§70-71 WS3] that this site was acquired to be developed under the Framework Agreement, with a view to obtaining planning permission for 7 houses, but that he could only obtain planning permission for 5 houses. Mr Farrar’s evidence is more consistent in my view with the trust deed, which provides that Farrar Construction holds not just the property, but the net sale proceeds and income from it, on trust for Mr Leslie. If the idea had been that Mr Farrar should develop it himself, and keep the profit, the charge would have been limited to repayment of the purchase price.

Moreover, in the same way as with Newmillerdam this development is included in Mr Leslie’s email of 21 July 10, which again is powerful evidence in my judgment that at the time Mr Leslie considered that this fell within the Framework Agreement.

Furthermore, in an email of 5 Dec 10 [p.1451] Mr Leslie asked Ms Hale, copied to Mr Farrar, to ascertain the estimated rental and sale values for 4 properties on this site, so that “we can establish … the most profitable decision to make”. That is also powerful evidence in my judgment that at the time Mr Leslie considered that this site fell within the Framework Agreement.

Further support is to be found in Mr Leslie’s e-mail of 5 Feb. 12 [p.1504], where he asks Mr Farrar to try to obtain planning permission for a different house design.

Finally, Mr Leslie himself positively asserted that the Framework Agreement applied to this development at §5 of his witness statement served in the adjudication.

For all of those reasons I am satisfied that Talbot Rd does fall within the Framework Agreement.

For completeness I should record that reference has been made by Mr Leslie to some agreement whereby Farrar Construction would exchange its entitlement to profit share in relation to Minsthorpe for Mr Leslie releasing his charge on Talbot Rd. However this does not assist him for a number of reasons:

Aketon Rd was acquired in Nov. 09. Mr Farrar’s evidence is that it was agreed before acquisition that planning permission would be applied for, and that it would be developed in the same way as the other sites. He says that after acquisition he was approached by the owners of an adjacent plot, who proposed a joint development. He says that this was discussed and agreed with Mr Leslie, and that Farrar Construction applied for planning permission, which was initially refused but, after a long and protracted process, permission was finally granted in May 13. He says that Farrar Construction undertook initial site clearance and securing works, totalling £32,500, for which it was paid by Mr Leslie.

There is nothing in Mr Leslie’s witness evidence which significantly contradicts Mr Farrar’s account. He does refer to being exasperated about not being kept informed about developments in relation to this site, and also refers to his e-mail of 7 May 13 [p.1977], following a meeting to discuss the various sites, in which he notes a plan that Mr Farrar would “try to get the third party to fund this as was originally discussed”.

The contemporaneous documents support Farrar Construction’s case, in my judgment. In particular:

In my judgment, therefore, the site at Aketon is subject to the Framework Agreement.

Mr Leslie acquired this site in March 12. It is common ground that Mr Farrar identified the site to Mr Leslie as one which had the benefit of existing planning permission. It is Mr Farrar’s evidence that it was agreed that this site would be “land banked”, to be developed at some suitable time after Minsthorpe and Methley had been completed. Mr Leslie said that it was a difficult site to develop, which is why he has not done so. It is common ground that it has not yet been developed, and that no work has been done on it by Farrar Construction.

Mr Farrar says that nonetheless there was an agreement to develop it under the Framework Agreement, whereas Mr Leslie says that he never made any specific agreement with Mr Farrar that it should be developed under the Framework Agreement. In cross-examination he said that he purchased it without seeing it, on the faith of what he was told by Mr Farrar, to the effect that it would be a profitable development for both parties.

In my judgment this site was acquired by Mr Leslie on the basis that he and Mr Farrar had discussed it, agreed that it would be profitable, and therefore that it was to be acquired and developed in the same way as the previous sites, albeit that nothing would start until after Methley and Minsthorpe had completed. It follows, I am satisfied, that it is a development to which the Framework Agreement applies, by necessary inference.

It is common ground that the site at Lindley was identified initially by Mr Smith, but that Mr Farrar was involved in viewing the site and in purchasing it at auction.

In his evidence Mr Leslie said, in effect, that whilst there was consideration about building Q homes (Footnote: ¹¹) at this site, he had never agreed with Mr Farrar to undertake any particular type of development at this site, or any budget costs for so doing, and any decision as to whether to build Q homes and to apply for planning permission to do so was subject to Kirklees Council looking favourably upon the Q homes being built at Methley, which never happened prior to July 13 because of the failure by Farrar Construction to complete that development.

Mr Farrar says that it was purchased with a view to development, with no suggestion that the Framework Agreement should not apply to it, and that he was fully involved in the decision to proceed to obtain planning permission for Q homes and to proceed to develop it on that basis.

It is common ground that Farrar Construction did undertake some preliminary works in relation to the site, for which it has claimed payment of £9,100, although Mr Leslie says that these works were never authorised by him, and he does not accept Mr Farrar’s explanation that he erected fencing on site because he was contacted by the police who were concerned that the site was a danger to local children. However Ms Hale’s evidence appeared to confirm Farrar Construction’s position.

In my judgment the contemporaneous correspondence supports Farrar Construction’s case that at the time this was viewed as a site which would be developed, and that nothing was said or done, expressly or impliedly, to make it plain that it would not be subject to the Framework Agreement. Thus:

I am therefore satisfied that the site at Lindley fell within the Framework Agreement, on the basis that at all relevant times both before and after purchase the parties conducted themselves on the basis that it did, and Mr Leslie said or did nothing which made it clear that it was not. Whilst I accept that at no point prior to July 13 was final agreement ever reached as to the scheme design or budget, that is not in my judgment a reason for concluding that the Framework Agreement did not apply.

In conclusion, therefore, I am satisfied that all five disputed sites fell within the Framework Agreement.

WAS THE FRAMEWORK AGREEMENT ENDED BY MUTUAL CONSENT OR BY FARRAR CONSTRUCTION ACCEPTING MR LESLIE’S REPUDIATORY BREACH?

The parties devoted some considerable detail in their statements and some considerable time in evidence on the circumstances leading up to the meeting of 4 July 13, debating whose was at fault for the situation which pertained as at 4 July 13 where, as Mr Farrar agreed, both Minsthorpe and Methley were delayed and over budget. However it is important to emphasise that neither party is contending that what the other did, or did not do, in the run-up to 4 July 13 itself amounted to repudiatory breach. Thus it is Farrar Construction’s case, as I have said, that what Mr Leslie said and did on and after 4 July 13 amounted to repudiatory breach, in that it was effectively removed from Minsthorpe and Methley and told that the Framework Agreement was terminated for the future, whereas it is Mr Leslie’s case that there was a termination of the Framework Agreement by mutual agreement at that meeting.

Mr Leslie does not plead or advance a positive alternative case to the effect that even if there was no mutually agreed termination he was entitled to terminate the Framework Agreement for repudiatory breach on the part of Farrar Construction. That is not particularly surprising, given that Mr Leslie would have been unable to point to any prior correspondence in which Farrar Construction was given an ultimatum to the effect that unless it completed the developments at Minsthorpe and/or Methley within a specified time and to a specified budget it would be treated as being in repudiatory breach.

It does nonetheless follow that I do not need to conduct what would have been a factually intensive investigation into the reasons why the developments had not been completed on time and to budget on 4 July 13, save insofar as relevant to considering whether the outcome of the meeting was the result of unilateral act by Mr Leslie or mutual consent. As I have said, Farrar Construction is contending is that this was the final scene in a pre-planned campaign, orchestrated by Mr Smith, to oust Farrar Construction and replace it with a contractor who would do the work for a lesser profit share, whereas Mr Leslie is contending that Mr Farrar was quite happy to agree a mutual termination because Farrar Construction’s position was such that it had no prospect of completing the developments anyway, and also that the poor and unfinished state of the developments, coupled with the amount already paid to Farrar Construction pre-termination, explains the poor financial outcome which he contends has arisen in relation to each.

Chronology of relevant events

By way of summary, so far as Minsthorpe is concerned, prior to spring 13 the position was as follows:

So far as Methley is concerned:

It is clear that by spring 13 Mr Leslie and Mr Smith were concerned that the timetable for completion for both sites had slipped, and that the budget was overrunning. At a meeting, confirmed by subsequent emails, it was agreed that Farrar Construction required and would be paid further interim payments of £50,000 to complete Minsthorpe and £75,000 to complete Methley [pp.1919, 1930A]. I am satisfied that Mr Farrar was fully aware that Mr Leslie was very keen for Methley to be finished as soon as possible, because Mr Leslie wanted to show the completed Q homes to the planning committee at Kirklees, with a view to promoting the prospects of obtaining a suitable planning permission for Q homes at Lindley. In early April 13 Mr Farrar was chasing payment of the first instalment, stating that Farrar Construction was “struggling” financially [p.1930], but still expressing his confidence about Methley, stating that it had “entered the final stages of the build” [p.1931].

By the end of April 13 however relations had distinctly worsened, with Mr Leslie writing an angry e-mail complaining about a wide range of matters [p.1937]. This prompted a further discussion and a further more conciliatory e-mail from Mr Leslie of 7 May 13 [p.1977] in which he confirmed agreement on various matters. As regards Methley, he recorded that it had been agreed that it would be completed by 31 May 13, with the £75,000 previously agreed upon, plus profit share, to be paid in “full and final settlement”. This was agreed by Ms Hale in her email of 9 May 13, copied to Mr Farrar [p.1981]. Although there was some delay in payment of the £75,000, it was paid by mid-May 13 [p.2003].

At around this time Farrar Construction was evidently facing pressure from Mr Leslie’s son to complete work at Storthes Hall. Mr Farrar accepted in evidence that labour was transferred from Methley and Minsthorpe to meet the deadline on Storthes Hall.

Mr Smith said that he visited site on 22 May 13 and noted that the site appeared deserted and unsecured. This provoked another angry e-mail from Mr Leslie to Mr Farrar [p.2009] complaining that there was no chance of completion by 31 May 13. Whilst it appears from cross-examination of Mr Smith and Ms Hale that Mr Smith may well have visited too early in the morning to see workers on site, and that the site being left unsecured was just an unfortunate mistake, nonetheless it is plain that Methley was not going to be completed by the end of May or shortly thereafter, and nor was it. This was particularly unfortunate because Mr Leslie had arranged for the planning committee to visit the completed development in early June 13, and he had to cancel that visit.

The next meeting took place between Mr Smith, Mr Farrar and Ms Hale on 20 June 13. Mr Smith’s email later that day [p.2022] recorded a further promise by Farrar Construction to complete Methley in 4 weeks. In his witness statement Mr Smith had said that other matters were discussed, which were not recorded in his e-mail, but I am satisfied that he is wrong about this and is confusing this meeting with the subsequent meeting on 4 July 13, which was arranged to take place when Mr Leslie could attend.

There is only one contemporaneous handwritten note of the meeting held on 4 July 13, made by Ms Hale. As relevant, it contains the following notes:

Furthermore, there was no detailed e-mail sent by Mr Leslie, Mr Smith or Mr Farrar after the meeting to record what had been discussed and agreed. The only immediate subsequent correspondence was an email from Ms Hale [p.2047] asking Mr Leslie to provide details of the contractors who were “taking over the site”. Mr Singer submitted that the absence of any protest in this e-mail showed that at the time Mr Farrar did not believe that Mr Leslie had wrongfully repudiated the Framework Agreement. I do not accept that argument; I view that e-mail as neither proving nor disproving anything in particular. Indeed it is clear that neither party directly addressed the question as to the status of the Framework Agreement going forwards in subsequent correspondence. The period following the meeting can best be described as something of a phoney war, with both sides skirting around the question as to what would happen next. It appears that another meeting was arranged for 24 July 13 to seek to resolve matters, but on 23 July 13 Mr Leslie cancelled that meeting, leading to an angry response from Mr Farrar in circumstances where he believed, rightly or wrongly, that this was just a delaying tactic, but again nothing substantive was said by either party in correspondence.

The phoney war continued throughout August 13, but on 5 Sept. 13 solicitors then instructed by Farrar Construction, Hawkswell Kilvington (“HK”), wrote what was effectively a “letter before adjudication” to Mr Leslie [p.2247], asserting claims under what it contended were two separate design and build contracts in relation to Methley and Minsthorpe. They contended that Farrar Construction had submitted applications for payment on 16 July 13 under both contracts (c. £47,000 in each case) which had not been paid or challenged. They also claimed that Mr Leslie’s conduct in terminating its employment under those contracts was repudiatory and was accepted by Farrar Construction as such, and that it was entitled to damages representing its loss of its 50% profit share, estimated at c. £126,000 for Methley and c. £191,000 for Minsthorpe.

Mr Leslie instructed his present solicitors, Baxter Caulfield (“BC”), to reply. Their letter dated 17 Sept. 13 [p.2258] asserted that Farrar Construction’s “engagement … was terminated” on the basis of his failure to complete Methley and Minsthorpe in accordance with the agreements made and his admission that he had not used the funds supplied for those sites and could not guarantee that he would use any further funds supplied for those sites either. They disputed that any application for payment had been made, let alone substantiated, and asserted that Mr Leslie had “no further liability” to Farrar Construction. Nothing specific was said by either party at this point as regards the status of the other developments.

On 18 Sept. 13, Farrar Construction commenced adjudication proceedings in relation to Methley. It is apparent from the Notice, Referral and supporting documents that the claim for outstanding unpaid build costs was based on the gross amount contained in the PL development cost summary produced by Mr Beighton, which included VAT charged to Farrar Construction by its suppliers, less payments made of £320,000 (Footnote: ¹²). I have already referred to the submissions exchanged in the adjudication, and need say no more about them, nor as to the decision itself, save to note that: (1) the adjudicator did not award the claimed outstanding unpaid build costs, because he was satisfied that Farrar Construction had wrongly claimed VAT in the build costs claimed against Mr Leslie, and that once VAT was netted off nothing more was due; (2) the adjudicator did award damages for breach of contract, being satisfied that Mr Leslie had wrongfully repudiated the Methley contract.

Discussion and conclusion

As I have said, it is Mr Leslie’s case that the result of the meeting was that the Framework Agreement was terminated by mutual consent, whereas it is Farrar Construction’s case that it was unilaterally terminated by Mr Leslie, and that such conduct was repudiatory.

I must deal first with Farrar Construction’s case that Mr Leslie went in to the meeting with the predetermined aim of terminating the Framework Agreement, in order to replace Farrar Construction with a contractor who would not be seeking a 50% profit share. I reject that argument, for the following reasons.

Firstly, I accept that prior to the meeting Mr Leslie and Mr Smith had started to plan for the eventuality that they would have to replace Farrar Construction on Methley and Minsthorpe. I reach that conclusion for a number of reasons:

Secondly, however, I accept Mr Smith’s evidence to the effect that even as at 4 July 13 they did not want to terminate the relationship unless there was no other realistic outcome. That is simply because, as Mr Smith said, it would be very difficult and time consuming to replace Farrar Construction on a part completed site, especially when Ms Hale was already heavily involved in the sales of the properties, so that it would have made much more sense to come to some acceptable arrangement with Mr Farrar if one was available. Whilst it is true that the financial arrangements entered into with the replacement contractors are less onerous to Mr Leslie than those agreed with Farrar Construction, that ignores the fact that Mr Leslie plainly agreed with Mr Farrar at the meeting that he would honour the profit share agreement in relation to Methley and Minsthorpe. Since he subsequently put that in writing in his e-mail of 11 July 13 [p.1152], and maintained it in his Defence to Counterclaim and in his evidence, there is no reason in my judgment to believe that this statement was a cynical sham.

I am therefore satisfied on the balance of probabilities that what happened was that Mr Leslie and Mr Smith went to the meeting expecting to be able to extract some acceptable agreement, possibly involving some further modest payment to complete Methley and use the sale proceeds to fund the completion of Minsthorpe. I am satisfied that they were genuinely surprised when Mr Farrar told them that he was not willing or able to finish Methley unless he was paid a further £50,000. I accept that he was asked, rhetorically, how could Mr Leslie have any confidence that it would not be spent on other projects and his reply was to the effect that if Mr Leslie held that view he could not expect to change his mind. I do not accept that Mr Farrar said that even if Farrar Construction was paid another £50,000 he could not guarantee to finish off Methley; that is not what Mr Leslie said had happened in his witness statement at [§73 WS1], nor do I think it likely that Mr Farrar would have said this. I am satisfied however that at this point in the meeting Mr Leslie lost his temper and said that he was not prepared to pay any more, and that he was going to finish Methley and Minsthorpe himself using other contractors, and he asked Mr Farrar to give him the keys.

I am also satisfied that Mr Farrar did not state in clear terms that Farrar Construction was willing and able to finish the developments, even without extra payment, or that he was contesting the decision to remove him from Methley and Minsthorpe, or that he regarded Mr Leslie’s decision to remove him as a breach of contract. I am satisfied that this was because he knew that without extra funds Farrar Construction simply did not have the resource to finish off the sites, in circumstances where – as he admitted in evidence - he knew that Farrar Construction would need at least another £50,000 to finish off Methley and at least another £100,000 to finish off Minsthorpe, taking them both way over budget. I am also satisfied that he did not believe, correctly in my view as a matter of law, that he would have been able to insist on Farrar Construction being allowed to finish the building works on Mr Leslie’s sites if Mr Leslie did not want to let him do so.

Nonetheless he was obviously concerned to ensure that Farrar Construction’s entitlement to any profit on these developments was acknowledged by Mr Leslie, who was prepared to and did give his commitment to honour his obligation in that respect. That is important, because in those circumstances: (a) it could not in my judgment have been assumed by Mr Leslie that Mr Farrar was agreeing to the Framework Agreement overall being terminated by mutual consent in relation to Methley or Minsthorpe; but equally (b) nor could it in my judgment have been assumed by Mr Farrar that what Mr Leslie said and did at the meeting in relation to Methley and Minsthorpe was repudiatory. In short, it seems to me that Mr Farrar accepted that Farrar Construction was going to be replaced in finishing the outstanding works at those sites, but was going to receive its profit share once the sites were completed.

There was no discussion about how the costs to complete these developments should be assessed, i.e. whether they should be the costs which Farrar Construction might have incurred to complete or the costs which Mr Leslie would actually incur, or some other measure. Doubtless that is because at the time the question had simply not occurred to anyone. In my view the only reasonable answer in the circumstances is that in the event of any dispute it would be the cost of completion by a third party contractor, so long as reasonable, but net of profit, because I am satisfied that: (a) Mr Leslie was reasonably entitled to assume that Mr Farrar was not contesting the decision to engage other contractors to complete the works; (b) Farrar Construction would not, in my judgment, have been able to complete the works anyway at that point, and it has failed to prove a positive case, even if one was advanced, that it was entitled to receive additional interim payments from Mr Leslie in early July 13 in the amounts which it believed it needed to complete the works. However, equally, I do not consider that Mr Leslie can contend that the actual costs of completion incurred by him are recoverable, even if they exceed what would be a reasonable cost, because this is not a case where he has pleaded or established a case to the effect that he was entitled to and did take over the remaining works as a result of Farrar Construction’s pre-existing breach of contract, so that the actual costs of completion can be recovered as a damages.

What, if anything was said about the other developments? It is clear from Ms Hale’s note that there was some discussion about the other sites, but there is no indication that there was any discussion about them proceeding, with or without Farrar Construction, or that there was any discussion as to whether Farrar Construction would be entitled to any profit share on any developments if and when they were to proceed. In his witness statement Mr Leslie said [§74 WS1] that “I said to Mr Farrar that I did not see how we could carry on and that it appeared we ought to go our separate ways”. I also note that in cross-examination Mr Leslie said that he had told Mr Farrar at the meeting that the relationship was over due to Farrar Construction’s failure to perform at Methley and Minsthorpe. It is clear that both men left the meeting understanding that the relationship was over for the future, and that although Mr Leslie was prepared to honour the profit share agreement in relation to Methley and Minsthorpe he was not prepared to involve Farrar Construction in any future developments. Although he may not have said so in terms, in my view that was clearly meant and understood as a statement that he did not regard himself as under any obligation to pay any further profit share to Farrar Construction in relation to those developments.

Again I am satisfied that although Mr Farrar did not positively contest this statement, neither did he state in terms that he agreed with it. Essentially, it seems to me that he reserved his position. It appears that he was envisaging that there would be a further meeting at which these points could be thrashed out, but once Mr Leslie cancelled the subsequent meeting he realised that there was no prospect of the relationship continuing.

In such circumstances it seems to me that it cannot be said that there was a clear agreement at the meeting or thereafter that the existing contractual obligations were to be varied and replaced with an obligation whereby Mr Leslie would pay only any profit share on Methley and Minsthorpe, with Farrar Construction waiving any right to be involved in any way with the further developments, including any right to claim a profit share whether or not it undertook the build. Although Mr Farrar did not write immediately after the meeting to challenge the decision, nor did he write to accept it and nor, for that matter, did Mr Leslie or Mr Smith write after the meeting purporting to record that such an agreement had been reached.

In the circumstances, in my view Mr Leslie’s conduct was repudiatory. That is because at that point there was no sufficient basis, judged objectively, for Mr Leslie taking the view that Farrar Construction’s conduct was such as to justify such a drastic step in relation to all of the existing developments where no works had yet begun. It may well be that at the time he took (and indeed now remains of) the view that he was under no obligation to allow Farrar Construction to participate in the development of the sites where no development had yet started, but that cannot provide an excuse for depriving Farrar Construction of the opportunity to earn its profit share in relation to those developments. Even if I am wrong about that, and even though there was no express reference to the other developments in the subsequent correspondence or in the adjudication, by the time these proceedings were commenced, and at the latest once the Reply and Defence to Counterclaim was served, Mr Leslie had made clear his position in relation to the other developments, which was that he had no obligation to Farrar Construction whatsoever and that, in all the circumstances, was repudiatory.

IS FARRAR CONSTRUCTION ENTITLED TO PROFIT SHARE ON CORNLANDS AND/OR MOVERLEY WAY, AND IF SO, IN WHAT SUM(S)?

I consider these two sites first, because they are the subject of an express argument by Mr Leslie that whatever Farrar Construction might have been entitled to claim it has waived its entitlement.

It is accepted by Mr Leslie that this site was agreed to be developed in accordance with the Framework Agreement, and that it was developed, resulting in a profit. His case is that in summer 11 Mr Farrar agreed to waive his claim to a profit share by way of a wedding present on the occasion of his marriage at the time.

In his witness evidence Mr Farrar accepted [§55 WS3] that he agreed at the time, in the context of Mr Leslie having complained that he was getting a worse deal than Farrar Construction out of the Framework Agreement due to the fall in house prices, that Farrar Construction would not take its profit share for Cornlands, estimated at £165,000, as a goodwill gesture in order to keep its business relationship with Mr Leslie as healthy as possible. He denies that this was a wedding gift. In cross-examination he said it was a commercial decision.

It appears that Farrar Construction is now seeking its profit share on Cornlands on the basis that this was not an irrevocable gift, and that the basis on which it agreed to forego its profit share, namely a gesture of goodwill, was on the basis that the goodwill should be mutual, which events in 2013 have shown not to be the case.

In my view it is more likely than not that Mr Farrar did tell Mr Leslie that it was a wedding gift to him and his intended wife, because that would come across far better both from a personal and a business viewpoint than saying, in effect, that Farrar Construction was foregoing its profit because it accepted Mr Leslie’s complaint that it was doing better from the Framework Agreement than he was, and on the basis of continued mutual goodwill for the indefinite future. Accordingly, I am satisfied that it is not now open to Farrar Construction to seek to revoke that gift, freely made at the time.

Further, and in any event, it is clear in my view that Mr Farrar perceived that adopting a reasonable approach in his dealings with Mr Leslie would bring his company real benefits, in that it would promote the continuing profitable relationship with Mr Leslie. Farrar Construction cannot now in my judgment seek to re-open an agreement or arrangement, freely entered into, whereby it agreed to waive any right to profit share in relation to Cornlands. What happened can be viewed as a promissory estoppel, where it would be inequitable to allow Farrar Construction to seek to go back on the arrangement, because it can reasonably be inferred that the gesture achieved its objective, and Mr Leslie acted in reliance on that sense of mutual goodwill by agreeing to develop further sites with Farrar Construction under the Framework Agreement, generating handsome profits for Farrar Construction. It matters not in my view that at a much later stage the relationship eventually soured and broke down; that does not permit Farrar Construction to re-open the arrangement made at a much earlier stage, and after it had received a substantial benefit in return.

Accordingly I am satisfied that Farrar Construction is not entitled to claim loss of profits in relation to Cornlands.

It is common ground that Moverley Way was a site where the previous builder had almost completed the build before running into financial difficulties, and that it was identified by Mr Farrar and purchased by him for Mr Leslie at auction in July 09. It is also common ground that Farrar Construction completed the outstanding works and received £17,000 for its work.

Mr Farrar claims that this was subject to the Framework Agreement, whereas Mr Leslie denies that he agreed to share any profit on this site with Farrar Construction. He says that the only agreement reached was that Farrar Construction should finish off the development, and that is what it did, and what it was paid for.

Mr Farrar however also says in his evidence [§45 WS3] that:

“Mr Leslie asked me what I would like as Farrar Ltd's share of profit on the site. For the avoidance of doubt the site was subject to the Framework Agreement. However, as a gesture of good will, I decided to forgo Farrar Ltd's share of the profit on this particular site and as the build costs were relatively low to complete the site forgoing profit was not overly detrimental to Farrar Ltd’s cash flow. In return Mr Leslie bought my son a car as a gift in recognition of the fact that Farrar Ltd had forgone their share of profit”.

There is no contemporaneous evidence about any of this, which suggests in my view that it was not believed by either man that this development was be part of the Framework Agreement. It is plain that Mr Farrar did not conduct himself at the time on the basis that Farrar Construction was entitled to a profit share in what he now says is an extremely valuable site. On balance it seems to me to be more likely that it was agreed at the time that this was outside the scope of the Framework Agreement, because it was a development of a completely different nature from those contemplated by the Framework Agreement, and that Mr Farrar did not expect to receive a profit share. On balance, it seems to me that Mr Leslie’s gesture in purchasing a sports car as a gift for Mr Farrar’s son was a recognition that although Farrar Construction was not entitled to a profit share Mr Farrar had, by identifying and purchasing the site, conferred a real benefit on Mr Leslie, and that the gift was a gesture to reflect this.

Even if Moverley Way was subject to the Framework Agreement, I am satisfied that Farrar Construction cannot now seek to re-open an agreement or arrangement, freely entered into, whereby it agreed to waive any right to profit share in relation to Moverley Way. What happened can be viewed as an agreement to vary the agreement in relation to Moverley Way, to take it outside the Framework Agreement, where Mr Leslie provided consideration by acting to his detriment by purchasing and gifting the car to Mr Farrar’s son. Alternatively, it can be viewed as a promissory estoppel, where it would be inequitable to allow Farrar Construction to seek to go back on the arrangement, in circumstances where Mr Leslie acted in reliance on it by gifting the car to Mr Farrar’s son. Moreover, as with Cornlands, it is clear that Mr Farrar perceived that adopting a reasonable approach in his dealings with Mr Leslie in relation to Moverley Way would bring his company real benefits in that it would promote the continuing profitable relationship with Mr Leslie, so that again it can reasonably be inferred that since it achieved its objective, and Mr Leslie acted in reliance on that sense of mutual goodwill and agreed to develop further sites with Farrar Construction under the Framework Agreement, generating handsome profits for Farrar Construction, it would be inequitable to allow it to resile. Again it matters not that at a much later stage the relationship eventually soured and broke down; that does not permit Farrar Construction to re-open these arrangements made at a much earlier stage.

It follows in my judgment that Farrar Construction cannot recover any profit share in relation to Moverley Way either.

WHAT IF ANY PROFIT SHARE IS FARRAR CONSTRUCTION ENTITLED TO IN RELATION TO METHLEY?

It is, as I have said, common ground that Farrar Construction is entitled to profit share in relation to Methley.

The valuers are agreed that the value of the completed properties is £700,000. They also include agreed amounts in relation to ancillary purchase and sale costs. It is also not in dispute that the amount paid by Mr Leslie to acquire the site was £290,000 and the amount he paid to Farrar Construction in relation to Methley is £355,000.

To that must be added the actual costs of completion. Mr Lewis has addressed this in his report and the schedule of invoices appears at App. 7 [D/386]. The total comes to £149,482.02, net of VAT (Footnote: ¹³). Although not addressed by Mr Davidson or the subject of specific challenge, I have considered the schedule and take the view that the content appears reasonable, save only that at p.386 there are costs for solicitors and estate agents and council tax which are self-evidently not build costs and, in some respects, duplications of the agreed ancillary sale costs. After deducting those invoices, totalling £6,031.35, that leaves a revised total of £143,450.67. I am satisfied that this is inclusive of Mr Battye’s daily rate but exclusive of any profit element.

That figure is greater than the £125,000 derived from Mr France’s valuation, but since: (a) I am satisfied that Mr France’s valuation generally is too low, and I accept Mr Wilson’s criticisms of it; (b) his valuation does not take into account the cost of addressing the matters identified by Mr Battye in his witness evidence, the difference is explicable and justifiable.

I should say, for completeness, that even if I was wrong, and Farrar Construction’s actual costs of completion were to be used, I would not have been satisfied that they would have been significantly different to those of Mr Battye. That is because in my view Farrar Construction has failed to make out its case that it could and would have completed the development at £70/ft², for the following reasons:

The end result, using the very helpful table produced by Mr Myerson and Mr Ryan in their opening submissions, and adding in the relevant figures, is as follows:

WHAT IF ANY PROFIT SHARE IS FARRAR CONSTRUCTION ENTITLED TO IN RELATION TO MINSTHORPE?

Again it is common ground that Farrar Construction is entitled to profit share in relation to Minsthorpe.

The valuers are agreed that the value of the completed properties is £1,580,000. They also include agreed amounts in relation to ancillary purchase and sale costs. It is also not in dispute that the amount paid by Mr Leslie to acquire the site was £360,000 and that the amount paid to Farrar Construction in relation to Minsthorpe is £1,050,000.

The actual cost of completion, as considered by Mr Lewis and summarised at Appendix 8 to his report, is £610,000, which is taken from his analysis of Mr Leslie’s bank statements [§4.3.4]. He said [§4.3.3] that he adopted this approach because he was unable to interpret the information provided from the invoices supplied by Mill Dam Construction. In his evidence Mr Smith had said that the cost of completing Minsthorpe was £633,488, based on the information provided by Mill Dam.

Mr Wilson’s opinion in his report was that: (1) his estimate of total construction costs was £1,451,785 at current values; (2) the amount paid to Farrar Construction (£1,050,000) was a reasonable sum by reference to his estimate of the value of the works undertaken by it prior to 4 July 13, namely £1,016,122 (Footnote: ¹⁴); (3) the cost to complete the works as at July 13 would have been £297,101 at current values, inclusive of overheads but exclusive of profit; (4) the difference between that estimate and the actual costs of completion is explained by the additional costs of bringing in another contractor to complete a previous contractor’s works, including correcting defective work; (5) the existence of defective work is supported by photographs which are appended to his report.

Mr France’s opinion in his report was that: (1) his estimate of total construction costs was £1,353,043; (2) he had agreed the cost to complete the works as at 4 July 13 as being £297,000; (3) he considered the invoices produced by Mr Leslie to include a number of questionable items, such as non-site specific invoices and those relating to replacement of allegedly defective work.

In their joint report they were unable to reach agreement. In his supplemental report Mr Wilson explained that he disagreed with Mr France’s opinion as to total construction costs because he believed the rate used of £1,000/m² was too low and because Mr France had excluded overheads and profit, whereas he had only excluded profit. In cross-examination the experts were effectively agreed that a reasonable allowance for overheads would be in the region of 10% and a reasonable allowance for profit would be in the region of 5%. Mr Wilson also explained that he was reasonably satisfied from his own investigations that the photographs could be relied upon as evidencing the defects within Farrar Construction’s work, whereas Mr France was concerned that the photographs did not in themselves definitely record the position as at July 13.

I have already said I prefer Mr Wilson’s opinion to that of Mr France where there is a conflict. I also consider that in relation to Minsthorpe, where as I have found Mr Farrar agreed to replacement contractors being used, it is appropriate to include overheads. I therefore prefer Mr Wilson’s figure.

I also prefer and accept Mr Wilson’s opinion as to the presence and cost of remedying defects, because I am satisfied that the photographs are a reliable record, consistent as they are with the evidence of the Cummings and, more generally, the clear picture I have of Minsthorpe having, effectively, been abandoned by Farrar Construction in July 13, with contractors being deployed to other sites and there being little if any effective site management or quality control.

Nonetheless, it is concerning that the actual cost of completion as confirmed by Mr Lewis, whose evidence I accept, is £610,000, thus £313,000 higher than the quantity surveyors’ agreed estimated cost of completion of £297,000. It is apparent that Mr Leslie did not see fit to instruct a quantity surveyor or some other qualified construction professional to inspect and record the condition of the site in July 13, or to provide an independent assessment of the cost of putting right defective work. It is clear that Mr. Wilson has not felt able to express an opinion that the entirety of the disparity is due to defective work. Whilst he suggests that it is also explained by the cost of bringing in a new contractor to finish off the previous contractors work, and whilst it well known to this court that remedial costs are often significantly higher than original construction costs for that very reason, nonetheless I am still concerned as to the size of the disparity. In that respect I note that the completion works appear to have been undertaken under the control of the Cummings who do not, so far as I am aware, have a significant track record in project management, and there is no evidence that Mr Leslie or Mr Smith provided – or indeed had the requisite experience – to undertake that role, or that Mr Leslie instructed some suitably qualified professional to oversee the works.

I am left in a position where I am satisfied that the actual reasonable cost of completing the works is both significantly greater than £297,000 but significantly less than £610,000. The evidence does not permit me to do any more than arrive at a broad assessment of the appropriate figure, but I am satisfied that it is appropriate to adopt that course rather than to select a figure which I am satisfied is either too low or too high. In the circumstances I am satisfied on the balance of probabilities that the actual reasonable cost of completion is the midpoint between those two figures, namely £453,500.

The result is as follows:

In short, this has been a loss-making development, so that there is no profit which Farrar Construction can claim on it. I consider the question as to whether Farrar Construction has to share in the loss under the next issue.

IS MR LESLIE ENTITLED TO SET OFF ANY LOSS IN RELATION TO MINSTHORPE AGAINST PROFITS IN RELATION TO METHLEY AND/OR OTHER SITES FALLING WITHIN THE FRAMEWORK AGREEMENT?

Mr Leslie has pleaded in §62 and 64 of his Defence to Counterclaim that he is entitled to set off losses at Minsthorpe against any profit at Methley. That raises the question as to whether or not Mr Leslie is entitled to require Farrar Construction to contribute towards any loss made on a particular development because, if he is, and Farrar Construction has not done so, then that would be an independent liquidated claim which Mr Leslie would, in my judgment, plainly be entitled to set off at law or in equity against whatever might be due to Farrar Construction by way of profit share on other developments.

Although put to Mr Farrar in cross-examination, it does not seem to me that this is a point which can be answered by reference to oral evidence, because there is no suggestion that the question of the treatment of losses was even considered, let alone discussed or agreed, at the time of the Framework Agreement or the entry into the individual developments.

In Mr Leslie’s favour it can be said that this was in essence a joint venture, in that both parties worked together to identify and acquire suitable sites, and to identify and progress the most suitable development, on the basis that the profit would be shared equally, and that if those decisions proved unsound, or if for any other reason the development was loss making, there is no reason why he should have to bear the loss alone. He can also say that since it was always envisaged, and duly transpired, that there would be a number of developments, where some might be expected to be more profitable than others, and where some might result in a loss, it cannot really have been intended by the parties, considered objectively, that Farrar Construction should be entitled to share in the profit without contributing to the loss.

In Farrar Construction’s favour it can be said that if there was no express discussion about sharing losses as well as profits, and if the parties declined to enter into some more formal agreement such as a partnership agreement under which the law implies an obligation to contribute towards losses as well as to share in profits, and if (as to which Mr Throssell gave evidence) the parties considered setting up a corporate structure for their joint venture but decided not to, there is no proper basis of interpretation or implication which could provide an obligation to contribute towards losses. Farrar Construction can also say that since Mr Leslie was in ultimate control of the site and the development, and could decide whether to develop, and if so when and how, and at what budget, then if the project proved unprofitable that should be a loss which he should bear alone.

In my view these are powerful arguments both ways. In particular, I see the force of the argument from Farrar Construction’s side that if the parties have not made express provision for what should happen in a particular eventuality, the normal approach of the law should be that nothing should happen, and the loss should lie where it falls, unless it is plain and obvious that the contract can and should be construed so as to make provision for a contrary approach. However, in my view: (1) that argument has less force where, as here, the parties took the decision not to involve lawyers or produce a written agreement, and failed to discuss, let alone agree, many matters which otherwise would doubtless have been addressed; (2) it is of real significance that, as I have found, the parties envisaged by mid 2009 at the latest that they would jointly undertake a number of developments where Mr Leslie would be placing considerable reliance upon Farrar Construction’s skill and judgment in terms of selecting sites, negotiating terms for their acquisition, and undertaking the design, cost budgeting and construction operations so as to produce a profit for both. In my judgment in the context of that ongoing relationship it cannot be said that the obligation to divide profit equally does not carry with it a co-extensive obligation to share loss equally. After all, all that this really means in the context of this case is that the parties must be taken to have intended that any loss on one project would be netted off against profit on the next, or at worst against the build costs at the time of final accounting on the loss making development. They cannot seriously, on any objective analysis, be taken to have agreed to a situation where Farrar Construction would walk away from a loss making development, recouping all of its build costs, yet still be entitled to recover its 50% profit share on the next development.

Mr Myerson also submitted that the fact that Mr Leslie retained the completed developments and, thus, enjoyed the benefit of any rise in value, also militates against any common intention that Farrar Construction should contribute towards losses. I do not find this argument persuasive because Farrar Construction received, through its profit share, 50% of the current net development value at the conclusion of each project, and was perfectly free to invest that profit share in other property if its perception was that land values were rising. It follows that the fact that Mr Leslie has the opportunity to benefit from increasing land values is irrelevant to the question as to whether or Farrar Construction should contribute towards losses, leaving aside the other factor that Mr Leslie was of course also taking the risk, in a property downturn, that the completed developments might fall in value instead of rising.

It follows in my judgment that Mr Leslie is entitled to set off the loss on Minsthorpe against the profit on Methley. Although not pleaded in express terms, because the Reply to Defence and Defence to Counterclaim is pleaded on the basis that the Framework Agreement did not apply to the disputed developments, it seems to me plain that the same entitlement to set off must apply to those other disputed developments as well, in circumstances where I have found that the Framework Agreement does indeed apply to them. If it is necessary for Mr Leslie to amend to plead this in terms, I do not presently see any proper basis for objection to that being done even at this late stage.

WHAT IF ANY PROFIT SHARE IS FARRAR CONSTRUCTION ENTITLED TO IN RELATION TO THE OTHER DEVELOPMENTS, VIZ: (i) NEWMILLERDAM; (ii) TALBOT ROAD; (iii) AKETON ROAD; (iv) HOLYWELL LANE; (v) LINDLEY?

I have already decided that the Framework Agreement did apply to these sites and that Farrar Construction is entitled to claim damages for the loss of the opportunity to earn profits on them, so that I must now proceed to assess those damages. I should record that:

Again the parties are agreed as to the completed development value, the purchase price and the costs of purchase and sale, and I accept Farrar Construction’s figure for its costs incurred.

As to construction costs, Mr Wilson recorded in his report that Mr Leslie produced a development appraisal in March 13 giving an estimated construction cost of £1,139,650 inclusive of professional costs and contingency. However Mr Wilson is of the opinion that the cost estimate is below an acceptable range, given: (a) the base build which requires the provision of substantial retaining walls and the higher quality of the specification and design; and (b) the likely actual professional costs. He considers that an allowance of £200,000 should be made for (a) and £80,000 for (b), producing a revised estimate of £1,420,000. In his supplemental statement he stood by his view in these respects. In evidence he accepted that he had relied upon information provided by Mr Battye as to the actual works which had been required as regards the construction of the retaining walls and the cost, and also accepted that he had not undertaken a separate analysis of those costs.

Mr France had undertaken an analysis of the costs incurred by Mr Battye as at July 14, and an analysis of the costs to complete, and arrived at a total estimate of £1,050,977. Again he stood by his view in his supplemental statement. Although he accepted that his assessment of the position at the time he inspected was different from the true position in some respects, he did not consider the difference to be material. In evidence he accepted that he had not had the benefit of discussing the works with Mr Battye and also that he had made no extra allowance for the higher specification on this development.

In my view in relation to these sites, where I am considering the build costs which Mr Leslie would have incurred had he undertaken the development using the services of Farrar Construction under the Framework Agreement, the actual costs incurred by Mr Battye are not relevant save only insofar as they may assist me in assessing the actual build costs which would have been incurred by Farrar Construction. I bear in mind that under the Framework Agreement Farrar Construction would not have been entitled to charge non-site specific overheads, which would have had to come out of its eventual profit share. Overall it is reasonable to adopt Mr Wilson’s approach of allowing a reasonable element (10%) for all overheads, but to exclude the 5% profit figure. (Insofar as Farrar Construction might say that this ignores the fact that it still has to cover its overheads going forwards, there is no evidence before me that these head office overheads are still being incurred, at all or at the same rate, or that they are not being recouped from other projects in any event.)

In short, it seems to me that whilst Mr Wilson’s approach is to be preferred as an objective analysis, it does not take into account the fact that historically at least Farrar Construction had produced competitive cost budgets which it had then either kept to or not substantially exceeded. Moreover, the approach which Mr Leslie and Farrar Construction were happy to follow was not to rely on professional services to the same extent as the typical developer and contractor might have done. It follows, it seems to me, that Mr Wilson’s additions, if I allowed them in full, would produce an overly high cost. I am satisfied that it is appropriate to allow a further £100,000 for the extra costs of the base build and specification and an extra £20,000 for additional fees. The former is my best estimate of the likely position, and the latter is consistent with Mr France’s estimate of actual additional fees [§10]. The end result is that I assess construction costs as being £1,259,650.

The figures are therefore as follows:

Again the parties are agreed as to the completed development value, the purchase price and the costs of purchase and sale, and I accept Farrar Construction’s figure for its costs incurred.

So far as costs to complete are concerned, only Mr France has provided evidence regarding this site because Mr Wilson was not instructed to do so. Mr France in his report assesses the estimated construction costs as being £407,000 at £1,000/m², based on a floor area of 407m², less a discount for overheads and profit of either 10% or 20%, his mean net figure being £355,000.

However, I am satisfied that I am entitled to, and do, conclude for the reasons already given that: (1) the £1,000/m² figure is too low; and (2) I should discount for profit but not for overhead. Overall, it seems to me that it would be appropriate to increase the costs by a factor of 10% and then to discount by 5% to reflect the profit element, thereby producing a figure of £425,315. Again I acknowledge that to some extent this is a rough estimate, but it seems to me to be justified having regard to all of the circumstances. In particular, I note that the expert report on which the completed development value is based [F2/1312] proceeds on a development cost of £432,240, including the cost of garages.

The end result is as follows:

The parties are agreed as to the purchase price and the costs of purchase and sale, and I accept Farrar Construction’s figure for its costs incurred.

In this case there is a question as to whether the completed development value is to be assessed on the basis of 2 detached bungalows, as Mr Leslie’s expert says, or 1 detached bungalow, 2 semi-detached bungalows and 2 semi-detached houses as Farrar Construction’s expert says. However the quantity surveyors have considered and agreed the costs to complete at £500,000, on the basis of the larger scheme. In his report Mr Wilson says that he attended the site with Mr Leslie’s valuer, but does not record the valuer giving an opinion that it would be impossible to develop the larger scheme, and Mr Wilson plainly does not think so. In the circumstances it appears that I should proceed on that basis.

The end result is as follows:

Again the parties are agreed as to the completed development value, the purchase price and the costs of purchase and sale. No costs have been incurred by Farrar Construction on this site. So far as costs to complete are concerned, there is a modest difference between the quantity surveyors, Mr Wilson assessing them at £499,622 and Mr France at £467,921. Having considered the reports and the supplemental statements I am satisfied that, for the same reasons as previously given, I should prefer Mr Wilson’s opinions, and I accept his estimate.

The end result is as follows:

The position as regards Lindley is that the valuers have been instructed to value on two separate bases, the first being the scheme of 12 houses for which there is currently planning permission, the second being a larger scheme of 20 houses for which there is no planning permission. The valuers are agreed as to the completed development value of the former, namely £1,500,000, whereas as regards the latter there is modest disagreement, the values being £1,900,000 or £1,925,000. The quantity surveyors are also agreed that in the former case the construction cost would be £1,170,000, but they disagree as to the latter case, Mr Wilson contending for £1,472,000 and Mr France contending for £1,437,000.

It is apparent that the 12 house scheme will on any view not be profitable. If I were to accept that a 20 house scheme was feasible, then I would adopt a completed development value between the respective figures and prefer Mr Wilson’s construction costs estimate. The end result would be as follows, but it is apparent from the final figure and I am quite satisfied that no prudent developer would develop the land on this basis:

It will be recalled that the plan, so far as Lindley is concerned, was to develop Lindley with Q homes, and that an application for a development of Q homes would be submitted once the planning sub-committee had been able to inspect the completed development at Methley. It will also be recalled that Mr Leslie’s evidence was that he had been advised to defer submitting an application for planning permission until after the next election. It may be assumed that this is a possible outcome, but there is no evidence at all as to the profit which could be achieved on that basis.

It follows, in my judgment, that Farrar Construction has failed to establish on the balance of probabilities that as matters currently stand this site will be developed at a profit, or if so what it would be, and it is simply not possible for this court, even adopting the most generous of broad brush approaches, to identify a figure for loss of profit.

TO WHAT EXTENT, IF AT ALL, HAS FARRAR CONSTRUCTION BEEN OVERPAID BY MR LESLIE IN RELATION TO ITEMS WHICH ARE NOT BUILD COSTS?

As I have said, the initial claim pleaded by Mr Leslie was for recovery of VAT which he claimed he had been wrongly charged and paid, whereas the subsequent amended claim was for recovery of all overpayments.

By the time of trial it was apparent that Mr Lewis was unable to state in terms that Farrar Construction had in fact wrongfully charged Mr Leslie in respect of VAT, so that his position was that in his opinion Mr Leslie had overpaid, but that it was not possible for him to say on the evidence before him whether or not any part of that overpayment related specifically to VAT. Although that might at first have been thought to reflect poorly upon one or more of Mr Leslie, Mr Smith, Mr Lewis and Mr Leslie’s legal advisers, in that a claim specifically pursued was now no longer being pursued as a discrete claim, in fact on analysis it does not seem to me that it does. That is because it is clear that they had proceeded, entirely reasonably, on the basis that the justification for the claim for build costs in relation to Methley which had been submitted by Farrar Construction in the adjudication was the PL development cost summary for Methley, which included VAT on materials, and no credit had been given for that VAT element, as it should have done. It was never said by Farrar Construction at that point that the true justification for the claim was by reference to the inclusion of other invoices or categories of build cost which had not been included in the PL development cost summary. Even now Farrar Construction has not submitted a separate claim for build costs in relation to Methley which makes it clear how the claim is arrived at. Thus in the schedule at §4.5 of the Defence and Counterclaim it is claimed that actual build costs of £355,000 have been incurred in relation to Methley, but there is no substantiation or particularisation of that figure which, insofar as it comes from anywhere, appears to come from the figure which it finally admitted in the adjudication it had received from Mr Leslie as relating to Methley. The PL development cost summary shows only £328,963.73 net of VAT as having been incurred.

It is common ground that the total amount paid by Mr Leslie to Farrar Construction is £5,550,140 (Footnote: ¹⁵). It follows that the question for determination is whether that represents, on an analysis of the evidence, an overpayment or not. Having already decided what items are in principle allowable as build costs, I must now consider what legitimate build costs have been substantiated by Farrar Construction. At this stage however I am not considering whether or not to the extent that there has been an overpayment the excess is recoverable in restitution - that comes later under issues (11) and (12).

In general terms, I have already concluded (under item (1) above) that only direct build costs and site specific indirect “preliminaries” costs are allowable, and that non site specific general business costs, including general head office overheads, are not allowable. I have also concluded that there is no basis for claiming the capital cost of plant and machinery as such, and that if such costs are to be allowed they must be justified on some alternative basis.

As I have already said, Farrar Construction has failed to provide a full breakdown development by development, whether by production of a complete set of PL development cost summaries or a complete chronological run of PL invoice summaries, and that no acceptable reason has been proffered for this failure. Mr Beighton’s explanation was that he only produced these documents when requested by Mr Farrar, but there is no explanation as to why Mr Farrar did not request that they be produced on a monthly basis throughout the course of the business relationship. Unless Farrar Construction was simply going to take the chance that it would always stay within the original budget figure, or absorb any excess, which is plainly not what has happened in relation to Methley and Minsthorpe, it would need to identify and allocate costs to individual developments. Since the invoices would need to be checked and paid when they came in, it would not take much more time to allocate them to a particular development which, after all, Mr Beighton was able to do without too much difficulty when asked. I am bound to say that it does not reflect well at all on Farrar Construction that it has failed to do so.

The end result is that the accountants, coming to the case in 2014, and without the benefit even of any belated retrospective attempt by Farrar Construction to allocate invoices to developments, have found it impossible to undertake their analysis on a development by development basis and have had, perforce, to attempt to answer the question on a global basis. I shall have to consider the implications of this at a later stage, under issue (12).

I am also concerned as to the approach which Farrar Construction has taken in seeking to justify its build charges. Although it was submitted that Farrar Construction did not know that it would be required to justify its build charges until Oct. 14, when Mr Lewis first met with Mr Davidson and made it clear that he had gone through the disclosed invoices with a view to seeing whether or not it had substantiated its build costs, it is clear from an analysis of the unamended Defence and Counterclaim that the counterclaim was being put forward on a “global” basis (i.e. total entitlement, inclusive of build costs, less total payment). Furthermore, it was clear from the first joint statement of the accountants that Mr Davidson had been instructed to “consider Farrar Construction’s financial records to “establish the costs incurred in respect of the dwellings it constructed on the various sites and to compare these with the total payments received from Mr Leslie” [§7(d)]. Furthermore, although it was submitted by Farrar Construction that at the time of disclosure the question of justifying the amount claimed and received in relation to each project was not in issue, and that all invoices were disclosed out of an abundance of caution rather than because they were relied upon to justify the payments made, I do not accept that argument, because: (a) it is inconsistent with the pleaded case and the instructions to the accountants; (b) there would be no conceivable reason for disclosing, on standard disclosure, invoices which had nothing to do with the Framework Agreement developments. I am satisfied that this explanation only surfaced once Farrar Construction and its advisers appreciated that there were numerous invoices disclosed which on no view could be said to support or to justify the total build costs claimed. It is plain that what Farrar Construction has done is to gather up every invoice it can find which could conceivably relate to its business in the most general sense over this period in time, and seek to use it to support its case that it can support its claim to payments for build costs already received.

Farrar Construction complains that it ought not to be criticised for its inability to produce each and every invoice or supporting document to substantiate claims for build costs, when it was not required to do so at the time, because both parties were happy to stand by the agreed budget estimates. However: (1) there is no suggestion by Farrar Construction that it had relevant invoices which it has subsequently lost or mislaid; (2) Mr Farrar’s evidence was that all invoices were collated and sent to Mr Throssell to prepare VAT returns (until Mr Beighton took over) and to prepare annual accounts, and there is no suggestion that any of these invoices have been lost or mislaid subsequently; (3) Farrar Construction has had, since 2008, the benefit of the services of Ms Hale and subsequently also of Mr Beighton to undertake internal administration, and both appear to have been perfectly able when required to produce internal cost documentation. There is no evidence of any inability to produce, or difficulty in providing, invoices in relation to direct build costs. The same is true as regards the need to substantiate site-specific indirect build costs. It is not apparent that Farrar Construction has been unable to produce, or has experienced difficulty in producing, invoices regarding its head office costs; moreover Mr Davidson had addressed any prejudice in that regard by re-constructing substantial elements of that claim by reference to its accounting records. In any event that problem is irrelevant given my conclusion that it cannot claim head office overheads as build costs. It was Farrar Construction’s decision to seek to justify its build costs by reference to capital purchase costs as opposed to actual depreciation costs or notional hire costs, when it appears that there would have been no difficulty in providing the former at least, given that Mr Throssell had already produced figures for depreciation in Farrar Construction’s annual accounts.

It follows that I am not satisfied that it is appropriate to give Farrar Construction the benefit of the doubt when undertaking this exercise. This is not a case like those cited in Farrar Construction’s written opening [§66] where the courts are prepared to give a defendant raising the defence of change of position to an unjust entitlement claim the benefit of the doubt.

My decision on the individual categories of disputed costs

Accountancy fees. These are part of the head office overheads, and are not allowable.

Auto repairs etc. These are non-site specific general business costs, and are not allowable.

Council tax. This is part of the head office overheads, and is not allowable.

Date. These either pre-date the start of the work at Dandy Mill Court or post-date 16 July 13 and are not recoverable because they do not relate to the relevant developments. (I accept there may be some invoices post-dating 16 July 13 which do relate to Methley or Minsthorpe, but they will be modest.)

Duplicates. These are self-evidently not recoverable.

Electronics. These are non-site specific general business costs, and are not allowable.

Fuel. These are non-site specific general business costs, and are not allowable. Travel costs from the business base at the farm to site and vice versa may be recoverable, but there is no evidence that the fuel costs are limited to this category of cost, or evidential basis for concluding that some significant identifiable proportion of the total costs fall into this category. I also accept there may be some fuel invoices which relate to on site generators, but again there is no hard evidence to this effect or evidential basis for identifying some specific proportion.

Interior items not relating to the relevant developments. These appear to be part of the head office overheads, and are not allowable.

JCB Finance. This includes the cost of acquiring a new JCB. There is no basis for charging these capital cost items to Mr Leslie. The cost of providing plant and equipment for specific developments is in principle recoverable, but only on the basis of a substantiated contribution to depreciation, or perhaps on the basis of a notional hire cost over the relevant period, but Farrar Construction has not made an alternative claim for such costs on either of these two bases, or submitted evidence to show that the capital cost is less than the likely cost ascertained on one or other alternative approach.

Miscellaneous non relevant development related expenditure. This is self-evidently not recoverable.

Office rent. This is part of the head office overheads, and is not allowable.

Non relevant development expenditure. This is self-evidently not recoverable.

Silkstone invoices. The claim relating to Silkstone is dealt with below under build costs in relation to 3 non Framework Agreement sites, and should be excluded from this section.

Tractor repairs. This is a non-site specific general business cost, and is not allowable.

Training. These are non-site specific general business costs, and are not allowable.

Utility bills not relating to relevant developments. If relating to the farm office, they are part of the head office overheads, and are not allowable. If not they are self-evidently not recoverable.

Vehicle hire. These are non-site specific general business costs, and are not allowable. The cost of providing plant and equipment for specific developments is in principle recoverable, but only on the basis of evidence to link specific vehicles hired to specific developments, which has not been provided. It emerged at trial that one substantial element of this claim was for the hire purchase of a Mercedes crane which, in fact, had not been acquired.

Vehicle purchases. There is no basis for charging this capital cost item to Mr Leslie. The same analysis as applies to the JCB crane applies here as well.

Sub-contractors. There is a dispute to the value of c. £80,000, falling into two categories, one being recently disclosed additional invoices and the other being invoices which Mr Lewis consider relate to non Framework Agreement developments. I prefer Mr Lewis’ view, and give Mr Leslie the benefit of the doubt, as regards these disputed items and, hence, allow nothing.

Payroll costs. It appears that Mr Davidson has included this as an allowance, and as an alternative to the claim based on disputed invoices which Mr Davidson accepts should not be included, and thus which is not represented by invoices as such, but is his analysis of the payroll costs which were incurred at head office (excluding Mr Farrar’s salary) over the relevant period. This is self-evidently a general head office overhead and not allowable.

Office rent / overheads. Mr Davidson has included this on the same basis as with payroll costs, and again it is not allowable for the same reasons.

Build costs on other non Framework Agreement sites

It will be recalled from the introduction that Farrar Construction claimed to have undertaken works at 3 sites for which he was entitled to be paid £55,000 in total [§4.11-12 Defence and Counterclaim]. This is relevant because Farrar Construction asserts that it was paid for these works, and that the payments are included within the total amount paid by Mr Leslie, so that, in effect, credit should be given for these works. In his Reply to Defence and Defence to Counterclaim it is admitted that work was done and asserted that all that was due has been paid. In his witness statement [§29-30 WS3] Mr Farrar said that Farrar Construction had been paid £55,000 in relation to these works. In his witness statement Mr Leslie did not address these works, other than to make some generalised complaint about one of the jobs [§19 WS1].

In short, there is no evidence to contradict Farrar Construction’s case, which is that it was due and received £55,000 in relation to these 3 jobs, and that these payments are included within the total paid, so that the £55,000 ought to be added in when assessing the extent of any overpayment.

Overpayment - conclusions

The schedule produced by the accountants in their second joint statement, amended to reflect my conclusions as stated above, is a convenient starting point for my summary which is that Farrar Construction has been overpaid a total of £812,554.

Taken as a percentage of the total payments made, it amounts to 14.6%. Taken as a percentage of the total substantiated amounts in relation to invoices and sub-contractors (£3,686,186), which seems to me to reflect the true extent of the overcharging in relation to build costs, it amounts to 22%.

It should however be observed, in fairness to Farrar Construction, that it is possible, and indeed likely on my findings that it could, had it undertaken a proper analysis and submission of legitimate site specific plant and machinery costs, have been able to make out a claim for the pro rata depreciation costs of using bought in plant and machinery. The difficulty for Farrar Construction is that it has not undertaken the task of seeking to value a legitimate claim for such site specific preliminary costs by that alternative basis, so that the extent to which it might have been able to justify a higher claim is pure speculation.

IS MR LESLIE ENTITLED TO COMPLAIN ABOUT OVERPAYMENT IN RELATION TO THOSE DEVELOPMENTS WHICH HAVE BEEN COMPLETED AND A PROFIT SHARE AGREED AND PAID?

In my view it is convenient to address this issue first, because it seems to me to be clear that this element of the claim cannot succeed, whether because no claim for unjust enrichment is made out at the first stage or because Farrar Construction is entitled to rely on the defence of estoppel.

The way in which the case is pleaded at §8 of the Amended Particulars of Claim is as follows:

In relation to the completed developments, the position as I find it to be is as follows:

What then is the legal position in such circumstances? In my judgment the position is as follows:

It follows, I am satisfied, that Mr Leslie cannot succeed in his claim so far as the completed developments are concerned.

IS MR LESLIE ENTITLED TO RECOVER SOME OR ALL OF THE OVERPAYMENT IN RELATION TO MINSTHORPE AND METHLEY AS UNJUST ENRICHMENT?

So far as the interim payments requested and made in relation to Minsthorpe and Methley are concerned, I make the same findings as in issue (11) above. In fact, if anything the position is stronger so far as Mr Leslie is concerned at this point, because I have no doubt that by this stage that work began on these two developments Mr Farrar had reached the position where he was effectively conducting Farrar Construction’s affairs by treating Mr Leslie as its private banker and, I have no doubt, intended to and was using the payments to enable Farrar Construction to fund the undertaking of the developments at Storthes Hall and at Parkfield Farm.

Furthermore, it is clear from the documents that from a relatively early stage in relation to Minsthorpe, and at or around the time that Methley began, Farrar Construction was aware that Mr Leslie was requesting substantiation of build costs going forwards. Thus on 15 Oct. 12 [p.1702], Mr Glover made a request for details of build costs, asking for “spreadsheets of costings for all developments that have been both completed and underway” in order to undertake an analysis in advance of a meeting with Mr Leslie. On 9 Nov. 12 [p.1743] Mr Smith repeated this request in relation to Minsthorpe, in the context of Mr Leslie wanting to value the development. There is no evidence of a response to either request.

Furthermore it is common ground that the question of costs was discussed at a meeting which took place in Feb. 13. The subsequent e-mails from Mr Smith to Mr Farrar indicate that the two men were attempting to reconcile payments made by Mr Leslie to specific developments [p.1911/01 & 12]. Farrar Construction contends that they show that Mr Smith was not interested in what payments had actually been made against which development, but simply in agreeing figures as figures for accounting purposes. Even if that is so, it does not reveal an indifference to actual costs on a development specific basis.

The first documentary evidence of Farrar Construction providing supporting details of build costs on Minsthorpe and Methley to Mr Leslie is Mr Beighton’s e-mail of 2 May 13 [p.1943]. It appears that what he provided were the PL development cost summaries in relation to those developments; the version in relation to Minsthorpe appears to be at [p.2229] (Footnote: ¹⁶), but the version submitted at the time in relation to Methley is for some reason unavailable (the updated version is at [p.2446]). These summaries provide no detail as to what the supporting invoices relate to, but it is self-evident that they include no general allowance for head office overheads or payroll costs or project management fee or the like. They also included VAT on materials invoices.

If one compares the amount included in the PL development cost summary for Methley, net of VAT, £328,963.73, and the amount which Farrar Construction says it received in relation to Methley, £355,000, it reveals an apparent overpayment of some £26,036.27. In relation to Minsthorpe, the figure in the PL development cost summary gross of VAT is £1,045,168.62, which net of VAT of £94,637.02 is £950,531.60. Taking the amount which Farrar Construction says it has been paid for Minsthorpe, £1,050,000, there has been an apparent overpayment of £99,468.40. In total, therefore, an overpayment of £125,504.67 on both sites.

By 13 June 13 Mr Leslie had been provided with certain documents by Farrar Construction which had enabled Mr Glover to conclude, in an email headed “Farrar Fiddle!!” [p.3574] that “capital assets [had been] purchased by Farrar with Graham’s money”. What it appears he had been provided with are some of the PL invoice summaries produced by Mr Beighton, in which the description of the subject matter of the invoice enabled Mr Glover to conclude that a certain number of invoices, totalling £23,848.06 net of VAT, related to plant acquired by Farrar Construction. These, however, relate to invoices which appear to have been allocated to the site at Cornlands and Mr Farrar’s farmhouse, as opposed to either Minsthorpe or Methley.

As regards Minsthorpe and Methley, of course, Farrar Construction never completed the build and there has never been a final reconciliation or profit agreement. Moreover, it is Farrar Construction’s positive case that the actual build costs on Minsthorpe equated to the interim payments received of £1,050,000, compared to a budget of £900,000, and in relation to Methley the figures are £355,000 and £325,000 respectively.

I am satisfied therefore, for the reasons I have given, that Mr Leslie has established that he made these payments under a mistake. From a contractual perspective, Farrar Construction could not have assumed that in relation to these sites Mr Leslie would be waiving his right to require a full substantiated breakdown of the build costs, indeed the reverse is true. I have no doubt that if Farrar Construction had been able to complete these developments Mr Leslie would have asked for these details.

In the circumstances I am satisfied that in relation to these developments Mr Leslie has established his case in unjust enrichment. No question of settlement or assumption of the risk of error or waiver of enquiry arises. It is clear that by the time the last series of payments were being made, after Oct. 12, Mr Leslie was proceeding on the basis that there would be a final ascertainment of build costs so that any overpayment could be recouped. No question of estoppel or change of position arises. In such circumstances I do not need to decide the difficult question as to whether or not Mr Leslie could also succeed in unjust enrichment on the basis of a partial failure of consideration by persuading me to apply by analogy the principle applied by the Court of Appeal in Ferguson v Sohl (1992) 62 BLR 95, considered in Goff & Jones at §12-30 & 31.

How if at all can I assess the amount of such overpayment? As I have said, it cannot be done on the basis of the accountancy evidence, because of Farrar Construction’s failure to provide a detailed breakdown of its actual build costs as claimed in relation to Minsthorpe or Methley. In my judgment it would be wrong to hold this against Mr Leslie, for the reasons I have already given. There are two possibilities, the first being to take a percentage approach to reflect my assessment of the overall percentage of overpayment as stated above, the second being to adopt the costs included in the PL development cost summaries as produced by Mr Beighton at the time. In my view the second is the more appropriate. It is clear to me, and I find, that the only way in which Mr Beighton could have produced these summaries was by reference to his contemporaneous assessment of the invoices. There is no positive evidence that in these summaries he included, for example, large capital cost items or items that self-evidently did not relate to these developments. The end result would be an overpayment of £26,036.27 in relation to Methley and £99,468.40 in relation to Minsthorpe, a total overpayment of £125,504.67. In broad terms, that is not too far removed from the percentage I have arrived at in my assessment above. Furthermore, insofar as it is less it does mean that I am giving Farrar Construction some credit for the fact that it could probably have established some additional claim for the depreciation element of plant and machinery.

However, I accept Farrar Construction’s submission that if it has to repay this excess, the end result is that the overall build costs are depreciated by the same amount, so that Mr Leslie would have to give Farrar Construction credit for 50% of the enhanced profit on Methley and 50% of the reduced loss on Minsthorpe. It follows that the actual net recovery would be 50% of that total, namely £62,752.34.

WHAT IS THE OVERALL STATE OF ACCOUNT AS BETWEEN THE PARTIES – TO WHOM IS A NET BALANCE PAYABLE AND IN WHAT AMOUNT?

The position would appear to be as follows:

It follows that the net sum due to Farrar Construction is £139,428.16, plus any entitlement to interest. I will deal with any issues as to the form of order, interest and costs after this judgment has been handed down.

It remains only for me to thank all counsel and solicitors for the efficient preparation and presentation of the case, and particularly all three counsel for the quality of their presentation of their respective client’s cases at trial.