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“This is a classic case of one party making a bad bargain”

In keeping with Jonathan’s recent theme of using judicial quotes as blog post titles, I thought I’d do the same. This week, I’ve gone for Jackson LJ in the Court of Appeal in Balfour Beatty v Grove Developments. Jackson LJ went on in that paragraph to say:

“The court will not, indeed cannot, use the canons of construction to rescue one party from the consequences of what that party has clearly agreed. There is no ambiguity in the present case which enables the court to reinterpret the parties’ contract in accordance with ‘commercial common sense’…”

Some may question whether the parties has turned their minds to the situation they faced at all and that, if they had, they would be taken to have agreed what the words in the contract said.

Balfour Beatty Regional Construction Ltd v Grove Developments Ltd

I’m sure that, by now, everyone is familiar with the Court of Appeal’s decision to uphold Stuart-Smith J’s first instance judgment (which Jonathan considered in February and Tom Coulson has looked at this time around).

In case there are a few of you who have spent the last few months hibernating under a stone, here’s a very quick summary:

  • The parties agreed to use the JCT Design and Build Contract, 2011 Edition (DB 2011).
  • In the Contract Particulars, the parties opted for stage payments in accordance with Alternative A (they crossed out reference to Alternative B), but they never agreed a set of stage payments. Instead, they agreed a schedule, which Jackson LJ referred to as the “Tumbler schedule” (after Balfour Beatty’s commercial manager who had sent the schedule to Grove in September 2013).
  • The Tumbler schedule referred to 23 applications for payment, dates for notices and final dates for payment. It did not extend beyond practical completion in July 2015.
  • The works progressed but were in delay and the dates in the Tumbler schedule came and went. The parties were unable to agree a new set of monthly dates. However, this did not stop Balfour Beatty from making further applications for payment or Grove from serving the appropriate notices. However, as no agreement was reached over the dates for payment, no more money was paid to Balfour Beatty.
  • To break the impasse, Grove applied to the TCC for declaratory relief, to the effect that there was no entitlement to interim payments after July 2015. Stuart-Smith J agreed: Balfour Beatty had no contractual right to make or be paid in respect of its interim application 24 or any subsequent application.
  • Cue an appeal to the Court of Appeal, where the three judges were divided, with Jackson and Longmore LJs both upholding the first instance decision and Vos LJ dissenting.

At the time of the first instance decision, Jonathan wrote about Jack and Jill, with Jack representing the main contractor and Jill the employer. In his example, they agreed something similar to the Tumbler schedule and Jonathan raised the question of whether they would think that monthly payments would continue after the dates set out in the agreed schedule, if there was a delay to the works. He commented that:

“I’m willing to take a guess that 9 times out of 10, both Jack and Jill would say, ‘of course, the monthly payments will continue up to completion of the works’.”

It will be interesting to see whether Jack and Jill’s answer would be different now.

Vos LJ’s dissenting judgment

The fact there is a dissenting judgment supports a suggestion that the outcome before a different first instance judge on a different day may have resulted in a different outcome. It may also highlight the difference between construction industry practice and the purely strict legal approach to interpretation that Jackson LJ adopted. I’m not suggesting that Jackson LJ was wrong in any way, just that his decision leads to what some may see as having an unintended effect throughout the industry in relation to contracts with similar provisions.

Jackson LJ himself acknowledged that this was a “classic case of one party making a bad bargain” but, in reality, the construction industry is full of parties who have done just that. However, I wonder whether they thought the bargain they had struck was bad, when they struck it. If Jack and Jill thought payments would continue to be applied for and paid up to completion, whenever that finally took place,  I suspect the parties here may have been of the same view. They may well have also felt pretty pleased with themselves for being so organised, having agreed the detail of their applications for payment, notice dates and final dates for payment.

I also wonder how many parties, including Jack and Jill, will think that their contract included the word “etcetera” at the end of the schedule of payments, just like Vos LJ concluded. He suggested that this was the only sensible construction of what the parties had agreed. It may be because he found the parties’ contract “ambiguous” on this occasion, what with them deleting Alternative B, and then going for the Tumbler schedule instead of applying Alternative A. Who knows whether, with different amendments, the outcome would have been different. I guess if the parties had included the word “etcetera” at the end, things would have been.

I will leave you with a version of the classic nursery rhyme:

“Jack and Jill
Went up the hill
To fetch a pail of water,
Jack fell down
And broke his crown
And Jill came tumbling after.
Up Jack got
And home did trot
As fast as he could caper,
Went to bed
To mend his head
With vinegar and brown paper.”

MCMS Ltd Matt Molloy

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