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Perils of settling construction disputes

Anyone that swims in the pool of construction disputes will, at some point, have come across an agreement to settle a construction dispute. Lawyers will often pour over the wording in painstaking detail, arguing for the inclusion or exclusion of certain clauses. (I suspect there’s a stock list depending on whether they’re acting for the contractor or the client.) Even when, as James Clarke so aptly put it recently, you’ve reached the “stale sandwiches” stage of a mediation, lawyers will often make the parties miss the last tube home in order to argue over phrases such as “all and any claims”.

However, sometimes the parties themselves try and reach a settlement agreement without seeking legal advice, and that can lead to disastrous consequences for one or both of them. I doubt that there is a better case to illustrate this point than the recent TCC judgment in Point West London v Mivan.

Point West v Mivan

In a nutshell, Mivan was the main contractor for certain works carried out for Point West at a property in West London. The parties agreed the final account in 2002, but defects persisted with the curtain walling and heating and cooling system to flat 1601, which was one of the penthouses. Mivan attempted to rectify the defects, but to no avail. Meanwhile, the tenant of flat 1601 decided to withhold its service charge and other sums as a result of the defects.

Around September 2007, Mivan chased approximately £63,000, which it said it was owed by Point West. Point West responded by saying that it would like to “do a deal to enable Mivan to walk away”. This led to the exchange of three letters in October 2007 that formed the basis of a settlement agreement:

  • The first letter was from Mivan and proposed a payment of £50,000 in consideration of a “full and final settlement in respect of the above works, together with any and all outstanding matters”.
  • Point West responded by saying that it would agree to the proposed terms, subject to Mivan providing documents to assist Point West in a claim against the tenant of flat 1601. Point West added that it was “not looking to [Mivan] to do any further remedial works”.
  • Mivan confirmed that it would provide assistance with Point West’s claim for recovery of sums owed.

Mivan was probably relieved to see the back of a project that had clearly caused some headaches.

Meanwhile, Point West set off in its pursuit of the tenant of flat 1601. However, things don’t appear to have gone quite as planned, and the tenant was awarded damages for its counterclaim in respect of building defects. In particular, it appears that the defects to the curtain walling and heating and cooling systems were a great deal more significant than either Mivan or Point West had anticipated in October 2007. Point West therefore decided it was worth having another crack at Mivan.

Point West sought a declaration under CPR Part 8 that the October 2007 agreement did not include settlement of any liability Mivan had to pay damages for the defects that were the subject matter of the proceedings between Point West and the tenant. Point West came up with a rather clever argument, and said that, while the settlement agreement encompassed the financial settlement of the final account and released Mivan from any obligation to carry out rectification works, it did not discharge Mivan from any liability for breach of contract. Mivan relied on the wording of the October 2007 letters to argue otherwise.

Unsurprisingly in my view, Ramsey J agreed with Mivan. He referred to the wording of the letters and said that they envisaged full and final settlement, and could only be interpreted as meaning that Mivan was being released from liability for the defects, and not that Point West reserved the right to look to Mivan to pay the costs of carrying out further remedial works.

The moral of the tale?

So, would it have been any different if Point West had asked its lawyers to get involved before entering into the exchange of letters in October 2007? I suspect so. Lawyers are likely to have questioned whether there were any expert opinions concerning the extent of the defects that Point West could have relied on in the future, or worded a settlement agreement to limit it to the extent of defects and rectification works that had been identified in October 2007. They would have certainly ensured that any settlement agreement was recorded in a clearly worded document executed by the parties, rather than by an exchange of letters. However, it’s easy for me to say and hindsight is a wonderful thing.

2 thoughts on “Perils of settling construction disputes

  1. The cost of seeking to enforce legal rights is driving parties to reach their own deals by self negotiation and ADR and who can blame them.

  2. A good point well made Chris, however I think the lesson that can be learnt from this case is that parties should exercise care when trying to resolve disputes by “self negotiation”, otherwise it could end up costing them a significant amount of money.

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