Fairhurst Developments Ltd and another v Collins

Joint venture – Breach of contract – Damages – Defendant engaging claimants to carry out work on residential site – Work not incomplete when relationship between parties effectively breaking down – Claimant bringing action for damages ­for breach of contract – Defendant counterclaiming for loss and damage – Whether second claimant acting on behalf of first claimant company – Whether defendant in breach of development agreement – Whether claimants in breach of contract – Whether parties entitled to damages – Claim allowed in part – Counterclaim allowed in part In April 2009, the defendant, who owned a residential development site near Chester, entered into an agreement with the second claimant in the nature of a joint venture for the construction and sale of a new residential property on the site. By early 2011 the property was substantially but not completely finished when the relationship between the parties effectively broke down. The defendant completed the works himself without further input from the claimants by May 2011. However, the property did not sell and the defendant occupied the property with his family until October 2014 when it was rented out. The defendant contended that it was not his fault that the property had not been sold, the reasons being the depressed state of the market and the presence of serious defects which had not yet been remedied, rendering it effectively unsaleable. The claimants’ position was that the defendant was in serious breach of the development agreement and should be compelled to sell the property and/or to pay the claimants what would properly fall due on sale. The defendant argued that the claimants were in serious breach of the development agreement whereas he was taking all reasonable steps to comply with his obligations under it. The claim was misconceived and premature. When the property was sold nothing would be due to the claimants once proper adjustments were made to reflect the financial consequences of their breaches and he counterclaimed damages in relation to the loss and damage he claimed to have suffered. There was an issue whether the second claimant was acting on his own behalf or on behalf of his limited company, the first claimant. Held: The claim and counterclaim were allowed in part. (1) In determining the identity of the contracting party the approach was objective, the question being what a reasonable person, furnished with all the relevant information in the period leading up to the formation of the contract, would conclude. The private thoughts of the protagonists were irrelevant and inadmissible. Where the contract was written or part written, extrinsic evidence might be admitted to establish the correct identity of a party. The person who signed was the contracting party unless it was made clear in the document or by extrinsic evidence that he was signing as officer of a company. In the present case, the contract was made wholly orally but there was no difference in principle between the rules of interpretation in relation to contractual documents and oral contracts, although there was no issue about extrinsic evidence when considering an oral contract. In principle, evidence as to subsequent dealings might be admissible to assist the court in reaching a conclusion about what was said at the time of formation of the contract. Nonetheless the person whose words and/or conduct resulted in the contract being formed was the contracting party unless it was made clear at the time of contracting or in the period leading up to the formation of the contract that he was speaking and/or acting as an officer of a company. The established principles of construction did not require the court to take into account matters which the parties might have, but did not in fact, discover. In an ordinary case such as the present, there was no duty on a contracting party to enquire as to the capacity in which the other was acting. On the facts, the second claimant never made it clear that he was acting on behalf of any limited company, let alone the first claimant. In all the circumstances, the claim by the first claimant failed but the second claimant was both entitled to pursue the claim in his own name as the contracting party and personally liable for any breaches of the development agreement: Hamid (t/a Hamid Properties) v Francis Bradshaw Partnership [2013] EWCA Civ 470; [2013] PLSCS 92 applied; Khan v Khan [2007] EWCA Civ 399 and Badgerhill Properties Ltd v Cottrell [1991] BCLC 805 considered. (2) Even making the most generous allowance for matters occurring during the course of the development which would have justified an extension of time, the second claimant had been in breach of his obligation to complete the works within a reasonable time. The works ought to have been completed within 12 months. Periods of inactivity had been the second claimant’s sole responsibility. It followed that, the second claimant had been in serious breach of his obligation to complete within a reasonable time. The defendant’s only option was to take over and complete the works, which he had done at the cost of £40,115. (3) On the facts, the second claimant had carried out defective work, the cost of remedying which was £16,806.90. (4) On the evidence, the maximum claim that the second claimant could advance was £202,450, from which the defendant was entitled to deduct and be paid the cost of completing the outstanding works and remedying the defects. Accordingly, the net amount that the second claimant would receive was £145,528.81. (5) The contract had not been brought to an end by the defendant due to the second claimant’s repudiatory breaches. The case had to be decided on the basis that he had either affirmed the contract or was to be treated as estopped from contending to the contrary. The defendant’s decision to let out the property had been taken in the conscious knowledge that it would make the property all but unsaleable at any acceptable price. The defendant had failed without reasonable excuse to take reasonable steps to undertake the necessary remedial works, with the result that he was in breach of his obligations under the contract and the trust, insofar as the property was unsaleable. After 12 months of occupation without selling the property, and then deciding in effect not to make any concerted effort to market or to sell it, what was at first reasonable had become unreasonable and amounted to a breach of contract and/or trust. Furthermore, the grant of a 12 month tenancy agreement for the property to be used as a house in multiple occupation had been a breach, in that it had deteriorated the condition of the property to such an extent that there was no realistic prospect of it being sold for the best achievable price in its current state.  (6) The second claimant was entitled to recover damages for breach of contract, including his net entitlement for the works and his share of the profit, which could only be ascertained once the true open market value of the property in assumed good condition was determined at a further hearing. That was preferable to making an order for specific performance for the property to be sold after defects had been remedied and the property put into good order, necessitating a further, potentially complex, inquiry into the parties’ respective entitlements.  (7) The second claimant was entitled to recover damages to reflect his entitlement to share in the benefit obtained by the defendant from occupying and then renting out the property. The defendant was entitled to recover damages to reflect his loss over the period of culpable delay by the second claimant in completing the property. No final or interim award of damages would be made until the question of valuation had been resolved. Anthony Goff (instructed by Mackenzie Jones Solicitors, of St Asaph) appeared for the claimants; Philip Williams (instructed by Direct Access) appeared for the defendant. Eileen O’Grady, barrister Click here to read the transcript of Fairhurst Developments Ltd and another v Collins