Squibb Group v London Pleasure Gardens and London Borough of Newham.
Technology and Construction Court November 2013
This is a case about a contractor (Squibb) trying to get paid directly by a funder (Newham) after the employer (LPG) went into administration. The development was at Pontoon Dock near the main site for the 2012 Olympics in London. It was to be open for revenue-generating events before, during and after the Olympics and to form part of a longer-term regeneration programme.
The judgment suggests Squibb did a good job against a demanding timetable but LPG, a special purpose company, encountered financial difficulties and went into administration after the work was complete having paid for only a small proportion of it. Squibb tried various arguments based on Newham being party to the building contract, tortious misrepresentation and unjust enrichment, before alleging that:
- A collateral contract arose between Squibb and Newham at the time of the conclusion of the building contract; or
- A contract or collateral contract arose between Squibb and Newham on the basis of meetings on 5 and 11 July 2012 after LPG failed to pay.
Squibb’s first argument was given short shrift. While Newham had more than a purely financial interest in the project, the contractual arrangements were conventional. Newham’s step-in rights were just that (rights, not obligations) and not exercised, and Squibb could not point to any express assurance from Newham to support its claim. To establish a collateral contract based on an implied assurance, as Squibb sought to do, is a tall order and it fell short.
Squibb’s second argument centred around meetings with Newham and its adviser in response to Squibb’s threat of proceedings. Squibb and the independent construction manager who had been dealing with payment applications gave evidence that Newham assured Squibb that payment would be forthcoming. Newham disagreed and the court found that Squibb was only told that LPG should be able to pay after a revenue generating event, not that there was any guarantee of payment by LPG or, failing that, Newham.
No such payment was made and Squibb met with Newham and its adviser again. The revenue generating event had been a failure and by this stage Newham was exercising de facto control of LPG. Oddly, an executive director of Newham began referring to himself as the managing director of LPG. It seems it was contemplated that he would take this role, but never did.
The parties’ evidence conflicted again and the judge concluded that following the failure of the event and under pressure to get the project over the line, Newham gave an assurance that Squibb would be paid £250,000 of the sums due and paid in advance for certain additional work. These payments were made so the issue was whether there was any assurance that other sums due would be paid. The judge found that there was not.
Peter Stockill’s analysis
Collateral contracts are, in effect, an exception to the principle that a contract cannot impose obligations on third parties. As such, compelling facts and evidence are needed, which were lacking in this case.
This was, it seems, a case of a contractor who undeservingly found itself in a tricky situation. It managed to secure some further payment from the funder, but the absence of clear records of the agreements it alleged to exist counted against its subsequent claim. Those contemplating such a claim should ensure that any agreements are recorded in writing before they proceed with further work.
It is also a cautionary tale for funders and professionals acting on their behalf about the dangers of not making clear the basis upon which they deal with the project team. Professionals could be exposed to liability if their actions are taken to create a binding agreement by their client that they were not authorised to make.
