| Date | 30 July 2003 |
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| Judgment | Hurst Stores & Interiors Ltd v M L Europe Property Ltd, TCC 20 June 2003 |
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| The Issue | Authority of the signing party and rectification of settlement agreements where a mistake is alleged by one party. |
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| Implication |
Settlement agreements are crucial documents which generally depart from the contract mechanisms. As such, the clear authority of the signing parties must be obtained and the purpose of the document should be clear and unambiguous at the time of signing. |
printIt is common practice on large construction and engineering projects to attempt to enter into "wrap-up" deals at certain stages through the construction works in order to move the project forward and TO limit the scope for future claims. Often these deals create considerable difficulty when they are examined later and both parties seek to interpret them in different ways. In the recent case of Hurst Stores & Interiors v M L Europe Property the parties disputed the effect of such a document. M L Europe was the corporate vehicle used by Merryl Lynch for the development of its new European headquarters in the city of London. The works were being procured on a construction management arrangement and Hurst had contracted as package contractor for toilet fit-out works in the amount of approximately £2.4 million. In the event, the works were extensively altered and delayed and shortly after completion, almost one year later than planned, Hurst prepared a final account which claimed total of £6.5 million for the works. When that final account was received, ML's construction manager, Mace, returned it to Hurst with a covering letter which was described in the judgment as "colourful and in one view flippant". Mace believed that the final account should be ignored because they understood that a prior agreement had been obtained as to the value of Hurst's works. Whether Mace was correct in that assumption was the subject of a decision of the TCC in June of this year. At the heart of the dispute lay a procedure which Mace had instituted for the commercial management of all trade contract packages on the project. The contract provided that Mace would issue to Hurst interim statements of accounts (ISA's) each month, which would detail all instructions issued to Hurst. Hurst was required to value the ISA and return it within seven days, accompanied by all necessary information, measurements and calculations. The contract went on to say that Hurst would be required to signify its agreement and acceptance of the valuation of the instructions detailed in the ISA. As the works progressed over 500 instructions were issued to Hurst, and the ISA's therefore became weighty documents. Nevertheless, Hurst's project manager diligently returned the form each month duly completed and signed, believing that by his signature he was indicating agreement to the net value of the instructions received by Hurst, but no more than that. Some six months before the works had finished, an ISA was issued by Mace with two significant changes. Firstly, the word "final" was substituted for "interim" and secondly, in place of the standard wording normally included on the last page, a different last page had been inserted which said that the calculated amount payable to the contractor was to be accepted by Hurst in full and final settlement of all claims arising out of, or in connection with, the trade contract works. Hurst's project manager paid little attention to these changes and proceeded on the basis that it merely reflected the prior agreements already reached between the two parties in previous ISA's. He signed and returned the document to Mace. When the matter came before an adjudicator, he held that that document was binding upon Hurst and that no further claims could be entertained for events which occurred up to the date of the document. This was a shocking finding for Hurst, for it meant that amongst other elements of their final account, their claim for loss and expense amounting to some £2.5 million would be effectively barred. The dispute proceeded to court where Hurst argued that the document should not be binding upon them for two principal reasons. Firstly, Hurst argued that its project manager did not have authority to enter into such an agreement because it was outside the terms of the trade contract. Secondly, Hurst complained that the document was entered into on the basis of a unilateral mistake on the part of its project manager and that the document should accordingly be rectified, so as to remove the reference to it being made in full and final settlement of all claims accruing up to the date of the document. Mr Colin Reese sitting as a recorder of the TCC dealt with each point in turn. Dealing with whether Hurst's project manager had authority to bind Hurst in the manner of a full and final settlement agreement, Mr Reese concluded that the project manager had powers only to deal on Hurst's behalf with matters concerning progress and payment required by the terms of the trade contract. As project manager, he did not have authority to vary the contract. The contract did not provide for the production of a final statement of account as prepared by Mace and, if a document of this type was to have contractual effect, it would first have to be authorised by the contracting parties. No authorised representative of Hurst had agreed to this document and accordingly the agreement shown in it could not be binding. Mr Reese also agreed with Hurst that the paragraphs which declared the document to be in full and final settlement of all claims should be deleted on the basis that there was a unilateral mistake by Hurst's project manager. This finding was possible because it was likely on the evidence that Mace's project manager was aware that Hurst did not understand the true intention of the document. That rendered it unconscionable that ML should be allowed to place reliance on the document. In conclusion, the settlement agreement had no binding effect in respect of the claims for delay and disruption that Hurst intended to make.
CJ-0329
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