| Date | 28 April 2004 |
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| Judgment | Hurst Stores & Interiors Ltd v M L Europe Property Ltd, CA 1 April 2004 |
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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. |
printIn July of last year, I reported the case of Hurst Stores & Interiors v M L Europe Property which concerned whether a purported settlement agreement was binding upon the parties. 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 a total of £6.5 million for the works. ML's construction manager, Mace, was particularly unimpressed with the final account document. It was returned to Hurst as rejected. Mace claimed that it should be ignored since there was a prior agreement between the parties in settlement of the final account for the package works. Whether Mace was correct in that assumption was the subject of a decision of the Technology and Construction Court in June of last 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. On both those points the court last year agreed with Hurst. The project manager acting for Hurst did not have authority to vary the contract. No authorised representative of Hurst had agreed to such a document and accordingly the agreement shown in it could not be binding on the parties. The court also agreed that the document should be rectified to remove the words that attempted to make the document a full and final settlement of all claims. At the beginning of April this year, these matters were heard again in the Court of Appeal. ML challenged the decision of the earlier judge, arguing that the evidence did not support the finding that Hurst's project manager had been mistaken as to the nature of the document that it had signed. The Court of Appeal was not prepared to overturn the findings of the earlier trial judge. There was ample evidence for the judge to reach the conclusion that Hurst's project manager had been mistaken as to the true nature of the document which Mace had prepared as a final statement of account. The judge was therefore entitled to rectify the document and entitled to find on the evidence that Hurst's project manager had no authority to commit Hurst to an agreement that effectively wrote off large sums which might otherwise be proved to be due under the terms of the trade contract. The appeal was therefore dismissed.
CJ-0417
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