| Date | 3 October 2007 |
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| Judgment | Olga Mirimskaya v George Evans and Dezigner Living Limited TCC 5 September 2007 |
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| The Issue | The operation of advance payment arrangements |
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| Implication |
Unless there is a total lack of consideration, where an employer wrongfully terminates a contract, the contractor will normally be entitled to receive payment of sums due as advance payments despite not having progressed to conclusion the relevant works. |
printIn the recent case of Olga Mirimskaya vs Dezigner Living Limited the Technology and Construction Court considered the circumstances in which a contractor might be entitled to receipt of an advance payment, following the wrongful termination of its contract by the employer, despite that the relevant works had not yet commenced. Mrs Mirimskaya is an extremely successful and wealthy Russian businesswoman who spends a great deal of time travelling on business and between her various homes and yacht in the Mediterranean. In early 2005, Mirimskaya bought a property at Rivercourt Road in West London as an 18th birthday present for her son. It was intended that the property should be refurbished and extended to the highest standards. Through a mutual contact, Mirimskaya was introduced to a Mr Evans, the principal of Dezigner Living Limited, and after many informal discussions between them it was agreed in June 2005 that Evans’ company would be engaged to carry out stage 1 of the proposed works to the property. Stage 1 involved preparatory work including the stripping of the house, clearing the garden and excavation for an extended basement. Once this preparatory work was completed it was intended that the refurbishment works would be undertaken in two phases. Phase 1 would be the construction of all the living areas of the property and phase 2 was to comprise the finishing and decoration of the property and the installation of state of the art audio and visual equipment. Dezigner Living intended to carry out the whole project as developer by engaging professionals, suppliers and subcontractors as necessary to carry out the works. Their intention was to be paid in lump sum instalments in advance of the works being carried out, such that they would always be kept in funds. The preparatory stage 1 works were commenced in June 2005 and by the end of July 2005 the parties had agreed that Dezigner Living would also commence phase 1 of the refurbishment works once planning permission and building control approval had been received. In order to finance the commencement of these works, from June to August 2005 Mirimskaya paid to Dezigner Living advance payments in excess of £700,000 including VAT. By November 2005 however, Mirimskaya had become concerned with the lack of progress of the works and had asked Evans to account for the sums received and explain how they had been spent. Mirimskaya also understandably wished the arrangements between the parties to be recorded in a formal contract. Unhappy with the state of affairs generally, Mirimskaya appointed an independent chartered quantity surveyor to advise her and refused to pay any further sums of money to Dezigner Living until a schedule of payments linked to progress of the works was agreed. Unfortunately this was never agreed and by the end of March 2006 Dezigner Living indicated that they could not continue with the work without further payment since they were running out of funds and were not prepared to finance the rest of the project themselves. Mirimskaya refused to pay further advances. This impasse led to each party asserting that the other had repudiated the contract, and in April 2006 Mirimskaya ejected Dezigner Living from the site and changed the locks. In September 2006 Mirimskaya commenced proceedings in the Technology and Construction Court in which she claimed a sum in excess of £500,000 which she alleged to be the difference between the total amount paid and the value of the works carried out by Dezigner Living. Dezigner Living counterclaimed over £600,000 representing the unpaid invoices for monies due in advance of subsequent phases of the works. Deputy High Court Judge Richard Ferneyhough QC carefully examined the history of dealings between the parties and concluded that Mirimskaya had entered into two binding agreements with Dezigner Living in respect of the preparatory stage 1 works and phase 1 of the refurbishment works. As anticipated by Dezigner Living, these agreements provided for lump sum payments to be made in such a manner that they constituted advance payments in order that they would be kept in funds as the works progressed. The Judge concluded that Mirimskaya had repudiated the contracts in two respects. Firstly, by failing to make the payments which had been invoiced, and secondly, in wrongly accepting Dezigner Living’s refusal to continue the work without payment as being repudiatory and as a result requiring Dezigner Living to vacate the site. Interestingly however, it did not follow that Dezigner Living was entitled to be paid the remaining sums due in respect of invoices raised in advance of the works being carried out. On the evidence no work had been done by Dezigner Living in relation to these further invoices. Accordingly, it could be shown that there had been a total failure of consideration in respect of the two final instalments. In conclusion, Dezigner Living was not entitled to be paid advance payments for works which had not yet been commenced prior to the repudiation. Dezigner was however entitled in the alternative to claim damages from Mirimskaya presenting the loss of profit it would have made on the completion of the works.
CJ-0739
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