P C Partitions Ltd v Canary Wharf Contractors Ltd & Anor

A court will give effect to clear express contractual terms, even where a different arrangement might appear commercially preferable. A term may be implied only where it must have been intended by the parties, including because it is necessary to give the contract business efficacy or is so obvious that it goes without saying. A later contract may vary an earlier agreement, subject to its proper construction. Where a direct-payment agreement clearly limits the payer’s obligations to specified payments, the court will not imply additional duties without a proper legal or factual basis.

The claimant, a subcontractor, sought payment from the defendant construction contractor for work undertaken on a major building project. It alleged that, at a meeting, the defendant had directly engaged it and had agreed to pay for its work. The defendant said that the meeting produced only an agreement to make a payment of up to £25,000 on account of sums owed by the claimant’s subcontractor.

The parties later entered into a written Direct Payment Agreement providing for direct payment only in specified circumstances and excluding wider liability. The court tried preliminary issues concerning the alleged agreement, representations, the construction and effect of the Direct Payment Agreement, and whether the circumstances gave rise to a restitutionary obligation.

1. Alleged direct-engagement agreement. The only concluded agreement made at the meeting was that the defendant would make a payment of up to £25,000 generally on account of sums owed by IES, provided that the claimant raised an invoice. The purchase order was an internal mechanism to facilitate that payment. It did not directly engage the claimant for the works or establish the wider terms alleged.
2. Representations. The alleged representation that the defendant would request and pay for additional works was not made.
3. Direct Payment Agreement. The written agreement was binding and took effect according to its express terms. There was no obvious reason why a later contract could not vary an earlier contract. The agreement’s commercial objectives included treating payments to the subcontractor as a discharge of the defendant’s obligations to IES and preventing the assumption of obligations to the subcontractor that had not previously existed.
4. Implied terms. Applying the formulation in Trollope & Colls Ltd. v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601, a term could be implied only if it was necessary to give business efficacy to the agreement and formed part of the contract the parties made. The proposed requirements that the defendant act reasonably, act in good faith, accept IES’s statement of conformity absent good reason, and give reasons for rejecting valuations did not satisfy that test.
5. Unfairness and restitution. The claimant did not rely on the Unfair Contract Terms Act 1977 and did not allege duress. The circumstances did not amount to requests for work or services giving rise to a restitutionary obligation.

The preliminary issues were answered accordingly: a limited payment agreement existed, no representation was made, the Direct Payment Agreement operated according to its express terms, and Issue 4 was answered no.