Reinwood Ltd v L Brown & Sons Ltd

A contractual provisional assessment of VAT need not explain how the assessed value was calculated. It must state the relevant values, the applicable positive rate and the grounds showing why that rate applies. An employer’s objection requires clear communication that the assessment is rejected as incorrect, together with grounds of objection; a request for verification or clarification is insufficient. Under a contractual termination regime allowing determination after repetition of a specified default, a valid earlier default may be relied on after a later repetition, even where the contractor did not determine the contract after the first default. Serving an intervening notice of default, or referring to an invalid intervening default rather than the earlier one, does not waive that right. The appeal was dismissed.

Reinwood employed L Brown & Sons under a JCT building contract containing a separate VAT agreement and a contractual determination procedure. Browns issued a provisional VAT assessment in April 2005. Reinwood sought supporting calculations but did not expressly object. Browns later served a notice of default, followed by a determination notice in July 2006 referring to an intervening January 2006 default. The High Court upheld the determination on the January default. This court allowed Reinwood’s earlier appeal ([2007] EWCA Civ 601), and the House of Lords upheld that decision ([2008] UKHL 12). On remittal, the High Court upheld the determination on the earlier VAT default. The central issues were whether the assessment and email were valid, and whether Browns had waived reliance on the earlier default.

Disposition. Lord Justice Lloyd delivered the judgment. Lord Justice Richards and Lord Justice Hooper agreed. The appeal was dismissed.

1. Provisional assessment. Clause 1.1 of the VAT agreement required the contractor to state the values of supplies chargeable at zero and positive rates, specify the positive rate or rates, and state why the positive rate applied. It did not require an explanation of how the assessed values had been calculated. The separate requirement in clause 30.1.1.1 that an Interim Certificate specify the basis of calculation showed that no equivalent requirement appeared in clause 1.1. The April letter and invoice therefore constituted a valid provisional assessment.
2. Objection. A valid objection under clause 1.2.2 had to make clear that the employer objected to, or refused to accept, the assessment as correct and had to indicate the grounds. It was sufficient to say that the assessment was too high; detailed workings were not required. Reinwood’s email merely sought substantiation and verification. It did not object or state grounds and was therefore equivocal and invalid.
3. Repetition of default. The notice dated 12 May 2005 validly specified a default. The later failure to pay in June 2006 repeated that default. Clause 28.2.4 operated cumulatively, as shown by the words whether previously repeated or not, and entitled Browns to determine the contract even though they had not determined it after the earlier default.
4. Waiver. Browns did not waive reliance on the earlier default by serving a later notice of default. The notices served different purposes and were not inconsistent. Nor did the July determination notice waive the earlier default merely because it referred to the invalid January notice. Banning v Wright [1972] 1 W.L.R. 972 at 979 did not support applying pure waiver retrospectively to the consequences of past conduct. A contractual refusal or termination could be justified by facts existing at the time even if the stated reason was wrong, inadequate or absent; waiver could qualify that principle only in the nature of estoppel.

• House of Lords. On the earlier issue concerning the January 2006 default, upheld the Court of Appeal’s decision ([2008] UKHL 12).
• Court of Appeal (Civil Division). Allowed Reinwood’s earlier appeal against the first High Court decision and remitted the issue of reliance on the earlier default ([2007] EWCA Civ 601).
• High Court, Technology and Construction Court. On 9 November 2006 held the July 2006 determination valid on the January default. On remittal, judgment handed down on 6 December 2007 again upheld the contractor’s position and permission to appeal was refused.
• Court of Appeal (Civil Division). Dismissed the present appeal and held that the determination was valid because the June 2006 default repeated the validly specified April 2005 default ([2008] EWCA Civ 1090).