Squibb Group Ltd v London Pleasure Gardens Ltd & Anor

A collateral contract or contractual warranty cannot be inferred from a funder’s involvement in a construction project without a clear and sufficiently certain assurance. Strategic interests, control over loan drawdowns and participation in contract negotiations do not, without more, establish an obligation to fund or guarantee payment under another party’s construction contract.

A binding contract may nevertheless arise from later negotiations where a party gives a sufficiently definite assurance in return for identified consideration. The agreement is confined to the payments and obligations actually agreed; broader hopes or projections do not create additional contractual commitments.

The claimant contractor carried out groundworks for London Pleasure Gardens Ltd under a construction contract. The London Borough of Newham financed the project but was not a party to that contract. After London Pleasure Gardens failed to pay certified sums, the claimant alleged that the Borough had entered into collateral contracts or given enforceable payment assurances.

The issues concerned an alleged collateral contract formed when the construction contract was made, and alleged agreements arising from meetings on 5 and 11 July 2012. The court had to determine whether the Borough had assumed contractual responsibility for the claimant’s outstanding payments and, if so, the extent of that responsibility.

1. Issue 1. No collateral contract or contractual warranty arose when the claimant and London Pleasure Gardens entered into the construction contract. The Borough’s strategic interest in the project, its role as funder, its control over loan drawdowns and its proposed amendments to the construction contract did not amount to an assurance that it would fund or guarantee all sums payable by London Pleasure Gardens.
2. Terms commonly implied into ordinary construction contracts could not be treated as the primary object of a separate contract with the funder. Following the approach illustrated by Shanklin Pier v Detel [1951] 2 KB 854, an assurance was required. Although an assurance could in principle be implied, clear and cogent evidence would be necessary. No such assurance was given.
3. Issue 2(a). The discussions on 5 July 2012 conveyed that London Pleasure Gardens was expected to pay a substantial part of the £424,000 overdue sum after the Bloc Festival and to discharge it by the end of July. They did not amount to a definite promise or guarantee by the Borough. The communications that followed were inconsistent with a concluded agreement.
4. Issue 2(b). On 11 July 2012, the Borough gave a binding assurance that London Pleasure Gardens would pay £150,000 on 12 July and a further £100,000 the following week against the overdue balance. The assurance was given to secure the claimant’s agreement to undertake additional works, for which it would be paid in advance, and to refrain from proceedings. That constituted sufficient consideration and sufficiently serious contractual relations.
5. The claimant was ultimately paid the agreed sums, albeit in the reverse order and on 13 and 30 July 2012. The Borough therefore had no further liability. Any remaining claim was against London Pleasure Gardens.

Not stated in the judgment.