Fairhurst Developments Ltd & Anor v Collins & Anor

In determining the contracting party to an oral agreement, the court applies an objective test. The person whose words or conduct form the agreement is the contracting party unless it was made clear at or before formation that he was acting for a company. A party is not required to enquire into the capacity in which the other party acts. Subsequent dealings may assist in identifying the original contracting party, but do not automatically vary or novate the agreement.

An oral construction agreement which gives only an estimated completion period ordinarily requires completion within a reasonable time. Where the scope of work changes by agreement or reasonable necessity, the contractor may recover the reasonable cost of the additional work, but the contract does not thereby become a cost-reimbursement contract.

The claim arose from an oral joint venture agreement concerning the construction and sale of a substantial residential property. The dispute concerned whether the agreement had been made with Fairhurst Developments Limited or Mr Mark Fairhurst personally, the scope and price of the works, responsibility for defective and incomplete work, delay, marketing and sale of the property, and the parties’ respective losses.

The court also considered whether Mr Collins had accepted any repudiatory breach by excluding Fairhurst from the site and completing the works himself, and whether his subsequent occupation and letting of the property breached the agreement and an admitted trust.

1. Contracting party. Applying Hamid v Francis Bradshaw Partnership [2013] EWCA Civ 470, the question was the capacity in which Mr Fairhurst objectively entered the oral agreement. Nothing had made clear to Mr Collins that Mr Fairhurst was acting for Fairhurst Developments Limited. The agreement was therefore made with Mr Fairhurst personally. Subsequent payments to the company and the draft agreement did not amount to a variation or novation.
2. Terms and performance. The agreement covered the plans and matters discussed, but did not impose a separate obligation on Fairhurst to comply with planning conditions of which it had not been notified. Fairhurst owed an implied obligation to exercise reasonable care and skill, including for work performed by competent subcontractors. The indicated six-month period did not create a fixed completion date; completion was required within a reasonable time. A change in scope entitled Fairhurst to the reasonable cost of additional work, but did not convert the agreement into a cost-reimbursement contract.
3. Fairhurst was in serious breach by failing to complete within a reasonable time. Mr Collins was entitled to exclude Fairhurst and complete the works, but he did not clearly accept the repudiatory breach. His continuing conduct and correspondence showed that he affirmed the agreement, or was estopped from asserting that it had ended.
4. Mr Collins subsequently breached the agreement and trust by failing to take reasonable steps to remedy defects, market and sell the property, and by granting a tenancy which made sale at the best achievable price unrealistic. Specific performance was refused. Damages were awarded in principle, with quantification of Fairhurst’s profit share adjourned pending valuation evidence.
5. Fairhurst’s recoverable works were assessed at £202,450, subject to deductions of £56,921.90 for completion and defect rectification. Further sums were awarded or allowed in principle for occupation rent and delay-related losses. Final damages and costs were deferred.