Dr Jones Yeovil Ltd v The Stepping Stone Group Ltd

The court determined that the December 2014 meeting produced at most an agreement to agree and did not displace the payment regime in the Phase 1 and Phase 2 JCT contracts. The remaining 2.5% retention under clauses 2.35/2.36 and 4.18.3 of those contracts therefore became payable because a Notice of Completion of Making Good should, applying the Henry Boot principle, have been issued. The defendant's counterclaim for a variety of alleged defects and consequential losses (including excessive electricity costs arising from heat pumps, carpet TOG issues, insulation defects, Japanese knotweed and snagging invoices) was rejected for failures of proof, inadequate particularisation and unreliable quantum evidence. The court awarded the claimant the withheld retention, the VAT invoice sum, and contractual interest.

Background and parties: The claimant (DRJ) was the building contractor; the defendant (SS) the property developer. DRJ carried out three contracts (Phase 1, Phase 2 and Engine House) to construct and refurbish eleven assisted-living units at Nynehead Mews. After practical completion, SS withheld half of the contract retentions and later counterclaimed for alleged defects and consequential losses, the largest head being increased electricity charges said to flow from underperforming heat pumps.

Nature of the claim and relief sought: DRJ brought a first instance claim to recover sums withheld as retention under the Phase 1 and Phase 2 contracts and a VAT invoice under the Engine House Contract. SS counterclaimed and sought to set off substantial losses (including excessive electricity costs, carpet replacement, insulation remedial works, Japanese knotweed remediation, snagging costs and the cost of obtaining warranties) against the retention and other sums.

Issues for decision:

1. Whether the December 2014 negotiations produced a binding agreement that displaced the contractual payment mechanism and justified SS continuing to withhold the retention;
2. Whether DRJ was entitled to the retention because Making Good Certificates ought to have been issued (application of Henry Boot and related JCT principles);
3. Whether SS established liability and quantum on its counterclaim heads, including (a) excessive electricity charges linked to EAHPs/ASHPs and the relevance of transferred loss, (b) carpet TOG non-compliance, (c) defective insulation, (d) Japanese knotweed disposal, (e) snagging invoices, and (f) lost or deficient ASHP manufacturer warranties;
4. Consequential questions of interest and costs.

Court's reasoning and findings: The court found the December 2014 email and contemporaneous notes reflected an agreement to agree, not a binding settlement; the contractual retention regime remained in force. Applying contractual construction and authorities on retention and certificates (including Birse, Henry Boot, Relicpride and Harrington), the judge held that the second half of the retention remained a sum identifiable as retention and that Making Good Certificates should, on the facts, have been issued (or treated as having been issued) by no later than 24 May 2016; accordingly DRJ was entitled to the retained balance plus contractual interest. On SS's counterclaim the court rejected the alleged representation/warranty that air-source solutions would be as economical as the originally specified ground-source heat pump, found the electricity meter data and spreadsheet evidence unreliable, preferred the claimant's expert evidence on methodology (dynamic thermal modelling preferred to the MCS approach) and concluded SS had not proved liability or reliable quantum. Claims as to carpets, insulation, Japanese knotweed, snagging invoices and lost warranties were inadequately pleaded, unsupported by evidence or otherwise unsustainable. The counterclaim was dismissed.

The claimant's claim for the retained sums and the VAT invoice is allowed; the defendant's counterclaim is dismissed. The December 2014 discussions were at best an agreement to agree and did not displace the contracts' retention/payment regime; Making Good Certificates should have been issued and the retention therefore fell due. The defendant failed to prove liability or reliable quantum on its counterclaim heads and the principle of transferred loss did not assist the defendant in recovering the residents' electricity costs.