In Mi-Space (UK) Limited v Bridgewater Civil Engineering Limited, Mi-Space (as contractor) entered into a JCT Design and Build Sub-Contract 2011 with BCE (as sub-contractor) for the carrying out of groundworks for a residential development. It was a lump sum fixed price sub-contract for £1,828,000 plus VAT. The parties agreed a timetable for payment applications and dates for payment.
In December 2014 BCE made a payment application for £346,177.54 plus VAT. Mi-Space failed to serve a Payment or Pay Less Notice in time and did not pay the sum claimed.
On 2 March 2014, following an unsuccessful without prejudice meeting on 27 February 2015, BCE sent an e-mail to Mi-Space advising that works would be suspended (notices of suspension had already been issued by BCE’s solicitors) from 00:01 hours on 3 March 2015.
The following e-mails were exchanged on 3 March 2015:
- At 9:45 Mi-Space made an offer to BCE to agree the final account in £2,300,000 in respect of all works carried out to date and other terms.
- At 12:25 BCE replied counter proposing settlement for £2,350,000, and other terms.This e-mail indicated that on receipt of Mi-Space’s agreement to the terms proposed BCE would withdraw its claim.
- At 16:21 Mi-Space responded proposing settlement for £2,350,000 with additional terms, and indicating that upon receipt of BCE’s “formal acceptance in writing” Mi-Space would make an interim payment of £79,862.62 and that BCE would immediately withdraw its claim and return to site immediately.
- At 18:54 BCE indicated agreement and asked “Can you carry on formalising the paperwork”.
Mi-Space made the promised payment on 6 March 2015 and BCE returned to site.
On 12 March 2015 Mi-Space sent a draft deed of variation to BCE by e-mail to formalise the agreement reached. BCE replied on the same day with amendments suggested by its solicitors. The following day BCE indicated to Mi-Space that it was not prepared to sign the deed of variation and requested further amendments to the draft deed.
Mi-Space did not accept the amendments and so BCE served a fresh notice of intention to suspend performance of its obligations under the Sub-Contract.
BCE then commenced adjudication proceedings. Mi-Space argued that a settlement had been reached but this was rejected by the adjudicator who ordered Mi-Space to pay the sum claimed by BCE.
Mi-Space did not pay and BCE started enforcement proceedings. Mi-Space then sought a declaration that BCE’s claim for payment had been settled by the exchange of e-mails on 3 March 2015 (or, alternatively, by that exchange and the conduct of the parties).
BCE argued that the alleged agreement was “subject to contract” and therefore not binding. According to BCE, a representative of Mi-Space stated at the meeting on 27 February 2015 that, should proposals be agreed in principle, there would have to be a formal agreement to that effect signed by both parties.
The Court held that the parties had reached a binding agreement by the exchange of e-mails on 3 March 2015. The Court applied the test in RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH: whether or not there was a binding contract between the parties and, if so, upon what terms, requires the consideration of what was communicated between the parties by words or conduct and whether it lead objectively, in accordance with the reasonable expectations of honest sensible businessmen, to a conclusion that the parties had intended to create legal relations.
Applying this test, the Court considered that BCE’s e-mail of 18:54 was an unequivocal and sufficiently formal acceptance of the offer made in Mi-Space’s e-mail of 16:21. The offer covered all the matters in dispute, was expressed in clear terms and contemplated a prompt acceptance that would enable BCE to return to site at the earliest opportunity and Mi-Space to make an interim payment to BCE.
The response by BCE was an unequivocal acceptance and was clearly recorded. On the basis of these two e-mails alone, no sensible businessman could have thought that the other intended anything other than a legally binding agreement.
Furthermore, the Court considered that the alleged statement made by Mi-Space at the 27 February 2015 meeting had not been proved.
COMMENT: This decision serves as a warning of the potentially unintended consequences of electronic communications between parties and that in the absence of terms to the contrary, contractually binding agreements can be concluded by exchange of email.