Pursuers: Davies; ACH Shoosmiths

Defenders: Richardson; Dundas & Wilson CS LLP

21 March 2014

[1] Fordell Estates Limited (the pursuers) seek payment of £338,000 from Deloitte LLP (the defenders) in respect of an alleged agreement to settle a dilapidations claim for that sum. The background is the defenders' lease of subjects at 18 Charlotte Square and 4 Charlotte Lane, Edinburgh, which are owned by the pursuers. The lease ended in March 2012. Before then the pursuers had intimated a schedule of dilapidations. There was a dispute as to the scope and cost of the necessary remedial works. Chartered surveyors (Mr Cassels for the pursuers and Mr McConnell for the defenders) liaised with a view to a negotiated agreement. The pursuers claim that, in due course, a binding agreement was reached whereby the defenders would pay the said sum in full and final settlement of the claim. The defenders say that the negotiations never reached the stage of a concluded contract.

[2] I heard a proof at which evidence was led from a number of those directly concerned with the relevant events, including the surveyors. However, the issue turns on what, on an objective basis, can be taken from the parties' communings. I do not consider it necessary to record the evidence. Much of it is set out in the various witness statements. In large measure it rehearses the relevant emails, letters, etc passing between those involved. All the witnesses responded to questions in a straightforward and patently honest manner, and their evidence was helpful in putting the various communications in their proper context.

[3] The important events can be summarised as follows. By mid-March 2012 the surveyors were exchanging their views and costings regarding the schedule of dilapidations. There was a substantial difference between the two sides. In early April the pursuers intimated a loss of rent claim. Agents for the tenants asked various questions of the landlords, including as to their intentions for the future use or redevelopment of the building. Throughout the defenders were concerned that the pursuers might not spend any monies received on the dilapidations works. This became a running theme in the correspondence. The defenders' view was that, unless the works were carried out, the pursuers could not demonstrate that they had suffered a loss as a result of the dilapidations.

[4] The surveyors continued to meet and discuss the schedule of dilapidations, and over time the gap between them narrowed. It is clear that they understood that client authority would be required in respect of any figure upon which, as between themselves, they reached agreement - for example, see Mr Cassels' email to Mr McConnell of 25 May 2012. The loss of rent claim was disputed, but the experts continued to narrow their differences as to the scope and cost of the necessary works. By 30 May they were less than £100,000 apart. They spoke on 13 June, with Mr Cassels seeking progress on an agreement. Mr McConnell said that he would "chase" his client. Mr Cassels replied that patience was wearing thin, and the verbal offer was about to be withdrawn.

[5] Matters entered the critical phase with an email from Mr McConnell on 13 July. As with others, this email was headed "Without prejudice". Mr McConnell said: "Following discussion with my client, I have been instructed to revert back to you with the offer of £338,000 full and final." Reasons were given for rejecting the loss of rent claim. The email continued: "In addition, I would request that your client releases evidence that the works being claimed are actually planned to go ahead, for example priced tender documentation." On 16 July Mr Cassels replied:

"My client has now discussed the matter further with their principals and ourselves, and with some reluctance they will agree to settle at the sum stated of £338,000 in full and final settlement of all sum due as to the dilapidations. This is on the basis that the sum is paid within the next seven working days. This will need formal documentation, hopefully by a simple legal form of words, as is the normal procedure. In this respect can you please forward your client's solicitors contact details at Semple Fraser so we can put them in contact and get the matter agreed."

Mr McConnell acknowledged receipt and indicated that he would revert to his client. Time passed, and Mr Cassels asked for an answer, in order to "resolve matters".

[6] On 25 July 2012 Mr McConnell emailed Mr Cassels, again stating "Without prejudice", as follows: "My client is happy to settle on the figure of £338,000 on the provision that your client is able to provide evidence that the works are going ahead and being tendered. I don't think this is an unreasonable request at this stage." This prompted a lengthy emailed reply from Mr Cassels dated 26 July. He rehearsed some of the history of the matter and complained of delays, prevarication, and stalling. He mentioned that the figure of £338,000 was "a compromise figure". It was agreed in order to take a commercial view to resolve the matter, with the landlords laying aside the loss of rent and service charge claim. The "agreed settlement" was not based on a final agreed set of works. If the work was now to be tendered, they would be tendering the full, non‑negotiated schedule, and Mr McConnell's client would be responsible for the full value, including the additional fees incurred, and the full value of the loss of rent since the end of the lease. All of this would mean that seven months work in negotiating between themselves had been "a complete waste of time". Mr Cassels continued: "It is not acceptable to draw out the process to a point four months after the lease expiry, seven months after service of the schedule, by effectively dismissing that negotiation process, following agreement." Reference was made to his email of 16 July confirming his client's acceptance of the offer on the condition that settlement was made within seven working days. Eight working days had passed. Mr Cassels stated "If we do not receive full unconditional confirmation by return then I expect my client to withdraw this offer to settle, which if you recall was substantially in your client's favour." He also said:

"Finally, I can confirm that our client intends to carry out the works. They have to; due to the very poor condition your client left the building in. However they require the funds to be able to do this from the dilapidations settlement which is what this process is all about. I look forward to your confirmation by return, together with the details of your client's solicitor which we have repeatedly requested."

Within the hour, Mr McConnell emailed in reply, again headed "Without prejudice", as follows: "My client is happy to agree the settlement of £338,000 full and final and I have requested that they pass over their solicitors details to your client directly, however my client is now on annual leave until the 14^th of August."

[7] On behalf of the pursuers, Mr Davies' submission was that this email concluded the agreement between the parties. However, in the overall context I consider that it is clear that it was not so intended - nor was it so understood by Mr Cassels - as his subsequent communications demonstrate. I do not consider that a reasonable person would have understood Mr McConnell as withdrawing the condition as to the provision of evidence that the works would be carried out. He was simply responding to Mr Cassels' email with a repetition of the headline sum of money, and dealing with the point regarding the solicitor's details, while also mentioning that he was without instructions from his client because he was on leave. There was nothing in the oral evidence led at the proof which suggested that a different view should be taken.

[8] Mr Cassels replied nine minutes later as follows:

"Thank you for your email, presumably you can now confirm with it being on a 'without prejudice' basis, subject to the correct form of words being agreed. Could they please forward the solicitor's details (can you not do this?) so that at least the legal form of words can be agreed between the solicitors pending client instruction on return from annual leave?"

Mr Cassels emailed on 31 July stating:

"Further to our chat this morning, my client has asked that you drop me a quick email to confirm the settlement of £338k without the 'without prejudice' basis (obviously subject to final agreement/wording), and that Alison Gow of Semple Fraser is acting on Deloitte's behalf. We will then get the letter to her for her return on Monday morning. I look forward to hearing from you."

On 1 August 2012 Mr Cassels emailed Alison Gow of Semple Fraser stating:

"As you will be aware from discussion with Jonathan McConnell of Deloitte, we have been representing the landlord, Fordell Estates Ltd, relating to the dilapidations claim at the above property. After lengthy discussions with Jonathan McConnell we have reached agreement to settle the claim at £338,000 in full and final settlement. The attached document summarises the agreement and I would be grateful if you could check that you are happy with this and arrange for this to be confirmed to Nick Ball of Corran Properties, Asset Manager for the client, as I am on holiday for the next two weeks from this Friday. The document is simple and brief, so we hope it does not require amendment or protracted negotiation as it is identical to that used in several other situations for the same client recently. Nick can then arrange for principal copies to be issued."

[9] That email concluded the negotiations between the parties. At or about this time the defenders became very concerned that any monies paid over would not be used to carry out dilapidations works. Nothing further happened which could support the pursuers' claim for a right to payment of £338,000.

Counsels' submissions
[10] For the pursuers, Mr Davies confirmed that the case turns on the above emails. He discussed the law on topics such as "without prejudice" correspondence, and negotiations "subject to contract". He referred to various authorities. He submitted that to found a dilapidations claim, a landlord does not require to prove that the works will be carried out. The loss "crystallises" at the expiry of the lease. Mr Davies took the court through the various communications between the parties or their representatives, culminating, as he submitted, with a concluded bargain after receipt of Mr McConnell's email of 26 July. What followed from Mr Cassels was said to be on a "belt and braces" basis, or involved some "loose phraseology".

[11] For the defenders, Mr Richardson agreed that the "essence of the case" is whether an agreement was concluded by the emails of 26 July 2012. He submitted that the answer is no, because:

(i) the communings do not record an intention to be bound by the exchange of emails;

(ii) there was no evidence that the defenders would use the money for the dilapidations works;

(iii) the phrase "without prejudice" was used in Mr McConnell's emails;

(iv) there was a need for a formal legal document; and

(v) there was no agreement on a date for payment.

[12] Mr Richardson submitted that a reasonable and honest man in the place of the parties and aware of the whole context, including their shared knowledge, would not have considered that a binding agreement had been reached. The events after 26 July cast light on how the critical emails should be construed, not least Mr Cassels repeated demand for the "without prejudice" qualification to be withdrawn, illustrating that he saw it as preventative of an enforceable agreement (as did Mr McConnell). Reference was made to the demand for a formal agreement in a legal document. Case law on the subject of completion of contract was cited. According to Mr Richardson, it matters not whether a dilapidations claim can be pursued absent a proven intention to carry out the works. The defenders insisted upon such evidence as a condition of the proposed settlement. Mr McConnell had taken matters as far as he could on his instructions, and then, because of the suspicions over the pursuers' intentions regarding the property and the use of any monies paid over, the negotiations broke down. Whatever else, the requirement for satisfactory evidence as to the use of the £338,000 was never met.

Discussion and decision
[13] The proper approach in law to questions of this kind is well settled, and is discussed in numerous cases, for example Baillie Estates Ltd v DuPont (UK) Ltd [2009] CSOH 95, per Lord Hodge at paragraphs 25/6. In summary, both parties must have manifested an intention to be immediately bound to all the legally essential elements of the bargain. In assessing this, the court adopts an objective approach, based upon what an informed reasonable person would have understood by the words and conduct of the parties or their agents.

[14] Mr Davies submitted that Mr McConnell's email of 26 July concluded the bargain. I have already said that this communication will not bear the weight now being placed upon it. In its context, and when properly construed, it did not amount to the acceptance of a concluded contract. The important condition expressed in the email of 25 July was not withdrawn and remained unmet. Mr McConnell's email of 26 July cannot reasonably be construed as a waiver or abandonment of that requirement. This remains so even if one leaves to one side the issues of "without prejudice" correspondence, and the need for a final formal agreement drawn up by the lawyers and endorsed by the principal parties.

[15] In case those factors are of more importance than I consider them to be, my view is that they each reflect the shared understanding that neither Mr Cassels nor Mr McConnell could bind the parties. This is made clear in the relevant emails and letters. At each stage, before making a binding offer, or counter offer, the surveyors required direct instructions from their respective clients. The "without prejudice" epithets should be viewed in that context. Some of the witnesses were asked what they understood by such phrases, or what they were taught at university, but I did not find their various responses helpful. Whatever else, it is clear that Mr Cassels understood "without prejudice" as postponing a legally enforceable agreement. However, since in any event the emails did not amount to a concluded bargain, none of this is of critical importance. As to the loose end regarding a date for payment, I see this as further demonstration that the parties' minds had not met on the key aspects of the deal. Until that stage was reached, a date for payment did not arise.

[16] I do not accept Mr Davies' submission to the effect that the defenders were not entitled to require evidence that the monies would be used for the dilapidations works. Whatever the general law on the subject of dilapidations claims, the present case is concerned with a different issue, namely, did the parties reach a consensus that the claim would be settled for £338,000? In that context, the defenders were entitled to insist on such evidence as they wished, and to make this a condition of their agreement to pay that sum.

[17] I have reached the above views without reference to the inconclusive communications after Mr McConnell's email of 26 July. Nonetheless, they are generally supportive of the view that neither party understood that a binding contract had been concluded, and thus are consistent with my primary conclusion as to the proper construction of the earlier emails. For these reasons the pursuers' claim for payment is refused.