Benchmark Leisure Limited (“Benchmark”), the site developer at a waterpark in Scarborough, entered into a contract with Aqua Leisure International Limited (“Aqua”) on 13 July 2015 under which Aqua would carry out works at the waterpark on a design and build basis. Following practical completion, Aqua made a final interim application for £192,093.36. No notice to pay less was served but Benchmark only paid £20,000 of the application. In July 2017,
 
Aqua served a notice of adjudication. The Adjudicator’s decision required Benchmark to pay the outstanding balance of the final application, the interest on that sum, £12,500 in legal costs under s5A of the Late Payment of Commercial Debts Act 1998 (and the fixed fee of £100 under the Act) and his own fees of £10,470.

The sums awarded by the Adjudicator did not include the retention payment in respect of completion of warranty works. The parties met in August 2017 to discuss settlement of the entirety of their dealings. The negotiations were as follows: Benchmark offered to pay £198,448 plus VAT including a “fixed and final” payment of £120,000 on or before 22 August 2018 “underwritten by a guarantee given by Abbey Commercial Investments”; Aqua proposed by email a “payment resolution” in the total sum of £217,998 plus VAT to be paid over a longer period, with a guarantee. This payment resolution was expressed to be “without prejudice and subject to contract.” The email concluded with “please confirm your agreement to this settlement by return.” Benchmark responded “agreed.” Aqua then replied that they would “contact [their] lawyer to draft the settlement and guarantee” and that they would then forward this “as the binding agreement once signed by all the parties.”

Benchmark began making the payments while Aqua carried out the snagging works. Aqua asked Benchmark six times to sign the agreement but received no response. On 11 May 2017, Benchmark wrote to Aqua stating that there would be no Abbey guarantee. On 26 April 2019 Aqua issued proceedings seeking to enforce the adjudication award. Benchmark defended this on the basis that the adjudication award has been superseded by agreement and that the part of the decision relating to the 1998 Act was unenforceable.

Aqua argued that the payment resolution was “subject to contract” and therefore would not be binding until it was committed to writing and signed, which it was not. In the alternative, Aqua argued that it was conditional upon the provision of the Abbey guarantee. No guarantee was ever given so the condition was not fulfilled. Benchmark argued that the “subject to contract” proviso was waived, as demonstrated by the payments made and the work carried out: there was therefore a binding agreement which superseded the adjudicator’s award.

HHJ Bird found that a new contract had not been made. The agreement was “subject to contract” and as such the parties had agreed this would not be a binding contract until in writing and signed. The agreement had been intended to be a compromise of the issues that had arisen out of the 2015 contract. In the absence of a compromise, sums were still due under the 2015 contract and the adjudication award. The Judge also found that the fact monies had been paid was not evidence of a new contract, it simply demonstrated that the parties were working together to try to settle existing debts.

This case demonstrates the importance of the wording “subject to contract”, HHJ Bird made clear that the court “will not lightly hold” where a condition that negotiations and agreements are “subject to contract” has been superseded.

Notice should also be paid to the decision in respect of the Adjudicator’s purported award of fixed costs under the Late Payment of Commercial Debts Act 1998: there is no such jurisdiction, and the usual rule that adjudication costs are not recoverable cannot be circumvented via the 1998 Act.