Following a lengthy (pre litigation) dispute over the scope and cost of remedial works (contained in a schedule of dilapidations), commercial landlords, Fordell Estates Limited, raised an action for payment of £338,000 based on an alleged agreement by Deloitte's surveyor to settle the claim for that sum. Deloitte's defence to the action was that negotiations via emails had never reached the stage of a binding settlement agreement.
Though, on the face of it, the case appeared to be an argument over a dilapidations claim, Lord Malcolm expressed that: "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 [via exchange of emails] that the claim would be settled for £338,000". The question was a simple one; was agreement concluded by the emails between the surveyors?
Fordell's submissions was that the last emails between the parties' surveyors constituted an unconditional and binding agreement to pay the £338,000. The last email read:
"Without prejudice…..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 14th of August."
Deloitte's position was that this final email remained subject to an earlier express condition that Fordell provide Deloitte with evidence (such as priced tender documentation) proving that the landlords truly intended to carry out the remedial works; as opposed, presumably, to simply keeping the money (and perhaps leaving a new tenant to do the works). Deloitte's advocate argued "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."
In support of their position, Deloitte relied on the following points:
- the communications did not record an intention to be bound by the exchange of emails;
- there was no evidence that Fordell would use the money for the dilapidations works;
- the phrase “without prejudice” was used in Deloitte’s surveyor’s emails and had never been removed;
- there was an express requirement for agreement to be committed to a formal legal document (which never occurred); and
- there was no agreement on a date for payment.
Lord Malcolm agreed with Deloitte. He stated that the law in this area - of consensus - is well settled and, in his opinion, “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." Against that backdrop he held that the “without prejudice” correspondence between the parties, when properly construed, showed that “neither party understood that a binding contract had been concluded”.
Lord Malcolm was concerned that, at each stage of the negotiating process, the surveyors were, on their own admission, bound to take direct instructions from their respective clients before negotiating further or entering a binding agreement. The words “without prejudice” required to be seen in that context. As such, the final email from Deloitte's surveyor was not tantamount to a binding agreement to pay the sum sought.
In Lord Malcolm's view, Fordell could not get over a key hurdle; that of Deloitte's pre-condition that 'proof of intention to remediate' be furnished. Though the landlord's argued such a requirement was not necessary in regards to a dilapidations claim in Scotland, the court held that Deloitte was entitled to make it a condition of their settlement. Further, the condition had never been purified or the evidence forthcoming. As such, Lord Malcolm found that: “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."
Lord Malcolm thus dismissed Fordell's action for payment. Whether the claim will continue, in regards to a full dilapidations claim which seeks to evidence all the alleged losses, is unclear at this time.
The full judgement is available from the Scottish Courts website here.