Legal Updates

Commercial Law – Fixed Price Contract – Total Failure of Consideration

The case of Mirimskaya v Evans and Another [2007] concerned the construction of a fixed price contractual relationship between two parties. The claimant bought a house in West London (“the Property”) as a birthday present for her son. She intended to have it refurbished and extended so that it was finished to the highest standard. The first defendant, an aspiring property developer and the principal director of the second defendant company, was introduced to the claimant as being suitable to carry out the proposed works. After many informal discussions between them, it was agreed that the first defendant would be engaged to carry out ‘stage one’ of the proposed works.

The parties agreed that the development of the property would be divided into three stages, namely, ‘stage one’, ‘phase one’ and ‘phase two’. It was subsequently agreed that the first defendant would commence ‘phase one’ of the works once planning permission and building control approval had been received.

In order to finance the commencement of the proposed works, the claimant paid the second defendant advance payments in respect of ‘stage one’ and ‘phase one’, as well as for professional fees.

Unfortunately, by November 2005, the claimant had become concerned about the lack of progress made with regards to the property. She asked the first defendant to account for the sums which he had received and to explain how they had been spent. She also informed him that she wanted the arrangements to be recorded in a formal contract. Additionally, she refused to pay any further sum of money until a schedule of payments, linked to the progress of works, was agreed.

However, the requests were ignored, and so by March 2006, the defendants indicated that they could not continue with the work without further payments since they were running out of funds and were not prepared to finance the rest of the project themselves.

An exchange between the parties' solicitors took place in April 2006, in which each party alleged that the other had repudiated the contract. The claimant issued proceedings claiming money which she alleged that she had overpaid to the defendants. The principal issues between the parties included:

• Whether any binding contract(s) had been made between the parties in respect of the works;
• If so, with which defendant the contract(s) had been made and their terms;
• Whether either party was in breach or had repudiated the contract; and
• If so, what damages the innocent party was entitled to.

The court held:-

• That on the evidence, the claimant had entered into two binding agreements with the second defendant in respect of ‘stage one’ and ‘phase one’ of the works. The terms of those agreements were set out in the documents produced by the first claimant and constituted fixed price contracts for the sums indicated on those documents. The claimant had agreed to pay the professional fees incurred by the second defendant in respect of the planning stage to completion.
• No contractual arrangements had been made between the claimant and the first defendant personally. The claimant had repudiated both of the agreements when, in April 2006, she had wrongly purported to accept the second defendant's alleged breach of contract as repudiation.
• The second defendant had not been in breach of contract by sending the solicitor's letter dated the 30th of March 2006. On the contrary, the claimant had been in repudiatory breach herself by failing to pay the second instalments due under each contract.
• The second defendant was not entitled to recover the two unpaid second instalments since there had been a total failure of consideration in respect of them. However, the second defendant was entitled to recover damages from the claimant on account of her repudiation of the agreements, representing the loss of profits which the second defendant would have made, had both agreements been completed.

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© RT COOPERS, 2007. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.