The High Court in England and Wales recently declared that a binding contract (worth nearly a quarter of a million pounds) was formed by texts exchanged over WhatsApp.

The dispute related to a demolition contract between developer Jaevee Homes Limited (“the Developer”) and contractor Steve Fincham, trading as Fincham Demolition, (“the Contractor”). While the parties agreed that they contracted for the demolition of Mercy Nightclub in Norwich, they disagreed as to when exactly the contract was formed and, consequently, what payment terms they had agreed.

When was the contract formed?

The Developer argued that the contract was formed on 26 May 2023 when it sent its standard subcontract to the Contractor by email. The Contractor argued that the contract was actually formed on more favourable terms more than a week earlier on 17 May 2023 by an exchange of texts over WhatsApp.

For the Developer, the texts it sent on 17 May 2023 merely confirmed the Contractor had won the tender. The Developer argued that essential terms for a construction contract had not yet been agreed on that date. In particular:

• the exact identity of the employing party;
• the duration of the works;
• the start date for the project; and
• the terms on which payment was to be requested and made.

The Developer stressed that it would be highly unusual to contract for a job worth approximately one-quarter of a million pounds without a formal, written agreement.

However, Mr Roger ter Haar KC, sitting as a Deputy High Court Judge, rejected the Developer’s arguments: “In my judgment, the exchange of WhatsApp messages, while informal, evidenced and constituted a concluded contract.” Mr ter Haar concluded that:

• it was clear that the Contractor’s employer would be the Developer;
• agreement as to the duration of works is not an essential element of a construction contract as there is an implied term that a contractor will complete within a reasonable period;
• the start date had been agreed, and even if it hadn’t, this was not an essential term of the contract as the parties intended the works should start as soon as possible; and
• while certain aspects of the payment terms had been agreed and other aspects had not, even the total absence of payment terms is not fatal to the formation of a construction contract as the law implies the payment provisions of the Scheme for Construction Contracts (“the Scheme”) if or to the extent that a construction contract does not provide:
  • an adequate mechanism for determining what payments become due under the contract, and when; and
  • a final date for payment in relation to any sum which becomes due.

Contract Law takes an objective approach to the question of whether parties intended to create a binding agreement. The parties’ subjective beliefs are irrelevant; it is their objective actions that matter (Edmonds v Lawson [2000] EWCA Civ 69).  

Considering this, Mr ter Haar found that the parties created a binding agreement by text on 17 May 2023. He pointed to the following objective evidence:

• the parties intended the works should start as soon as possible, and had agreed the Contractor would come to site;
• the parties had agreed on the scope of the works;
• the parties had agreed on the price of the works; and
• in response to the Contractor asking, “Are we saying it’s my job mate so I can start getting organised mate,” the CEO of the Developer replied simply, “Yes”. This was “redolent of a concluded agreement” as there was no express indication that final agreement depended upon incorporation of the Developer’s standard terms of contract.

Had the Contractor breached the payment provisions agreed by text on 17 May 2023?

The Developer argued that even if the contract was formed by text on 17 May 2023, the Contractor was still in breach for issuing more than one payment application per month. The Contractor argued there was not limit on the number of applications per month because the contract was silent on this issue.

On 17 May 2023, the Developer texted, “Monthly applications.” The Contractor replied, “Are you saying every 28 or 30 days from invoice that’s a yes not on draw downs then good…call you at 8.30 mate Thanks mate appreciated Ben.” In response, the Developer’s CEO replied simply, “Ok.”

The judge found against the Contractor on this issue. The plain and ordinary meaning of “Monthly applications” was that the Contractor could make one, but only one, application for payment each month. However, the judge considered that the contract did not restrict when in the month such an application could be made. Therefore, three of the four invoices issued were still valid as only one fell foul of the requirement that there be no more than one invoice issued in any monthly period.

Did the invoices set out the basis upon which the claimed sum was calculated?

The Developer also argued that the four issued invoices were not valid Default Payment Notices as they failed to specify the sum due at the payment due date and the basis on which that sum was calculated. This is required by section 110B of the Housing Grants, Construction and Regeneration Act 1996 (“the 1996 Act”), which is equivalent to article 9B of the Construction Contracts (Northern Ireland) Order 1997. The Contractor contended for the opposite as:

• it was a lump sum contract of £248,000 without a specific agreed breakdown for that figure;
• there were no rates, quantities, or milestones to use for valuations; and
• on previous projects between the parties, the Developer had treated “Works carried out. 10k” as a sufficient basis for the sum claimed by the Contractor.

The judge considered the relevant case law in this area. He emphasised the view of the court in Everwarm Ltd v BN Rendering Ltd [2019] EWHC 3060 (TCC) that, in the case of a lump sum contract, it may suffice simply to give the lump sum and deduct previous payments. Previous rulings also suggested that the court’s approach to payment notices:

• must be objective and should consider the relevant contextual scene;
• should accord with common-sense and be practical;
• should not strive to find reasons to render a notice invalid provided the notice makes tolerably clear what is due and why; and
• should not require a particular type of notice to have that title or to reference a specific contractual clause.

Therefore, when read together with the Contractor’s quote, all four invoices sufficiently set out the sum due and the basis on which this sum was claimed.

Were the invoices intended to be payment notices?

Finally, the Developer argued that the four invoices were not valid Default Payment Notices under 1996 Act or the Scheme because they were not intended to be payment notices. It pointed out that:

• there was nothing in the evidence to suggest the Contractor was aware of the provisions of the 1996 Act or the Scheme; and  
• when challenged for submitting invoices too quickly (“Why did you submit application no.2? You’re not sticking to the subcontract that’s in place”), the Contractor tacitly acknowledged that the invoices were submitted under the subcontract of 26 May 2023 rather than the Scheme (“Well I know I have to wait 30 days now or what ever it is”).

The judge found that the invoices were valid applications for payment on the following basis:

• a reasonable recipient would have understood the invoices requested payment;
• the Contractor had previously used invoices as applications for payment on previous projects;
• the agreement concluded by text on 17 May 2023 specifically referred to payment being made “28 or 30 days from invoice”;
• the Developer described the first two invoices as applications for payment in an internal email; and
• the use of invoices as payment applications is part of the factual context and reality of how contracts like the one in question can and do operate.

Mr ter Haar stressed that taking a strict approach to payment notices in cases like this (by accepting contrived, technical complaints about their quality), would frustrate Parliament’s intention that all construction contracts should contain a right to interim payments, whether express or implied by law. He felt convinced that very few small contractors would ever be able to comply with the complicated and technical requirements endorsed by the Developer. The whole purpose of the Scheme is to fill a gap where payment terms have not been agreed. Therefore, it is often not understood to apply at the time.

Conclusion

This case underscores the care required during contractual negotiations to avoid being bound before final agreement is reached and warns of the dangers of informal business correspondence, drafted without the assistance of legal advice. It also provides clarity on the requirement to specify the basis on which sums claimed are calculated and the use of invoices as payment applications.

If you have any questions in relation to a construction or engineering project, please do not hesitate to get in touch with Cahal Carvill or your usual Arthur Cox contact.