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A New Case on Novation

This is the last Construction Unit news before the Christmas break and we wish you all an enjoyable break, whether or not it is a time of celebration for you.

The legal principle of unjust enrichment relied on by the Claimants in the December 2019 case of Munkenbeck [2019] EWHC 3225 in the Technology and Construction Court is rather esoteric, but this case will be of interest to consultants and contractors with novated appointments and building contracts.

Unjust enrichment involves the unjustly enriched paying the enricher the value of the benefit received. It can be claimed without a contract.
The case is lengthy, so in a nutshell:

The Claimants in the case were referred to as M&M and M&P.

In 2008, after a few years of services on the project by M&M, M&P and the developer entered a written appointment which was immediately novated from the developer to the contractor. Most readers will know that novation is common in design and build procurement and shifts the consultant over to the contractor. As novation took M&P out of contract with the developer, it was not possible for it to claim against the developer under the novated contract.

M&M and M&P settled their fee claims with the contractor. They then looked to the developer to pay:

a) M&M’s fees for design work and work done in connection with the application for planning permission under a separate agreement with M&M made prior to 2008; and
b) fees for services allegedly instructed by the developer after novation of the appointment to the contractor.

In a 31 page judgment, Mr Adam Constable QC rejected both claims, finding that there was no contractual basis for the fee claim and that, on the evidence, the court was being asked to redress a mistake made by M&P in entering the written appointment in 2008. The mistake was to give credit against its percentage fee for an element of the works already done. The Claimants had not asked the court to remedy the mistake and, in the circumstances, had no right to recover fees based on unjust enrichment of the developer. Had the Claimants succeeded with the claim for unjust enrichment, the court would have awarded £88,000.

In relation to the claim for fees for services allegedly instructed post novation, M&P claimed £61,932. The court took a robust line: M&P and the developer had set their relationship through the 2008 appointment and novation. If M&P wished to recover fees for direct instructions issued by the developer it had to operate the contractual process for variations with the contractor or ignore the developer’s instruction (as there was no contractual basis for the developer to issue instructions to the consultant).

The cautionary tale is to review services performed prior to novation and ensure it is clear and agreed in writing if there is to be any post novation liability on the original employer for fees before or after the novation. Post novation instructions from the original employer should not be acted on unless agreed with the contractor or a new agreement is reached with the original employer. And all without damaging relationships with busy project teams……

 
 
 

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