Adjudication
Universal Music Operations Ltd v Flairnote Ltd (2000) TCC

© Daniel Atkinson 2001     16 January 2001

The decision in Universal Music Operations Ltd v Flairnote Ltd (2000)TCC emphasises the importance of clearly identifying the contracting parties, and particularly whether a project manager contracts on his own behalf in a construction management arrangement, or whether he is acting as the agent of the employer in a more traditional arrangement.

Universal Music sought a declaration that the provisions of the Housing Grants Construction and Regeneration Act 1996 did not apply to the dispute between Universal and Flairnote. The main issue was whether Sulzer Infa CBX Limited, who were appointed by Universal, had entered into a contract with Flairnote as principal on their own behalf or as the agent of Universal. Sulzer was joined to the action as a defendant. Universal argued that there was no construction contract whether in writing or at all between Universal and Flairnote. Sulzer sought a declaration that there was no contract between Sulzer and Flairnote.

Universal were a large United Kingdom company and part of a larger international group based in the United States. They owned a number of properties in London which they refurbished and adapted. They had used Sulzer mainly as project managers on a previous development. On that occasion they used a form of contract described as an agreement for project management and management contracting services. The previous agreement had many of the attributes of the classic project management agreement. It provided a contractual system whereby Sulzer provided a comprehensive service both as project mangers and by being responsible for the provision of the executed works. This was described as "a one stop shop".

The issue then was whether such an arrangement had been entered into for the instant works at 136/144 New Kings Road London. The previous agreement was one that was used as a starting point in discussions on the New Kings Road project. A draft agreement based on the previous project was sent to Universal on 16^th March 1999. The draft contract was painstakingly checked by Universal and Universal’s lawyers and included at paragraph 9 "arrange for the execution of the contract by the contractor and Universal".

Universal argued that the agreement did not confer authority on Sulzer to enter into a contract on behalf of Universal as an employer under such a contract.

On 22^nd July 1999 Sulzer acknowledged the news that Universal’s parent company in United States had given their approval for the expenditure of money to cover the project at New Kings Road. At a meeting held on 23^rd July 1999 with Universal and Sulzer the changed position was discussed. It was recorded at the meeting that Sulzer had proposed that the contractor be engaged to complete the project under a standard form JCT type of contract. On 23^rd July 1999 Universal gave written authority to Sulzer to raise purchases, vary contracts etc to achieve the intended project delivery without further recourse to the Client.

On 26^th July 1999 Sulzer informed Flairnote that it was their intention to place the contract with them subject to agreeing final terms and conditions. A purchase order was placed with delivery to Universal’s address. On 11^th August 1999 Universal e-mailed Sulzer stating that a Project Managers Agreement needed to be put in place, that the wording had been agreed but that the fees would need to be reviewed bearing in mind "we are no longer going down the construction management route".

On 6^th September 1999 Universal wrote to Sulzer confirming their agreement to the Project Management Agreement subject to minor immaterial amendments.

It was held that Sulzer were agents of Universal under the express written authority given by Universal on 23^rd July 1999. This express agency was modified and confirmed in the Project Management Agreement the terms of which were finally agreed at the end of August 1999.

It was held that there was an agreement between Sulzer acting on behalf of Universal and Flairnote evidenced by the purchase order and the undisputed minutes of 30^th July 1999. The terms of the construction contract incorporated provisions of the JCT IFC 1998 edition of contract. The essential terms including those as the price, defects liability etc were concluded by the 30^th July 1999 and it was agreed that the other terms including the LAD’s would be the subject of future agreement.

It was held that by January 2000 all terms had been agreed between Flairnote and Sulzer with the knowledge and authority of Universal. The contract was a construction contract within the Housing Grants Construction and Regeneration Act 1996. Flairnote was entitled to a declaration that there was no contract between Sulzer as principal and Flairnote. Universal was not entitled to a declaration that the provisions of the Housing Grants Construction and Regeneration Act 1996 did not apply.