Under a number of standard forms of building contract, the contractor鈥檚 entitlement to payment is often based on the cost of the works with the word 鈥榗ost鈥� invariably simply meaning 鈥榯he cost incurred by the contractor鈥�. However, the Court of Appeal鈥檚 interpretation of the term 鈥榗ost鈥� in a contract for interior design services in the recent case of Alebrahim v BM Design London Ltd [2022] EWCA Civ 183 is a reminder that the meaning of 鈥榗ost鈥� is not fixed and ultimately depends upon the proper construction of each contract on a case-by-case basis.
Background
Saudi citizen Mashael Alebrahim owned a substantial flat in a late Victorian mansion block known as Harley House, on Marylebone Road in London. By written contract dated 7th April 2017, Alebrahim engaged BM Design London Ltd (the company of interior designer Binkie Moorhead) for an extensive refurbishment of the flat. BM鈥檚 work scope included procuring furniture, fittings and equipment (FF&E) for the flat.
Alebrahim made various claims against BD including but not limited to overpayment, delay and damages for loss of use of the flat. The pleadings were confused and confusing and some of the real issues between the parties did not come to light until the trial. Ultimately, the court at first instance dismissed all of Alebrahim鈥檚 claims.
However, one of the issues decided by the court at first instance was a question of contractual interpretation relating to the FF&E element of the works. Clause 10 of the contract stipulated that BM was entitled to payment of 鈥�20% of the total cost of the works鈥� plus the cost of the works procured for Alebrahim.
Alebrahim argued that 鈥榯otal cost鈥� meant the cost of the relevant items to BM and therefore if BM obtained trade discounts for FF&E items, that lower price benefit should be passed on to Alebrahim. However, BM argued that 鈥榯otal cost鈥� referred to the cost to Alebrahim; being the amount of the estimates provided by BM to Alebrahim and which Alebrahim approved.
The court at first instance preferred BM鈥檚 interpretation but found that if Alebrahim鈥檚 interpretation had prevailed, Alebrahim would have been entitled to recover approximately 拢100,000 from BM. On this basis, Alebrahim was given permission to appeal on this issue.
Outcome & conclusion
The Court of Appeal dismissed Alebrahim鈥檚 appeal. The court found that the cost estimates prepared by BM and approved by Alebrahim informed the contractual payment process: Alebrahim was presented with breakdowns of the relevant FF&E items each week and, once the figures were agreed, they became the amounts that BM would invoice (with the addition of the 20% fee) and which Alebrahim would pay. Thus, as estimates were agreed by Alebrahim, they became part of the 鈥榯otal cost of the works鈥�.
The contract only required that BM鈥檚 estimates were approved by Alebrahim; the way the estimates were calculated, and whether they were based on retail prices or included discounts was not relevant. Alebrahim was not obliged to approve the estimate and was free to purchase FF&E items from third parties. BM did not order any items until Alebrahim had paid it in line with the approved estimates. BM would obviously not wish to reveal to Alebrahim the details of its trade discounts and this common sense reality stood at odds with Alebrahim鈥檚 interpretation which would allow Alebrahim to challenge previously-agreed costs on the basis that a trade discount had not been passed on. This did not make sense and so BM鈥檚 interpretation was preferred by the court.
Under some standard forms of building contract, references to 鈥榗ost鈥� may properly mean 鈥榗osts incurred鈥� by the contractor. However, this case demonstrates that is not always the case and much will depend on the contract terms on a case-by-case basis.
The court remarked that the contract in the case 鈥�may not have been as immediately transparent as it should have been鈥� in relation to the basis of the weekly estimates.聽 Alebrahim had wrongly assumed that the weekly estimates from BM would be based on trade prices without a mark-up.
The lesson for the parties is to ensure that the basis of both pricing and payments in their contracts is expressed clearly and well understood in order to avoid the prospect of unnecessary disputes.
About the authors: Kieran Shields is a trainee solicitor and Ben Couldrey is a solicitor in Irwin Mitchell LLP鈥檚 construction & engineering team.
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