In tackling the fall-out from a commercially disastrous project to build a world-class pleasure gardens in east London in time for the 2012 Olympics, the High Court has dismissed a building company’s claims that it is entitled to have its unpaid bills covered by the local authority that provided vital funding for the scheme.
The project was a key part of the London Borough of Newham’s plans to regenerate a heavily contaminated 20-acre Docklands site prior to the Olympics. It had wanted to see the land developed as an arts and entertainment destination on a scale not previously seen in London. It was hoped that the attraction would bring in 1.6 million visitors in 2012 alone; however the Council had to step in with a £3 million loan to the developers after the project failed to attract commercial backers.
The family-owned building company had carried out substantial work on the site properly and on time. Although the pleasure gardens did open before the games, the revenue they generated fell far below expectations and the company was still owed more than £420,000 when the developers went into administration.
The company argued that various assurances that it had received from the Council amounted to a collateral contractual relationship which obliged the latter to pay its bills in full. It was submitted that the Council had not merely funded the project but had ‘controlled who got paid’.
The Court accepted that the Council’s motives for engagement in the project included its desire to regenerate the area, to promote local employment and to support the Olympics generally. The Council, as finance provider, had informed the building company that ‘it would not let the project fail’.
However, noting that the underlying construction contract was between the building company and the developers, not the Council, the Court found that the statements made by the Council had fallen short of a general under-writing of the project and an assurance that the building company would get paid in full for its work.
The Court accepted that the Council had entered into a binding contract to pay the building company £250,000 of the £420,000 it was owed. However, that sum had already been paid and the company’s claim against the Council for the balance was dismissed.