Neutral citation: Mears Ltd v Shoreline Housing Partnership Ltd [2015] EWHC 1396 (TCC)

NEC contract topics: Clause 10.1, 12.3, defined cost.

Form of contract: NEC3 Term Service Contract Option C

Main areas of law: Contract interpretation, estoppel by convention, estoppel by representation, misrepresentation.

 

Mears was appointed by Shoreline Housing as the contractor under an NEC3 Term Service Contract (Option C) for a responsive repairs, voids and planned maintenance project in Lincolnshire and Humberside. Mears’ tender, which offered significant savings, was accepted, and work commenced in July 2009 although the formal contract was not executed until December 2009, with retrospective effect.

Under the NEC3 Option C, interim payments were to be made on the basis of defined cost plus fee, with reconciliations against the Price List occurring every six months, subject to pain/gain share arrangements. However, before the contract was signed, representatives of the parties jointly developed and agreed to operate using “Composite Codes” for managing and invoicing routine jobs. These codes were supported by a Composite Rates Explanation Document (CRED), which set out their meaning and operation. These codes were introduced to overcome perceived inefficiencies in Shoreline’s IT systems and the incomplete nature of the Price List. They were intended to streamline order placement and invoicing for a high volume of minor works.

Mears completed over 13,000 jobs using this method and invoiced Shoreline accordingly, with payments made on that basis. Subsequently, a change in Shoreline’s personnel led to concerns about costs and a decision to retrospectively disallow the use of the codes, claiming overpayment. Shoreline deducted approximately £300,000, asserting that payments made under the Composite Codes were inconsistent with the formal contract terms. Mears commenced proceedings for recovery.

 

The key legal issues centred on whether the Composite Codes and associated procedures were contractually binding, and if not, whether Mears was entitled to rely on estoppel by convention, estoppel by representation, or misrepresentation to prevent Shoreline from making retrospective deductions.

Shoreline argued that the entire agreement and variation clauses within the NEC3 contract precluded the enforceability of any informal arrangements such as the Composite Codes or the CRED. They maintained that the contract required strict adherence to defined cost plus fee and that the Price List governed the valuation of works.

Mears, on the other hand, argued that both parties had jointly adopted and relied upon a shared assumption, reflected in the Composite Codes and the CRED, that works would be invoiced in that manner. Mears asserted that this amounted to a binding convention, and that Shoreline was estopped from denying it. It was also argued that representations made during the contract formation and mobilisation period were relied upon by Mears to its detriment.

 

Mr Justice Akenhead concluded that Mears had successfully established an estoppel by convention. He found that both parties had expressly and jointly agreed to the use of the Composite Codes through numerous documented meetings and email exchanges, and that they had conducted themselves accordingly for a sustained period.

He held that the assumed state of affairs as reflected in the use of the Composite Codes as a basis for invoicing was clearly shared and relied upon. Mears had suffered detriment by structuring its operations around this system and was not reasonably able to revert to defined cost invoicing for completed works.

Shoreline’s arguments based on the entire agreement clause and lack of formal variation were rejected in this context. The court found that the clause did not prevent the operation of an estoppel by convention. The judge referred to Amalgamated Investment v Texas Commerce International Bank (1982) and other authorities to affirm that estoppel can operate despite the existence of an entire agreement clause if it would be unjust to allow a party to go back on a shared assumption. The court awarded Mears damages equivalent to the value of the deductions made by Shoreline, namely approximately £300,000. No award for misrepresentation was made, as the estoppel grounds were sufficient for judgment.

 

This judgment highlights the potential for operational conventions to be enforced even where they appear to contradict formally executed NEC3 contract terms. While NEC3 contracts contain clauses requiring variations to be in writing and agreed (clause 12.3)  this case demonstrates that clear and sustained joint conduct can establish enforceable conventions if reliance and detriment are proven.

For clients, project managers and contractors, the case signals that adopting procedures outside the written NEC contract, especially those to suit operational efficiency, must be approached cautiously. If such deviations are necessary, they should either be formally incorporated into the contract or clearly documented and agreed with mutual understanding of their legal implications.

This case confirms that NEC's flexibility and reliance on cooperation can give rise to disputes if procedural workarounds are not properly regularised. Parties must be mindful that even in collaborative environments, changes to pricing and valuation mechanisms can have legal consequences if not fully integrated into the contract structure.

The judgment does not alter the core principles of NEC3 but illustrates how courts may interpret real-world conduct where it conflicts with strict contract wording. It also serves as a reminder that careful governance and transparent variation mechanisms should be prioritised when managing NEC3 service contracts in practice.

Mr Justice Akenhead, noting that costs for both parties exceeded twice the value in dispute, and that both sides had made offers to settle which were rejected, probably summed things up nicely when he said; “This is a case that need never have been fought all the way through to trial.”