LEGAL OPINION

RE: PHANTOM STEEL LTD

OPINION

INTRODUCTION

  1. I am asked to advise Phantom Steel Ltd (‘Phantom’) in relation to a dispute with Titan Construction Plc (‘Titan’). Phantom wishes to claim the remainder of the price on various deliveries of steel beams made to Titan between February and April 2021. Titan has indicated that they do not accept the agreed price of the goods, that some of the beams supplied were not to specification and that they intend to counterclaim against Phantom for consequential loss arising from the failure to fulfill their final Purchase Order (number 705). 
  2. I am referred to draft statement of Mr. Tom Burns for full details. For the reasons set out in Mr. Burn’s statement, Phantom were not able to supply the steel beams requested by Titan in its Purchase Order numbered 705. It is Phantom’s case that they were frustrated from making delivery of these beams.
  3. I am instructed to generally advise on the liability, the quantum of damages and what further information is required. Precisely, to advise on the merits of:
  1. Phantom’s claim in respect of monies due for the orders numbered 701 and 704 amounting to £62,500 plus VAT; and  
  2. Titan’s counterclaim for consequential loss in respect of replacement beams amounting to £65,000 plus VAT as set out in the letter from Brierley Khan solicitors dated 21 January 2022.

FACTS

  1. Tom Burs has been the Managing Director for Phantom Steel Ltd (‘Phantom’) since their inception in March 2014 but have worked in the steel construction parts industry for almost 20 years. Phantom Steel Ltd is a small to medium size company who are involved in providing specialist parts and components to construction companies specializing in the leisure and hotel market. Titan Construction Plc (‘Titan’) are a well-known large company in the industry with a good reputation and known to be involved in some of the biggest projects around.
  2. In a meeting arranged by Titan on 9 December 2020 Tom Burns met with Ms O’Malley and Rob Parker (Titan’s Lead Engineer and Surveyor). They informed me that they had in the pipeline various projects primarily with developers of luxury leisure complexes and hotels. They had approached Phantom having heard of our work from reputable sources.
  3. They informed Tom Burns told me they would like Phantom to manufacture and supply steel beams as part of their various project commitments. Due to problems with their previous supplier of steel beams they were looking for someone new quickly. They went so far as to provide clear specifications of what they needed. These were the same specifications referred to in my letter addressed to Ms O’Malley the following day. 
  4. I had not expected things to move so quickly in the meeting and was slightly ill prepared as a result with regard to our current pricing structure. Ms O’Malley, however, had at hand a document which had a breakdown of works and materials for this type of contract with their “should cost price” of £350 + VAT for each steel beam. The term “should cost price” is not a technical term. I understood it to simply mean the price that Titan thought was the cost price. Having examined this document in detail I was of the view this was lower than our normal pricing structure for such work. I informed them that this looked to be lower than we would charge and that I needed to check our current pricing structure and get back to them. Given the need to avoid any cash flow problems on our part I recall us all agreeing that purchase orders and invoices would be raised at the “should cost price” until final agreement as to price.
  5. In total Phantom Co Ltd received 3 purchase orders from Titan numbered 701, 704 and 705. Titan were provided with invoices on delivery of items in accordance with these orders.
  6. The first order (701) was for 100 beams. These were delivered on time on 16 February 2021. Titan paid the initial invoice raised at the “should cost price” for these beams. Titan made no complaint in relation to the specification of the beams supplied.
  7. The second order (704) was for 50 beams which were delivered on time on 15 April 2021. It is this order that the complaint relates to. The specifications have always been as agreed in our initial meeting. Tom Burns accepted the beams supplied in respect of this order were 4m rather than 4.5m as stated on the Purchase Order. This was still well within the range agreed at our original meeting in December 2020. 
  8. There was then a rather unfortunate turn of events which meant that Phantom Steel Limited were not able to supply any beams in respect of Titan’s third order (705). Due to an unforeseen change of Government policy and privatization of its aluminum and steel mills, our main supplier of steel in Brazil informed us in mid-April that they would not be able to meet their delivery targets for the rest of April through to August 2021. 
  9. Phantom Steel Limited wrote to Titan on 23 April to inform them that unfortunately we could not deliver the beams in respect of Purchase Order 705. Phantom Steel Limited also took the opportunity to attach a supplemental invoice in relation to order 701 charging for the difference between the “should cost” price and the actual price of £650 plus VAT per beam.
  10. Ms O’Malley responded in an email dated 31 May. She did not accept the reasons given for being unable to supply the beams for their order 705 and she indicated that Titan would not pay our supplemental invoice in respect of order 701.
  11. Titan still owe us £30,000 plus VAT in relation to Purchase Order 701 being the difference between the should cost price of £350 plus VAT and the final price of £650 plus VAT. In addition, they owe Phantom Steel Ltd £32,500 plus VAT in relation to Purchase Order 704. This is the order which Titan claim does not meet specification, but they signed for and kept the beams and Phantom Steel Limited believe we should be paid in full at the rate of £650 plus VAT per unit.

ISSUES

  1. The following issues arise from the question which I have been asked to address (as set out in paragraph 3 above):
  1. Whether Phantom’s claim in respect of monies due for the orders numbered 701 and 704 amounting to £62,500 plus VAT is valid; and  
  2. Whether Titan’s counterclaim for consequential loss in respect of replacement beams amounting to £65,000 plus VAT as set out in the letter from Brierley Khan solicitors dated 21 January 2022 is valid.

ISSUE A: WHETHER PHANTOM’S CLAIM IN RESPECT OF MONIES DUE FOR THE ORDERS NUMBERED 701 AND 704 AMOUNTING TO £62,500 PLUS VAT IS VALID

  1. The grant of a mandatory (or any) injunction is discretionary.  Phantom Steel Limited will seek an injunction at trial requiring Titan to pay the monied due for the orders numbered 701 and 704 amounting to £62,500 plus VAT is valid. If found to be in breach of covenant, Phantom Steel Limited’s likely position will be to argue that it should be Titan is bound to pay the sum for the supplied materials of Order Number 701. 
  2. In exercising its discretion whether to grant a mandatory injunction, the court will consider such factors as the extent of damage which would accrue to the claimant if relief is withheld, the cost to the defendant if it is granted, and the conduct of the defendant in rushing on with building works after notice of the claimant’s objections: paragraph 18-31 of Snell’s Equity (34th edition).
  3. If Titan fails to pay Phantom Steel Limited, the court will generally grant a mandatory injunction: Wakeham v Wood (1982) 43 P & CR 40.  Titan clearly knew that it was breaching the covenant by failing to pay the invoice for the goods delivered. 
  4. Finally, in applying the well-known test in Shelfer v City of London Electric Lighting Co Ltd [1895] 1 Ch 287, Phantom Steel Limited can argue that in case Titan fails to pay for the goods supplies, it can be compelled by the court through issuance of a mandatory injunction. 

ISSUE B: WHETHER TITAN’S COUNTERCLAIM FOR CONSEQUENTIAL LOSS IN RESPECT OF REPLACEMENT BEAMS AMOUNTING TO £65,000 PLUS VAT AS SET OUT IN THE LETTER FROM BRIERLEY KHAN SOLICITORS DATED 21 JANUARY 2022 IS VALID.

  1. Titan’s counterclaim for consequential loss in respect of replacement beams amounting to £65,000 plus VAT as set out in the letter from Brierley Khan solicitors dated 21 January 2022 is invalid.
  2. The counterclaim would amount to asking the court to grant the remedy of specific performance in the current instance from Phantom Steel Limited. Such is impossible given the circumstance. Phantom Steel Limited explains that there was then a rather unfortunate turn of events which meant that we were not able to supply any beams in respect of Titan’s third order (705). 
  3. Further, due to an unforeseen change of Government policy and privatization of its aluminum and steel mills, our main supplier of steel in Brazil informed us in mid-April that they would not be able to meet their delivery targets for the rest of April through to August 2021. This was catastrophic for the company and it could not find sufficient alternative supply to meet all of our orders. Phantom Steel Limited therefore had to inform Titan and some of our other more recent customers without delay that we would not be able to fulfil their orders. 
  4. 23. Wolverhampton Corp v Emmons [1901] 1 QB 515 and Johnson v Agnew [1980] AC 367 at 400. established that for specific performance to be granted, the other party must be capable of performing the contract. In the present instance, Phantom Steel Limited is prevented by unavoidable circumstances from supplying the order. Hence the counterclaim by Titan for the supply of the same does not stand. 

CONCLUSION

  1. My conclusion on the issues are:
  1. Phantom’s claim in respect of monies due for the orders numbered 701 and 704 amounting to £62,500 plus VAT is invalid; and  
  2. Titan’s counterclaim for consequential loss in respect of replacement beams amounting to £65,000 plus VAT as set out in the letter from Brierley Khan solicitors dated 21 January 2022 is invalid.

DAVIES & DAVIES LLP

11 APRIL 2022

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