The importance of a written contract before starting work on site – the power of the pen and the written word

Down the ages powerful voices have warned that the pen is mightier than the sword. In the 1930’s the legendary folk singer Woody Guthrie sang prophetically “….I’ve seen lots of funny men…Some will rob you with a six gun – And some with a fountain pen”

Some say that the quotation attributed to Woody Guthrie originated from Abraham Lincoln instead. Whatever their origin, the meaning of these words is clear, that the pen is indeed mightier than the sword.

Then why is that Contractors, Developers and Consultants so often fail to put a written contract in place before construction works start on site, sometimes with disastrous results for them? They commonly and foolhardily prefer that there is no need to commit to writing an agreement of terms and to trust that all is commonly understood through oral conversation, or if in writing, through the exchange of sometimes unclear e mailed correspondence. The recent decision of the Technology and Construction Court Stephen Hirst and Mountain Developments Company Limited and others v Michael Paul Dunbar and others [2022] EWHC 41 (TCC) illustrates what can go wrong if a written contract is not in place.

Developers, Contractors and Consultants should heed these words of warning and protect themselves against having to retrospectively to try and persuade a court of what they say was agreed with the other party, by committing and agreeing the contractual terms clearly in writing at the outset. This will leave no doubt as to whether or not the most important term of all has been agreed, namely that payment is to be made for works to be carried out or alternatively whether they are to be undertaken at risk and without payment.

Contractors and Developers should therefore always get a contacts lawyer to draft a proper contract or to vet their written contacts before they start work on site, to avoid the catastrophe of later launching a court action that could go against them, if the evidence is not there to support their claim. Whatever they do, they should always get it in writing and make sure that it will stand up to scrutiny in a court, so that you are protected, so far as is reasonably possible. This is illustrated by the decision of Stephen Hirst and Mountain Developments Company Limited v Michael Paul Dunbar and others [2022] EWHC 41 (TCC)

The danger for contractors, developers and consultants in not having in place a written contract that protects their interests is well illustrated by this decision in the Technology and Construction. If a Claimant claims that an oral contract has been entered into between him and the Defendant and claims a reasonable sum for alleged work and activities carried out under it with the Defendant, this recent decision of Stephen Hirst and Mountain Developments Company Limited v Michael Paul Dunbar and others [2002] EWHC 41 (TCC) will serve as a warning and will shed some light on how the courts will treat this claim.

The First Claimant Stephen Hirst and the First Defendant Michael Dunbar were individuals that had known each other since schooldays. They seemingly relied upon personal trust, militating against the parties taking the trouble of putting a written contract in place.

Mr Hirst was a developer and was the shareholder of a company that was a vehicle for buying and owning properties and in a building contractor company that carried out the building work. The intention was for Mr Hirst to buy the site from Mr Dunbar and his companies to build and develop properties upon it.

Mr Hirst and his co-Claimant companies said that the works were carried out by them under an oral contract or a contract arising by conduct by their being engaged to undertake the works on the site. They said that they performed the contract and were entitled to the sum claimed as reasonable value. In the alternative they made a Quantum Meruit [“as much as he has earned”] claim for a reasonable sum earned. This is where one person has requested another to provide him with a service without specifying any remuneration, but the circumstances of the request imply that the service is to be paid for, there is an implied promise to pay quantum meruit i.e. so much the party doing the service deserves.

Works carried out at Mr Hirst’s own risk

Michael Dunbar denied liability and said that the works were not carried out by Mr Hirst and his companies pursuant to any engagement of them. They said Mr Hirst performed the work at his own risk to improve the value of the site and for his benefit as purchaser of the site.

Mr Dunbar said that Mr Hirst performed the works either himself or through the Second Claimant, at his own risk to improve the value of the site and for his own benefit. They said that Mr Hirst was unable to raise the funds to buy the site and so lost the benefit of the Works, as a consequence of the risk that he had taken in undertaking them before he had acquired the site.

After a tortuous exercise of examining in the hearing the factual evidence given by each of these individuals, as to what was said and done at the time, the court came to the conclusion that Mr Dunbar’s evidence was to be preferred on this question and that Mr Hirst and his companies had indeed performed the works at their own risk rather than at the request of Mr Dunbar and his companies, that they did so on the footing that they would benefit from the works through their purchase of the site and that they would have no entitlement to payment in circumstances where they were unsuccessful in attempting to buy the site.

The court also dismissed Mr Hirst’s Quantum Meruit claim for the same reason, that the works were undertaken at his own risk. Quantum Meruit may extend to services performed in anticipation that negotiations will lead to conclusion of the contract, provided the services were requested or acquiesced in by the recipient. However, the decision of MSM Consulting -v- United Republic of Tanzania [2009] EWHC 121 (QB) decided that “this remedy will not be available where the claimant took the risk of being reimbursed only if a contract was concluded…

Written correspondence between the parties – the “last shot” and the battle of the forms

In a case where the claim is not purely based on a verbal agreement, the courts will look to whether there is an absence of a written contract that sets out the terms agreed between the parties the court. In doing so they will examine any exchanges of correspondence to determine whether a binding contract has been reached. In doing so the courts will identify the “last shot” as to whether there was an expressed intention to enter into the contract. The decision of Tekdata Interconnections Limited -v- Amphenol [2010] 2All ER (Comm) 302 is as follows:

“the general rule should be that the traditional offer of offer and acceptance analysis is to be applied in the battle of the forms cases. That has the great merit of providing a degree of certainty which is both desirable and necessary in order to promote effective commercial relationships…”

Where there is a “the battle of the forms” to determine what terms were agreed if any, the court will examine the correspondence to see if there is a conflict between the competing written terms. If such conflict exists, this is resolved by the party that puts forward the latest terms to say that if they are not objected to by the other party, they are to be taken by the court to have agreed to them. This is why this process is called the “battle of the forms”.

The decision of Burgess -v- Basia Lejonvarn [2016] EWHC 40 (TCC) is an example of a decision where after examining all of the exchanges between the parties “it was quite impossible to draw out from these e mails any clear form of offer and acceptance…”.

Essential terms

In RTS Flexible Systems Limited -v- Molkerie Alois Mulller GmbH & Co KG (UK Production) [2010] 1 WLR 735 the Supreme Court decided that whether a binding contract had been made and upon the agreed terms depends not upon the subjective state of mind of the parties but on a consideration of what was communicated between them by words or conduct, whether that leads objectively to a conclusion that they intended to create legal relations and that they had agreed upon all the terms which they regarded or the law requires as essential terms.

In the Pagnan v Feed Products Lloyd’s Law Reports [1987] 601 the Court of Appeal ruled that where the parties have not reached an agreement on the essential terms, it follows that there can be no binding agreement. The court said that it should examine the correspondence to determine whether and offer and acceptance is contained in establishing whether a complete contract has been made. The parties are to be regarded as masters of their contractual fate and it is their intention that matters.

Anthony Philpott