What’s wrong with agreeing a deal in the pub with a beer, a nod and a wink? After all, you’re mates, aren’t you? Well, sadly, those days are over. You must properly record everything
You should never mix business and pleasure. Mr Thompson and Mr Charlesworth have shown how true that is. They were friends, but plainly are no longer. They both worked in construction and, given the propensity of players in this industry to fall out, should have known better. Thompson was an electrical supplier and Charlesworth wanted some fancy electrical gadgetry, including a lighting system, installed in his home. A figure of £15,000 was mentioned in discussions between the two, but was not put in writing. The only thing that was put in writing was a couple of quotations for the lighting system. Halfway through the works, Thompson sent Charlesworth an invoice that promised “a full job costing so that we don’t go over budget”. Thompson issued further invoices as the works were completed, but these substantially exceeding the budget. Predictably, Charlesworth refused to pay, saying it was a fixed-price contract and that the only items outside the specification were variations. Thompson said he was entitled to “reasonable remuneration” for the work done.
Presumably the parties attempted to settle things, but they ended up in the Technology and Construction Court. The court determined what the parties could not, namely, that there was an oral contract for the work under which remuneration would be a reasonable cost as close to the budget estimate as possible. There was little in writing, but what there was – in particular a reference to “a full job costing” – was consistent with £15,000 being a budget estimate and with concern growing as to the outturn cost. If there was a fixed price, there would have been no need for a further costing.
Of course, one lesson learned from this is, as I said, that you shouldn’t mix business and pleasure. If you must, you should keep the business relationship at arm’s length. But the case has a wider application. In these cash-strapped times, it is not just friends who fall out. Clients and contractors that have happily and successfully worked together through the good times are now in a commercial environment in which, for clients, property valuations are nose-diving and tenants are few and far between. For contractors, every penny counts as workloads decline, margins decrease and the losses arising from insolvencies mount.
In this climate, all parties have a tendency to look more closely at their rights and remedies. The contract comes out of the drawer and is scrutinised with the sort of attention that might have been better devoted to putting it in place correctly at the outset rather than deconstructing it afterwards.
In a downturn, Contracts are scrutinised with the sort of attention that might better have been devoted to putting them in place correctly at the outset
In addition, in the commercial world, you do not know who you may ultimately be dealing with. Clients and contractors may become insolvent, and you end up trying to negotiate claims with administrators who have no knowledge of pre-insolvency conversations, nods and winks. Redundancies mean that you cannot rely on your main contact being there to honour your verbal understandings. What is written down is all that counts.
Sad and unpleasant though it may be, this demands that everything be properly and accurately recorded. No more starting work on the basis of a phonecall. No more casually agreeing to add further work into an existing fixed-price contract without agreeing the price increase. No more sorting things out in the pub over a beer and concluding with a handshake, without recording and confirming the agreement in writing afterwards. Emails must not be written in chatty abbreviated shorthand, but must be comprehensible to
an outsider reading things without any background knowledge. Otherwise, the scope for the sort of misunderstandings that bedevilled Thompson and Charlesworth’s relationship are myriad.
And what of them? Having seen their legal bills at the end of all of this, no doubt they wished they had sorted it out over a pint after all.
Ann Minogue is a partner in solicitor Linklaters
Original print headline: 'Friends disunited'