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”
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? 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 leave no doubt as to whether or not payment is to be made for works to be carried out or alternatively whether they are to be undertaken at risk and without payment.
If a Claimant claims that an oral contract has been entered into and claims a reasonable sum for alleged work and activities carried out under it, this recent decision will serve as a warning.
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 said that the works were carried out by them under an oral contract or a contract arising by conduct. 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.
Works carried out at Mr Hirst’s own risk
Mr Dunbar said that Mr Hirst performed the works 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.
The court preferred Mr Dunbar’s evidence on this question and found that Mr Hirst performed the works at their his own risk rather than at the request of Mr Dunbar.
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. 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. They will examine exchanges of correspondence to determine whether a binding contract has been reached. The courts will identify the “last shot” to see if there an 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”, 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.
In Burgess -v- Basia Lejonvarn [2016] EWHC 40 (TCC) is an example where “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 depends not upon the subjective state of mind of the parties but on 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 there is no agreement on the essential terms, it follows that there can be no binding agreement. The court will examine the correspondence to determine whether and offer and acceptance has been made. The parties are to be regarded as masters of their contractual fate and it is their intention that matters.
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.
