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Sat October 24 2020

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"I didn't say that!"

8 Oct 10 The decision in Alton B. Copeland Ltd. v Orkney Builders (Contractors) Ltd, illustrates the importance of recording all the elements of a contract in writing, rather than relying upon oral agreement or a handshake, even when the parties concerned have been dealing with each other for a long period.

The parties had collaborated on projects for 20 years, with Orkney Builders (OB) treating Alton B. Copeland (AB) as their preferred plumbing subcontractor. As a main contractor, OB entered into formal contracts with employers,  but with its subcontractors it formed its subcontracts on  the basis of quotations which were accepted either during a telephone call or with a handshake. Consequently, there was little documentary evidence about the terms which had been agreed, and the court had to rely upon witness evidence with the consequence that it was difficult to reach firm conclusions on precisely what had occurred in some instances.

In February 2003, AB submitted a tender of £24,005.06 for plumbing works on St. Magnus Manse in Kirkwall. Despite not being the lowest tender, which was £20,925.63 from a company called Steven R Paterson Limited (“SRP”), AB was appointed as subcontractor by OB. However, in its tender to the employer OB used the rates of the lowest subcontractor tender despite listing AB as the selected subcontractor. OB alleged that during a conversation with AB’s Mr. Copland, it had been agreed that AB would undertake the works at this lower subcontract price. AB undertook the works, and the price was adjusted due to changes to the contract works. AB submitted a final valuation of £23,261.85. OB paid £19,346, which was the sum it calculated to be due under SRP’s tender for the plumbing and leadworks as altered by the subsequent changes. 

AB maintained that it was entitled to be paid what was due in accordance with its own tender as adjusted and claimed the difference. OB defended its position in two ways. Firstly it alleged that its obligation to pay under contract had been extinguished by negative prescription (limitation), and, secondly, that AB’s Mr. Copland had agreed to match SRP’s lower price. 

PRESCRIPTION 

The court rejected the prescription argument. AB’s final valuation had been dated 12 December 2003; but it was not been demonstrated that the amount claimed in that valuation was enforceable as soon as AB submitted the valuation to OB. As OB’s subcontractor, AB’s practice was to submit an application for payment to OB for inclusion in OB’s application to its employer. After that, the employer’s professional advisers would confirm what in their opinion was due to be paid and a certified sum would be paid to OB, which in turn would pay AB. Counsel did not explore in evidence or in submission whether, under this contract, AB had a right to sue OB for payment at any time before the subcontract works had been certified by the employer’s advisers, or before the employer had paid OB, but the judge inferred that it did not. However, in any event, OB had not demonstrated that the obligation to pay the sum claimed in AB’s final valuation of 12 December 2003 was enforceable before 12 January 2004. 

AB’S ENTITLEMENT TO PAYMENT 

It was clear that OB had operated the contract on the basis that the subcontractor was entitled to the sums stated in the SRP tender, subject to variations. AB on the other hand had submitted a final valuation in December 2003 which was based on its tender and was not consistent with its acceptance of an arrangement to match SRP’s prices. Each party had thus acted consistently with what it now asserted was the agreement. 

The judge accepted that OB’s directors had acted at the time in the belief that SRP’s prices had governed the subcontract, but the judge was not satisfied that OB had proved that AB’s Mr. Copland had accepted the arrangement to subcontract on SRP’s prices. The parties’ relationship had proceeded on the basis of trust and their arrangements were not formally recorded. There appears to have been a misunderstanding between them. In the absence of any proof to the contrary, AB’s tender, as adjusted, must govern the subcontract. 

DISCOUNTS 

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During the course of their dealings, it was not unusual for AB to offer OB a main contractor discount of between 1% and 2.5%. It was not disputed that AB had offered OB a 4% discount on its tender in respect of the Dounby Care Home. The issue between the parties was whether allowing this unusual level of discount had been conditional upon OB making prompt, monthly payments to AB under the subcontract. 

A discount of 4% was unusually high, and AB’s Mr. Copland said that he had expected to be paid promptly in exchange. It was unclear what he had actually said to OB when he had offered the discount. In subsequent correspondence Mr. Copland had complained about OB’s failure to make prompt payment and withdrew its offer of the 4% discount. Ultimately, AB had threatened to withdraw its labour from the Dounby project and demanded payment of £23,221.52, which he described as “the 4% discount we offered for prompt and regular payments which has not been adhered to.” OB’s Mr. Kemp denied that he had made any such arrangement with Mr. Copland. 

The judge was satisfied that AB had made the offer of the discount but not that OB had agreed to the conditions attached to it. This view was supported by the fact that there was uncertainty as to the mechanism by which the parties would assess the performance of the supposed contractual obligation. There was no evidence to show that the parties had agreed such a mechanism to give the needed clarity to the uncertain obligation to pay “promptly” or “regularly” or “monthly”. 

Alton B. Copeland Ltd. v Orkney Builders (Contractors) Ltd., [2010] CSOH 135

Some of the other topics  in this week’s Bliss Books  subscription bulletin:

  • On Demand Bonds 
  • Alleged Adjudicator's Bias
  • Arbitrator's Bias
  • Was Time the Essence of the Contract?

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