Honesty is the best policy
17/02/2011
By Chris Whittington, Partner and Head of Construction & Engineering.
The Court will rectify a unilateral mistake in a contract where the behaviour of the party benefiting from it is dishonest or unconscionable.
In 2008 HW Construction (‘HWC’), in preparing a tender for a business centre, invited Traditional Structures (‘TS’) to tender for the supply and installation of structural steel work and roof cladding. On page 3 of TS’s tender under the heading “prices”, TS submitted separate prices for steel works (c£38K) and cladding (c£32K).
Unfortunately the version sent to HWC omitted the last line containing the cladding price. HWC were awarded the contract and two months later TS sent revised prices for the two elements totalling c£77K. HWC protested stating that the original tender price was c£38K.
TS referred the matter to Court claiming mistake and seeking payment on two grounds:
- there was a concluded contract and under s15 of the Supply of Goods and Services Act a reasonable price would be paid for the cladding; and
- TS sought rectification for a unilateral mistake. HWC said it had received the tender containing one price which it had accepted for the whole of the work.
The Court found for TS on both grounds.
The Judge applied the test for rectification established in Thomas Bates -v- Windhams and found that HWC’s behaviour showed actual knowledge of the mistake as they would have known or appreciated a mistake had been made.
The Judge stated that if HWC’s managing director had been an “honest and reasonable man” he would have immediately spotted the error - his behaviour was unconscionable and went “beyond the boundaries of fair dealing, even having regard to the fact that the parties here were involved in an arms length commercial transaction”.
The moral
If one contracting party turns a blind eye when an obvious mistake has been made by the other, they cannot rely on the excuse of dealing at arm’s length.
Parties will put at risk a commercial relationship (and in this case it had been a long standing one) if they fail to act honestly and reasonably to establish whether there has been a mistake.
In this particular case £34,754.17 was agreed by both sides as a reasonable price for the cladding - the costs of this case would have far exceeded that figure.