A recent case shows the risks of entering into business transactions with friends without having a formal agreement in place. A man who was building a house for himself and his fiancée decided to install some complex electrical devices into the house. A friend of his (who is a builder) agreed to carry out the work and advised him that it would cost in the region of £15,000.

The details had been agreed by the end of 2001 and there was a costed schedule of works at that point. As is not at all unusual, as time passed the house owner changed the specification and added extra items to it. It is clear that as this was occurring, neither of the two men put the changes that had been authorised and their cost implications into proper written form, with the predictable result that at the end of the project, the bill presented was for more than £15,000 and a dispute arose.

The homeowner refused to pay the extra amount and the matter ended up in court. The hearing took three days, the cost of which must have been similar to the value of the original contract. In court, it was accepted that some of the changes warranted extra payment as ‘variations’ or ‘extras’. Additionally, there was no complaint about the quality of the workmanship: the dispute was over the cost and the cost alone.

In essence, the claimant’s case was that it was a design and build contract with reasonable remuneration for labour and materials supplied. The defendant’s case was that it was a fixed price contract for £15,000 and that almost all of the extras should have been accommodated within that price.

The court ruled that the contract was not a fixed price contract and awarded the claimant a modest extra sum.

The essential point is that the case only arose because, being friends, the two men did not agree things formally as they went along, each assuming that their view of the circumstances was also held by the other. When this turned out to be incorrect, a falling-out was predictable.

The moral of the story is that if you value your friendships, it is doubly important to make sure that you have all the necessary paperwork in place if you do decide to do business with friends. It is a mistake to rely on the fact of your friendship to prevent a disagreement.