This briefing focuses on "how and why" disputes reach the courts. We have selected a variety of recent cases as examples of how things can go wrong and what to avoid.

You think you have a guarantee

Ballast plc v Laurieston Properties Limited (in Liquidation) & Others 25 January 2005 – highlights the substantial losses that can arise when businesses rely on informal assurances.

Ballast entered into a building management contract in relation to two housing developments with Laurieston Properties Limited ("LPL"). LPL was the developer of the projects and entered into joint venture agreements with Morrison Residential Investments Limited ("MRIL"), a wholly owned subsidiary of Morrison Homes. MRIL offered facilities to developers, like LPL, who had insufficient funds to see projects through to completion. Although matters proceeded relatively smoothly at first, LPL ran into difficulties in making payments to Ballast, eventually leading to the action for payment.

LPL was a company with few assets. Ballast were unlikely to recover from LPL, and sought to sue, amongst others, MRIL on the basis that it had guaranteed the outstanding payments due to Ballast from LPL. Ballast claimed that the guarantees had been made in a series of informal communications, and in a letter from MRIL's representatives stating that payments would be made from the joint venture account.

A guarantee is a unilateral obligation and very clear words must be used if the guarantee is to be established in law. The letter founded on merely stated that payments would be made from the joint venture account, and the informal discussions relied on were not sufficient by themselves to establish that MRIL had agreed to guarantee outstanding payments. Ballast's action failed.

The sums involved were substantial; over £1million was outstanding, and on Ballast's account was incurred on the basis of the belief that MRIL would guarantee these payments. With hindsight, if Ballast had refused to proceed without a properly constituted agreement or guarantee then such huge, and ultimately irrecoverable, losses might have been avoided.

You think you have a contact

Charles Crimin v Cairnbay Limited 29 June 2004 - an example of a DIY contract not doing what one of the parties thought it did.

Mr Crimin, the pursuer, had over a period of three years made loans to a variety of companies, of which Mr Paterson was a director. In June 2002 it was agreed that all sums outstanding (just over £150,000) should be repaid to Mr Crimin out of the proceeds of a property sale. A contract was entered into between Mr Crimin and Mr Paterson without legal advice; it was claimed that Mr Paterson signed the contract as a director of the defenders; Cairnbay Limited. The property was duly sold and Mr Crimin sought to enforce the terms of the contract and recover the loans from Cairnbay.

Unfortunately for Mr Crimin although the contract was signed by Mr Paterson, he did not sign as a director of Cairnbay. Mr Crimin nevertheless sought to argue that the intention of the agreement was that Cairnbay was to repay the loans. Although this may have been Mr Crimin's understanding of the arrangement, the contract was incapable of being interpreted in this way. The action was dismissed and Mr Crimin failed to recover the loans from Cairnbay.

You think you are an agent

M Brydon, R Peterson, T/A Petersons Crane Hire v F E Beaufont Limited 16 December 2002 – when failing to address a businesses' contractual relationships leads to loss:-

Petersons operate a plant hire business. They sourced a crane for the defenders from Lerwick Port Authority which was damaged while being operated for the defenders' business. The Port Authority sued Petersons for the damage caused and Petersons settled that case for around £95,000. Petersons then sought to recover that amount from the defenders.

Petersons argued that when they entered into the contract of hire with the Port Authority they did so as agents for the defenders, and this entitled them to be indemnified for their losses. There was no formal agreement between Petersons and the defenders, aside from a series of faxes detailing the specification of the crane and hourly rates.

The exchange of informal correspondence and telephone calls did not support a relationship of agency. All the background established was that Petersons sourced a crane for the defenders. Petersons' fallback position was that even if there wasn't a contract of agency, there was a custom of trade implying an indemnity provision into the agreement between Petersons and the defenders. Establishing a custom of trade in this case meant proving that an indemnity is implied into every contract for the hire of plant. Petersons couldn't meet the test and the case was dismissed. The informal "sourcing" arrangement left Petersons liable for any damage caused to the plant. Clearly not a result that was intended.