Bain v Martin [2018] CSOH 83 is a cautionary tale. Parties to a verbal building contract ended up in expensive and time-consuming litigation to ascertain the identity of the contracting parties.

Background

Mark Bain and Pauline Bain had an ongoing business relationship with Karl Martin, who at the time worked as a builder. Discussions took place during 2013 resulting in a verbal contract for Mr Martin to construct an extension to the Bains’ house. Work commenced in November 2013. However construction was sporadic and alleged to be of poor quality. Despite this, payments were made. Eventually, in 2014, the Bains terminated the contract because of the delays and poor workmanship. Substantial work had been undertaken, but the extension remained incomplete.

The Bains raised an action for damages to compensate for their loss resulting from Mr Martin’s breach of contract. Mr Martin alleged that the contract was not with him personally, but with a company named K&S Building Services (Scotland) Limited. He therefore argued that the Bains had sued the wrong entity. This was important, as the company had gone into administration in 2016, leaving no value in the company.

Decision of the court

The evidence given by the Bains and Mr Martin differed significantly about (i) the circumstances of the contract’s formation, (ii) the terms of the contract, and (iii) the parties to the contract.

The question of whether the contract was with Mr Martin as an individual or with the limited company was difficult for the court to answer. The court found “much of the evidence….bearing directly upon the formation of the contract vague, contradictory and unsatisfactory.” The court expressed concerns that the parties were trying to obscure the truth. However, there was some evidence that the court found reliable.

Firstly, Mr Martin had never traded under his own name; he had previously worked as a sole trader under the name K&S Building & Joinery Services. When the business was incorporated in 2012, an effort was made to publicise the new limited company structure, including leasing vans, new business cards and advertising of the limited company. The work was carried out by employees of the limited company, and Pauline Bain accepted that there were vans on site, used by the employees, which bore the limited company logo, whilst Mr Martin was rarely on site. The court found it ‘highly improbable’ that the Bains did not know that Mr Martin was using a limited company as a business vehicle. As the circumstances surrounding the formation of the contract were unclear, this factor may have persuaded the court to conclude that the contract was with the limited company

The court also highlighted two letters from the Bains’ solicitors which made reference to K&S Building Services (Scotland) Limited. One of those referred to a contract entered into with the limited company. The Bains accepted they were aware of the terms of the letters. The court found the Bains’ suggestions that they did not pay attention to the letters and were unaware of the significance of the reference to the limited company ‘extraordinary’. The court decided that the contract was with the limited company.

Comment

While it can be tempting to agree matters orally, particularly where there is an existing relationship, this case is a reminder that this route can be risky. Had the parties documented their agreement, costly litigation could have been avoided.