On turning a blind eye: Traditional Structures vs HW Construction

The case of Traditional Structures Limited vs HW Construction Limited highlights the problems that can arise when a contractor tries to take advantage of a pricing error made at tender stage by the subcontractor. Even in a commercial environment, business people are expected to act fairly, and can be penalised heavily if they indulge in sharp practice. Of course, where the line falls between sharp practice and legitimate competitive activities is not always easy to define, but in this case the defendant overstepped the mark.

The claimant, TSL, was asked by the defendant to provide a quotation for steelwork and roof cladding for a development in Sutton Coldfield. The specification for the steelwork was provided to TSL, along with some detail about the roof cladding. By mistake, the copy of the tender sent out to the defendant by the estimator at TSL had on it only a price for steelwork. There was no price for the roof cladding:

“For the supply and delivery of structural steelwork and claddings erected onto prepared foundations (by others) to form the proposed buildings as detailed above, our budget prices would be:

Steelwork: £37,573.43 + VAT

Terms: The above prices are net.”

It wasn’t clear how the mistake came to be made, but it was clear that TSL was unaware of it. Its copy of the tender, kept in its files, had the steelwork price and, written underneath that, the roof cladding price.

The defendant’s managing director claimed that he was not aware of any missing price when he read the version of tender sent to him. As far as he was concerned, the steelwork price was intended to be for steelwork and roof cladding, and that was how he read the document.

After the tender was sent out, there were a number of opportunities for the defendant to ask TSL about its tender, but the questions were not asked. In fact, the defendant, in carefully worded emails and telephone calls to TSL, managed to avoid mentioning anything at all about the missing roof cladding price. In one email, before it accepted the price, the defendant asked TSL how long the figure of £37,573.43 plus Vat “for the floor support beams and the roof structure” was to remain open. TSL took that to be a reference to the steelwork package only. Similarly, when it accepted TSL’s tender, the defendant made no reference to the price.

The problem came to light when TSL applied for payment for the roof cladding. The defendant refused to pay on the basis that it had accepted the amount set out in the tender for steelwork and for roof cladding. TSL had no choice but to apply to the court for the missing roof cladding price to be inserted into the contract by rectification.

His honour David Grant gave judgment for the claimant. He said any reasonable reader of the tender would have realised immediately that the roof cladding price was missing, and he found that the defendant’s managing director had been aware of the omitted price. Once the defendant realised that TSL was in the dark, it had set about deliberately preventing TSL from finding out the mistake on its tender.

For rectification to succeed, there has to be evidence of a mistake by one party, and evidence that the other party knew about that mistake, but chose to say nothing, or looked the other way in order to make some personal gain. “Knowledge” here means deliberately failing to ask the questions that an honest man would ask, or shutting your eyes to the obvious. If the case does not involve actual knowledge, then there has to be a finding of either dishonesty or a degree of sharp practice of a type that goes beyond the boundaries of fair dealing, even for men of business dealing at arm’s length. The standard of proof for dishonesty is the civil standard (balance of probabilities), but strong evidence of wrongdoing is needed to satisfy that standard.

The judge ordered rectification of the contract. He had no hesitation in finding that the defendant knew about the mistake, and had wilfully and recklessly failed to make the sort of enquiries about the roof cladding price omission which a reasonable and honest man would have made. The defendant’s managing director had shut his eyes to the obvious.

Cases like this are going to be rare, but it provides a useful yardstick as to what the courts regard as unfair in a commercial context. What tipped the balance here was the defendant’s actions after it became aware of the mistake. The defendant laid itself open to a claim that it should never have been allowed to get to trial.

Frances Pigott is a barrister at St Philips.

She represented the claimant in the case. The instructing solicitor was Ansons