Thompson (t/a R J Thompson International) v Charlesworth

The claimant, Richard Thompson, who trades as R J THOMPSON INTERNATIONAL, and the defendant, James Charlesworth, were friends. The defendant was building a house for himself and his wife to be. He liked gadgets and wanted to install some complex electrical systems. The two men had discussions in the autumn of 2001 during which it is common ground that the figure of £15,000 was referred to. Ultimately, much in this case turns on whether that became a figure agreed as a fixed price contract or was no more than a budget estimate of cost. In the event substantially more work was done for which the claimant issued invoices. Some is recognised by the defendant as genuinely extra work, but other work at the centre of this dispute is said by the defendant to be covered by the fixed price.

It is common ground that the work was done to a proper standard. Indeed, it is clear that the defendant was pleased with the result.

A single joint expert, Mr Davis, electrical engineer, has reported and gave evidence before me. His evidence values the work done on two bases: Basis 1 as contended for by the claimant; Basis 2 as contended for by the defendant.

In the event, the claimant's claim for the balance of monies owed is relatively modest at some £18,000. Unfortunately, the nature of the disputed work meant that there was no alternative to a detailed consideration of each disputed item, helpfully set out in a 'Scott' schedule.

I deal first with the basis of the contract. That there was a contract in one form or other is not in issue. The claimant's case is that it was a design and build contract with reasonable remuneration for labour and materials supplied. The defendant's case is that it was a fixed price contract, the fixed price being £15,000 based on a specification that was given to the claimant; that only those items which are outside the scope of that specification fall to be valued and paid for as variations.

The fact that it is now necessary to determine what was said and when it was said 7 years after the event makes it a difficult task for witnesses, counsel and judge alike.

The story starts, as I have said, in the autumn of 2001. It is necessary to examine the evidence as to how the claimant and defendant came to discuss the work that the defendant wanted to be done in the new house and as to how much information the claimant had at the various times when discussions took place, in particular, with reference to specifications. It is clear that during October and just into December 2001, before work commenced, there were several meetings between them. The defendant says that the price was agreed at the last of these meetings very early in December; that by this stage there was a complete specification which the claimant could cost. He says that by the time when the LEAX dimming system was demonstrated to him their discussions were "fairly well along"; that the claimant had indicated that he thought it would be possible to "incorporate" the system and keep the overall costs under £15,000. It became clear that a budget estimate was discussed when LEAX was first discussed. The defendant accepted that in the event the LEAX system became more elaborate, which is common ground, but he maintained that the increased cost of LEAX could be, to coin his phrase, "absorbed" into the £15,000 figure. Over the following weeks the claimant and the defendant worked at what he (the defendant) wanted the system to do. The defendant maintained in evidence that he told the claimant in words to the effect "I don't want you to exceed £15,000. If there are extras I want you to come to me." He said there were examples of him doing so. The defendant said that towards the end of November, possibly early December, the claimant confirmed to him that his work would be under £15,000; that there was very little change from then on; that he needed something agreed before work was commenced on site; that the £15,000 was "reaffirmed when the order was placed"; that he said to the claimant "I want you to do this job for me. We've got an agreement."

The first LEAX quotation (£3,335), which involved just a 12 circuit rack, was dated 25^th October 2001, which helps with the dating of the meeting at which there was mention of the £15,000 figure. The defendant accepted that it was around this time that they had had such a discussion, although he hadn't seen the quotation himself.

The second LEAX quotation (£4,095), which now involved a 17 circuit rack, was dated the 3^rd December. By that stage, the defendant says the claimant had already given his budget price and firmed it up. The defendant thought that the additional cost would simply be "absorbed" in the £15,000 price - that was how his family construction company would do business.

There is an issue as to when the handwritten plan [B42] was given to the claimant. The claimant says it was not until some time in November; the defendant says it was before the first LEAX demonstration in October. This is where a measure of confusion and, in my view, clouding of memories has crept in. The plan [B42] indicated a requirement for electric curtains and provision for a wardrobe which affected the provision of electricity supply to lighting within the wardrobe. At some stage the defendant accepts that he abandoned these two features, although precisely when is unclear. Whilst the claimant demonstrated a poor memory for when certain events took place in the run up to the commencement of his work on the house, he was clear about two things. First, that he had only given what he described as a "budget estimate" of £15,000, in other words estimating that he could work to a budget of £15,000; second, that he had only been supplied with the specification after he had given his budget estimate, in other words there was no question of subsequently agreeing a fixed price of £15,000.

It is clear that the decision to abandon powered curtains was made between preparation of the earlier version of the specification [B392] and the final version, although both contain reference to the wardrobe in the master bedroom. In my view, the matter is further confused by the fact that during the autumn of 2001 the defendant obviously spent a lot of time on his lap top computer creating plans and considering the various possibilities for his new house, whilst he convalesced from his knee operation in the September; that none of the documents he produced were dated; that the lap top has gone missing, so any documents contained on its hard disk cannot be examined to gain any insight as to when they were created.

There is at least a measure of concord between the stances of the parties. On the information available to him at the time of the first LEAX demonstration, the claimant believed he could do the electrical work, as he understood it to be, at Chauffer's Cottage within a budget of £15,000. Even by the end of the first fix, it seems to me that it was looking as if the work was being contained within that figure, although it must have been becoming clear that more work was being required and that the total cost could exceed it. Later it did indeed become clear that it was going to be exceeded. Of course, the defendant says that was because of extras which he accepted over and above the fixed price. Whereas, the claimant says the job simply became bigger than the budget.

Both parties seek to rely on the wording contained in the invoice dated 25^th February 2002 [B70] which marked the end of the first fix works 'NB before second fix is carried out we will send a full job costing so that we don't go over budget'. The defendant relies on this as more consistent with a fixed price contract. Mr Singer submits that it would not be necessary for the claimant to tell anyone that he was going to come in under budget, because he would not be coming in under budget, there being a fixed price. On the other hand, a full job costing would be necessary to ensure that the job was contained within the fixed price and that extra costs were properly identified. The claimant relies on the wording as consistent with his having given a budget estimate of £15,000 and indicating to the defendant that he would do a full job costing so that he would know where he stood. There would be no need for a full job costing to the defendant if there was a fixed price. Conversely, if the whole basis of the agreement was the reasonable cost of all the items, that would be consistent with the need for a full job costing.

I was referred to correspondence which passed between the parties in September 2002 at the developing stages of the dispute between them. In the letter of the 10^th September 2002 the defendant referred to 'the budget price of £15,000 that was agreed upon'. The claimant's response in his letter of the 16^th September 2002, he accepted, read as if there were a fixed price: "As you can appreciate, on a job this size variations over the estimated cost are going to occur, and have." The claimant agreed that he did not write to contradict the expression 'budget price of £15,000', but said that obviously he was aware that variations over estimated cost do occur.

Another feature on which Mr Singer relies is that the claimant at no stage before doing the work mentioned labour rates, mark ups, travelling time, lunches or time on site; that for a labour and materials only contract such matters would have been made clear. The claimant accepted that was so and that the only figure he gave was the £15,000; that as far as the defendant knew it could have been on the basis of any rates or mark ups, if the contract was not one of fixed price. Nevertheless, the claimant maintained "we gave him a fair price for the job"; in a normal situation clients would know the rates because he would have worked for them before. He added that he had done a 'quantum meruit' job at the defendant's parents' factory, although he could not remember whether it was James or his brother Matthew with whom he had dealt. He maintained that he had been doing the work for the defendant at a preferential rate. He accepted that, where there is a fixed price, then it would be matter for him only what the rates were. Nevertheless, he insisted he was working "on the basis of 'quantum meruit' on a verbal estimate."

All these are powerful points in favour of the defendant's case of a fixed price contract.

It has to be borne in mind, however, that the parties were on social friendly terms at that time. I formed the clear impression that, if either had been approaching this job on a purely commercial basis, they had a clear idea of how they would have conducted business: the claimant, if he had been dealing with a commercial customer; the defendant, if it had been the family company dealing with a commercial contractor. I formed the clear impression that the defendant wanted to view the contract as if it had been a commercial construction contract, almost to the extent that he wanted to believe that it was.

There was a particular part of the defendant's evidence which underlined this to me. Without saying that he was deliberately attempting to mislead, I took note of the way in which he described the final stage of what he maintains was the agreement, to which I have already referred: how he referred to the £15,000 being "reaffirmed when the order was placed" and the use of the words "I want you to do this job for me. We've got an agreement." My clear impression is that this was how the defendant would now (7 years later) have wished that he had acted, in other words in accordance with normal commercial practice in the creation of construction contracts. However, normal practice generally dictates the recording of agreements in writing and the dating of essential documents. The defendant was not an ordinary private individual seeking to reach an agreement with a contractor. He had the experience of being part of a construction company: "Our company is a construction company so I know all about fixed price contracts." Above all this was a matter of his asking a friend to do the work for him. In my judgment, the words, to which I have referred earlier in this paragraph, did not ring true other than with the gift of hindsight.

The 25^th February invoice [B70] needs to be interpreted in the light of its context, which was by this time that the claimant plainly had a concern that the works could "go over budget"; that claimant and defendant were still friends - the claimant was invited to his wedding two months later -. Of course, the claimant had to approach the actual performing of the work in a professional manner. There is no suggestion that he did other than that. Of course, he had to have a close eye on the costs of the work to keep as close to the budget as possible. The same would have been true whether it was on Basis 1 or Basis 2, whether to save himself from losing money or his friend from having to pay too much.

What is of considerable interest is the opinion of the Single Joint Expert that, with the exception of some relatively minor adjustments, the claimant's charges for the whole of the work were regarded as reasonable and that the work was completed to a satisfactory standard. The claimant's evidence was that he and the defendant trusted each other, in particular, that he would keep the costs down and that he would do a satisfactory job for his friend. In my judgment, the words "we will send a full job costing so that we don't go over budget" is more consistent with the claimant having given the defendant a budget estimate and with a growing concern that the job itself was growing, which in fact it was. There would have been no need to send a full job costing, if there had been a fixed price, because the claimant would have been entirely on risk of the job going over budget. There was every need to send one, if the defendant was on risk of having to pay more than had been originally budgeted. In the event, however, as I accept, there was considerable pressure to complete the electrical works before the wedding and the claimant did not have time to send a full job costing. I bear in mind that, on the one hand, the defendant knew exactly what he wanted and with his own experience in the construction business probably knew roughly what it would cost and, on the other hand, the claimant knew exactly what he had to do to complete the defendant's requirements as close to the budget as the additional demands allowed. The overall result, as endorsed by Mr Davis, the expert, is that the claimant achieved that.

In some ways, already identified, the claimant did deal with the job in hand as if it were a fixed price contract. For example, the underfloor heating which he priced up like a variation. He accepted that "you don't do that on a quantum meruit"; that he had just put a price on it as a separate job.

Nevertheless, the following facts are important in resolving the issue whether the claimant and defendant reached a clear understanding on price before work commenced. The defendant undoubtedly wanted to achieve a substantial amount of electrical gadgetry in this new house; the scope plainly kept changing; in particular, the costing for the LEAX system developed over some time; the timing of the claimant's sight of the various versions of specification; the fact that nothing was committed to writing, whereas, if either had been dealing with a truly commercial situation, he would undoubtedly have ensured that it was committed to writing.

The difficulty, it seems to me, is that the claimant did give what he thought was a budget estimate, believing at the time that the job, as he understood it to be, could be done for £15,000, but that the job expanded after that. As the claimant wrote in his letter of the 18^th November 2002 [B155] 'Whilst I verbally estimated £15,000, this was just a starting figure and never envisaged all the changes you would make as the project was developing.'

One of the questions which may well now be lost in the mists of time, is how the claimant came to mention the figures of '£15,000 to £17,500' in his statement, repeated from the further information given under Part 18 of the Civil Procedure Rules. He cannot recall now mentioning that figure himself and speculates that the defendant may have mentioned it during their early discussions in the kitchen of the defendant's parents' house. I am not prepared to find that the figure of £17,500 was mentioned, although I can see that it might have been, if the claimant's version of events is correct that he was only giving a budget estimate, as opposed to a fixed price. That would be because there might have been discussion as to whether the cost might go somewhat higher than the £15,000 figure which on any view was stated.

In my view, the claimant's references to £17,500 having been mentioned in the early discussions and to the £15,000 as being just a starting figure were made also with the gift of hindsight, once the dispute had begun to materialise, and are unhelpful.

In my judgment, the discussions about the cost of the electrical work to be undertaken at Chauffer's Cottage have to be considered in the contexts to which I have referred and in the light of the only useful contemporaneous documentation, the 25th February 2002 invoice in addition to the dated Leax quotations. The other contemporaneous documentation, such as the various plans and the two versions of the specification that I have seen do not help me to resolve the central issue as to whether there was merely a budget estimate or a fixed price contract. I am satisfied, after balancing the various factors that I have considered above in some detail, that there was no agreement for a fixed price; that the claimant believed on the information he had when the figure of £15,000 was mentioned by him in October 2001 that he could do the work within that budget; that gradually the requirement increased; that the claimant, therefore, agreed to do the work; that there was an oral contract for work and materials for which remuneration would be a reasonable cost as close to the budget estimate as was reasonably possible; that in the event the cost, including additional requirements, was as close to the original budget as reasonably possible in the circumstances.

My findings in respect of the agreed amended list of issues are as follows.

Main issue

Was there a budget estimate of £15,000 to £17,500 given in about mid October 2001 with no agreed price (the claimant's case) or a fixed price contract of £15,000 in late November, early December, 2001 (the defendant's case) with subsequently agreed extras? I am satisfied there was no fixed price contract; that there was a budget estimate of £15,000.

The agreed valuation on this, Basis 1, is £15,500.

Issues arising on Basis 2 only

Plainly, in view of my decision in favour of Basis 1, these issues do not fall for decision. However, in terms of what the scope of the work would have been if the £15,000 was agreed as a fixed price, since evidence was given before me on the various issues that remained, I have sought to answer them proportionately in the paragraphs below and in the appendix which follows.

Is the claimant entitled to a mark up of 20% or 16% (as per single joint expert) on materials supplied? I have considered the further evidence that Mr Davis gave in this regard, but so far as it is now relevant I should accept his first opinion that, in the circumstances, 16% was reasonable in this case. I have to remind myself that at the time of doing the work and purchasing the materials, this was a case of a friend doing work for a friend. That is why I consider the lower percentage to be appropriate.

Should the claimant be entitled to pass on to the defendant the full charge (with no mark up) in the estimate obtained by the defendant from Micro Alarms and charged to the claimant by Micro Alarms or should the defendant be entitled not to pay the claimant the sum of £200 because of the inability to activate and deactivate the alarm remotely, and the sum of £125 for advance service charges? I accept Mr Davis' opinion for the reasons he gave that these two sums are not allowable.

Item 26: was the claimant instructed by the defendant to provide a point for a light for a proposed porch that has never been built? I accept the claimant's evidence that he was so instructed. He was not himself concerned with planning issues. This was plainly a contingency against the possibility of being allowed to build a porch at some later stage: £16.95 allowed.

Items 28 and 31: did the defendant plan to partition off the guest bedroom to create access to loft? Having heard the evidence I am satisfied that it is more likely than not that there was discussion about this as a possibility; that, as a result, the claimant altered the position of the wiring to the LEAX system in the guest bedroom, and the position of the ceiling lights in that bedroom after the position of the loft hatch was altered: £62.25 and £35.20 allowed.

Items 30 and 43: did the claimant adequately protect cable and did the claimant raise the issue with the defendant too late for the defendant to get contra charge against plasterer? In my view, the claimant did not adequately protect the cables in question.

Item 34: did the claimant or the defendant make a control plate for speaker system in lounge? I am satisfied the defendant did not construct this one, because it was purchased by the claimant. £82.30 allowed in the light of Mr Davis' comment "claimant confirmed in evidence that this is the control point referred to in the specification."

Item 36: is the temporary lighting in loft to enable boarding to go down an additional item? I accept Mr Davis' opinion in this regard, also that Mr Gregory wanted to get the floor down in the loft and insisted that the claimant had to order some fluorescent lights and put them up as temporary lighting: £44.19 allowed.

Items 39 and 40: was wiring alarm cable to the master blaster on the outside of loft an extra? I accept Mr Davis' opinion that it was : £111.87 allowed.

Item 42: was a coil of cable for the video entry system left in the loft or not? I accept the claimant's evidence that the defendant asked him to leave it during the first fix, because there was an intention to put bedrooms up there and that the defendant had said words to the effect "we're going to need a possible connection for the gates -we're going to need a cable up there.": £18.05 allowed.

There will be judgment for the claimant on the basis of this judgment for £15,500. I anticipate that there will be consequential matters which can be dealt with by a short telephone hearing.

I should add that I am indebted to both counsel for the helpful way in which they have presented the many issues and to Mr Davis whose attention to detail and even handed approach has been of huge assistance to the parties and to me.