The pursuer claimed that it had done work for the defender, a property company (LHP Solutions Ltd), as a result of an oral contract. The defender claimed that the contractor’s case about the oral contract was ‘so under-pled it was materially prejudicial to the defender’ and could not proceed. The Sheriff Appeal Court agreed and dismissed the action.
The issues and reasoning
In relation to any case based on an alleged contract, the Sheriff Appeal Court stressed that the starting point had to be to answer two questions – did the parties reach consensus to contract and, if so, on what terms?
Where the contract is written, these questions are likely to be readily answered by looking at the contract documents. If the contract is alleged to be oral, as it was in this case, the questions are the same ‘but the answer will pose much greater evidential challenges. Oral contracts are likely only to exist in the recollection of the alleged contracting parties and any witnesses.’
The Court decided that the pursuer had not given fair notice in its pleadings of the alleged factual background it was relying upon. In relation to an oral contract, such fair notice meant giving details of when the contract was said to be agreed, between whom and on what terms. In this case, the pursuer had not done so, but it was necessary for the pursuer to give those details so that the defender could prepare evidence to try to counter the pursuer’s case.
These were not ‘arid technical points’ because they had ‘profound practical consequences’. The pursuer company could only act through natural persons. The representatives of the company said to have entered into the oral contract had not been identified, nor had any dates, places or other details of the discussions which were said to lead to the oral contract.
Comment
This case shows the difficulties inherent in seeking to rely on an oral contract for construction work, rather than having a contract in writing.
While Scots law will uphold an oral contract, the main problem with such a contract when a dispute arises is having to prove the intention of the parties to contract and the terms of the oral contract i.e. what was agreed as a result of discussions.
While arguments can sometimes arise about the meaning of terms of a written contract, it is far better to have a written contract than rely on an oral contract. It avoids the problems associated with the need to prove the terms of the alleged oral contract, including the need for the party seeking to found upon an oral contract to give the other party fair notice of how and when the oral contract came about and its alleged terms.
