Act: Drummond, Solicitor Advocate; Shepherd & Wedderburn LLP

Alt: Howie QC, McColl; MacRoberts LLP

26 May 2010

Background

[1] Mr and Mrs Shaw live in Guernsey. Mr Shaw is a chartered accountant and businessman in the financial services industry and Mrs Shaw is a housewife. They wanted to build a home for their retirement at Ferter, Glentrool Forest, South Ayrshire. They wished to create a substantial modern house to a high specification and to achieve a high standard of ecological and carbon efficiency. Mrs Shaw took the lead in the project and entered into contracts to pursue it. Later, when problems emerged, Mr Shaw became more involved in the project.

[2] Mrs Shaw employed an architect, Mr Peter White, in about December 2001 to design a house and obtain an acceptable planning permission. Once he had obtained the permission, Mrs Shaw instructed Mr White to prepare plans and a specification for the construction of the house. Mr White undertook some at least of that work in 2004. This was a busy time in the construction industry. When Mr White wrote to contractors to elicit interest in the project he had difficulty in attracting offers to build. The defenders, who operated a building business in Newton Stewart, were one of the contractors who expressed interest.

[3] Unfortunately, serious difficulties have emerged in the building project and this action by Mrs Shaw has resulted. One of the primary difficulties, which has prevented parties from resolving their differences, has been the identification of the terms of the contract which governed the parties' relationship. In the interests of economy parties agreed that the first matter to be addressed was the ascertainment of the contract. By interlocutor dated 23 March 2009 the court appointed a proof on three issues which the parties had identified in a joint statement of proposals for further procedure. These issues were (i) whether their contract was governed by the formal contract document produced in or about November 2005, (ii) whether the defenders are barred from asserting the contrary through the operation of personal bar or acquiescence and (iii) whether their contract is governed by the informal contract formed in about December 2004 and if so what are the terms, price and scope of work encompassed by that contract.

[4] In the principal action Mrs Shaw sought a declarator that the contract was governed by the terms which were sent to her and Mr Scott on 23 November 2005. In the counterclaim Mr Scott sought payment for numerous items which he asserted had not been included within his original contract and for which he had not been paid.

[5] There were thus two principal issues which parties addressed in the proof. The first was to identify the governing contract terms. The second was to ascertain what works were included in the initial contract.

The initial contract

[6] The initial contractual arrangements between Mrs Shaw and the defenders were characterised by informality. This was the result of the way in which Mr Peter White operated his business at that time. He was under a great deal of pressure as, unknown to the parties, he was being investigated and thereafter prosecuted for fraud. It is likely that this affected the quality of his work.

[7] In March 2004 Mr Peter White wrote to the defenders, inviting them to prepare an all-trades estimate for the construction of the house using a timber frame kit. Mr Scott expressed an interest in the project and requested further information to enable the defenders to do so. On 4 July 2004 Mr White sent him two sets of drawings. The specification of the works was incomplete. Structural engineers' drawings, which were essential to the design of the house, were not then available and Mr White stated in his evidence that he had recognised that the price of the works would increase when those drawings became available.

[8] On 14 September 2004 Mr Scott wrote to Mr White in the following terms:

"I have costed the Works at Ferter with out Engineers Drawings and specification finished.

Please note that this is guidance Price only.

Once you provide me with all relevant specification we can finalise costs.

We have now reached a cost of £598,000 this price does not allow for Painting and decorating inside and out, External Doors or Windows, Central Heating, Bathroom Suites, Kitchen Units, Power Supply, telecom and Water, the courtyard and Street Lighting.

After Speaking to your self I have allowed to Supply & Fit Herholz UK Doors Brochure enclosed.

Page 12, Stil Melodie Natural Oak Door and Oak Skirting to match throughout, the Living Area.

Page 7, Standard Door through out the rest."

[9] This letter crossed with a letter of the same date by Mr White in which he enclosed copies of quotations for aluminium clad windows, geo-thermal heating installation and under-floor heating installation for Mr Scott to use in connection with his pricing of the works. He also included a quotation from a manufacturer for the timber frame. He explained that he had had to replace the structural engineer for the project and that he would forward the engineering proposals for Mr Scott's consideration when they were available.

[10] Mr and Mrs Shaw met Mr White in September 2004 to discuss the project. At that meeting they discussed Mr Scott's letter of 14 September 2004. Thereafter there were further discussions both between Mrs Shaw and Mr White and between Mr White and Mr Scott. Mr White wrote again to Mr Scott on 20 October 2004 intimating that Mrs Shaw intended to formalise a contract with him to act as main contractor for the house. He stated that it was planned that the works would commence in January 2005 and be practically complete by the end of August 2005. He stated:

"I consider that we are currently going through a negotiation to establish a cost for the works as well as a mutually realistic programme of interim payments as the works proceed."

He expressed the hope that the information was sufficiently clear for Mr Scott's immediate needs. On the same day, Mr White sent Mr Scott another letter, inviting him to arrange for the design and certification of the timber frame elements within the design, as he viewed the fee proposal by the structural engineer to be uneconomic. Thereafter, on 18 and 29 November 2004, Mr White sent further architectural drawings to Mr Scott. The engineering drawings, which the replacement structural engineers, David Narro Associates, produced, were not available until some time in November 2004.

[11] On 1 December 2004 Mr and Mrs Shaw visited the defenders' office with Mr White. At this stage Mr Shaw thought that the contract had already been awarded to the defenders and observed that Mr Scott had obtained the timber for the assembly of the timber frame of the house. Mr Shaw asked Mr Scott if he was comfortable with the arrangements which had been made and had the information which he needed to proceed. Mr Scott assured him that he did. They shook hands on the arrangement. Mr White explained in his evidence that he had initially intended to create a formal building contract but did not as he understood that his clients were prepared to proceed on a shake of hands.

[12] On 15 December 2004 Mr White wrote to Mr Scott, thanking him for his telephone call, in which he gave information about the levels on the site, and giving him instructions as to the formation level for the ground floor of the new house. Thereafter Mr Scott started work on site.

[13] The terms of the contract were the subject of dispute in the proof, both in relation to the status of the price and the contract period. Mr White described the date of 31 August 2004 as a target date, a planning tool rather than an obligation. In the event, after completion of the evidence on behalf of the pursuers, the parties agreed the following in a joint minute:

"In about December 2004, the pursuer and the first defenders entered into an informal contract for the carrying out of certain construction work in relation to [the house]. The contract works were those comprised within the quotation of 14 September 2004. That contract contained no express provisions as to the duration of the contract works or the standard of those works. Accordingly, the works were to be completed within a reasonable time and to the standard reasonably to be expected of builders of ordinary competence."

That agreement left undetermined the status of the quoted price. In my opinion, the price of the contract works, in the absence of a contrary stipulation, must be a reasonable price. The stated price of £598,000 was only a guidance price or guideline price in relation to the items which the defenders had included within their build up of that price in the letter of 14 September. In my view this had the effect that the defenders were not to depart from that price in relation to those items unless (i) there were variations to the work on which the guideline price had been calculated or (ii) particular items had been costed as a provisional sum. Thus the onus would rest on Mr Scott to justify any departure from the guideline price by demonstrating that there had been such variation or that he had only attributed a provisional cost to a particular item which later turned out to be more expensive. As appears below, many items were not included within the guideline price. I recognise that in response to a question, which I raised about his position in December 2004, Mr Scott gave an answer which could be construed as his accepting that the price was a fixed price for the items included within it. However, I am not prepared to attach weight to that one answer in the wider context of his evidence that, in the absence of building warrant drawings and in the context of the uncertainty which then existed as to the client's requirements, the price was intended to be and remained a guideline price.

[14] I am fortified in the view that it was not a fixed price by the evidence of Mr White, who explained that he had budgeted the cost of the house at just short of £1 million and had discussed this figure with Mr and Mrs Shaw. He had not told Mr Scott of this figure. In her evidence Mrs Shaw recalled that she had understood the likely cost of the house to be £700,000 inclusive of extras. It appears that Mr White did not discuss in any detail with Mr and Mrs Shaw the extent of the items which were not covered by the guideline price. But, having regard to the exclusions in the letter of 14 September 2004 and the items which were excluded from the guideline price, to which I refer below, I accept Mr White's evidence on this matter. As I discuss in paragraph [37] below, Mrs Shaw was both a credible and generally reliable witness. But on this matter I prefer Mr White's evidence to her recollection. Mr Shaw said in evidence that he had a "mental figure" of £850,000 at the time.

The works included in the initial contract

[15] One of the most puzzling aspects of this case was the dispute over the works included in the initial contract. The position adopted by Mrs Shaw's advisers in the answers to the defenders' counterclaim was contradicted by her witnesses who had the relevant knowledge. The pleaded position was that everything which was shown on the contract drawings which were thought to have existed in September 2004 and in the initial contract specification (Specification and Description of Works - Version 1) had been included in what they presented as the contract price of £598,000, subject to the express exclusions in Mr Scott's letter of 14 September 2004. Mr Drummond led the evidence of Mr William Grime, the architect who replaced Mr White in August 2005, on that basis. But when Mr White gave evidence as a witness for the pursuer, he confirmed that almost all of the disputed items in the counterclaim were not included in the guideline price of £598,000. Mr Shaw also gave evidence that he knew that several of the disputed items were not included in that price. After the pursuer's proof was completed and before the renewed diet of proof, the parties entered into a lengthy joint minute in which they agreed that thirty nine items of work were not included within the scope of the contract works or the quoted price of £598,000.

[16] As a result of this sensible agreement, which reflected the evidence led on behalf of the pursuer from those who would have known the relevant facts, only two items remained in dispute when the proof resumed. Those were the lounge chimney and the garage doors. After Mr Scott gave evidence, parties agreed that the additional cost resulting from a change in the specification of the garage doors was not included in the figure of £598,000 and the only item on which I heard opposing submissions was the lounge chimney.

[17] Mr White was not wholly clear in his evidence on whether the chimney had been included in the estimate of £598,000. As he pointed out, the drawings showed a chimney in the lounge but the method of construction was not clear. There required to be a substantial beam in the lounge roof to support the first floor of the house and he had not identified the precise location and design of the chimney which might support the beam. There would have had to be an architect's variation. He did not know if a cost for the chimney had been included in the figure of £598,000. Mr Scott's evidence was that he had not included an estimate for the cost of the chimney in the make up of the £598,000 guideline price as Mr White had not been able to tell him what he wished to create at that time. As Mr White had not had time to design the structure to support the beam or to decide on the precise location of the chimney, he had agreed that Mr Scott should leave the chimney out of his estimate. Mr Grime altered the design and location of a chimney after he took over architectural responsibility for the house.

[18] In the light of this evidence, and seeing no reason to doubt Mr Scott's evidence on this matter, I conclude on balance of probabilities that the cost of construction of the chimney was not included in the guideline price of £598,000.

The operation of the initial contract until August 2005

[19] Mr Scott went onto the site in December 2004 and commenced the construction of the house in January 2005. During the following months Mr White changed aspects of the design and issued revised drawings. Mr and Mrs Scott visited the site several times but did not discuss the contract terms or the price with Mr Scott. Mr White communicated with Mr Scott by telephone, fax and at meetings. He explained in his evidence that Mr Scott was not comfortable using email. In order to provide interim payments to the defenders, Mr White paid Mr Scott a monthly sum. Initially he valued the works at approximately £74,750 per month, which comprised the quotation of £598,000 divided by eight. But, after it became clear that the construction of the house would take longer than had initially been hoped, he reduced the monthly payments to approximately £65,000.

[20] Mr White did not inform Mr and Mrs Shaw of his personal difficulties but at some stage in about June 2005 he told them that he might not be able to continue with the contract. He appears to have attended the site regularly in early 2005 and the defenders initially made good progress in constructing the house. Mr White's performance declined in the summer and the defenders were delayed in their progress of works by his failure to provide timely information. It was only after Mr White failed to attend a site meeting on 1 August 2005 that Mr and Mrs Shaw learnt that he had been imprisoned. At this time the construction of the house appeared to be far advanced but in fact was less complete than it seemed. Mr and Mrs Shaw therefore needed to replace Mr White with a new architect.

The involvement of Mr Grime and Mr Percy

[21] Mr William Grime, who is an architect based in Kelso, was appointed to replace Mr White. He found it difficult to discover what had happened in the project as there appeared to be no contractual documents and as a significant amount of work which Mr White should have carried out had not been done. Thus, while the house appeared to be about seventy per cent complete, a large amount of underground work had not been designed or carried out. Mr Grime sought Mr Scott's assistance to piece together the terms of the initial contract but found that his paperwork was "appalling." Mr Grime discovered that neither Mr White nor Mr Scott had kept copies of all of the original drawings. There was no building warrant for the house and the building warrant for the foundations had not been issued. Mr White had not produced drawings, including drawings for the house's drainage, forcing Mr Scott to construct the house leaving gaps for the drainage facilities to be inserted once they were designed. He expressed the view that Mr Scott had done a good job in the circumstances.

[22] Mr Grime decided that it was in the interest of both parties to have some certainty introduced into their contractual relations and obtained instructions from Mr and Mrs Shaw to put in place a formal contract. He obtained his clients' agreement to employ Mr Kenneth Percy, a quantity surveyor, to negotiate the contract with Mr Scott. Mr Grime was under the impression that Mr Scott was relaxed at the idea of negotiating a formal contract and that he co-operated in doing so. Mrs Shaw in her evidence spoke of a meeting on 19 August 2005 which she and her husband, Mr Scott, Mr Grime, Mr Percy and the structural engineer, David Thomson, attended. Mr Shaw also spoke of the meeting and the difficulties caused by Mr White's departure in achieving a handover of responsibility to Mr Grime. It is likely that it was at that meeting that Mr and Mrs Shaw instructed Mr Grime and Mr Percy to prepare a formal agreement.

[23] In any event, both Mr Grime and Mr Percy saw their role as being to formalise the contract which the parties had already agreed. They were not able to recover many of the early contract drawings and saw only Mr Scott's letter of 14 September 2004 and not the other correspondence which passed between Mr White and the defenders in 2004. Mr Scott explained to Mr Percy that the contract works had been delayed by Mr White's providing design information late and by his late delivery of components which he, Mr White, had ordered. After a meeting on site with Mr Scott on 30 August 2004, Mr Percy wrote to Mr and Mrs Shaw on 31 August. In that letter he incorrectly advised them that there was no contract between the parties. He stated, correctly, that Mr Scott's letter of 14 September 2004 was only an indicative cost and was not an offer to carry out specified works for a fixed price. He also observed that the architect had thereafter acknowledged that the price was still subject to negotiation. He stated that "without a defined scope and extent of the work and a price, there can be no contract." He continued:

"However, it is in your interests to have a contract in place and while Jim Scott is under the impression that he is in a contract which only requires to be "formalised", then I think that it is in your best interests for me to pursue his agreement."

He recommended that the appropriate form of contract was a Scottish Building Contract Committee Standard Form of Building Contract (Without Quantities). He advised his clients to make interim payments to the defenders, while he investigated the basis for the contract. In his evidence in court he stated that he understood that the budget for the house was £600,000 and that the defenders had been overpaid for the work completed at this time. His understanding of the budget was incorrect. See paragraph [14] above.

[24] Mr Percy asked Mr Scott to prepare a list of items which were only provisionally priced in his letter of 14 September 2004 and which had increased once Mr White or the structural engineer issued detailed drawings. In response by letter dated 30 August 2005 Mr Scott produced a list of items which had not been allowed for in the initial price estimate and a list of extras which had instructed since then. The list, as it stated, was not comprehensive but, standing the agreement of the parties in the joint minute which I discussed in paragraph [15] above, I do not need to consider that matter further.

[25] After further investigations, Mr Percy wrote to Mr and Mrs Shaw on 3 October 2005. He stated that he had read the project files which did not help him define the scope of the work which Mr Scott had priced. He recorded that Mr Scott had agreed to break down his price based on the notes which he had made at the time and stated that they would need to agree a schedule of variations to reflect changes to the design and several "supply/subcontract elements" which were excluded. He informed Mr and Mrs Scott that he would work on the contract document and circulate a draft for discussion before the meeting scheduled for 13 October 2005. It is not clear whether there was a meeting on that date.

[26] On 31 October 2005 Mr Percy had a meeting with Mr Scott at the defenders' offices. Mr Percy explained in his evidence that he sought at the meeting to identify the drawings which had been used to calculate the estimated price of £598,000 and also to agree a contract sum analysis, which he would use as a tool for making interim valuations and payments as the contract progressed. The contract sum analysis was, as Mr Shaw described it, simply a broad-brush analysis to identify the contractor's progress towards completion as a percentage. Mr Percy was not clear precisely when he discussed with Mr Scott the details of his attempt to set out the conditions of contract which he thought had been intended to govern the parties' relationship from December 2004. He thought that he had discussed his proposals clause by clause at the meeting on 31 October 2005. In any event, it is clear from his email to Mr and Mrs Shaw and to Mr Grime dated 4 November 2004 that he had by then discussed some details of his proposed contract with Mr Scott as he recorded Mr Scott's concerns about the imposition of a retention and a proposal to increase the level of insurance of the works. Mr Percy was firm in his evidence that he gave Mr Scott the draft contract document and discussed it with him in detail, going through the abstract of conditions clause by clause. He did not have copies of the standard contract terms when he met Mr Scott and so had to explain the proposed provisions without the benefit of seeing the text of the contract terms.

[27] Mr Percy attached his draft contractual document to his email of 4 November 2004 to Mr and Mrs Shaw and Mr Grime. He explained that the document was a hybrid of matters as they stood at the outset of the contract and as they then stood. He invited his addressees to peruse the document. He presented the document as the contract terms which would accompany a standard form building contract. In the project particulars it stated that the timescale for completion was eight months commencing on 12 January 2005. It specified that the contract would be the Scottish Building Contract Without Quantities, Contractor's Designed Portion (April 1998 Revision) with Amendment TC/94. In the abstract of conditions it rather confusingly stated that the date for completion was 31 August 2005. It listed Invisible Heating Systems as a named subcontractor and referred to Appendix 3 for the works which it was to carry out. The document included a series of appendices. Appendix 1, which was to list contract drawings, stated that they would be appended. Similarly, Appendix 2 stated that the contract specification would be appended. In Appendix 3 it listed the following four items as the employer's requirements in the contractor's designed portion: (i) underfloor heating and associated plumbing systems, (ii) detailed design of electrical work, (iii) timber kit and (iv) roof trusses. In Appendix 4 it stated that the contractor's proposals were to be appended. The email also had as attachments a valuation summary as at 31 October 2005 which suggested that the defenders had then been overpaid by £67,046.43, and the contract sum analysis which Mr Percy had discussed with Mr Scott.

[28] Mr Shaw responded to this email by instructing Mr Percy to carry on. Mr Percy explained in his evidence that he was attempting to recreate in the contract what he understood to have been the parties' intentions in December 2004. On cross-examination he insisted that he was seeking to put in a formal contract what had been agreed in the original contract. He believed that the parties had thought that they had entered into a formal standard term contract and had adopted the Scottish Building Contract Without Quantities Contractor's Designed Portion to reflect the original contract. Mr Shaw stated that he had believed that the parties had been in a Scottish building contract but it was not clear what he meant by that assertion. Mr Scott's evidence was that he did not believe that he had entered into a standard form contract in December 2004 and I see no reason to question that evidence. The reality was that Mr Percy, in attempting to formalise the parties' contractual relationship, materially varied the terms of their contract and sought to introduce many terms which were not part of the original agreement.

[29] On 22 November 2005 Mr Percy met Mr Scott initially in the defenders' offices and then on a site visit. Mr Percy explained that by this time he had sent Mr Scott a completed version of the proposed contractual document. As a result, his discussions in the defenders' offices involved the tying up of loose ends and he agreed to send out a final version of the contract. The site visit was concerned with the valuation of works rather than the terms of the contract. Mr Grime had no recollection of attending this meeting but said that in late November he spoke with Mr Scott at the site to satisfy himself that he was content with the contract sum analysis and the conditions of contract. He stated that, at the time, he was confident that the contract was viable and believed that it was acceptable to Mr Scott.

[30] On 23 November 2005 Mr Percy sent an email addressed to Mr Shaw and copied to Mr Grime and Mr Scott, attaching the final draft of the contract preliminaries and appendices which he had prepared. He stated that there remained uncertainty about identifying the drawings which had been used to price the works. In an attempt to achieve finality he made the following request:

"Can both parties please advise me if they have any objections or disagreement with what has been presented? From my discussion with both of you, I think this represents a formalisation of the contract you both believed you were in anyway.

Please let me know if there are to be any changes by close of business on Monday 28 November. If there are no changes, I will issue a notice confirming both parties' agreement to this document."

[31] The document, which Mr Percy appended to the email, was in large measure the same document as he had sent with the email of 4 November 2005 (see paragraph [26] above). In Appendix 1 he identified seven tender drawings. For Appendix 2 he attached the "Specification & Description of Works - Version 1" which Mr White had prepared by September 2004 and which Mr White described as a "generic specification". Appendices 3 and 4 remained unchanged. A modified presentation of the contract sum analysis was included as Appendix 5.

[32] Mr Shaw responded stating that he and his wife accepted the terms of the contract. Mr Scott did not respond. It is not clear whether he saw the email before the deadline of 28 November. He did not like using email as a mode of communication and preferred to communicate by mobile phone or at meetings. Mr White was aware that Mr Scott was not comfortable with emails and Mr Grime acknowledged that Mr Scott rarely used email to respond to an email message.

[33] On 28 November 2005 Mr Percy wrote to Mrs Shaw and the defenders to confirm their acceptance of the proposed contract terms. He stated:

"Further to my recent meetings and correspondence with both parties. I confirm that I have received no objection from either party to the final version of the Contract Documents issued by e-mail on 23 ^rd November.

As agreed, I confirm that this represents the record of the contractual agreement between the parties."

[34] There is a dispute between the parties as to what happened thereafter. Mr Scott contended that several days later he telephoned Mr Percy to tell him that he did not accept the contract document. I do not accept his account of events. I discuss this matter more fully below when I consider the credibility and reliability of the witnesses. Mr Percy's evidence on this matter, which I accept, was that Mr Scott did not make any objection to the contract documents. Circumstances support his position as Mr Grime and Mr and Mrs Shaw stated that they believed that a formal agreement was in place by the end of November. Both Mr and Mrs Shaw stated that if they had known that the defenders were not prepared to agree the contract document they would have halted further works until the problem had been resolved. They did not halt the project in December 2005. I accept that, at that time, each of Mr and Mrs Shaw, Mr Grime and Mr Percy believed that agreement had been reached on the contract documents by 28 November 2005 and thereafter acted in that belief.

Subsequent events

[35] The defenders continued to work on the house in late 2005 and 2006. Disagreements emerged and in about January 2007 Mrs Shaw wrote to the defenders instructing them to stop work. Mr Scott employed Duncan Marshall of DM Associates (Scotland) Ltd to assist in the resulting dispute. Mr Marshall in a letter dated 24 November 2006 submitted a loss and expense claim on the defenders' behalf which was broadly consistent with their acceptance of the contract document, which accompanied the email of 23 November 2005, and in a letter dated 31 August 2007 referred to text in a clause in the contract document in support of an argument relating to the experience of the defenders' workforce.

[36] Mr and Mrs Shaw were not aware that the defenders challenged the existence of a written contract incorporating standard terms until they sought to refer their dispute to an adjudicator in about September 2007. Mr Scott consulted his solicitors, who challenged the jurisdiction of the adjudicator on the basis that there was no written building contract. That challenge succeeded and the adjudicator declined to hear the case.

The credibility and reliability of the witnesses

[37] I found Mr and Mrs Shaw to be both credible and reliable witnesses. Mr Shaw in particular was very straightforward and balanced in the way in which he gave his evidence. I also accept Mr White's evidence about how the initial contract came to be agreed, the status of the estimate of £598,000 and on what was or was not included within that price. I formed the view that those witnesses were doing their best to tell the truth. It was clear that their recall of details had diminished through the passage of time and because there was only limited documentary material with which to prompt their recollection.

[38] I consider that Mr Grime and Mr Percy were both generally credible and reliable witnesses in relation to the central issue of whether there was agreement on the adoption of a written contract. I accept that they were instructed to reach a clear agreement with the defenders and tried to do so. I accept also that Mr Scott must have been aware that that was what they were doing and that he co-operated with them to that end. While Mr Percy was principally involved in the task of reaching agreement with the defenders, I accept that Mr Grime also sought to satisfy himself that Mr Scott was content to proceed with the proposed agreement. I consider that, as a result of the passage of time, Mr Percy was not wholly reliable in his evidence as to when matters were agreed with Mr Scott. But I accept his evidence that reaching such agreement was his remit and that he believed that he had done so. I also accept that if Mr Scott had, as he suggested, intimated to Mr Percy and Mr Grime that he rejected the proposed contract, both Mr Percy and Mr Grime would have reacted to that and would have informed their client.

[39] It is striking that none of Mr and Mrs Shaw and the pursuer's advisers acted at the time as if they were aware that Mr Scott had rejected the proposed contract terms. As they had a shared aim of bringing clarity into the contractual relationship, it is very unlikely that they would not have recorded their concerns, if Mr Scott had indicated his dissent. It is possible, as Mr Howie submitted, that Mr Percy would not disclose to Mr Grime and his client the failure of his attempt to get agreement on the contract terms; but such a lack of candour would be obviously self-defeating as the lack of agreement would have become apparent very soon. It is highly unlikely that Mr Percy was aware of and did not disclose Mr Scott's dissent. I therefore conclude that Mr Percy was telling the truth when he stated that Mr Scott never told him that he would not agree to the written contractual terms and that he needed to consult his lawyer.

[40] I was puzzled how Mr Grime could have supported the pursuer's stance in relation to the items which were the subject of the counterclaim and which I discussed in paragraphs [15] and [16] above. Mr Percy did not give evidence on those matters although it is clear that his organisation has been providing considerable expert advice to the pursuer in relation to this litigation. While I am concerned that the pursuer sought to advance an untenable position in relation to those items, I recognise that I am not in a position to judge who was advising Shepherd & Wedderburn LLP to take that stance or whether the lawyers acted on expert advice. I therefore draw no adverse inferences against the pursuer's witnesses in relation to that matter.

[41] Mr Scott is a builder who is more comfortable with the practicalities of building than the technicalities of contract formation. He was not a reliable witness on the central issue of whether parties had agreed formal contract terms in late 2006. He had no detailed memory of the discussions which were designed to agree a formal building contract. He could not state when meetings took place. He recalled that he had discussed contract terms with Mr Percy at a meeting in November, when he was shown some at least of the proposed preliminaries and appendices. Mr Scott said that he had told him that there was too much involved and that he would have to take advice from his lawyer. He said that Mr Percy asked him to sign the document and that he had refused. His position was that he had never seen the draft preliminaries and appendices, which Mr Percy attached to his email of 23 November 2005. This surprised me. I allow for the facts that he did not keep good records of his work and that he was more comfortable discussing issues at meetings or on the phone than communicating in writing or by email. But I am not persuaded that he was as ill-informed about the process by which the pursuer's advisers sought to formalise a contract as he portrayed himself to be. In my opinion, there was a considerable amount of retrospective rationalisation in his account of what he must have done.

[42] His only specific evidence about particular events related to telephone calls which were recorded in his mobile phone statements. He accepted that he had received Mr Percy's letter of 28 November 2005 (paragraph [33] above). In examination in chief he said that he phoned Mr Percy on 30 November to say that he did not accept it. His mobile phone records showed a forty second call to Mr Percy's office at 10.31 hours followed by a call to Mr Percy's mobile at 10.32 hours which lasted one minute and one second. Mr Scott explained that, having ascertained that Mr Percy was not in his office, he had called him on his mobile. Mr Scott said that he told Mr Percy that he had not received the contract document and that he would not have signed it. He said that Mr Percy had said that he was too late. He said he also spoke to Mr Grime about it and stated that he was not happy. He also gave evidence about a call to Mr Percy's mobile phone on 6 December 2005 which lasted four minutes and thirty five seconds. He said that it was a heated discussion in which he said that he would not sign the documents. On cross-examination he attributed that discussion to the call on 30 November and thought that the phone call on 6 December had been concerned with issues of valuation. He confirmed on re-examination that the phone call discussing the proposed contract occurred on 30 November. Thus, on his evidence, the discussion of his response to the contract lasted only fractionally over one minute. He accepted on cross-examination that he had not sought legal advice until shortly before September 2007.

[43] For the reasons set out above I prefer the evidence of Mr Percy and Mr Grime on this matter. Whatever Mr Scott has now persuaded himself to have been the position, I am satisfied that he did receive the email of 23 November 2005. Further, if Mr Scott's evidence were correct, then both Mr Grime and Mr Percy would not only have been guilty of dereliction of their professional duties in keeping their client in the dark about his refusal to accept the contract terms but also have been lying in their evidence to this court. I do not think they were.

What was the governing contract?

(i) The submissions of the parties

[44] Mr Drummond, solicitor advocate, submitted on behalf of the pursuer that the steps taken by Mr Grime and Mr Percy between August and November 2005 were designed to reach agreement with Mr Scott on a document to govern the contractual relations between Mrs Shaw and the defenders. Mr Scott co-operated in this process. This involved Mr Percy producing over time several versions of the draft contract preliminaries and appendices, discussing them with Mr Scott, and eventually sending the text attached to the email of 23 November 2005, in which he gave parties an ultimatum to object to its terms or be treated as agreeing to them. He submitted also that the parties' subsequent conduct was consistent with their having agreed to be bound by the formal building contract. These included the defenders' acceptance of 10% uplift on sub-contractor's invoices and the submission of a claim for loss and expense.

[45] In support of the contention that the court could look objectively at parties' conduct, including one party's silence in the context of a negotiation or a course of conduct, to infer acceptance of an offer or agreement of a contract, Mr Drummond referred to McBryde, "The Law of Contract in Scotland" (3 ^rd ed.) paras 6.71-6.81, Gloag on Contract (2 ^nd ed.) pp.7, 28 and 29, Budge v Donald 2002 SLT (Sh Ct) 18, Rust v Abbey Life Assurance Co Ltd [1979] 2 Lloyd's Rep 334, Vitol SA v Norelf Ltd [1996] AC 800, McNeill v Cameron (1830) 8 S 362, Morrison v Campbell (1842) 4 D 1426 and Ballantine v Stevenson (1881) 8 R 959. In relation to the contention that the defenders were barred by their subsequent conduct from denying their acceptance of the formal contract, he referred to McBryde (above) at paras 25.08 to 25.14, William Grant & Sons Limited v Glen Catrine Bonded Warehouse Limited 2001 SC 901 and A C Yule & Son Ltd v Speedwell Roofing & Cladding Ltd (2007) BLR 499. Finally, in relation to the means by which parties can incorporate standard terms into their contract he referred to McBryde (above) at para 7.09 and Scrabster Harbour Trust v Mowlem plc 2006 SC 469.

[46] Mr Howie QC for the defenders submitted that it was inherently improbable that Mr Scott would have agreed to be bound by the formal contract. The contract purported (i) to fix a backdated completion date which was well before the defenders could possibly have completed the house having regard to Mr White's failure to provide them with the needed information and instructions, (ii) to impose on the defenders design responsibility for the work of specialists whom Mr White and not they had instructed and most of whose work had already been completed. He submitted that Mr Scott did not have a detailed knowledge of the standard form building contracts and, having regard to his poor record keeping, was not in a position to look after his interests under them, for example in giving notices to support claims for loss and expense. He also submitted that the contract which Mr Percy sought to impose was unworkable because it purported to impose retrospectively design responsibilities on the contractor without going through the contractual mechanism by which such responsibilities could arise. In particular, there had been no statements of employer's requirements, no contractor's proposals and no approval of those proposals by the employer's professional advisers. Those provisions, he submitted, were unworkable. Mr Howie also argued that the ultimatum procedure, which Mr Percy adopted, was ineffective. He had no authority from either party to adopt that procedure in order to impose contractual terms on them.

[47] Mr Howie also submitted that the pursuer's case of personal bar and acquiescence was irrelevant. Acquiescence would involve Mr Scott's failure to prevent Mr and Mrs Shaw from doing things which he could have stopped: William Grant & Sons Ltd (above) at para 44. That was not pleaded. Rather it was pleaded that the defenders and their advisers, D M Associates, had acted in a way which was consistent with their acceptance of the formal contract in seeking a 10% contractor's profit and in their correspondence to which I have referred in paragraph [35] above. Those averments also did not support a plea of personal bar as there was no detrimental reliance on the defenders' acts; the pursuer and her advisers already believed that they had agreed a formal contract with the defenders by 28 November 2005. Personal bar operated as a defence; it was not available to create a claim or positive right. Mr Howie referred also to Gatty v MacLaine (1921) SC (HL) 1 and The Advice Centre for Mortgages v McNicoll 2006 SLT 591.

(ii) Discussion

(a) The agreement of a contract document

[48] Subject to what I discuss in paragraphs [52] to [62] below about specific terms of the agreement, I am satisfied on the balance of probabilities that the parties agreed in late November 2005 that they would be bound by the contractual document which Mr Percy attached to his email of 23 November 2005.

[49] It is clear that from August 2005 Mr Grime and Mr Percy had the remit of clarifying the contractual relationship which Mr White had put in place between Mrs Shaw and the defenders and Mr Scott must have been aware of that. The discussions between Mr Percy and Mr Scott in late October and November were intended to achieve that clarity and reach agreement on a statement of the contractual terms which were to govern the parties' relationship. While Mr Percy had taken responsibility to prepare the contractual terms which he put to Mr Scott, Mr Grime also spoke to Mr Scott to ascertain that he was content with the outcome of those discussions. Mr Percy sent the email of 23 November 2005 after he had discussed the proposed terms with Mr Scott and had agreed to send out a final version of the document. Mr Scott's silence in response to that email needs to be considered against that background.

[50] In that context I have no difficulty in concluding that the defenders are to be taken to have agreed the terms of the contract document, subject to the qualifications which I discuss below. It is clear from the case law, which the purser cited, that acceptance of an offer can be inferred from a party's conduct. See, for example, Ballantine v Stevenson . The law looks objectively at the parties' behaviour in deciding whether a contract has been formed. As Gloag stated (p.7):

"The judicial task is not to discover the actual intentions of each party; it is to decide what each was reasonably entitled to conclude from the attitude of the other."

As a general rule, one party's silence does not imply consent to an offer. But it is well recognised that the surrounding circumstances may occasionally cause the court to infer that a party, through his silence, has assented to be bound by a proffered contract. This may occur in particular where the parties have had dealings: Rust v Abbey Life Assurance Co Ltd . In the present case the parties were already in a contractual relationship; there had been discussions on several occasions to agree the text of a formal contractual document to govern their relationship and, understanding that Mr Scott had agreed its terms and having told him that he would do so, Mr Percy presented the final text to both parties.

[51] I am not concerned about the analysis of Mr Percy's authority in sending the email of 23 November 2005 and imposing a time limit on parties' responses. I am satisfied that the parties knew what he was seeking to achieve and that they went along with his means of doing so. Thus by their conduct, including Mr Scott's silence, the parties fall to be treated as having agreed the terms of the email of 23 November 2005 and the accompanying contractual document.

(b) Oral agreements and specific terms

[52] But that is not an end of the matter. In paragraph [3] above I recorded that the first question, which parties asked me to decide, was whether their contract was governed by the formal contract document produced in or about November 2005; that is a reference to the document attached to the email of 23 November 2005. In my opinion it does not matter that there was no signed contract document; but the operability of the document is a relevant issue. As I have stated, the contract document did not, as Mr Percy professed to believe, involve merely the formalisation of a pre-existing agreement. It innovated on the prior agreement and sought to back-date its terms to the start of the contractual relationship between the parties. In my opinion the attempt was only partially successful.

[53] In particular, as Mr Howie submitted, there are at least two areas in which the contract cannot operate in the way in which the pursuers' advisers contend that it does. Those areas are (i) the date of completion and (ii) the alleged design responsibility of the defenders for the work of certain sub-contractors. I consider each in turn.

[54] It is undisputed that Mr Scott was concerned that the pursuer's advisers sought his agreement to a back-dated completion date of 12 September 2005, when that had merely been a target in his arrangement with Mr White and had been agreed as such when much needed information as to the contract works was lacking. Mr Scott raised these concerns with Mr Percy who sought to re-assure him that the pursuer would not seek to enforce strictly the contract terms relating to the completion date. The terms of that assurance were disputed. Mr Percy gave evidence that he advised Mr Scott to leave the completion date as it originally was as the defenders could claim for loss and expense for delays which they had not caused. While clause 26.1 of the standard term contract required the contractor to submit a timely written application, and the defenders had not done that under the previous informal contract, Mr Percy explained that he assured Mr Scott that a timely application would not be necessary and that he would have a right to claim for loss and expense, notwithstanding the contractual term. He said that there was no question of the defenders not getting their loss and expense and that Mr Scott agreed to the completion date on that basis. In order to give comfort to Mr Scott he also specified in the draft contract that the pursuer would not be able to claim liquidated and ascertained damages.

[55] Mr Scott explained the exchange in different terms. He had said to Mr Percy that he could not accept a completion date of 31 August 2005 and Mr Percy had said that that would not be an issue as his client would not hold him to that date.

[56] Later the defenders instructed DM Associates to prepare a loss and expense claim on their behalf. Mr Percy advised his clients in an email of 13 November 2006 that the assessment of the claim should be based not on the preliminaries of the original contract but on the lower figure of loss and expense which Mr Scott could prove. In his assessment of the claim he made no allowance for disruption of the contractor's works, apparently because of the absence of proof.

[57] In my opinion, the parties agreed that the strict terms of clause 26 of the standard term contract would not be applied and that the defenders' claim for loss and expense would be honoured despite the absence of timely notification. But it is difficult to see how Mr Grime or Mr Percy on his behalf could properly determine the amount of loss and expense as required by clause 26 unless they had detailed knowledge of what had occurred when Mr White was responsible for the project. It was clear that they did not have such knowledge. I conclude that the clauses relating to the completion date should not and cannot be applied in accordance with their strict terms, and that the parties will have to adopt a broad brush approach to their claims which relate to the time taken to complete the works in so far as they depend on circumstances existing before November 2005.

[58] I am also satisfied that the contract document of 23 November 2005 did not have the effect of imposing on the defenders design responsibility for the contractors who provided the detailed design of the electrical works, the underfloor heating system and associated plumbing systems and the roof trusses. While I accept that Mr Percy sought, quite sensibly, to fit the prior contractual arrangements into a tidier model, the means which he adopted could not achieve the desired result.

[59] I accept that Mr Percy discussed the issue of design responsibility for these works with Mr Scott. Mr Percy explained that Mr Scott was happy to have the contractors treated as sub-contractors so long as he was not liable for their work. When asked during his evidence how the main contractor could not be liable, Mr Percy answered that liability would flow down the contractual chain via the main contractor to the sub-contractor so that the employer could claim against the sub-contractor. It was not clear whether this assertion was made to Mr Scott.

[60] Mr Scott was clear that the defenders had never taken on design responsibility for anything other than the timber frame, which he had engaged Rennie Engineering to design. While Mr White suggested in his evidence that he saw the timber kit and the roof trusses to be the same thing, Mr Scott explained that a different firm, Forfar Roof Truss Company, had designed the roof trusses and that the defenders had not taken responsibility for their work. Mr White had instructed Invisible Heating Systems in relation to the novel under-floor heating system powered by a heat pump before placing a contract with the defenders and had paid them directly for part at least of the design of the system. Mr Scott explained that Mr White had later asked him to handle the payment for work of Glenalmond Contracts and Invisible Heating Systems to avoid an unnecessary VAT charge, but he had never had responsibility for their design work.

[61] In his negotiation with Mr Scott, Mr Percy agreed to give the defenders a main contractor's profit of 10% on sub-contractors' invoices, whereas the defenders had previously been receiving a 5% uplift. I accept that he did so because he understood that Mr Scott was accepting that the defenders were undertaking a design responsibility which he understood they had not had, at least in relation to the under-floor heating system. I am, however, not persuaded that Mr Scott agreed to take on that responsibility as he understood that Mrs Shaw would not claim against the defenders but only against the proposed subcontractors. That understanding might not have mattered if either the oral communications or the written contract, objectively construed, imposed the obligation on the defenders. But they did not. The oral exchanges were not unambiguous and, in any event, the device which Mr Percy adopted in the contract document to create that responsibility was not effective. The relevant standard form contract was the Scottish Building Contract Contractor's Designed Portion Without Quantities (August 1998 Revision). It requires there to be documents setting out "the Employer's Requirements" and also documents submitted in response by the contractor which are called "the Contractor's Proposals". It is envisaged that the Employer would examine those proposals, with the assistance of professional advisers, in order to be satisfied that they appear to meet "the Employer's Requirements". In this case such documents did not exist. Appendix 3 of the preliminaries and appendices which Mr Percy sent with his email of 23 November 2005 simply listed four items as the Employer's Requirements, namely " Underfloor Heating and associated Plumbing Systems, Detailed Design of Electrical Work, Timber Kit, and Roof Trusses". Appendix 4, which was entitled "Contractor's Proposals", simply stated that they were "to be appended". Unsurprisingly, no contractor's proposals were ever appended as the defenders had not made any such proposals except in relation to the timber frame kit.

[62] Thus, while Mr Percy understandably sought to formalise what he had persuaded himself was the contractual arrangement which had existed between the parties, he did not succeed in imposing on the defenders design responsibility for any of the items listed in Appendix 3 other than the timber kit.

(c) Personal bar and acquiescence

[63] In my opinion no issue of acquiescence or personal bar arises in this case. In relation to the former, no acts by the defenders or their advisers after November 2005 induced the pursuer and her advisers to do anything from which they might otherwise have abstained as it was their belief from 28 November onwards that the defenders had agreed to the written contractual terms attached to the email of 23 November 2005. In any event, I do not think that the doctrine of acquiescence is available to establish a contract in a context where the normal rules of contractual formation do not establish consent. In William Grant & Sons Ltd the Lord President (Lord Rodger) at paragraph 44 quoted the famous speech of the Lord Chancellor (Lord Campbell) in Cairncross v Lorimer (1860) 3 Macq 827, at pp.829-830 in which he stated:

"If a man, either by words or by conduct, has intimated that he consents to an act which has been done, and that he will offer no opposition to it, although it could not have been lawfully done without his consent, and he thereby induces others to do that from which they otherwise would have abstained, - he cannot question the legality of the act he had so sanctioned, - to the prejudice of those who have given faith to his words or to the fair inference to be drawn from his conduct."

Lord Rodger in the same paragraph summarised the decision thus:

"The Lord Chancellor could not have made it clearer that the bar to a pursuer proceeding arises only where two conditions concur: first, the pursuer acts in such a way that he intimates that he consents to an act which has been done and, secondly, he thereby induces others to do that from which they might otherwise have abstained."

In my view, the doctrine of acquiescence adds nothing to the law of contract in relation to the constitution of contracts as the latter governs the circumstances in which consent to the establishment of a contractual relationship is expressed or inferred.

[64] Similarly, I do not consider that the pursuer could have used personal bar to set up a contract. As Mr Howie pointed out, by reference to Lord Drummond Young's opinion in The Advice Centre for Mortgages , personal bar operates as a defence, as a shield rather than a sword, and does not create any claim or positive right. In their impressive book on "Personal Bar" (2006), Elspeth Reid and John Blackie describe personal bar as being about the suppression of rights and helpfully discuss the sword and shield metaphor at para 5.21 as follows:

"On the whole, personal bar is a doctrine which suppresses rights rather than creates them. Usually, therefore, it works defensively, as a shield (the pursuer is barred from asserting a right against a defender) but not as a sword (the basis for an independent claim). Bar takes on a more offensive aspect when it prevents a defence from being stated - when the defender is barred from using a defence. But while it aids the attack by knocking the shield from the defender's hand, it is not the independent source of the pursuer's claim, and so is not the sword."

In my opinion bar cannot be used to constitute a contract. Even if it could, it would not have availed in this case as the pursuer did not rely to her detriment on anything which the defenders or their advisers said and did after November 2005; she and her advisers already believed that they had agreed a formal contract.

[65] It follows that, if I had not been satisfied that the parties are to be taken to have agreed the terms of the document attached to Mr Percy's email of 23 November 2005, the pursuer's second plea in law would not have supported the declarator which she sought.

Conclusion

[66] At the close of the proof parties agreed that there were difficulties with the declarator and that I should simply record my findings in this opinion and put the case out by order so that there could be a discussion of further procedure. In order to give effect to that agreement, I have put the case out by order and appointed parties to produce and lodge short notes of their proposals for further procedure.