Contractor ‘benefits’ from mistake in sub-contractor’s tender at its cost
TRADITIONAL STRUCTURES v HW CONSTRUCTION [2010]
This case concerned a sub-contractor who made a critical mistake when submitting a tender. In this era of modern technology where bid documents are often copied from previous documents, mistakes can easily be made. When that happens the courts will sometimes have to consider the position of the two contracting parties.
facts:
- T was asked by H to submit a quote for steelwork and cladding in relation to a new college, for which H was tendering as the prime contractor. T retained one version of its tender on file which quoted one price for steelwork and another price for cladding. Crucially, the tender submitted to H only included the price for steelwork and omitted entirely the price for the cladding, even though the introductory sentence referred to both aspects of the work.
- No formal written contract was negotiated. Instead, the contract was formed through an exchange of emails. However, the mistake was not picked up until T was asked to submit a revised quote based on a final, slightly revised, specification when H realised it was being quoted figures approximately 100% higher than it was apparently expecting. H alleged that T had added in a new figure for cladding that had previously not been there.
- T applied to the court for rectification of the contract to add back in the figure for cladding it had mistakenly left out of the original tender.
decision:
- For T to succeed in its application, the judge said it would have to show that:
- H knew that T had made a mistake; and
- H’s conduct was ‘dishonest’ or ‘unconscionable’ by not pointing out the mistake to T.
- The judge became convinced that H’s managing director almost certainly knew of the omission and sought to take advantage of it. There was evidence that the director was unreliable and probably lied and hence H’s conduct was such that the court was entitled to intervene. The court ordered rectification of the contract by the addition of the missing figure for the cladding.
points to note:
- By trying to take advantage of a mistake in a sub-contractor’s quotation, the prime contractor’s behaviour resulted in it having to pay the costs of a court case.
- To establish a claim for rectification on the ground of unilateral mistake, it has to be shown that:
- one party (A) erroneously believed that the document sought to be rectified contained (or did not contain) a particular term or provision;
- the other party (B) was aware of the inclusion or omission and that it was due to a mistake on A’s part;
- B has omitted to draw the mistake to A’s notice; and
- the mistake benefitted B.
- In terms of the degree of knowledge or awareness that party B must have, this could be:
- actual knowledge;
- wilfully shutting one's eyes to the obvious; or
- wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make.
- The court then has to consider whether the conduct in question was sufficiently ‘dishonest’ or ‘unconscionable’ so as to permit it to intervene.
- Hence, there is a duty to make enquiries of the other party if you think or have reason to believe that a mistake has been made in a tender. It is dangerous to just keep quiet and hope that the other party does not realise its mistake. If an offer appears too good to be true, it probably is! The same would apply in relation to a written contract document which contains errors.