Is a contractor obliged to charge an objectively reasonable rate or price where no rate or price is specified in a building contract?
No, said Mr Justice Edwards-Stuart in the case of Oakrock Limited v (1) Travelodge Hotels Limited, (2) Wakemans Limited and (3) Anglo Holt Construction Limited (2014).
The contractor, and Shoosmiths client, (Anglo Holt) applied to strike out parts of a claim brought by the owner of a hotel (Oakrock).
The claim related to refurbishment works carried out at the hotel in 2008. The hotel's tenant (Travelodge) engaged Anglo Holt to carry out the works under a JCT Standard Form of Building Contract With Contractor's Design 1998 Edition, for the purpose of converting the hotel into a Travelodge branded hotel. The works were funded by Oakrock, pursuant to a business sale agreement (BSA) between Oakrock and Travelodge.
The claims against Anglo Holt included excessive and unreasonable pricing of the works and an alleged failure to carry out the refurbishment works so as to enhance the reversionary and rental value of the hotel under terms to be implied in the BSA.
Key points of the judgement
Oakrock's contention that Anglo Holt could not retain a sum paid for work that exceeded a reasonable rate was surprising and far reaching
- Where no rate was specified in the building contract, it was for the contractor to put forward a rate which, in principle, could be viewed objectively as excessive and claim that it is based on a reasonable rate
- It was for the employer and its agent to then negotiate the rate and agree to pay it
- In the absence of fraud, the employer could not seek to unpick the final account and change that rate at a later date: that is all water under the bridge
- A third party to a building contract should not be put in a better position than the employer under the building contract, especially where terms are said to be implied into the building contract
The court was quick to recognise that a contractor making a claim for more than he is perhaps entitled happens every day in the ordinary cut and thrust of commerce. There's no reason to imply a term that a contractor will only charge reasonable rates and prices. Therefore, if the job is financially 'a good 'un' for a contractor there will be no interference from the courts simply because an employer, having agreed rates & prices, decides on reflection that he doesn't like how much he is paying and no third party will be put in a better position than the employer.