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Cite as: [2018] ScotCS CSOH_83, [2018] CSOH 83

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OUTER HOUSE, COURT OF SESSION

[2018] CSOH 83

A97/16

OPINION OF LADY CLARK OF CALTON

In the cause

MARK BAIN AND PAULINE BAIN

against

KARL MARTIN

Pursuers

Defender

Pursuers: C Murray; Lefevre Litigation

Defender: Macpherson; TC Young LLP (for Sneddon Morrison, Shotts)

9 August 2018

Summary

[1] The first pursuer, Mark Bain, and the second pursuer, Pauline Bain are spouses and

since at least 2013, have resided at a house in West Lothian. The defender, Karl Martin, also

resides in West Lothian. The pursuers have business interests and are directors of and work

in an estate agency business which is now a limited company. The defender for many years

had business interests as a builder. He now works as a plant operator. The parties first met

in 2011 when the defender, using the estate agency business which was at that time run by

the pursuers as a partnership, purchased a house in which he continues to reside. Various

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contacts took place between the pursuers and the defender over the period from 2011-2014

relating to business interests.

[2] Prior to meeting the defender, the pursuers had instructed an architect to draw up

plans for an extension to their house. Some time in 2013 there were discussions about these

plans between the pursuers and the defender. According to all the parties the discussions at

some date led to a contract for the construction of an extension to the pursuers’ house. The

parties admitted that a contract was concluded albeit they differed significantly about the

circumstances of the formation of the contract, the terms of the contract and the parties to

the contract. It was not disputed that: the plans from the first architect were superseded;

further plans were drafted; further work was done by a second and third architect; in about

November 2013 work relating to the extension commenced; cash payments were made by

the first pursuer; work was sporadic; the contract was brought to an end by the pursuers in

July 2014 at a time when substantial work had been done but the work had not been

completed or approved; various solicitors’ letters were sent by the pursuers in relation to

the works and other matters; and on 16 March 2016 the present action was raised.

[3] In this action the pursuers seek payment from the defender for reparation for alleged

loss and damage through the defender’s breach of contract in carrying out the contract

works for building the extension. The averments of the pursuers are that “In around

June 2013, the pursuers entered into a contract with the defender ...”. The averments of the

defender are to the effect that the pursuers’ contract was not with the defender as an

individual but with a company namely K&S Building Services (Scotland) Limited (“the Ltd

company”).

[4] By interlocutor dated 31 October 2017, the parties were allowed a preliminary proof

of their respective averments on record on the issue of whether or not there was a contract

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between the parties. This was interpreted by the parties as focussing the issue as to whether

or not the defender as an individual or the Ltd company was a party to the contract with the

pursuers. Prior to the commencement of the preliminary proof, the parties agreed a

statement of disputed issues which stated:

“Whether the contract entered into by the pursuers in or around June to

September 2013 for the construction of a single storey extension to their home ... was

with : (i) the defender; or (ii) K&S Building Services (Scotland) Limited, a company

registered in Scotland, company number SC410744.”

[5] The issue presented by the parties to the court for determination was a narrow issue

and in other circumstances might easily have been resolved by a quick look at the

contractual documents. But in this case the pursuers alleged that there were no written

contractual documents and that the written documents in name of the Ltd company,

produced and lodged on behalf of the defender, were not true and reliable documents. In

the result therefore a proof took place over three days in which the credibility and reliability

of the witnesses to fact were in issue. I heard evidence, relating to the period from

about 2011 to 2016, inter alia about the relationship between the parties, the contract, the

works and the formation and dissolution of the Ltd company.

The witnesses

[6] Evidence was led on behalf of the pursuers in this order: Pauline Bain the second

pursuer; John Butler of Geode Forensics, an expert witness in digital forensics; Mark Bain

the first pursuer. The witnesses led on behalf of the defender were Karl Martin and his wife,

Avril Martin

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Summary of factual evidence about the formation of the contract

[7] The second pursuer said she took the plans prepared by the first architect to the

home of the defender where she discussed the works with the defender. At some later

unspecified date, the defender came to her house and met the pursuers. There was verbal

discussion and agreement that he would build the extension. There was no paperwork. The

work started in November when the defender arrived with a forklift machine and started

digging out the foundations. There were vans on site over the period with the Ltd company

logo and other vans. There was no firm start date agreed. She thought the price was £70,000

but that was not a fixed or definite cost and was only for the basic shell. She did not

honestly remember the figure but she thought the pursuers had been given a price. She said

the agreement was with the defender whom she knew had a building business but the

pursuers did not know the name of the business. The pursuers knew the defender only by

his name. She was not present at any other meetings with the defender about the contract.

The first pursuer dealt with the works and other matters.

[8] According to the first pursuer, he met the defender at the pursuers’ house in the late

summer of 2013. He had known the defender since 2011. The pursuers recommended him

as a builder to clients. The defender “was just Karl up the road”. There was a conversation

about the extension. He could not recall if the second pursuer was present. He could not

recall how the pursuers said to go ahead or whether he was there when that was said. He

thought the price was £47,000 for a minimum build and there was no mention of VAT. The

price had been based on the square footage and the defender had “knocked a bit off for

working with us”. There were to be cash supplements. The start date was when the

defender turned up with his digger but he was not sure of the date. There was nothing in

writing. He thought that there would be a long-term working relationship with the

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defender as a builder after the extension was completed. He described his actions of paying

in cash with no receipt as “I have been an idiot in that”. He used that description about

himself on a number of occasions. Under reference to bank statements in the name of

KnightBain (A Firm) he said he had withdrawn from the account and paid in cash a total

of £70,440 to the defender. He was unable to explain what particular works or materials he

was paying for. His explanation for payments at the time when the pursuers were plainly

unhappy with the work and progress and the relationship between the second pursuer and

the defender had broken down was that he wanted the work finished.

[9] The defender said that the contract agreed was with the Ltd company. He referred

to production 7/3 which was a letter of estimate dated 4 September 2013 in the name of the

Ltd company for building the extension for the pursuers in line with plans still to be

approved. Over three pages, various works were specified with standard finishes and the

option to upgrade. The estimate excluded painting, decorating, tiling and landscaping. The

total cost estimated is £49,500 plus 20% VAT totalling £59,400. The defender explained that

two letters (7/4 and 7/5 of process), dated 21 November 2013 and 4 December 2013 in the

name of the Ltd company, to the pursuers in respect of two payments of £8,000 in respect of

agreed building work at their address were receipts for cash payments for the works made

by the first pursuer. On 4 September 2013, Avril Martin created the document dated

4 September 2013 on the computer, with his assistance, in accordance with their normal

practice. He had previously done detailed calculations on separate sheets of paper to reach

the estimated figure. He took the signed copy of the letter 7/3 of process to the home of the

pursuers where he met the second pursuer and tried to explain the estimate to her. He said

that she seemed happy with it and she was left with a signed copy. He gave little

information about what happened thereafter except to explain that at some later date there

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was discussion between the pursuers and him and there was agreement. The pursuers said

they wanted to pay cash although he asked them to pay into the business account of the Ltd

company. He agreed that payments could be made by cash. The system agreed was for the

defender to ask the first pursuer in advance for payment and arrangements would be made

for them to meet up at a convenient place in public. The first pursuer handed over the cash

payments to the defender. There were no payments by the first pursuer after

December 2013. Work started in November but there were delays because of the need for

underpinning, weather problems, and two weeks holidays over Christmas. In about

March 2014 there were problems in the defender’s own house for a period of 8-10 weeks and

the workmen employed by the Ltd company were redirected to sort out problems caused by

dry rot in the defender’s house. There were problems in communication between him and

the second pursuer in the Spring of 2014 because he blamed her for the fact that the survey

on his house had not picked up serious problems of dry rot. Communication between them

ceased and he communicated only with the first pursuer. The work on the pursuers’ site

came to an end after a telephone call in July 2014 when the pursuers wanted the work to

stop. The workmen returned probably that day to remove their tools. He did not send in a

final account as by that time solicitors’ letters about defective work had been sent and the

pursuers plainly were not happy.

Submissions by counsel for the pursuers

[10] Counsel for the pursuers provided detailed written submissions which I have

considered and this is a very brief summary. I was invited to find that the pursuers entered

into a contract with the defender as an individual for the construction of an extension to the

pursuers’ home. Counsel was very critical of the evidence given by the defender about the

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creation of the contract and challenged the defender’s credibility and reliability. There was

no challenge to the credibility of Avril Martin, albeit her reliability was challenged in

relation to the documents 7/3 to 7/5 of process. There was a detailed attack on the

authenticity of the documents 7/3 to 7/5 of process based on the evidence of Mr Butler and

his examination of the USB stick which the defender claimed he had found. I was asked to

give significant weight to the evidence of Mr Butler, to refuse to accept the authenticity of

productions 7/3 to 7/5 and draw favourable inferences in relation to the evidence given by

the pursuers.

[11] Counsel accepted that the evidence of the second pursuer was generally

unimpressive but I was invited to accept her evidence as credible and reliable. He

submitted that the first pursuer “had a slightly firmer grasp on dates” and that he was

candid, albeit naive. He accepted that there were some inconsistencies in the evidence of the

first pursuer and the second pursuer, though the same could be said for the evidence of the

defender and Avril Martin. I was invited to conclude that the contract was formed between

the pursuers and defender personally at a time when neither pursuer knew of the existence

of the Ltd company and did not know its name. He referred to the lack of documentary

evidence that the Ltd company ever received any part of the price under the contract and

invited me to accept that the pursuers only became aware of the name of the Ltd company

after the contract was terminated. Counsel submitted that the evidence supported cash

payments totalling approximately £70,000 by the first pursuer to the defender over the

period to June 2014. The evidence of the defender that only £16,000 had been paid but

nevertheless the contract continued should not be accepted. No attempt had ever been

made by the defender to seek further payment.

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[12] Despite the terms of the solicitors’ letters 7/1 and 7/2 of process, I was invited to

accept that the pursuers were unaware of the existence of the Ltd company, did not know

the name of the company and that the circumstances demonstrated that they contracted, as

they said in evidence, with the defender as an individual. There was no evidence that there

was any detailed legal discussion about this with solicitors and there was merely an

assumption after the event that the contract was with the Ltd company.

Submissions by counsel for the defender

[13] Counsel for the defender submitted that, for the purposes of this proof, there were

five important documents: the solicitor’s letters 7/1 and 7/2 of process, the estimate from the

Ltd company 7/3 of process and the two receipts from the company 7/4 and 7/5 of process.

The defender disclosed the Ltd company to the pursuers and the letters 7/1 and 7/2 of

process demonstrate that the pursuers were plainly aware that they had entered a contract

with the Ltd company and not a contract with the defender as an individual. Counsel

referred to the prior communing between the parties and the discussions between the

second pursuer and the defender that the company had been incorporated. In relation to the

productions and evidence relating to 7/3 to 7/5 of process, counsel accepted that the expert

evidence raised questions and anomalies about when the documents were created and he

accepted the evidence was problematic. He submitted however that the evidence of the

pursuers was also problematic and that the court might conclude that neither pursuer was

wholly credible and reliable about important parts of their evidence. On the evidence, the

court should conclude that the pursuers knew that the Ltd company existed and knew that

the defender was not contracting as an individual but on behalf of the Ltd company. Albeit

there were problems in the evidence, it was not disputed that there was a contract and there

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was clear evidence that the pursuers knew before the contract that the Ltd company existed

as demonstrated in the letters 7/1 and 7/2. The expert evidence was inconclusive. Even if

the evidence of the defender was discredited, it does not follow that the defender and not

the Ltd company was party to the contract with the pursuers.

General assessment of witnesses

[14] I regarded the second pursuer as a witness who was so vague about the dates, timing

and circumstances of the formation of the contract and events both before and after the

contract that her evidence about this was of little assistance to me. I found it hard to believe

that someone who claimed to have developed a successful estate agency business over many

years, to have knowledge of the local business community and to have regular contact with

solicitors in the course of her business, appeared to have no understanding of the difference

in fact or law between a contract with an individual and a contract with a Ltd company. Her

lack of appreciation was not restricted to the period up to 2014 but appeared to relate to her

current and continuing state of knowledge despite the fact that the partnership business she

was involved with became a Ltd company in 2015 and despite the issue which is focussed in

the present action. The second pursuer did not support the evidence of the first pursuer

about the date, place and method of formation of the contract, or the agreed price. She said

she did not know that substantial payments in cash were made to the defender in the

manner described by the first pursuer and that she learnt about the payments after they had

been made. She was never present when payments were made. She was unable to disguise

her animosity to the defender and seemed at pains to distance herself from knowledge about

the defender’s business structure and the history and circumstances of the contract.

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[15] The first pursuer appeared to have a reasonable understanding that there was a

difference in fact and law for contractual purposes between a sole trader, a partnership and

a Ltd company. He said that a Ltd company for the estate agency business was formed in

April 2015, after discussion over a long period and with professional advice and assistance.

He was a director along with the second pursuer of said Ltd company formed in 2015. He

appeared reasonably frank about the prior business relationships with the defender as an

individual with the estate agency partnership. He accepted that the pursuers were trying to

get a local builder who could help clients and that clients on a few occasions were put in

touch with the defender. His evidence about the formation of the contract was vague and

on important matters contradicted the evidence of the second pursuer. The evidence he

gave about cash payments of large sums to the defender made in public places did not

appear to me to be good practice for payment to a Ltd company or to an individual sole

trader and the first pursuer did not seek to justify this practice. His evidence was that there

were no contract documents and no receipts; he did not know the defender operated the

building business with the Ltd company structure; He did not know the name of the Ltd

company until after the contract was terminated in July 2014.

[16] I found the explanations by the pursuers about the solicitors’ letters 7/1 and 7/2 of

process unconvincing and I deal with this in paragraphs [31] to [36].

[17] I accepted the evidence of Mr Butler based on his report 6/17 of process which was

not challenged in any significant way. Because of that evidence, I was unwilling to place

any reliance on the estimate and receipts in name of the Ltd company (7/3 to 7/5 of process).

I considered that this evidence made it unsafe to accept the evidence of the defender and

Avril Martin to the extent that they relied on these productions.

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[18] I did not consider that the defender was an impressive witness. Prima facie his

explanation about the formation of the contract based on documentary evidence made much

more sense that the evidence given by the pursuers. The defender was vague about

financial matters, repetitive and seemed to positively avoid answering some of the questions

particularly in relation to financial matters and the accounts of the Ltd company. His

evidence about the finding of the paperwork and the USB stick which I discuss in

paragraph [22] did not strike me as inherently improbable. The solicitors’ letters were

received in 2014 and separating out contract paperwork with these letters was an

explanation which might be acceptable. But the evidence of Mr Butler, as I explain in

paragraphs [25] and [26], raised too many problems about the authenticity of this paperwork

and the defender’s evidence based on this. The evidence demonstrated that the defender

had basic skills only in computer work. Avril Martin was the person who had the skills and

generated the documents for the business using a computer.

[19] I considered that Avril Martin was a peripheral witness to the essential facts in this

case. She was trained as a typist and had administrative and computer skills which she used

in her employment. I was satisfied that in the course of the building business, both before

and after incorporation of the Ltd company she gave significant assistance to the defender in

generating by computer various business documents for clients. She identified the

documents in dispute in this case on the basis that she remembered the contract with the

pursuers and that any documents that she generated, as a matter of her general practice,

bore the date that they were generated. She denied any knowledge of or handling the USB

stick and was not cross-examined on these denials. I was prepared to accept this evidence

from her.

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[20] I found much of the evidence from the pursuers and the defender bearing directly

upon the formation of the contract vague, contradictory and unsatisfactory. I had some

concerns that this was deliberate and that the pursuers and the defender were not prepared

to be open and honest about the nature of the arrangements which were made. My concerns

were focused on the fact that the first pursuer and defender gave evidence about the transfer

of large cash payments in circumstances which I considered unsatisfactory. But I have also

taken into account that at the time of the commencement of the contract, all parties were on

amicable terms and mutually advantageous business contacts were expected to outlive the

building of the extension. A bitter dispute, disappointment, financial worries and loss did

not appear to be part of anyone’s thinking. Time has passed, memories may have faded and

been affected by the problems and the dispute which followed. The pursuers were very

busy business people and appear to have suffered significant disruption and financial loss in

dealing with what they regarded as an unsafe and “not fit for purpose” extension. The

defender and his wife have had serious family, financial and business problems. This

litigation must have been a source of concern for all parties.

[21] To explain my conclusions I refer in more detail to some of the chapters of evidence.

In the circumstances of this case, I was prepared to accept evidence which was not

apparently in dispute and evidence which made sense to me and which I considered had a

credible and reliable foundation.

Evidence about the documents in name of the Ltd company

[22] The dispute in this case commenced in 2014. The Ltd company was in financial

difficulties by 2015 and went into liquidation in February 2016. In 2017, following the death

of a close relative, the defender said he was clearing out the garage with Avril Martin and

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they discovered a box with various files. Avril Martin found the letters 7/3 to 7/5 of process.

The defender gave these letters to his solicitor in about November 2017. At a later date, his

solicitor asked him to check if there was any other relevant information. The defender

emptied the box and discovered the USB stick in March 2018. He did not know anything

about the USB stick but put it into a computer and found that it had some documents

recorded on it and sent the USB stick to his solicitor.

[23] In relation to finding the documents, Avril Martin gave a different account. She

denied being present when the box was found in the garage and said that the defender told

her about it when she came home from work. She said she was not really interested as the

liquidation of the company was very stressful and her father had recently died. She said

that she was not present when the USB stick was found, did not see the content and had

nothing to do with the USB stick.

[24] A report was instructed by the solicitors for the defender by James Borwick of KJB

Computer Forensics Consultancy Ltd and thereafter a report dated 15 April 2018 was lodged

as a production. The writer of that report was not led as a witness and the report was not

agreed by joint minute.

[25] An expert, John Butler of Geode Forensics was led in evidence on behalf of the

pursuers. In his evidence he presented information relating to the provenance of the three

productions 7/3 to 7/5. He took account of and made reference to the information in

Mr Borwick’s report and the USB stick. The evidence he gave was technical but was not

seriously challenged in cross-examination. In cross-examination, Mr Butler accepted that

there might have been other digital expressions of productions 7/3 to 7/5 on other devices.

He had not examined any other devices.

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[26] I considered that there was force in the careful analysis by counsel for the pursuers of

this evidence which led to his submission that reliance should not be placed on

productions 7/3 to 7/5 of process. I was not prepared to rely on these productions and the

evidence of the defender and Avril Martin relating to them. I accepted that there were

contradictions in the factual evidence about the finding of the documents and the USB stick

but my reasons for rejecting this evidence were founded on the anomalies identified by

Mr Butler in his evidence. The main anomalies identified are that when the “metadata”

were analysed it appeared that the content of the letter dated 4 September 2013 on the USB

stick was created on 20 October 2013, that is some weeks after the date the letter bears. The

letter appeared to have been last printed on 15 April 2013 which pre-dated the date of the

letter. In relation to an analysis of the receipt dated 4 December 2013, it appeared from an

analysis of the word “metadata” that the content was created on 3 October 2017 some four

years after the date of the receipt.

[27] The rejection of this evidence however does not mean that the pursuers must

succeed. There was some evidence from the defender and Avril Martin which I was

prepared to accept as credible and reliable. It is necessary to consider whether the evidence

which I accepted bears out the pursuers’ case that the contract entered into by them was

with the defender as an individual.

Evidence about the business vehicle used by the defender

[28] During the period 2011 to about 2013 it was the second pursuer who was primarily

involved with the defender. Their initial involvement related to three different transactions

with the defender as an individual dealing with the pursuers’ estate agency partnership, as

it then was. The pursuers had a close relationship with their clients and the defender was a

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client at that time. The pursuers were aware from an early stage that the defender was

involved in a building business and they knew that he had a business vehicle of some kind

but claimed to have no knowledge about it or its name. The pursuers had sufficient interest

in the building business of Karl Martin to recommend on a number of occasions to other

clients that they contact the defender. The pursuers obviously valued their clients and

wanted to develop their business interests.

[29] In the local community, Karl Martin never traded under the name of Karl Martin.

Until the business was incorporated as the Ltd company on 7 November 2011 (7/6 of

process) the defender traded as a sole trader under the name of K&S Building & Joinery

Services. I accepted the evidence from the defender and Avril Martin that an effort was

made to market and publicise the new Ltd company structure from the beginning of 2012.

Vans were leased and bore the Ltd company logo, business cards were used and advertising

of the Ltd company was carried out in various forms. The Ltd company had employees. I

was satisfied from the evidence, which included reference to the Ltd company accounts

which were produced, that there was substantial work traded through the Ltd company

accounts and there was a turnover of some £500,000. There was no evidence, apart from the

pursuers’ evidence, that the defender entered into any contractual arrangements for

building work as an individual in addition to work which he promoted and arranged

through the Ltd company. The work done on the pursuers’ extension appears to have been

done by employees of the Ltd company and the second pursuer accepted that there were

vans used by workmen which bore the Ltd company logos. The defender did do some work

on site and in particular turned up at the commencement of the work in November 2013 but

he was rarely on site and the work was done by the employees of the Ltd company and also

some other workers. There was no evidence that money was paid in respect of the contract

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through the accounts of the Ltd company. I have commented earlier about the

unsatisfactory nature of the payment system and such a system might be considered

unsatisfactory for any business model.

[30] I accepted that the defender’s business model took the form of the Ltd company from

the end of 2011 and he actively promoted the Ltd company from the beginning of 2012. That

must have been public knowledge in a small community and I am not prepared to accept

the evidence of the pursuers that they knew absolutely nothing about any of it until after the

contract commenced or even after the contract was terminated. The second pursuer in her

evidence did accept, albeit reluctantly, that there had been some discussions between her

and the defender about the fact that the defender had set up the Ltd company. She said that

this was after the contract had commenced but her evidence about timings was, in my view,

totally unreliable. Avril Martin had some memory of some discussion between the defender

and the second pursuer about this in the summer of 2013 when the second pursuer was at

the family house of the defender. I consider it highly improbable that the pursuers did not

know that the defender was using the Ltd company as a business vehicle. I do accept that

the pursuers may not have understood or cared about the implication of that at the time but

the factual position seems to be pretty plain. The defender was not doing business as a sole

trader builder. His business operation was public and open in a small community where the

pursuers were very involved with the local population and local businesses. As the

circumstances which led to the formation of the contract are somewhat shrouded in mystery

in this case, this evidence alone might not have persuaded me to conclude that the contract

which all parties say existed was not a contract between the pursuers and the defender as an

individual. Nevertheless I consider that this evidence does have significance when I come to

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consider the correspondence sent on behalf of the pursuers after the termination of the

contract.

The termination of the contract and the solicitor’s letters sent on behalf of the pursuers

[31] It was not disputed that the contract was terminated in the course of a telephone call

in early July 2014, shortly before the pursuers went on holiday. According to the first

pursuer he made the call in the presence of the second pursuer “or perhaps he left the house

to get a signal”. The first pursuer did not recollect what the defender replied but he thought

the defender accepted that there had been signs for some time that the relationship had

broken down. According to the first pursuer, the extension was nearly finished but there

had been problems for a long period. The work was substandard and progress too slow.

[32] The pursuers accepted that they contacted Norrie Moore Limited who were solicitors

with whom they had a business relationship relating to conveyancing. The initial letter

(which was not a production) raised concerns about workmen coming to the site and that

letter was dated 18 July 2014. It is not clear from the evidence to whom that letter was

addressed. The second letter from the same solicitors dated 2 October 2014 was addressed

to Karl Martin K&S Building Services Scotland and stated:

“… the works carried out by your company have been inspected by a quantity

surveyor instructed by our clients and by the building control officer. We enclose

copies of both reports and you can see that the works fall far short of an acceptable

standard and there are numerous defects which will require to be rectified before the

extension can be progressed further …”

The first pursuer explained that the reference to the company was because the solicitor

asked for the name of the company and the first pursuer thought the name had been looked

up on the internet by the second pursuer as they did not know the name.

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[33] The pursuers later instructed Anderson Strathern LLP who wrote a letter dated

18 November 2014 to Karl Martin K&S Building Services Limited. The first paragraphs of

said letter stated:

“We act on behalf of Mr and Mrs Bain who have consulted us regarding a contract

into which they entered with K&S Building Services Limited (“K&S”) for the

construction of an extension to their home … In terms of this contract entered

around August 2013 K&S were obliged to construct an extension in accordance with

drawings ICR(BW)001B prepared by Graphite Studio and supplied by our client to

K&S.

Between October 2013 and July 2014 our clients made payments to K&S in relation to

the contract works of the sum of £70,400. The cost of additional works instructed by

our clients came to £22,400 which sum has also been paid by our clients.

Despite this the work carried out by K&S was completely unsatisfactory and not in

conformity with the normal standard of building work that our clients were entitled

to expect from a ordinarily competent builder. On Friday 18 July 2014 they invited

K&S to stop work and leave their home because K&S were in material and

repudiatory breach of the contract and to allow our clients to have the extension

completed by a competent contractor.

…

Our clients therefore holds K&S to be in breach of the contract and we are instructed

to place you on notice of our clients intention to pursue recovery of (a) the wasted

cost of the original construction and (b) the additional costs they have incurred and

may continue to incur in having the extension demolished and rebuilt in

consequence of K&S’ breach of contract.

Our clients seeks repayment (or K&S’s reasonable proposals for repayment) within

7 days of the date of this letter ...”

The letter described in general terms the alleged defects and stated:

“… Our clients will take whatever steps they deemed necessary to recover their

losses and to alert the authorities and or the press to the dangerous and

unsatisfactory nature of the works carried out by K&S.”

[34] It was not disputed by the first pursuer and defender that after 18 November 2014

there was a letter from a third solicitor dealing with this matter. The letter was not lodged

as a production. It was not suggested in evidence that any of the letters from the three firms

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of solicitors made any complaint against Karl Martin as an individual without reference to a

company.

[35] Unsurprisingly, both pursuers were asked about the terms of these letters,

particularly the letter dated 18 November 2014. Both pursuers accepted that they were

aware of the terms of the letter at the time it was sent and the first pursuer appeared to go as

far as to say that the terms had been approved by the pursuers. Insofar as any explanation

was given by the second pursuer this seemed to be to the effect that she did not understand

anything about any of this. She thought that in the course of her business, now formed as a

Ltd company, that any contract with the client would be with her personally. She accepted

that the letters said what they said but maintained that the contract was with Karl Martin

“whom we knew as a client” and we were unaware of the name of his business. The first

pursuer explained that he never gave it a moment’s thought that the contract was with a

company. It was not fully explained by the solicitors. The first pursuer said he did not pay

any attention to the wording of the letters and he did not think the wording of significance.

He seemed to suggest that this was all mere verbal legalese. None of the solicitors gave

evidence and there was no explanation from the pursuers as to why the solicitors instructed

in the present action were instructed to sue not the Ltd company but the defender

personally.

[36] I found this evidence rather extraordinary. Even if neither of the pursuers, at the

time these letters were written, understood the legal implications of the protection afforded

by limited liability, I am not prepared to accept that if the simple fact was that their contract

was with the individual Karl Martin, that they were incapable of telling their solicitors that

at the time. I do not accept that they allowed three different solicitors from different firms,

all separately instructed by the pursuers to misrepresent that fact and that somehow all the

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solicitors failed to represent the position of the pursuers which they now adopt that the

contract was with the defender as an individual.

[37] The second pursuer in evidence was keen to inform the court in answers, which

seemed to be non-responsive to the questions, that she discovered shortly after the problems

with the extension emerged that there were other dissatisfied customers and other problems

for the building business of the defender. All these parties worked in a small community

and both pursuers considered that they were well informed about what was happening in

the community. In my opinion it would not be difficult for them to infer, before the raising

of the present action, that the Ltd company was in trouble, as indeed it was.

Decision

[38] In this preliminary proof it is for the pursuers to satisfy the court on the balance of

probabilities that the contract they say they entered into for the extension of their house was

with the defender as an individual. As I have explained, I am not prepared to accept their

evidence in relation to that issue and therefore on this issue the pursuers’ case fails. On the

hypothesis which the parties adopted in this case that a contract was concluded in agreed

terms before work commenced in November 2013, I consider that on the balance of

probabilities the contracting parties were likely to have been the pursuers and the Ltd

company. I infer that the pursuers know that the business vehicle used by the defender was

the Ltd company and that he was acting on behalf of the Ltd company, not as a mere sole

trader.

[39] All questions of expenses are reserved and the case will be put out By Order to

discuss further procedure