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Doing Business with a Relative? A Formal Contract Is Still Vital!

Relatives frequently do business together, but trust between family members is sadly no replacement for professional contract drafting. In one case, seven-figure deals agreed orally between relatives in the building trade led to a bitter falling out and ultimately to High Court proceedings.

GymA businessman whose company had been engaged to repair water damage to a sporting facility subcontracted the work to a builder with whom he had a family relationship. Whilst driving away following a site visit, the pair reached an oral contract by which it was agreed that the company and the relative would split any profits arising from the project equally.

A further contract was subsequently agreed, encompassing works to renovate the facility so that it could be converted for residential use. However, the arrangements between the men were entirely informal and never reduced to writing. The relative was a sole trader when the works began but incorporated his business during the course of the project.

Following completion of the works, a dispute arose in respect of unpaid invoices and the matter was referred to adjudication. Two hearings, before different adjudicators, ensued and the relative’s company was awarded sums totalling £1.2 million against the businessman’s company. The former launched enforcement proceedings and applied to the Court for summary judgment.

In dismissing the application, however, the Court found that the businessman’s company had a real prospect of successfully defending the action on the basis that both adjudicators had lacked jurisdiction. The company had an arguable case that the contracts had been agreed with the relative personally and that it had never had any contractual relationship with the relative’s company.

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