Adjudication – Award – Enforcement — Claimant putting building work out to tender – Claimant accepting defendant’s tender but no formal contract in writing being entered into – Delays occurring in carrying out of works – Claimant seeking to deduct liquidated damages for delay — Adjudicator being appointed – Claimant objecting to jurisdiction of adjudicator – Whether agreement in writing being treated as made – Whether claim being suitable for adjudication – Applications dismissed
The claimant put out to tender works for the construction of a residential development and B1 studios in North London. The defendant submitted a tender, which it subsequently revised, and the claimant instructed the defendant in writing to proceed with the works pending agreement of a formal contract based on the “JCT 2005 Intermediate Form of Contract with Contractor’s Design”. No formal contract was ever entered into and the defendant carried out and completed the works under, what it claimed to be, the terms of the letter of intent. The work took longer than anticipated and the claimant asserted that it was entitled to deduct liquidated damages for the delay. The defendant disputed the claim and referred the matter to adjudication.
The claimant objected to the appointment of the adjudicator and applied to the court for: (i) a declaration that the adjudicator had no jurisdiction because the defendant had not followed the proper procedure as to the service of the referral and his appointment in accordance with the Scheme for Construction Contracts; (ii) an injunction restraining the defendant from continuing with the adjudication; and (iii) a declaration that any decision reached by the adjudicator was a nullity and unenforceable.
Section 107(5) of the Housing Grants, Construction and Regeneration Act 1996 provided: “An exchange of written submissions in adjudication proceedings, or in arbitral or legal proceedings in which the existence of an agreement otherwise than in writing is alleged by one party against another party and not denied by the other party in his response constitutes as between those parties an agreement in writing to the effect alleged.”
The question was whether section 107(5) was to be interpreted as meaning that the fact that the agreement was not in writing had to either be asserted explicitly or be an available interpretation of the words used, or whether it was sufficient that the agreement was in fact made otherwise than in writing although described in the referral notice as having been made in writing.
Held: The applications were dismissed.
This was a case where the defendant was alleging the existence of an agreement made otherwise than in writing and that agreement had not been denied by the claimant. In those circumstances, the parties were to be taken to have agreed that there was a contract in writing for the construction of the development within the meaning of section 107(5). Accordingly, the claimant could not escape the consequences of the operation of that subsection, irrespective of any reservation of rights. The effect of such an agreement was that the referral fell within the provision of the 1996 Act and the adjudicator had jurisdiction to determine it.
In cases involving letters of intent each case turned on its own facts. If there was no intent to create legal relations or the terms were too uncertain, the court might conclude that the ordinary requirements for the creation of a binding contract were not satisfied. However, the ingredients of a “construction contract” within the meaning of the 1996 Act might be more stringent than the requirements of the common law. For a contract to be evidenced in writing within the meaning of section 107(2)(c) of the 1996 Act, all the relevant terms agreed had to be recorded in the relevant document or documents: RJT Consulting Engineers Ltd v DM Engineering (Northern Ireland) Ltd [2002] 1 WLR 2344 applied.
For there to be a valid construction contract within the meaning of section 107 there had to be agreement on at least four essential items: the parties, the scope of work, the price and time. In the present case there was clearly no doubt as to the identity of the contracting parties. The scope of the work was described by reference to the drawings and instructions issued by the architect, which were in turn identified in the tender documentation referred to in the letter. That was a sufficiently precise definition of the scope of the works. It was clear that the intention was that the parties would enter into a formal contract in the form of the JCT 2005 Intermediate Form of Contract with Contractor’s Design, which would then regulate work carried out both before and after the contract was entered into. It was also clearly the intention of the parties that the procedures to be followed would reflect the contractual machinery of the JCT 2005 contract. Therefore, the letter of intent and the documents referred to therein provided an adequate description of the scope of the work. The absence of agreement on a contract price was not fatal to the existence of a construction contract provided that there was an agreed written record which identified rates that were to be applied to the work carried out. Further, the lack of a specified time period did not deprive the agreement of contractual effect. In that context, if a construction contract did not provide for the giving of an extension of time in the event of a breach of contract by the employer, any such breach which delayed the contractor might put time at large. However, that did not prevent the contract from being a binding agreement: Hart Investments v Fidler [2007] and PT Building Services v ROK Build Ltd [2008] EWHC 3434 (TCC) applied.
The question of whether or not the letter of intent was capable of constituting a construction contract within the meaning of the 1996 Act was a matter for the adjudicator. However, because, by the operation of section 107(5), the parties were to be taken as having agreed that there was an agreement in writing, it was not open to either party to contend, or to the adjudicator to decide, the contrary.
Eileen O’Grady, barrister
