Worldwide: Legal Developments In Construction Law: October 2015

Last Updated: 5 November 2015
Article by Geoffrey Chan, Tom Fu, Menachem M. Hasofer, Mei Ling Lew and Kevin R. Owen

Keywords: construction contract, adjudication award

1. The work is done but does that mean there was a contract?

A construction contract may not need to be in writing but there still needs to be a contract. Working out whether there was an oral contract may not be easy but does the fact that the works have been carried out help? A subcontractor carried out works at the Dorchester Hotel and the main contractor made a number of payments but, when the subcontractor submitted its final account, the contractor failed to respond with a pay less notice and the subcontractor obtained an adjudication award in its favour. The main contractor claimed, however, that there was no concluded contract and that the adjudicator consequently had no jurisdiction to decide the dispute.

The court said that, where works have in fact been carried out, it may readily find that there was an intention to create legal relations. Even if there was insufficient certainty about the agreement of a price or pricing mechanism, the court will readily infer that the person carrying out the works is entitled to be paid on a quantum meruit basis rather than reaching the more drastic position of denying the existence of a contract altogether.

It seemed clear "beyond argument" to the judge that there was in fact a contract in place. There was substantial "performance" on both sides, with the subcontractor carrying out the works and the main contractor making payments amounting to £654,000. While it is theoretically possible for parties to carry out works and to receive payments without having entered into a legally binding agreement, it was unrealistic to suggest that is what had happened, for a number of reasons, including a clear acknowledgement, by a key employee of the main contractor, that there was an agreed original scope of works with an agreed contract value, to be supplemented by subsequent variations. The adjudicator's award was therefore enforced.

Purton (t/a Richwood Interiors) v. Kilker Projects Ltd [2015] EWHC 2624

2. An arbitrator knows best – at least on the facts

FIDIC Red Book Sub-Clause 2.4 entitles a contractor to request "reasonable evidence" of the employer's arrangements to pay the contract price. An employer for a new hospital in Tobago was asked for this financial reassurance but, despite "without prejudice" advice from the Ministry of Health that funds were available, it failed to confirm, when asked, that the Cabinet had approved the funds. The contractor suspended work and later terminated the contract. In the ensuing arbitration, the arbitrator ruled that the employer had not provided the required "reasonable evidence" and the contractor was consequently entitled to terminate. The Court of Appeal of Trinidad and Tobago disagreed with the arbitrator's decision and allowed the employer's appeal, but could it do that?

No, said the Privy Council. Where parties choose arbitration for disputes, it is well established that the courts should respect their choice and recognise that the arbitrator's findings of fact, assessments of evidence and formations of judgment should be respected, unless they can be shown to be unsupportable. The fact that a judge takes a different view from the arbitrator is no basis for setting aside or varying the award. Different considerations apply, however, when it comes to issues of law, where courts are often more ready (and in some jurisdictions much more ready) to step in.

On a separate issue, the Privy Council also decided that FIDIC Red Book Sub-Clause 2.5 was effective to shut out any claims (including, but not limited to, set-offs or cross-claims) that had not been properly made under the clause.

NH International (Caribbean) Ltd v. National Insurance Property Development Company Ltd (Trinidad and Tobago) [2015] UKPC 37

Originally published on 29 October 2015

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