The English Technology and Construction Court (TCC) case of Twintec Ltd v Volkerfitzpatrick Ltd (VFL) is a rare instance of an injunction being granted to prevent an adjudication and illustrates the unintended consequences of contracting based on letters of intent.
Facts
VFL was main contractor for the construction of a large warehouse and wine bottling plant for Accolade Wines. Accolade claimed that the warehouse floor was not fit for purpose. They alleged that the piling and floor slab constructed by VFL's subcontractors (Twintec and Keller) were defective. The floor issue is currently the subject of a separate court action in which Accolade are claiming for £170m.
Prior to the court action being raised, VFL had carried out testing of the floor and subsoil at a cost of £850k. They alleged that one reason the tests were required was Twintec's poor workmanship. They applied to the RICS for appointment of an adjudicator on the basis of the DOM/2 standard form of subcontract to deal with their claim for repayment by Twintec of this cost.
Twintec applied to the TCC for an injunction to prevent VFL from pursuing the adjudication. Their main argument was that the adjudicator's appointment was on the basis of a contractual provision which did not exist and therefore the appointment was invalid.
Letter of Intent
The contract Twintec had entered into with VFL was initially based on a letter of intent. The letter of intent requested Twintec "to proceed immediately with all works necessary to enable you to achieve the Design Programme and Construction Programme in accordance with the documents below". The documents referred to included the DOM/2 subcontract.
One of the main problems with the incorporation of DOM/2 in this way was that for certain clauses, there are alternatives, requiring an election to be made by the parties as to which applies. These include the choice of nominating body for the appointment of an adjudicator.
The copy of DOM/2 presented to the court had three of the choices of nominating body struck out, leaving the RICS, but there was no evidence to show that Twintec had agreed to this or even been aware of it. The choice of nominating body was considered to be "just the sort of point that could be the subject of negotiation".
Decision
It was decided that the reference to carrying out works "in accordance with" DOM/2 meant that Twintec would have to do whatever was necessary to ensure it would not be in breach of "primary obligations" such as achieving the programme.
It was considered that, on an interpretation of the letter of intent, "secondary obligations" such as the adjudication provisions were not incorporated. Further, there was no need, as a matter of business efficacy, for these to be implied since, in their absence, the Scheme's adjudication provisions would apply. Even if the adjudication provisions were incorporated, there was no evidence Twintec had agreed to the nominating body being RICS.
VFL had therefore requested the appointment of an adjudicator by the RICS pursuant to a provision which was not a term of the contract between the parties. The validity of the procedure by which the adjudicator was nominated was said to go to the heart of his jurisdiction. That jurisdiction derives from the agreement between the parties, reflected by the terms of their contract. An adjudicator cannot be validly appointed under a contractual provision that does not exist.
Injunctions to prevent adjudications are only granted in exceptional circumstances but this case was considered to be exceptional. It would not be just or convenient to allow an adjudication to proceed where the decision would be incapable of enforcement.
Comment
This case is a clear example of the uncertainties which can arise as a result of the use of letters of intent. Whilst they are commercially necessary in some cases, they should be carefully considered and drafted to avoid this sort of issue.
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