UK: The Importance of Being Evidenced - RJT Consulting Engineers Ltd. v. DM Engineering (NI) Ltd, Court of Appeal, 8 March 2002

Last Updated: 10 July 2002

Get that document signed!

It is an important part of project administration for employers to ensure that their trade contractors/main contractors execute their Trade, Works or Management Contracts and that their consultants execute their professional appointment documents. It is equally important, for main contractors, to ensure that their sub-contractors and design advisers execute their sub-contracts and professional appointment documents.

Unfortunately, with deadlines to be met and potential purchasers or tenants wishing to take possession of the building or works, it is often easy to overlook the pitfalls of not getting documents executed. It is easy to fall into the trap of getting the trades/ consultants/sub-contractors on site, issuing them a letter of intent, and then paying them under that letter, often considerably above the ceiling amount specified in the letter or (even worse) having a letter with few terms and no ceiling on payment at all.

Then, suddenly, when the works are delayed or drawings have to be re-issued, and the parties look to the terms of the agreement to try to protect their position, the employers or main contractors find that they have little or no protection if the contract has not been signed up. This is because the contractor/consultant/sub-contractor may then be entitled to be paid on a quantum meruit basis. In other words, they may be entitled to be paid a reasonable amount for doing work of a reasonable quantity within a reasonable period of time - hardly the sort of contract that most employers or main contractors would willingly enter into with their contractors/consultants/ sub-contractors (see British Steel Corporation v. Cleveland Bridge & Engineering Co. Ltd. (1981) 24 BLR 94, [1984] 1 All ER 504).

If that weren’t reason enough…

There is now, however, a further reason to get those documents executed, and that follows the decision of the Court of Appeal in RJT Consulting Engineers Ltd. v. DM Engineering (NI) Ltd. on 8 March 2002.

In only its third judgement concerning Adjudication, and in particular the meaning of section 107 of the Housing Grants, Construction and Regeneration Act 1996 ("the Act"), the Court of Appeal held that all the terms of a construction contract have to be evidenced in writing if the contract is capable of being referred to adjudication, and that the mere existence of a contract with some of the terms set out therein does not suffice for that purpose.

The facts of the case will have a familiar ring. DM Engineering were the M&E sub-contractors on the refurbishment of the Holiday Inn hotel in Liverpool. DM needed some of their sub-contract works designing, so they approached RJT, the employer’s M&E consultants, and asked them to carry out that design. The initial approach was made orally, but throughout the period when RJT carried out the design for DM, fee notes which referred to the project were submitted, correspondence passed between the two which referred to DM’s tender and RJT’s professional indemnity cover, drawing schedules were prepared and design team meetings (at which minutes were taken) were held.

Therefore, although the initial approach was made orally, there was a significant body of written evidence describing the nature of the agreement between RJT and DM.

Disputes arose during the course of the works between DM and RJT, largely concerning the quality of RJT’s design work. DM submitted a claim for £858,000 to adjudication, alleging that RJT’s design was not of satisfactory quality and had caused DM to suffer loss. RJT resisted the claim on the grounds that the oral engagement was not an agreement in writing for the purposes of section 107(2) of the Act. Section 107(2) provides as follows:

"(2) There is an agreement in writing;

(a) if the agreement is made in writing (whether or not it is signed by the parties);

(b) if the agreement is made by exchange of communications in writing; or

(c) if the agreement is evidenced in writing."

The Adjudicator found that the written evidence of the agreement was sufficient for the purposes of s. 107(2)(c) of the Act, and proceeded to make a decision on the facts of the Adjudication. At the enforcement proceedings in the Technology & Construction Court sitting in the Liverpool District Registry, RJT sought a declaration that the Adjudicator had purported to make a decision as to an oral contract which could not be subject to the adjudication provisions contained within Part II of the Act. HH Judge MacKay refused to make the declaration sought, but granted leave to appeal.

Giving the leading judgement of the Court of Appeal, Ward LJ clearly signposted the way in which he was thinking in his analysis of the provisions of s. 107(2) of the Act, at paragraph 13 of his judgement:

"Section 107(2) gives three categories where the agreement is to be treated in writing. The first is where the agreement, whether or not it is signed by the parties, is made in writing. That must mean where the agreement is contained in a written document which stands as a record of the agreement and all that was contained in the agreement. The second category, an exchange of communications in writing, likewise is capable of containing all that needs to be known about the agreement. One is therefore led to believe by what used to be known as the eiusdem generis rule that the third category will be to the same effect namely that the evidence in writing is evidence of the whole agreement."

In other words, by logical extension of the requirements of s. 107(2)(a), which requires that the whole document be set out, so "evidenced in writing" must mean "evidence of all the terms of the Agreement". Ward LJ continued:

"17 In my judgment the learned judge was wrong to conclude as a matter of law that it was sufficient to give the jurisdiction to entertain an adjudication that there was evidence in writing capable of supporting merely the existence of the agreement, or its substance, being the parties to it, the nature of the work and the price.

18 … All of this is evidence of the existence of the contract, some evidence of the consideration and some indication that the nature of the work was design and advisory. But it is not evidence of the terms of the oral agreement that was made between the two gentlemen back in April 2000. It is certainly not evidence of the terms of the contract on which the respondents rely in the adjudication. For that reason I would allow the appeal

19 On the point of construction of section 107, what has to be evidenced in writing is, literally, the agreement, which means all of it, not part of it. A record of the agreement also suggests a complete agreement, not a partial one."

Crucially, Robert Walker LJ agreed with Ward LJ’s judgment, ensuring that Auld LJ’s more restrained view became only persuasive, rather than binding (as also applies to Ward LJ’s agreement with Auld LJ that it would be a "pity if too much ‘jurisdictional wrangling’ were to limit the opportunities for expeditious adjudication having an interim effect only."). Auld LJ took the view that:

"22 Although clarity of agreement is a necessary adjunct of a statutory scheme for speedy interim adjudication, comprehensiveness for its own sake may not be. What is important is that the terms of the agreement material to the issue or issues giving rise to the reference should be clearly recorded in writing, not that every term, however trivial or unrelated to those issues, should be expressly recorded or incorporated by reference."

It remains to be seen what the impact of this decision will be. It is not known whether DM will seek to appeal this decision to the House of Lords. However, if DM do not appeal, this judgment as to what is and is not "writing" or "evidenced in writing" may be a significant jurisdictional feature on the adjudication landscape for some time to come, as Responding parties search for oral variations that will remove jurisdiction from Adjudicators and force impecunious sub-contractors to fall back on the costly and time-consuming methods of dispute resolution for which Adjudication was supposed to be a cure.

Therefore, despite the inevitable commercial pressure to complete projects as quickly as possible, clients should avoid finding themselves in the position of having to argue whether the RJT v. DM case means that "all the terms" or "all the material terms" of an agreement must be set out in writing, by ensuring that the contract appointment documents are executed without delay, and that all other "agreements" are reduced to writing, be they formal Variations, Change Orders, or even site instructions.

© Herbert Smith 2002

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

For more information on this or other Herbert Smith publications, please email us.

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