"Did you take all of that down?"
It was held in a very recent Court of Appeal decision that for an agreement to be 'evidenced in writing', generally, all of the agreement, not just part of it, must be evidenced in writing.
Under the Housing Grants, Construction and Regeneration Act 1996 ("the Act") all parties to a construction contract (with certain defined exceptions) have a right to refer a dispute to adjudication. But; that is only construction contracts that are agreements in writing.
Section 107(2) of the Act reads as follows:-
"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 purpose of 107(2) is to ensure that 'agreement in writing' is defined as widely as possible. Parliament was certainly aware of the informal agreements that are prevalent in the industry, particularly between contractors and sub-contractors. The thrust of the Act is to exclude as few agreements as possible from the provisions.
Indeed, the annotations to the Act state as follows:-
"For the most part, subs (2) will apply to fairly informal arrangements such as an exchange of letters or a written acceptance of a quote."
The Act (at s. 107(b)) even goes so far as to extend the concept of writing to include as writing anything being recorded by any means.
DM Engineering (NI) Ltd -v- RJT Consulting Engineers Ltd
That pragmatic approach was followed at first instance where Judge MacKay stated that s. 107 was an 'inclusive not an exclusive' piece of legislation. He further held that an insistence upon a recitation of the whole agreement would be contrary to the Act.
The Court of Appeal, however, thought differently. The Court decided that it is necessary that the whole of the contract, which must be a complete agreement, must be evidenced in writing.
If it is not, the court said, an adjudicator has no jurisdiction. This was so, despite there being some evidence in writing capable of supporting the existence of an agreement, the parties involved, the nature of the work and the price and that it appeared that there was complete agreement between the parties.
The court's reasoning was that, given the pace of the adjudication timetable, an adjudicator must have certainty in relation to the terms of the contract.
The decision is an English one and is not binding in Scotland. It may be limited to the particular contract documents in question which were numerous, not comprehensive, and failed to record a key oral agreement. It may also be appealed. However, it is prudent to follow the decision in practice.
It is best practice to ensure that all contractual terms are agreed in writing. This case highlights the importance of adopting best practice should parties wish to preserve the right to adjudicate.
The decision suggests that, to maintain the right to adjudication, the following is best practice:
- All contract terms should be recorded in writing (either by exchange of correspondence or, ideally, in a single agreed set of contract documents);
- No terms should be left for agreement.;
- If at all possible, written agreement to the contract terms should be reached before commencement of work by the contractor or sub-contractor.
However, these principles are safely restricted to express terms. So, provided these requirements are met, terms may still be implied into the contract, without jeopardizing the application of the 1996 Act.
The effect of the decision is diluted by the suggestion by one of the three judges that – provided the terms upon which an adjudication turns are agreed – then an adjudicator will have jurisdiction even if other terms are not agreed or not in writing. However, the case is still likely to generate even more jurisdiction challenges in adjudication.
The concluding advice here is straightforward: if you want to keep the path to adjudication open, ensure that the whole agreement is in writing.
What about payment?
The court also suggested that a written construction contract, such as that described above, is necessary if any of the provisions in Part II of the Act are to apply to the contract.
In other words, in order to ensure that the provisions in relation to (i) the amount and timing of payments; (ii) the remedies in the event of non-payment, and (iii) notices of intention to withhold payment, etc., are implied into the Contract (if they are not already expressed in it), the above good practice guide should be followed.
This article outlines some of the legal issues relating to adjudication. It is not intended to be exhaustive, nor can it provide the detail necessary to give legal advice or guidance in relation to any specific problem. Legal or other appropriate advice should be sought in relation to any specific problem.