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When is an agreement in writing not an ‘agreement
in writing’? When, as one subcontractor found out, it takes place
in the crazy world of construction law
“There is no justification for this rule in
the Construction Act about contracts having to be in writing. Come
on, parliament, hoof that clause out”
The subcontract was ordinary. Carry out and
complete an M&E installation. That’s what the order said – but it
didn’t state the price. When a dispute arose, the subby took its
case to adjudication, whereupon the main contractor told it and
the adjudicator to clear off. The reason was the rule that the
construction agreement needs to be an “agreement in writing” in
order to be eligible for adjudication. The order was said not to
be “an agreement in writing”. True enough, it wasn’t.
I will return to that case later. First, what’s
all this about the need for the contract agreement to be in
writing? Judges have observed that because “the adjudication
process is intended to be a swift and summary process, parliament
thought it was inappropriate for an adjudicator to have to deal
with disputes that often arise as to the terms of an oral
contract”.
“Disputes as to the terms, express and implied,
of oral construction agreements are surprisingly common and not
readily susceptible of resolution by a summary procedure such as
adjudication. It is not surprising that parliament should have
intended that such disputes should not be determined by
adjudicators under the act.”
But the real truth is that the parliamentary
draftsmen stole the idea from the Arbitration Act 1996, which says
that “an arbitration clause shall be in writing”. The draftsmen
for the Construction Act nicked that page and changed “arbitration
clause” to “construction contract”. So it became statute law that
for adjudication and “payment rules” under the Construction Act,
the electrical subby’s contract has to be “in writing”.
Now, back to the dispute. Murray Building
Services was the M&E subcontractor, Spree Developments the main
contractor. The M&E chaps liaised directly with the employer’s
consulting engineers, which arranged a project specification.
The spec was still being finalised when the
work ought to have begun, so the main contractor sent a letter and
order for the M&E work as per the consulting engineer’s scheme,
saying, “forward your costs once finalised and agreed with the
consulting engineer”. All this was on an official order of the
main contractor. Is that an agreement in writing?
The Construction Act says that “there is
agreement in writing if the agreement is evidenced in writing”.
Well, said Murray’s barrister, my client has been to adjudication
and the adjudicator agreed that those words mean that the order
from the main contractor evidences their agreement. Then the
adjudicator awarded Murray its money in the dispute. Spree
wouldn’t pay, so Murray went to the High Court to ask that the
award be enforced.
The barrister for the main contractor argued
that “what has to be evidenced in writing is literally the whole
of the agreement, not part of it – or, alternatively, the terms
material to the issue or issues in the dispute should be clearly
recorded in writing”. As to the price, the order merely said
“forward your costs once finalised and agreed”. So, the order form
specifically omitted the price.
It was conceded by Murray’s lawyers that the
price is a vital term, and that if this order was to serve as an
agreement in writing, the price must be recorded in writing.
However, they argued that this did not mean that the price had to
be stated: it would have been good enough if the words on the
order intended the price to be that which was agreed between the
subcontractor and another person such as the consulting engineer.
That means it was okay for the method of calculating the price to
be agreed, if not the actual sum.
So, the court had to interpret “forward your
costs once finalised and agreed”. Was that an agreement on price?
The judge said no. No matter what was finalised with the engineer,
the main contractor could still challenge any computation of
costs. The words did not form an agreement about a “vital term”,
so the court would not enforce.
There really is no justification for this rule
about contracts having to be in writing. Adjudicators are quite
capable of deciding a dispute about an oral promise, known by the
lawyers as an express term. Come on, parliament, hoof that clause
out.
Readers are invited to forward recent judgments
for reporting in this column (with full acknowledgement) to: Tony
Bingham, 3 Paper Buildings, Temple, London EC4Y 7EU. DX: 37164
Biggleswade
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