The importance of clear, written contracts..

In this article I discuss a very recent TCC decision for enforcement by summary judgement of an adjudicators decision. This case demonstrates why it is so important to ensure contract terms are clear, in writing and that the signing up process is done properly!

The amendments to the Construction Act* became effective in the UK back in late 2011, with the inclusion of oral contracts. Many would argue that given the short timescales of adjudication, it would be nigh on impossible for adjudicators to investigate the terms of an oral contract between parties in a dispute.

Additionally it is settled law that adjudicators decisions are binding (even if they are wrong) until challenged in arbitration or court. For these reasons it is imperative that construction contracts are in writing and unambiguous.

I will discuss the case between RMP Construction Services Ltd v Chalcroft Ltd [2015] EWHC 3737 (TCC) (21 December 2015).

Background

The matters in front of Stuart-Smith J are important because they deal with how a contract is formed, if the Adjudicator had jurisdiction and had been validly appointed under the Scheme for Construction Contracts. Additionally and interestingly the TCC judge had to decide whether an Adjudicator’s decision should be enforced in the event the Adjudicator had erred in his decision.

A payment dispute arose, however there was no consensus as to whose terms applied (the infamous battle of the forms). On one hand the Sub-contractor (RMP) argued the contract had been formed by an email from the Main Contractor (Chalcroft) in December 2014 accepting their offer. Chalcroft on the other hand put forward multiple scenarios - it was formed by a letter of intent, an unsigned sub-contract order and the parties conduct, which they said incorporated standard JCT wording.

Dispute and Adjudication

The formation of the contract was critical, as it would determine the payment mechanism and the Adjudicator’s decision. The dispute was about the apparent failure by the Main Contractor to issue a Pay Less Notice. On the view of the Subcontractor this would mean the Pay Less Notice was out of time, however on the view of the Main Contractor it would mean the Pay Less Notice was served in time and was therefore valid.

The Adjudicator found in favour of RMP.

Enforcement

Chalcroft refused to pay and RMP raised an action for summary judgement in the TCC for payment.

The subcontract was unsigned and various terms had been rejected by the RMP in writing. Stuart-Smith J considered at best case it was just reasonable to argue that RMP had accepted the terms of the subcontract order by their conduct in proceeding with works.

Stuart-Smith J agreed with the Adjudicator that on any of the parties version of the contract formation, there was a construction contract. The parties had not named an Adjudicator Nominating Body within it. This meant that the scheme applied and as the Adjudicator had been appointed under the Scheme he had been validly appointed.

The upshot was that the decision was enforced because the Adjudicator:

• had the necessary jurisdiction to decide the dispute that was referred to him; and
• dealt with the correct dispute without bias or breach of natural justice (which would justify the courts overturning the decision).

Conclusion and Comment

The Decision is a stark message to the industry.

Get your contracts correct at the start!!

Relying on informal conversations, poorly drafted emails, letters of intent and so on is a slippery slope and as Chalcroft found out, an expensive one.

It is vital to ensure that all key contractual provisions are properly documented, particularly those as fundamental as payment and adjudication provisions.

This case is also a timely prompt to all of a Court’s alacrity to uphold and enforce an Adjudicator’s decision, even where the Adjudicator has erred in law or fact. The Courts did note that the Adjudicator might have reached the wrong conclusion as to the terms of the contract.

That being said, this did not prevent Stuart-Smith J from enforcing the decision.

When I am acting for a client, I can often be reviewing up to five different documents to ascertain the correct payment mechanism. You have the original Construction Act, the amendments from 2011, the Scheme for Construction Contracts, the amendments to this from 2011 and then finally the contract. It is not always simple, in fact it rarely ever is after the event.

My point being is make sure you have an agreed payment mechanism and that is compliant, if in doubt get advice from those who know what they’re talking about.

If you want to know more about the changes to the Construction Act leave your email address below in the comments or send me a private message and I will send you a free white paper.

If you need any help with contract terms or think you may be heading for dispute get in touch with me today.

I thank you for taking the time to read this article and I hope you found it useful. Please feel free to connect with me, like, comment or share this article.

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About Yosof

Yosof Ewing is the author of the internationally acclaimed White Paper series The 10 Commandments. He is Managing Director of CPUK a private practice of Professional Alternative Dispute Practitioners, Dispute Resolvers, Expert Witnesses, Quantity Surveyors and Project Managers operating in the UK and Internationally. He is a qualified Mediator and acts as Expert Witness and Party Representative in Adjudications, as well as advising on distressed projects, disputes, contracts and procurement in construction, property and energy.

Yosof is a Fellow of the Institute of Commercial Management, Fellow of the Chartered Management Institute, Member of the Association of Project Management, Member of the Chartered Institute of Civil Engineering Surveyors, Member of the Chartered Institute of Arbitration, Practicing Associate of the Academy of Experts, Member of the Institute of Engineering and Technology, Member of the Society of Construction Law and is a listed Party Representative by the Association of Independent Construction Adjudicators.