Can oral contracts be adjudicated?

It may be thought that the proposed amendment to the Housing Grants, Construction and Regeneration Act 1996, allowing the adjudication of oral contracts and reflecting the reality of the situation of site life, is a good thing. Indeed, the usual preliminary jurisdictional spats, as to whether the contract is wholly in writing, will vanish and the ability to adjudicate will be expanded to those less inclined to commit matters to writing.

However, whilst solving this problem, this amendment may yet create another of a more complex nature - this time once proceedings have begun.

Allowing oral contracts to be adjudicated will require the adjudicator to determine which party’s evidence he prefers on a matter. This is nothing new, but previously he has had the benefit of at least the basis of the party’s agreement and obligation set out in some form of written contract. He might have been required to interpret such provisions but now he might have to determine what those actual obligations are.

To do this the adjudicator may look for written documents which corroborate or support a particular version forwarded by a party.  But what if, on a particular issue, no such documents exist? Naturally, witness statements may be adduced to give each side’s version of events. There is, however, no sanction should these be inaccurate or untrue. The adjudicator may wish to hold a meeting to ask questions and take account of the demeanour of the witness, but he has no power to order that evidence be given under oath. In short, while it gives the adjudicator the added responsibilities and complexities of having to adjudicate oral contracts, the amendments do not provide him with adequate powers to deal with this. In addition, the costs of adjudicating oral contracts are likely to increase.

“As is so often the case in the construction industry, the only reason that this issue (1) even arises for consideration at all can be traced back to sloppy paperwork,” HH Coulson QC (as he then was) Tombs v Wilson Connolly - 2004

Having seen the difficulty of the task which the adjudicator may now face, the repercussions (combined with the effects of the new payment provisions and potential matters which may come before an adjudicator to be decided) are enormous.

Imagine the scenario: The sub-contractor says he orally agreed terms where the payment due date is 14 days after commencement and the final date for payment is 6 days thereafter. The main contractor says he must have misunderstood or not heard correctly; the due date is 40 days after commencement and final date for payment 16 days thereafter. This is the first payment and there is no written evidence to support either party’s contention.

Expanding the scenario a little further, the subcontractor has issued a suspension notice and 7 days later left site. He has also issued a default payment notice and for good measure, being annoyed, considerably overvalued the work. The main contractor has not issued any payment notice or withholding notice as he says in accordance with their oral agreement they are not yet due.  Everything hangs on what the adjudicator decides, yet he may have little evidence. The sub-contractor may be potentially liable for a repudiatory breach, under the proposed payment provisions the main contractor may have to pay the grossly overvalued sum. Of course it might be said that the referring party hasn’t tipped the balance of probabilities required under the burden of proof. If this is so, has the ability to adjudicate an oral contract got the subcontractor any further than under the existing Act?

In such a scenario can the Scheme assist? Has there been a failure to agree the intervals of stage payments or just a misunderstanding as to that agreement? Has there been a failure to provide an adequate mechanism for payment? If the Act permits oral contracts to be adjudicated, surely it cannot be that an orally agreed mechanism for payment is inadequate?

This is only one scenario.  What if one party says the contract was formed before the amendments came into force and the other says it was after – which adjudication procedure applies? … and so on.

Ironically, by permitting the adjudication of an oral contract, the conclusion appears to be, in order to safeguard interests more than ever before, it is wise to ensure the contracts are in writing.