The word is not enough

Statutory Adjudications are supposed to be binding until the arbitrator or court finally sort out the parties' disputes. But since the Construction Act came into force, many inroads have been made into the adjudicator's power. For instance, the courts have successfully disputed the binding nature of adjudications when the adjudicators decided points not referred to them, failed to decide points referred to them or behaved in a biased, unfair way. The effect has been to undermine the efficacy of adjudication.

A recent case, Carillion Construction vs Devonport Royal Dockyard, represents another inroad. Carillion was retained by Devonport to carry out work. After the project ran into problems, the parties discussed changing the basis of payment. It was said that agreement had been reached, orally, between them on 30 October 2001. There was no written agreement to this effect. Later, in August 2002, Carillion began an adjudication based on its entitlement under the alleged oral agreement. The adjudicator decided that Carillion should be paid £7.5m.

Devonport was not prepared to pay because it argued the adjudicator had no jurisdiction to adjudicate on what was an alleged oral variation to the contract.

The matter came before His Honour Judge Bowsher in the Technology and Construction Court on 27 November 2002. He found in favour of Devonport. In doing so, the judge relied on the earlier Court of Appeal case of RJT Consulting vs DM Engineering, which determined that there must be a construction contract made, or evidenced in writing, if an adjudicator was to have jurisdiction. Moreover, said RJT, the contract was not evidenced in writing merely because there were documents that indicated its existence; all the terms of an oral agreement must also be in writing.

The judge found that the alleged agreement was not evidenced in writing and, accordingly, that the adjudicator had no jurisdiction in these circumstances. There has been no appeal.

If any contract term or variation is not evidenced in writing, there is no right to statutory adjudication

The effect of this decision may prove serious for adjudication in the UK. As the judge accepted, disputes over oral construction agreements are very common. It is often the case that important terms of a contract are orally agreed. Parties, often at a site level, agree to vary terms of the contract, sometimes consciously, sometimes not. Such terms are often not incorporated into the signed contract or a formal variation of terms. Accordingly, unless oral terms are put in writing, their existence will secure the non-applicability of adjudication. The RJT case determined that all terms must be evidenced in writing; the Carillion case determines that this applies to oral variations of written terms.

If any contract term or any contract variation is not in writing, there is no right to statutory adjudication. Even if the orally agreed terms are unimportant, this will apply. It is likely therefore that many such construction contracts even if mostly evidenced in writing will fall outside the act. Respondents to adjudications will be able to run the argument before adjudicators that there were oral terms agreed between the parties and that accordingly the adjudicator does not have jurisdiction.

Even if the adjudicator rejects that argument, the losing party can apply to the court for declarations that the adjudicator had no jurisdiction; provided that there is an arguable case that any terms were not evidenced in writing, they will at least delay the enforcement of any adjudication decision; at worst, the decision will be found to be unenforceable.