Through the looking glass

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.

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 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.

Tony Bingham is a barrister and arbitrator