A party wishing to refer a dispute to adjudication needs to assert that there is a contract – the act only applies to construction contracts. The referring party will want to show that a contract exists in order to adjudicate.
What about the other party – the respondent? Initially, it might appear attractive to a respondent to deny that a contract exists. The motivation may be to avoid having the dispute resolved in the interim by adjudication. But a well-advised respondent will know that this may be storing up trouble, as there can be dire consequences to denying the existence of a contract.
Without a contract, there will be little to regulate the parties’ relationship. This will mean that there will be few, if any, obligations in terms of time and quality. This may mean that time is “at large”. And with no price or valuation machinery, the payment obligation will be “a reasonable price” – which may be more than the price tendered or negotiated. In British Steel vs Cleveland Bridge (1982), the court expressed the view that it is extremely difficult to show that another party is in default of performance obligations in the absence of a contract.
What does time at large mean? The party owing the obligation to perform the works has a reasonable time to complete those works. This means that it is impossible to impose liquidated damages, and the best that can usually be achieved is to recover damages for any period over and above a reasonable period – a costly and time-consuming exercise.
The party bringing the adjudication is the party benefiting from the absence of a contract. But this is the same party who wants a contract to be in existence in order to adjudicate …
Payment may be on a quantum meruit basis. In other words, a reasonable price for the value of the works undertaken, which may be quite different to that which would have been payable under a contract.
So it follows that it is the person owing the obligation to do the physical works who has most to gain from the absence of a contract. These conclusions need to be considered in the context of adjudication experience to date.
Evidence so far suggests that most adjudications are being brought by subcontractors against main contractors or by main contractors against employers. Accordingly the party commencing the adjudication is the party who might stand to benefit from the absence of a contract. But because this is the same party who wants a contract to be in existence in order to have the right to adjudicate, that party is likely to forgo such arguments in order to be able to adjudicate.
Of course, there may remain a belief that the absence of a contract can assist the party owing the obligations in terms of time, performance and quality. Parties can, for instance, become reluctant to sign contracts once works have commenced on site. Hence, arguments about whether there was a contact and, if there was, what its terms were, may remain with us – but only if the party who wants to put such a case is prepared to forgo adjudication and proceed to arbitration or litigation.
Postscript
James Bessey is a partner at edge ellison. He can be contacted on: 0121-200 2001.
