HGCR Act 1996 - The Requirement for Contracts to be in Writing

© Daniel Atkinson 2001 29 September 2001 Revised 12/01/02

SUMMARY

The Housing Grants, Construction and Regeneration Act 1996 (the "Act") applies to agreements in writing. This definition is very wide and includes oral agreements which are either evidenced in writing or are effective by exchange of submissions in legal proceedings including adjudication. The definition of "writing" is very wide.

The parties may give the Adjudicator jurisdiction to decide matters under a contract which is not in writing for the purposes of the Act - a contractual as opposed to statutory adjudication. That submission will be effective for all subsequent adjudications under that contract.

If the parties act on the basis of a common but mistaken assumption that there is a contract, then this may be sufficient to found the jurisdiction of the Adjudicator.  A Party will not be prevented from resiling on that common assumption if taken early enough in the adjudication - if it is not unconscionable in view of the detriment to the other party.

1  Writing

Section 107 is taken from Section 5 of the Arbitration Act 1996.

Section 107(1) provides that Part II of the Act only applies where the construction contract is in writing. Any other agreement between the parties as to any matter is effective for the purposes of Part II only if in writing. The requirement for agreements to be in writing reflects the importance of the rights created by the Act. Under Section 107(6) writing includes being recorded by any means. It is suggested that this includes electronic communications such as e-mail.

2  Agreement in Writing

Section 107(2) defines "agreement in writing" which is much wider than its usual ordinary meaning.

Section 107(2)(a) is straight forward and includes agreements which are made in writing. Significantly an agreement does not need to be signed by the parties.

Section 107(2)(b) refers to agreements made by exchange of communication in writing, which is intended to deal with contracts made by written offer and acceptance.

3  Evidenced in Writing

Section 107(2)(c) provides that an agreement is in writing if it is "evidenced in writing".

Section 107(4) extends the meaning of "evidenced in writing" to an agreement made otherwise than in writing, but recorded by one of the parties, or by a third party, with the authority of the parties to the agreement. It is suggested that this refers to oral agreements. Section 107(4) refers to an authority to record and it is not clear how this authority arises. It is suggested that the record should state why it is being recorded and if possible the agreement that it should be recorded by the author of the record. It probable that where the agreement is confirmed in writing by one of the parties, that will be sufficient. A record by a third party may include a person records of the minutes of a meeting, or an Adjudicator or Arbitrator during respective proceedings. It is not clear whether there is an agreement in writing if only the fact that there has been agreement is recorded.

Section 107(3) deals with agreements which are not in writing but refer to terms which are in writing. This appears to refer to oral agreements which incorporate written forms of agreement. This would also cover agreement by conduct, as when the offer is made in writing but acceptance is not by signing the acknowledgment form or by letter.

4  Exchange of Submissions

Section 107(5) states:-

"An exchange of written submissions in adjudication proceedings, or in arbitral or legal proceedings in which the existence of an agreement otherwise than in writing is alleged by one party against the other party and not denied by the other party in his response constitutes as between those parties an agreement in writing to the effect alleged."

This means that if the parties involved in an arbitration agree that they have an oral rather than a written contract, then it is a written agreement for the purpose of Part II of the Act. There will then be a right to adjudicate after legal proceedings have started. The words "to the effect alleged" are restrictive however.

Section 107(5) deals only with "written submissions" in the specified proceedings and therefore does not deal with (say) simple exchange of communications in which the issue is not denied. The other party must respond before this provision has effect.

PRACTICE NOTE 1

A formally executed contract document will not be necessary for the contract to be covered by the Act, any contract formed on the basis of exchange of documents in a recordable form or an authorised recorded agreement will fall within the scope of the Act.

5  Caselaw

There are three decided cases which deal with the requirement for agreements to be in writing, dealing with Section 107(5) in one case and Section 107(2)(c) in the other two cases. The attitude to oral contracts in the cases is entirely different, which it is suggested is due to the difference in emphasis in the two Sections to the identification of the terms of the Agreement.  A fourth case raises the interesting possibility that the Adjudicator may have jurisdiction on the grounds of estoppel by convention even in the absence of a contract.

In Grovedeck Limited v Capital Demolition Limited (24 February 2000) TCC it was held that Section 107(5) did not mean, if one party to an adjudication alleges the existence of an oral agreement and the other does not deny its existence, that there is then an agreement in writing "to the effect alleged", that is, in the terms alleged by the claimant, even though the other party denied the terms alleged.

The submissions made by a party to an unauthorised adjudication did not give the supposed adjudicator a jurisdiction which he did not have when he was appointed. Denial in Section 107(5) of the Act refers to the denial of the terms of the agreement. Disputes as to the terms, express or implied, of oral construction agreements were common and therefore not susceptible of resolution by a summary procedure such as adjudication. It is only when the room for dispute is removed by previous formal and binding legal submissions that the adjudicator has jurisdiction. The term "in adjudication proceedings" was intended to refer to other preceding adjudication proceedings.

In RJT Consulting Engineers Ltd v DM Engineering (NI) Ltd (2001) CTC the issue was whether under Section 107(2)(c) an oral agreement could be evidenced in writing by evidence which came into existence after the commencement, or even the completion, of the contract’s performance.  It was held that it was not necessary to have the terms identified and the extensive documentary evidence in this case was well sufficient to bring it within the adjudication proceedings. It was contrary to the Act to require a recitation of the terms of an agreement when the existence of the agreement, the parties to the agreement and the nature of the work and the price of the agreement were plainly to be found in documentary form. In a contract worth more than three-quarters of a million pounds it could not be held that simply because the initial agreement was oral, it was not caught by the Act.

In Millers Specialist Joinery Company Limited v Nobles Construction Limited (August 2001)TCC the agreement was an oral agreement confirmed by letter. In those circumstances the agreement appeared to fall within Section107(2)(c) since the letter "evidenced" or recorded what had been agreed. Nobles relied on Section 107(4) which provides that an agreement is evidenced in writing if an agreement made otherwise than in writing is recorded by one of the parties or by a third party with the authority of the parties to the agreement. Nobles submitted that there was no evidence that the author of the letter had ever been authorised by the parties to record in writing what had been agreed and that accordingly Section 107(4) had not been satisfied.

It was held that there was no evidence of the authority required for Section 107(4) to apply.

Section107(4) did not provide an exhaustive definition of what was meant in Section 107(2)(d) by the words "evidenced in writing". Section 107(4) was not expressed to be a definition setting out what was meant by the words "evidenced in writing". It merely stated that an agreement would be evidenced in writing when it has been recorded by a person with the authority of the parties. It did not state that this was the only way in which an agreement may be evidenced in writing.

The words "evidenced in writing" in Section 107(2)(c) were used in their ordinary sense as referring to a written document which set out or refer to the relevant terms of the agreement and Section 107(4) was not intended to restrict the application of Section 107(2)(c). Section 107(4), like Sections 107(3) and (5), was a provision which widened or extended the ambit of what was to be regarded as an agreement in writing for the purposes of Part II of the 1996 Act. Section 107(4) was directed to the situation where at or after a meeting it had been agreed that someone should prepare minutes of what had been agreed and the effect of the provision was to make clear that the minutes themselves were to be treated as written evidence of the agreement even if it could not be shown that the minutes had actually been assented to by all the parties.

In William Oakley v Airclear Environmental Limited (2001) the main issue was whether the Adjudicator’s decision created a debt due for the purposes of a statutory demand, which in turn depended upon the validity of the Adjudicator’s decision. The judgment examines the operation of estoppel by convention founding the jurisdiction of an Adjudicator in the absence of a contract.

Airclear was the named subcontractor under a Intermediate Form of Building Contract 1991 Edition in which Oakley was the main contractor. As is common in the construction industry, the parties did not complete the required documents in particular NAM/T which incorporated NAM/SC. Work continued and Oakley made stage payments of various “remittance advices” with deductions for “retention”, “discount” and “contra-charges”.

Disputes arose. In subsequent communications and applications to resolve the disputes, the parties took changing positions on the issue whether or not there was a contract between them. Oakley applied for the appointment of an arbitrator and Airclear objected to his jurisdiction. Airclear applied for the appointment of an Adjudicator and Oakley objected to his jurisdiction. The adjudication proceeded but Oakley played no part following its objection.

The adjudicator gave a written adjudication decision, determined that he had jurisdiction, and that the monies deducted as set-off and discount by Oakley should be released to Airclear. Oakley did not pay pursuant to the adjudicator's decision. Airclear served a statutory demands on Oakley pursuant to the Insolvency Act 1986, section 268(1) (a), and the Insolvency Rules 1986, rule 6. By a notice of application Oakley applied to set aside the statutory demands.

In the Cardiff County Court, His Honour Judge Chambers QC refused to set aside the statutory demands. Oakley appealed. Mr Justice Etherton heard the appeal in the High Court of Justice Chancery Division. Judgment was made on 4^th October 2001.

It was held that Parliament has provided, by sections 107 and 108 of the 1995 Act, that only certain contracts will carry with them the right to the adjudication process. If a contract does not fall within those provisions, then the adjudication process, however desirable either generally or on the facts of a particular case, simply does not apply. It was held in the present case the learned County Court Judge rightly came to the conclusion that there was no formal written contract made by the parties which fell within the provisions of sections 107 and 108 of the 1996 Act.

The next issue was whether the parties were bound by estoppel by convention which would validate the Adjudicator’s decision. Airclear and Oakley had changed their position as to the existence of a contract in accordance with changing perceptions of what would be tactically advantageous. The learned County Court Judge held, that, by virtue of their conduct and common assumptions, Oakley were bound by an estoppel by convention from denying that there was a subcontract in the NAM/T form, incorporating NAM/SC and, in particular, their dispute resolution provisions. It was held that the learned County Court Judge was entitled to find, on the facts, that, at the time of the application for the appointment of the adjudicator by the Airclear, there was a common assumption by the Airclear and Oakley that their contractual relations were governed by NAM/T and NAM/SC, including, in particular, their dispute resolution provisions. The learned Judge plainly had material on which he could properly come to the conclusion of a common assumption, sufficient to found an estoppel by convention, that, at the time of the application for the appointment of the adjudicator, the provisions of NAM/T and NAM/SC were binding on the parties.

The learned County Court Judge also held that in its objection to the jurisdiction of the adjudicator, which was copied to Airclear, Oakley resiled from that common assumption, but that it was too late for them to do so. Mr Justice Etherton on appeal did not accept this part of the first instance decision.

It was held that estoppel by convention binds the parties if and to the extent only that asserting the true legal or factual position would be unconscionable in view of the detriment that would be suffered by the other party as a result of resiling from the common assumption. In the present case Oakley sought to resile from the common assumption as to the NAM/T contract at the earliest possible stage of the adjudication process. The evidence did not establish what was the detriment suffered by Airclear that rendered it unconscionable for Oakley to withdraw from the common but incorrect assumption at that time.

Accordingly, it was held that the Adjudicator was not validly appointed and that his decision was a nullity and the appeal was allowed.

PRACTICE NOTE 2

It is suggested that the proper interpretation of the Act is that it is intended to apply to oral agreements but only if there is evidence in writing of the agreement. The evidence required is not clear.

It is suggested that under Section 107(2)(c) there must be sufficient written evidence to demonstrate an enforceable contract. Communications during performance and even after completion may be sufficient. It is not necessary that all the terms of the contract are evidenced in writing, but only sufficient to demonstrate an enforceable contract.

Alternatively the evidence may be obtained in legal proceedings such as litigation, arbitration or adjudication. In that case the agreement can be enforced in a subsequent adjudication but only to the extent that the terms are not denied in a response in the legal proceedings or the terms are recorded by the Court or Arbitrator or adjudicator within his jurisdiction.

If an adjudication is commenced on an oral agreement then without the above evidence the Adjudicator does not have jurisdiction unless the parties agree to his jurisdiction, in which case the adjudication will then be a consensual and not statutory adjudication.

It is common for parties in the construction industry to act on the mistaken basis that there is a contract between them.  If objection is not taken early enough a party may be prevented from resiling from the common assumption.