Widening the Ambit of the 1996 Act

© Daniel Atkinson 2002 13 January 2002  First Published in Building 5th February 2002

It is a common in the construction industry for work to be carried out without a formal contract. In many cases there is no contract at all, but the parties act as though there is. A large body of caselaw has developed establishing the principles for deciding whether or not there is a contract. Much is not easy for the parties to apply to everday situations. This is one area where a rapid means of dispute resolution such as adjudication under the Housing Grants Construction and Regeneration Act 1996 would assist. Unfortunately Section 107 of the 1996 Act severely restricts the application of adjudication. Agreements must be in writing. Although the requirement is given a wide meaning in the 1996 Act, many arrangements where the parties mistakenly act as if they have a contract are not caught by the Act.

The Courts have taken a robust approach to the interpretation of Section 107 straining its meaning. In cases such as RJT Consulting Engineers Ltd v DM Engineering (NI) Ltd (2001) and Millers Specialist Joinery Company Limited v Nobles Construction Limited (2001) the courts have recognised the absurdity of too literal an approach to the requirement for writing. If the parties only have an oral agreement but there is significant written documentation in the administration of the contract, the courts accept that the contract is evidenced in writing and caught by the 1996 Act.

When the Courts strain against the effect of legislation, it is clear that amendment is necessary. The 1996 Act should be revised to apply to the common arrangement in the construction industry and assist parties to reduce the cost of dispute resolution. This will remove the need for the present development of complicated and unnecessary jurisprudence on the jurisdiction of the adjudicator to decide disputes, when the existence of a contract in writing is in doubt.

Until then, the Courts will continue to find a practical way forward albeit based on complicated legal concepts. The most recent development, and possibly the most wide ranging in effect, is to be found in the decision of Mr Justice Etherton QC in William Oakley v Airclear Environmental Limited (2001) in the Chancery Division of the High Court of Justice.

As is common in the construction industry, the parties did not complete the required documents. 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. Adjudication was commenced and a decision given, although Oakley played no part following its objection to jurisdiction.

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 interesting aspect of the case was the examination of the principle that estoppel by convention may found the jurisdiction of an Adjudicator in the absence of a contract.

Estoppel by convention is a doctrine which operates when both parties act on a common but mistaken assumption of fact or law. If the parties regulate their dealings on the basis of the assumption, then they will prevented from denying the assumption if it would be unjust for them to do so. In this case the common assumption was that there was a contract between the parties and that the parties had a right to refer disputes under the contract to adjudication.

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 unjust in view of the detriment that would be suffered by the other party as a result of rejecting the common assumption.

In the present case, Oakley had denied the jurisdiction of the adjudicator at the earliest opportunity, rejecting the existence of a contract between the parties. There was no evidence to establish the detriment suffered by Airclear. At the stage of the adjudication proceedings when objection was taken it was found that it was unlikely that Airclear had expended substantial sums. Accordingly, it was held that it was not unjust for Oakley to be allowed to reject the assumption both parties had previously made, that adjudication could be used to resolve disputes. It was held that the Adjudicator was not validly appointed and that his decision was a nullity.

Although not successful in this case, the principle implicit in the decision widens the application of adjudication to those common situations where both parties regulate their behaviour as if they were in contract, even if they are not. A party may not be able to successfully object to adjudication, even without a contract, if the other party has expended substantial sums on the common basis that adjudication is available. In the above judgment no evidence was given that substantial sums had been expended at the commencement of the adjudication when the objection was taken. In most situations a party will have prepared its case before commencing adjudication and any objection will be too late if evidence of that expenditure is available.