The Act requires written terms

The Construction Act says qualifying contracts must be in writing - but what does that mean? The answer is not as straightforward as it might appear, writes Daniel Atkinson.

DESPITE the effectiveness of the 1996 Construction Act, we must remember it does not apply to every contract.

Part II of the Act is limited to particular types of agreement and operations, and Section 107 provides one restriction generating considerable case law.

Section 107 requires an agreement to 'be in writing' if the Act is to apply.

Judge MacKay considered the extent of the meaning of this phrase last year in the case of RJT Consulting Engineers v DM Engineering (Northern Ireland). He took it to have a wide meaning, consistent with the trend in recent court decisions of widening the ambit of the Act.

Now the Court of Appeal has considered the extent of this phrase in the same case, as RJT appealed against Judge MacKay's decision on the grounds that the adjudicator in the dispute did not have jurisdiction.

The background of the case was that RJT and DM had an oral contract for work relating to "construction operations", as defined in Section 105 of the Act. This was common ground and not disputed by either party. But RJT submitted that the whole agreement had to be evidenced in writing if the contract was to be caught by the Act and the adjudicator was to have any jurisdiction.

Not surprisingly, DM took the opposite view, arguing it was sufficient to provide evidence in writing of the existence of a contract, or evidence in writing of the identities of the parties, the consideration and the nature of the work.

To support its argument, DM relied on a judgment of Judge Thornton in the case of RG Carter v Edmund Nuttall.

In interpreting Section 108(1) of the Act, dealing with the right to refer a dispute to adjudication, Judge Thornton had taken the view that the Act was intended to be wide in its reach and extensive in its effect.

In the Court of Appeal, Lord Justice Ward heard DM's argument and observed that Judge Thornton had properly held that an adjudicator with jurisdiction should decide whether or not a particular term had been incorporated into the contract. He recognised that the adjudication system would be emasculated if a party were able to deprive the adjudicator of his powers simply by putting up an argument that some term was or was not incorporated into an agreement otherwise accepted to be in writing.

But just because Section 108 was to be given a wide interpretation, the same did not apply to Section 107, which served a different purpose. According to Section 107(1), the need for an agreement in writing is a precondition for the application of the other parts of the Act.

After examining the subsections of Section 107, Lord Justice Ward decided that, with the exception of Section 107(5), Section 107 provided that all the terms of the agreement had to be in writing. Specifically, Section 107(4) says that what has to be evidenced in writing is all the agreement, not just part of it. The written record of the agreement provided certainty. This agreed with observations by Judge Bowsher (in the case of Grovedeck v Capital Demolition) that Parliament did not intend disputes about terms of oral construction agreements to be decided by a summary procedure such as adjudication.

The exception of Section 107(5) arose when the material or relevant parts of the alleged oral contract were not denied in the written submissions in the adjudication proceedings. Crucially, Lord Justice Ward held that Section 107(5) could not so dominate the interpretation of Section 107 as a whole so as to limit what needed to be evidenced in writing simply to the material terms raised in the adjudication.

Having decided the proper interpretation of Section 107(4), Lord Justice Ward then turned to the facts of the case and held that the documents relied upon were not in any event sufficient to evidence the substance of the agreement.

There was evidence of the existence of a contract, some evidence of the consideration and some indication that the nature of the work was design and advisory. But there was insufficient evidence of the terms of the contract on which DM relied in the adjudication.

Accordingly, Lord Justice Ward held that the adjudicator did not have jurisdiction. His fellow judge, Lord Justice Walker, also allowed the appeal on the same grounds and agreed with his interpretation of Section 107.

The third Appeal Court judge, Lord Justice Auld, also allowed the appeal, but with a different emphasis on the extent of the terms required to be in writing.

He gave more emphasis to Section 107(5) in the interpretation of the other subsections. Of primary importance for him was that those terms of the agreement relevant to the issues in dispute should be clearly recorded in writing, but not every term unrelated to those issues. He found that Section 107(5) was an illustration of the draftsman's intention not to shut out a reference simply because the written record of an agreement is in some immaterial way incomplete. He said it would make no sense to confine that sensible outcome to the written form of agreement provided by Section 107(5) while excluding it in the other subsections of 107.

The decision of all three judges was that the adjudicator did not have jurisdiction as there was insufficient evidence in writing of the terms of the oral agreement. The majority decided that all the terms of the contract must be in writing.

While this part of the judgment may be considered not to be central, the interpretation of Section 107 was carefully considered and will be followed by the lower courts and adjudicators faced with objections to jurisdiction.

Lord Justice Auld's reasoning is to be preferred in my view. He recognised that the approach in Section 107(5) pointed the direction intended by Parliament. If the terms relevant to the matter referred to adjudication are evidenced in writing, the adjudicator will not be faced with the perceived difficulties of establishing the terms of oral contracts.

Key points

Section 107(1) of the Construction Act makes an 'agreement in writing' a precondition for the application of the other parts of the Act.

Section 107(4) says what has to be evidenced in writing is the whole agreement, not just part.

Section 107(5) provides an exception to the 'in writing' rule, and illustrates the draftsman's intention not to shut out a reference simply because the written record of an agreement is in some immaterial way incomplete.