Adjudication
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KEYWORDS: |
Housing Grants Construction and Regeneration Act 1996, Section 107, Section 107(4), Court of Appeal, agreement, writing, evidenced in writing, jurisdiction. |
The application of Part II of the Housing Grants Construction and Regeneration Act 1996 is limited to particular types of agreement and to particular construction operations. One restriction under Section 107 is that an agreement should be in writing. The term "agreement in writing" has an extended meaning and includes agreements evidenced in writing at Section 107(4) . The meaning of "evidenced in writing" was considered by His Honour Judge MacKay in RJT Consulting Engineers Ltd -v- DM Engineering (Northern Ireland) Ltd (2001) and given a wide meaning (see the article Widening the Act). RJT Consulting Engineers Ltd ("RJT") appealed that decision. The Court of Appeal has given a comprehensive decision on the meaning of Section 107 and particularly Section 107(4). The leading judgment is by Lord Justice Ward, but it is suggested uncertainties still remain.
RJT was a practice of consulting engineers. It was retained by the Holiday Inn, Liverpool, to provide the outline design for mechanical and electrical work which was to be undertaken as part of the refurbishment of the hotel. The main contract was given to David Patton (Ballymena )Ltd. and they engaged DM Engineering (N.I.) Ltd. ("DM") as the mechanical and electrical sub-contractor.
It was not in dispute that in about April 2000 Mr. James Bennett acting for DM asked Mr. Raymond Tooth acting for RJT if RJT would complete the design of some of the works the sub-contractor had agreed to perform. Mr. Tooth agreed that RJT would complete that detailed design for £12,000.
A dispute then arose between the parties which DM referred to an adjudicator to resolve.
RJT challenged the right to seek adjudication denying that the agreement was in writing and within Part II of the Act. The adjudicator, Mr. Allan Wood, decided that the agreement was sufficiently evidenced by the drawing schedules and by a letter of 31 January 2001, and he proposed to proceed to make a decision.
RJT sought a declaration in the Technology and Construction Court in Liverpool that the construction contract made orally between the parties in or about April 2000 was not an agreement in writing for the purposes of section 107 of the Housing Grants, Construction and Regeneration Act 1996.
On 9 May 2001, His Hon. Judge MacKay sitting as a deputy judge of the High Court dismissed that application but gave permission to appeal.
There was no dispute that the contract was a construction contract and that the work related to "construction operations" as defined in Section 105.
RJT submitted that the judge confused documents consistent with there being a contract and documents which constituted a record of the entirety of the oral agreement. RJT submitted that the whole agreement had to be evidenced in writing in order to provide the certainty which would enable the adjudicator to move swiftly to a decision within the short timetable provided by the Act.
DM contended that all that was necessary was that there be evidence in writing of the existence of a contract alternatively that no more than the identities of the parties, the consideration and the nature of the work needed be evidenced in writing. DM submitted that the purpose of the Act was to spread the benefits of the various rights conferred by Part II as widely possible. DM relied on a judgment of His Hon. Judge Thornton Q.C. in a decision of 21st June 2000 in the Technology and Construction Court in R.G. Carter Ltd. v Edmund Nuttall Ltd. There the judge said:
, means of resolving disputes holding up payment within the construction industry at each tier of the often lengthy construction chain. In those circumstances it is to be expected that the width and ambit of this statutory structure would be extensive. I therefore approach the question of construction of section 108(1) from the standpoint that it is both part of the background to the Act and the apparent working of the Act itself that it is wide in its ambit and extensive in its effect.""This statutory scheme, which is unprecedented and novel in this country .. was intended, as is well known, to provide for the first time parties with a rapid, albeit interim, but binding
Lord Justice Ward dealt first with Judge Thornton’s views in RG Carter. He found from the judgment that it was common ground that the parties accepted that there was in existence a construction contract, contained in a letter which accepted the tender set out in the schedule of documents which accompanied the tender. Consequently the issue was not directed to the construction of section 107 of the Act but to the construction of section 108(1) of the Act dealing with the right to refer a dispute arising under the contract for adjudication. Once jurisdiction to refer the matter to adjudication was established, Judge Thornton had properly held that it was proper within that adjudication to decide whether of not a particular term had been incorporated into the contract. Lord Justice Ward considered that the scheme would be emasculated if a party were able to deprive the adjudicator of his power to decide, simply by putting up an argument that some term was or was not incorporated into an agreement otherwise accepted to be in writing. However, Lord Justice Ward considered that giving a wide construction to Section 108 begged the question whether a wide construction should be given to the jurisdictional threshold established in Section 107, since Section 107 may in fact serve another purpose.
Lord Justice Ward then examined Section 107. He noted that Section 107(1) limited the application of the Act to construction contracts which were in writing or to other agreements which are effective for the purposes of that part of the Act only if in writing. He held that this must be seen against the background which led to the introduction of the Act. In its origin it was an attempt to force the industry to submit to a standard form of contract. That did not succeed but writing was still important because it provided certainty. Certainty was all the more important when adjudication had to take place under a demanding timetable. The adjudicator had to start with some certainty as to what the terms of the contract were.
Section 107(2) gives three categories where the agreement is to be treated in writing. The first is where the agreement, whether or not it is signed by the parties, is made in writing. Lord Justice Ward observed that must mean where the agreement is contained in a written document which stands as a record of the agreement and all that was contained in the agreement. The second category, an exchange of communications in writing, likewise is capable of containing all that need to be known about the agreement. Lord Justice Ward held that by what used to be known as the eisusdem generis rule that the third category will be to the same effect namely that the evidence in writing is evidence of the whole agreement.
Lord Justice Ward noted that Section 107(3) is consistent with that view. Where the parties agree by reference to terms which are in writing, the legislature was envisaging that all of the material terms are in writing and that the oral agreement refers to that written record.
Section 107(4) allows an agreement to be evidenced in writing if the agreement is recorded by one of the parties or by a third party with the authority of the parties to the agreement. Lord Justice Ward observed that what was contemplated is a record (which by sub-section (6) can be in writing or a record by any means) of everything which has been said. Again it is a record of the whole agreement.
Section 107(5) is a specific provision. Where there has been an exchange of written submissions in the adjudication proceedings in which the existence of an agreement otherwise that in writing is alleged by one party and not denied by the other, then that exchange constitutes "an agreement in writing to the effect alleged". The last few words were considered important. The exchange constitutes an agreement in writing which does no more than evidence the existence of the agreement. It also evidences the effect of the agreement alleged, and that must mean such terms which it may be material to allege for the purpose of that particular adjudication. Lord Justice Ward stated that it was not necessary for him to form a view about Grovedeck Ltd. v Capital Demolition Ltd. Dealing with Section 107(5) His Hon. Judge Bowsher Q.C. said in that case:
such as adjudication. It is not surprising that Parliament should have intended that such disputes should not be determined by adjudicators under the Act,..""Disputes as to the terms, expressed and implied, of oral construction agreements are surprisingly common and are not readily susceptible of resolution by a summary procedure
Nonetheless, Lord Justice Ward stated that he agreed with the statement by Judge Bowsher why a record in writing was essential. The written record of the agreement is the foundation from which a dispute may spring and the least the adjudication has to be certain about is the terms of the agreement which gives rise to the dispute.
Lord Justice Ward then turned to the first instance decision in the case before him. He held that Judge MacKay was wrong to conclude as a matter of law that it was sufficient to give the jurisdiction for adjudication that there was evidence in writing capable of supporting merely the existence of the agreement, or its substance, being the parties to it, the nature of the work and the price.
Even if that were all that was required, Lord Justice Ward held that the documents relied on in this case were wholly insufficient . There were fee notes "for fees expended to date in connection with the Mechanical and Electrical Services on the .. project". Letters from the main contractor to DM referred to the fact that DM "engaged RJT Consulting to advise you on performance of your tender" but there was nothing to indicate what advice was to be given. On 31st January 2001 DM wrote to RJT saying "As RJT Consulting Engineers have designed this project for DM Engineering (N.I.) Ltd., can you provide us with your professional indemnity insurance.." There were drawing schedules prepared by RJT identifying the client as "D & M Eng(N.I ) Ltd." There were minutes of mechanical and engineering design meetings stating "RJT/DM Eng to review this along with the construction programme and confirm their proposals for drawing production, approval, fabrication and commencement on site in each area" There were other minutes referring to the parties connections with each other. All of this was evidence of the existence of the contract, some evidence of the consideration and some indication that the nature of the work was design and advisory. But it was not evidence of the terms of the oral agreement that was made between the two gentlemen back in April 2000. It was held that it was certainly not evidence of the terms of the contract on which DM relied in the adjudication. For that reason Lord Justice Ward allowed the appeal.
Lord Justice Ward decided that on the point of construction of Section 107, what has to be evidenced in writing is, literally, the agreement, which means all of it, not part of it. A record of the agreement also suggests a complete agreement, not a partial one. The only exception to the generality of that construction is the instance falling within Section 107(5) where the material or relevant parts alleged and not denied in the written submissions in the adjudication proceedings are sufficient. Section 107(5) could not so dominate the interpretation of the section as a whole so as to limit what needed to be evidenced in writing simply to the material terms raised in the arbitration. By virtue of Section 107(1) the need for an agreement in writing is the precondition for the application of the other provisions of Part II of the Act, not just the jurisdictional threshold for a reference to adjudication. Lord Justice Ward considered it would be a pity if too much "jurisdictional wrangling" were to limit the opportunities for expeditious adjudication having an interim effect only. He hoped that adjudicators would be robust in excluding the trivial from the ambit of the agreement and the matter should be entrusted to their common sense. In this case there was a comparatively simple oral agreement about the terms of which there may be very little, if any, dispute. For RJT to take a point objecting to adjudication in those circumstances may be open to the criticism that they were taking a technical point but as it was one open to them and it was good, they could not be faulted. Lord Justice Ward held that RJT was entitled to the declaration which it sought and the appeal was allowed and the relief granted.
Lord Justice Robert Walker agreed for the reasons set out in the judgment of Ward L.J. He decided that it is the terms, and not merely the existence, of a construction contract which must evidenced in writing. The judge aimed at a purposive approach but he did not correctly identify the purpose of section 107. No doubt the general purpose of Part II of the 1996 Act is to facilitate and encourage the process of adjudication. But it is intended to be a swift and summary process, as is apparent from the time limits in section 108(2). Parliament evidently decided (as Judge Bowsher noted in the passage cited by Ward L.J.) that it was inappropriate for an adjudicator to have a deal with the disputes which often arise as to the terms of an oral contract.
Lord Justice Auld agreed to allow 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 sub-sections of 107. He decided that although clarity of agreement is a necessary adjunct of a statutory scheme for speedy interim adjudication, comprehensiveness for its own sake may not be. What is important is that the terms of the agreement material to the issue or issues giving rise to the reference should be clearly recorded in writing, not that every term, however trivial or unrelated to those issues, should be expressly recorded or incorporated by reference. For example, it would be absurd if a prolongation issue arising out of a written contract were to be denied a reference to adjudication for want of sufficient written specification or scheduling of matters wholly unrelated to the stage or nature of the work giving rise to the reference.
There may be cases in which there could be a dispute as to whether all the terms of the agreement material to the issues in the sought reference are in writing as required by Section 107 and it could defeat the purpose of the Act to clog the adjudicative process with jurisdictional wrangling on that account. However, there will be many cases where there can be no sensible challenge to the adequacy of the documentation of the contractual terms bearing on the issue for adjudication, or as to the ready implication of terms common in construction contracts.
He held that Section 107(5) is 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. It provides that an exchange of written submissions in proceedings in which the existence of an agreement otherwise than in writing is alleged by one party and not denied by the other constitutes an agreement in writing "to the effect alleged". If the effect of the agreement so alleged contains all the terms material to the issue for adjudication, that procedure is available notwithstanding that the agreement contains other terms not in writing which are immaterial to the issue. He agreed with the observation of Ward L.J. that the exchange constitutes an agreement in such terms as it may be material to allege for the purpose of the particular adjudication. He decided it would make no sense to confine that sensible outcome to the written form of agreement provided by section 107(5) whilst excluding it in the other forms for which the section provides.
The decision of all three judges was that the adjudicator did not have jurisdiction because 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. Although this part of the judgment may be considered not to be central to the decision, the interpretation of Section 107 was carefully considered and therefore will be followed by the lower courts and certainly adjudicators faced with objections to jurisdiction. The reasoning of Auld L.J. 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, then the Adjudicator will not be faced with the perceived difficulties of establishing the terms of oral contracts. That interpretation removes the difficulties envisaged by Parliament whilst still allowing the substantive dispute to be resolved quickly and efficiently. The interpretation by the majority of the Court of Appeal will only increase disputes on jurisdiction.