HGCR Act 1996
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KEYWORDS: |
Housing Grants Construction and Regeneration Act 1996, letter of intent, writing, Section 107, lien on decision, impartiality, adjudicators fees, Thornton J. |
In Mott MacDonald Ltd v London & Regional Properties Ltd [2007] EWHC1055(TCC) HH Thornton J gives an interesting and helpful analysis of the nature of letters of intent in the context of the requirement for contracts to be in writing under the Housing Grants Construction and Regeneration Act 1996.
Thornton J also repeated the often stated requirement for a Scheme adjudicator to issue his decision promptly.
Mott MacDonald is an engineering multidisciplinary consultancy and provided services to LRP in the development of First Central Park in London between December 1997 and February 2006.
On 28 September 1999 a letter of intent was issued to Mott MacDonald which stated that it was the confirmation of LRP’s instruction to commence and proceed with the Works pending final agreement and execution of the Contract. Payment for work done was to be on a quantum meruit basis. If and when a Contract was executed, its terms and conditions would supersede the letter and govern retrospectively all work carried out. The authority of the letter expired on 31 December 1999 or any later notified date. Discussions continued and services were carried out after the expiry of authorisation which was subsequently extended to 31 October 2000 although services were carried out after that date. No agreement was reached on the terms of the consultancy agreement.
From May 2000, Mott MacDonald was paid in accordance with a draft fee schedule which differed from the quantum meruit basis in the letter of intent.
A dispute arose as to the non-payment of invoiced fees of £62,767.52 ex VAT for the period January 2003 until February 2006. No proper withholding notices had been served so that the dispute was whether Mott MacDonald had a contractual entitlement to claim fees.
In October 2006 Mott MacDonald sought appointment of an adjudicator who was duly appointed. LRP challenged jurisdiction, but the adjudicator proceeded and decided in favour of Mott MacDonald. The matter came before Thornton J for summary enforcement of the decision.
Thornton J found that Mott MacDonald's claim in the adjudication was for payment for design services carried out under the letter of intent. The payment claimed was for work carried out long after 31 October 2000 when the letter of intent’s validity had expired on its written terms. The full extent of the services to be carried out had all only been finalised long after 31 October 2000. It was therefore necessary to consider the nature of the letter of intent.
Thornton J observed that in a construction context, the phrase "letter of intent" covered an offer that if the other party undertook work pending the finalisation of a formal contract, payment would be made for the work to be carried out. The letter usually provided that the work to be carried out and the terms on which that work was to be carried out were to mirror as closely as possible the terms of the intended formal contract once it had been entered into. Once that occurred, the contract created or evidenced by the letter of intent was subsumed into that formal contract.
The clear intention of the parties was usually that the life of the letter would be short lived and that the formal contract will follow soon afterwards. The letter of intent was usually accepted by the conduct of starting work.
If the work scope had not been fully agreed before the letter of intent took effect and was the subject of continuing discussion and changes, the work to be performed under the letter of intent would change as the continuing discussion and negotiations unfolded. Otherwise, there was a difficulty when the finalised contract was entered into and subsumed and superseded the letter of intent.
In this case, work proceeded under the letter of intent for several years and the scope of work envisaged by its original terms changed very significantly during that period. The contractual relationship created by the original letter of intent also changed with separate phases of the relationship of the original authorised period, extension of the period and work outside any extension of the authorisation.
Thornton J considered that given that the letter of intent was a short lived contract whose terms were intended to mirror the contact when finally executed, the most obvious analysis of the contractual relationship was that each extension of the validity of the letter of intent brought into being a new contract. Alternatively, the contract was treated by the parties as a rolling contract whose terms were constantly changing as the work scope and other contract terms were amended in discussion and by agreement.
In order to ascertain what the obligations of Mott MacDonald were at any one time, it was necessary to determine what the precise scope of work and the precise conditions under which that work was to be performed were at the time in question since these were subject to continuous organic development and change.
It was argued that the claim could not arise under a contract in writing since the contractual term extending the letter of intent’s validity period and the agreement providing for a waiver that that extension should be notified in writing, were not contained in the agreement in writing contended by Mott MacDonald but were instead agreed orally or were to be inferred by the parties’ conduct.
Thornton J agreed. He held that the letter of intent documentation was not an agreement that was evidenced in writing. Many of the core terms of the agreement were inferred by conduct or were evidenced in documents which Mott MacDonald did not rely on as evidence of the terms of its consultancy appointment. In particular, both the alleged waiver and the extension agreement were to be inferred from conduct and were not evidenced in writing. Equally, no documents evidencing the finally agreed work scope or payment schedules were placed in evidence by Mott MacDonald in the adjudication or in the enforcement proceedings. Accordingly the requirements of section 107(2) of the HGCR Act 1996 had not complied with so that although there was a construction contract in place, it was not one which allowed for a statutory adjudication.
In view of Thornton J's decision it was not necessary to deal with the next point, but he did so shortly. It was found that the adjudicator had made his decision but put off signing and issuing his decision until he had received confirmation of payment by the Referring Party.
Thornton J held that the adjudicator's decision must be delivered to the parties as soon a possible after he has reached his decision by rule 19(3) of the Scheme. The adjudicator may not impose a lien on his decision or reasons and not deliver it pending the payment of his fees because he would restricting himself from complying with that obligation.
In addition, the adjudicator would appear to lack impartiality in making it a condition of his appointment that his fees would first have to be paid by the Referring Party before he delivered his decision to the parties and by then appearing to enforce that pre-condition. An adjudicator appointment under a construction contract to which Part II of the HGCR Act 1996 was applicable, particularly where the agreement did not contain an overriding contractual adjudication clause was not consensual in the same way as an arbitrator’s appointment was consensual. He had a quasi-judicial function since he was imposed unilaterally by the state onto one of the parties to reach a binding, albeit temporary, decision about their dispute.
The adjudicator may not, therefore, be or appear to be financially beholden to one party, particularly the referring party, or place himself in the position in which he might appear to be more partial to one side than the other. The imposition of a lien on his decision which had to be lifted by the Referring Party in order to obtain his decision gave an appearance of partiality and amounted to a breach of rule 12(a) of the Scheme.
Thornton J referred to the line of authority on this issue that a decision that is not delivered promptly by the most rapid available means of delivery is invalid.
Thornton J set out the following principles based on the above authorities
The judgment of Thornton J provides a useful analysis of letters of intent in the context of adjudication. It will usually not be enough to refer to the letter of intent as an agreement in writing, particularly if the workscope and payment terms have continued to be developed. In that case it will be necessary to put in evidence correspondence confirming the agreed changes to the terms of the letter of intent or to point to a variation clause in the letter of intent itself.
The case is another in a line of authorities which limits the matters that can be referred to adjudication. There does not seem to be any logical reason for such a restriction other than of course that Parliament has so decided. This part of the legislation should be reviewed since it has served its purpose; adjudication as a means of rapid provisional dispute resolution has proved capable of handling such issues.
As to the adjudicator's fees it is now clear, if it was not before, that an adjudicator must issue his decision promptly if he is to act judicially without any pre-conditions for payment of his fees.