In Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2002]
Judge Bowsher considered two issues. The first issue was whether
Section 107 of the 1996 Act and particularly Sections 107(2)(c) and 107 (3)
and the requirement for contracts to be in writing, limited the jurisdiction of
an adjudicator to consider a contract varied by oral agreement. He
distinguished variations under a contract from radical/fundamental changes to the
contract. The second issue was the meaning of "dispute" in
adjudication. Judge Bowsher based his decision on arbitration cases.
Background
Devonport owned and occupied Devonport Royal Dockyard. In 1997 the
Ministry of Defence engaged Devonport, effectively as a main contractor, to
upgrade the dockyard.
Devonport retained Carillion as subcontractor to
upgrade No. 9 dock and provide new buildings with associated infrastructure.
The contract was contained in two documents, a form of Sub-Contract
Agreement and an Alliance Agreement, both dated the 10th March 1999 with
a target cost payment mechanism and a "Gainshare" arrangement..
Carillion proceeded with their work, but the cost went substantially
above the Target Cost and the Target Cost was amended six times between September 2000 and
December 2001 up to 100 million.
A meeting of the Alliance Board took place on the 30th October 2001 to
revise the payment mechanism. Carillion stated that at that meeting there
was a binding oral agreement changing the payment mechanism to cost
reimbursable without the "Gainshare". The parties
could not agree on the fee but did agree to leave it to the Star Chamber, to
which differences were to be brought. The Star Chamber did not agree on the
level of fee to be allowed and it was never agreed.
After the alleged oral agreement Carillion submitted its Application No.
33 on the 16th April 2002 to Devonport in
respect of Costs and Fee following achievement of Milestone 33 of
121,522,511.29.
Devonport questioned the application and no payment was made, although on
earlier applications Devonport had paid 110 million.
Carillion gave notice of adjudication on the 6th August 2002 seeking the
sum outstanding on Application No. 33.
The adjudicator was appointed on the 12th August 2002. The adjudicator
issued his decision on the 24th September 2002 deciding that
- a binding
agreement was concluded on the 30th October 2001, that the project would
become cost reimbursable;
- Devonport should pay 7,451,320, plus VAT, within
18 days;
- Devonport should pay the Adjudicator's fees.
The Adjudicators decision was not honoured.
The Issues
Carillion applied for summary judgment before Judge Bowsher in the amount awarded by the
Adjudicator. Devonport applied for summary judgment on their counterclaim
and for declarations that
-
no relevant construction contract was concluded between the parties
within the meaning of and for the purposes of Sections 107 and 108 of the
Act;
-
no relevant or adjudicable dispute was in existence between the
parties at the date of the Notice of Adjudication;
-
the provisions of
the Act 1996 and the Scheme were not
applicable to the Primary Claim made by Carillion.
The agreement between the parties contained no provision for adjudication,
and so if there was any provision for adjudication it was under the Scheme.
Devonport submitted
that the Adjudicator did not have power to decide his own jurisdiction and
the question whether there was an oral agreement was a step in deciding his
jurisdiction, though not decisive. Devonport contended that the
Adjudicator's decision was not
binding because the adjudicator had no jurisdiction to make it.
There were therefore two issues to be decided by Judge Bowsher
- The Alleged Oral Agreement:
- whether an oral agreement that varied the
term of a written construction contract was required to be made or
evidenced in writing, to give a statutorily appointed adjudicator
jurisdiction to determine any dispute relative to that oral agreement,
including the existence of such an agreement and any claim said to arise
pursuant to that oral agreement.
- whether the
alleged oral agreement was made or evidenced in writing, irrespective of
whether an oral agreement was in fact concluded between the parties.
- The Existence of a Dispute - whether a relevant or
adjudicable dispute in relation to the claim sought to be enforced had
arisen by the 6th August 2002, the date of Carillion's notice of
adjudication..
Issue 1 - the Alleged Oral Agreement
The dispute about the meeting of the 30th October 2001 was that
- Carillion stated that it was agreed that their costs would be reimbursable
with the issue of the fee to be referred to the Star Chamber, and
- Devonport stated that it was agreed that cost reimbursable would be recommended to the
Star Chamber, leaving it to the Star Chamber to decide.
Judge Bowsher found that the documents to which he had been referred:
- evidenced the
fact that there was a discussion whether the contract should become cost
reimbursable and about the fee;
- did not evidence that there was an oral
contract made in any terms because the documents were conflicting, so the
documents did not even indicate the existence of an unconditional contract;
- did not evidence any agreement as to the definition of "cost
reimbursable";
- did not evidence any agreement about the fee.
Judge Bowsher observed that by Section 107, for the purposes of the relevant part of the Act a construction agreement
must be in writing.
In order to decide the issue, Judge Bowsher assumed that there were an oral
agreement to the effect found by the adjudicator, and asked would it be, within the
meaning of the Act, an agreement in writing? He observed that Section 107
provided that an
oral agreement may be treated as an agreement in writing
- if the
agreement is evidenced in writing (s.107(2)(c)); or
- where parties agree
otherwise than in writing by reference to terms that are in writing, they
make an agreement in writing (s.107(3)).
Judge Bowsher held that the judgment by the Court of Appeal in RJT Consulting v.
D.M.
Engineering [2002] BLR 217 was authority for the following propositions:
- a contract is not evidenced in writing merely
because there are documents which indicate the existence of a contract; per
Ward and Walker L.J.J.
- all the terms of the oral agreement must be evidenced in
writing; per
Ward and Walker L.J.J.
- the material terms of the agreement must be evidenced in
writing; per Auld L.J.J.
Judge Bowsher observed that the judgment of Auld L.J. differred in terms from the judgments of
Ward and Walker L.J.J., but it was unnecessary to consider whether Auld L.J. was actually differing from his
brother judges or merely explaining and elaborating on what they said. The
difference, if any, was immaterial for the instant cae. The whole
point of the alleged agreement was that the contract would become cost
reimbursable. Judge Bowsher held crucially that within the context of Auld L.J's judgment, it was a material
term and therefore must be evidenced in writing.
Judge
Bowsher referred to Grovedeck Ltd. v. Capital Demolition
Ltd. [2000] BLR181, which he observed was approved by both Ward L.J. and Walker L.J. in
RJT Consulting v.
D.M.
Engineering [2002] in which it was held that disputes as to the terms, express and implied, of
oral construction agreements were not readily
susceptible of resolution by a summary procedure such as adjudication and Parliament
intended that such disputes
should not be determined by Adjudicators under the Act.
Judge Bowsher referred to the judgment of Walker L.J. in RJT Consulting v.
D.M.
Engineering [2002] in which he held that it was inappropriate for an Adjudicator to
have to deal with the disputes which arose as to the terms of an oral
contract.
Judge Bowsher held that these considerations were particularly important
in the instant case where
the adjudicator formed a view about the disputed oral agreement vital to his
decision on the basis of conflicting documents without hearing oral evidence
though, in fairness to him, the parties had agreed that there should be no
hearing.
Judge Bowsher held that the agreement found by the adjudicator was
not evidenced in writing within the meaning of s.107(2)(c).
Judge Bowsher
then turned to consider s.107(3) which provides that where parties agree otherwise
than in writing by reference to terms that are in writing they make an
agreement in writing. Judge Bowsher held that Section 107(3) had to be read in
conjunction with the whole of the first section of s.107(1) of the Act which
stated that the provisions of that Part applied only where the construction
contract was in writing, and any other agreement between the parties as to
any matter was effective for the purposes of this Part only if in writing.
Judge Bowsher was unsure what
situation was envisaged by s.107(3), unless it be a rare situation where
party A approaches party B with a draft written agreement containing all the
vital terms, they read it, and then shake hands on it as an agreed deal.
He observed
that seemed to be covered by s.107(2)(a). Judge Bowsher held that the Act
did not provide for adjudication in relation to an
alleged fundamental variation of a construction contract made orally and
without writing. Any contention to the contrary was directly inconsistent
with s.107(1) of the Act.
Carillion relied upon the judgment of Judge Thornton in R
G Carter
Ltd. v. Edmund Nuttall Ltd 21st June 2000
"Thus so long
as it is either established or agreed that there is a contract in existence
between the parties, that it is a construction contract ... any other
dispute as to the terms of the construction contract is as much a dispute
arising under the contract as would be a dispute as to the working through
of any terms as to the valuation machinery."
The Court of Appeal in RJT Consulting v.
D.M.
Engineering [2002] supported that
judgment stating that
"Once jurisdiction to refer the matter to
arbitration was established the Judge held, and in my judgment rightly held,
that it was proper within that adjudication to decide whether or not a
particular term had been incorporated into the contract. 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 that otherwise was accepted to be in
writing."
Judge Bowsher observed that once a construction
agreement in writing was before an adjudicator he had the jurisdiction to
construe its express terms and to decide what, if any, terms were to be
implied or incorporated by reference. He held that it was quite different to
suggest that once a construction agreement was before an adjudicator he had
jurisdiction to decide on the existence of an oral agreement not evidenced
in writing just because it followed and amended the written agreement.
Judge
Bowsher held that the oral agreement did not come under the heading referred
to in the construction industry as "Variations made pursuant to a term of the
contract". He held that what was in issue was an alleged oral agreement that radically
changed the written agreement (if it was made). Judge Bowsher held that the citations from the judgments of Judge Thornton and the
Court of Appeal were not intended to and did not apply to the sort of agreement
in the instant case. Judge Bowsher held that the adjudicator did not have
jurisdiction to enter on the adjudication.
Judge Bowsher expressed no view
as to whether there was or was not an oral agreement in the terms alleged.
To determine that question required oral evidence and cross-examination.
Issue 2 - Dispute
The next issue on jurisdiction was whether a relevant or adjudicable dispute in relation to the claim sought to be enforced had
arisen by the 6th August 2002, the date of Carillion's notice of
adjudication.
Judge Bowsher considered that whatever his final decision on this point, it
would not affect the overall result having regard to the finding he had
already made on lack of jurisdiction.
Devonport argued that
although there had been a refusal to pay on Application 33, subject to the
giving of further information, it was not until the 25th July 2002 that Carillion put forward anything like the basis on which they claimed
in the adjudication, and
on the 1st August 2002 Devonport asked for further information that was not given
before the notice of adjudication. Until that information was given Carillion could not know whether or what to pay. Carillion, it
was said, served
its notice on the 6th August 2002 without providing the clarification,
information and time requested by Devonport, and therefore without affording
Devonport any proper opportunity of considering and accepting or rejecting the claims
first made on the 5th July 2002.
Judge Bowsher referred to the judgment in Ellerine Bros.
(Pty.) Ltd. v. Klinger [1982] 1 W.L.R.1375 at 1381where Lord Justice Templeman
said, in reference to s.1(1) of the Arbitration Act 1975
"... if letters are written by the plaintiff
making some request or some demand and the defendant does not reply, then
there is a dispute. It is not necessary for a dispute to arise that the
defendant should write back and say 'I don't agree'. If on analysis what the
plaintiff is asking or demanding involves a matter on which agreement has
not been reached and which falls fairly and squarely within the terms of the
arbitration agreement, then the applicant is entitled to insist on
arbitration instead of litigation."
Then at p.1383 Lord Justice
Templeman quoted the statement of Mr. Justice Kerr in Tradax International S.A. v.
Cerrahogullari T.A.S [1981] 2 Ll.Rep.169 at 163, and said
"... as I
understand it, the judge is saying--and I agree--that silence does not mean
consent. If you can point as was the case in London & North Western
& Great Western Joint Railway Cos. v. J.H. Billington Limited [1899]
A.C.79, to an express or implied agreement to pay a particular sum then
there is no dispute and the action can proceed. But the fact that the
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