CAN I ADJUDICATE?
RJT CONSULTING ENGINEERS LTD -V- DM ENGINEERING (NORTHERN IRELAND) LTD

This case is a Court of Appeal decision and gives some guidance as to what is meant by “an agreement in writing” under the Construction Act. It is important because unless you have an agreement in writing you will not be able to refer disputes to adjudication and you are not entitled to the payment protection, set off restrictions or right to suspend work that had been granted by the Construction Act.

For those involved in the construction industry, the existence of an agreement in writing is an important asset. In view of the practice in the industry where often documentation is not formally executed it is helpful for parties to understand whether their contracting practices will bring them within the scope of the Act or whether they are denying themselves the valuable benefits which it confers.

The definition of an agreement in writing is a fairly extensive definition found at Section 107 of the Act.

Looking at the legislation it appears that it deals with three main circumstances in which an agreement in writing can be said to arise. Firstly, under Section 2A in circumstances where the parties have set out their agreement for example in Articles of Agreement or a set of contract documents but the documents remain unexecuted in a sense of any formal signature or seal. The second category under Section 107 2B if the agreement is contained in an exchange of communications in writing and finally the category 2C if the agreement is evidenced in writing.

In addition to these categories there are further supplemental provisions. Section 107(3) provides when the parties agree otherwise than in writing by reference to terms which are in writing may make an agreement in writing. That might include the situation whereby the parties agreed orally to carry out a contract in accordance with the tender submitted by the party in response to an invitation to tender or where a party is given an order to commence work and then commences work such that by conduct agreement can be said to have arisen.

Sub section (4) amplifies what is meant in Section 107 (2C) by an agreement evidenced in writing. The sub paragraph says that an agreement is evidenced in writing if an agreement made otherwise than in writing is recorded by one of the parties or by a third party with the authority of the parties to the agreement.

Section 107(5) then adds a virtually separate category which amounts to a form of estoppel where a party is said to have accepted the existence of an agreement in writing where in the course of written submissions in adjudication proceedings or in arbitual or legal proceedings the existence of an agreement otherwise than in writing is alleged by one party against another and not denied by the other party in his response which will in that case constitute an agreement in writing to the effect alleged.

The important point about this final category is that there must be no dispute as between the parties as to the agreement alleged.

It had been thought by many commentators that the intention behind Section 107 was to broaden the ambit of the definition of an agreement in writing so as to give the benefit of the Construction Act to a wide variety of agreements which are formed in the construction industry on a daily basis.

This was the submission that was made in the case when it was dealt with at first instance.

In this case the agreement was alleged was to be found in evidence such as invoices or confirmation of instructions given verbally, as set out in a letter, minutes of meetings and so on.

The Judge at first instance accepted the proposition that the intention behind the legislation was to give a broad scope to agreements in writing and said that there was a comparatively large amount of material on the basis of which there was evidence of the agreement in writing for example the account, a number of invoices setting out the nature of the work, the names of the clients and identities of the place of work, minutes of meetings between experts when work was carried out which clearly identified the parties and the nature of the work needed, references in correspondence. Taking these together the Judge concluded there seemed to be ample evidence of an agreement in writing.

The objection taken by the Defendant was that this evidence did not identify all the terms of the contract and that it was not sufficient that there was evidence of an agreement in the written material. The material terms of the agreement had to be evidenced in writing.

In the Court of Appeal the Court took the view that the purpose of Section 107 was not to give a broad definition of Section 107 but to provide certainty as to the terms upon which parties were contracting. The reasons for this are interesting. Firstly Lord Justice Ward has took the view that background to the legislation was originally an attempt to force the construction industry to submit to a standard form of contract but importantly in the context of adjudication certainty as to the terms is more important given the demanding timetable under which an Adjudicator has to reach his decision. He said that the Adjudicator has to start with some certainty as to what the terms of the contract are.

The Court then approached the analysis of Section 107(2) on the basis that the reference to an agreement made in writing must mean the agreement is contained in a written document which stands as a record of the agreement and all that was contained in the agreement.

From this starting point the Court then went on to interpret the second and third categories on the same basis for an agreement evidenced in writing to exist the evidence in writing must be of the whole of the agreement. Similarly where the evidence of the agreement is contained in an exchange of communications in writing those communications must be capable of containing all that needed to be known about the agreement. Lord Justice Ward went on to conclude that what has to be evidenced in writing is literally the agreement which means all of it not part of it. The only exception to the generality of that construction was sub Section 5 it is sufficient if the material or relevant parts alleged are not denied in the written submissions.

Lord Justice Ward made a rigorous demand in reaching this conclusion. He noted that it would be unfortunate if as a result of this the parties were precluded from relying upon their rights under the Act, and stated “no doubt adjudicators will be robust in excluding the trivial from the ambit of the agreement and the matter must be entrusted to their common sense”. However, it seems that if what must be recorded is the whole of the agreement and a dispute arises as to whether or not the whole of the agreement has been recorded in writing or evidenced in writing there is little scope left for the Adjudicator as a result of this decision to decide what is or is not trivial in that context.

A less demanding test was set by Lord Justice Auld in this case. He concluded that it would be sufficient if the terms of the agreement material to the issue or issues giving rise to the reference were recorded in writing or evidenced in writing and not that every term however trivial or unrelated to those issues should be expressly recorded or incorporated by reference. He suggested “it would be absurd if a prolongation issue arising out of a written contract were denied by 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”.

It is unfortunate that the less rigorous test of Lord Justice Auld was not more clearly accepted by the whole of the Court.

In practice adjudicators will be faced by parties who rely on this case as the basis upon which there is no agreement in writing and the poor Adjudicator will be left to some extent to run the gauntlet in the face of this opposition in the hope that when the matter comes to be enforced The Court will take the same view as he has as to the adequacy of the evidence or record on which he has relied to provide for the agreement in writing.

The conclusion is that this case must have made life more difficult for adjudicators and adjudication.

Tim Willis, Construction Unit, The Wilkes Partnership
41 Church Street
Birmingham
B3 2RT

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For more details about the topics discussed in this Article, please e-mail twillis@wilkes.co.uk