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Court considers failure to complete standard form contract and section 106

We are all familiar with the section 106 residential occupier exception in the Construction Act 1996. Notwithstanding that exception, we are equally familiar with residential occupiers entering into building contracts that contain adjudication clauses and (probably) the most common of all the contracts used in this situation is the JCT’s Minor Works Building Contract.

Therefore, in Goldsworthy  (t/a Goldsworthy Builders) v Harrisonit wasn’t really much of a surprise to see the parties arguing about whether they had entered into the 2011 Edition of the Minor Works contract (MW 2011)If they had (as the claimants argued), there was a contractual right to adjudicate the parties’ payment dispute and the adjudicator’s decision could be enforced. If not (as the defendants argued), it wasn’t and it couldn’t be. Simple (or so you might think).

Goldsworthy and others v Harrison and another

Briefly (if this case can be summarised “briefly”):

  • In October 2011, the defendants invited the claimants to quote for certain works to their house.
  • In August 2012, the claimants quoted for further works.
  • In October 2012, work began on site. Around this time, the contract administrator (the defendants’ architect) wrote to the claimants and referred to the contract being a MW 2011.
  • MW 2011 was referred to again in the contract administrator’s email of 6 November 2012. This email also set out payment terms that differed from those set out in the MW 2011, in part as there was no provision for a retention.
  • The claimants’ first invoice was issued in December 2012. Invoices were then submitted most months up to April or May 2014.
  • In early 2013 the scope of the works was extended with the claimants quoting a total price of just over £526,000. It appears that the parties still intended to enter into a MW 2011 at this stage.
  • By October 2013 further variations had been made to the scope of the works. However, the claimants were concerned about outstanding information and the defendants were concerned about the speed of progress.
  • By the end of 2013 no contract documents had been signed, although a JCT Intermediate form of building contract had been issued and objected to by the claimants. The claimants said they had not tendered on that basis, but on the basis of entering into a MW 2011 and that:

    “….no liquidated damages and no additional conditions were put forward which would effect our tendering. You had specified that retentions would apply. We would be happy if you could provide us with the JCT Minor Works contract discussed and agreed.”

  • In January 2014, the contract administrator produced a completed MW 2011 for the claimants to sign, which they declined to do. They did not give reasons or propose any amendments to the form.
  • In June 2014, the contract administrator was ready to certify practical completion and suggested to the defendants that they should pay the claimants’ last invoice, which had been certified in May 2014, and half of the retention.
  • In August 2014, the contract administrator was changed.
  • In March 2016, the new contract administrator issued the final certificate. This reduced the value of the works and showed a sum due from the claimants to the defendants. It referred to the contract being MW 2011. In response, the claimants issued a pay less notice. They had started an adjudication a few days before and the adjudicator’s decision was issued in April 2016.
  • A revised final certificate was issued in May 2016, this time showing a balance to the claimants of some £5,000.

In the adjudication enforcement proceedings that followed, Andrew Bartlett QC (sitting as a deputy High Court judge) had to consider all of this factual detail to decide whether the parties had contracted on the basis of MW 2011 or had proceeded on an ad-hoc basis. Given the level of detail in the judgment, I wasn’t surprised that the court decided it was “borderline” and it couldn’t say for sure that the parties had entered into a MW 2011 without hearing more evidence. This meant the summary judgment application failed (that is, the adjudicator’s decision was not enforced) and the defendants’ were given leave to defend the claim.

Legal analysis “relating to the contract issue”

A number of points struck me when I was reading this judgment, not least that I think the legal analysis on the “contract issue” is an interesting summary of some of the case law in this area. In particular, where the court refers to RTS Flexible Systems Ltd v Molkerei Alois Müller Gmbh & Co KG, and the Supreme Court’s confirmation that even if certain terms of significance have not been finalised, an objective appraisal of the parties’:

“…words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement.”

In other words, even if the parties have not completed all aspects of a standard form of contract, the terms of that standard form may still be binding on them, as happened in Bryen & Langley v Boston (which also concerned a residential occupier and an adjudication clause).

I also think the points at paragraphs 69 and 70 are well made, namely that it can be appropriate to look at the parties’ conduct for the purpose of establishing whether and how a contract was made, and whether a particular term was agreed. This comes back to the Supreme Court’s discussion in RTS that contracts may come into existence as a result of performance rather than as a result of offer and acceptance.

Consigning section 106 to Room 101

Some may argue that this case is further reason why we should abolish section 106, but I’m not so sure. As I explained a few years ago, I’m still in favour of keeping the status quo (although I think other parts of the Act ought to be consigned to Room 101!).

Lessons to learn

As is the way with many TCC judgments, there are always lessons to be learnt:

  • Although in some cases the terms of a standard form might be incorporated by reference, as this case shows, it is not worth risking it by assuming this is the case, or hoping that a mere reference in a letter of appointment will suffice.
  • The terms of a standard form of contract should be completed in full, however tiresome the parties consider this process to be. The attitude that some employers, professionals and contractors have of not worrying about this vital aspect of a project is all well and good until something goes wrong, at which point a dispute that can start about relatively trivial issues can escalate as the parties argue about the relevant terms.

Finally, there is a sense of irony in the judgment (which is referred to at paragraph 73), in that the parties made a complete volte-face. In the “brief” details I set out above, it was the defendants that wanted the MW 2011 to be the basis of the parties’ agreement, not the claimants. The claimants resisted signing the contract. However, before the court, it was the claimants arguing that the MW 2011 terms did indeed govern the works. Given the court’s findings, how the claimants must now be wishing they’d signed the contract!

MCMS Ltd Jonathan Cope

One thought on “Court considers failure to complete standard form contract and section 106

  1. Many thanks for the article Jonathan. I agree with you about retaining Section 106, as it is not the Section itself that causes disputes but the parties’ own conduct in failing to finalise terms before commencing works. I am sure you see many many more disputes than I do where what could be a relatively straight forward dispute to resolve/decide has escalated into a ‘free for all’ due to the preliminary issue of what the contract actually is being a complete mess which first needs unravelling!

    Kind regards,

    Dean

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