It would be foolish to attempt to make predictions regarding the way in which case law might develop after 1 October 2011, save to say that a number of fertile battle grounds are sure to emerge as a result of the repeal of section 107 of the Construction Act 1996. Before battle lines are drawn, however, there are some obvious areas that parties (and their legal advisers) would be well advised to spend a moment considering.
Contractual negotiations
Where the entitlement to adjudicate under an oral contract hinges, essentially, on the date that the contract was “entered into”, it will only be a matter of time before the TCC is asked to assess how the date a contract is “entered into” should be determined.
In many other industries, establishing the date when a contract was entered into might not pose such difficulties. It is likely there will be a traditional offer and acceptance before goods are supplied or services rendered. In the field of construction, however, it will provide fertile ground for argument. Few construction projects proceed only once key contract terms have been agreed, letters of intent are still commonplace and contracts are frequently executed months, if not years, after work has commenced (and sometimes after disputes have already emerged).
As we do not know how the courts may interpret these provisions, the scope for different outcomes, and jurisdictional challenges, can be easily seen. For example, some parties may already be carrying out work without terms having been agreed, although negotiations to conclude a written contract are in train. The contractor may think its carrying out work at its own risk, but a court, looking at matters objectively, may assess that a contract has been entered into. Those parties may find themselves caught by the amended Act.
Conversely, a savvy contractor may seek to drag out negotiations during September 2011 (particularly where a counter party is seeking to formulate adverse adjudication cost clauses) so as to ensure that reliance can be placed on the amended Act.
One outcome of adding oral contracts into the mix is that practitioners will deal with contracts where the Scheme for Construction Contracts 1998 automatically applies with far greater regularity. Parties should (if they have not already done so) ensure that their standard offer letters are amended to fully comply with the “in writing” requirements of section 108 (as amended) if they want to avoid the revised Scheme automatically applying.
If you are still negotiating a contract this month, it may be advisable to review with your client the stage reached and the desired outcome for negotiations, taking appropriate action where necessary.
Conduct of an adjudication
The introduction of oral contracts means far greater scope for disagreement between parties about the terms of the contract. Adjudicators will be asked to decide on a regular basis whether a construction contract has been concluded, the date it was entered into, the relevant parties and its other terms. This will have knock-on effects to the way in which an adjudication should be conducted:
- Referring parties will need to ensure that they identify the correct parties to the contract (see Wrong party below) and that the factual basis to the existence of an oral contract is properly set out in the referral notice.
- Witness statement evidence will be used more frequently to support a party’s case on the existence of an oral contract, the identity of the parties to that contract and the relevant terms of that contract.
- Hearings with the adjudicator are more likely to test factual witness evidence.
- Responding parties will need to ensure they do not waive any entitlement to make a jurisdictional challenge to enforcement.
Jurisdictional challenges will increase
While, over the last decade, the TCC has presided over a number of challenges to enforcement and an enormous body of case law has developed, in recent years the embers have died down. The amendments to the Construction Act 1996 are sure to stoke the fire.
I anticipate the most likely areas for fresh waves of jurisdictional challenges are:
- No contract. It is likely this ground will be employed more frequently to resist enforcement of adjudication decisions because there is greater scope for disagreement where contracts have been concluded orally.
- Wrong party. It may seem obvious, but it is worth remembering that an adjudicator only has jurisdiction to give decisions concerning the rights of the parties to a construction contract and cannot make a decision against a person who is not a party to the contract. The potential for a dispute regarding the identity of contracting parties where a contract is not in writing means that this ground of objection is likely to be more commonplace.
- Oral contract concluded prior to 1 October 2011. In the early days after the Construction Act 1996 came into force, Dyson J heard an application for summary judgment where a referring party sought to enforce an adjudicator’s decision (Project Consultancy Group v Trustees of the Gray Estate (1999) BLR 377). There was, however, considerable factual dispute regarding the date that the contract was entered into and, if the responding party’s arguments were successful, there was no basis that the adjudicator’s decision could have been enforced. These arguments are likely to emerge again.
- Resurgence in natural justice arguments. The adjudicator will have to adopt active management of the adjudication, otherwise there is a greater potential for issues relating to oral contracts. For example, there is much greater scope for a party not to be properly informed of the allegations made against it, particularly if the referring party does not take care to particularise the basis of the alleged oral contract. It remains the case, however, that any breach must be exceptional and serious to enable a successful challenge to enforcement.
This piece is taken from 4 Pump Court’s Construction Newsletter, Home straight for the new Construction Act.
