REUTERS | Amit Dave

I want to be paid. Should I adjudicate?

Picture the dilemma. A company was invited to tender for work and it provided a quotation (which included some standard terms and conditions) and then exchanged a number of letters with the employer’s representative. It didn’t sign anything and, although it started work, it didn’t get paid. The employer is now saying that because there isn’t a contract, it doesn’t have to pay. The company isn’t sure if it has a contract with the employer, but it wants to be paid. What should it do?

A familiar scenario

This question sets out a familiar commercial scenario. At its heart, the question is really about the best way for the unpaid party to try and get its money. In a construction context, the obvious answer is to recommend the company starts an adjudication to get its money. But is it that simple and is adjudication the answer?

Contract in writing

To adjudicate a dispute, there needs to be a right (whether under contract or statute) to adjudicate. If the parties are arguing over the existance of a contract, that may mean there isn’t a contractual right. For there to be a statutory right, there needs to be a “construction contract” (sections 104 and 105, Construction Act 1996). At present, for a contract to be a construction contract, it must be made in writing, made by an exchange in writing or all its terms must be evidenced in writing (section 107, Construction Act 1996). The courts have grappled with section 107 over the last 12 years and have, on the whole, adopted a restrictive intepretation to “all its terms”. The answer is always a question of fact.

When the amendments to the Construction Act 1996 take effect (whether on 1 October 2011 or sometime later), the “in writing” requirement will no longer apply. Oral and partly oral contracts will be subject to the statutory adjudication scheme, opening up the process to a great many more construction contracts.

So, in our example, the timing of when the tender, quotation and exchange of letters took place is very important. Even if it was after 1 October 2011, while the company may not have to worry about the “in writing” requirement, it will still have to concern itself with whether there was a contract. It may not matter (from the perspective of starting an adjudication) that some or all the terms of the contract were oral, but the company still needs to establish that it has a contract under which the employer is liable to pay it. Again, this is a factual issue.

Adjudicate, seek declaratory relief, sue or try to talk?

The company seeking payment has at least four choices open to it, depending on how strong it thinks the contract arguments are: adjudicate, seek declaratory relief, sue or try to talk.

Adjudicate

Often described as the construction industry’s “quick and dirty” process, adjudication is the obvious answer. The company could adopt a “suck it and see” approach. Issues over the terms of the contract (and even if there is one) could sensibly be referred to an adjudicator, especially a legally qualified one. There are risks, the adjudicator may make a mistake, but there is no reason why this payment dispute should not be referred. After all, this has been happening for the last 12 years and, while a considerable body of case law on section 107 has built up, surely this is only a fraction of the disputes where the adjudicator had to grapple with these issues.

Apply for declaratory relief

Making a CPR Part 8 application for declaratory relief is one option available to the company. It will (as ever) depend on the facts, because Part 8 is not really designed for determining substantial disputes of fact. However, the TCC may be willing to use the procedure robustly (despite what Part 8.1(2)(a) says) to sensibly dispose of issues in adjudication both before and during (and even after) an adjudication. For example, the TCC Guide says that the TCC will consider questions such as “do I have a construction contract?” or “is there a written contract?”. In the post-section 107 world, these questions may be extended to include “what are the terms of my contract?”.

While these questions may give rise to a “substantial dispute” on the facts, it is worth noting that, even on a Part 8 application, the court may order a party to give evidence, although it is more usual for it to consider written witness evidence.

Take the plunge and sue

This could take the form of issuing CPR Part 7 proceedings or starting an arbitration. Both options have obstacles. If court proceedings are started, the parties will need to comply with the pre-action protocol first. There are both advantages and disadvantages in doing that. Alternatively, for a right to arbitrate, the company will have to show its contract with the employer contained an arbitration clause. If there are doubts over the contract, the company is unlikely to consider that this is an attractive option.

Talk to the other side

It’s good to talk“, or so said BT. It was right. Trying to settle a dispute by talking to the other side is a sensible approach. This could take many forms, from some form of formal ADR (like mediation) to a simple round-table discussion.

One last thought

Will it really just be “business as usual” in the post-October 2011 world? We may have said goodbye to section 107 and all its “in writing” restrictions, but are the issues that face our notional company any different to the issues that face parties now? After all, over the last 12 years, even if parties haven’t had a written contract, or have been unsure about the extent to which their contract is “evidenced in writing”, it hasn’t stopped them referring the dispute to an adjudicator; it hasn’t stopped adjudicators from making decisions about those “contracts”; and it hasn’t stopped parties from (on the whole) accepting those decisions. The TCC will assist those parties who choose to use Part 8, but it still requires them to seek declaratory relief before they embark on the adjudication route.

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