In December last year I was granted the unique opportunity to take part in an adjudication, which took place in 2014, sometime after the amendments to the Construction Act 1996 had come into force.
My expert witness, Gary Peters, relied on the “Fagin formula” for loss and expense, while the two main witnesses, Martin Potter and John Riches, traded equally incredible allegations concerning an alleged verbal agreement reached at the Builder’s Cleavage pub after a heavily disputed number of pints of beer. OK, it was only the Adjudication Society’s mock adjudication (organised by Hamish Lal and Emily Busby) and there was some exaggeration for dramatic effect.
However, the serious point of the mock adjudication was to demonstrate the practical challenges of having to deal with allegations of verbal agreements, which will be “construction contracts” under the amended Construction Act 1996. This was the subject of the discussion led by John Redmond, who acted as the adjudicator, and Sean Brannigan QC, in which a number of issues were raised.
Do adjudicators, as opposed to judges, have the skill to consider witness evidence and decide which witness is telling the truth?
There was forceful argument to say that deciding on the terms of a verbal agreement is no different from other decisions adjudicators make, on issues such as whose evidence on the causes of delay is to be preferred. It was, however, pointed out that cross examination in court would be more effective because:
- Judges do not have the same time pressures as adjudicators.
- Disclosure allows a better cross examination, testing oral evidence against the full contemporaneous records.
What is the best way to find out the truth?
Nobody argued against the proposition that evidence of a verbal agreement had to be tested (not simply decided on the papers), and that some form of cross examination should be allowed. It was suggested that such testing of the evidence could be carried out by the adjudicator rather than allowing the parties to cross examine witnesses. However, this may well result in an immediate call of a breach of the rules of natural justice if a party is not allowed to cross examine a witness itself.
Is this going to be a real problem in practice?
The amendment to catch verbal agreements is designed to help smaller operators who currently get caught out without a full written contract, not the larger and sophisticated parties who are good at using the standard (and bespoke) forms. There is, however, another risk area.
Everyone has come across cases where parties give verbal assurances that they will not rely on legal formalities. Contractors get told to proceed without a formal instruction on a promise that “I will sort you out”, or parties say they are required to issue formal notices due to internal procedures, but they will not act on them.
At present, there are few such arguments in adjudication since they lead to an immediate challenge to the adjudicator’s jurisdiction based on the lack of a written ”construction contract”. However, once the Construction Act 1996 is amended, parties will feel able to raise all sorts of arguments based on verbal variations evidenced by conduct. Deciding whether such verbal representations were made, and their potential impact, may result in much uncertainty and will not be easy.
What will you be able to do if you think there is no verbal agreement?
It remains unclear what choices a party will have if it disagrees that there is a verbal agreement or that a verbal term was agreed, and wants to avoid the cost of what it considers to be an invalid adjudication.
The Technology and Construction Court (TCC) is unlikely to help, since the CPR Part 8 procedure for declaratory relief is intended for questions of law or interpretation and is not suitable where there are substantial questions of fact and witness evidence to be dealt with. Similarly, CPR Part 7 does not provide an answer, since even a limited claim for a declaration as to whether there was a contract might arguably require compliance with the Pre-Action Protocol for Construction and Engineering Disputes. In any event, Part 7 does not have the speed and flexibility required to decide such an issue within the time-frame of adjudication.
Of course, it remains open to the parties to give the adjudicator jurisdiction to decide on his own jurisdiction, as he will be considering the terms of the verbal agreement in any event. Some parties might feel reluctant to allow an adjudicator to decide on his own jurisdiction. Alternatively, the parties could appoint a third party to adjudicate on the issue of the existence (or otherwise) of a contract. However, that route is also open to delay and challenges.
Conclusions
A brave new world awaits us. It is possible that none of the problems identified above will happen and, as adjudication finds its feet under the new rules, new solutions will be found. Indeed, the TCC may develop a new speedy procedure to deal with the issue of verbal agreements, just as it did for adjudication enforcement. Until such time, however, we can only speculate on what appear to be the new challenges ahead.
