Part 8 of the LDEDC Act 2009 comes into force next month. One of the most radical changes it makes to Part II of the Construction Act 1996 is the repeal of the requirement (in section 107) that the construction contract be made in writing. From 1 October 2011, construction contracts need no longer be in writing in order to benefit from the statutory right to adjudicate and the new payment regime.
Section 107 repealed
Much has been written about the repeal of section 107. This change enjoyed the overwhelming support of the construction industry during consultation on the LDEDC Act 2009. The broad consensus was that some amendment was required to mitigate the effect of a number of authorities in which (unexpectedly) the court had narrowly interpreted the requirement for a construction contract to be made in writing. These authorities included:
- RJT Consulting Engineers v DM Engineering, where it was held the statutory right to adjudicate could be lost if even a trivial or immaterial term of the contract was not made or evidenced in writing.
- Carillion Construction Ltd v Devonport Royal Dockyard Ltd (No 1) [2003] BLR 79, where it was held that a contract could be taken outside of the scope of the Construction Act 1996 when there was an oral variation to the terms of the contract.
The repeal of section 107 puts paid to those sorts of jurisdictional problems. It also extends the application of adjudication, and is likely to lead to increased numbers of disputes being referred to adjudication. However, this should not be overstated. Many partly oral contracts previously benefited from a contractual right to adjudicate by incorporating standard form contracts containing adjudication agreements.
Impact on adjudication procedure
The more significant effect of section 107’s repeal is likely to be the impact on adjudication procedure. The introduction of oral and partly oral contracts is likely to complicate the task facing adjudicators.
The original rationale behind the requirement that construction contracts be made in writing was that the terms of the contract should be sufficiently certain to enable adjudicators to make decisions on the application of those terms within the statutory 28 (or 42) day period. In the case of oral, or partly oral, contracts, such certainty is often absent. Determining the terms of a contract can depend in those cases on one person’s word against another’s.
Adjudicators will now, more than ever, have to determine issues about the formation and terms of contracts. Of course, these issues can and do come up under the existing regime, and have to be determined by adjudicators. But these issues will inevitably become far more common under the new regime.
How will adjudicators deal with contract issues?
Adjudicators will have to adopt procedures that enable them to decide disputed contractual terms within the constraints of the existing tight timetable.
In cases where the contract is wholly or partly oral, determining contractual issues may involve the adjudicator hearing witness evidence at an oral hearing to allow the credibility of the conflicting accounts to be tested. It is already becoming more commonplace (particularly in higher value cases) for adjudicators to hold oral hearings and to hear from some of the witnesses. This trend is likely to increase under the new regime.
It is also likely that adjudicators will continue to adopt an inquisitorial role at these hearings, leading the questioning of witnesses (rather than conducting mini-trials with cross-examination of witnesses). Such an approach is more in keeping with the limited timescales of adjudication.
Impact on adjudication enforcement in the TCC
At present, most enforcement challenges are determined without oral evidence. However, the rise in disputes about the formation and terms of the contract is likely to increase the desire for parties’ evidence to be tested at enforcement hearings.
The TCC’s procedures are sufficiently flexible to accommodate such developments and, in several recent cases, the TCC has made final, binding determinations on contractual issues during the course of enforcement proceedings (for example, see Supablast (Nationwide) Ltd v Story Rail Ltd).
This will inevitably increase the costs of fighting or defending enforcement proceedings, but I’m not sure that adjudications will increasingly be reopened in later litigation or arbitration. Equally, I don’t think this will necessarily lead parties to conclude that their interests would be better served by launching court proceedings to determine the dispute finally, rather than adjudicating first.
TCC’s fast-track procedure
The TCC has evolved a fast-track procedure (using both CPR Part 7 and CPR Part 8) to complement the adjudication regime under paragraph 9.4.1 of the TCC Guide. This lends itself well to resolving contractual issues at the first signs of discord in a cost-efficient manner.
If parties anticipate that their dispute involves difficult contractual issues, they may issue proceedings (under CPR Part 8 if there is no substantial factual dispute, or under Part 7 if there is) to resolve the legal issues concerning the formation or interpretation of the contract before referring the substantive dispute to adjudication (as was the case in Vitpol Building Services v Samen).
The TCC has developed a speedy procedure for resolving what it calls “adjudication business” (paragraph 9.4.2, TCC Guide) before, during and after adjudication proceedings (often within a 28 day timeframe) to assist the parties in focussing their energies on the substantive dispute. It is likely that this procedure will be called upon more and more under the new regime.
Some things still need to be in writing
Finally, parties should note an important change to section 108(2) of the Construction Act 1996. The Act (as amended) requires the construction contract (whether written, oral, or partly oral) to incorporate “provision in writing” enabling the parties to refer a dispute to adjudication.
I believe that this requirement somewhat dilutes the effect of repealing section 107 because it means that, if the parties wish to use a particular adjudication procedure (other than the Scheme for Construction Contracts 1998), they must incorporate this in a written agreement, and cannot simply agree to it orally. If they do, the Scheme (as amended) will apply instead as a default adjudication procedure under section 108(5).
Hi Lynne,
I was hoping you could point me in the direction of recent cases? I am undertaking a short study into the ‘oral contract’. I am a student at the University of Ulster at which Tony Bingham is guest speaker. James Golden has indicated that only when a contract with referral to adjudication is in place is there likely to be an uptake in disputes over oral contracts. This concurrs with your article.
The law is slightly behind here as you will already be aware. The approach for my work is what “NEW” can we expect when the law here is changed to bring it into line with the remainder of the UK? What change can we expect from oral contracts? What is likely to be the effect of the change in law?
I intend beginning my work from the point of view of where we are now with regard to disputes and adjudication and what is likely to change. I am interested in depth rather than breadth to my study and the difficulty I am having is the absence of experienced practicioners who are currently dealing with the dilemma that is the oral contract and relevant interesting cases relating.
Perhaps you would be willing to share your experience in this area? Is there such a thing as ‘a hearing before a hearing’ as Peter Coulson alludes to in his book? I would welcome your views.
Thank you for taking the time to read my email and in advance of any response.
Paul
You ask about recent cases. As far as we are aware, there are no reported judgments dealing with the repeal of section 107 of the Construction Act 1996. However, as the amendments only took effect on 1 October 2011 in England and Wales (1 November in Scotland), it may be too early for contracts to have been entered into, disputes to arise and the parties to reach the adjudication stage. We haven’t even heard any rumours about parties adjudicating on post 1 October contracts yet either.
As for keeping up to date, you may be familiar with BAILII, which publishes judgments. You will also find comment on recent cases on our blogs, in particular the MCMS Ltd blog. As both Matt and Jonathan are adjudicators, they write about current cases from that perspective.