Deal or no deal?

by Mark Clinton, Partner, Thomas Eggar LLP

Old habits die hard. One of the construction industry’s bad habits, which shows no sign of expiring, is starting projects before the contract is finalised. The law reports are full of examples of the unfortunate consequences this can have, but the lessons have not been learned.

When statutory adjudication arrived in 1998, it was limited to disputes arising from contracts which were in writing. The courts clarified the position, saying the whole of the contract had to be in writing. When the legislation was amended with effect from 2011, the requirement for the contract to be in writing was removed. This was an acknowledgment that the old habit persisted. It remains the case that statutory adjudication only applies where there is a contract but it no longer needs not be a written one.

When the change was made to the legislation, some commentators foresaw problems. The conventional way of enforcing an adjudicator’s decision is to go to court for summary judgment. To succeed in an application for summary judgment, the claimant must establish that the defendant has no real prospect of successfully defending the claim and there is no other compelling reason why the matter should proceed to a full trial. Cases as to whether a contract has been made but not fully recorded in writing or as to what the contract terms are notoriously difficult and often unsuitable for summary judgment. The doubters reasoned that if the defendant can show that there is a sensible argument that there is no contract or that the terms of the contract are different to those on which the adjudicator based his decision, such adjudications could run into difficulty when it came to enforcement.

Over the following four years the issue did not raise its head … until the decision in Purton v Kilker Projects this September. Kilker was on the receiving end of an adjudicator’s decision and ran both lines of argument referred to above. Purton said a contract was agreed in a conversation, Kilker said there was no such agreement, they denied that any such conversation took place. They also argued that if there was a contract, it was not the contract which was referred to adjudication.

As to the first line of argument, the court reminded itself of previous cases which had established that one of the factors to be taken into account in this sort of case was that the fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no contract. However, the court noted that it does not necessarily follow from the fact that the work was performed that the parties must have entered into a contract. On the other hand, it is a very relevant factor pointing in that direction. On the facts of the case, the court rejected the argument that there was no contract. However, the court accepted that such a situation could arise even where the transaction had been performed and accepted that a defendant could defeat enforcement by summary judgment on that basis.

On the second argument, the judge did not consider that Kilker had no real prospect of establishing that the contract was not as alleged by Purton. However, crucially in this case, that would not provide Kilker with a defence because, whoever was correct about the contract terms, the adjudication procedure would be the same, as would the substantive merits of the case decided by the adjudicator. The case left open at least three questions: would the decision be enforceable if the defendant had a real prospect of establishing that the contract (i) provided for a different adjudicator nominating body from the one that made the appointment; (ii) provided for different adjudication rules to those relied on by the adjudicator; or (iii) contained terms which would have meant the adjudicator may or would have come to a different conclusion if he had applied them.

We will no doubt see these questions addressed in future cases. They provide another reason, if one is needed, why parties should make sure their contracts are put in place before work starts.

 

The post Deal or no deal? appeared first on UK Construction Online.