Before 2011, s.107 of the Housing Grants, Construction and Regeneration Act 1996 (the Act) stipulated that a dispute could be referred to adjudication where the construction was in writing, as defined by the Act. Oral contracts were therefore excluded from being subject to adjudication; this was a deliberate policy decision justified by concerns that in the rough and tumble of a 28 day dispute resolution process that is adjudication, adjudicators would not be able to cope with further evidential difficulties when faced with having to decide what terms were agreed orally. 

Many disputes arose over whether a contract was in writing or not and many disputes that could have been referred to adjudication were excluded. When changes to the Act were being considered, the exclusion of oral contracts was thought to be an issue that needed to be addressed. Accordingly, in changes to the Act which became effective from 1 October 2011, s.107 of the Act was repealed. This meant that all construction contracts entered into after 1 October 2011, whether in writing or not were subject to the Act; disputes arising from oral construction contracts could therefore be referred to adjudication. 

Since the amendment in 2011, there has been little guidance from the Court about how the inclusion of oral construction contracts might affect adjudications and in particular, on what discretion adjudicators would have when considering disputes arising out of contracts made wholly or partly by oral communications. One specific difficulty faced by adjudicators when considering oral contracts is determining whether a contract has been formed at all. 

The decision of Mr Justice Stuart-Smith in Rob Purton t/a Richwood Interiors v Kilker Projects Limited [2015] EWHC 2624 (TCC) therefore provides welcome direction on the issue and guidance as to how adjudicators might approach a situation concerning an oral construction contract where parties are in dispute as to its formation or existence. 

The Facts

Rob Purton (t/a as Richwood Interiors Limited) (the Claimant) undertook works for Kilker Projects Ltd (the Defendant) at the Dorchester Grill.  The Claimant referred a dispute to adjudication when the Defendant failed to issue a payless notice in time in default of The Scheme for Construction Contracts (England and Wales) Regulations 1998 (the Scheme).  

In determining the dispute, the adjudicator had found that there was an oral construction contract between the parties for the purposes of the Act, that the Defendant had not issued payment notices in correct time to comply with the Scheme and therefore payment was due to the Claimant. The adjudicator awarded the Claimant £147,223.00 and directed that the Defendant pay his fees.
The Defendant denied the existence of a contract and claimed that the conversation out of which the oral contract supposedly arose did not take place at all. As there was no contract, the Defendant denied the adjudicator had jurisdiction to determine the dispute (a position they maintained throughout the adjudication) and therefore refused to pay the Claimant. 

The Claimant brought proceedings for summary judgment to enforce the adjudicator’s decision. 

Was there an oral contract? 

To determine the jurisdiction of the adjudicator and the enforceability of his decision, Mr Justice Stuart-Smith considered the parties’ positions as to the purported formation of the oral contract which had been the subject of the adjudication. The Claimant averred that an oral contract had been formed by a conversation on 9 June 2014. The Defendant stated that the Court could not be satisfied to the extent required for summary judgment that there was a contract in existence at all. 
In considering whether a contract had been entered into, the Judge found that there had been a clear intention to enter into legal relations and that therefore there was “beyond argument” a contract between the parties. 

The Judge considered the parties’ reliance on each other as evidencing a contract; the Defendant was reliant on the Claimant for payment in as much as the Claimant was reliant on the Defendant to perform the works. Had the Claimant abandoned the site and stopped the works, he would have been met with a “dusty reply” and this further inferred the existence of a contract between the parties. 

The Judge did not go so far as to determine when the Contract had been formed, but stated his clear opinion that there was indeed a contract between the parties; any suggestion otherwise and that there was instead a series of ‘ad hoc’ works was to “stretch the imagination further than it should reasonably be required to go”. 

Was the oral contract out of which the dispute arose?

The Defendant alternatively submitted that if there was found to be a construction contract, it was not the contract formed orally by conversation on 9 June 2014 (as claimed by the Claimant). As the Claimant relied on the conversation in the adjudication as evidencing the contract, the Defendant therefore suggested that the adjudicator  had no jurisdiction to determine the dispute referred to him. 

The Judge considered the argument and the Defendant’s suggestion that to allow the adjudicator jurisdiction (and allow the Claimant a benefit) by virtue of a contract different to that identified in the adjudication would be allowing the Claimant to “approbate and reprobate” his case. 

In his judgment, Mr Justice Stuart-Smith stated that “the jurisdiction to refer [to adjudication] is dependent upon the existence of a construction contract and a dispute arising under it. It is not dependent upon identifying each and every term with complete accuracy…”. The Judge considered that the situation was not alternatives of whether there was or was not a contract, but that there existed an intermediate position that there was a contract, even if it was not as precisely described by the Claimant. 

The Judge therefore found that the adjudicator had had jurisdiction and agreed with his reasons.

The Judge therefore gave summary judgment to the Claimant of the adjudicator’s award plus interest. 

Reminder

The Judge, in considering the points discussed above and the Defendant’s alternative contention that the Claimant had not precisely identified the correct contract in the adjudication, made the following comment:

“Bearing in mind the intention that the adjudication system should provide quick and effective remedies for contracting parties, equally accessible to those who are legally represented and to those who are not, an approach which deprived adjudicators of jurisdiction where a dispute has been referred that has arisen under a construction contract because of an error in its characterisation, would as a matter of legal policy be unacceptable”. 

Mr Justice Stuart-Smith’s comments are a timely reminder that the purpose of adjudication is to provide quick and effective dispute resolution; legal arguments seeking to find loopholes to prevent parties’ claims are not in keeping with the process and will not be entertained. 

Conclusions

The judgment provides helpful guidance to adjudicators as to their remit in considering oral construction contracts. The identification of a contract satisfied the Court that the adjudicator had jurisdiction and his decision was enforceable; it was not necessary to establish the precise terms and details of the formation. The comments are helpful as in practice, precision is always likely to be difficult for contracts formed orally and the approach adopted reinforces the objectives of adjudication.