We live in the new age of oral Construction Act contracts. No more worrying about whether all the terms were in writing. But when, inevitably, arguments surface as to whether there was an oral agreement, how will an adjudicator or court deal with them?
A telephone call one Friday afternoon in September, MD to MD, and a court appointment in October, conveniently provide a curtain raiser to the Construction Act oral contract arguments that may be just round the corner. The MDs were, as you might guess, trying to resolve their companies’ dispute, on the last day for acceptance of an offer. But by the following Monday they were disagreeing as to whether a deal had been done. There were no other witnesses to the call so how did the court approach the issue?
The judge looked at the evidence objectively, applying the conventional analysis of offer and acceptance. But what evidence? Where there is a disputed oral agreement, especially one not made face to face but in a telephone call, the court also looks at what was said and done after the discussion, to see whether it is consistent with there being an agreement.
An email was sent by one of the MDs minutes after the phone call, confirming an agreement - acceptance of the offer on the table plus a procedure to deal with a possible increase. That email, sent so soon after the conversation, was, said the judge, consistent with the need to confirm a settlement agreement and “inherently more likely to record what happened”. And, after reviewing all the subsequent correspondence, the judge decided that agreement had indeed been reached. Confirmatory emails can be very helpful.
Of course the problem would never have arisen if the parties had put their agreement in writing – or would it? Even with a reassuring written document there can be problems. What if the parties do the hard part and sign a contract, only to discover later that what was written down is not in fact what was agreed. Is it game over?
Not necessarily. Another case a few days earlier reminded us that a court can fix the problem. It can rectify the contract, where there is common or unilateral mistake. Common mistake, on which the case was decided, requires a common intention on an issue in the contract, again looking at the facts objectively, that continues until the document is executed, but is wrongly recorded. The potentially tricky part, however, is working out just what, objectively, that common intention was.
The case involved a decision on the rather important question of the parties’ common intention as to who was to make good a £2.4 million pension fund deficit. The Court of Appeal split 2 to 1 on the question, which was complicated by unusual facts, including the “disreputable” conduct of one party’s agent, who wrongly permitted both parties to be misled.
All of which reminds us of the boring old virtues of recording your contracts carefully and making sure that written contract documents reflect what both parties really did understand to have been agreed. And if you want to pre-empt the possibility of a premature oral contract there’s the magic label “subject to contract”, designed to postpone a binding contractual relationship until a formal contract is signed (although the magic isn’t always effective).
The refurbished Construction Act may no longer require the terms of “construction contracts” (other than the adjudication provisions) to be put in writing but that doesn’t mean that it’s not a seriously good idea.
Source: Construction News