WHEN IS A CONSTRUCTION CONTRACT 'IN WRITING'?
July 2011

Key words Contracts in writing, s.107 HGCRA, RJT Consulting Engineers Ltd v DM Engineering (NI) Ltd, Debeck Ductwork Installation Ltd –v- TE Engineering Ltd, Bennett Electrical Services –v- Inviron Ltd, Harris Calnan Construction Co. Ltd. –v- Ridgewood (Kensington) Ltd, ROK Building Ltd –v- Bestwood Carpentry Ltd, Durham County Council –v- Jeremy Kendall (Trading as HLB Architects).

Section 107 of the Housing Grants, Construction and Regeneration Act 1996 (“The Act”) states that the adjudication provisions contained within the Act are applicable only if the construction contract is ‘in writing’. The act goes on to state in s.107(2) that this will include agreements ‘evidenced in writing’ and in s.107(4) that an agreement other than in writing can be evidenced in writing if recorded by one of the parties, or a third party, with the authority of the parties. The Act is silent on what terms must be recorded in writing to be capable of being ‘evidenced in writing’ and therefore suitable for adjudication.

The courts have provided much helpful guidance in this regard:

The leading case in this regard is that of RJT Consulting Engineers Ltd v DM Engineering (NI) Ltd [2002] BLR 217 in which the Court of Appeal found that all of terms of the agreement had to be recorded in writing, as per Ward LJ (at paragraph 19):

“On the point of construction of section 107, what has to be evidenced in writing is, literally, the agreement, which means all of it, not part of it. A record of the agreement also suggests a complete agreement, not a partial one” [emphasis added].

The rationale behind the foregoing judgment, and by inference s.107, is that for a party to a purported contract to obtain an adjudicator’s decision; first the adjudicator must be able to state with some certainty what the contract terms are.

The courts have consistently followed the rationale in RJT in the context of various factual matrices:

Debeck Ductwork Installation Ltd –v- TE Engineering Ltd (Unreported – 14 October 2002) in which the court found that a fax which did not record the scope of works to be undertaken could not deemed to evidence a contract ‘in writing’ as it did not set out all the terms agreed by the parties.

Bennett Electrical Services –v- Inviron Ltd [2007] EWHC 49 whereby a letter of intent that was marked ‘subject to contract’ was held not to evidence a contract ‘in writing’ even though it contained several material terms such as the price and commencement date for the works. HHJ Wilcox found that a meeting was held between the parties at which several issues were discussed including working hours, mechanisms of payment variations, insurance and health and safety which were not then recorded in writing and therefore found that “essential and key matters which are express and materials terms are not specifically recorded in the letter of intent or incorporated by reference in a manner satisfying the requirements of section 107 of the Act as explained in RJT Consulting Engineers Ltd” [emphasis added].

Harris Calnan Construction Co. Ltd. –v- Ridgewood (Kensington) Ltd [2007] EWHC 2738 (TCC) whereby HHJ Coulson found that a letter of intent was held to be sufficient for the purposes of s.107 as it contained agreement as to the scope of works, the lump sum, contract terms (JCT 2005 Standard Form, Private with Quantities), retention percentage, liquidated damages and a contract period; as stated by the adjudicator in his decision which was being enforced, “there appears to be nothing left for the parties to agree”.

ROK Building Ltd –v- Bestwood Carpentry Ltd [2010] EWHC 1409 (TCC) in which Mr Justice Akenhead stated that where prices are agreed orally between the parties, this must be recorded in writing to satisfy s.107.

Durham County Council –v- Jeremy Kendall (Trading as HLB Architects) [2011] EWHC 780 (TCC) provides further guidance in this matter. The minutes of a meeting were deemed sufficient to evidence a contract ‘in writing’ as all the terms of the agreement were recorded. Additionally Mr Justice Akenhead stated that it is not necessary to demonstrate that the acceptance of the terms recorded must be in writing, stating at paragraph 34 of the judgment that “There may be cases in which unequivocal conduct such as the commencement of work can properly be considered to be acceptance. There is no requirement in the Act that acceptance must be recorded in writing”.

It is clear from the foregoing authorities that in order for a contract to be ‘evidenced in writing’ pursuant to s.107 (2) the parties must ensure that all and any terms agreed orally must be recorded in writing, although this can be contained within meeting minutes, letters of intent or in fact by reference to other documents common to the parties.

For the avoidance of doubt Contractors, Sub-Contractors and Employers would be well advised to insist upon entering a standard construction contract prior to commencing work rather than seeking to rely upon the foregoing in the event that there is a dispute between the parties.

As highlighted by Nigel Davies in his article on the ‘New Act’, the eagerly awaited Local Democracy Economic Development and Construction Act 2009, which may come into force later this year, will remove the requirement under S.107 of the Act so that the adjudication provisions shall apply whether the contract is recorded in writing or not.

There is a body of opinion within the industry that a disproportionate amount of time, and indeed money, will be spent upon arguments regarding the exact nature of the contractual terms. This will need to be resolved by adjudicators in an already cramped timeframe. Again, parties would be well advised to dedicate their agreement to a standard construction contract to avoid such confusion.