Adjudication and Oral Contracts

It is now well known that an adjudicator has jurisdiction to deal with disputes that arise under oral construction contracts for construction operations as defined in the Housing, Grants, Construction and Regeneration Act 1996 and amended by the Local Democracy, Economic Development & Construction Act 2009.

This is all great in theory but having “bought and worn the T-shirt” on a number of occasions, I can tell you that in practice it is far from easy to determine what the terms of an oral contract actually are. This is particularly the case in an adjudication confined to a 28-day timetable where you are presented with conflicting combatant witness statements, more often than not drafted by lawyers rather than the witness him or herself …..but that’s a different topic for a different article to be written on a different day.

In contract or no contract arguments, more often than not, a meeting or hearing is needed to listen to and question the witnesses before you can begin to decide whose version of events you might prefer. But then you might find that the witnesses have been coached within an inch of their lives and you are left wondering why the witnesses don’t just sell their tools and apply for jobs on stage in the West End? OK, rant over now, the bottom line is adjudicators are being called upon to decide these sorts of cases but what happens when the Courts are asked to enforce an adjudicator’s decision(s) where the contract is alleged to have been formed orally?

Generally speaking, where only two parties are involved in what is alleged to be a contract formed orally and services have been provided by one of these parties, the Court is very unlikely to find that there is not a contract in place. The position is somewhat different where there are arguments involving three or more parties and there is clearly confusion and conflicting arguments about who has appointed whom and who has provided services.

This type of dispute came before the Court in Dacy Building Services Limited -and- IDM Properties LLP [2016] EWHC 3007 (TCC). The case concerns an application to enforce an Adjudicator’s Decision. The facts of the case are that Dacy became involved in providing building services in December 2015. The problem was that Dacy was initially approached by a company called HOC (UK) Limited (“HOC”) who were performing services as Main Contractor under a contract with O’Loughlin Leisure (Jersey) Limited (“O’Loughlin”). IDM Properties LLP (“IDM”) were acting as the Employer’s Agent under the Main Contract between HOC and O’Loughlin. To complicate matters further O’Loughlin was in a joint venture with a company called Fastmild Ltd (“Fastmild”) and Fastmild was a subsidiary of IDM Investment Holdings Limited.

It was well known to Dacy that HOC was suffering cash flow issues and Dacy argued throughout the life of the adjudication that it never agreed to work for HOC and that it had, in fact, agreed to work for, and be paid by, IDM following an oral exchange between Mr Kiernan for Dacy and a Mr O’Loughlin, which was said to have taken place on 3 December 2015.

Regrettably, it appears that during the adjudication Mr O’Loughlin denied that any such agreement had been reached and it was always understood that Dacy would be working for HOC and not, as claimed by Dacy, IDM. The adjudicator was therefore left with conflicting versions of events as to which party had contracted with Dacy.

Whilst there was no doubt that Dacy had supplied labour, plant and materials to the project, getting paid proved to be something of a problem. Dacy therefore withdrew its labour from site and commenced adjudication against IDM.

From the outset of the adjudication proceedings, IDM challenged the jurisdiction of the appointed adjudicator arguing that as there was no contract between it and Dacy, the Adjudicator could not have jurisdiction.

Although the appointed adjudicator decided on a non-binding basis that an oral contract had been entered into by Dacy with IDM and awarded Dacy payment of its outstanding invoices, the Court was unwilling to enforce the Decision.

In reading the judgement it is clear that the Court readily accepted that Dacy had supplied labour, plant and materials and that HOC’s financial difficulties were well known. It did not, however, believe that an Employer’s Agent would readily accept responsibility to pay a Sub-Contractor. Moreover, this was a case where there were two possible parties that Dacy could have contracted with and the Court was not prepared to summarily enforce a decision where such uncertainty existed.  

So where does this leave us? Well, in cases where there is an argument about whether or not there is a contract, a Court will almost invariably find that a contract has been concluded if services have been provided and will enforce an Adjudicator’s decision to this effect. However, in cases where there is uncertainty about who is the contracting party and the facts and evidence are either too complex or not persuasive, don’t be too surprised if the Court refuses to enforce an Adjudicator’s decision concerning an oral contract.

Peter Vinden is a practising Arbitrator, Adjudicator, Mediator and Expert. He is Managing Director of The Vinden Partnership and can be contacted by email at pvinden@vinden.co.uk. For similar articles please visit www.vinden.co.uk.

Peter Vinden

Peter is an experienced professional in the construction industry with particular expertise in quantity surveying and the commercial management of contracting organisations. 

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