Carillion Construction Ltd v Devonport Royal Dockyard Ltd (Part I)

The decision based on the alleged oral agreement varying the basis of payment under the sub-contract did not meet the requirements of section 107 of the Construction Act

Technology and Construction Court
His Honour Judge Peter Bowsher QC
27 November 2002
The sub-contractor contended that a binding oral agreement varying the sub-contract was reached at a meeting whereby the basis of payment was to become cost reimbursable with the amount of the fee for overheads and profit to be separately decided. The contractor contended that it was merely agreed that such a basis of payment would be recommended. The adjudicator agreed with the sub-contractor and awarded it a specified sum in respect of a payment application. The contractor did not pay and the sub-contractor began court enforcement proceedings.
Judge Bowsher held that the decision should not be enforced on the basis that the alleged oral agreement was neither evidenced in writing within the meaning of section 107(2)(c) of the Housing Grants, Construction and Regeneration Act 1996 nor made in writing by the parties having agreed otherwise than in writing by reference to terms in writing within the meaning of section 107(3).
As to section 107(2)(c), the Court of Appeal had held that a contract was not evidenced in writing merely by reason of there being documents indicating the existence of a contract. All the terms of the oral agreement had to be evidenced. Whilst the documents indicated discussion as to a new basis of payment, they did not evidence the conclusion of an oral agreement. Disputes as to such oral agreements were common and were not readily susceptible of resolution by adjudication, particularly where the adjudicator formed a view without hearing oral evidence. As to section 107(3), the Act did not provide for adjudication in relation to an oral variation. Any contrary contention was inconsistent with section 107(1) which provided that the Act only applied where the construction contract was in writing. An adjudicator did not have the jurisdiction to decide on the existence of an oral agreement simply by reason of it following and amending the written agreement. The alleged oral agreement did not come under the normal heading of "variations made pursuant to a term of the contract" insofar as it radically changed the written agreement.
Advice Note
The courts are unlikely to enforce a decision based on an alleged oral agreement varying the terms of a written construction contract unless the documents indicate the terms of the agreement and the fact that an agreement was concluded.