Glendalough Associated SA v Harris Calnan Construction Co Ltd

This is an application which arises out of the adjudication between the Defendant (“HCL”) and the Claimant (“Glendalough”) by which HCL claims that Glendalough is not entitled to deduct liquidated damages for delay in the performance of a contract by which HCL was engaged to build a residential development and B1 studios in North London. The application is by Glendalough and is for:

The story in brief is this. In September 2009 Glendalough put the works out to tender. HCL submitted a tender, which was subsequently revised, and by a letter dated 24 February 2010 Glendalough instructed HCL to proceed with the works pending agreement of a formal contract based the “JCT 2005 Intermediate Form of Contract with Contractor’s Design”.

It seems that no formal contract was ever entered into and HCL carried out and completed the works under, it now claims, the terms of the letter of intent. However, the work took longer than anticipated and Glendalough asserts that it is entitled to deduct liquidated damages for the delay. On 1 July 2013 its then solicitors, RPC, issued a Withholding Notice in which it was alleged that HCL was 64 weeks in delay and therefore had a liability for liquidated damages in the sum of £250,000.

HCL disputes this. The following month it referred the dispute to adjudication and an adjudicator was appointed.

At the hearing of the application Glendalough was represented by Miss Anneliese Day QC, instructed by Stephenson Harwood, and HCL was represented by Miss Anna Laney, instructed by Silver Shemmings. I am grateful to both of them for the quality and succinctness of their submissions.

On 16 August 2013 HCL sent a Notice of Adjudication to Glendalough, at Stephenson Harwoods’s address. The notice said this:

“We seek a Decision from the Adjudicator that:

i.

the Employer is not entitled to deduct liquidated damages from amounts otherwise due to us;

ii.

the Employer is not entitled to payment from us for liquidated damages;

iii.

the Employer shall pay us the sum of £245,278 forthwith and without set off or such other sum as the Adjudicator shall decide;

iv.

the Employer shall pay us interest in such sums as the Adjudicator shall decide;

v.

the Employer should pay all of the Adjudicator’s fees and expenses in this matter, or such other apportionment as the Adjudicator shall decide.”

Paragraph 2.1 of the Referral dated 23 August 2013 described the contract as follows:

“By an agreement [Glendalough] employed [HCL] to carry out the construction of a Residential Block and B1 Studios at 121-127 Church Walk, London.”

By an email dated 24 August 2013 Glendalough’s solicitor wrote to the adjudicator in the following terms:

“As regards the Referral, it appears that [HCL] has not complied with the Scheme for Construction Contracts in that it has not provided copies of documents upon which it wishes to rely including the construction contract in accordance with section 7(2).

In view of the above, Glendalough must reserve its position fully as to whether the proper procedure as to the service of the Referral and appointment of the Adjudicator has been followed in accordance with the Scheme for Construction Contracts.

As regard the contents of the Referral, this fails to set out any details in support of [HCL’s] purported case for the return of the deducted liquidated damages to enable Glendalough to understand the case that it has to meet and to respond to the same in its defence. As such [HCL’s] referral is embarrassing and provides no evidence or material upon which you could find other than that its case is not proved.

By copy of this e-mail we therefore invite [HCL] to avoid wasting further time and costs on this purported adjudication and to withdraw its current Notice of Dispute and Referral and bring these proceedings to an end.”

By a further email later the same day Glendalough’s solicitor wrote again to the adjudicator in the following terms:

“However, what [HCL] failed to do, is to provide any explanation or support for its contention that RPC was wrong to advise Glendalough that it was entitled to make such a deduction. [HCL] has not even provided, with the Referral, the Contract or the RPC letter referred to (together with any other documents upon which it seeks to rely), in breach of section 7 of the Scheme for Construction Contracts.

…

In the meantime all of Glendalough’s rights remain reserved.”

There then followed a brief debate about the timing of the adjudicator’s appointment. Stephenson Harwood then sent a further email to the adjudicator on the 25 August 2013 in which they said this:

“[The adjudicator] has clarified the timing of his appointment and therefore Glendalough is satisfied that he was appointed prior to service of the Referral as required by the Scheme for Construction Contracts.”

Stephenson Harwood then repeated its contention that to continue the adjudication on the current basis would be to breach the requirements of the Scheme and be manifestly unfair to Glendalough. Later the same day Stephenson Harwood sent a further email to the adjudicator which began as follows:

“To avoid any misunderstanding, Glendalough does not contest your appointment. Glendalough does, however, maintain that [HCL]:

1.

has failed to comply with Section 7(2) of the Scheme for Construction Contracts; and

2.

has failed to provide any detail in its Referral to enable Glendalough to understand the case that it has to meet and to respond other than by way of a general denial.

In Glendalough’s respectful submission, the above failures have deprived you of jurisdiction to determine this dispute (which for the avoidance of doubt Glendalough does not give you jurisdiction to decide) and/or constitute a breach of Natural Justice which will render any decision by you, invalid.

Further and/or in the alternative, the lack of explanation and particularisation by [HCL] of its case, means in Glendalough’s respectful submission, that in the face of a general denial from Glendalough, that you are unable to reach any finding other than that [HCL] has not proved its case. This will lead to the incurrence of unnecessary expense and wasted time.

Lastly, if in spite of the above, you decide to proceed with this Adjudication, then Glendalough will reluctantly participate in the process, whilst reserving all of its rights to challenge the enforcement of any decision on the grounds of a lack of jurisdiction and/or a failure to comply with Natural Justice.”

Glendalough served its Response on 30 August 2013. In response to HCL’s description of the contract it said this:

“3.

Save for the further details set out in paragraph 4 below, paragraph 2.1 is admitted.

4.

The form of Contract was the JCT Standard Form of Building Contract Revision 2 2009 with Quantities. Completion was to take place in stages; Section 1 being the ‘Main Building’ and Section 2 being ‘External Works’. The completion date for both sections was 8 July 2011 (the ‘Original Completion Date’).

I should note at this stage that the form of contract referred to in the Response was not the same as the form of contract referred to in the letter of intent dated 24 February 2010 (see paragraph 2 above).

At no stage during these early exchanges with the adjudicator did Glendalough raise the point that HCL was or might be relying on an agreement that was made otherwise than in writing so that it had no right to refer the dispute to adjudication. Miss Day submitted that this was quite understandable: the point was not raised, she said, until the service of a Surrejoinder by HCL on 26 September 2013. Glendalough’s case is that the effect of the Surrejoinder is that HCL was asserting a contract that did not comply with section 107 of the 1996 Act.

Glendalough submits that it made a full reservation of its rights in relation to the jurisdiction of the adjudicator and so it is not open to HCL to contend that in some way it has waived its right to contend that the contract contended for by HCL in its Surrejoinder does not comply with section 107.

For my part, I think it is doubtful whether Glendalough did in fact reserve its rights as to whether the adjudicator could be appointed at all. As I have mentioned, on 25 August 2013 Stephenson Harwood said in an email that they did not contest the appointment of the adjudicator. In these circumstances I have some difficulty in seeing how any reservation of rights, however general, could be taken to extend to the validity of the adjudicator’s appointment. The thrust of Glendalough’s objections was that HCL, in failing to supply the documents upon which it relied with its Referral, had not complied with the Scheme and that as a result Glendalough did not know what case it had to meet. In those circumstances to continue with the adjudication, it contended, would result in a breach of natural justice.

For the reasons which I give in the next section of this judgment I have reached the conclusion that this is a case where HCL was alleging the existence of an agreement made otherwise than in writing and that agreement was not denied in Glendalough’s Response. In these circumstances, I consider that the parties are to be taken to have agreed that there was a contract in writing between Glendalough and HCL for the construction of the development within the meaning of subsection 107(5) of the 1996 Act. Accordingly, Glendalough cannot escape the consequences of the operation of subsection (5) irrespective of any reservation of rights.

I need to set out section 107 in full. It provides:

“107(1) The provisions of this Part apply only where the construction contract is in writing, and any other agreement between the parties as to any matter is effective for the purposes of this Part only if in writing.

The expressions ‘agreement’, ‘agree’ and ‘agreed’ shall be construed accordingly.

(2)

There is an agreement in writing -

(a)

if the agreement is made in writing (whether or not it is signed by the parties,

(b)

if the agreement is made by exchange of communications in writing, or

(c)

if the agreement is evidenced in writing.

(3)

Where the parties agree otherwise than in writing by reference to terms which are in writing, they make an agreement in writing.

(4)

An agreement is evidenced in writing if an agreement made otherwise than in writing is recorded by one of the parties, or by a third party, with the authority of the parties to the agreement.

(5)

An exchange of written submissions in adjudication proceedings, or in arbitral or legal proceedings in which the existence of an agreement otherwise than in writing is alleged by one party against another party and not denied by the other party in his response constitutes as between those parties an agreement in writing to the effect alleged.

(6)

Reference in this part to anything being written or in writing includes its being recorded by any means.”

This application raises two questions arising out of the section. First, do the words “an exchange of written submissions … in which the existence of an agreement otherwise than in writing is alleged” mean that the fact that the agreement is not in writing must either be asserted explicitly or be an available interpretation of the words used? Or is it sufficient that the agreement was in fact made otherwise than in writing although described in the referral notice as having been made in writing?

The second question is the extent to which the terms of an agreement in writing must be identified or evidenced in writing in order for it to be “a construction contract in writing” so as to bring the relevant part of the 1996 Act into play.

Miss Day submitted that where the referring party does not assert in terms that the agreement was made otherwise than in writing, the subsection is not engaged. If it were otherwise, she submitted, a party could find that it had conceded jurisdiction when it did not understand what was being alleged against it.

I was referred to various authorities. I think that the one that was most in point is the decision of His Honour Judge Thornton QC, a judge who is very experienced in this field, in Mott MacDonald v London and Regional Properties Ltd [2007] EWHC 1055 (TCC). He said that the subsection required the party to have alleged that there was an agreement otherwise than in writing and held that this had not occurred in that case because, although Mott MacDonald’s pleading alleged an agreement, it did not also allege that the agreement was “otherwise than in writing”. What Mott MacDonald had said in its referral notice was:

“[LRP’s] agents instructed MM to proceed with the services under a contractually binding letter of intent …”

It seems to me that that statement was, on its face, an allegation of an agreement in writing, or at least one that was evidenced in writing. It cannot fairly be read as an allegation that the agreement was “otherwise than in writing”. Accordingly, I accept Miss Day’s submission that if there is no suggestion that the relevant agreement was made otherwise in writing subsection (5) is not engaged.

However this leaves open the position where what is alleged in the referral notice is an allegation which is unclear, but which is capable of being reasonably read as an allegation of an agreement made otherwise than in writing. I agree with the observation of Coulson J in SG South Ltd v Swan Yard (Cirencester) Ltd [2010] EWHC 376 (TCC) that the language of the subsection is “a little opaque”. He said, at paragraph 10, that the subsection:

“… appeared designed to prevent the responding party, who has accepted the adjudicator’s jurisdiction notwithstanding the absence of a clear contract in writing, from going back on his concession.”

This supports my view that if the referral notice does not refer to an agreement that is clearly in writing and is consistent with the assertion of an agreement made otherwise than in writing, then subsection (5) is engaged - even if the words could also be construed as describing a written agreement. This is because, on one reading, what is being alleged is an agreement made otherwise than in writing.

It seems to me that there will be no prejudice to the responding party if this approach is correct. It seems inherently unlikely that a party wanting a dispute to be resolved by adjudication would submit a referral notice that clearly described an agreement made otherwise than in writing: to do this would kill the adjudication right at the outset unless the responding party was content to go ahead on that basis. Further, I would have thought that the cases will be fairly rare in which the referring party describes the contract in such loose terms that it is evident that an agreement otherwise than in writing is, or may be, being alleged. After all, the responding party should know whether or not the referring party is likely to seek to allege that there was an oral agreement and, if it is in any doubt about what is being said, it can make an appropriate denial in its response.

In this case the agreement could not have been described in wider terms. As I have already noted paragraph 2.1 said:

“By an agreement [Glendalough] employed [HCL] to carry out the construction of a Residential Block and B1 Studios at 121-127 Church Walk, London.”

Since it is the usual practice for lawyers to refer to “an agreement in writing” when referring to a written contract, the absence of either any date of the alleged agreement or any reference to writing suggests that what was being alleged - at least on one reading of the document - was an agreement otherwise than in writing.

In these circumstances it seems to me that subsection 107(5) was engaged and so, in the absence of any denial by Glendalough, the result of the operation of the section is that the parties are to be taken to have agreed that there was a contract in writing between them to the effect alleged, namely to build a residential block and B1 Studios at the stated address.

If this is correct, the effect of such an agreement will be that the referral falls within the provision of the 1996 Act and that the adjudicator has jurisdiction to determine it.

However, Miss Day contended that such a conclusion could not stand with what was said by Ward LJ in RJT Consulting Engineers v DM Engineering Ltd [2002] 1 WLR 2344, at paragraphs 16 and 19. At paragraph 16 he said:

“Subsection (5) is a specific provision. Where there has been an exchange of written submissions in the adjudication proceedings in which the existence of an agreement otherwise than in writing is alleged by one party and not denied by the other, then that exchange constitutes ‘an agreement in writing to the effect alleged’. The last few words are important. The exchange constitutes an agreement in writing which does more than evidence of the existence of the agreement. It also evidences the effect of the agreement alleged, and that must mean such terms which it may be material to allege for the purpose of that particular adjudication. It is not necessary for me to form a view about Grovedeck Ltd v Capital Demolition Ltd [2000] BLR 181. Dealing with section 107(5) Judge Peter Bowsher QC sitting in the Technology and Construction Court said, at page 185, paragraph 30:

‘Disputes as to the terms, express and implied, of oral construction agreements are surprisingly common and are not readily susceptible of resolution by a summary procedure such as adjudication. It is not surprising that Parliament should have intended that such disputes should not be determined by adjudicators under the Act …”

(Emphasis added.)

I agree. That is why a record in writing is so essential. The written record of the agreement is the foundation from which a dispute may spring but the least the adjudicator has to be certain about is the terms of the agreement which is giving rise to the dispute.”

And, 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. The only exception to the generality of that construction is the instance falling within subsection (5) where the material or relevant parts alleged and not denied in the written submissions in the adjudication proceedings are sufficient. Unfortunately, I do not think subsection (5) can so dominate the interpretation of the section as a whole so as to limit what needs to be evidenced in writing simply to the material terms raised in the arbitration [sic].” It must be remembered that by virtue of section 107(1) the need for an agreement in writing is the precondition for the application of the other provisions of Part II of the Act, not just the jurisdictional threshold for a reference to adjudication.”

I think that it is important to note that the question before the court in that case was whether the relevant agreement was evidenced in writing within the meaning of section 107(2)(c). It is clear from the passages quoted above that it was not a requirement of subsection (5) that the whole of the agreement had to be set out in the referral notice in order for the subsection to be engaged. The point made was that subsection (5) was different because it was sufficient to set out in the referral notice only the material or relevant parts of the agreement that were being relied on.

The difficulty in this case is that HCL is not relying on any particular terms of the contract. Its case is that there was no contract the terms of which entitled Glendalough to deduct liquidated damages. HCL was, as Miss Laney submitted, effectively having to prove a negative. Apart from asserting that there was an agreement by which it was employed to build the development (and, by necessary implication, for reward), it is at least arguable that it did not have to say any more. However, it is a requirement of the Scheme that a referral notice is to be accompanied by copies of, or relevant extracts from, the construction contract and such other documents as the referring party intends to rely upon. If it is HCL’s case that it carried out the work pursuant to the default provisions in the letter of intent, then the referral notice should have made that clear and the letter of intent (and any other relevant documents relied on) should have been appended to it.

However, in the unusual circumstances of this case I consider that the terms of HCL’s Referral were sufficient to bring subsection (5) into play so that it is no longer open to either party, or the adjudicator, to assert or decide that the adjudicator has no jurisdiction because the referral notice did not disclose an agreement in writing. Accordingly, subsequent submissions to the contrary effect in the course of the adjudication are simply irrelevant.

For the sake of completeness, I should mention that Miss Day referred me to the decision of His Honour Judge Bowsher QC in the Grovedeck case, which was mentioned in the judgment of Ward LJ in RJT. At paragraphs 28-30 the judge said:

“28.

On one reading of section 107(5), if one party to an adjudication alleges the existence of an oral agreement and the other does not deny the existence of an oral agreement, then there is an agreement in writing ‘to the effect alleged’, that is, in the terms alleged by the claimant, even though the other party hotly denies, as he did here, that the agreement was in the terms alleged. Parliament cannot have intended such an unjust result.

29.

I think this is a case where it is permissible, following the decision of the House of Lords in Pepper v. Hart [1993] AC 593, to look at Hansard. It appears from the Hansard Report of the proceedings in the House of Lords for 23 July, 1996 that section 107(5) originally contained no reference to adjudication proceedings. The House of Lords accepted a Commons amendment that after the word ‘submissions’ there should be inserted the words ‘in adjudication proceedings or’. If one reads section 107(5) without the words ‘in adjudication proceedings or’ it is clear that the intention of Parliament was that a contract should be treated as a contract in writing if in arbitral or litigation proceedings before the adjudication proceedings in question an oral contract had been alleged and admitted. I also would read the words ‘and not denied’ as meaning that the alleged terms of the contract were not denied. By adding the words ‘in adjudication proceedings or’, Parliament intended to add a reference to other preceding adjudication proceedings. There was no intention by Parliament to provide that submissions made by a party to an unauthorised adjudication should give to the supposed adjudicator a jurisdiction which he did not have when he was appointed.

30.

Read in that way, the sub-section has an entirely sensible and practical intention and purpose and I so read it. Disputes as to the terms, express and implied, of oral construction agreements are surprisingly common and are not readily susceptible of resolution by a summary procedure such as adjudication. It is not surprising that Parliament should have intended that such disputes should not be determined by Adjudicators under the Act, but if in any case such room for dispute has been removed by previous formal and binding legal submissions, then the adjudicator has jurisdiction.”

With due respect to that experienced judge, I find that I am unable to agree with his conclusion that the reference to “in adjudication proceedings” must refer to preceding adjudication proceedings. I do not consider that the language, or the history of the drafting of the section as described by the judge, compels such a conclusion. Indeed, in RJT, Ward LJ referred specifically to “written submissions in the adjudication proceedings” (my emphasis) - ie not in previous adjudication proceedings - and it is clear that His Honour Judge Thornton QC in the Mott MacDonald case took the same view (see paragraph 54 of his judgment).

However, nothing that I have said in this judgment should be taking as reflecting any disagreement with the passage quoted by Ward LJ from paragraph 30 of His Honour Judge Bowsher’s judgment in Grovedeck. I respectfully agree that in the context of the 1996 Act these observations were correct. However, a countervailing factor is that it is quite clear that where issues of jurisdiction arise in an adjudication they should be resolved at the earliest possible opportunity. I note in passing that Ward LJ expressly declined to comment further on any other part of Judge Bowsher’s reasoning in Grovedeck.

It seems to me that this approach is reinforced by the reference in subsection (5) to the allegation not being denied “by the other party in his response”. A denial at some later stage in the adjudication proceedings will simply come too late.

For these reasons I consider that by virtue of the operation of subsection (5) the parties in this adjudication must be taken to have made an agreement in writing. However, since no terms were identified in the referral notice, the precise terms of the agreement remain unresolved. The “effect alleged” is simply that Glendalough engaged HCL as contractor to construct the development identified in the referral notice.

However, Miss Day had a further point based on the decision in RJT. She said that HCL’s case (as now advanced) is that, since no formal contract was ever entered into, the work was carried out under the terms of the last three paragraphs of the letter of intent.

The letter of intent, so far as is material, was in the following terms:

“We are writing to confirm that it is the intention of [Glendalough] to enter into the contract with [HCL] for the proposed Construction of a Residential Block and B1 Studios act, 121-127 Church Walk, London.

You will be required to enter into a lump sum fixed price contract with the Employer for the works based on your revised tender dated 02 December 2009 incorporating the JCT 2005 Intermediate Form of Contract with Contractors Design and further incorporating post tender adjustments for a lump sum contract in the order of £1.6 million (exclusive of VAT).

The Contract commencement date on site will be 15 March 2010. The total contract period is 65 working weeks and the final contract completion date is therefore 10 June 2011, with completion dates for the sections of work as follows:

...

Please find attached the following documents upon which this letter of intent is based

…

You are hereby authorised to take all necessary action to commence on site and complete the works in accordance with the dates referred to above and in accordance with the drawings and instructions issued by Featherstone Young and Conisbee. You are further authorised to place orders and expend moneys to obtain such goods and services as are necessary for the proper execution and completion of the works. This authorisation is given pending issue of formal contract documents which must be completed and returned upon receipt.

In the unlikely event of the Employer not being able to enter into a contract with you, we agree to reimburse [HCL] the reasonable cost of any works carried out on site based on your tender but exclusive of any loss of profit and overheads all as agreed with Burke Hunter Adams.

It is intended that this letter of intention [sic] will be incorporated into the contract documentation and this letter is issued to enable you to mobilise and start on site by the agreed commencement date prior to the issue of the contract documentation.”

Miss Day referred me to a decision of His Honour Judge Peter Coulson QC, as he then was, in Hart Investments Ltd v Fidler and Another [2006] EWHC 2857 (TCC). In that case the court had to consider whether the default provisions of a letter of intent complied with section 107(2)(c). It was submitted that the letter of intent in that case created no more than the framework for an agreement and that a good deal of other material was necessary in order to see what the contract actually involved.

I should set the judge’s observations at paragraphs 58-63 in full. He said this:

“58.

I have given this issue careful consideration because I am aware that arrangements similar in form to the letter of 1^st November 2002 are very common in the UK construction industry. I am also aware that there is no reported case on whether this type of arrangement complies with s.107(2)(c) of the 1997 Act. For the reasons set out below I consider that it does not.

59.

The first question is whether the three numbered paragraphs constitute a binding/enforceable contract at all. On analysis, it is not easy to say that they do. Essentially Hart are saying to Larchpark that if they, Hart, ask Larchpark to carry out work, Larchpark would be paid their reasonable costs for so doing. If it is a framework, it is of the loosest and vaguest kind.

60.

Even if these provisions did constitute a binding/enforceable contract, it is clear that the sort of clarity of terms envisaged by s.107(2)(c) and the Court of Appeal in RJT is wholly absent. It is trite law that in order to have a building contract you usually need agreement as to parties, workscope, price and time. There was plainly no agreement as to time, so that the best that could be said was that there would be an implied term to the effect that the work would be concluded within a reasonable time. The agreement as to price was limited to the costs reasonably incurred. There was uncertainty over the identity of the parties because the second letter of 6^th December 2002 (para.31 above), which was not relied on as a contract document by the adjudicator, introduces uncertainty as to who the employer actually was. Moreover, contrary to the adjudicator's decision, I consider that the letter of 6^th December cannot be ignored because, without it, the cap was £20,000, and both parties are agreed that that was not the basis upon which the work was done by Larchpark. That point alone may be enough to warrant the conclusion that the adjudicator was wrong and that, even on Larchpark's own case, the letter of 1^st November did not contain all the terms of the contract.

61.

However, the biggest difficulty comes with a consideration of the contract workscope. The workscope, according to the letter, is work which will, or might be, the subject of orders in the future, whether written or oral. That might be sufficient for a binding contract, although I do not think it is and, as I have indicated, enforcement of it would be next to impossible. More importantly, such a definition of workscope is a recipe for confusion and dispute of the very sort which s.107(2)(c) is designed to avoid. This point can be emphasised by reference to Hart's own pleading in this case. In para.3 of the particulars of claim Hart defined the contractual workscope as including:

‘The retention and preservation of the front and side facades of the property, the removal of the main part of the building and the construction of the basement and the reconstruction of the building above the new constructed basement area.,

This workscope is plainly not discernible from the letter of 1^st November. It is based on subsequent orders, instructions and the like which may, or may not, have been reduced to writing. If the contract document does not even begin to define the contract workscope it seems to me impossible to say that all the terms, or even all the material terms, are set out in writing.

62.

The fact that the three paragraphs of the letter of 1^st November were designed to be a fall-back position, only relevant at all if no formal/full contract was ever concluded, also militates against the submission that this was a contract in writing containing all the terms that had been agreed by the parties. On the contrary, it seems to me that it was designed to provide a very basic framework that would only be operated if, contrary to all expectations, a formal/full contract was not agreed. By definition, at the time that it was written, it could not allow for or address future events, such as the particular workscope that might be required or ordered. It was a simple fall-back position to regulate the parties' relationship if no formal/full contract was agreed. The three paragraphs in the letter of 1^st November were not themselves designed to be a complete record of the parties' proposed agreement. They could not be; if they had been, there would have been no need for a formal/full contract at all.

63.

I have acknowledged in para.61 above that, as a matter of strict contractual analysis, it might be said that, just looking at the letter of 1^st November, the contract workscope was what Hart asked for as the work on site progressed, and that the remuneration was what the parties agreed was a reasonable figure for Larchpark's costs. On this simple basis, it might be argued that this was (just) enough for the 1996 Act. As I have explained, in my judgment this arrangement, without more, was not only unenforceable in any practical sense, but was insufficient to come within s.107(2)(c). The whole point of that section is to ensure that the swift adjudication process is only operated in circumstances where the underlying contract is clear, so that the adjudication will not become bogged down in allegations about unwritten or unclear contract terms. The rationale of RJT was the importance of clarity in the underlying contract, which could only be provided if all the terms of that contract were in writing, and thus beyond argument.

64.

It seems to me that even if, which I do not accept, the three paragraphs of the letter on their own constituted a binding and enforceable contract, such an arrangement, where nothing of any importance was defined in writing, was not a contract for the purposes of s.107(2)(c) of the 1996 Act. To hold otherwise would be contrary to the reasoning of the Court of Appeal in RJT. In consequence, the absence of a contract within the definition of s.107(2)(c) is a second reason why I decline to enforce the adjudicator's award.”

However, at paragraphs 2.73-2.76 of his book on Construction Adjudication, 2nd edition, the learned judge considered the extent to which Hart v Fidler was still authority for the proposition that contracts in the form of simple letters of intent would not comply with section 107 of the 1996 Act. His conclusion, at paragraph 2.76, was as follows:

“Accordingly, it is now safe to assume that the letter of intent can amount to a contract in writing for the purposes of this 107 and that the only thing that will matter is whether or not the letter of intent expressed all the contractual terms that had been agreed.”

The most recent of the cases there discussed, and probably the most relevant for the purposes of this dispute, is the decision of Ramsey J in PT Building Services v ROK Build Ltd [2008] EWHC 3434 (TCC). That was not a case involving a letter of intent because the contract between the parties was said to have been evidenced by a document entitled “Subcontract pre-contract interview notes”, which had been signed by both parties. The adjudicator held that these notes evidenced the existence of a binding contract between the parties and his decision was upheld by Ramsey J.

It is, again, worth quoting several paragraphs of the judgment of Ramsey J in full. At paragraphs 31 and 35 he said this:

“31.

Section 107 of the 1996 Act requires all the terms of the construction contract to be in writing or evidenced in writing: see RJT Consulting Engineers v. DM Engineering [2002] BLR 217. The requirement that all the terms of the construction contract have to be in writing has been criticised. The requirement, transferred word for word directly from s.5 of the Arbitration Act 1996, which requires the arbitration agreement and certain other agreements to be in writing, is evidently necessary where the effect of the arbitration agreement is to deprive the court of jurisdiction and other agreements have the effect of varying the non-mandatory provisions of the Arbitration Act 1996. While it is possible to explain the requirement that all the terms of a construction contract have to be in writing in terms of the need to have certainty, it has proved an impracticable requirement which has given rise to a number of challenges to enforcement of adjudicator’s decisions. It is now the subject of a draft Bill which will seek to repeal that provision. Until that happens, the law is that the provisions of s.107 fall to be applied.

…

35.

It is evident that a full description of all works which PTB were to carry out is not contained in the notes of the meeting. However, the meeting notes envisaged that PTB would be provided with additional information prior to commencement of works and that instructions would be given for additional works. The terms of the agreement do not, in my view, limit the timing or scope of those instructions or the place where the work was to be carried out. Where a contract contains express terms which provide that a party will provide the other party with information about the works and will give instructions for additional works, then, in my judgment, there is no need for the scope of the works to be fully set out in or evidenced in writing in the underlying contract. The relevant contract term is in writing or evidenced in writing and the fact that it envisages performance taking place by further information or instructions, which may be oral or in writing, does not affect the fact that the relevant contract term itself was in writing or evidenced in writing.”

Then, at paragraphs 40-41, he said:

“40.

Mr Stansfield relied on further documents as evidencing the construction contract, including these works. First, there was the document referred to as PTB rates, application as of January 2008, which contained a breakdown of ‘All-in basket scope of works’ showing that the rates were to be applied for all work from that date. Secondly, he refers to letters dated 5 and 18 March 2008 by which ROK requested that PTB should include applications for all properties in its applications for the Harlow Decent Homes project. Thirdly, he relies on an exchange of emails in June 2008, which are referred to further below. This led to the process which culminated in the production of the final account document which was attached to the notice of adjudication dated 20 August 2008.

41.

The provisions of s.107(4) of the 1996 Act refer to an agreement being evidenced in writing ‘if an agreement made otherwise than in writing is recorded by one of the parties.’ There is no need for the agreement to be recorded in one document, nor is there a requirement for when the record is to be made. In this case, it is common ground that the meeting notes contain all the provisions except those relating to work scope. I consider that the work scope is dealt with by the instruction of work under the terms which are sufficiently recorded in the signed meeting notes. In any event, the documents relied on by Mr Stansfield record the revised all-in basket rates which formed the basis of the phase 2 claims. Further, the discussions between the parties and the documents produced by PTB sufficiently record the scope of the works to the extent that this might be necessary.”

In cases involving letters of intent it seems to me that each case turns on its own facts. If there was no intent to create legal relations or the terms are too uncertain, the court may conclude that the ordinary requirements for the creation of a binding contract are not satisfied. However, the decision of the Court of Appeal in RJT suggests that the ingredients of a “construction contract” within the meaning of the 1996 Act may be more stringent than the requirements of the common law. For the purposes of this judgment I will assume (without deciding) that this is so. The decision in RJT establishes that for a contract to be evidenced in writing within the meaning of section 107(2)(c) all the relevant terms agreed must be recorded in the relevant document or documents.

What is under consideration in the present case is what I will call the default provision in the letter of intent, namely the last three paragraphs which I have set out above. These are the terms that are said to govern the relationship of the parties if a formal contract is not entered into. However, the terms are not to be found only in the last three paragraphs of the letter because matters such as the scope of the work are described in the preceding paragraphs of the letter.

For there to be a valid construction contract within the meaning of section 107 there must be agreement on at least four essential items: the parties, the scope of work, the price and time (see Hart v Fidler, at paragraph 59). In the present case there is clearly no doubt as to the identity of the contracting parties. The scope of the work is described by reference to the drawings and instructions issued by the architect, which are in turn identified in the tender documentation referred to in the letter. This seems to me to be a sufficiently precise definition of the scope of the works, although on this application there has been no evidence as to the actual quality or extent of these drawings. In these circumstances, I must assume that they define the scope of the work in sufficient detail. It is clear that the intention was that the parties would enter into a formal contract in the form of the JCT 2005 Intermediate Form of Contract with Contractor’s Design, which would then regulate work carried out both before and after the contract was entered into. It was also clearly the intention of the parties that the procedures to be followed would reflect the contractual machinery of the JCT 2005 contract. This would mean that, for example, any instructions to vary the work would have to be issued in accordance with the requirements of that form of contract, which, amongst other things, would mean that they would be in writing. In my view, therefore, the letter of intent and the documents referred to therein provided an adequate description of the scope of the work.

I turn next to the question of the price. It is often inherent in the nature of default provisions such as these that the price has not been agreed. Unless a failure to agree on a price is always to be fatal to the creation of the construction contract, a point to which I will return shortly, it seems to me that the relevant question is whether or not the parties have agreed upon a satisfactory means of ascertaining the price. For example, simply to agree that the contractor is to be paid a fair price for the work carried out may be too uncertain if no machinery has been agreed upon for establishing how a fair price is to be assessed.

In the present case the letter states that HCL is to be paid the reasonable cost of the works carried out based on their tender. I take this to mean that the cost of the work is to be assessed by reference to the rates and prices set out in HCL’s tender. It is reasonable to assume that the tender would contain rates and prices applicable to the work shown in the architect’s drawings, so that unless the works were varied in any significant respect one would expect there to be a rate or a price for all the different parts of the work. Thus calculation of the reasonable cost of the work would involve measurement of the work carried out and then the application of the tender rates and prices to those measured quantities. This seems to me to provide a sufficiently certain method of ascertaining what is a reasonable price.

In my opinion the decision of Ramsey J in PTB v ROK shows that the absence of agreement on a contract price will not be fatal to the existence of a construction contract provided that there is an agreed written record which identifies rates that are to be applied to the work carried out. I consider that the default provision in the letter of intent, when read in the context of the letter as a whole, satisfies this requirement.

The final ingredient is that of time. The letter of intent specified the commencement date for the work and a final completion date. However, in the absence of a formal contract it is open to question whether the letter of intent incorporated by implication provisions regarding extensions of time. For the purposes of this judgment, I will assume (again without deciding) that such provisions are not so incorporated. In which case, the default provision requires HCL to carry out the requirements of the letter “in a diligent and timely fashion as provided for herein”, being the declaration on the basis of which HCL accepted the terms of the letter of intent. In my view, an obligation such as this does not deprive the agreement of contractual effect. In this context it is relevant to note that if a construction contract does not provide for the giving of an extension of time in the event of a breach of contract by the employer, any such breach which delays the contractor may put time at large. However, this does not prevent the contract from being a binding agreement.

I must make it clear that my conclusions on the issue of whether or not the letter of intent satisfies the requirements of a construction contract must be regarded as provisional. They have been reached on the basis of submissions made at one hearing lasting three hours and a limited amount of time in which to consider the written material that was put before the court. Indeed, it is only thanks to the diligence and professionalism of both counsel who, over the weekend before the hearing, were able to respond to queries raised by me, that it was made possible for the hearing to be concluded in the limited time available and for me to prepare this judgment within the 24 hours following its conclusion. In these circumstances, the question of whether or not the letter of intent is capable of constituting a construction contract within the meaning of the 1996 Act is in my judgment a matter for the adjudicator.

If I had reached a clear conclusion that the letter of intent was not capable of constituting a construction contract, then I would have considered whether or not it would be just and appropriate to make a declaration to that effect and thereby pre-empt any decision by the adjudicator. However, for the reasons that I have given above, I have not reached a clear conclusion to that effect and so there is no question of my making any such declaration.

In the light of the conclusions that I have reached Glendalough’s applications must be dismissed.

However, because I have held that by the operation of subsection 107(5) of the 1996 Act the parties are to be taken as having agreed that there was an agreement in writing, I declare that it is not open to either party to contend, or to the adjudicator to decide, the contrary.

No part of this judgment is to be communicated to the adjudicator before he gives his Decision save for the declaration set out in the previous paragraph. In the interests of avoiding unnecessary costs I consider that it is appropriate for that declaration to be communicated to the adjudicator straightaway.