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Risks of uncertain contracts painfully exposed

A recent case has highlighted the need to remove uncertainty from your contracts, as you never know which side of the argument you will end up on in a dispute.

The Construction Act makes clear that statutory adjudication is not available in circumstances where one of the parties to a construction contract is a residential occupier.

If parties to such contracts wish for adjudication to be available, express provision needs to be made in their construction contract. For this reason it is important for residential occupiers and those in contract with them to be absolutely sure of their contractual arrangements so that they are not caught by surprise with an adjudication or prevented from using adjudication to resolve disputes. 

In Goldsworthy and others (t/a Goldsworthy Builders) v Harrison and another [2016] EWHC 1589 (TCC), the parties disputed whether or not they had entered into the 2011 version of the JCT Minor Works Contract or not. If they had, there was a contractual right to adjudication and potentially an enforceable adjudicator’s decision in Goldsworthy’s favour.

Works begin

In October 2011, the Harrisons invited Goldsworthy to tender for works to their house. Many months later Goldsworthy quoted for additional works.

Over a year later in October 2012 work began on site and the Harrisons’ architect, who was also the contract administrator, wrote to Goldsworthy and referred to the contract being the JCT Minor Works Contract 2011.

This reference to the MW contract was repeated in an email in November 2012, which set out amended payment terms that did not provide for retention.

“It is important for residential occupiers and those in contract with them to be absolutely sure of their contractual arrangements so that they are not caught by surprise with an adjudication”

After starting work in October 2012, Goldsworthy issued its first invoice in December 2012. Invoices were then submitted up to late spring 2014.

The initial quotation from Goldsworthy was £26,945 exclusive of VAT, which had grown to a quote of £526,000 in 2013 to include additional works.

By the end of 2013 no contract documents had been signed, although a JCT Intermediate form of Building Contract had been issued and objected to by Goldsworthy, as they had tendered on the basis of a MW contract.

In January 2014, the contract administrator produced a completed MW 2011 for Goldsworthy to sign, which they declined.

The claim

By June 2014 the contract administrator was ready to certify practical completion and had recommended to the Harrisons that the last invoice was paid.

By August 2014 the contract administrator had been changed and in March 2016 the new administrator issued the final certificate, referring to the MW contract, reducing the value of the works and showing sums due to the Harrisons from Goldsworthy.

In response, Goldsworthy started an adjudication on an interim application that had not been paid and then issued a pay less notice that stated that the anticipated final account was £708,050.58 with payments claimed to date standing at £699,389.12. This left a further balance of £8,661.46 to be claimed.

On 22 April 2016 the adjudicator decided that the Harrisons were due to pay Goldsworthy £72,400.25 plus any applicable VAT as an interim payment due under the contract.

In May 2016 the new contract administrator issued a different final certificate, showing a balance due to the claimants of £5,015.51 excluding VAT.

Lessons learned

When Goldsworthy sought to enforce the decision of the adjudicator, two issues arose.

The first was that the Harrisons argued that the parties had not entered into a formal agreement that included an adjudication clause and that the adjudicator had no jurisdiction to decide an interim payment, as Goldsworthy had issued a final account itself stating that the balance due to it was £8,661.46.

After examination of the documents, the court held that the contractual position was equivocal, with correspondence from Goldsworthy suggesting that the contract had not been agreed and that the MW contract would be passed on to its solicitors for comment.

“It is far more time and cost effective to have uncertainty removed by a properly executed contract”

In the context of a short enforcement hearing without oral evidence, it was impossible to say there wasn’t a triable issue on whether the MW contract was agreed, particularly when it was full of gaps with options not filled in.

While the judge clearly had sympathy for Goldsworthy, as there was no clear reason for non-payment, it was not possible to make a finding without hearing evidence from both sides and thus the decision could not be enforced.

This was a real shame for Goldsworthy, as the judge made clear that if he could find the MW contract was agreed there would be no reason to disregard the adjudication clause and that the Harrisons’ challenge to the adjudication on the basis a final account had been issued would fail.

The crucial lesson is that there is little to be gained by contractual uncertainty, as you cannot accurately predict which side of an argument you may end up on – and it is far more time and cost-effective to have such uncertainty removed by a properly executed contract.

Theresa Mohammed is a partner in dispute resolution and litigation at Trowers & Hamlins

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