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He said, she said: Oral contracts and adjudication

A recent case has highlighted the risks of oral construction contracts and the facts that have to be addressed during the adjudication process.

When the amendments to the Construction Act 1996 came in, one aspect that caused a stir was the amendment that enabled parties involved in oral construction contracts to refer disputes to adjudication.

One concern was that oral contracts would give rise to drawn-out factual disputes over what was and was not agreed that would frustrate the efficiency of the adjudication process and may clog up the courts with contested adjudication enforcement hearings.

A grilling case

A recent case in the Technology and Construction Court, Rob Purton trading as Richwood Interiors v Kilker Projects Ltd [2015] EWHC 2624 (TCC), highlights the risks of oral construction contracts and the factual disputes that had to be addressed.

In this matter the adjudicator was addressing a technical payment dispute that centred around a failure to issue a payment or payless notice in respect of an application for payment for joinery works at the Dorchester Grill.

However, before the adjudicator could get that far he had to decide whether there was an oral contract between the parties, who the contracting parties were as this was disputed, on what date the oral contract was entered into and the value of the scope of works.

It alleged that the original contract was changed in various respects, including in value, quantity and quality, through variation instructions.

Adjudicator’s decision

The adjudicator decided that Kilker was due to pay £147,223 within seven days, and his fees and expenses of £4,184.

Kilker refused to pay so Purton commenced summary judgment proceedings.

From the outset of the enforcement submissions Kilker argued that there was not a concluded contract between the parties and therefore the adjudicator did not have jurisdiction to give his decision.

“The court took a pragmatic position and emphasised that the real concern was whether there was a construction contract and a dispute arising under it”

Secondly, in the alternative, it was necessary for the court to be satisfied to the requisite standard for awarding summary judgment that, if a contract had existed, it had been the contract as described by Purton in the proceedings.

Kilker argued that if the court was not so satisfied, Purton should not be permitted to rely upon a contract that had not been pleaded.

This led to a debate as to whether the contract relied on was the correct contract between the parties but the court took a pragmatic position and emphasised that the real concern was whether there was a construction contract and a dispute arising under it.

The detail of each and every term was less important.

Implications for contractors

As a consequence, the court held that the application would be allowed.

It was clear beyond argument that there had been a contract.

There had been substantial performance on both sides, with Purton having done the works and Kilker having made payments.

While it was theoretically possible for parties to carry out works and to receive payments without having entered into a legally binding agreement, it was unrealistic to suggest that was what had happened in the circumstances of the present case.

“Parties to oral construction contracts should take comfort that factual disputes over terms may not undermine the potential to adjudicate and enforce decisions”

The court held that whether or not Purton had precisely described the terms of the contract did not undermine the basis of the adjudicator’s jurisdiction, the application of the Scheme for Construction Contracts or the substantive outcome.

Kilker had not identified any variant of the contract that would affect the adjudicator’s substantive decision.

Following this, parties to oral construction contracts should take comfort that factual disputes over terms may not undermine the potential to adjudicate and enforce decisions.

As the judge described, if you can establish a construction contract and the relevant statutory rules come into play, the adjudicator’s substantive reasoning applies and is unimpeachable.

Theresa Mohammed is a dispute resolution and litigation partner, and Lydia Rose is a trainee solicitor, at Trowers & Hamlins  

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