Opening Pandora’s box

Like many others, I have followed with interest the debate on the government’s proposals for construction contracts – and in particular the proposal to drop the requirement for contracts to be in writing (see Tony Bingham, 6 July, page 57, and Dominic Helps, 31 August, page 47).

Although I appreciate Tony and Dominic’s detailed discussions of the decision in Bennett vs Inviron, I think there are some fundamental issues to grapple with here.

First, let us bear in mind that this is all really about dispute resolution. People have disputes. Fine. They need resolving. Fine. To have any level of certainty and consistency in this world, we need to decide disputes against a set of rules. Again, fine.

Those rules are the procedural rules of the dispute process, decided case law and, crucially, the contractual terms agreed between the parties in relation to a dispute regarding a contract.

The problem with the government proposal is this: the proposal effectively means the dispute resolver – the adjudicator – decides their own playing field. She or he decides what the contract is or is not.

This of course has massive implications for dispute resolution. The person making the decision would now be entitled to decide what the contract terms were. This means they can fit the contract to suit the facts or perceived justice of the case before them. Major risk and major uncertainty.

The current regime requires the adjudicator to implement and interpret the terms of a written contract. That naturally constrains the adjudicator. She or he may have much sympathy with a party’s position in fact or circumstance, but may conclude that the claim fails under the bargain recorded in the contract documents.

The adjudicator would be entitled to decide the contract terms. This means they can fit the contract to suit the facts or perceived justice of the case

Once adjudicators are allowed to consider whether there were oral agreements or discussions that varied or amended the terms reached, they are likely to face all manner of claims suggesting something was said at tender stage or on site, a waiver was given or an estoppel arises.

If this proposal is implemented, one immediate effect may be a rise in the use of clauses that seek to exclude anything extraneous from being part of the contract. These clauses seek to say that the whole of the bargain is that recorded in the written documents that constitute the contract – and nothing else.

Another immediate impact of the proposed change may be a far more disciplined approach to contracting by the industry. Perhaps that’s no bad thing – make your mind up if you want to contract or not, put it all in writing and get it all signed off.

Less desirable may be a rise in more cases going on from adjudication because the decision made reflects an incorrect finding as to what the contract is. Were that to happen, a lot more money and time may well be spent on “quarrels about contracts” than Tony believes the proposed change would save.

If we put this in context, the courts’ function is to decide if there is a contract and, if so, what its terms are. The court does not resolve an impasse on a difficult point that has not been resolved between the parties in negotiation, however tempting that might be. Nor does the court alter the bargain to reflect what is fair, save for those rare instances arising under requirements of statute law, such as in relation to consumer contracts.

My fear is that a proposal – which on the surface seems reasonable to “further the laudable objectives behind the legislation”, as Dominic notes – may open up all manner of problems. In reality, compared with the number of cases dealt with by adjudication, those featuring a debate as to whether there is a contract in writing are relatively few.

It is unclear why parliament would want to facilitate and benefit those who don’t get their procurement right in the first place by giving them a statutory short-form way of resolving their disputes and previous failings. All this is very much against the spirit of the Construction Act which sought to impose better contractual discipline on the industry. Not such a laudable objective.