A court applied the law correctly when it quashed an adjudication decision that broke the rules. But perhaps it’s the rules, not the decision, that should be overturned
A large part of the flank wall collapsed during building works at 53-55 Queen’s Avenue in Muswell Hill, north London. This embarrassment came to court. Hart Investments claimed £700,000 damages against the contractor, Larchpark, and the engineer.
Before that, there was an adjudication. That threw up two quirks. The first was about doing an adjudication under a letter of intent. The second was about the rules for adjudicating under the Scheme for Construction Contracts. These provided two reasons to set aside the adjudication.
Let’s deal with the letter of intent first. It said Hart intended to enter into a JCT contract with Larchpark. Meanwhile, it authorised the contractor to proceed with all activities, including ordering building materials worth up to £20,000. It promised to reimburse the reasonable costs of the contractor in connection with work done and orders placed if the intended contract was not entered into.
Guess what? It wasn’t. So, a first endeavour to adjudicate under JCT was wrong because that document didn’t bite on the parties.
So the complaining party came to adjudication again; this time under the agreement in the letter of intent and the adjudication rules in the Scheme. That sounds like the correct approach to me, provided the letter of intent is a construction contract. There is every chance that a letter of intent as a “meanwhile” agreement could be considered a construction contract – it just depends if the terms of the deal are in writing and it is for typical building works. Being cautious, the adjudicator took counsel’s opinion. Counsel gave the thumbs up, so the adjudication continued.
The responding party went to adjudication, but said all the way through that this letter of intent wasn’t enough to be a contract because the adjudications can be held only if there is an agreement in writing. It argued that it was only a framework; it needed, it said, a good deal more to be a contract; it needed to state what the work involved. The judge agreed.
This (very silly) rule that a contract must be in writing requires it to set out who the parties are, the scope of the works, their price and how long they will last. While time and cost can be whatever is reasonable, there is a whopping hole when it comes to scope. The court read the letter to mean the scope was the subject of orders that would follow the letter of intent. That was too vague to identify the scope. It was, said the judge, “a recipe for confusion and dispute”.
The referral shall be served ‘not later than seven days’ after the notice. It came on day eight. Foul, red card!
One of the aims of the contracts in writing rule was to provide firm ground for the high-speed adjudication process. It was not to get bogged down in questions of what the deal was. Of course, the proof of the pudding is that this adjudicator did indeed get on with it. He decided the dispute – no bog there. Still, the decision was set aside. Costs were thrown away.
The next quirk was to do with the timetable for serving the referral. In the Scheme, the rules are that you first serve on the other party a notice of adjudication. That’s the wake-up call. Then the full story in the referral shall be served “not later than seven days” after the notice. Yes, you guessed it: the referral came on day eight. Foul, red card, said the other party.
“My initial reaction,” said the judge, “was to consider that … one day was of no great significance and that it would be harsh to rule that the whole adjudication was a nullity because of that one day’s delay.”
Then again, when and where do you draw a line? Two days, five days or one month? Time is of the essence in adjudication. There is a summary timetable, with which both parties and the adjudicator must comply. The seven days was fundamental, said the court. So that torpedoed the adjudication as well. Costs were thrown away.
Yes, that’s what the Act of Parliament says. But the construction world isn’t a playground for lawyers to exploit technical points. I must confess that I’m coming round to the idea of adjusting the adjudication rules so the adjudicator becomes the person to exercise discretion on these money-wasting points. Litigation got itself wholly bogged down by over-strict rules, and we lawyers have a habit of playing games with rules. The outcome of this Hart case is no doubt a correct application of the rules.
But they’re silly rules.
Tony Bingham is a barrister and arbitrator