This is one area where a rapid means of dispute resolution, such as adjudication under the Construction Act, would assist. Unfortunately, section 107 of the act severely restricts the application of adjudication by requiring agreements to be in writing. Although the requirement is given a wide meaning, many arrangements where the parties mistakenly act as if they have a contract are not caught by the act.
The courts have taken a robust approach to the interpretation of section 107, straining its meaning. If the parties only have an oral agreement but there is significant written documentation in the administration of the contract, the courts accept that the contract is evidenced in writing and caught by the act.
When the courts strain against the effect of legislation, it is clear that amendment is necessary. The act should be revised to apply to the common arrangement in the construction industry and assist parties to reduce the cost of dispute resolution.
This will remove the need for complicated and unnecessary jurisprudence on the jurisdiction of the adjudicator to decide disputes, when the existence of a contract in writing is in doubt.
Until then, the courts will continue to find a practical way forward, albeit based on complicated legal concepts. The most recent development, and possibly the most wide-ranging in effect, is to be found in the decision of Mr Justice Etherton QC in William Oakley vs Airclear Environmental Limited (2001).
As is common, the parties in this case did not complete the required documents. Disputes arose and in subsequent communications and applications to resolve them, the parties took changing positions on whether or not there was a contract between them. Adjudication began and a decision given, although Oakley played no part following its objection to jurisdiction.
The main issue was whether the adjudicator's decision created a debt due for the purposes of a statutory demand, which in turn depended on the validity of the adjudicator's decision.
The interesting aspect of the case was the examination of the principle that estoppel by convention may found the jurisdiction of an adjudicator in the absence of a contract.
Estoppel by convention is a doctrine that operates when both parties act on a common but mistaken assumption of fact or law. If the parties regulate their dealings on the basis of the assumption, then they will be prevented from denying the assumption if it would be unjust for them to do so. In this case, the common assumption was that there was a contract between the parties and that the parties had a right to refer disputes under the contract to adjudication. It was held that estoppel by convention binds the parties if asserting the true legal or factual position would be to the unjust detriment of the other party as a result of rejecting the common assumption.
In the present case, Oakley had denied the jurisdiction of the adjudicator at the earliest opportunity, rejecting the existence of a contract between the parties. There was no evidence to establish the detriment suffered by Airclear and it was found unlikely that Airclear had expended substantial sums. Accordingly, it was held that it was not unjust for Oakley to be allowed to reject the assumption both parties had previously made, that adjudication could be used to resolve disputes. It was held that the adjudicator was not validly appointed and that his decision was a nullity.
Although not successful in this case, the principle implicit in the decision widens the application of adjudication to those common situations where both parties regulate their behaviour as if they had a contract, even if they do not. A party may not be able to object successfully to adjudication, even when there is no contract, if the other party has spent substantial sums on the common basis that adjudication is available. In most situations, a party will have prepared its case before beginning adjudication, and any objection will be too late if evidence of that expenditure is available.
Daniel Atkinson is managing director of Atkinson Law.