Does the Construction Act apply if there is only an oral agreement? The act seems to say yes, but the judge in a recent case said no. Clearly it's an urgent case for treatment.
Capital Demolition sublet to Grovedeck part of the work on two jobs, one at Cockspur Street, London SW1, the other at Heinz Beanz, Hayes Park. Come July last, Grovedeck complained about being underpaid, and pulled off site. By December, it was still out of pocket and called for an adjudicator. The Chartered Institute of Building appointed Roger Louch on both jobs. Louch eventually awarded £143 908 to Grovedeck in respect of breaches of contract. But Capital wouldn’t pay. So Grovedeck sought summary judgment in the High Court last week.

Capital cited two reasons for non-payment. First, it said the Construction Act did not apply to contracts that were not in writing. Second, it argued that the notice referring the disputes to adjudication was invalid as it referred to two contracts. Both reasons succeeded. The judge let Capital keep the cash. Let’s look at the two arguments.

Contracts not in writing

The Construction Act draftsman stole some words straight out of the Arbitration Act 1996. He must have thought adjudication was arbitration in short pants. It’s not. But he blessed us with the requirement that the Construction Act applies only to agreements in writing. Don’t get excited, the phrase “in writing” also includes oral agreements to something else in writing. Sounds odd? Bear with me.

There is even a section (107(5)) that says that if you allege during an adjudication that an agreement exists otherwise than in writing and the other chap does not deny it, this constitutes a written agreement. The judge saw something unjust and unintended here. If you contend the agreement is oral and I agree it was oral, it seems absurd to say that this converts it to a written agreement and therefore a construction operation “in scope”.

Daft. But I always thought the real intention was to ensure we could prove an agreement for “construction operations”. Parliament was, I thought, only worrying about oral agreements being vague as to effect. As soon as the effect identifies construction operations, the act applies. The judge didn’t seem to have that argument put to him. He decided that unless prior agreement had been reached about a written agreement, no adjudicator could come to the dispute.

If you contend the agreement is oral and I agree it was oral, it seems absurd to say that this converts it to a written agreement

The great attraction in all this for those who don’t want the Construction Act to apply is to have oral agreements. That cannot be right, nor what parliament intended, nor does it make commercial sense. Surely what is meant is that if we orally agree to design or build or supervise, there has to be evidence that it is a construction operation “in scope”. A written agreement, of course, is useful. But if I say you engaged me to be the architect or builder on an office block in Mevagissey and you agreed this was true, it doesn’t matter that the agreement was oral because the act simply asks, what was the effect of the agreement? If the effect gave rise to an agreement for construction operations, the act applies in full. At least, that’s what I thought.

One contract, not more than one referral

Ordinarily, said the judge, there is nothing to prevent more than one contract being included in one notice of referral. This is what Grovedeck did. And the CIOB appointed the referee. But on this occasion, the Scheme for Construction Contracts applied. Paragraph 8 of the scheme says an adjudicator can adjudicate at the same time on more than one dispute under the same contract or adjudicate at the same time on related disputes under different contracts, but only with the parties’ consent. And since the adjudicator was appointed under different contracts by a nominating body without the consent of Capital and Grovedeck, the whole adjudication was void.

I must confess I hadn’t read paragraph 8 that way. We learn all the time. The scheme is set out chronologically. First, it deals with notice of intention to adjudicate, then request to act, then, at paragraph 5, appointment by a nominating body, then refusal to act, then the referral of the dispute, then paragraph 8 extending jurisdiction and so on. If there was a restriction on the nominating body, I would have thought it would be at paragraph 5 stage. Paragraph 8, I thought, was only about the adjudicator extending his jurisdiction … he needs you and me to agree. I didn’t think it went as far as the nominating body … at least that’s what I thought.