Put it in writing

In order to adjudicate a dispute under a construction contract the contract must be in writing or 'evidenced in writing'. The policy reason behind this is that adjudication is designed to be a swift process and disputes as to the terms of oral contracts are often not capable of being decided quickly.

However, the requirement of writing is not as strict as it at first seems. An agreement is evidenced in writing even if it is recorded by one of the parties or by a third party with the authority of the parties.

In RJT Consulting Engineers Ltd versus DM Engineering (Northern Ireland) Ltd (March 2002) the Court of Appeal refined this somewhat and held that it is the terms of the agreement, not just the existence of it, that must be evidenced in writing. Lord Justice Ward stated that all the terms of the agreement must be evidenced in writing. However, Lord Justice Auld appeared to take a broader approach stating that it was only necessary for the material terms of the agreement to be evidenced in writing. The case of Carillion Construction Ltd versus Devonport Royal Dockyard Ltd (November 2002) shows that the requirement for writing also applies to oral variations made to the terms of an existing written contract.

The facts
In 1997 the Ministry of Defence engaged Devonport Management Ltd (DML) as main contractor to upgrade the Devonport Royal Dockyard. DML engaged Carillion (then Tarmac) as subcontractor. The contract was contained in two documents: a subcontract agreement and an alliance agreement. Carillion was to be paid its actual costs, plus accruals and a fee. A gainshare agreement arrangement was also made according to which any overrun of target cost was to be shared by DML and Carillion (in proportions of 60% and 40% respectively).

The project soon overran the target cost, through no fault of Carillion. An Alliance Board meeting (made up of two representatives of each party with full authority to act and make decisions) took place on 30 October 2001. Carillion maintained that at the meeting a binding oral agreement was reached to the effect that the payment basis was to become cost reimbursable without the gainshare restriction.

Carillion then submitted an application for payment. This was questioned by DML and Carillion issued a notice of adjudication claiming the amount of that payment claim. Adjudication took place under the statutory scheme. The adjudicator agreed with Carillion that a binding oral agreement had been reached on 30 October. He ordered DML to pay Carillion approximately £7.5 million. DML refused to pay and proceedings were brought by Carillion to enforce the adjudicator's award.

Oral variations to written contracts occur frequently in the industry, but they must be documented if the parties wish to preserve their right to adjudicate.

The decision
His Honour Judge Bowsher QC held that the adjudicator did not have jurisdiction. He referred to the Court of Appeal's decision in RJT Consulting and the judgements of their Lordships. The alleged oral agreement was a "material term" which "radically changed" the written agreement and therefore it needed to be evidenced in writing.

Judge Bowsher found that while the relevant documents in the Carillion case did evidence the fact that there was a discussion as to whether the contract should become cost reimbursable, they did not evidence that an oral contract was actually made because they were so conflicting. The documents also did not evidence any agreement as to the definition of 'cost reimbursable' which he said would need to be made clear if any agreement was to be enforceable (he did not consider that the words 'cost reimbursable' were terms of art sufficiently clear to be enforceable without further definition).

Since oral variations to written contracts occur frequently in the industry, often due to time pressures, the case signals a warning that such variations must be documented if the parties wish to preserve their right to adjudicate.

Judge Bowsher also gave some guidance on whether or not there had been a 'dispute' for the purposes of adjudication since DML argued that there was not. This part of his judgement was provisional. He found that there was not a dispute between the parties.

The facts showed that DML was neither denying or ignoring Carillion's payment claim outright: they were asking for clarification. The best clarification they got from Carillion was so close in time to the notice of adjudication that they had no opportunity to respond. DML had (in the words of Judge Gilliland in Cruden Construction Ltd versus Commission for the New Towns (1995)) "not been told and …[was] unaware in what respects it…[was] alleged to have broken its obligation."

Judge Bowsher's decision adopts a similar approach to that of Judge Seymour QC in Edmund Nuttall Ltd versus RG Carter Ltd (March 2002) who stated that a 'dispute' is more than a claim which has not been accepted: there must have been an opportunity for each side to consider the position adopted by the other and formulate reasoned arguments.