| Date | 22 March 2000 |
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| Judgment | Grovedeck Limited -v- Capital Demolition Limited TCC 24 February 2000. |
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| The Issue | Whether oral contracts may be subject to adjudication. |
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| Implication |
Disputes arising under oral agreements may not be the subject of adjudication proceedings unless the oral contract has been alleged and not denied in earlier proceedings. |
printDisputes upon the express and implied terms of oral construction agreements are surprisingly common in the construction industry. Such disputes will raise particularly difficult questions of evidence, and it may be said that they are not readily susceptible of resolution by a summary procedure such as adjudication. Within the short timescales envisaged it will be difficult to give an adjudicator the means to properly investigate the rights and obligations of parties deriving from a contract, the terms of which have not been clearly set down in writing. It is for this reason that Parliament clearly intended that such disputes should not be determined by adjudicators under the Housing Grants, Construction and Regeneration Act 1996. The Act at section 107 (1) clearly states "the provisions of this Part apply only where the construction contract is in writing, and any other agreement between the parties as to any matter is effective for the purposes of this part only if in writing." Had the parliamentary draftsmen said no more on this there would perhaps have been little room for doubt, although it must be accepted that poor management practices in the procurement and placing of construction contracts will always lead to disputes over the prevailing terms of the contract. However, Parliament decided to make the matter just a little more complicated. Section 107 (5) states the following: "An exchange of written submissions in adjudication proceedings or in arbitral in or legal proceedings in which the existence of an agreement otherwise than in writing is alleged by one party against another party and not denied by the other party in his response constitutes as between those parties an agreement in writing to the effect alleged." From its first light of day practitioners have been questioning the precise meaning of this section. Read literally (if that is possible) it presents a conundrum. Consider the following situation: A party initiates adjudication and in its referral document alleges an oral contract. The responding party says; "yes, I agree it is an oral contract and therefore you cannot have adjudication upon any dispute between us". In other words, the responding party does not deny the existence of an oral contract, he affirms it. He may also say, however, the terms of the oral agreement which we consider we entered into, differ to those contended for by the referring party. Does the fact of "not denying" the oral contract cause section 107 (5) to bite, such that for the purposes of the Act, the agreement miraculously becomes "an agreement in writing to the effect alleged." If so the respondent faces a double whammy. Not only is the adjudicator given jurisdiction to deal with the dispute arising out of this oral agreement, but worse, the terms of the oral agreement will be those alleged by the referring party. It could not be long before this rather absurd construction was examined in the courts and indeed these issues have been clarified by His Honour Judge Bowsher QC in the recent case of Grovedeck -v- Capital Demolition Ltd. The case concerned two oral subcontracts between two demolition contractors. Disputes arose under both subcontracts as to the value of payments due and these were referred to adjudication. The responding party quickly took the line that since the contracts were made orally the adjudicator would lack jurisdiction. Applying section 107 (5) the adjudicator found that although strictly speaking he could not investigate his own jurisdiction, he was satisfied that the matters were capable of being adjudicated upon and he proceeded accordingly. The respondents continued to deny the jurisdiction of the adjudicator but nevertheless made their representations that no money was owed to the referring party under the terms of the oral contracts for which they contended. The matter came before the court. Judge Bowsher saw that the interpretation of section 107 (5) of the Act might lead to an odd result. The contracts were not subject to any terms about adjudication when the disputes arose, nor were they subject to any such terms when the referring party sought the appointment of an adjudicator. The contracts were not subject to any terms about adjudication when the adjudicator was appointed, and so, at the date of his appointment he had no jurisdiction. Judge Bowsher questioned "did something happen later to change the nature of the contracts between the parties and give jurisdiction to the adjudicator so as to bestow validity on what was proceeding as an invalid adjudication?" He concluded that this was not the case. He was satisfied that where in section 107 (5) a reference was made to "written submissions in adjudication proceedings", that this was to mean other preceding adjudication proceedings. Accordingly he found that the contracts between the parties made orally in the first instance could not be deemed by statute to be contracts in writing and part II of the Act did not apply to them. Having got to the end of this process, the parties have now had an "other preceding adjudication", in which the existence of an oral contract has been "alleged and not denied". Could it be that on Judge Bowsher's interpretation, they are now free to commence a fresh adjudication upon the terms of their oral contracts? On the other hand, perhaps the process the parties have just been through, in which the adjudicator was found to lack jurisdiction, was not an adjudication at all.
CJ-0011
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