| Date | 28 January 2004 |
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| Judgment | Pegram Shopfitters Ltd v Tally Weijl (UK) Ltd, CA 21 November 2003 |
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| The Issue | The need to establish the proper contractual basis to underpin an adjudication. |
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| Implication |
For an adjudicator to be given jurisdiction, it will not only be necessary to establish the existence of a construction contract, but the underlying terms of that contract will require to be reasonably certain, to ensure that the correct adjudication procedure is adopted. |
printTally Weijl retained Pegram Shopfitters to fit out a new clothing store in Oxford Street, London. The procurement process was something of a shambles. Prior to work starting on site, no contract documents had been prepared and no tendering process had been undertaken. Pegram had simply been introduced to Tally Weijl by the project architect a short time before work started and invited to carry out the shopfitting work at great speed and with an immediate start on site. It was intended that the contract documentation would be produced and agreed and the contract entered into as the work proceeded. At the first project meeting it was proposed that the work would be subject to a 'prime cost', or cost reimbursable, contract arrangement. Pegram would produce an agreed schedule of work. It was also agreed that Tally Weijl would provide a letter of intent but this was never sent. Tally Weijl instead wrote saying that the works were to commence subject to a contract which would be in the JCT standard form of prime cost. Pegram replied saying that it would be unwilling to enter into a contract on those conditions. Exchanges between the parties continued, including a budget price sent by Pegram based upon its own contract conditions. Despite all this confusion, the works had continued at great speed. Following practical completion, however, disputes as to the value of the works arose which Pegram referred to adjudication, having elected to adopt the statutory Scheme rules for the appointment of the adjudicator. By the stage the adjudication had been initiated, it was not at all clear-cut which set of conditions, namely Pegram's conditions or the JCT prime cost form had been incorporated into the construction contract. Indeed, it was not at all clear that there was a contract. Resolving this impasse would be essential to determine the proper amounts due to Pegram for carrying out the work. Tally Weijl raised jurisdictional challenges with the adjudicator and subsequently in front of the court upon enforcement proceedings. They argued firstly that there was no construction contract between the parties and hence no construction contract giving rise to a statutory entitlement to adjudication. Alternatively, they argued that if there was a construction contract, that contract was based upon the JCT prime cost form and thus the JCT adjudication rules would prevail. Since the adjudicator had proceeded on the basis that the Scheme applied, the adjudication had been conducted in contravention of the parties' agreement as to the procedural rules. The adjudication was therefore conducted without jurisdiction. His Honour Judge Thornton QC rejected those contentions. In his view, whilst it was not obvious which set of conditions had been incorporated into the construction contract, there was in existence a construction contract of some kind. He disregarded Tally Weijl's argument that the contract was based on the JCT prime cost or that indeed there was no contract at all, and that in either case the adjudicator had lacked jurisdiction. Accordingly, he granted enforcement of the adjudicator's decision in favour of Pegram. In the Court of Appeal Lord Justice May described that as an oversimplification. Each party had contended for a contract on the conditions which they had respectively promoted, but it was Tally Weijl's crystal clear contention, both before the adjudicator and before the judge, that if no contract was concluded on the JCT prime cost terms, there was no contract at all. This would mean that Pegram was entitled to be paid a reasonable sum for the work it had carried out, but there would be no contract under which an adjudication could be validly commenced. Lord Justice May considered that that was not a fanciful alternative contention. He was clear that, if there was no contract, there was no construction contract in writing complying with Part II of the 1996 Act. The Scheme therefore did not apply to either of the contentions made out by Tally Weijl. The Scheme only applied if Pegram's contention as to the formation of a written construction contract was correct. At first blush, according to Lord Justice May, that was the least likely of the three possibilities. Pegram argued that it was a legitimate conclusion of Judge Thornton in the context of a summary judgment application that there was a written construction contract and that the identification of its precise terms was a matter of detail, which did not negate the existence of the contract, whatever its terms may have been. Lord Justice May characterised that as a "palm tree" contractual analysis. In order to determine that the adjudicator had jurisdiction, it was critical to resolve whether or not there was a contract and, if there was a contract, critical to determine the precise nature of the procedural rules under which any adjudication should proceed. This being the case, it would be necessary to determine whether the JCT rules had application. Indeed, in carrying out the adjudication of the substantive issues, the adjudicator would need to resolve which of the parties' two contentions with regard to the contract applied. That was the essence of the dispute between the parties. Accordingly, both the adjudicator and Judge Thornton were wrong. The appeal was allowed and enforcement of the adjudicator's decision refused.
CJ-0404
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