| Date | 24 August 2005 |
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| Judgment | Lloyd Projects Ltd v John Malnick, TCC 22 July 2005 |
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| The Issue | Whether oral contracts may be subject to the provisions of the Construction Act. |
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| Implication |
All
the material terms of a construction contract and not merely evidence
of the existence of the contract have to be evidenced in writing if
the contract is to be brought within the ambit of the Construction
Act. |
printSection 107 of the Housing Grants, Construction & Regeneration Act has caused considerable difficulty since the Act came into force. This part of the Act was drafted with the intention that the provisions of the Act would only apply to written contracts. Section 107(1) of the Act states that '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'. At that point, the requirements of the Act seem clear, but Section 107(2) goes on to state; 'There is an agreement in writing (a) if the agreement is made in writing (whether or not it is signed by the parties), (b) if the agreement is made by exchange of communications in writing, or (c) if the agreement is evidenced in writing". Sub-paragraph 4 adds to the potential difficulty. "An agreement is evidenced in writing if an agreement made otherwise than in writing is recorded by one of the parties or by a third party, with the authority of the parties to the agreement". The leading authority in connection with these provisions is the Court of Appeal decision in the case of RJT Consulting Engineers v DM Engineering (Northern Ireland). In that case, the contract had been made orally, but written evidence of the performance of the contract was put forward in an attempt to bring the contract within the ambit of the Construction Act for the purposes of adjudication. Reversing the court's earlier decision, the Court of Appeal held that invoices, minutes of meetings and other such documentation were simply evidence of the existence of a contract. These documents were not written evidence of the terms of the oral agreement made between the parties. They were insufficient to bring the contract within the ambit of the Construction Act according to Section 107. What had to be produced was evidence in writing of the oral agreement itself. Lord Justice Ward held that "what has to be evidenced in writing is literally the agreement, which means all of it, not part of it. No doubt adjudicators will be robust in excluding the trivial from the ambit of the agreement and the matter must be entrusted to their common sense". In commenting upon this ruling in the later case of Stratfield Saye Estates v AHL Construction, Justice Jackson noted that all the express terms of the agreement must be recorded in writing. "It is not sufficient to show that all terms material to the issues under an adjudication have been recorded in writing". The more recent case of Lloyd Projects v John Malnick has further clarified this position. Malnick engaged Lloyd, a building contractor, to convert his former offices in Islington, London, into three residential flats. The parties accepted that they had both reached an oral agreement in September 2003 during a telephone conversation in which Lloyd agreed to carry out the conversion work for a lump sum price of £412,000. It was not until February 2004, some five months later, that Lloyd wrote to Malnick setting out his understanding of the contract, listing items that he considered to be excluded from the lump sum price. One week later, Malnick had replied, raising other issues in connection with the scope of works. Throughout this time, the works had been proceeding and interim payments made. Disputes arose and these were referred to adjudication. Malnick complained from the start that the adjudicator had no jurisdiction because the contract was not in writing. Nevertheless the adjudicator proceeded to issue his decision in which Malnick was ordered to pay a sum in excess of £120,000 to Lloyd. Malnick refused to pay and the matter came before the Court. Malnick argued that the agreement was not made by the exchange of letters between the parties, because firstly the agreement had been made orally over five months before that exchange of correspondence, and secondly because the correspondence in question did not contain a concluded agreement and did not contain all of the agreed terms. For example, the letters failed to include terms regarding the standard of work or the scope of work. Malnick argued that only by examining the oral evidence could a tribunal determine the terms of the contract between the parties. Her Honour Judge Francis Kirkham agreed that normally a contract is made when agreement is reached. It cannot be made on more than one occasion. "One would not normally describe a contract reached already and then substantially performed and later recorded in writing as a contract converted into a contract of writing". In her judgment, the case did not fall within Section 107(2)(b). By the time of the exchange of letters between the parties, the oral agreement was already in existence. Neither was Judge Kirkham persuaded that the exchange of letters adequately identified the material terms of the agreement. The letters did not set out who would bear the risk of unforeseen events, the standard of work required, or the scope of works undertaken for the lump sum. These were not trivial items but material terms of the contract which were not evidenced in writing and accordingly it could not be said that the contract was evidenced in writing within the meaning of Section 107. Accordingly, Lloyd's application to enforce the decision of the adjudicator was refused.
CJ-0533
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