| Date | 8 November 2006 |
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| Judgment | Westdawn Refurbishments Ltd v Roselodge Ltd, TCC 25 April 2006 |
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| The Issue | The requirement to record agreements in writing for the purposes of the Construction Act. |
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| Implication |
Where material and significant terms of a contract are agreed orally and not in writing, the contract will be excluded from the provisions of the Construction Act. |
printIt is commonplace in the construction industry for substantial work to be undertaken on the strength of an oral agreement. Whilst the oral agreement may be binding between the parties, the difficulty lies in determining the precise terms of that agreement in the absence of clear written evidence. It is for this reason that Parliament intended that the provisions of the Housing Grants, Construction & Regeneration Act 1996 should apply only 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”. In March 2002 the Court of Appeal examined Section 107 in the case of RJT Consulting Engineers Ltd v DM Engineering (NI) Ltd. It had been held in the Technology and Construction Court that, for the purposes of the HGCRA, it was not necessary that the evidence put forward in support of the agreement should identify all the terms of that agreement. The extensive documentary evidence of the conduct of the parties including invoices setting out the nature of the work, minutes of meetings and the like, were sufficient to bring the contract within the adjudication proceedings. The Court of Appeal, by a majority of 2-1, overruled that decision. The invoices and other extensive evidence were evidence of the existence of a contract but were not evidence of the underlying terms of the agreement between the parties. The Court of Appeal confirmed that in interpreting Section 107 of the Act, what had to be evidenced in writing was literally the agreement, which meant all of it, not part of it. These matters were once again examined in the Technology and Construction Court in April of this year in the case of Westdawn Refurbishments v Roselodge. Westdawn carried out works of refurbishment and repair at numerous properties owned by Roselodge. The agreement for one of those properties was based upon a quotation submitted by Westdawn which identified 42 separate items of work priced at £11,500. That quotation had been accepted by Roselodge by its issue of a purchase order. On the face of it therefore, this contract was a relatively small and straightforward building contract, the terms of which were not for the most part in dispute. Despite this, the parties ended up in court arguing that an adjudicator’s decision should be ignored because the terms of their contract were not evidenced in writing. His Honour Judge McCahill QC concluded that the adjudicator did not have jurisdiction, citing three examples of material terms of the contract which were not evidenced in writing. The first concerned the arrangements for completion of the works. The parties had accepted that there was an oral agreement that completion of the property would be triggered when Westdawn returned the keys to the property and issued completion certificates for the electrical and gas installations. That arrangement had been defined and agreed orally. Judge McCahill was satisfied that that was a material term of the contract which was not evidenced in writing. The second example was the time for payment of invoices. Again it had been agreed orally between the parties that Roselodge would pay invoices 30 days following the rendering of the invoice. That too was a material and significant term that was not evidenced in writing. Thirdly, the parties had orally agreed that the payment arrangements would be changed to allow for a 25% prepayment of the contract sum once the purchase order was issued. Judge McCahill also confirmed that that was a material and significant term of the contract which had not been included in the written terms of the contract. It had been argued by Westdawn and accepted by the adjudicator that any necessary terms as to payment could be implied into the contract by applying terms under the Supply of Goods and Services Act 1982 or by operation of the statutory Scheme for Construction Contracts. Judge McCahill was clear however that the area which the adjudicator had sought to fill with implied terms was already occupied by expressly agreed oral terms. These oral terms fell foul of the requirements of Section 107 of the Construction Act. Cases such as these confirm that the Construction Act applies to a more limited range of contracts than the construction industry had first expected. There is however little agreement as to how this problem should be addressed. Some parties are calling for the deletion of Section 107, such that all construction contracts, whether evidenced in writing or not, will be brought within the provisions of the Act and capable of being referred to an adjudicator. Alternatively, it may be thought better to address the poor procurement practices widespread within the industry and to publicise more clearly that a failure to record construction agreements in writing will prevent parties from obtaining the extensive safeguards provided by the Construction Act. A third middle ground recently proposed by the DTI is to amend the Construction Act such that only terms relating to the scope of work and the contract price need to be evidenced in writing. This seems unlikely to help. These two areas are precisely the fertile areas of dispute that the Construction Act was intended to address, and of course, these are the two aspects of construction contracts that, all too often, lack clear written agreement.
CJ-0644
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