Adjudication Matters – May 2018

11th May 2018

A Deal on the Bus (Shelter) Goes Round and Round: Oral Contracts – Save Now, Pay (a lot) Later

Although oral contracts may seem convenient at the time, the lack of certainty means that significant time and cost can be spent later identifying just what has been agreed.

In this case, an oral agreement in a bus shelter resulted in a full trial just to work out who the parties to the contract were.

Dacy Building Services Ltd v IDM Properties LLP [2018] EWHC 178 (TCC)

Dacy Building Services Ltd v IDM Properties LLP [2018] EWHC 178 (TCC) (Dacy v IDM) is one of the rare adjudication enforcement cases where a full trial was ordered.

The statutory right to refer a dispute to adjudication used to only arise where a construction contract was made in writing. This requirement was repealed in September 2011 however there needs to be sufficient certainty of the parties and an intention to be legally bound. A frequent problem encountered with oral contracts is whether a contract has been formed at all. If no valid contract has been formed, an adjudicator does not have jurisdiction to determine the dispute.

Dacy v IDM is a prime example of the evidential difficulties that can arise with an oral contract.

Background to Dacy v IDM

HOC (UK) Limited (HOC) were engaged as contractor for the development of residential flats and retail space in London (the Project). IDM Properties LLP (IDM) was the employer’s agent.

By November 2015 HOC was in financial difficulties and the Project was in disarray with the majority of the sub-contractors having left site due to non-payment by HOC. HOC contacted Dacy Building Services Ltd (Dacy) to ask whether they could assist in completing the works and attend site as soon as possible.

Dacy had had previous dealings with HOC and was still owed a large sum for its involvement in other projects. Nonetheless they agreed to attend a short meeting at the site on 3 December 2015 (the Site Meeting).

The Site Meeting was held in a bus shelter and lasted no longer than 10 minutes. In attendance were representatives from Dacy, HOC, and IDM. Dacy contended that at this Site Meeting Dacy made it clear that it would not contract with HOC and that it was therefore agreed that Dacy would contract with, and be paid by, IDM for works on the Project.

IDM, on the other hand, claimed that it was only by chance that its representative saw Dacy on site and therefore decided to attend the Site Meeting. IDM stated that it was not involved in the agreement and instead it was made between Dacy and HOC.

Following the Site Meeting, Dacy then proceeded to supply labour, plant and materials to the Project. Payment applications were submitted to HOC for approval and if HOC were happy, these payments would then be certified by IDM, which would then process and make payment to Dacy.

The first three invoices were paid in this manner, but the fourth and fifth invoices were not paid. Dacy subsequently left site on 4 May 2016.

Adjudication ensued in which (despite IDM’s arguments that no contract existed between Dacy and IDM) IDM was found liable to Dacy for the claimed sum of £247,250 plus interest.

IDM subsequently refused to pay on the basis that the adjudicator lacked jurisdiction claiming that there was no contract between Dacy and IDM, but instead the contract was between Dacy and HOC.

As a result, Dacy made an application for summary judgment against IDM to enforce the adjudicator’s decision (as is the usual approach to adjudication enforcement). This application was rejected in this case on the basis that the factual dispute regarding the parties’ alleged oral contract was too complex for summary judgment and that IDM had a “real prospect of succeeding in its defence that there was simply no contract between [Dacy] and [IDM]”. Accordingly there was a full trial.

The Trial

At trial, the Court found in favour of Dacy, upholding the decision of the adjudicator that a valid oral contract had been formed between Dacy and IDM and consequently IDM were liable to Dacy for approximately £280,000 in unpaid applications and interest.

It was held that the evidence of the witnesses for Dacy was more compelling and it was completely reasonable that Dacy, who had left site on another project due to being owed £170,000 from HOC, would not agree to contract with HOC again.

Commentary

The Court’s message is clear; take care to clarify who you are in contract with and make the effort to confirm oral agreements in writing as soon as possible.

The quick 10 minute meeting at the bus shelter ended up costing significant time and cost for all those involved at adjudication and the subsequent trial. These costs could have been avoided had the parties recorded their oral agreement in writing.

Whilst the Construction Act grants a statutory right to adjudicate in respect of oral contracts, it is clear from this case that it is in all parties’ interests that the agreement is recorded in writing so that both parties are aware from the outset who they are contracting with, and on what terms.