Case No: HT0723

NEUTRAL CITATION NUMBER: [2007] EWHC 825 (TCC)

IN THE HIGH COURT OF JUSTICE

TECHNOLOGY AND CONSTRUCTION COURT

Royal Courts of Justice
Strand
London WC2A 2LL

Wednesday, 14 March 2007

BEFORE:

HIS HONOUR JUDGE WILCOX

BETWEEN:

FLANNERY CONSTRUCTION LTD.

Claimant/Respondent

- and -

M. HOLLERAN LTD. (2007)

Defendant/Appellant

Judgment
(As Approved by the Court)

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1. JUDGE WILCOX: This is an application under part 24 to enforce an adjudicator’s decision dated 15 January 2007, whereby he awarded £128,291 plus £14,000 adjudicator fees, and interest to the applicant, on the basis that he had jurisdiction from a concluded contract to which the Housing Grants Construction and Regeneration Act 1996 applied. The defendant seeks permission to defend on the grounds that there was no contract between the parties, or if there was a contract then it was not section 107 compliant, in that it was not completely evidenced in writing and therefore, the Housing Grants Construction and Regeneration Act 1996 was inapplicable. In consequence the adjudicator had no jurisdiction.

2. The applicant contends that there was a contract, the terms of which were sufficiently evidenced in writing to make it compliant with section 107 of the Act. The work at Durnsford Road substation, which is the subject of these proceedings, was part only of work carried out by the applicant for the respondent. The applicant, Flannery, is a company engaged in building civil engineering and ground works. The defendant, Holleran, is a company in the same field. There is a relevant background. These companies have a relationship that goes back over many years. It appears that Flannery, on occasions, has given Holleran informal financial assistance by way of loans.

3. Holleran was engaged as a contractor by SABCO, an unincorporated joint venture between Seebord Contracting Services Limited and Balfour Beatty, to undertake work in connection with a power supply upgrade for the southern region of Network Rail. In the tendering process Holleran was assisted by Flannery to compile a schedule of rates for work to be done. The contract awarded by SABCO to Holleran, in September 2003, was a zero value framework agreement. There is no evidence as to the rates actually agreed between Holleran and SABCO. A contract to carry out particular works would only be formed under that framework contract when a works bank instruction had been issued, and a lump sum price for each works bank instruction agreed by reference to the annexure to the main agreement, and prior to work being undertaken.

4. Holleran wanted Flannery to be its sub-contractor. On 26 January 2004, a letter was written and sent to Flannery by Holleran to enable Flannery to have financial assistance from its bank. These terms:

“I can confirm that the Southern Area Power Upgrade works have commenced and we will sign a contract with you shortly when rates are agreed. The rates will apply for this three year contract and will be of a minimum £6m over three years.”

5. On 11 February 2004, Holleran wrote: “As part of our review of our subc ontract process , we will be

seeking to enter into a nil value Framework Agreement with you, which will then form the contract basis of all our future orders and work packages. We anticipate having the draft agreement ready next week and will forward copies to you at the earliest opportunity. Again, this is a measure to try and expedite matters,

when instruction is often given at short notice. We trust the
enclosed is clear and await your understanding and agreement in
this matter. However, should you have any queries regarding this

please do not hesitate to contact the undersigned.”

6. Understandably they wanted a back to back agreement with Flannery. Flannery was
   already engaged in work for Holleran on southern region sites. Work had started on Wessex sites in November 2003, and on 12 February 2004 work was undertaken for Holleran on the SABCO site at Balham substation. On 7 April 2004 a note of earlier ongoing discussions between Holleran’s com mercial manager, Mr. Cheale and Mr. Dewey of Flannery’s was produced by Mr. Dewey. The note was agreed by Mr. Cheale. It relates in part to work already underway on the Wessex sites in part. The material parts of that note are:

“Further to the recent discussions with yourself please find below details of the agreements made regarding both SABCO and Wessex Power Upgrade Contracts to be carried out.

“ Schedule of rates submitted and agreed. The items contained with the schedule of rates will form the basis for the scope of works to be completed. Exceptions could possibly be the U TX installations and precast concrete troughi ng installations, which may be carried out by yourselves.

“ Whilst the pricing document states that the schedule of rates descriptions have not been prepared in accordance with any particular method of measurement the descriptions contained within the pricing document infer that the standard method of measurement for the Building Works has formed the basis of measurement rather than the Civil Engineering Method of Measurement.

“ The schedule of rates allows the work to be installed/constructed in the areas/positions required. No allowance has been included for any temporary works, temporary accesses, cranage, excessive handling of materials etcetera, in transporting plant and materials to the point of installation/construction.

“ As regards the SABCO works, where possible we will provide a
fully detailed quotation for the works to be carried out for your

agreement prior to commencement on site.”

7. On 14 April 2004 Holleran informed Flannery that there were intended to be five
   packages of SABCO works but that the information as to the scope of the works was poor and vague. Holleran did not want to enter into five individual contracts for each site. Flannery did not want to enter into the zero value framework agreement prepared by Holleran in February. By June 2004 work was being done for Holleran by Flannery on 14 sites. Further work was contemplated at the Network Rail Durnsford Road depot

site. In relation to this, Holleran was provided with drawings relating to the proposed works. They were agreed in principle only. Flannery produced an estimate based upon the provisional drawings in the sum of £172,914. The estimate dated 19 July 2004, comprised some 13 pages of which only 12 were transmitted and received by Holleran.

The page omitted from the transmission and not received was that entitled: “Pricing notes”.

8. The estimate for £172,000 was based upon the provisional drawings and for a 26 trench system. On 21 July 2004 Flannery undertook a survey of the vegetation at Durnsford Road, to assess the amount of work to be done to prepare the site for trench and duct works. On the basis of that survey they produced a further estimate for the cost of clearance in the sum of £6,226. The date of the estimate is not clear. On 4 August, Flannery went on site at Durnsford Road substation and commenced four days of vegetation clearance. They returned to the site on 17 August to install a crushed concrete standing and compound for Holleran. They left on 28 August but returned on several occasions thereafter to carry out domestic and additional water feeds. Between 22 October 2004 and 4 March 2005 they dug a total of 15 trial pits in three tranches. Between 24 January 2005 and 11 March 2005 they carried out troughi ng and ancillary works.

9. On 17 March 2005 they commenced ducting installation work which was completed by 24 June 2005. Additionally, some drainage work was undertaken. Flannery’s final account claim, dated 18 October 2006, was in the sum of £531,286. There was a difference in valuation and the basis of valuation. Mr. Steynor submits that there is clear evidence of a concluded agreement evidenced in writing relating to Durnsford Road. It is to be found in the schedule of rates of August 2003, the handwritten notes of 7 April 2004 that I have referred to earlier, the provisionally approved drawings of July 2004 the estimate for £172,000 based upon it, and the vegetation survey and the estimate based upon that. He contends that the adjudicator was right to find that there was a concluded contract evidenced in writing. The acceptance of the offers contained in the estimates being the conduct by Flannery entering upon the site in August and doing work there after Holleran permitting them to do so.

10. He submits that the material parts of the agreement that were sufficiently evidenced in writing, for the purposes of section 107 of the Act, were the scope of works clause 1(b) of the handwritten notes, the survey, the estimate, formation of compound and the works thereafter done, troughi ng works and the like. Flannery accept that the notes in July 2004 do not set out fully the works. There is an issue as to the rate canvassed for troughing works, was it for square meterage or cubic meterage. The scope of the works, it is submitted by Ms Barwi se QC, were never in fact properly described but more importantly, there was never any mechanism agreed as to how the scope could be agreed in the future. There was no mechanism for variation. There was no provision for new works or providing how variations as to price or scope were to be instructed.

11. It is perhaps arguable that Holleran, by permitting Flannery on the site, was accepting Flannery’s offers to clear the vegetation. It is arguable that by permitting the

performance of the preparatory works comprising the establishment of a compound and trial pit digging, was consistent with the acceptance of the offer contained in the estimate for £172,000, leading eventually to works valued in excess of £500,000. Such an argument however, ignores the factual matrix of uncontroversial evidence. Holleran

wanted a framework agreement back to back with SABCO. Flannery refused. Flannery wanted discrete contracts. Holleran refused.

12. From August 2003 and onwards, Flannery was performing work for Holleran without reference to any specific agreement. The parties had financial dealings with each other

which were on an informal basis. Were Flannery in Holleran’s position it would be

difficult, on the basis of the written evidence before the Court, to conclude that Flannery had anything other than a flimsy shadowy basis to argue the existence of a contract. I turn the factual situation on its head. For the purposes of part 24, I find that Holleran has a strong arguable case that there was no concluded contract and that the adjudicator had no jurisdiction.

13. In deference to the careful arguments prepared and pursued by Mr. Steynor and presented by Ms Barwise QC, I will deal briefly with the other submissions before the Court. Ms Barwise submitted that in any event, even if a court concluded that there was an agreement between the parties, it was not an agreement in accordance with the requirements of section 107. Mr. Steynor argues forcefully that, if one applies with rigour the principles enunciated in R J T Consulting Engineers Limited v D M Engineering Northern Ireland Limited, [2002] BLR v1 207, that would drive a coach and horses through the purpose of the Act, because sub-contractors, such as Flannery, do not in fact condescend to put their agreements in writing to the standard that perhaps the major players in the construction industry do. Ms Barwise submits that the express terms particularly as to variation, scope of works, were not in writing. I agree with her.

14. I make reference to the case of Bennett Electrical Services Limited v Inviron Limited EW H C 49 19 January, in which I considered the application of R J T in a very similar situation to the present. At paragraph 26 I commented thus:

“ The difference which is apparent in the reasoning of the majority of the Court of Appeal and that of Auld LJ is not a question of emphasis. The reasoning of Auld LJ is attractive because at the subcontractor level and where cash flow difficulties are likely to be encountered in the smaller projects, the paperwork is rarely comprehensive. The extent of the requirement for recording contractual terms for an agreement to qualify under section 107 laid down by majority could have the effect of excluding from the scheme a significant number of those whom the Act was perhaps intended to assist. ”

15. To that extent I evinced a sympathy with the submissions being made on behalf of Flannery. I went on at paragraph 27:

“This court is bound to accept the authority of the majority, namely

that it is not sufficient to show that all terms material to the issues under Adjudication have been recorded in writing. An agreement is only evidenced in writing for the purposes of section 107 subsections (2), (3), and (4), if all the express terms of that agreement are recorded in writing.

“ 28. It follows that section 107 will not engage when the written
terms are incomplete in that they do not cover key obligations, or

where the written terms are incomplete and additional contractual terms have been agreed orally. Similarly, if the written terms are complete, but the works have been subject to significant oral variation. ”

16. That is the situation that obtains in this case. On the subsidiary basis I am constrained therefore, to find that even if there was an agreement it was not section 107 compliant. For those reasons therefore, I hold that this Court will not enforce, by way of part 24,

the adjudicator’s decision, and that a strong arguable case on both bases have been

demonstrated by Holleran. Leave to come back to the Court if you cannot agree costs between you.