Glendalough Associated SA v Harris Calnan Construction Co Ltd EWHC 3142 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

summary

(1) Section 107(5) of the Housing Grants, Construction and Regeneration Act 1996 (as it stood prior to amendments introduced by the Local Democracy Economic Development and Construction Act 2009) (‘the Act’) is engaged where a referral notice does not refer to an agreement clearly in writing and is capable of being construed as an assertion of an agreement made otherwise than in writing — even if the words could also be construed as describing a written agreement. (2) For there to be a valid construction contract within the meaning of section 107 there must be an agreement on at least: the parties, the scope of the work, the price (or a sufficiently certain method of ascertaining the price) and time.

Technology and Construction Court, Mr Justice Edwards-Stuart.

Background

In 2009, Harris Calnan Construction Co Ltd (‘HCL’) tendered for works to build a residential development and studios in North London (the ‘Works’) in response to Glendalough Associated SA’s (‘Glendalough’) invitation to tender. On 24 February 2010, Glendalough wrote to HCL instructing them to proceed with the Works pending agreement of a formal contract. No formal contract was ever entered into and HCL completed the Works under, what it claimed was a letter of intent (‘LOI’). The relevant parts of the LOI were as follows: the contract would be based on HCL’s tender incorporating the JCT 2005 Intermediate Form of Contract with Contractors Design; the contract commencement date would be 15 March 2010 and the completion date would be 10 June 2011; and HCL were authorised to take all necessary action to commence on site and complete the works in accordance with these dates and in accordance with the drawings and instructions issued by the architect. In the event of Glendalough not being able to enter into a contract with HCL, Glendalough would reimburse HCL the reasonable cost of any works carried out based on HCL’s tender excluding loss of profit and overheads.

The Works took longer than anticipated and following an application by HCL for payment, on 1 July 2013, Glendalough’s solicitors issued a Withholding Notice to HCL asserting that the Works were delayed by 64 weeks and as such HCL owed Glendalough £250,000.00 in liquidated damages. On 16 August 2013 HCL sent a Notice of Adjudication to Glendalough disputing that Glendalough was entitled to liquidated damages and demanding payment of the sum it alleged to be outstanding for the Works. HCL sent a referral notice on 23 August 2013 stating, at paragraph 2.1: ‘by an agreement [Glendalough] employed [HCL] to carry out the construction of a Residential Block…’ Paragraph 2.1 was admitted in Glendalough’s response which was served on 30 August 2013.

Before the adjudication was concluded Glendalough brought Part 8 proceedings in the Technology and Construction Court for:

  • A declaration that the Adjudicator had no jurisdiction and must resign
  • An injunction restraining HCL from continuing with the adjudication.
  • A declaration that any Adjudicator’s decision would be null and unenforceable.

Glendalough submitted that the Adjudicator had no jurisdiction because the LOI was not a construction contract in writing for the purposes of section 107 of the Act.

Issues:

The Court was asked to decide:

  • Whether there was a contract in writing within the meaning of section 107 (5) of the Act (which provides that ‘an exchange of written submissions in adjudication proceedings… in which the existence of an agreement otherwise than in writing is alleged by one party against the other and not denied by the other party…constitutes… an agreement in writing to the effect alleged’). In particular whether

(a)                the fact that the agreement is not in writing must be either asserted explicitly or be an available interpretation of the words used; or

(b)                it is sufficient that the agreement was not made in writing although described in the referral notice as having been made in writing.

  • The extent to which the terms of a construction contract must be identified or evidenced in writing in order for it to be a ‘construction contract in writing’ so as to bring the relevant part of the Act into play

Decision:

The Court held that:

  • If there is no suggestion that the relevant agreement was made otherwise than in writing, section 107(5) is not engaged.
  • However, where a referral notice does not refer to an agreement that is clearly in writing, but is capable of being read as an allegation of an agreement made otherwise in writing, section 107(5) is engaged - even if the words could also be construed as describing a written agreement.
  • On the facts, HCL’s reference to an agreement in wide terms without mentioning a date or stating that it was ‘in writing’ meant that section 107(5) was engaged so that Glendalough’s failure to deny that agreement in their response resulted in the parties being taken to have agreed that there was an agreement in writing. Therefore, section 107(5) of the Act was satisfied, giving the Adjudicator jurisdiction to determine the dispute under the agreement.
  • It was not a requirement of section 107(5) that the whole of the agreement had to be set out in the referral notice in order for the section to be engaged. In the unusual circumstances of this case no terms were identified in the referral notice, and the precise terms of the agreement therefore remained unresolved.
  • For a contract to be ‘evidenced in writing’ within the meaning of section 107(2)(c) of the Act, all the relevant terms agreed must be recorded in the document or documents.
  • For there to be a valid construction contract within the meaning of section 107 there must be an agreement on at least: the parties, the scope of the work, the price (or a sufficiently certain method of ascertaining the price) and time.
  • Taking each of these factors in turn, the LOI satisfied the requirements of a construction contract. However this conclusion was only a provisional one. The question of whether or not the LOI was capable of constituting a construction contract within the meaning of the Act was a matter for the Adjudicator
  • Glendalough’s applications were therefore dismissed.
  • Since the Court had held that by the operation of section 107(5) the parties were to be taken to have agreed that there was an agreement in writing, the Court declared that it was not open to either party to contend or the Adjudicator to decide to the contrary.
  • No part of the judgment was to be communicated to the Adjudicator before he had given his decision save for the declaration set out above.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

 

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