Hart Investments Ltd v Fidler [2006] EWHC 2857 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

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

This case raises two points. First, that decision of an adjudicator where the referral notice was served outside the permitted time will be unenforceable. Secondly, a contract in writing will only be considered as such for the purposes of Section 107 of the Construction Act where all of the terms of the contract are in writing. The effect of this is that letters of intent will often fall short of the requirement.

His Honour Judge Peter Coulson QC
- Queen's Bench Division, Technology and Construction Court

On 1 November 2002, Hart Investments Limited (“Hart”) sent a letter of intent to Larchpark, via its agents, instructing Larchpark to carry out extensive building works at a property that Hart owned at Muswell Hill, London. The letter of intent sought to limit Hart’s liability to maximum costs of £20,000 in respect of the works pending the issue of formal JCT contract documentation. The letter stated that it would automatically terminate on 2 December 2002 unless renewed or when the contract was duly executed. The workscope, according to the letter, was work that would, or might have been, the subject of orders in the future, whether written or oral. Although a signed formal contract was never agreed, Larchpark carried out work at the property at the request of Hart.

Larchpark commenced an adjudication against Hart for unpaid sums. The adjudication (and a subsequent adjudication) proceeded on the basis that there was a JCT contract in existence. The first adjudication decision was not enforced, and the adjudicator resigned in the second adjudication following legal advice to the effect that there was no such contract.

By way of a third notice of intention to refer Larchpark tried again, this time by reference to the letter of intent and the Scheme for Construction Contract (“the Scheme”) introduced under the Housing Grants Construction and Regeneration Act 1996 (“the Construction Act”). However, the referral notice was not served in accordance with Paragraph 7(1) of the Scheme, which required the referral to be provided not later than seven days from the date of the notice.

Larchpark sought to enforce the adjudicator’s decision. However, Hart resisted the enforcement on the basis that the adjudicator lacked jurisdiction because (i) the referral notice was not served in accordance with the Scheme and (ii) because of the nature and contents of the letter of intent, it could not be said that all of the terms of the contract were in writing in accordance with Section 107 of the Construction Act.

Was the late service of the referral notice detrimental?

The Judge said that there were no reported cases on the consequences of a referral notice provided outside the stipulated period of “not less than seven days”. But, he said, there was a line of authorities dealing with an adjudicator’s failure to provide a decision within 28 days in accordance with Paragraph 19(1) of the Scheme.

The Scheme was entirely clear on the point that the referral notice must be provided within seven days, the Judge held. Accordingly, he concluded that the referral notice was irregular/invalid because it was not served in accordance with the Construction Act or Paragraph 7 of the Scheme.

The Judge therefore held that the adjudicator had no jurisdiction and on that basis his decision was a nullity. Enforcement was declined.

Was the contract in writing?

Notwithstanding the Judge’s decision on the timing issue, he also considered the second complaint that Hart had raised to resist the enforcement.

He held that the letter of intent did not comply with Section 107(2)(c) of the Construction Act because:

1. The wording did not constitute a binding and enforceable contract.

2. Even if it did, the sort of clarity of terms envisaged by Section 107(2)(c) and the Court of Appeal in the case of RJT Consulting Engineers Ltd v DM Engineering (Northern Ireland) Ltd was wholly absent. For instance, there was no agreement as to time, the agreement as to price was limited to costs reasonably incurred, and the fact that the workscope was “plainly not discernable from the letter of 1st November.”

3. The fact that the letter of intent was designed to be a fall-back position, only relevant if no formal contract was ever entered into, also militates against the submission that the letter was a contract in writing containing all the terms that had been agreed by the parties.

In a note to the judgment, the Judge recognised that letters of intent were used widely in the industry but said that “whether or not they should be so common is very doubtful.”

The Judge said the fact that Larchpark was insolvent was also a compelling reason to refuse to enforce the adjudicator’s decision by way of summary judgment. On that basis, even if he were able to conclude that the adjudicator had sufficient jurisdiction, the Judge would not have entered judgment on the claim in any event.

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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