An oral contracts and adjudication concern

It can often be very difficult to prove the terms of an oral contract, which can persuade a TCC judge not to enforce an adjudicator’s award. Stuart Pemble doubts whether this is the correct approach I think Jefford J’s judgment in M Hart Construction Ltd and another v Ideal Response Group Ltd [2018] EWHC 314 (TCC) is (in part) wrongly decided. The case arose out of three contracts for work to the Athletes’ Village for the 2012 London Olympics as part of its conversion to residential use. In the summer of 2012, Ideal had been appointed by Lendlease to carry out remedial and retrofitting works at the site. In turn, Ideal entered into two sub-contracts: the first (also entered into in 2012 and referred to as the retrofit contract) was with a Michael Hart and the second (the defects contract, entered into in September 2013) with both Hart and the second claimant, P K Maintenance Ltd (PKML). Both contracts were oral and were not really evidenced in writing. Between 2013 and 2014, Hart had both created a company – the first claimant (MHCL) – and started trading through it. MHCL claimed that, in January 2015, Hart told Ideal’s managing director he would no longer be trading as an individual and that, effectively, both the retrofit and defects contracts were novated, with MHCL replacing Hart as a party to both. MHCL then began submitting invoices to Ideal. The disputes In 2016, disputes arose between MHCL (under both the retrofit and defects contracts) and PKML (under the defects contract) on the one hand, and Ideal on the other. All three disputes related to unpaid invoices where Ideal had submitted pay less notices. Each was referred to a separate adjudicator. In turn, they ordered Ideal to pay £1.2m to MHCL and just over £175,000 plus VAT to PKML. Ideal challenged the adjudicators’ jurisdiction in all three adjudications. The main reason (across all three adjudications) was that MHCL was not a party to either contract and so the contract being referred to adjudication did not exist. This was a relevant argument in the adjudication brought by PKML because it argued MHCL was a party to the defects contract. The judge’s rulings Jefford J refused to enforce either of the awards made in favour of MHCL, but did enforce PKML’s award. She was not persuaded by the jurisdictional challenge. Taking comfort from the decision of Stuart-Smith J in Purton (t/a Richwood Interiors) v Kilker Projects Limited [2015] EWHC 2624 (TCC), the judge felt the error in the notices of adjudication had “an element of misdescription”. This, she said, was “an error but not one that deprived the adjudicators of jurisdiction.” That finding was sufficient to mean the award in PKML’s favour was enforced. While the reference to MHCL being a party to the contract was a “misdescription”, it had no relevance to the actual dispute, not least because MHCL was not a party to the adjudication between PKML and Ideal. This is the bit of the judgment I agree with. It is the judge’s findings in relation to MHCL that give me concern. Here’s why. First, ever since Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] 3 EGLR 7, the courts have looked to enforce adjudicator’s awards even where they contain errors of fact or law. So long as the decision answered the question or questions referred (that is, it did not exceed the adjudicator’s jurisdiction) and was reached in a way that was fair (and did not offend the rules of natural justice), the courts’ policy has, broadly speaking, been to uphold an adjudicator’s findings. Second, parliament expressly amended the Housing Grants, Construction and Regeneration Act 1996 in 2009 (with those amendments coming into force in 2011) to allow adjudicators to reach decisions in relation to oral contracts. Third, there is no obvious reason why the principle in Macob should not apply to adjudicators’ decisions reached in relation to oral contracts as well as to written ones. While it may well be easier for adjudicators to make mistakes when there is less evidence regarding the terms of the contract in question, that does not alter the underlying principles. I suspect Jefford J disagrees with my third point. Her concern was over whether there was sufficient evidence that the contracts had been novated as alleged by MKHL (and disputed by Ideal). Taking comfort from comments of Coulson J in RCS Contractors Ltd v Conway [2017] EWHC 715 (TCC) that “only rarely will a disputed oral agreement be the subject of a successful summary judgment application”, the judge did not see how she could decide on a summary basis “that there was no real prospect of Ideal succeeding in its case that there was no novation”. The conflicting evidence on that question needed oral evidence from witnesses and cross examination. As such, she refused to enforce the awards in favour of MKHL. The wrong question I think Jefford J (and Coulson J before her) are asking the wrong question. The test for enforcing an adjudicator’s award does not rest on whether there was adequate evidence to justify the adjudicator reaching the decision. The test – since Macob – has been whether or not the adjudicator answered (however mistakenly) the question asked of them in a fair manner. So long as they do, the underlying correctness of the decision is irrelevant and it should be enforced on a temporary basis pending final resolution of the dispute by a court, arbitrator or otherwise. Mistaken findings as to the existence of a novation should be just as enforceable as other mistaken (but properly and fairly reached) adjudicator’s findings. It will be interesting to see how other judges consider similar disputes. Stuart Pemble is a partner at Mills & Reeve