When Preliminary meeting minutes serve as evidence of the real world... and one contract, not two
Tendering and pre-contract discussions between the Parties in construction and engineering are never easy. Those discussions may be fraught with issues with proposed contract terms, the price or the exact scope of works and even when the parties think they have managed to address all issues before proceeding to enter into a contract something always arises later. In respect of the latter two issues, the Parties may well think that they either have one contract for the scope of works as discussed, or agree more than one contract for the project or subsequently agree to add any additional works as variation of the scope of works.
Well there is one thing that is certain, if the Parties subsequently fall out and seek recourse to adjudication, the appointed adjudicator will only have jurisdiction to decide a dispute under one contract – not a dispute under two contracts, unless both parties agree the adjudicator can decide both at the same time. What this generally means is that the same issue in dispute (for example payment) under each contract will have to be referred to a separate adjudication.
In the recent case of Supablast (Nationwide) Limited –v-Story Rail Limited , Mr Justice Akenhead had to decide, in relation to an enforcement of an adjudicator’s decision, whether one contract had come into existence. If there were more than one contract the adjudicator’s decision may have been unenforceable
In late 2007, Story issued a letter of intent to Supablast for it to perform grit blasting, painting and scaffolding works as part of a refurbishment project for Network Rail. The letter also stated the usual particulars, that the terms of sub-contract were the ICE 6th edition form of sub-contract and gave a sub-contract reference number. Yeh, we do that I hear you contractors sigh.
A couple of days later, Supablast submitted a quotation for price for steelwork repair works. By mid January 2008, a meeting then took place between the Parties which Story minuted and set out details of all works stated in its letter of intent and also the steelwork repair. Several days later Supablast commenced the works and Story issued another letter of intent, identical to the terms in its earlier letter but this time in respect of the steelwork repairs. Probably all was well until Supablast submitted one final account for all of the works (as it had done for interim payment) and Story could not agree with the value claimed.
Ultimately, Supablast referred the final account dispute to adjudication. Foul cried Story, there’s two contracts here - one arising from each of the letters of intent. After considering how the project had been run as one contract, the adjudicator decided he had jurisdiction and proceeded to make his decision on the one final account and ordering Story to pay. Story didn’t pay.
At enforcement an abundance of legal arguments on variation, jurisdiction of an adjudicator and interpretation of dispute clauses were delivered and with Story maintaining its two contracts - no jurisdiction plea. Akenhead J decided that although the two contracts argument was put professionally, “it was a case in which, based on the evidence upon what goes on in the real world of construction contracts, there was an absence of reality in that argument.” Basically he decided that the minutes of meeting told another story (no pun intended) with regards to the parties’ intentions and was good evidence that both the original (grit blasting, painting and scaffolding) work and the steel repair work should be dealt with under the umbrella of one sub-contract. Even if he was wrong, the Parties behaviour during the works was such that there would be an estoppel by convention whereby the parties proceeded on the basis that there was only one sub-contract for all of the works in question. Accordingly, he ordered enforcement of the adjudicator’s decision.
What the legal profession and Contractors, Sub-Contractors, Suppliers etc can learn from this decision is quite simple:
• If you intend to have more than one contract on the same project with the same sub-contractor, then enter separate written agreements
• Be careful of what you state in letters of intent (if you decide to ignore the above tip).
• If you do intend to give more than one scope of works to a contractor ensure you act consistent with that intention, otherwise one contract may cover all the works.
• Finally, please don’t forget the real world - contracts are not made in a vacuum - albeit I do appreciate the rational of running the two contracts argument given the sums in dispute in this case.
If you want more information about Contract formation, letters of Intent and jurisdiction issues in adjudication then please get in touch.
Author: Scott Milner
Date: February 2010
Special Articles
Alternative Dispute Resolution
Services
Construction Law Commercial Advice
Specialist Quantity Surveying Functions
Office Address & Contacts
Banbury Head Office
3 West Bar, Banbury,
Oxon OX16 9SD
Telephone: +44 (0)1295 275975
Facsimile: +44 (0)1295 275981
enquiries@alway-associates.co.uk
