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Cherish the certainty of your contract's terms of endearment

legal matters

Pegram Shopfitters v Tally Weijl (UK) (judgment 14.2.03) gives a new spin to an old chestnut. The chestnut is this: a contractor, whether in their enthusiasm to start work or as a result of a deep-seated aversion to contractual formalities, starts on site before the terms of their engagement have been agreed, or before signing up to one of various competing forms of contract. Halfway through the job the contractor realises that there is no consensus as to what they are supposed to be doing or how much they are to be paid for doing it.

An impasse is reached. The situation deteriorates. Chaos intervenes. Later, when the dust has settled, the contractor is advised that they probably did agree to one form of contract or the other or, failing that, they can claim for the value of the work done on a quantum meruit. Equally, the employer no doubt will argue that their own particular terms of contract had been agreed or seek to reduce, or abate, the value of the contractor's work because it was defective. As has been pointed out on more than one occasion, disputes about the terms of a contract are surprisingly common in the construction industry, and you are, in fact, lucky if you have something written down on the back of a cigarette packet.

In such a situation, can the parties turn to the relatively new adjudication procedure to resolve this, the oldest of all construction chestnuts? The recent Pegram case shows that the answer is not as straightforward as you might think. The defendant clothing retailer, Tally Weijl, disputed the value of the claimant shopfitter's final account. The contractor took its claim to adjudication and the adjudicator decided in its favour, to the tune of £95,000. The defendant shop owner declined to pay, arguing that there was no contract between the parties, and without a contract the claimants had no entitlement to adjudication.Alternatively, if there was a contract, the parties had not agreed which of two competing terms applied.

True, the adjudicator had formed a view as to which terms prevailed, but they were not entitled to, because without an agreed contract, there was no entitlement to adjudicate in the first place.

Technology and Construction Court Judge Thornton QC recognised the logical puzzle in what the defendants were saying. If both parties accepted that some contract terms were agreed, but disputed what they were, they were entitled to have that dispute decided. But that very dispute had the effect of hamstringing the adjudicator, who would not know the contractual basis upon which he was to decide the dispute. On a careful analysis, however, the judge unravelled the puzzle in this way. If both parties agreed that they had a contract, and with it a right to adjudication, it would be surprising, to say the least, if that entitlement could be thwarted by the parties' failure to agree which particular terms applied. If the defendants were right, then neither party would be able to adjudicate without first applying to the court to resolve the contractual position. But that would be contrary to parliament's intention that the parties should have the right to immediate and speedy adjudication. But, as the judge pointed out, if you have a construction contract that does not clearly provide for adjudication, that does not mean that the right to adjudicate is lost. Instead, the provisions of the scheme are invoked to plug the contractual gaps.

It would be hard to imagine a clearer case of lack of clarity (if you get my drift) than uncertain contractual terms. In such a case, the uncertainty of the contract is replaced by the certainty of the scheme. The adjudicator had rightly conducted the adjudication pursuant to the terms of the scheme and their decision was valid and enforceable.

As you can see, there is, in fact, little to be gained by failing to sort out the terms of your contract, if not before, then around about the time that you start work. Such a failure invariably leads to problems later and, what is more, it will not stop an adjudicator from coming along to sort them out.

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