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Contract in writing - or at least scribble down what you agreed

legal matters

A wit once opined that 'an oral contract is not worth the paper it is written on'. Yet vast swathes of business are conducted all around the commercial world as a result of conversations. Verbal agreements are recognised by the law as contracts, but the substance of a disputed oral contract can be difficult to prove.

Subcontractors have repeatedly bewailed their lot when the terms of a lucrative deal - that they were too busy or too optimistic to confirm in writing - have since been denied. 'It's just my word against theirs, ' the subcontractor will say gloomily, as if the job of deciding between two conflicting accounts of what was done or said many months ago is completely beyond any modern-day tribunal.

Most road-traffic claims, many negligence claims and almost all dayworks claims will depend on a judge or arbitrator deciding which of the two conflicting parties' versions of events is the more credible. In doing so, this person will usually be completely unassisted by any documentary evidence. But both the wit and the gloomy subcontractor would agree that it is easier to decide the contract terms if someone has the good sense to write them down at the time.

The importance of a written contract now has a new significance, with the advent of the adjudication provisions of the Housing Grants Act.

This imposes adjudication as the first-tier dispute resolution process on all construction contracts.

What is, or is not, a 'construction contract' has occupied the courts from the outset. The Act goes on to say, however, that the parties can only have recourse to adjudication if the contract is in writing. You might think that this puts paid to those building contracts where you are lucky if there is so much as a few scribbles on the back of an envelope, but the Act contradicts this initial impression with its various weird and wonderful definitions of a 'contract in writing'.

An agreement can be a contract in writing, for example, irrespective of whether it is signed, if it is made by exchange of written communications, or if it is an oral agreement evidenced in writing. This is not so far from the accepted position, save that the requirement for the contract be 'evidenced in writing' can be fulfilled if it is recorded by a third party.

Under the Act, a verbal agreement made by reference to written terms amounts to a contract in writing. In Universal Music v Flairnote (2000) the claimant's project manager engaged the defendant contractor to carry out refurbishment works for the claimant under the JCT standard form IFC 98. The contract was never signed and there was no documentary exchange between the claimant and the defendant. The claimant admitted that there was a contract but denied that it was in writing. Nevertheless, the court held that the parties' oral exchanges were sufficient to amount to a contract in writing under the Act.

Even more bizarrely, a contract can be in writing if it is recorded 'by any means'. So should the publicity video for a new project happen to catch the plasterers agreeing to carry out their works under the standard form of subcontract DOM/1, would the video footage amount to a contract in writing?

The provision that is, perhaps, the most mystifying is where an oral contract is alleged by one party in proceedings (including arbitration, litigation or adjudication proceedings) and not denied by the other, it will constitute a contract in writing. Bearing in mind that an adjudication usually happens before any litigation or arbitration proceedings - and that if the responding party does not want to be involved in an adjudication, the last thing they will do is admit that the contract falls within the Act - this is a surprising provision indeed.

In Grovedeck v Capital Demolition (2000) the court grappled with these problems and decided that the reference to 'adjudication proceedings' must mean some other adjudication, held before the adjudication in point.

As the judge pointed out, disputes as to the terms of oral construction contracts are surprisingly common and are not really suitable for adjudication. For the purposes of adjudication, therefore, an oral contract may not worth the paper it was written on.

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