England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		05/08/2009

MR JUSTICE CHRISTOPHER CLARKE :

1. The claimant ("Adonis") is a building contractor. The defendant ("O'Keefe") is a soil remediation contractor. O'Keefe carried out works of testing and soil stabilisation on a site where Adonis was acting as the main contractor. I have before me an application by Adonis for summary judgment to enforce an adjudicator's decision dated 22^nd May 2009. O'Keefe resists the application on the ground that the award was made, so it is said, without jurisdiction because there was no construction contract in writing as required by section 107 (1) of the Housing Grants Construction and Regeneration Act 1996.

The facts

2. The facts are in large measure not in dispute. On 25^th October 2007, O'Keefe received a tender enquiry from Adonis in respect of soil stabilisation works ("the Works") at Westcott Venture Park in Aylesbury ("the Site").
3. On 2^nd November 2007, O'Keefe submitted a quotation for the Works. The quotation stated:

"suitability testing must be carried out prior to commencement of our works to prove the suitability of the site soils for stabilisation …"

and that

"the level or amount of any liquidated or consequential damages are to be agreed prior to any contractual commitment."

Adonis did not respond to the quotation.

4. By an email dated 28^th February 2008, Mr McQuade of Adonis informed Mr Horsley of O'Keefe that Adonis had not responded to the quotation because they intended to award the Works to another sub-contractor. However, the other sub-contractor had been unable to secure PI insurance and Adonis wished to explore the possibility of O'Keefe undertaking the Works. In the email, Mr McQuade provided the results of tests on the candidate material for stabilisation. The tests had been carried out to establish the sulphate level/swell. The composition of the soil determines the nature and quantity of the compound that needs to be added.
5. By an email dated 29^th February 2008, Mr Horsley confirmed to Mr McQuade that O'Keefe would be prepared to carry out the Works at the rate previously quoted and could mobilise in the week commencing 17^th March 2008.
6. On 3^rd March 2008, Mr Horsley attended a pre-start meeting at the Site with representatives of Adonis. Mr McQuade was not present. At the meeting, Adonis requested that the Works be commenced on 6^th March 2008. The minutes (a) described the work, (b) stated that the form of contract would be DOM 2, with amendments 1 – 8, (c) specified a contract period of 1 week and (d) expressed the contact sum of £ 38.710.80 as a lump sum.
7. After the pre-start meeting, by an e-mail dated 3^rd March 2008, Mr Horsley confirmed to Mr McQuade that O'Keefe could mobilise on 6^th March if Adonis was able to provide a copy of the sub-contract order with letter of intent. Attached to the email was an amended quotation for the Works, also dated 3^rd March 2008. The quotation again contained the terms set out in paragraph 3 above.

4^th March 2008

8. By an e-mail of 4^th March Mr Horsley sent to Adonis inter alia a method statement and trusted that what he had sent was all that was necessary for Adonis to place an order.
9. By an attachment to a later email dated 4^th March 2008 Mr McQuade provided Mr Horsley with the letter of intent. The letter of intent said:

"We confirm our intention to enter into a sub-contract with you in accordance with your sub-contractors obligations contained within the following documentation ..."

Numerous documents were then specified, some of which, including the Minutes of the pre-start meeting, were to follow. The letter continued;

"The order for Soil stabilisation and associated works is to be for the fixed price of £ 38,710.8 Net, and will be Lump Sum strictly in accordance with the conditions within the JCT 98 – SFBC WITH CONTRACTORS DESIGN subcontract form DOM 2. You are to carry out these works in 1 Weeks, commencing 06/09/2008. We require receipt of your Method Statement and Risk Assessment for above named project no less than four weeks prior to commencement."

O'Keefe was invited to take the letter as "…an instruction to proceed procurement [sic] of all necessary labour and materials to enable you to meet the on site date…" The letter further provided:

"In the unlikely event that the sub contract does not take place you will be entitled to claim for substantiated costs up to the date of abortion. No loss of profit or consequential loss will be allowed."

10. With the letter of intent, Mr McQuade also provided a copy of O'Keefe's amended quotation for the Works, dated 3^rd March 2008. This copy contained manuscript additions. Next to the typed words in paragraph 1.2 of Appendix 1 "Rates are based with the limited soil information provided, we will be required to carry out on site suitability testing to test for moisture content, sulphates and general site condition 4 weeks before commencement on site..." someone, probably from Adonis, had written "Testing on-going from 3/3/08".
11. By a further email dated 4^th March 2008, Mr McQuade provided Mr Horsley with a copy of the minutes of the pre-start meeting, which had been prepared by Adonis. Mr Horsley was asked to sign and return a copy "which will enable us to raise our official order".
12. On 4^th March 2008, Mr Horsley returned the signed minutes by way of a scanned fax attached to an email. The fax cover sheet stated:

"We look forward to receiving your formal order…

Within our quotation you will find we'd requested 14 day payment terms, which I hope will not be a problem for you. We've also carried out suitability testing on the material…

However, as we discussed the results of these will not be available until after we've completed our works.

I confirm the plant and labour will arrive on Thursday as agreed."

13. As will be apparent from the foregoing O'Keefe's conditions had made plain the need for suitability testing prior to the commencement of the works. Adonis had carried out some tests and provided the results to O'Keefe. O'Keefe had also carried out some tests but did not have the results and the work was due to begin in two days. If the latter tests showed that what O'Keefe was going to do on the basis of the former tests was inappropriate there was going to be a problem.

The draft order

14. In an email dated 5^th March 2009, Mr McQuade stated: "Please find attached a copy of our draft subcontract order for the above contract. The official order will be signed off and issued in the post in due course." Attached to the email was a copy of the draft sub-contract order. This stated:

"DRAFT SUB-CONTRACT ORDER [No order number]

The appended attestation page is to be duly signed Under [sic] seal and returned to the undersigned within 7 days."

15. The draft order incorporated the DOM 2 conditions with amendments and, also, as Appendix D, the signed minutes of the pre-start meeting of 3^rd March 2008. These minutes were said to "take precedence" over conflicting terms in the draft order. Appendix B specified a contract sum of £ 38,710.80 and "Execution - As a deed". It also incorporated the adjudication clause from the DOM conditions.
16. There were two further bespoke conditions which Adonis sought to introduce. The first was a provision that:

"All costs in relation to adjudication to be borne by the Sub-Contractor."

("the costs clause").

17. The second was a manuscript addition (the "risk clause") to Mr Horsley's fax of 4^th March 2008, which had transmitted the signed version of the minutes. To Mr Horsley's note that O'Keefe's suitability test results would not be available until after the Works were complete, Mr McQuade added :

"Note: In the event that the test results are not compatible with the treatment carried out then any remedial works and all associated costs, including consequential costs, will be the sole responsibility of O'Keefe Soil Remediation Ltd – as agreed L. Horsley/S. McQuade 5.3.08." [Emphasis added]

18. There was, so it appears, a conversation between Mr Horsley and Mr McQuade on 5^th March which, according to Mr Horsley, is inaccurately recorded in the risk clause. According to him what he said to Mr McQuade was that if the final results of the sample taken by O'Keefe showed that a different treatment was needed O'Keefe would undertake any additional treatment at its expense but it was not agreed that they would be responsible for consequential losses.
19. O'Keefe contends that Mr McQuade's email of 5^th March 2008 and the attached draft order were not in fact received by Mr Horsley until 7^th March 2008. The date of receipt has been identified by O'Keefe's external IT support company and is visible from a screen print of the results of a search of Mr Horsley's email account.
20. The draft order was never signed and returned by O'Keefe.
21. On 6^th March 2008, O'Keefe commenced the Works by mobilising. On 7^th March 2008, O'Keefe commenced work at the site. The Works were completed on or around 11^th March 2008.
22. On 22^nd April 2008, Adonis sent O'Keefe a numbered and dated sub-contract order in respect of the Works. The order provided

"The appended attestation page is to be duly signed and returned to the undersigned, by the following method as a deed within 7 days".

23. On 1^st May 2008, O'Keefe amended the sub-contract order and returned it to Adonis. The manuscript addition made by Mr McQuade on 5^th March 2008 to O'Keefe's fax of 4^th March was qualified by the words :

"Provided always that the candidate material is as described in ACL email dated 28.2.08."

24. Adonis did not accept the sub-contract order as amended by O'Keefe.
25. After the Works were completed it became evident that the stabilised soil would not be acceptable. When the results of the soil tests undertaken by O'Keefe became available, it was apparent that Adonis' original test results did not reflect the conditions of the candidate material to be treated. Adonis claimed that O'Keefe was responsible as it had 'accepted responsibility' for any discrepancy between the original test results and the condition of the candidate material. O'Keefe denied that it had ever accepted such a responsibility. O'Keefe claims that the problem lay, not in the material that it had tested, but with some imported material from a borrow pit which it had not been told about.
26. Adonis sought payment from O'Keefe for the further stabilisation/remedial works it had carried out. O'Keefe sought payment for the Works.
27. In December 2008, the parties agreed that they would participate in a conciliation process, with the decision of the conciliator to be binding unless challenged within three weeks.
28. On 19^th March 2009, the conciliator decided that O'Keefe was due the sum of £14,000 from Adonis.
29. On 8^th April 2009 Adonis served its Notice of Adjudication.
30. O'Keefe contested the jurisdiction of the adjudicator, submitting that there was no contract in writing within the meaning of the Housing Grants Construction and Regeneration Act 1996 ("the Act").
31. The adjudicator found that he had jurisdiction to determine the dispute and, by a decision dated 22^nd May 2009, required O'Keefe to pay (a) damages in the sum of £150,200.42; (b) Adonis's costs in the sum of £9,515.16; (c) his fees in the sum of £16,508.75 plus VAT.

Was there a construction contract in writing?

32. Adonis first contends that the relevant contract was entered into by O'Keefe's acceptance by performance of Adonis' order sent on 5^th March 2008.
33. The first question that arises is whether what was sent by Adonis on 5^th March 2008 amounted to an offer. It does not seem to me that it would so appear to a reasonable reader. The e-mail refers to the attachment to it as "our draft subcontract order" and states that the official order will be signed off and issued in the post in due course. The use of that phraseology and, in particular, the word "draft" indicates not that Adonis is offering then and there to contract on those terms but that those were the terms of an offer that was to be made in due course. The actual offer contemplated by the draft was made by the despatch of a signed and numbered sub-contract order on 22^nd April. I do not regard the fact that the parties were in a hurry to get on as something that ought to qualify this analysis.
34. If that is wrong the second question is whether the offer was capable of acceptance by conduct. The draft order provided that:

"The appended attestation page is to be duly signed under seal and returned to the undersigned within 7 days."

That was, in my judgment, a specification of a required mode of acceptance, which never occurred, rather than a term to be performed once the contact had been made by some other mode of acceptance.

35. Accordingly there was, in my judgment, no offer on the terms of the draft order and no acceptance of any such offer in the prescribed manner and no contract on the terms of the draft order. It is at least arguable that that was so.
36. If I am wrong on both of those points the next question is whether O'Keefe so acted as to indicate its acceptance of the offer. The general principle was stated by the Court of Appeal in Day Morris Associates v Voyce [2003] All ER (D) 368 [396]:

"A contractual acceptance has to be a final and unqualified expression of assent to the terms of the offer. Conduct will only amount to an acceptance if it is clear that the offeree did the act in question with the intention of accepting the offer. But the test as to whether there has been such agreement is an objective one. It follows that conduct which demonstrates an apparent intention to accept can be sufficient, despite uncommunicated mental reservations on the part of the offeree. However, it seems to me that for that situation to arise, the conduct in question must be clearly referable to the offer and, in the absence of knowledge of the offeree's reservations, not reasonably capable of being interpreted as anything other than acceptance. Where the offeror knows that the offeree continues to have significant mental reservations about his offer - for example an unwillingness to accept certain terms of the offer or a determination to insist upon the incorporation into the contract of certain counter-proposals of his own - I doubt that a contract could be brought into existence by conduct."

37. O'Keefe submits that there are three reasons why, in the present case, there was no acceptance of any offer contained in the 5^th March e-mail. Firstly the 5^th March e-mail was not received until 7^th March after the works started. There is a dispute as to whether that was so. Receipt on 7^th March would have involved an abnormally long time between despatch of the e-mail and its receipt. No other e-mail from Adonis to O'Keefe appears to have taken that sort of time. I cannot, however, resolve that question on a summary application. It is arguable that the e-mail was not received until the 7^th March in which case starting on the work on 6^th March cannot have been an acceptance of the offer.
38. It is, in any event, difficult to say that starting the work was clearly referable to the draft offer as opposed to the letter of intent. That letter constituted an instruction to proceed to procurement of labour and material and contemplated that costs would be incurred as a result which, if substantiated, would be reimbursable if the sub contract did not take place up to the date of the abortion, whenever that might be. Further the start of the work may well be referable to the discussions on 5^th March.
39. Adonis contends that, if the offer of 5^th March was not accepted by O'Keefe starting the work it was, nevertheless, accepted by O'Keefe continuing it. Upon this hypothesis the work will have started in response to the letter of intent, or the oral discussions, and not to any offer contained in the draft order. The fact that work then continued after the draft order was received still does not seem to me clearly referable to that order, which had yet to be finalised or signed.
40. Lastly O'Keefe submits that Adonis must have known or should have known that the risk clause and the provision that all costs in relation to any adjudication should be O'Keefe's responsibility were terms which O'Keefe would refuse to accept. That O'Keefe would not accept the former was, it is said, apparent from its insistence that the level of consequential damages were to be determined prior to any contractual commitment and the unlikelihood, in the light of its emphasis on the importance of testing, of it being prepared to shoulder responsibility for a divergence between the characteristics of the material to be subject to remediation and the those of the material whose test results Adonis had provided. It seems to me that both of these contentions are well arguable.
41. For all these reasons I am satisfied that there is an arguable case that there was no construction contract in writing constituted by an acceptance by conduct of the terms of the draft order.
42. Adonis submits that this is too legalistic a view: whether there was a contract on the terms of the draft order must be governed by the test of what sensible business men would reasonably expect: G Percy Trentham Ltd v Archtal Luxfer Ltd [1993] 1 Lloyd's Rep 23. That is, in principle, the relevant test. But that test cannot override the need to examine the exchanges between the parties in order to see what a businessman would reasonably regard them to amount to, and whether he would think that there was a clear acceptance of the terms of the draft order. That, in my judgment, cannot be discerned from the communications which took place between the parties or, at least, not unarguably so.
43. Adonis' alternative submission is that nevertheless there was a contract constituted by the letter of intent, the agreed minutes, and the start of work thereafter. The letter of intent refers to the price, the period, the proposed conditions and the work. The minutes also referred to the DOM 2 conditions.
44. The difficulty with that submission is, firstly, that the letter of intent makes clear that it is neither a sub-contract nor an offer to enter into a subcontract on the terms to which it refers but an indication of Adonis' intentions ("We confirm it is our intention to enter into a sub-contract …"). It expressly contemplates that a subcontract may not take place ("... in the unlikely event that the sub contract does not take place"). The letter of intent was followed by the draft order. It does not seem to me possible to infer that, because O'Keefe carried out the work, a sub-contract came into existence, not pursuant to any order (draft or otherwise), but pursuant to the letter of intent and under the terms which the letter of intent specified would govern the contract to be entered into pursuant to the order. The existence of such a contract would be inconsistent with the provision in the letter of intent that, if the sub-contract did not take place, no loss of profit or consequential loss would be allowed.
45. Secondly, it is doubtful whether a letter of intent such as this is capable of constituting a "Construction contract in writing" within the Act; see Hart Investments v Fidler [2007] BLR 30. If this were the only point I should wish to consider further whether, in this particular case, enough had been specified in the letter and the incorporated material to constitute such a contract.
46. Thirdly, it seems clear that on 5^th March there was some oral agreement between the parties reflected, whether accurately or not, in the risk clause. That agreement, on this version of the contract, was not incorporated into the written record. It is well-established that, in the case of a statutory adjudication, the section is not satisfied if one or more of the contractual terms is not embodied in the written document relied on as constituting the construction contract: RJT Consulting Engineers Ltd v DM Engineering [Northern Ireland] Ltd [2002] 1 WLR 2344; Trustees of the Stratfield Saye Estate v. AHL Construction [2004] All ER (D) 77. The position is otherwise if there is a contractually agreed adjudication: Treasure & Son Ltd v Dawes [2007] EWHC 2420 (TCC). The DOM 2 v O'Keefe conditions, as I understand it, include an adjudication clause. But those conditions can only have been incorporated if the letter of intent is to be regarded as an offer to contract on, inter alia, those terms. For the reasons set out in paragraph 44 I am not satisfied that it has that effect.
47. Accordingly, whichever way the matter is put I am not satisfied that there is no arguable defence to the claim to enforce the adjudication or that O'Keefe has no real prospect of success in its defence. On the contrary it seems to me well arguable that the adjudicator lacked jurisdiction. In those circumstances I decline to give summary judgment on the adjudication.
48. There is a further problem. The adjudicator has purported to apply the costs clause – see paragraphs 20 and 21 of his decision. But he could only do that if the contract from which he derived jurisdiction contained such a clause. The contract said to have been constituted by the letter of intent did not do so; and, if that is the contract, the adjudicator would have exceeded his jurisdiction.
49. In Cantillon Ltd v Urvasco Ltd [2008] EWHC 282 (TCC) Akenhead J held obiter that:

"in all cases where there is a decision on one dispute or difference, and the adjudicator acts, materially in excess of jurisdiction or in breach of the rules of natural justice, the decision will not be enforced by the Court."

50. I entertain some doubt as to whether the adjudicator's entire decision, if otherwise within jurisdiction, is to be regarded as wholly without jurisdiction because of his inapposite application of the costs clause. I am not sure that it was such a circumstance that Akenhead J had in mind. Since I regard the adjudicator as having acted without jurisdiction on a broader ground I do not intend to lengthen this judgment by further consideration of the question.
51. I shall, therefore, dismiss the application.