In 1997 the Ministry of Defence employed Devonport Royal Dockyard (DML) as main contractor for the upgrading of a dockyard. In turn, DML employed Carillion to upgrade the No. 9 dock, provide new buildings and associated infrastructure. That contract was contained in two documents, a Subcontract and an Alliance Agreement both dated 10th March 1000. Carillion was to be paid its actual cost plus accruals and a fee. A gain share agreement provided that any overspend of the target cost would be shared between DML and Carillion. The target cost was originally £56 million, but was amended six times between September 2000 and December 2001 to a target cost of £100 million. A meeting of the Alliance Board (a board comprising two representatives of the parties with the power of authority to make decisions) met on 30th October 2001 with a view to revising the payment provisions. Carillion believed that a binding oral agreement had been reached at that meeting whereby payment was to be on a cost reimbursable basis without the gain share restrictions. However, the amount of the fee could not be agreed.

Carillion submitted application no. 33 on 16th April 2002 to DML for achieving milestone 33. Carillion claimed £121,522,511.29 less the previous certified sum of £110 million. The sum was not paid, but there was an exchange of correspondence in respect of the calculation of the figure and the basis of the figure.

This culminated in a letter from Carillion dated 25th July 2002 stating that the basis of their claim was the oral agreement reached on 30th October 2001. By further letters dated 26th and 29th July 2002 Carillion threatened adjudication proceedings. By letter dated 1st August 2002, DML wrote to Carillion stating that this was the first time that Carillion were seeking to rely upon an agreement reached on 30th October 2001, and DML asked for more detailed information in respect of that agreement. Carillion responded with a Notice of Intention to Refer the Dispute to Adjudication dated 6th August 2001.

An adjudicator was appointed on 12th August 2002. His decision dated 24th September 2002 decided that a binding agreement was concluded on 30th October 2001, the project would become cost reimbursable and that DML should pay £7,451,320 plus VAT within 18 days together with fees.

DML did not pay. They claimed that the adjudicator did not have jurisdiction for two reasons. First, the alleged oral agreement did not comply with the requirements of section 107 of the Act insofar as it was not in writing. This was irrespective of whether or not an oral agreement was in fact reached. Second, that a dispute had not crystallised between the parties as DML had not rejected Carillion’s allegation that there was an oral agreement, but had merely requested further information.

HHJ Bowsher QC held that the oral agreement did not comply with section 107 of the Act, and further that there was no dispute capable of being referred to adjudication. He therefore refused to enforce the decision. In respect of the oral agreement, he considered that the agreement had not been evidenced in writing pursuant to section 107(2)(c) and had not been recorded otherwise than in writing pursuant to section 107(3) of the Act. He referred to the Court of Appeal case of RJT Consulting v D M Engineering [2002] 5 BLR 217 which supported his conclusion.

In respect of the “No Dispute” point he considered by analogy that the arbitration cases raise the issue of whether or not a dispute entitles a claimant to start arbitration proceedings. In particular he referred to Judge Gilliland QC in Cruden Construction Limited v Commissioners for the Newtown [1995] 2 Lloyds Rep 387 in which he noted that the plaintiff had requested further information but that information was not supplied until after the service of a Notice of Arbitation. He therefore took the view that there was no dispute at the time of the service of the Notice of Arbitration. HHJ Bowsher QC made the point that one should not examine the minute details of the correspondence leading up to the Notice of Adjudication, but should take a broad approach. On this basis, he still considered that DML were not aware in what respects it was alleged to have broken its obligations on the date on which the Notice of Adjudication had been served. HHJ Bowsher QC therefore held that there was no dispute, and as a result the adjudicator did not have jurisdiction.

Permission to appeal was given HHJ Bowsher QC. His decision raises issues of some public importance, given that many construction disputes involve oral agreements, or part oral agreements which maybe material to the issues in dispute. Following the Court of Appeal case of RJT and this case, it appears that an adjudicator will not have jurisdiction if any of the material terms have not been recorded in writing.

Many thanks to Mark Finlay of Brodies in Edinburgh for supplying a copy of the judgment.