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Oral contract adjudication may pose problems

It may be thought that the proposed amendment to the Housing Grants, Construction and Regeneration Act 1996, allowing the adjudication of oral contracts and reflecting the reality of site life, is a good thing.

The usual preliminary jurisdictional spats over whether or not the contract is wholly in writing will vanish and the ability to adjudicate will be expanded to those less inclined to commit matters to writing. However, this amendment may create another, more complex problem once proceedings have begun.

Allowing oral contracts to be adjudicated will require the adjudicator to determine which party’s evidence he prefers. This is nothing new, but previously the basis of both parties’ obligation was set out in some form of written contract. He might have been required to interpret such provisions but now he might have to determine what those actual obligations are.

To do this, the adjudicator may look for written documents that corroborate or support a particular version forwarded by a party. But what if no such documents exist? Naturally, witness statements may be adduced to give each side’s version of events.

However, there is no sanction should these be inaccurate or untrue. The adjudicator may wish to hold a meeting to ask questions and take account of the demeanour of the witness, but he has no power to order that evidence be given under oath.

In short, while given the added responsibilities and complexities of having to adjudicate oral contracts, the amendments do not provide the adjudicator with adequate powers to deal with this. In addition, the costs of adjudicating oral contracts are likely to increase.

The repercussions combined with the effects of the new payment provisions and potential matters that may come before an adjudicator are enormous.

Imagine the scenario: the sub-contractor says the orally agreed terms were that the payment due date is 14 days after commencement and the final date for payment is six days thereafter.

The main contractor says he must have misunderstood; the due date is 40 days after commencement and final date for payment 16 days thereafter. This is the first payment and there is no written evidence to support either party’s contention.

Expanding the scenario: the subcontractor has issued a suspension notice and seven days later left site. He has also issued a default payment notice and, for good measure, considerably overvalued the work.

The main contractor has not issued any payment notice or withholding notice as he says in accordance with their oral agreement they are not yet due. Everything hangs on what the adjudicator decides, yet he may have little evidence.

This is only one scenario. Ironically, by permitting the adjudication of an oral contract, the conclusion appears to be more than ever before that it is wise to ensure all contracts are in writing.

Garry Winter is a senior consultant for Knowles