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A recent English Law decision of the Technology and Construction Court (23 May 2007) in the case of Mott MacDonald Limited v London and Regional Properties Limited has elevated the question of whether an Adjudicator's Decision that is provided to the parties after the 28 day or 42 day statutory period (set out in the Housing Grants, Construction and Regeneration Act 1996, (“the HGCR Act”) or indeed after any agreed period, is valid and therefore enforceable? Hamish Lal presents a gloss on this issue which concerns the validity of decisions ostensibly reached within time but provided late to the parties.

Facts

In Mott MacDonald the Adjudicator, appointed under the HGCR Act, was required to reach his Decision on or before 13 December 2006. However, the Adjudicator issued to the parties a Decision dated 13 December 2006 but which the parties received by post on 14 December 2006.

The Adjudicator, by a letter dated 7 December 2006, that he faxed and sent by post to the parties, stated:

“I have reached my Decision in this adjudication which now requires to undergo final typing and editing. I am, therefore, on schedule to fully complete my Decision by tomorrow. In accordance with my letter to the Parties dated 1 November 2006, the Referring Party is to pay my fees and expenses prior to me releasing my Decision ...”

The Court held that the Decision had, in fact, been reached on 8 December 2006 but was not received by the parties until 14 December 2006. The error of late dispatch was compounded by the Decision not being faxed to the parties, but only being sent out by first class post.

Issue

Was the Decision valid and enforceable? Answer-NO

Decision

The Judge, HHJ Anthony Thornton QC, held that the decision was not delivered to each of the parties as soon as it was reached. He held that there were three reasons why the decision was not delivered to the parties on the day it was reached (on Friday 8 December 2006) but was instead received on Thursday 14 December 2006.

• the Adjudicator imposed a precondition that the Decision would not be released until Mott MacDonald paid his fees;
• the Adjudicator implemented that condition and did not release the Decision for 5 days whilst awaiting payment;
• The Adjudicator failed to send the Decision by fax, despite his direction that all communications in the adjudication should be sent in this way, but only sent it by first class post so that it arrived one day after it had been sent.

It is especially noteworthy that the Judge decided that Section 19(3) of The Scheme for Construction Contracts which states As soon as possible after he has reached a decision, the adjudicator shall deliver a copy of that decision to each of the parties to the contract means getting the decision into the parties' hands rather than merely dispatching it to them. Indeed, Mott MacDonald supports the proposition that a decision that is not delivered promptly by the most rapid available means of delivery is invalid if provided outside of the relevant time period. The learned Judge, having considered all the relevant authorities, set out the following propositions:

1. Adjudication is intended to be a rapid and informal means of resolving disputes on a temporary basis.
2. To that end, the scheme rules, and all other adjudication rules, provide that the adjudicator must deliver his decision promptly.
3. Given the rationale for adjudication in its present rapid form, the rules are to be construed as being mandatory. They are rules which the adjudicator is obliged to comply with.
4. So as to comply with this rationale, the adjudicator should use the most rapid means of delivery that are reasonably available. This will ordinarily involve use of email or facsimile facilities.
5. Any delay after the end of the relevant adjudication period in delivering the decision must be minimal and, if the decision has been reached before the end of that period, it should be delivered within that period.
6. Any failure to comply with the requirement of prompt and rapid delivery will render the decision unenforceable and, probably, a nullity.

It is clear that the Courts will enforce time limits strictly. This judicial approach is likely to continue and so it is clear that the 'adjudication world' will need to adapt. The options for change are numerous. Given that payment of the adjudicator's fees appears to be the central problem causing late delivery it is here where change must be focused. The Referring Party could make payment on account. Another practical point is that adjudicators may need to consider working at risk and recover the fee subsequently from one or other of the parties.

Letters of intent

Mott MacDonald has also raised very important points about reliance on statutory adjudication in letters of intent. It is and always has been common in the construction industry for a contractor to commence, carry out and be paid for work under a letter of intent, pending the conclusion of a formal contract. This is often a practical fix but what happens if the formal agreement takes a long time (many years) to finalise, or indeed is never concluded? What happens if a dispute arises before conclusion of the formal agreement? As is equally common, it is only when siterelationships break down that the parties consider their respective rights under the contract governing their relationship - namely the letter of intent.

In Mott MacDonald the learned Judge held that the letter of intent:

1. Did not fully or clearly define the scope of the work to be undertaken as the scope specified in the letter was “incomplete, provisional and the subject of ongoing discussion and amendment”; and
2. Stated that payment would be made on a quantum meruit basis. However, in actuality, payment was made in line with an agreed fee profile which was either an oral agreement, one to be inferred by the parties' conduct, or one evidenced by documents which were not adduced in evidence or relied upon.

As such, the Judge held that the letter of intent was not an agreement in writing to which the provisions of Part II of the 1996 Act applied, but was “partly in writing, partly evidenced in writing, partly oral and partly formed by conduct” and therefore not adjudicatable. Court of Appeal authority in this area is clear that only construction contracts where the whole of the contract is in writing, or evidenced in writing can be adjudicated upon (RJT Consulting Engineers Ltd v DM Engineering (Northern Ireland Ltd) [2002] 1 WLR 2344). In practical terms it is clear that if there are “gaps” in the various terms, to the extent that the gaps are filled by the parties' conduct or orally, then the letter of intent is not adjudicatable.

Practical points to consider

Given the above warnings in the case law, the first question for the parties is to consider whether the letter of intent is intended to be adjudicatable? It is often the case that the parties want, or are only willing, to enter into a 'loose' commercial relationship such statutory adjudication is not a priority.

If however adjudication is desired then the parties should consider the above cases and make sure that the letter of intent does not contain any “gaps”. This, naturally, requires the parties to consider that the letter specifies precisely what works are to be carried out, within what time frame, and what rates are to be applied. These provisions must then be adhered to in practice.

Summary

• The HCGR Act requires that “As soon as possible after he has reached a decision, the adjudicator shall deliver a copy of that decision to each of the parties to the contract”;
• In Mott MacDonald Limited v London and Regional Properties Limited [2007] EWHC 1055 (TCC) the Judge held that in the context of the scheme rules, “delivery to each of the parties” means getting the decision into their hands rather than dispatching it to them”;
• Any delay after the end of the relevant adjudication period in delivering the decision must be minimal and, if the decision has been reached before the end of that period, it should be delivered within that period;
• The Courts will enforce strict time limits. Any failure to comply with the requirement of prompt and rapid delivery will render the decision unenforceable and, probably, a nullity; and
• Rapid means of delivery will ordinarily involve use of email or facsimile facilities.
• Mott MacDonald reveals that Courts will not allow adjudication where the letter contains “gaps” that are filled by the parties' conduct or by oral agreement;