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Talk isn’t always cheap: oral contracts in the construction industry

30 July 2018

The recent case of Dacy Building Services Limited v IDM Properties LLP [2018] EWHC 178 (TCC) highlights how the TCC dealt with the issue of an oral construction contract.

Since the Local Democracy Economic Development and Construction Act 2009 removed the requirement for construction contracts to be in writing, an oral construction contract is sufficient for disputes to be governed by the statutory adjudication provisions.

The case of Dacy v IDM originally started as an application by Dacy to enforce the decision of an Adjudicator who decided: (i) that an oral contract existed between Dacy and IDM; and (ii) IDM owed Dacy the sum of £247,250 pursuant to that contract.

Dacy applied, in the usual way, to enforce the Adjudicator’s award by way of summary judgment. IDM resisted enforcement as it alleged there was no contract between Dacy and IDM but instead Dacy had contracted with a third party, who subsequently entered into administration. Accordingly, IDM contended the Adjudicator had no jurisdiction to make his decision.

At the summary judgment hearing the Court held that IDM had a “realistic prospect of succeeding” in its defence that there was no contract between Dacy and IDM. Therefore a one day trial was ordered which, naturally, relied on oral evidence between the parties involved to consider whether an oral contract was agreed.

The Court commented that IDM’s key witness was “very capable of glossing over contractual precision when it suits him” and ultimately preferred the evidence of Dacy’s witnesses. The Court decided a contract was concluded between Dacy and IDM and the Adjudicator’s decision was enforced.

In delivering its judgment the Court made and drew on previous comments about the difficulties with oral evidence commenting that “reliance on recollection alone should not be the sole tool for assessing credibility of witnesses” and “In a case such as this, with the central issue being what was agreed orally at a particular meeting, there are inferences (which is to say common sense conclusions) that can be drawn from certain other matters, not only documents, but also circumstances”.

The case highlights the obvious difficulties that arise when contracts are not concluded in writing and (despite the Court’s efforts) it took 17 months – and one would expect considerable cost – before Dacy was able to enforce the Adjudicator’s decision.

The Court however seemed keen to emphasise the trial could have taken place much earlier and the issue resolved a year before. It also noted that it was only in very rare cases that adjudication enforcement applications will result in trials of issues thus highlighting that disputes (even involving oral contracts) will usually be dealt with speedily.

Back to the Construction newsletter, July 2018

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