Failing to agree clear terms in advance of starting work is a clear risk, as most recently shown in the Technology and Construction Court (TCC) judgment in Changing Climates Ltd v Warmaway Ltd . These proceedings related to an application for summary judgment to enforce an adjudication decision. The jurisdiction of the adjudicator had been challenged by Warmaway, with the contention being that there was no contract at all in place between Warmaway and Changing Climates (CC).
If Warmaway was correct, there could be no "construction contract" between the parties as defined in the Housing Grants, Construction and Regeneration Act 1996 as amended (the Construction Act), meaning that there was no right to adjudication and the adjudicator would not have jurisdiction in respect of the dispute.
Warmaway raised additional challenges to jurisdiction. In this article, we focus solely on the issue of whether or not there was a "construction contract" (or indeed any contract at all).
- In 2018, Broadley Ltd put out to tender to subcontractors various elements of mechanical and electrical works (M&E works) in respect of a project where Broadley was main contractor.
- CC and Warmaway decided to put in a joint bid together with a third company (Dynamic Networks Ltd) for the entire M&E works. CC, Warmaway and Dynamic planned to "form a consortium" for the purposes of this project.
- Broadley accepted the bid but issued an order solely to Warmaway for the whole of the work, clearly seeking to appoint one subcontractor only.
- Despite continuing discussions between Warmaway, CC and Dynamic about setting up some sort of consortium, this was never formally progressed; they agreed a payment process (further details below).
- Towards the end of the project, Broadley went into liquidation. At this point, an invoice from CC to Warmaway remained outstanding in the sum of £223,338.20 plus VAT.
- CC referred this non-payment to adjudication in which Warmaway disputed jurisdiction on the basis that there was no construction contract (and indeed, no contract at all) between CC and Warmaway.
- The adjudicator decided there was a construction contract, meaning he had jurisdiction, and directed Warmaway to pay the outstanding invoice to CC.
Warmaway contended that there was no contract at all between Warmaway and CC and that Warmaway entered into the contract with Broadley as CC's agent in respect of the work for which CC had tendered.
CC's position was that whatever the parties had originally intended ("to form a consortium"), in actuality, Broadley appointed Warmaway as sub-contractor for the whole package of M&E works. Warmaway then appointed CC as sub-sub-contractor, ie a traditional contract/sub-contract/sub-sub-contract basis.
Both parties agreed that if there was a contract between Warmaway and CC, it would be a "construction contract" within the meaning of the Construction Act.
After considering in detail the correspondence between the parties and factual statements, the TCC held that there was no evidence pointing to agency. Although there were a number of mentions of "forming a consortium" for the purposes of this project, the proposed legal structure was never clarified, nor progressed.
In fact, as the Judge, Her Honour Sarah Watson, described, "once the order came through from Broadley, all parties understood that Broadley had awarded the contract only to the Defendant Warmaway". Key aspects of the interactions between the parties included the following:
- Broadley placed one complete M&E sub-contract order with Warmaway, which Warmaway executed as a deed.
- Warmaway expressly confirmed to CC and to Dynamic that:
- it needed to issue orders to CC and Dynamic; and
- Warmaway had agreed with Broadley to take responsibility for the whole M&E contract.
- On each payment application, Warmaway submitted one application to Broadley. Details of the amounts due to CC and Dynamic were included by Warmaway in its payment applications to Broadley but "there was an application for a single payment on the cover sheet".
- Broadley would then make one interim payment to Warmaway.
- Having requested invoices from CC and Dynamic to Warmaway, Warmaway in turn paid CC and Dynamic following receipt of the interim payment from Broadley.
- Warmaway issued payment certificates to CC headed "Subcontractor payment certificate", identifying CC as its subcontractor (and presumably did the same to Dynamic).
The Judge stated that there was "overwhelming evidence in this case that the parties agreed in relation to this contract that they would give effect to the joint tender of the consortium in a traditional way, with the Defendant Warmaway being the main contractor and the Claimant Changing Climates being its subcontractor, and not by the parties each contracting separately with Broadley".
(The Judge had earlier noted that in fact Broadley was the sub-contractor and Warmaway and Dynamic were sub-subcontractors; to keep things simple however, she would refer to Warmaway as the main contractor and CC as subcontractor in this judgment.)
Substance over form
The TCC held that there was no doubt that there was a construction contract in place between Warmaway and CC, meaning that the Adjudicator did have jurisdiction and the adjudication award would be enforced.
This is a reminder to ensure that clear contractual terms are in place in order to avoid the costs and delay of this type of challenge.
If you have any queries on this or any construction related issue, contact Ashley Pigott.