Bennett (Electrical) Services Ltd v Inviron Ltd

A letter of intent headed subject to contract does not necessarily prevent contractual liability, but the question is one of construction. Where the arrangement makes a formal contract a condition precedent, and provides only for restitutionary reimbursement if no contract is concluded, no construction contract arises.

For Housing Construction and Regeneration Act 1996, section 107, the whole agreement must be evidenced in writing. Recording only terms material to the adjudication is insufficient. The requirement is not satisfied where key express obligations, payment terms or later oral variations are absent from the written record.

The claimant sought summary judgment to enforce an adjudicator’s award arising from electrical installation works undertaken for the defendant. An earlier adjudicator had declined jurisdiction, finding no contract compliant with section 107 of the Housing Construction and Regeneration Act 1996.

A second adjudicator accepted jurisdiction and awarded the claimant £253,748 plus VAT and interest. The defendant challenged enforcement on the grounds that the letter of intent created no contract, that the agreement did not satisfy section 107, and that the second adjudication was precluded by the first decision. The central issues were whether a contract arose and, if so, whether it was evidenced in writing for statutory adjudication purposes.

1. The application was dismissed. The adjudicator had no jurisdiction and the claimant was not entitled to summary judgment enforcing the award.
2. The expression subject to contract normally indicates that exchange of a formal written contract is a condition precedent to legal liability. That is not conclusive. The court must construe the arrangement to determine whether the parties intended immediate contractual liability or merely contemplated a later formal contract.
3. On the proper construction of the letter of intent, no contract arose. The proposed subcontract was subject to third-party approval. If it was not concluded, the agreed remedy was reimbursement of reasonable and substantiated direct costs, with contractual remedies expressly excluded. That arrangement was restitutionary in character.
4. In any event, section 107 required the whole construction agreement, including all express terms, to be evidenced in writing. The court was bound by the majority reasoning in RJT Consulting Engineers Ltd v DM Engineering Ltd 2002 WLR 2344 (CA). It was insufficient that the terms material to the adjudication were recorded.
5. The written arrangement did not record key matters, including price and rates for additional work, payment mechanisms, working hours, variations, insurance and health and safety. Significant oral variations and additional oral terms were also alleged. The statutory condition was therefore not met, and section 107 did not engage.