Twintec Ltd v Volkerfitzpatrick Ltd

A letter of intent may create a binding interim construction contract where it identifies the work, performance requirements and remuneration with sufficient certainty. A later formal subcontract may operate retrospectively, but the letter does not thereby incorporate every term of a standard form. Only obligations necessary to perform the work in accordance with the identified documents are included; secondary provisions such as indemnities, insurance and dispute-resolution machinery require separate agreement.

An adjudicator appointed under a contractual provision that does not exist has no jurisdiction, and any decision is unenforceable. Under section 37 of the Senior Courts Act 1981, the court may restrain such an adjudication where continuation serves no useful purpose. Injunctions against oppressive or unreasonable referrals remain exceptional.

Twintec Ltd, a subcontractor, applied to restrain Volkerfitzpatrick Limited from pursuing an adjudication concerning approximately £850,000 spent on load testing a warehouse floor. The adjudication was purportedly commenced under the DOM/2 standard form, with the adjudicator nominated by the President of the RICS.

The dispute formed part of substantial multi-party litigation concerning alleged defects in the warehouse floor and piles. The court considered the terms and effect of the letter of intent, whether the adjudicator had been validly appointed, whether the referral was unreasonable or oppressive, whether it fragmented the litigation, and whether the testing costs were recoverable as damages.

Disposition. An injunction was granted restraining further pursuit of the adjudication. The principal ground was that the adjudicator had not been validly appointed.

1. Letter of intent. The letter of intent was a binding, free-standing interim contract. Its terms were sufficiently certain because they identified the work, required performance necessary to achieve the design and construction programmes, and provided for reimbursement of proven reasonable costs. The court applied the reasoning in Trollope & Colls Ltd v Atomic Power Constructions Ltd [1963] 1 WLR 333 and Diamond Build Ltd v Clapham Park Homes Ltd [2008] EWHC 1439 (TCC).
2. Incorporation of DOM/2. The formal subcontract, if concluded, was intended to have retrospective effect. However, the words requiring work to be carried out in accordance with the identified documents did not incorporate all DOM/2 terms. They required compliance with standards governing the work, but did not incorporate secondary obligations such as indemnities, insurance, delay notices or dispute-resolution machinery. The reasoning in Bryan and Langley v Boston [2005] EWCA Civ 973 and Harvey Shopfitters v ADI [2003] EWCA Civ 1757 supported rejecting VFL’s wider construction.
3. Jurisdiction. In the absence of an agreed contractual nominating provision, the adjudication provisions of the Scheme for Construction Contracts applied by virtue of section 108(5) of the Housing Grants, Construction and Regeneration Act 1996, with the President of the RICS as the default nominating authority. Nevertheless, an adjudicator appointed under a contractual provision which was not part of the contract had no jurisdiction. The appointment was a nullity and any resulting decision would be unenforceable. The court followed Pegram Shopfitters v Tally Weijl [2004] 1 WLR 2082.
4. Injunction. Section 37 of the Senior Courts Act 1981 empowered the court to intervene. It was just and convenient to do so because any decision would be incapable of enforcement, and continuation would cause substantial irrecoverable expenditure without resolving the parties’ legal rights.
5. Other grounds. The court rejected the arguments that parallel litigation, fragmentation of the issues, or the pressure and duplication caused by the referral made it unreasonable and oppressive. The requirements were disjunctive, both had to be present to a fairly high degree, and intervention remained exceptional given the statutory right to refer a dispute to adjudication at any time. The court applied the principles in Mentmore Towers Ltd v Packman Lucas Ltd [2010] EWHC 457 (TCC), Herschell Engineering v Breen Property [2000] BLR 272 and London Borough of Camden v Makers [2009] EWHC 605 (TCC).
6. Testing costs. The claim was not bound to fail. Costs of tests reasonably required to identify defects or determine necessary remedial work could form part of the loss caused by defective work. The fact that the same expenditure might also be recoverable as a litigation disbursement did not prevent recovery as damages. A claimant could sue one party for a loss even if others might also be liable, leaving contribution proceedings to protect the defendant.

The precise terms of the injunction were left to counsel to agree. The parties had agreed the costs of the application.