Adjudication Matters ' December 2020

Publication Date23 December 2020
SubjectCorporate/Commercial Law, Contracts and Commercial Law
Law FirmWalker Morris
AuthorCarly Thorpe and Victoria Southworth

Letters of Intent: Is an Adjudicator's Decision enforceable if it was decided upon the incorrect contract terms?

OD Developments v Oak Dry Lining Ltd [2020] EWHC 2854 (TCC)

Introduction

In OD Developments (OD) v Oak Dry Lining Ltd (Oak), the Technology and Construction Court (the TCC) declined to enforce an Adjudicator's Decision where the Adjudicator had based their decision upon the JCT Sub-Contract terms, and those terms had not effectively been incorporated into the parties' Letter of Intent.

This case is a reminder of the risks associated with using a letter of intent (LOI), and underlines the importance of agreeing clear contract terms at the outset before starting work.

Case Details

Oak carried out dry-lining works (the Works) for OD at 19 Bolsover Street, London. OD issued a LOI which included the following wording:

'This Letter of Intent is based on your knowledge and acceptance of the JCT contract stated'

The LOI then referred to the JCT 2011 Design and Build subcontract (the JCT Sub-Contract). However, the parties never actually signed the JCT Sub-Contract nor were any Sub-Contract particulars agreed between the parties.

By way of a reminder, a LOI is a written agreement which forms a contract between the parties that allows works to start before a subsequent contract is agreed, signed and dated at some point in the future (in this case the JCT Sub-Contract). While there is no standard form for a LOI, it will typically limit the scope of works and will cap any monies to be paid. It will usually refer to the type of contract that will ultimately be entered into by the parties (in this case the JCT 2011 Design and Build Contract).

Oak carried out the Works under the LOI, and submitted interim payment applications 'more or less' following the mechanism set out in the JCT Sub-Contract. In its interim payments and final account Oak sought payment of '1.711m. OD paid Oak '983,000, leaving a balance of '728,000.

OD issued several pay less notices, claiming that it had overpaid Oak, and was owed '625,000. Oak disputed this, serving its own pay less notice against the final account and claiming '765,000. Oak then referred its claim to adjudication. The Adjudicator found in Oak's favour, awarding Oak '431,291.81.

OD responded by commencing Part 8 court proceedings, seeking a declaration that the Adjudicator lacked jurisdiction. OD argued that the JCT Sub-Contract applied (despite the parties never actually entering into it). OD asserted that its final...

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