The uncertainty of oral contracts in adjudication enforcement

M Hart Construction Limited & Anr v Ideal Response Group Limited [2018] EWHC 314 (TCC)

Adjudication enforcement is still one of the most contentious areas of construction litigation and March 2018 bore new fruit on the subject by way of the High Court (TCC) giving judgment on M Hart Construction Ltd’s and PK Maintenance Ltd’s (“Hart” and “PK”) application against Ideal Response Group Ltd (“Ideal”) to summarily enforce three adjudicator’s decisions.

Ideal had been engaged for works at the old Olympic Athletes Village. Ideal subcontracted the work to Mr Hart, the individual, by way of an ‘informal’ oral contract to the effect that Hart would undertake the works, Hart and Ideal would deduct their costs from the sums paid to Ideal, and the profits would be split equally between the parties.

PK were brought in (on Hart’s recommendation) to assist with snagging and remedial works, and Mr Hart and Ideal agreed that profits would be split three ways.

Mr Hart subsequently formed a company, Hart. Hart contended that the subcontracts had been novated to it.

Hart and PK submitted invoices on account of profit and costs. Ideal issued pay less notices in respect of a large proportion of the invoices which Hart and PK contended were invalid. They referred the dispute as to the sums due to adjudication.

There were 3 separate adjudications. Hart, in its referral notices (the first two adjudications), set out the basis of the contract as if it had been the original contracting party; it did not expressly detail any alleged novation. PK’s referral notice (the third adjudication) concerning the tripartite oral contract bore the same, technically incorrect, reliance.

Regardless, each adjudicator found that the contracts had been novated to Hart, from Mr Hart. Ideal were ordered to pay sums to Hart and PK respectively, who sought to enforce those awards in the TCC.

Ideal defended on the basis that there had been no novation of the contract to Hart; thus, the contracts relied upon in the referral notices appointing the adjudicators did not exist and the adjudicators therefore had no jurisdiction.

According with Coulson J’s observations in RSC Contractors Ltd v Conway [2017] EWHC 715 (TCC) that where an adjudicator finds an oral contract, the responding party is likely to obtain permission to defend enforcement proceedings, the court on considering Hart’s awards noted it was difficult to see how it could summarily decide that the defence of ‘no novation’ has no realistic prospect of succeeding. It did not involve the circumstances from which it was easy to infer a novation. Enforcement by summary judgment was refused to Hart.

PK were granted summary judgment as its referral notice only, potentially, mis-described one of the parties; it still identified the contract.

This case highlights that there is still significant opportunity to challenge adjudication enforcement on matters pertaining to the fundamentals of the contract, particularly the identity of the contracting parties like in this case but commonly also what in fact was agreed.


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