Summary
In Jaevee Homes Limited v. Steve Fincham t/a Fincham Demolition, the TCC determined a Part 8 claim in the claimant developer’s favour, confirming an adjudicator’s decision that WhatsApp messages had formed a valid construction contract, and that invoices were valid payment notices.
Below we have set out the case background, the decision and what we view as the key implications.
Contract formation - first principles
In assessing whether or not a valid contract has been formed, the court will assess on an objective basis that there has been (i) a clear and specific proposal by one party that has (ii) been unequivocally accepted by the other. Beyond those basic first steps of offer and acceptance, issues that may undermine an apparent agreement, potentially meaning that it lacks contractual force, include a lack of:
- consideration: each party must provide something of value in exchange for the other's promise;
- a clear intention to create legal relations: both parties must intend for the agreement to be legally binding;
- complete agreement (incomplete agreements include an agreement in principle); or
- certainty of terms: the terms of the contract must be sufficiently clear to enable both parties to understand and enforce their obligations. Where the parties have clearly intended to create binding obligations, however, the courts will try to resolve conflicts or ambiguities in wording, and fill in gaps, wherever possible.
It is worth pausing to note that, whilst parties may not typically think apps such as WhatsApp are the way in which contracts are formed, it is the prevailing method of communication used by many parties, even on some construction projects.
Background
In Jaevee Homes, the Claimant developer approached the Defendant contractor in early 2023, and was given a written quotation for the Defendant’s demolition services on a development. Thereafter, the parties exchanged a series of email and WhatsApp messages about work scope, timings and price, culminating in an exchange as follows:
[17/05/2023, 16:34:43] [Defendant]: Hi Ben How did you get on mate is the job mine mate
[17/05/2023, 16:38:32] [Claimant]: Can you start on Monday?
[17/05/2023, 16:55:06] [Defendant]: I can start with getting the scaffolding sorted and stuff on Monday mate […] Appreciate this work I really do Ben
[17/05/2023, 17:43:15] [Defendant]: Ben Are we saying it's my job mate so I can start getting organised mate
[17/05/2023, 20:06:42] [Claimant]: Yes
[17/05/2023, 20:06:51] [Claimant]: Monthly applications
[17/05/2023, 20:11:50] [Defendant]: Are you saying every 28 or 30 days from invoice that's a yes not on draw downs then good d) call you at 8.30 mate Thanks mate appreciated Ben
[17/05/2023, 20:12:12] [Claimant]: OkA subsequent email from the Claimant attaching a purchase order and a short form sub-contract, which included payment terms, was not acknowledged by the Defendant (nor was the contract signed).
The Defendant later brought an adjudication claim for payment of four invoices (issued on 9 June, 23 June, 14 July and 27 July 2023 respectively), which the Claimant had part-paid but disputed the balance. The adjudicator determined that the WhatsApp messages had concluded the contract, including price and payment terms; the invoices were valid payment applications and the Claimant must pay them.
The Claimant then issued a Part 8 claim for declaratory relief, arguing that the contract was instead made on the terms of the shortform sub-contract that had been emailed to the Defendant, and that the Defendant’s invoices were not valid payment applications because they did not set out the basis of calculation for the sum due.
The decision
First, the court analysed when, and on what terms, the parties had entered into a contract.
The court found that the exchange of WhatsApp messages, “whilst informal, evidenced and constituted a concluded contract”; it showed agreement on the essential elements of a contract, including the scope of the works, the price and the payment terms. The terms of the sub-contract that was subsequently emailed were not incorporated, as this document was sent after the contract was formed, and never accepted by the Defendant. This is a key point.
Moving to the question of whether invoices issued by the Defendant were valid applications for payment, it was held that “monthly applications” as agreed by WhatsApp meant just that: the Defendant was free to make one (but only one) application for payment each month.
The court rejected arguments that there was no valid contract because essential terms were not agreed. Although not all aspects of payment terms were agreed in the WhatsApp messages, they did include agreement on a price and final date for payment. In any event, where the parties have failed to include in a construction contract an “adequate mechanism” for payments, the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act) provides (through the Scheme for Construction Contracts) a statutory scheme by which these terms can be determined; the court observed that “the absence of payment terms is not antithetical to the existence of a concluded contract – an important target of the 1996 Act is to fill the gap if a contract does not contain appropriate payment terms”.
Whether the Defendant’s invoices were properly set out was a question of fact and degree, and considerations included that the parties had agreed a lump sum for the works. The court concluded that all four invoices “set out sufficiently the basis for the amount claimed” - they listed the works which had been completed and could be understood by being read alongside the Defendant’s quotation – and that they were intended to be payment notices. The court accepted the Defendant’s argument that a strict interpretation of the Construction Act would result in very few contractors being able to comply, undermining the Act’s purpose, and denying the right to interim payments.
As the Defendant was only entitled to issue one payment notice per month, however, one of the invoices was invalid to the extent that it fell within the same period as another.
Implications
The court has confirmed that a binding agreement can be created through an informal exchange, including via exchange of WhatsApp messages. This demonstrates that informal WhatsApp (or similar) messages have the power to bind parties for significant sums of money. On first principles, as long as the essential ingredients of offer and acceptance are present, with sufficiently clear terms (including by reference to the statutory scheme for construction contracts) and a demonstrable intention to create legal relations, there may be a binding contract. Parties need to be particularly careful while negotiating a contract; if they intend that terms are only being agreed subject to formal written contract then this needs to be made clear. Whilst not groundbreaking in terms of law, this is a salient reminder to those in construction that understanding the terms upon which you contract is key.
The risk of adjudication, and in particular a smash and grab adjudication in relation to payment applications, looms large. It is certainly in both parties’ interests to agree the clear terms by which the parties are bound.
Here, the court chose pragmatism over dogmatism, both in the application of the principles around formation of contract, and in recognising that parties performing a construction contract benefit from some flexibility in how the Construction Act is interpreted. Even so, parties should still look to ensure clarity of terms, and then strict compliance with their contractual and statutory obligations, to reduce the risk of disputes.
