WhatsApp construction contract held to be binding in English law

 The recent High Court case of Jaevee Homes Ltd v Fincham held that informal WhatsApp messages and emails between the parties constituted a valid and binding construction contract.

This case serves as a stark reminder to anyone who negotiates contracts that clear communication and precise documentation are vital. Seemingly informal discussions can be legally binding. For construction professionals, it also provides an illustration of how the courts can interpret the payment provisions applicable to UK construction contracts.

WhatsApp and email negotiations

Fincham conducted a site visit at Jaevee Homes' Norwich nightclub site. Emails were then exchanged discussing the scope of the demolition works, the timeframes, sequencing and price.  While a quotation was provided by email, no agreement was reached at that stage.

The conversation then moved onto WhatsApp, where the parties haggled on price but reached no agreement. Further WhatsApp messages confirmed that the contract had been awarded to Fincham (still without express agreement on price) and discussed the provision of monthly payment applications.

The defendant claimed that the scaffolders then began work for Fincham.

Two days later, Jaevee sent a documents pack containing a purchase order and a Short Form Subcontract to Fincham, but this was never signed. A few days later, Fincham itself commenced work.

During the period between 9 June and 27 July 2023, Fincham issued four invoices, totalling £195,857.50 plus VAT.

Various disputes then arose between the parties as to the terms of the contract and entitlement to payment of the invoices. Jaevee commenced Part 8 proceedings, seeking an order that it was not liable to pay Fincham's invoices.

Issues

The court addressed the following issues:  

• When and on what terms did the parties enter into a contract?
• How often was Fincham entitled to make an application for payment?
• Were the invoices issued by Fincham valid applications for payment and capable of being payee notices in default?

Contract formation

Jaevee had sought to argue that no valid contract could have been formed as there was no agreement over the duration of the works, payment terms and a start date.

However, the court found that the emails and WhatsApp exchanges contained enough information to constitute a validly formed contract. It was held that the WhatsApp messages between the parties indicated a mutual agreement on the scope of work, start date, price and payment terms despite the informal nature of the communication.

The judgment also confirmed that:

• an agreed duration of works was not required for there to be a valid contract as "absent express agreement, there is an implied term that the contractor will complete within a reasonable period"; and
• full payment terms did not need to be agreed as, where terms were not agreed, the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act) and the Scheme for Construction Contracts (England and Wales) Regulations 1998 would imply any provisions that were missing or replace those deemed inappropriate.

How often was Fincham entitled to issue an application for payment?

During examination of the terms of the contract, the court held that Fincham was entitled to make monthly applications – albeit there was no agreement as to when in a month it was entitled to make one. This meant that an application could be made at any point in the monthly cycle. The final date for payment was then 28-30 days following an application. In the absence of express term on the point, the Scheme stepped in to provide for how the monthly applications were to be calculated and when other notices, such as a pay less notice, were due.

Based on this decision, it was held one of the invoices was invalid as Fincham had issued two invoices within the same monthly period.

Can an invoice be a valid application for payment and a valid payee notice in default?

The court then examined whether the invoices issued by Fincham were valid payment applications under the contract and the Scheme.

It was concluded that the invoices were sufficiently clear and provided an adequate basis for the sums claimed and that, in the absence of a payment notice from Jaevee, the invoices became payment notices in default.

Osborne Clarke comment

It may come as a surprise to some that a contract can be formed so simply and without a full written agreement. This can lead to unintended obligations or liabilities, and other statutes or the courts may imply obligations into contracts in an way unforeseen by the parties, particularly where there is ambiguity or gaps in the express agreement.

When entering into discussions regarding a contract, it is important to remember the following:

Clarity is key

Any preliminary discussions and negotiations should be marked "subject to contract" unless and until you intend to be bound by them. This helps to ensure that all parties understand that any agreement is not complete until there is a finalised contract incorporating all terms and conditions. Failure to do so may result in a court finding a different contract exists, even if discussions were entirely verbal.

It should also be clear to an outsider which documents form the contract and in what order of precedence they should be applied.  Ensure that there is a clear process for agreeing to variations.

Regular contractors: consistency and documentation

When working with regular contractors, the importance of consistency in your communications cannot be overstated. Regular interactions can sometimes lead to a more relaxed approach, but this should not come at the expense of clarity and formal agreements. Any agreements (even with familiar contractors) should always be documented thoroughly, explicitly stating the terms under which the work will be performed and signed by both parties.

After signing, stay vigilant

Once the contract is signed, make sure that both parties are clear as to what they have agreed and are following the contractual mechanisms, including when variations are made. 

Construction contracts require few express elements to be binding

The court has been consistently clear that if a Construction Act contract does not contain certain key terms, they can be implied by common law and statute. For example, if there is an inadequate payment mechanism, the Scheme will be implied in to fill in the gaps.

Furthermore, substance is more important than form when it comes to payment applications and payment notices (see our Insight on Placefirst for another example). If paying parties under a construction contract receive something which could arguably be a payment application, they should look to issue a pay less notice in accordance with the terms of the contract and/or the Scheme if it does not agree with the sums claimed and obtain urgent legal advice in the event of uncertainty.