Adjudication provisions prove more than a Minor problem
Adjudication legislation protects householders from the rigours of the adjudication process, since its provisions are not automatically written into contracts with residential occupiers. However, many contracts commonly used by residential occupiers do include adjudication provisions, and householders can find themselves caught out.
One such contract is the RIBA Conditions of Engagement for use with a letter of appointment (CE/99), which was considered in Picardi v Cuniberti (AJ 6.3.03). In that case the judge agreed with the defendant householder's argument that the CE/99 adjudications provisions were unfair and, therefore, would not be binding on them.The adjudication provisions had not been sufficiently brought to their attention and, in the particular circumstances of the case, fell foul of the Consumer Contracts Regulations 1999.
In the more recent case of Lovell Projects v Legg and Carter, the defendant householders found themselves at the wrong end of an adjudication decision, and owing their contractor £85k. The adjudication provisions were in the JCT Minor Works contract that was used for the project.
When the contractor, Lovell, applied to the court to enforce the adjudication decision, one of the defences put up by householders Legg and Carter was that the adjudication provisions were unfair, and therefore not binding on them. The contractor's evidence, which was not contradicted, was that the householders' architect had told him that the clients had insisted that the Minor Works form be used.However, Legg and Carter's solicitor gave evidence that the adjudication provisions had not been brought to the attention of the householders.
The judgment is silent about why Legg and Carter were so keen on using the Minor Works contract. Their enthusiasm for it is somewhat puzzling given that they were unaware that it included adjudication provisions, and that the contract price was greatly in excess of the maximum value for which Minor Works is recommended.
Legg and Carter tried, like Cuniberti, to persuade the court that the adjudication provisions were unfair within the meaning of the Consumer Contracts Regulations 1999. Everyone agreed that the regulations applied, the contractor being a 'seller or supplier' and the householders 'consumers'. But the judge disagreed that, on the facts of this particular case, the provisions were unfair.The householders were bound by them, and therefore by the adjudication decision.
Legg and Carter had engaged an architect, who had, on their behalf, insisted on the use of the Minor Works form. The judge described Legg and Carter as knowledgeable business people.
The adjudication provisions were clearly set out in the contract, and the contractor took no advantage of any lack of experience or weak bargaining position on the part of the employers.
One of the arguments raised by the householders as to why the adjudication provisions were unfair was that they transferred the risk of the contractor's insolvency to the employers.The logic of this is that once an employer has paid over sums on the basis of an adjudication decision, and then successfully gets this decision reversed by pursuing the dispute further in arbitration or litigation, if the contractor has gone bust in the meantime, the employer will not get their money back.However, as Lord Justice Jacob observed in the recent case of Rupert Morgan Building Services v Jervis (AJ 15.1.04), where the disputed sum is one that is due under the contract, employers can protect themselves by serving a withholding notice at the right time. Jacob went on to offer some sage observations about the prudence of an architect pointing out to their client the benefits of serving such a notice.
Following Lovell, similar considerations might apply to preserving a residential employer's statutory exemption from adjudication. Consideration should be given to drawing a residential client's attention to the adjudication provisions in some standard forms of building contract, explaining what might result, and pointing out that the client can avoid such provisions by not signing up.
Consider an architect who fails to do so, and whose client is obliged by an adjudicator's decision to pay a disputed sum to their builder. If a final decision reverses the payment obligation, but the money cannot be recovered from the contractor, the client may well look to their architect for a remedy.