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Be aware of contract exclusions when it comes to adjudication

LEGAL MATTERS

Adjudication has proved a quick fix in many disputes but there are various circumstances in which it is not available. The Housing Grants, Construction and Regeneration Act 1996 (HGCR) excludes several types of contract, and more are excluded by the accompanying exclusion order.

These exclusions have proved fertile ground for those challenging an adjudicator's jurisdiction, with the defending party at enforcement stage arguing that the contract was not within the Act in the first place.

One group exempt from the rigours of adjudication is residential occupiers, who are excluded by section 106. The policy of this exemption is plain - adjudication was intended to assist the cash flow of hard-pressed construction companies. That may be all very well when the employer is a company. But the potential of an adjudicator's decision to disrupt the cash flow of an ordinary household may easily be imagined.

A construction contract with a residential occupier is defined as a contract 'which principally relates to operations on a dwelling which one of the parties to the contract occupies, or intends to occupy, as their residence'.

The exemption does not extend to a block of flats, but does include a single flat, reflecting the principle of protecting a householder having works done to their own abode.

It is surprising that some forms of contract regularly used for domestic contracts which incorporate the usual adjudication provisions, fail to point out to the unwary householder that they are not obliged to sign up to them. One offender is JCT Minor Works 1998.

The Act also applies to consultants' appointments. Residential occupiers are protected from adjudication provisions at the employer/consultant interface. RIBA's suite of 1999 terms of appointment include adjudication provisions, but the Small Works form notes that adjudication need not apply to householders. However, it is necessary to strike it out of the contract if the parties do not want to sign up to it.

If a residential occupier enters into a contract containing adjudication provisions, they lose the exemption of the Act. The adjudication terms in the contract become binding. They are no different from any other contract term. As most standard forms include adjudication provisions that comply with the Act, the unfortunate householder will get contractual adjudication that is the same as statutory adjudication.

The occupier who enters into a contract on terms proposed by the contractor, and thereby signs up to adjudication, may be able to argue that it does not apply because it is unfair under the Unfair Terms in the Consumer Contract Regulations 1994. The same arguably applies to the householder who signs up to adjudication in their architect's terms of appointment. But the residential occupier who, with the benefit of professional advice, signs up to a building contract with adjudication provisions is unlikely to be able to use that escape route.

Consequently, they may be aggrieved by a failure on the consultant's part to point out that the adjudication provisions could have been cut. There is a risk that architects who recommend a contract that contains adjudication provisions, but fails to point out that those provisions could be excluded, may find themselves on the wrong end of a negligence claim.

The same principle applies to other contracts excluded by the Act. It is possible to opt into contractual adjudication where statutory adjudication would not apply. Check the Act and the exclusion order for the excluded categories, which range from development agreements (where a contract includes provisions for the sale or lease of land on which the building works are to take place), to the installation and repair of artistic works such as sculptures and murals. The statutory exemptions are benefits for the employer, protecting them from speedy adjudicated claims.

To sign such a benefit away by recommending a contract containing adjudication provisions without advising that those provisions could be excluded, would be unwise.

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