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Householders are not bound by 'unfair' adjudication provisions

legal matters

When adjudication became mandatory in certain construction contracts, parliament, in its wisdom, decided that it should not apply to construction contracts with residential occupiers.

There were, therefore, raised eyebrows when some standard forms commonly used for domestic projects were re-drafted to include adjudication provisions. One of these forms is the RIBA Conditions of Engagement for use with a letter of appointment (CE/99).

In the recent case Picardi v Cuniberti (19.12.02) householders found themselves on the wrong end of an adjudication decision said to arise from CE/99. Their first line of defence - which succeeded - was that they had not signed up to the draft copy of CE/99 sent by the architect. But their second line of defence, which the judge gave his views on anyway, was that even if they had agreed to CE/99, the adjudication provisions were unfair and they should not be bound by them. The judge's findings raise important considerations for those contracting with residential occupiers using standard forms.

The defendant householders raised two arguments. First, an argument from English law, that they should not be bound by the adjudication terms as they were not sufficiently brought to their attention.

Second, that the terms were 'unfair' within the meaning of the Consumer Contracts Regulations 1999, a creature of European legislation.

The judge referred to the CE/99 guidance notes. These state (rightly, in the judge's view) that the terms should be individually negotiated with clients.The guidance also recommends that a clause be inserted where the client is a consumer, so that it is obvious that certain clauses (which I shall label 'onerous'), including the adjudication clauses, have been individually negotiated and agreed. In this case, the architect did not go through the draft contract and explain these specific clauses to the clients, and the additional clause was not inserted.

Looking first at the notice point, the more unreasonable a clause is, the more notice of it must be given. Lord Denning famously said:

'Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it, before the notice could be held to be sufficient.' The judge in the Picardi case found that the adjudication provisions were unusual in an agreement with a residential occupier, given that this category of contracts was excluded from the legislation.

They had not been sufficiently brought to the attention of the householders and it followed that they could not be bound by them.

As for the Consumer Contracts Regulations 1999, the parties agreed that the Regulations applied - the clients being 'consumers' and the architect a 'supplier'. The test as to whether the adjudication provisions were 'unfair', given that they had not been individually negotiated, was whether they caused a significant imbalance to the detriment of the consumer.

The judge took into account several factors.

First, the annex to the European directive giving rise to the Regulations identifies as unfair a term that hinders the consumer's right to take legal action. Because the costs are irrecoverable, the judge concluded that adjudication might be such a hindering factor.

Second, the contractual default position was that in the absence of agreement, the adjudicator should be nominated by the RIBA, which might also give the appearance of unfairness. Third, the judge looked at the adjudication provisions as a whole, together with the other onerous clauses in CE/99, which are picked out in the notes as needing specific agreement. These include the inability of the client to withhold payment, limitation of the architect's liability and that if the client is unsuccessful in proceedings he is obliged to indemnify the architect's legal costs. The judge concluded that the adjudication provisions, together with those other clauses, or in isolation, were unfair.

So to make sure that the adjudication and other onerous provisions of CE/99 and other RIBA standard forms bite, it is important to follow the guidance and negotiate terms individually with clients who are residential occupiers. That inevitably runs the risk of the client not agreeing to them - but that is what consumer protection is about.

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