UK: Adjudication – To Be (Bound), Or Not To Be?

Last Updated: 17 May 2015
Article by Alexander Kingston-Splatt

The recent case of Khurana v. Webster Construction Limited [2015] EWHC 758 (TCC) highlights the need for care when agreeing to be "bound" by an adjudicator's award. Adjudication is widely used in the construction industry to resolve disputes. It has various advantages over court proceedings, in particular speed and cost. One potential disadvantage is that an adjudication award is not technically final and binding, although it should be said that in most cases the parties do accept the decision.

However, that is not always the case. An adjudicator's decision is often described as being "temporarily binding", meaning that the award stands until the whole case is finally settled, or determined by legal proceedings, whether in court or by way of arbitration. In other words, neither party will be precluded from running the dispute which is submitted to the adjudicator again afresh, regardless of the existence of his decision. This is enshrined in statute by s. 108 of the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act).

Residential occupiers are excluded (by s. 106) from the provisions of the Construction Act. However, where an individual engages construction professionals to work on his home, he will often sign standard form contracts which contain adjudication clauses. Such provisions expressly confer the power upon either party to refer a dispute to adjudication, notwithstanding that the Construction Act has no application. Less commonly, a homeowner may instead enter into a discrete agreement with the contractor, enabling the parties to battle out an issue which has arisen in an ad hoc adjudication. Sometimes such adjudications are governed by the Scheme for Construction Contracts (England and Wales) Regulations 1998 (the Scheme), which is designed for use in such scenarios.

In Khurana v. Webster Construction Limited [2015] EWHC 758 (TCC), Mr and Mrs Khurana instructed Webster Construction to carry out works to their home in Cheshire. A dispute arose regarding the conduct of those works. Webster Construction argued that the works had been completed and that they were accordingly entitled to payment under their final valuation, and to the release of the retention. On the other hand, Mr and Mrs Khurana argued that the works were not fully completed, that the project had been seriously delayed by Webster Construction, and that the quality of the works had been unsatisfactory in many respects.

Their contract contained certain dispute resolution clauses. These contemplated that any disagreement would be dealt with by way of binding expert determination. But the parties agreed that the clauses were poorly drafted, and that using them to resolve the dispute would lead to an unmanageable process. Indeed, the parties' solicitors went so far as to agree that the clauses were so uncertain as to be unenforceable. Instead, in correspondence the solicitors negotiated a mechanism for resolving the matter, involving the joint instruction of a quantity surveyor to rule on the dispute, whose appointment would be governed by the terms of the Scheme, "save that [his] decision ... shall be binding on the parties".

In due course an adjudicator was appointed and he rendered his decision, in which he ruled on the amounts due under Webster Construction's final account, and ordered that they be paid. Subsequently, Mr and Mrs Khurana nevertheless began court proceedings for an order determining what sums were in fact due under the final account. Webster Construction defended by arguing that the adjudicator had already dealt with the issue, alleging that in the circumstances his decision was in fact finally binding as between the parties, and so the court had no jurisdiction to hear the matter afresh.

HHJ Stephen Davies, sitting as a High Court Judge in the Manchester District Registry of the Technology and Construction Court, held that the parties had intended to be "finally bound" by the adjudicator's decision, as a result of the correspondence exchanged between their solicitors. He noted that a decision rendered under the terms of the Scheme had the same effect as one governed by the Construction Act – i.e. it is binding only in the interim, and its existence does not preclude the court from later considering the same matter. However, by the use of specific words in correspondence to the effect that the Scheme would govern the matter "save that the decision ... shall be binding on the parties", the judge held that the presumption of the decision being "temporarily binding" had been displaced by the parties' express agreement that it would simply be binding, meaning in these circumstances conclusively, and finally, binding. Normally the use of the Scheme would suggest the opposite conclusion, but the judge gave particular weight to the fact that the Scheme was to be adopted "save as" to the nature of the decision which would result.

Conclusion This interesting decision is a very useful reminder – for solicitors and litigants alike – to take care when agreeing to submit a dispute to any form of non-statutory adjudication, or other ad hoc expert determination, in circumstances where the parties agree that the resulting decision is to "bind" them.

Often, of course, the parties may intend that the expert's decision shall be binding for all time. However, in the construction context, parties often wish to ensure that an adjudicator's decision will in fact only be binding in the short term. There are many reasons for this, which may include the need swiftly to resolve an issue which arises mid-project, whilst at the same time reserving the right to revisit the adjudicator's decision once the project has been completed.

Although the decision relates specifically to ad hoc adjudication by consent, rather than adjudication as of right under the Construction Act, it also holds wider interest for expert determination more generally. Such determinations are increasingly favoured as a form of alternative dispute resolution, in place of lengthy and ever more expensive litigation. To avoid creating unwelcome proceedings in the future, parties must ensure that the agreement which underlies the expert determination – whether by way of adjudication or otherwise – is clearly worded, and will achieve the anticipated measure of finality.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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