UK: Enforcing Adjudicators´ Decisions Against Householders – Update

Last Updated: 25 May 2006

By Sam Bailey, Associate in the UK Construction & Engineering Group at Pinsent Masons

Judge Toulmin's landmark decision in the case of Picardi v Cuniberti that an adjudicator's decision was unenforceable as the adjudication clause in a standard form contract fell foul of the Unfair Terms in Consumer Contracts Regulations 1999 (the Regulations) was not followed in Lovell Projects Limited v Legg and Carver and Westminster Building Company Limited v Beckingham. However, the Court of Appeal has recently considered this issue again in Bryen & Langley Limited v Boston. The Court of Appeal has found that the key factor is whether it can be said that the contract term in question has been imposed on the consumer or not. In cases where the consumer himself has proffered the standard form contract, he will not subsequently be able to argue the terms in question have been imposed on him and will therefore not be able to rely on the Regulations to argue that an adjudicator's decision against him is unenforceable.

It should be remembered that construction contracts with residential occupiers are excluded from the scope of Part 2 of the Housing Grants Construction and Regeneration Act 1996. The building contractor therefore has no right to commence an adjudication against a householder for whom he has undertaken construction work at their dwelling unless he can point to a contract that contains an adjudication clause. In the Picardi case, Mr Picardi commenced enforcement proceedings in the High Court to enforce an adjudicator's award in his favour. The Cunibertis successfully argued that the RIBA Conditions of Engagement which Mr Picardi had proffered had not been incorporated into the contract between the parties. Judge Toulmin went on to consider their argument that even if the RIBA conditions had been incorporated the adjudication clause therein was unenforceable because it fell foul of the Regulations. Regulation 5 provides:

"5(1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer".

Schedule 2 of the Regulations sets out a non-exhaustive list of terms may be regarded as unfair. The Cunibertis' pointed to the term set out at letter "q" which states:

"excluding or hindering the consumer's right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, unduly restricting the evidence available to him or imposing on him a burden of proof which, according to the applicable law, should lie with another party to the contract".

Judge Toulmin concluded that the adjudication clause within the RIBA terms was unenforceable under the Regulations. He stated:

"I conclude that a procedure which the consumer is required to follow, and which will cause irrecoverable expenditure in either prosecuting or defending it, is something which may hinder the consumer's right to take legal action. The fact that the consumer was deliberately excluded by Parliament from the statutory regime of the HGCRA reinforces this view. Costs in an adjudication can be very significant."

In the subsequent case of Lovell Projects Limited v Legg & Carver, Lovell applied for summary judgment in order to enforce an adjudicator's decision requiring Mr Legg and Ms Carver to pay for work carried out at their home under a JCT Minor Works Contract (which included an adjudication provision). Legg & Carver contended that the adjudicator's decision was unenforceable because the adjudication provisions within the JCT Minor Works Contract fell foul of Regulation 5(1).

Judge Moseley QC dismissed the arguments raised by Legg & Carver and held that there was no imbalance in the rights and obligations of the parties for the purpose of Regulation 5. The Judge found that Legg & Carver had insisted that the JCT Minor Works Contract was used for the works and there was therefore no unfairness in Lovell referring the dispute arising out of Legg & Carver's non-payment of its account to adjudication. Like the Cunibertis, Legg & Carver had sought to rely on letter "q" of Schedule 2 to the Regulations. The Judge rejected this argument and held that the adjudication provisions within the JCT Minor Works Contract did not exclude or hinder a consumer's right to take legal action or exercise any other legal remedy as adjudication is only binding until the dispute is resolved by legal action, arbitration or agreement.

In his judgment, it could not be said that the terms in the JCT Minor Works Contract required Legg and Carver to take disputes exclusively to arbitration nor did the terms seek to restrict the evidence available to them or alter the burden of proof. Further the Judge found that to be unfair a term must cause a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer and that this must be contrary to the requirement of good faith. The judge referred to the definition of good faith in the judgment of Lord Bingham in Director General of Fair Trading v First National Bank:

"of fair and open dealing. Openness requires that the term should be expressed fully, clearly and legibly containing no concealed pitfalls or traps. Appropriate prominence should be given to terms which might operate disadvantageously to the customer. Fair dealing requires that a supplier should not whether deliberately or unconsciously take advantage of the consumer's necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position or any other factor listed in or analogous to those listed in Schedule 2 to the Regulations."

The Judge found that there had been no breach of the requirement of openness as the adjudication clause was fully, clearly and legibly set out in the JCT Minor Works Contract and contained no concealed pitfalls or traps. He found that Lovell had not taken advantage of Legg and Carver's lack of experience, weak bargaining position etc. On the contrary, the form of contract was insisted upon by Legg and Carver who were knowledgeable business people. Judge Moseley accepted the correctness of Judge Toulmin's decision in Picardi v Cuniberti but held that it had no application to the case where the term in question was contained in a form of contract that had been insisted upon by the consumer.

Judge Moseley's reasoning was followed almost entirely by Judge Thornton QC in the case of Westminster Building Company Limited v Beckingham. This case was brought by Westminster to enforce the decision of an adjudicator that Mr Beckingham should pay £122,000 due under a building contract for refurbishment works at his house. One of the arguments raised by Mr Beckingham was that the effect of the Regulations was to make the contractual adjudication clause unenforceable. The Judge found that the contract between the parties (IFC 98) did contain a contractual adjudication clause. Further the Judge found that the contract was insisted upon by Mr Beckingham's agents (who were chartered surveyors) and that Westminster did no more than accept the contract terms offered by them and there was no need therefore for Westminster to draw Mr Beckingham's attention to the potential pitfalls associated with the adjudication clause. For this reason the clause did not contravene the requirement of good faith as defined by Lord Bingham in Director General of Fair Trading. Judge Thornton shared Judge Moseley's view that the clause did not lead to a significant imbalance in the parties' rights to the detriment of Mr Beckingham and did not significantly exclude or hinder Mr Beckingham's right to take legal action or any other legal remedy or restrict the evidence available to him. The adjudication clause was therefore binding on Mr Beckingham.

These three cases were recently considered by the Court of Appeal in the case of Bryen & Langley Limited v Boston. Bryen & Langley brought an appeal against the dismissal of its claim for summary judgment by Judge Seymour QC. They had sought to enforce an adjudicator's award that Mr Boston was liable to pay £65,000 due under a JCT building contract for work at his house. The judge at first instance found that the JCT form had not been incorporated into the building contract and therefore the parties were not bound by the adjudication provisions contained therein. Significantly, the Court of Appeal found that Mr Boston had, through his appointed agents, proffered the JCT form of contract and that the contract concluded by the parties did incorporate the JCT terms, including the adjudication provisions.

The Court of Appeal then moved on to consider whether the adjudication provisions within the JCT form were unfair terms for the purpose of the Regulations. The Court of Appeal chose to focus on Regulation 5(1) and the fact that this makes it clear that a term which has not been individually negotiated will only be considered unfair if it causes an imbalance between the parties' rights and is contrary to the requirements of good faith. The Court of Appeal found that it was also necessary to consider Regulation 6 which requires the assessment of the unfairness of the contractual terms to take into account all of the circumstances attending the conclusion of the contract. The Court of Appeal also considered Lord Bingham's judgment in Director General of Fair Trading. At paragraph 45 of the Court of Appeal's judgment, Mr Justice Rimer stated:

". . . in assessing whether a term that has not been individually negotiated is "unfair" for the purposes of Regulation 5(1) it is necessary to consider not merely the commercial effects of the term on the relative rights of the parties but, in particular, whether the term has been imposed on the consumer in circumstances which justify a conclusion that the supplier has fallen short of the requirement of fair dealing. The situation at which Regulation 5(1) is directed is one in which the supplier, who will normally be presumed to be in the stronger bargaining position, has imposed a standard-form contract on the consumer containing terms which are, or might be said to be, loaded unfairly in favour of the supplier. The Picardi case was one in which the terms had been imposed by the claimant architect (in that case, the supplier). In the Lovell case the terms had been imposed on the supplier by the employers' (i.e. the consumers) architect, the Judge finding not only that they caused no significant imbalance to the employers, but that nor in the circumstances in which the contract came to be made was there any question of any lack of good faith or fair dealing by the supplier contractor. HH Judge Thornton QC arrived at a similar result, in like circumstances, Westminster Building Company Limited v Beckingham.

In my judgment, Mr Boston faces exactly the same difficulties in relation to his Regulation 5(1) argument as did the other consumers in the Lovell and Beckingham cases. His problem is that the relevant provisions were not imposed upon him by B&L, the supplier. It was Mr Boston (the consumer), acting through his agent Mr Welling who imposed them on the supplier since they were specified in Mr Welling's original invitation to tender . . ."

The Court of Appeal's decision has therefore left open the door for householders to argue that adjudication clauses within standard form contracts are unenforceable in circumstances where the contract has been imposed upon them by the contractor.

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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