JCT minor works building contract — Reinstatement works to remedy fire damage — Defendant’s insurers accepting liability and engaging claimant contractor — Defendant named as employer in contract with claimant — Disputes under contract referred to adjudication — Whether adjudicator having jurisdiction in respect of contract with residential occupier — Whether terms of contract unfair — Sections 106 and 108 of Housing Grants, Construction and Regeneration Act 1996 — Unfair Terms in Consumer Contracts Regulations 1999 — Summary judgment refused
The defendant occupied a residential property that was damaged in a fire. His insurer accepted liability and the claimant building contractor was engaged to carry out reinstatement works. On the advice of the insurer’s appointed surveyor, the defendant was named as the employer in the contract with the claimant. However, the contractual payment arrangements involved the submission of invoices directly to the insurer via its loss adjuster and the surveyor acted as contract administrator for the insurer. The contract incorporated the JCT minor building works standard contract (1998 ed), which, by article 6, clause 8 and appendix D, included an adjudication clause. Clause 4.4 prevented the defendant from exercising any set-off or counter-claim against a claim for payment under an interim or final certificate unless he had served withholding notices on the claimant in the form and timescale there prescribed.
In April 2005, nearly a year after the contractual date for completion of the works, the claimant suspended work owing to ongoing disputes regarding its performance and the defendant’s non-payment of certified sums totalling £127,871.33 in three interim certificates. The defendant asserted cross-claims for defects and delay in completion. The claimant issued a notice of adjudication and the defendant agreed to the appointment of an adjudicator. Subsequently, the defendant contended that the adjudicator had no jurisdiction under the JCT contract, since that contract, on its true construction, did not provide for adjudication on a contract relating to work for a residential occupier. He relied upon the reference in supplemental condition D to the adjudicator “acting as an Adjudicator for the purposes of S108 of the Housing Grants, Construction and Regeneration Act 1996”, and pointed out that the right to arbitration conferred by section 108 did not apply to contracts with residential occupiers. He further contended that the adjudication clause and clause 4.4 were not binding, by virtue of regulation 8 of the Unfair Terms in Consumer Contracts Regulations 1999. The adjudicator awarded the claimant’s claims in full. The claimant applied for summary judgment in proceedings to enforce that award. The defendant reiterated his previous contentions and also alleged a breach of the principles of natural justice.
Held: The application was dismissed.
(1) The adjudication was within the jurisdiction of the adjudicator. The contractual provision containing the right to refer disputes to adjudication was contained in article 6 and clause 8 of the contract. These provided that either party could refer to adjudication a dispute arising under the contract. Although supplemental condition D mentioned adjudication pursuant to section 108 of the 1996 Act, it was merely setting out procedural requirements defining the powers of the adjudicator once appointed, which were to include all the powers and duties possessed by an adjudicator appointed under section 108 of the 1996 Act. Moreover, the adjudicator had no need to found his jurisdiction on the terms of the JCT contract in circumstances where, as here, the parties had reached an ad hoc agreement to refer a dispute to adjudication. When agreeing to submit himself to an adjudication, the defendant had reserved his position only in relation to the issue of the 1999 Regulations.
(2) The 1999 Regulations fell to be considered against the background of a contract into which the defendant had entered as agent for the insurer, which was the disclosed principal, and under which the defendant was liable both as principal and agent. The adjudication provisions did not contravene the regulations, since, although it was potentially unfair for the claimant to rely upon them against a consumer, they did not cause a significant imbalance in the parties’ rights and obligations. Adjudication was a rapid, cheap and temporary legal process, which had to be conducted pursuant to minimum standards of fairness and impartiality and would be conducted by someone who, even if they had no legal background, would have some professional training relevant to the determination of construction disputes. Moreover, any decision could be overturned in a subsequent arbitration or litigation.
(3) However, clause 4.4, requiring the service of withholding notices before the defendant could rely upon any set-off or cross-claim, was unfair in circumstances where, inter alia: (i) the defendant had not been involved in selecting the clause, or received any advice as to its existence, meaning or effect; (ii) only the contract administrator, and not the defendant, was entitled to issue withholding notices, which could substantially affect the defendant’s rights in a situation where he became personally liable under the contract; and (iii) he would be unable to avoid the effect of an adverse adjudication decision relating to unpaid certificates even where he had good cross-claims for defects or delay if no withholding notice would have been served. The adjudicator had, by deciding that the withholding provisions of the contract were binding on the defendant, precluded the defendant from exercising his statutory entitlement to set aside clause 4.4, and shut out consideration of the defendant’s defence of abatement and set-off even though it had been before him and had had a prospect of success. Accordingly, there had been procedural unfairness. The defendant should be permitted to defend the claimant’s enforcement claim on the basis that the clause in question was unfair.
Calum Lamont (instructed by Paul Davidson Taylor, of Horsham) appeared for the claimant; Lisa Sinclair (instructed by Roiter Zucker) appeared for the defendant.
Sally Dobson, barrister
