Building contract – Adjudication – Unfair term – Adjudicator making award in favour of defendant builder – Claimant property owner commencing court proceedings to determine disputed matters – Defendant applying to stay or dismiss action – Whether parties agreeing adjudicator’s decision to be final – Whether claimants being precluded from legal action – Whether Unfair Terms in Consumer Contracts Regulations 1999 affecting terms of agreement – Application granted
The claimant owners of a substantial detached house in Bowdon, Cheshire, entered into a construction contract with the defendant building company for construction works at the property. A dispute arose between the parties when the claimants complained about unsatisfactory work and delays due to the defendant’s defaults. In a letter to the claimants, the defendant proposed and the claimant accepted that, if the dispute could not be resolved by negotiation, it would be settled by an independent quantity surveyor adopting a procedure conducted in accordance with the Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI 1998/649) (as amended), save that the decision of the independent surveyor was to be binding on the parties. The matter was referred to adjudication pursuant to the agreement. The appointed adjudicator made an award in the defendant’s favour.
The High Court subsequently decided that the decision should be summarily enforced but, due to the defendant’s financial circumstances, the judge stayed execution on conditions that the claimants paid the sum decided due by the adjudicator into court and commenced court proceedings in relation to matters in dispute by a specified date. The claimants complied with both conditions but the defendant applied to stay or dismiss the action. The claimant sought to rely on the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) arguing that, under regulation 5, the adjudication term was unfair; and under regulation 7, the term was not expressed in plain, intelligible language.
The issues for the court were: (i) whether, on the true construction of the adjudication agreement, the parties had agreed that the adjudicator’s decision should be finally binding upon them; and, if so, (ii) whether some or all the matters advanced by the claimants in their action had been finally determined by the adjudicator’s decision so as to preclude them from advancing them in court proceedings.
Held: The application was granted.
(1) The ordinary meaning of the word binding was not capable in itself of providing the answer to the question whether or not the adjudicator’s decision was finally binding, in the sense that it prevented a court from adjudicating on the same subject matter in subsequent legal proceedings. This was a case where the answer could only come from the context in which the word was used. The key context was that both parties had to be taken to have been aware that the proposal for a scheme adjudication carried with it an implicit but obvious proposal that, unless expressly stated to the contrary, the decision would be only temporarily binding. It followed that the words “save that the decision … shall be binding on the parties” could only sensibly have been intended to derogate from that default provision. The reasonable observer would have been in no doubt but that the only sensible reason for including those words was to make clear that in contrast to the position under a Scheme adjudication, the adjudicator’s decision was to be permanently binding. It followed that, applying ordinary common law construction principles, the agreement between the parties was for adjudication under the Scheme, save that the decision was to have permanently binding effect, so as to preclude a court from undertaking a fresh resolution of the same dispute.
(2) It was common ground that the Unfair Terms in Consumer Contracts Regulations 1999 applied to the present case because the claimants fell within the definition of a “consumer” and the defendant fell within the definition of “sellers or suppliers”. The defendant had demonstrated that the term had been individually negotiated. The claimants had had the opportunity to influence the substance of the term, and had taken it by instructing their solicitors to write a letter setting out the basis on which they had been willing to accept the offer. It followed that the question of unfairness did not arise. In any event the term was not unfair as there was no significant imbalance to the claimants’ detriment contrary to the requirement of good faith: UK Housing Alliance Ltd v Francis [2010] EWCA Civ 117; [2010] 2 EGLR 81 applied.
Furthermore, read in context, the words used were both plain and intelligible so that regulation 7(1) was satisfied and there was no room for the tie-breaker approach required by regulation 7(2) giving rise to the interpretation most favourable to the claimants: AJ Building and Plastering Ltd v Turner [2013] EWHC 484 (WB) considered.
(3) It was not open to the claimants to seek to have the full account re-determined by legal proceedings, including seeking to re-open the final account by raising matters raised before the adjudicator by way of defence of abatement and/or set off. Having chosen to advance matters by way of set-off, the claimants were bound by the adjudicator’s adverse determination in relation to those matters. To advance the same points by way of independent claim would be to seek to re-litigate matters which had already been finally determined against the claimants in the adjudication. Accordingly, all the claims now sought to be advanced by the claimants could not succeed because they had already been the subject of final determination by the adjudicator.
Tina Ranales-Cotos (instructed by Blackstone Solicitors, of Hale) appeared for the claimants; Samuel Townend (instructed by Gorvins Solicitors, of Stockport) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read transcript: Khurana and another v Webster Construction Ltd
