Development – Standard JCT Contract — Housing Grants, Construction and Regeneration Act 1996 — Parties entering into standard JCT contract — Standard adjudication clause being amended – Disputes arising in respect of contract – Claimant seeking declarations that amendments to adjudication clause invalid – Whether adjudication clause void or invalid – Declarations granted
The defendant was a construction company from the Republic of Cyprus with no regular place of business in the UK. However, it was engaged in the construction of a hotel in London for which it employed trade contractors, including the claimant, which was a company incorporated in England, the subsidiary of a Chinese group and was established with a view to developing a UK business.
The claimant had contracted to provide glazed curtain walling to the hotel and was answerable to a UK-based project manager, who issued standard contracts to each contractor, based on the JCT trade contract with a separate schedule of amendments.
The claimant and the project manager met to discuss changes to the documentation, which resulted in an annotated list of the proposed changes. This showed agreed amendments together with those under review and those that could not be agreed. The defendant’s solicitor had amended the standard form documentation that had not been discussed at the meeting, including a new provision that the claimant should pay the defendant’s costs of adjudication: clause 9A.
Disputes arose between the parties in respect of the contract and the claimant sought declarations that: (i) clause 9A of the contract was void or invalid because it did not comply with section 108 of the Housing Grants, Construction and Regeneration Act 1996; (ii) the provision for an interest rate of 0.5% above base on late debt payment was void by reason of the Late Payment of Commercial Debts (Interest) Act 1998; and (iii) section 3(1) of the Unfair Contract Terms Act 1977 applied to the contract because it dealt on the defendant’s written standard terms of business.
Held: The declarations were granted.
(1) The requirement that the defendant pay the parties’ financial costs of the adjudication contravened section 108 of the 1996 Act and the scheme for construction contracts: Bridgeway Construction Ltd v Tolent Construction Ltd [2002] CILL 1662 distinguished.
Neither the 1996 Act nor the scheme dealt with costs. An adjudicator could not award costs unless the parties had conferred that power on him, through the contract or by an ad hoc submission: Northern Developments (Cumbria) Ltd v J&J Nichol [2000] BLR 158 applied.
There was no reason why a contractual provision that entitled an adjudicator to make an award as to the allocation of parties’ costs should conflict with the 1996 Act or the scheme. However, if the effect of the contract was clearly to discourage a party from referring disputes to adjudication, it was for the courts to consider whether such a provision contravened the 1996 Act.
In the instant case, the adjudication clause imposed on the claimant all the parties’ financial costs of the adjudication, which fetterred its ability to refer a dispute to adjudication. The requirement limited the claimant’s freedom to refer a dispute to adjudication and would, in some circumstances, such as in a dispute involving a relatively small amount, deprive it of a remedy.
Where the question of non-compliance with the adjudication provisions in section 108 arose, the adjudication provisions of the scheme applied and the entire amended adjudication clause had to be replaced by the provisions of part I of the scheme: Hills Electrical & Mechanical plc v Dawn Construction Ltd 2004 SLT 477 and Banner Holdings Ltd v Colchester Borough Council [2010] EWHC 139 (TCC) considered.
(2) Parliament could not have intended to treat a contractual rate of interest for late payment as not being a remedy for the purposes of the 1998 Act merely because it was lower than the statutory rate. However, the contractual rate had not been discussed during the pre-contract negotiations; and the contractual interest rate for late payments could not be regarded as a substantial remedy within the meaning of the 1998 Act in the absence of special circumstances relating to the parties and the making of the contract, which were not present in the instant case.
(3) Section 3 of the 1977 Act applied as between contracting parties where one of them dealt as a consumer or on “the other’s written standard terms of business”. In order to qualify as written standard terms of business, the conditions had to be terms that the company in question used for all, or almost all, of its contracts of a particular type without alteration. The essence of such terms was that they were not varied from transaction to transaction. Where the standard terms were incorporated in a class of transactions by reference as one part of a larger terms package, it was a matter of degree whether one contracting party was not dealing on its written standard terms.
The existence of negotiations was not relevant in deciding whether particular terms might have constituted a party’s standard terms of business. The important factor was the extent and nature of any agreed alterations to the “standard terms” made as a result of the negotiations between the parties. Where the terms proffered and those agreed were significantly different, the contract would not have been on one party’s written standard terms of business. In the instant case, the claimant had negotiated some alterations to the “standard terms” so that it had not dealt on “standard” terms. In any event, the reference in section 3 to “dealing” was to the making of the contract and not to its negotiation.
Furthermore, few, if any, of the total trade contractors had entered into contracts on the same terms as the claimant. Almost all of them had secured alterations to the schedule of amendments originally put forward by the defendant, which indicated that the latter did not have standard terms on which it dealt. Accordingly, it could not be said that the claimant had dealt on the defendant’s written standard terms of business for the purposes of section 3 of the 1977 Act.
Alexander Hickey (instructed by Fenwick Elliott Ltd) appeared for the claimant; Gideon Scott Holland (instructed by CJ Hough & Co, of Crawley) appeared for the defendant.
Eileen O’Grady, barrister
