Adjudication
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KEYWORDS: |
Housing Grants Construction and Regeneration Act 1996, professional services contract, dwelling house, adjudication, status of adjudication, onerous conditions, notice, Unfair Terms in Consumer Contracts Regulations 1999, schedule 2(i)(q), European Directive 93/13EEC, Article 3(i), Annex para 1, CIC model adjudication procedure, Judge Toulmin Q.C. |
The decision in Gennaro Maurizio Picardi -v- Paolo Cuniberti (2002) TCC deals with the status of adjudication as a term of the contract for dispute resolution, where the Housing Grants Construction and Regeneration Act 1996 does not apply. The statements by Judge Toulmin QC in his decision on 19th December 2002, are obiter dicta but nonetheless are an indication of the view of the Court to terms for dispute resolution by adjudication. The view appears to be that such terms are an onerous condition and may cause a significant imbalance in the parties’ rights, at least in the instant situation of works on a private dwelling. This is an important decision for Architects and other professionals advising residential occupier clients when adopting professional services agreements with adjudication clauses.
Picardi Architects were the appointed architects for the refurbishment of a private dwelling house at 10 Stanley Crescent, London, W11 of Mr. and Mrs. Cuniberti.
Disputes had been referred to adjudication in relation to Picardi’s fees. The first essential issue was whether there was a contract incorporating adjudication provisions. If there was no contract incorporating provisions relating to adjudication, the right to adjudication did not arise automatically by operation of Section 106 of the Housing Grants Construction Regeneration Act 1996 since the work related to a dwelling house. In that case in the absence of any contractual agreement to refer to adjudication, there would be no decision of the adjudicator within the meaning of the Act to be enforced by the Court.
After examination of the evidence and submissions Judge Toulmin held that the terms set out in the RIBA form of services agreement were never agreed by Mr. and Mrs. Cuniberti, nor were they incorporated into the contract by conduct. There was therefore no adjudications clause agreed between the parties. The adjudication was invalid. That was sufficient to decide the issue, but Judge Toulmin went on to comment on two issues namely,
Judge Toulmin referred to the decision of Denning L.J in Spurling v Bradshaw [1956] 1WLR 461 that the more unreasonable the clause, the greater the notice which must be given of it and that some clauses would need to be printed in red ink on the face of the document with a red hand pointing to it, before the notice could be held to be sufficient.
Judge Toulmin stated that in many cases, it would be sufficient to give reasonable notice of the conditions. Importantly he stated that where the condition relied on was particularly onerous or unusual, or involved the abrogation of a right given by statute, the party tendering the document must show that it had been properly and fairly drawn to the other’s attention.
Judge Toulmin contended that common law was, and always had been concerned to promote fairness between the parties. As common forms of contract drafted by lawyers became ever more complicated, it was essential that both particularly onerous and unusual terms were specifically drawn to the attention of the other party, which included the requirement that either party may invoke an adjudication procedure. This was an unusual procedure invented primarily to assist the construction industry to resolve its disputes, but Parliament specifically excluded private dwelling houses from its application. Under Section 106 of the Housing Grants Construction and Regeneration Act 1996, the Act did not apply to a construction contract with residential occupier. Judge Toulmin considered that accordingly a provision for adjudication in such a contract could properly be said to be an unusual contract provision. He considered therefore that the clauses relating to adjudication/legal proceedings, i.e. Clauses 9.2, 9.4, 9.5 and 9.6 in the RIBA form had to be brought to the specific notice of the other party.
Judge Toulmin was of the view that the RIBA notes of guidance were correct in characterising clauses 5.10, 5.12, 7.3, 7.5, 9.2, 9.4, 9.5 and 9.6 as unusual terms which must be brought properly and fairly to the other party’s attention. The Architect Picardi could not rely on those terms, unless, in accordance with the RIBA guidance, he drew Mr. and Mrs. Cuniberti’s attention specifically to the sections.
The relevant statutory provisions relating to unfair contract terms are set out in the The Unfair Terms in Consumer Contracts Regulations 1999 (1999 No. 2083). The legal basis for the English regulations is Directive 93/13EEC of 5th April 1993 on Unfair Terms in Consumer Contracts (“the Directive”).
The provisions of the Directive are transposed into the Unfair Terms in Consumer Contracts Regulations. Regulations 3 to 9 of the 1999 Regulations enact Regulations 2 to 7 of the 1994 regulations, with modifications to reflect more closely the wording of the Directive. Regulation 4 exempts mandatory, statutory or regulatory provisions. Regulations 5(i) reproduces the wording of Article 3(i) of the Directive. Article 5(ii) provides that a term shall always be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has, therefore, not been able to influence the substance of the term.
Article 5 refers to Schedule 2 of the Regulations, which contains indicative and non-exhaustive list of the terms which may be regarded as unfair. Article 6 sets out the means of assessment of unfair terms, requiring the Court to take into account the nature of the goods or services for which the contact was concluded, and by referring at the time of the conclusion of the contract to all the circumstances attending the conclusion of the contract and to all the terms of contract, or of another contract on which it is a dependant.
In the instant case it was not disputed that, for the purpose of Regulations, Mr Picardi was a supplier and Mr and Mrs Cuniberti were consumers and that the Regulations applied. It was also not in dispute that the adjudication provisions were not individually negotiated. The test, under Article 3(i) of the Directive, is: does the term cause a significant imbalance in the parties’ rights and obligations arising out of the contract to the detriment of the consumer? Judge Toulmin contended that an instance of this was hindering the consumer’s right to exercise a legal remedy. It was significant that a requirement to take a dispute to arbitration was an example of a significant imbalance.
The European Court of Justice in Oceano Groupo Editorial SA v Rocio Musciano Quantiro (Joint Cases) C240/98 to 244/98 pointed out that the annex to the Directive contained an “indicative and non-exhaustive list of the terms which may be regarded as unfair”. Paragraph 1 (q) of the annex refered to terms which had the object or effect of “ excluding or hindering the consumer’s right to take legal actions or exercise any other legal remedy.” In Ocean the term of the contract alleged to be in breach of the directive was a term conferring exclusive jurisdiction on the courts in Barcelona, where the plaintiff in the proceedings had their principal place of business but where none of the defendants were domiciled. The court had no difficulty in regarding such a term as unfair with the meaning of Article 3 of the Directive, insofar as it caused significant imbalance in the parties’ rights and obligations arising under the contract to the detriment of the consumer.
In Director General of Fair Trading v First National Bank plc[2002] 1AC, 481, the House of Lords held that the test of significant imbalance under the Directive and the 1994 Regulations was whether the term caused such a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer in a manner or to an extent to be contrary to the requirement of good faith. The illustrative terms set out in Schedule 3 to the regulations provided very good examples of terms which may be regarded as unfair; whether a given term was or was not to be so regarded depended on whether it caused a significant imbalance in the parties’ rights and obligations under the contract. This involved looking at the contract as a whole.
Lord Bingham in the House of Lords held that fair dealing required 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 of the regulations.
Lord Miller of the House of Lords held that there can be no one single test. It was obviously useful to assess the impact of an impugned term on the parties’ rights by comparing the effect of the contract with the term and the effect it would have without it. But the inquiry could not stop there. It may also be necessary to consider the effect of the inclusion of the term on the substance or core of the transaction; whether if it were drawn to his attention the consumer would be likely to be surprised by it; whether the term was a standard term, not merely in similar non-negotiable consumer contracts, but in commercial contracts freely negotiated between parties acting on level terms and at arms’ length and whether, in such cases, the party adversely affected by the inclusion of the term or his lawyer might reasonably be expected to object to its inclusion and press for its deletion. The list was not necessarily exhaustive; other approaches may sometimes be more appropriate.
The 1994 regulations were also considered by Judge Harvery, Q.C. in Zealander v Laing Homes Ltd on March 1999, and by Steele J. in Standard Bank v Apostolakis on 9th February 2001. In Standard Bank, Steele J. decided that a jurisdiction clause which increased the cost and inconvenience of litigation contravened the Regulations.
Judge Toulmin considered that the common law requirement relating to onerous conditions provided wider protection for the consumer than the legislation based on the European Directive. That legislation only provided a remedy where the terms of the contract caused a significant imbalance in the parties’ rights and obligations to the detriment of the consumer.
Judge Toulmin noted that, although there was a duty on the adjudicator to act impartially, the adjudication clause stipulated that, where no adjudicator was named in the agreement and the parties were unable to agree on a person to act as an adjudicator, the adjudicator should be nominated by the architects own professional body.
Judge Toulmin concluded that a procedure which the consumer was required to follow, and which would cause irrecoverable expenditure in either prosecuting or defending it, was something which might 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 HGCA reinforced this view. Judge Toulmin observed that costs in an adjudication could be very significant. Unless it was properly explained to the consumer that the adjudicator was to be a neutral, even if nominated by the architect’s own professional body, that might give the appearance of unfairness.
Judge Toulmin accepted Cuniberti’s argument that the provision must be seen in the context of other provisions in the RIBA standard contract: clauses 5.10 and 5.11 (the inability of the client to withhold payment); clause 7.3 (limitation of architect’s liability); clause 7.5 (third party agreements); clause 9.6 (costs). These clauses reinforced the view that where clauses 9.2 and 9.4 were looked at in isolation, or with the other clauses taken as a whole, they were unfair and caused a significant imbalance in the parties’ rights and obligations.
It was not coincidental that the RIBA guidance clearly required their members individually to negotiate these clauses. Judge Toulmin considered they were right to give such guidance. The Architect Mr Picardi did not do so and, these clauses taken as a whole were unfair and caused a significant imbalance in the parties’ rights and obligations.
Judge Toulmin therefore declined to enforce the adjudicator’s award.