HGCR Act 1996
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KEYWORDS: |
Housing Grants Construction and Regeneration Act 1996, JCT Minor Building Works, unfair contract terms, interim payment, Section 111, withholding notice, Thornton J. |
I reported recently on the case of Humes Building Contracts Ltd v Charlotte Homes (Surrey) Ltd [2007] and suggested that the rule that adjudicator's errors within jurisdiction are not reviewable may be developed and that the Court may consider the merits of the analysis by the adjudicator.
In Domsalla v Dyason [2007] EWHC 1174 (TCC) HH Judge Thornton examined whether the rule applied where adjudication was entirely contractual, and not a right that would be available as a consequence of the Housing Grants Construction and Regeneration Act 1996. The decision and the analysis are important to those involved in adjudication and particular adjudicators deciding whether to consider set-off.
The contract was under the JCT Minor Building Works 1998 form, which contained provision for adjudication and a requirement for notices of withholding.
Domsalla the contractor applied for summary enforcement of an adjudicator's decision in relation to non-payment of three interim certificates of payment for which there had been no notice of withholding.
Dyason, the employer under the contract, was a residential occupier as defined by Section 106(1) HGCR Act 1996 and claimed the right to non-payment on the basis of defects and delay in completion.
There were three issues:
The first two issues followed usual principles, but the last two show a development in law that will make adjudication more uncertain.
The first issue arises from unfortunate drafting of the JCT Form. The form makes usual provision for the right to adjudication in order to comply with the HGCR Act 1996. Supplemental Condition D4.1 provides that the adjudicator should make his decision within 28 days acting as an Adjudicator for the purposes of S.108 of the HGCR Act 1996 and not as expert or arbitrator.
Dyason argued that since he was a residential occupier, the 1996 Act did not apply. According to the contract only an adjudicator acting for the purposes of Section 108 of the 1996 Act could give a valid decision. Accordingly an adjudicator could not be appointed in relation to disputes involving a residential occupier.
Thornton J disagreed and held that Special Condition D specified the procedure to be followed once an adjudicator was validly appointed. The primary right to adjudication was to be found in Article 6 and clause 8 of the contract and the Supplementary Conditions were a consequence of that.
In any event the parties could agree an ad hoc arrangement to adjudication, and they had done so by signing the Adjudication Agreement. The reservation of jurisdiction by Dyason did not include the contention that Clause D4.1 excluded non-statutory adjudications involving residential occupiers.
Accordingly it was held that the adjudicator appointment was a valid contractual appointment.
The Adjudicator had decided that neither the adjudication provisions nor the the withholding provisions were unfair contractual terms as defined by regulations 3, 5(1) and 8(1) of and Schedule 2 to the UTCCR.
Thornton J held that these matters were decided within his jurisdiction. Thornton J held that the adjudication provisions in the contract were not unfair but that in the unusual facts of the case the withholding provisions of the contract were unfair and that Dyason was not bound by the relevant clauses.
It followed that the Adjudicator had made an error of law in deciding that the relevant withholding provisions of the contract applied with the consequence that he did not consider the set-off claimed by Dyason.
The issue then was whether or not the non-reviewable rule relating to errors within jurisdiction applied to purely contractual adjudications and to errors as to the applicability of the UTCCR.
Thornton J observed that by deciding that the withholding provisions of the contract were binding on Dyason and had not been operated, the Adjudicator had shut out considering Dyason's defence of abatement and set off although this was before him and was a claim which had a prospect of success. Thornton J held that this was both procedurally unfair and meant that the Adjudicator had not decided all matters referred to him.
Thornton J held that the doctrine of unreviewable error of an adjudicator within jurisdiction was only applicable to statutory adjudications and did not apply to contractual adjudications. A consumer contract was not subject to the statutory policy in HGCR Act 1996 of maintaining a contractor's cash flow, but instead was subject to the law of contract as it existed in the absence of the provisions of the HGCR Act 1996.
Thornton J held that an adjudicator's erroneous decision preventing a consumer exercising his statutory entitlement to set aside the binding nature of a term, in this case the withholding provisions, did not bind the Court. In Gilbert-Ash (Northern) Ltd v Modern Engineering [1974] AC 689 HL, the House of Lords held that an employer could set off cross claims for defects and delay against sums certified under a building contract as due to the contractor, unless the contract expressly excluded that right. In this case there was no such exclusion because the withholding provisions were unfair and of no effect.
Thornton J held that the adjudicator's decision could not be enforced summarily since it suffered from the above defects and the decision was therefore arrived at in breach of the requirements of fairness, was incomplete and failed to take account of arguable cross-claims, abatements and setoffs. He therefore gave permission to Dyason to defend.
The judgment of Thornton J suggests a development of the law on the extent to which an adjudicator's decision is reviewable by the Court, although the facts of the case are unusual.
It has often been stated that the policy of ensuring cashflow underpins the doctrine of non-reviewability, but it is difficult to accept that an adjudicator's decision that is wrong furthers that policy. After all, an error may equally keep a contractor or subcontractor out of money which he is due. It cannot logically be presumed that all errors work against the paying party.
Development of rules for review of Adjudicator's decisions is to be welcomed. It will reduce the number of disputes which proceed from adjudication to a final process of dispute resolution, simply because the parties consider the adjudicator was obviously wrong. Decisions which are plainly in error will be weeded out by such a process. It is unlikely that the review will apply to all errors, since adjudication is akin to s summary process.
The judgment of Thornton J however leaves the law in an unsatisfactory position. it is difficult to understand why pure contractual adjudications should be different to so-called statutory adjudications, since the latter take effect by implication of terms in the contract. there is a stronger argument for holding parties to a contract freely entered into than one in which terms have been implied by statute one world venture. The judgment raises difficulties in the case of mixed adjudications, where some disputes are under the statutory scheme being disputes under the contract but other disputes are not - disputes in connection with the contract for instance.
It is also difficult to see why the parties' choice of dispute resolution should not be enforced. If the parties freely choose adjudication to decide their rights, even provisionally, their freedom to contract should be upheld. The particular facts in this case do suggest however that the residential occupier had little to do with the contract terms which were dictated by his insurers. That may be a significant fact distinguishing the case from the usual.
If the rule on non-review is to be re-visited, then appropriate rules may be that irrelevant factors were considered, or relevant factors were not considered or the decision was one that no reasonable adjudicator should have taken.. That would at least have the benefit of ensuring a standard for decision making by adjudicators.