Introduction
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.
Background
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:
- Adjudicator's Jurisdiction
- The Effect of the Unfair Terms in Consumer Contracts Regulations 1999
- The Right to Set-Off.
The first two issues followed usual principles, but the last two show a
development in law that will make adjudication more uncertain.
Issue 1 - Adjudicators Jurisdiction
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.
Issue 2 - The Effect of the UTCCR 1999
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.
Issue 3 - The Right to Set-Off
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.
Commentary
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.
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