Adjudication in the Consumer Context: Consumer Beware?

Introduction

The question of agreed adjudication in a consumer context is now more relevant with the increase in court fees adding to the already heavy expense of litigation. It may be that a side effect of rising court costs will be an increase in negotiated adjudication agreements at the point when a dispute has crystallised, particularly where the employer is a consumer. Time will tell whether adjudication is a viable alternative to litigation in the consumer context.

The TCC has recently issued a decision in relation to an adjudication agreement entered into by a consumer and their building contractor. The case is interesting for its consideration of the legal principles involved in the construction of the relevant adjudication provision, particularly the effect of the word 'binding', and whether such a term would be considered to be 'fair' under the Unfair Terms in Consumer Contracts Regulations 1999. HHJ Davies' judgment provides clear guidance on the factors which a court will likely take into account when considering whether, as between the parties, the relevant adjudication provision would be considered 'unfair'.

Background

The Claimants were the owners of a house in Cheshire, and the Defendant was a building company. In April 2010 the Claimants and the Defendant entered into a contract for construction works at the property. In October 2013, they entered into an agreement to determine a dispute which had arisen between them by adjudication. In September 2014 the appointed adjudicator made a decision in relation to that dispute. In November 2014 HHJ Raynor QC decided that the decision should be summarily enforced but, due to the Defendant's financial circumstances, stayed execution on conditions that the Claimants: (a) paid the sum decided due by the adjudicator into court; and (b) commenced court proceedings in relation to the matters in dispute by 12 December 2014. The Claimants complied with both conditions. The Defendant then applied to stay or dismiss this action.

There were two issues on the application, the first being the subject of this article and the most relevant to 'consumer adjudication'. The issue was whether the parties had agreed that the decision would be finally binding upon them.

The wording of the relevant provision was contained within a letter as follows:

"1. On the basis of your client withdrawing the statutory demands our clients agree to the appointment of a quantity surveyor being made in accordance with the Scheme for Construction Contracts … and that the decision of the quantity surveyor shall be binding on both parties. 2. In the event that the parties are unable to agree an independent quantity surveyor, we confirm our agreement that a request may be made to the President of the RICS to make an appropriate appointment." [emphasis added]

The Judgment

During the course of the application, a question arose as to whether or not there was a principle of construction which should be applied that clear words were necessary before a court should hold that a term of a contract has ousted either party's unrestricted right of access to the court. His Honour Judge Davies approved the general principle set out by HHJ Gilliland, QC in Nordot v Siemens (14 April 2000, unrep.) in which, in the context of an application to enforce an adjudication award, where the question was whether it was open to the parties to agree to confer jurisdiction on the adjudicator, he stated:

"I can see no reason as a matter of law, why parties cannot agree to abide by the decision of a third party if they so wish. Clearly that is appropriate in the case of arbitration. Why should it not be appropriate in the case of adjudication I ask? If parties with their eyes open enter into an agreement to the effect that "The adjudicator will decide this question and we will be bound by his decision", why should the court not give effect to that agreement? There can be no public policy against that and the mere fact that the system of adjudication is established by statute does not, it seems to me, make any difference. One could say exactly the same thing, as a matter of principle, in relation to the question of arbitration, There is no obligation to agree to arbitration before the parties agree to it. Similarly if parties wish to resolve a dispute and submit it to an adjudicator who derives his jurisdiction from the statute nevertheless, it seems to me, it is open to the parties to confer that jurisdiction on him by agreement should they wish". [pages 6- 7]

HHJ Davies stressed, however that it is important that clear words should be used before parties effectively exclude the unrestricted right which they otherwise would have to require a court to adjudicate all disputes which may arise between them. Nonetheless he accepted that the court should not adopt an unreasonably exacting approach because there are many examples in the construction sector of parties to construction contracts deciding to submit some or all disputes between them to binding determination by arbitration, adjudication or expert determination.

The Defendant submitted that the ordinary meaning of "binding" is permanent, conclusive, final and enforceable and that in the absence of express temporal qualification it means decided for all time. Drawing an analogy with the wording of s.108(3) of the 1996 Act and regulation 22 of the Scheme, it was argued that these provisions recognised this, by using words to the effect that the decision is binding until the dispute is finally determined or resolved by legal proceedings, arbitration or agreement. Without such explicit temporal qualification, it was submitted, binding meant finally binding. The Claimants argued that if the provision had been intended to convey that the decision would be finally binding, unlike a Scheme adjudication, the letter would have said so in express terms.

In finding for the Defendant, HHJ Davies stated that the ordinary meaning of the word "binding" was not capable in itself of providing the answer to the question whether or not it means that the adjudicator's decision is finally binding and that the answer could only come from the context in which the words were used. Applying ordinary common law construction principles, he held that the agreement 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.

While holding that, in the particular circumstances of the case, the term had been individually negotiated, HHJ Davies also held that the term would nevertheless not be regarded as 'unfair' within the Unfair Terms in Consumer Contracts Regulations 1999. In this regard the learned judge took into account that:

1. There was no imbalance between the parties, in circumstances where the claimants were professional persons owning a substantial property, and where the defendant was effectively a modest one-man building company. Both had access to legal representation, and were able to assert their own interests equally well.
    
2. The parties were already in dispute. Both parties, being legally advised, may be taken to have known full well that the Defendant was not able to insist on adjudication under the Scheme, that the existing dispute resolution clause in the existing contract was not legally enforceable and that the Claimants could not be forced to agree to adjudication along the lines suggested by the Defendant.
    
3. The proposal was for joint benefit. Specifically, the features of adjudication offer parties the advantages of speedy determination and substantial overall cost saving. The Claimants were not being forced into agreeing a proposal which was manifestly to their disadvantage. It did not apply to each and every future claim which they might have wished to bring under the contract, only to the Defendant's extant claim for payment under the contract.
    
4. The proposal was not presented other than in good faith. It was presented as a standalone term, which was not concealed in a standard form document. Although it did not use the word "finally" in front of the word "binding", this was the clear effect of the proposal. The judge was satisfied that there was no evidence that the Claimants or their solicitor believed that adjudication would not be finally binding, as is evident from the lack of protest when the Defendant's solicitors wrote at the time of the notice of adjudication to say that it would be finally binding.
    
5. Although potentially falling within the scope of Schedule 2, there was nothing intrinsically objectionable about the procedure proposed in the context of the case. The learned judge stated that adjudicators are experienced in deciding construction disputes, are required to act in accordance with the Scheme, to act fairly and to apply the law. He opined that there is a world of difference between the paradigm case of a large business restricting a small consumer's right to have disputes determined by a convenient local court by way of pre-prepared standard conditions and the present case, in which the parties freely and equally negotiated a bespoke dispute resolution procedure which suited both of them at the time.

Conclusion

When looking to agree to adjudication in circumstances where the client is a consumer, it should be borne in mind that the court will interpret the word 'binding' to mean final, unless there is provision to the contrary. In addition, the proposal to adjudicate is not, in itself, an inherently unfair proposal, although other circumstances specific to the parties may tip the scales in favour of unfairness. While consumers are given the benefit of the protection of the Unfair Terms in Consumer Contracts Regulations, where the parties are legally represented and negotiate the term at the point where a dispute has crystallised, the courts may be less likely to find that an adjudication clause is unfair. However, the same may not be said for adjudication clauses which are not negotiated but merely form part of a set of standard terms, incorporated when the contract is entered into prior to any dispute arising.

The judgment can be found here.