Practical Law

When advising on a home project there has never been a “right” answer to the question of which contract to choose. As is so often the case, the choice of contract should be governed by the needs of the parties and the project.

To date, domestic parties have had to look to the JCT’s home owner/occupier contracts or those produced by bodies like the Federation of Master Builders (FMB). Alternatively, they have relied on the JCT’s Minor Works Building Contract (or even more sophisticated contracts from the JCT suite).

Last month, RIBA published two new contracts, the Concise Building Contract 2014 and the Domestic Building Contract 2014. As the titles imply, the first is for simple commercial building work (and is unsuitable for non-commercial work, such as work done to someone’s home). In contrast, the second is suitable for domestic work including “renovations, extensions, maintenance and new buildings”, but is unsuitable for commercial works.

So, with a new domestic contract in the market, are things about to change and, if they do, what does it mean for those parties that end up in a dispute with their builder?

Building disputes

Having a dispute with your builder is not an inevitable consequence of having building works done to your home. (I speak from experience, but I did have an architect to administer the contract, which was a Minor Works, obviously!) However, it is incredibly common, just as it is in the commercial world.

Given that homeowners are excluded from the provisions of the Construction Act 1996 by section 106, they may have thought they are similarly excluded from having a dispute dealt with in adjudication. However, that is not so, as all the contracts mentioned above contain adjudication provisions. The ones aimed at the domestic market are just a bit different to the adjudication rules of the Construction Act 1996 and the Scheme for Construction Contracts 1998, which we are all familiar with. (And yes, I deleted the adjudication provisions in my contract!)

RIBA’s Domestic Building Contract

Dispute resolution is dealt with in clause 13 and Item P of the Contract Details:

• Adjudication is optional. The parties can choose mediation, adjudication or arbitration to resolve their disputes (or, presumably, more than one of those). In the absence of an active choice, the default position is litigation.
• If the parties choose adjudication (or mediation or arbitration), they can select:
  • a named adjudicator (or mediator or arbitrator), otherwise RIBA is the nominating body; and
  • a particular set of adjudication rules, otherwise the RIBA Adjudication Scheme for Consumer Contracts applies (see below, for more on this).
• The parties agree to “meet and negotiate to resolve the disagreement” before any dispute resolution option is embarked upon.

The guidance notes provide brief details of the dispute resolution options in Item P, but do not suggest the customer finds out more about them. Given the importance of ensuring a consumer knows about a clause (see the Unfair Terms in Consumer Contracts Regulations 1999 and the judgments in cases like Picardi v Cuniberti and Cuniberti [2003] BLR 487 and Steve Domsalla t/a Domsalla Building Services v Kenneth Dyason), one wonders why more guidance is not given here. For example, the contract envisages that it will be administered, so why not suggest to the customer that the contract administrator explains the various dispute resolution methods in more detail, and include a copy of the adjudication scheme and its guidance notes with the contract?

JCT’s homeowner/occupier contracts

Dispute resolution is dealt with in clause K. Again, adjudication is optional. The parties can refer disputes to adjudication or start court proceedings. However, the way these contracts are written, if a party doesn’t want this right to adjudicate, it would have to deliberately strike out the references to adjudication. It isn’t an “opt-in” clause in the way the RIBA clause is.

The adjudication scheme is run by RIBA, RICS and the NSCC and details of the “cost, rules and procedures” can be obtained from those bodies. If the parties choose adjudication, those “cost, rules and procedures” become part of the contract (clause K4).

The guidance notes suggest the customer should “find out about the adjudication scheme” and gives details of where to get that information. If a consultant is involved, the customer is advised to ask the consultant to explain the adjudication scheme to them.

Again, given the importance of ensuring a customer knows about the adjudication clause, one wonders why a copy of the adjudication scheme and its guidance notes are not included in the contract pack.

The two adjudication schemes

The RIBA Consumer Contracts Adjudication Scheme (RIBA adjudication rules) and the Rules for Adjudication for homeowner/occupier contracts (JCT adjudication rules) are almost identical (because unamended JCT rules are being used as the RIBA rules). The only apparent difference is in the explanatory notes, where reference is made to the adjudicator nominating body (ANB). Because the RIBA domestic contract allows the parties to select an ANB (or RIBA by default), the RIBA rules simply refer to an appointment by an approved panel. The JCT adjudication rules say either party may apply to RIBA or RICS but the homeowner can also apply to the NSCC (the contractor agrees not to do this in clause K3).

Other interesting features of the two schemes include:

• A limitation period of six years from when work started in which to bring an adjudication.
• RIBA will confirm receipt of an application within 48 hours and the ANB will appoint within seven days of receipt of the application.
• The adjudicator’s hourly rate is capped at £100 plus VAT and he can only charge for a maximum of ten hours, regardless of how many hours the adjudication actually takes.
• The adjudicator can direct which party will be responsible for his fees and can also direct which party pays the application payment (which still refers to the VAT rate of 17.5%). There is no joint and several liability with regard to the adjudicator’s fees, so the adjudicator cannot claim any unpaid fees from the other party.
• The parties are responsible for their own costs of the adjudication.
• The adjudicator is under a duty to act fairly as between the parties and will carry out the adjudication by reference to the building contract.
• The adjudicator will invite the parties for their views on the dispute and what decision he should reach. This will usually take the form of brief written statements. The adjudicator can also carry out a site visit, when he may ask the parties questions. That site visit may go ahead in the absence of one of the parties.
• The adjudicator has 21 days to give his decision in writing, but he is not required to give reasons.
• Both parties are obliged to follow the adjudicator’s decision “unless and until” there is a court judgment to the contrary. If the dispute is about money, the adjudicator can order payment to either party, plus interest at no more than 5% over base rate.

To those regularly involved in adjudication, it all sounds pretty familiar, with many of the provisions mirroring the Act and the Scheme. There may be a few more restrictions than you would see in a commercial context, which I’m sure are there to limit the costs involved (presumably to reflect the likely lower value of the works and the less sophisticated nature of the parties). In truth, these schemes may also reflect what Parliament had in mind when it came up with statutory adjudication and the courts adopted the “pay now, argue later” approach.

Malcolm Charles Contracts Ltd v Crispin

As an interesting coincidence, after I started writing this post, HHJ Carr DBE’s judgment in Malcolm Charles Contracts v Crispin was published. In what may be the first reported decision of its kind, the TCC enforced an adjudicator’s decision arising out of the JCT adjudication rules.

The parties ended up in court in enforcement proceedings when Mr Crispin refused to pay the sum awarded by the adjudicator because, he said, the parties had not entered into a contract (the JCT’s homeowner/occupier contract with a consultant). The court disagreed with Mr Crispin, and he now faces a rather large legal bill in addition to paying damages to the contractor in the region of £105,000 for lost profit and costs thrown away.

This is another example of the court’s continued support for the adjudication process. It also demonstrates the difficulties a domestic client may face, especially if that client is unsure whether it has entered into a contract that it then wishes to cancel.