REUTERS | Ina Fassbender

Abolish section 106? I’m not so sure M’Lud…

For those of you that haven’t read it yet, I would urge you to read the judgment in Westfields Construction Ltd v Clive Lewis. It was an application to enforce an adjudicator’s decision, and I assure you that the rest of Coulson J’s judgment lives up to the teaser in the opening paragraph:

“Although the sum claimed is just £17,393.91 plus interest, the application has been hotly contested. There are seven witness statements, including four from the defendant alone. In addition, and unique in my experience, the parties were permitted… to call oral evidence.”

The facts

The parties’ contract did not contain any adjudication provisions. Mr Lewis contended that the adjudication provisions in the Construction Act 1996 should not apply because he was a residential occupier for the purposes of section 106 of the Construction Act 1996. Therefore, Mr Lewis argued that the adjudicator did not have jurisdiction.

Mr Lewis’s contention was somewhat surprising given that there was correspondence confirming his intention to let the property, for example an email stating:

“…as you know, the purpose of refurbishing the house is for it to be let and time is therefore of the essence…”

Coulson J was understandably unimpressed by Mr Lewis’s contention that this correspondence was untrue and simply designed to put pressure on Westfields to complete the works. He described Mr Lewis as a “thoroughly unimpressive witness”. Coulson J concluded that Mr Lewis had intended to rent out the property, meaning that the section 106 exception had not been made out. He therefore enforced the adjudicator’s decision.

However, it is the final paragraph of the judgment that I want to concentrate on. In it Coulson J said that the section 106 exception is becoming increasingly difficult to justify given that adjudication has worked well and has certainly reduced costs. Coulson J posed the following question:

“Is it not time for section 106, and the other exceptions to statutory adjudication, to be done away with, so that all parties to a construction contract can enjoy the benefits of adjudication?”

Abolishing section 106

I can certainly see why Coulson J posed this question. The project in question appears to have been of a reasonable size and adjudication was clearly suitable. However, I would be nervous about abolishing section 106 because it would open up adjudication to smaller residential projects, for example a small decorating contract that only takes a few days to complete. My concerns centre on:

  • The costs involved in resolving disputes on smaller residential projects.
  • It’s not what the parties to smaller residential projects always want.

Firstly, I would be concerned that residential occupiers and small builders could be exposed to disproportionate costs arising from statutory residential adjudications, in particular the adjudicator’s fees. I appreciate that many of you will say that this is something for adjudicators to deal with. However, residential occupiers and small builders can make for difficult parties, particularly if they are unrepresented and consider that their human rights have somehow been breached.

One of my colleagues undertakes contractual residential adjudications on small residential projects and it’s clear that parties often don’t understand what the issues are or what they are claiming and/or defending. All of this takes time to deal with, and without the caps on adjudicators fees that are contained in some homeowner contracts, a statutory residential adjudication could leave the residential occupier and small builder with a large bill at the end.

Secondly, in my view the parties to smaller residential projects often don’t want an adversarial process such as adjudication; they don’t want the adjudicator to decide the case on the basis of the evidence in front of him or her. What they actually want is expert determination; they want a surveyor, architect or engineer to investigate and tell them whether something is defective and what the value of the rectification works will be. The last thing they want to be told is that they haven’t satisfied their burden of proof as they are unlikely to know what the adjudicator is banging on about.

Therefore, my preference is the status quo. Those parties to smaller residential projects that want to opt into adjudication can, and where homeowner contracts are used they will have the protection of a cap on the adjudicator’s fees. On larger residential projects the parties can enter into standard forms which provide for adjudication in accordance with the Scheme for Construction Contracts 1998.

Abolishing other exceptions

However, as for the other exceptions to the right to adjudicate such as those set out in section 105(2) of the Construction Act 1996 and those in Construction Contracts Exclusion Order 1998 (SI 1998 No 648), I agree wholeheartedly with Coulson J that it’s time for them to be done away with. The exceptions in section 105(2) includes operations such as tunnelling, steelwork to power plants and off-site prefabrications. As Coulson J says in his book:

“…an ordinary, common sense view would be that such activities were obviously construction operations”.

Adjudication has been an outstanding success and I’m unable to think of any justification for maintaining these exceptions. Can you?

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