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No second bite of cherry as adjudicator’s decision final and binding

I have looked at the binding nature of adjudicators’ decisions previously. For example, I have considered how one adjudicator is bound by another adjudicator’s earlier decision and also looked at the concept of temporary finality. On both occasions, the focus was on section 108(3) of the Construction Act 1996 and paragraph 23(2) of the Scheme for Construction Contracts 1998.

Therefore it was interesting to read HHJ Stephen Davies QC’s judgment in Khurana and Khurana v Weber Construction Ltd, where the focus had shifted away from the statutory nature of adjudication and was firmly on contractual issues.

Khurana and Khurana v Weber Construction Ltd

This was a case involving residential occupiers and their contractor, who fell out. The “substantial detached house” is in Bowden, Cheshire, a village that Wikipedia describes as having “some of the most expensive houses outside of London”.

The judgment does not elaborate on what works the contractor carried out, or how much it cost. As is often the case, the contractor thought that it had satisfactorily completed the works and was entitled to its final payment and release of the retention, whereas the home owners thought there were a number of unsatisfactory items and the project was in delay. It seems a sum of £40,500 odd was left outstanding.

By September 2013, both parties had instructed solicitors and the contractor’s solicitors (Gorvins) had served statutory demands for the money it said it was owed. This understandably provoked a response and, ultimately, led to the parties agreeing to an adjudication under the Scheme for Construction Contracts 1998.

The reason the parties had to reach an agreement was because the dispute resolution clause in their contract (called a “Large Works Contract”) was, in practice, far from workable as it was unclear and uncertain (the court described it as an agreement to agree):

“If an agreement cannot be reached as to how much is owed the services of an independent quantity surveyor (who is acceptable to both parties) should be sought and both parties should agree in writing to abide by his figure. Both parties will meet the cost.”

Gorvins had suggested using the Scheme and also suggested that the adjudicator’s decision “shall be binding on the parties”. When responding to this proposal, the home owners’ solicitors (Blackstone) also used the same words and agreed that the decision “shall be binding on the parties”. When the adjudication was started in August 2014, Gorvins again said the adjudicator’s decision “would be binding on the parties on a final basis” and Blackstone did not suggest anything to the contrary.

Was the adjudicator’s decision binding?

Fast forward to 2014 and you may be surprised to hear the home owners arguing that they had not agreed the adjudicator’s decision was finally binding. They had started court proceedings to have the matters in the adjudication (namely the contractor’s final account) sorted out. The effect of the adjudicator’s decision was key to whether those proceedings could continue.

When the matter came before HHJ Stephen Davies QC in March 2015, he had to consider whether the parties had agreed that the adjudicator’s decision should be finally binding on them. He decided they had.

In reaching this conclusion, the judge considered the principles of construction, as set out in Chitty on Contracts and reviewed in Rainy Sky v Kookmin. He also noted that clear words were necessary to oust a party’s right of access to the courts, but that there was nothing in principle to stop parties agreeing to use arbitration, adjudication or expert determination to resolve disputes. In fact, in the construction sector, there were many examples of such binding agreements.

Further, by including a dispute resolution clause (even an unclear and uncertain one) in their contract, the parties had showed that they were willing to contemplate that a valuation dispute would be resolved by expert determination, not the courts.

“Temporarily binding quality” of an adjudicator’s decision

The judge also had to consider the “temporarily binding quality” of an adjudicator’s decision and he looked carefully at what binding means, not only in the context of adjudication and the language in section 108(3), but also in the context in which the parties used the word. Ultimately, HHJ Stephen Davies QC concluded that:

“the key context here is that both parties must be taken to have been aware that the proposal for a Scheme adjudication carried with it an implicit but obvious proposal that, unless expressly stated to the contrary, the decision would be only temporarily binding. It follows, I am satisfied, that the words “save that the decision … shall be binding on the parties” could only sensibly have been intended to derogate from that default provision.”

The judge went on:

“In short, it seems to me that the reasonable observer would have been in no doubt but that the only sensible reason for Gorvins including those words in their letter was to make clear that, in contrast to the position under a Scheme adjudication, if their proposal was accepted the adjudicator’s decision would be permanently, as opposed to temporarily, binding. I am satisfied that it was being made plain that the proposal if accepted necessarily involved that the losing party to such an adjudication could not subsequently elect to re-run the whole dispute afresh in legal proceedings.

… I am also satisfied that there can be no criticism that the effect of the agreement as put forward by Gorvins was not made sufficiently clear to Blackstone. In my view it was clear to any reasonable informed reader, particularly the parties in this case, legally represented as they were.”

In other words, if the parties hadn’t mentioned “binding” in their correspondence, the adjudicator’s decision would not have been finally binding.

Be clear about what is being proposed

So, the message is clear. Be clear about what is being proposed. If you are negotiating an adjudication clause and you want the adjudicator’s decision to be finally binding (as opposed to the default position of interim binding), say so. While you and I, and the judge may all agree that the solicitors’ letters in this case made it perfectly plain “on any sensible purposive reading, what [was] being proposed”, there was a sufficient chink of light to allow one party to argue otherwise.

…and we all know that where adjudication is concerned, parties do like to argue over chinks of light!

MCMS Ltd Matt Molloy

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