A reminder of the potential risks in drafting adjudication clauses
27 July 2015
One of the key features of the adjudication regime contained in the Construction Act is that the decision of the adjudicator is temporarily binding. Although the parties must adhere to the decision, they may subsequently refer it to the courts or arbitration for final determination.
The recent case of Khurana v Webster Construction Limited highlights the risks involved in agreeing to an ad-hoc adjudication that deviates from this position.
The Khuranas engaged Webster Construction to carry out construction works on their house in Bowdon, Cheshire. A dispute arose regarding payment and alleged defects in the works. As the Khuranas were residential occupiers, the statutory adjudication regime did not automatically apply. However, the parties agreed that the dispute could be resolved via adjudication. The parties agreed that the Scheme for Construction Contracts 1998 should apply to the adjudication with the caveat that the decision of the adjudicator should be “binding”.
An adjudicator was duly appointed who found in Webster’s favour and ordered the Kharunas to make payment. The question before the court was whether the agreement to make the decision “binding”, precluded the Kharunas from referring the decision to the court for final determination.
The Khuranas argued that if the effect of the agreement was to remove their ability to refer the decision for final determination, it was necessary for the parties to have expressly agreed to a “finally binding” rather than a “binding” decision.
The court disagreed. It held that whilst the word “binding” in isolation is not enough to convey permanency, the context in which the word was used in the parties’ agreement (ie as an amendment to the statutory adjudication regime which would otherwise have permitted referral for final determination) meant that the parties’ intention was clear.
Agreeing to make an adjudicator’s decision finally binding is a risky strategy. It is not uncommon for parties to feel they have suffered “rough justice” at the hands of an adjudicator – hardly surprising given the time pressures. With this in mind, it is worth remembering that certain standard form contracts, notably the NEC3, provide for an adjudicator’s decision to become finally binding within a set period of time, unless a formal notice of intention to challenge the decision is issued within that period.