(1) Anjali Khurana (2) Mohit Khurana v Webster Construction Ltd

Citation: [2015] EWHC 758 (TCC)

Nature of case:
The court had to decide whether an agreement between two parties to determine a dispute by adjudication in accordance with the Scheme for Construction Contracts (England and Wales) Regulations 1998 (“the Scheme”), subject to the proviso that the decision of the adjudicator would be “binding”, had the effect of rendering any decision finally binding and whether this precluded a court from undertaking a fresh resolution of the same dispute.

The claimant employers, who were private homeowners, had entered into a construction contract with the defendant building contractors which contained no general dispute resolution clause. The contract did however set out a procedure for determining disputes over payment in the event of termination by either party in the following terms:

“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.”

There was also a similar provision for any post-completion ‘disagreement regarding the standard of the work’ (“the Expert Determination Clauses”).

The parties later disagreed on whether final completion had been reached. The claimants challenged the defendant’s final valuation of the work, claiming that a number of items were still outstanding, that there had been some defective work and that the project had been in serious delay which had caused them substantial losses, offsetting any amounts still owed to the defendant.

The defendant then served statutory demands for payment on the claimants who suggested it was an abuse of process to proceed in this way, relying on the Expert Determination Clauses. In correspondence that followed, the defendant agreed to refer the dispute to an independent quantity surveyor but this was to be on the condition that if they were unable to agree on a suitable quantity surveyor, a request should be made to the President of the RICS to make an appointment. As to procedure, it was proposed that any adjudication should be conducted in accordance with the Scheme “save that the decision of the independent structural quantity surveyor shall be binding on the parties.” The claimants gave their written approval of this arrangement.

No agreement could be reached as to the identity of a suitable quantity surveyor and adjudication proceedings were commenced by the defendant, who obtained an award for a substantial sum. This decision was summarily enforced, but execution was stayed on the condition that the claimants paid the adjudicated sum into court and commenced court proceedings within a set time period. The claimants complied with both conditions.

In these proceedings, the defendant applied for a stay of the proceedings on the ground that the court lacked jurisdiction, alternatively summary judgment. There were two issues to be decided: (i) whether or not, on true construction of the adjudication agreement, the parties had agreed that a decision should be finally binding. This required consideration of the terms of the Unfair Terms in Consumer Contracts Regulations 1999 (“UTCCR”); and (ii) whether some or all of the matters advanced by the claimants had in fact been finally determined by the adjudicator, precluding the claimants from advancing them in court. This required a consideration of the nature of the dispute referred to adjudication as well as the nature of claims advanced in this action.

On both counts the court held in favour of the defendant, directing that the claim be set aside and the proceedings stayed on the basis of jurisdictional challenge. The court also noted that it would, in any event, have dismissed the claim on the basis of the summary judgment application.

In relation to the first issue, the court was satisfied that on its proper construction the agreement had been for adjudication under the Scheme, save that the decision was to have a permanently binding effect. The word “binding” had to be considered in the context with which it was used and not just assigned its ordinary meaning. The key context was that both parties must be taken to have been aware that the proposal for adjudication under the Scheme carried with it an implicit but obvious proposal that, unless expressly stated to the contrary, the decision would be only temporarily binding. It followed that the words “save that the decision … shall be binding on the parties” could only sensibly have been intended to derogate from that default position. The reasonable observer would have been in no doubt that the only sensible reason for the inclusion of those words was to make clear that, in contrast to the position under the Scheme, the adjudicator’s decision would be permanently, as opposed to only temporarily, binding – Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 W.L.R. 2900 applied.

Whilst the court was satisfied that clear words would be required in order for a contract to effectively oust either party’s unrestricted right of access to the court, this did not mean that the court should adopt an unreasonably exacting approach. There were many examples in the construction sector of parties to construction contracts deciding to submit some or all of their disputes to binding determination, whether by arbitration, adjudication or expert determination, so there was nothing intrinsically unusual in parties seeking to achieve this result – Nordot Engineering Services Ltd v Siemens Plc, 14 April 2000, unreported, considered.

The question of unfairness under reg. 5 of the UTCCR did not arise as the defendant had demonstrated that the “binding” term was individually negotiated and had not been drafted in advance. Even if the defendant’s written proposal could be said to have been drafted in advance, the court was nevertheless satisfied that the claimants had clearly been able to influence its substance and had indeed seized that opportunity by instructing their own solicitors to write a letter setting out the basis upon which they were willing to accept the offer. In any event, the court was satisfied that the term was not unfair, there being no significant imbalance between the parties to the claimants’ detriment: both parties had had access to legal representation and had been able to assert their own rights equally; both could be taken to have known that the defendant was not able to insist upon adjudication under the Scheme; there was no evidence that the claimants had felt pressurised by the statutory demands into agreeing to the defendant’s proposal; the proposal had itself been for their joint benefit given that it was even handed and had been presented in good faith; and there was nothing intrinsically objectionable about the procedure proposed in the context of the case.

The court was satisfied that the requirement for “plain, intelligible language” under reg. 7 of the UTCCR had also been met; HHJ Stephen Davies considered that no reasonable reader, even without the benefit of a legal background or familiarity with the Scheme, could reasonably have thought that “binding” meant anything other than finally binding so as to exclude the possibility of reopening the same argument in subsequent court proceedings. Given that the normal rules of construction produced a clear answer, there was no need to consider the “tie breaker approach” under reg. 7(2) – AJ Building and Plastering Ltd v Turner [2013] EWHC 484 (QB) applied.

In relation to the second issue, the court concluded that the dispute referred to adjudication had encompassed: (i) the defendant’s claim for further payment under the contract (in substance, its final account claim); and (ii) the claimants’ defence on the basis of the true valuation of the works, including an entitlement to deduct costs for incomplete and remedial works and also on the basis of set off for damages for defective work and delay. It had not however included any positive counterclaim by the claimants. The adjudicator had decided all the matters referred to him.

The court then moved on to consider the instant claim which it considered to be substantially the same as the case that had been referred to the adjudicator, differing only in terms of its pleaded form. It was now being advanced by the claimants as a positive case rather than a pure defence of set off. The court was satisfied that the claimants were bound by the adjudicator’s adverse determination in relation to these matters, even though the adjudicator had not determined the claimants’ case in the form of a counterclaim. To advance the same matters by way of independent claim would be to seek to re-litigate matters that had already been finally determined. It had been the claimants’ choice to seek to present their case in the way they had and the fact that they had, as a result, lost the opportunity to advance claims which they might otherwise have been able to establish was a consequence of their own decisions. That fact alone counteracted any perceived unfairness.

Link to Judgment

Counsel: Samuel Townend appeared on behalf of the successful Defendant.

Counsel

Samuel Townend QC

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