Whether you expect your home improvement project to run smoothly or not, make sure you have an adjudication clause
How often do you find that works have started on site without the parties fully formalising the terms of their legal relationship? Unfortunately we see this all too often, particularly on residential projects, and the consequences can be costly.
The difficulty arises because the parties have not clearly expressed and formalised their agreement. If a dispute occurs, lawyers – and ultimately the court – must analyse ambiguous contract terms to make sense of what was agreed.
In the context of a construction contract involving a homeowner, if the terms are not clear, the parties may not have a statutory right to adjudication under the Housing Grants, Construction & Regeneration Act 1996, as amended. This gives the parties the right to resolve their disputes on a temporary basis by way of adjudication – but not if one party is a ‘residential occupier’ (see panel).
Where one party is a residential occupier, the contract must be clear that the parties have incorporated an adjudication clause, if adjudication is to be an available option.
The recent case of Goldsworthy Builders v Mr & Mrs Harrison demonstrates just what can happen when the parties have not signed a formal contract.
The primary issue was whether they had agreed contract terms which contained an adjudication clause. If they did not, the adjudicator had no jurisdiction
an architect to act for them in respect of works to their house. The architect proposed a schedule of works to its main roof and sent this to Goldsworthy Builders, which provided a quotation in November 2011. Works started on site in late October 2012 even though a contract had not been signed. Ultimately, over the next several years, on several occasions the architect asked Goldsworthy to tender for further works on the house. By January 2014 the parties considered the contract sum to be over £500,000.
Some of the parties’ correspondence referenced the JCT Minor Works contract and some referred to terms which were not consistent with this contract. For example, payment terms were on the basis of 14 days from certification, which of course conflicts with the Minor Works terms.
Ironically, as will be seen, in January 2014 the architect prepared a completed Minor Works contract but for reasons which are not entirely clear Goldsworthy declined to sign it. When the Harrisons stopped payments in April 2014, Goldsworthy began adjudication for the balance based on the last certified sum. The adjudicator ordered the Harrisons to pay Goldsworthy circa £75,000, but when they declined to pay, the parties ended up in court (in a summary judgment application). The primary issue was whether they had agreed contract terms which contained an adjudication clause. If they did not, the adjudicator had no jurisdiction.
Goldsworthy argued that the Minor Works contract had been agreed and incorporated and these terms contain a provision for adjudication. The Harrisons argued that no final agreement had been reached on the Minor Works contract and that the work proceeded under an informal agreement without an adjudication clause.
The judge found that without a better understanding of what was said between the parties, he was not able to say definitively what the terms of the contract were. Goldsworthy’s application failed.
As a result of not having a signed contract, both parties incurred irrecoverable costs in the adjudication and, unless the dispute proceeds to a full trial, in enforcement proceedings. With no definitive clarification on contract terms, arguably neither party is better off.
Putting clear contracts in place at the outset of projects can at least avoid disputes on what procedure the parties should use to resolve their disputes.
IN PLAIN ENGLISH:
The Housing Grants, Construction and Regeneration Act 1996, as amended, gives parties the right to resolve disputes on a temporary basis, by way of adjudication, provided the contract is a ‘construction contract’. However, an exception to this is a construction contract in which one party is a residential occupier (see Section 106 of the Act).
Such a contract is one which principally relates to operations on a dwelling which one of the parties to the contract occupies, or intends to occupy, as his or her residency. A ‘dwelling’ means a dwelling-house or a flat.
In the past, there have been cases before the court arguing whether or not a party was a residential occupier for the purposes of the Act. By way of example, the Court has found that it is difficult to imagine how a company could ever be a residential occupier (see Edenbooth Ltd v Cre8 Developments Ltd, 2008) and that occupation or intention of occupation of the dwelling is critical for the exception to apply (see Westfields Construction Ltd v Clive Lewis, 2013).