Adjudication in residential contracts

This article is all about Adjudication in residential contracts. Specifically it deals with does Adjudication apply to residential contracts ?

Stravelles run a course in Adjudication which aims to allow the student to run their own adjudication as the referring or responding party without paying for legal representation.

We support legal representation in more complex cases but we want to encourage especially smaller companies to feel more confident fighting for their contractual rights.

Introduction Adjudication in residential contracts

Adjudication is a powerful dispute resolution procedure where an independent expert is appointed to judge a dispute between two contractual parties.

The Construction Act 1996 states that parties to a construction contract have the right to refer a dispute to adjudication at any time.

This can be very useful, as it provides a mechanism by which the parties can quickly resolve disputes that arise during the course of the project.

Does Adjudication in residential contracts apply ?

No, Adjudication does not automatically apply to residential contracts.

Section 106 of The Construction Act 1996 makes this clear. It states that the statutory right to adjudication does not apply where the construction works is being actioned on a dwelling where the Client intends to use as their main residence.

So, if a builder is a contracted to build a house extension for a couple who intend to stay living in that house then the right to Adjudication does not apply.

For the exclusion to apply the project must be 1) A residential project and 2) The Client must be intending to live in this property as their full time residence.

Exceptions to this exclusion to the right to Adjudication.

So there are clear exceptions to this exclusion to the right to Adjudication.

For example, a property developer who is building residential properties can claim that the right to adjudication is excluded.

Or a homeowner who is building a new one-off house that he intends to sell or rent out to the public.

A homeowner who is building an extension to his house that he intends to rent out to the public cannot can that the right to adjudication is excluded.

Howsons Ltd v Redfearn 2019

Howsons Ltd v Redfearn 2019 the Responding party had hired a builder to carry out refurbishment works to a barn so they could live in. The builder referred a dispute to adjudication and won. He then attempted to enforce the decision.

The referring party claimed that because the works were residential in nature that adjudication did not apply to them and the Adjudicator did not have the jurisdiction to decide the case.

Now, the key point here was that the planning permission the couple had stated that the residential use of the barn was dependent on them using the rest of the barn for their business use.

So they could not legally use the barn for their main residence. This meant the court could decide that the couple could not use the property for full time residence so therefore Adjudication could apply.

If the couple had planning permission to use the barn for their full time residence and they intended to do so then adjudication would not apply.

So there must be 1) an intention for the client to use the property as their main dwelling and 2) the client must be able to legally use the dwelling as their main residence in accordance with planning laws.

This must be to protect homeowners from a process that they don’t know anything about.

Can you make Adjudication in residential contracts apply ?

Yes, a builder can insert an Adjudication clause in their contract which would make Adjudication applicable. It not unlawful for a residential occupier to agree to a clause that will entitle both sides to refer a dispute to adjudication.

Our recommendation on this is that a Client must be aware of the consequences of that clause and must expressly agree to it.

Some people would argue that inclusion in the standard terms and conditions would suffice.

But we feel that the Adjudication process should be explained to them and really a builder should email them this explanation so there is no chance of the residential party saying ‘I did not understand this’ or ‘I was not aware of this’.

We recommend this approach to cover all eventualities at a later date where a Client feigns ignorance of the issue.

Can Adjudication in residential contracts apply by inaction ?

Yes, adjudication can apply in residential contracts if the residential occupier by their actions appears to not reserve their right to exclude adjudication.

For example, if a residential occupier participates in the adjudication they might be deemed to have accepted it as a dispute resolution.

This is called an ‘Ad-hoc Adjudication’ and you can read more about that here.

ICCT Ltd v Sylvein Pinto 2019

In ICCT Ltd v Sylvein Pinto 2019 the Technology and Construction Court (TCC) ruled that it not matter that the Residential occupier was not aware of the adjudication clause.

They could not defend himself by using the ignorance of the law defence route. We feel this is not a great decision and will most likely be revisited and include reasons further below. Do not rely on this case as it is very specific to its own details.

In this case the Client Mr Pinto hired ICCT to fix some leaks in the basement of his primary residential property. It was an oral contract.

When the works were completed he refused final payment as he claimed the works were defective. ICCT referred the dispute to Adjudication and won.

Crucially Mr Pinto engaged in the Adjudication process! This is the key point.

ICCT sought to enforce the payment by Mr Pinto by summary judgement in the TCC.

Mr Pinto then claimed using Section 106 that the Adjudicator had no jurisdiction as it he was a  residential occupier.

In this specific case the TCC ruled that the Adjudicator did have jurisdiction.

Analysis of ICCT Ltd v Sylvein Pinto 2019

This might make it seem that if a builder has an adjudication clause in his contract then he will succeed in establishing the jurisdiction of the Adjudicator.

It a bit more complicated than that though. In this specific case, the court took into account the fact that Mr Pinto had engaged in the adjudication process right up until he lost.

This meant in the courts opinion that he had essentially waived his right to saying he had not expressly agreed to the Adjudication clause.

It might have been a different matter if he had rejected Adjudication once he received the first notice to refer a dispute to adjudication.

We recommend ensuring that the Client is given a clear understanding of the Adjudication process and agrees to it by email.

This is because if you are lazy and just pop the clause into your standard terms then the TCC could easily state a residential Client was not aware of the clause.

The TCC has said that ignorance of the law is no excuse but really how is that fair when the Client signs one contract in a lifetime and the builder signs a new contract every week?

Should we move towards making Adjudication a compulsory option in Residential contracts ?

Or should builders and Client insert express Adjudication clauses in their standard terms of contract?

Perhaps. Like in everything in life there are arguments for and against taking this step.

Advantages to both sides

The argument for is simple. Adjudication has been around since 1996 and is working well. Why not take the usefulness of this dispute resolution process and apply it to residential contracts just like we do with most other construction contracts?. The process tends to be generally quite fair and it can always be referred to Arbitration or the courts for final determination.

What is the alternative for a builder or for a residential occupier when they have a dispute? You have essentially litigation which is not fun for the builder or the residential occupier as it takes a long time and involves hiring solicitors and barristers. Why not give the builder or the Client an option of getting a decision out within four weeks of referring the dispute to Adjudication. If a builder is owed money he can paid (or not) within four weeks of referring the dispute to Adjudication. Whereas going to litigation could take years.

Why leave the Client or builder floundering to find a solicitor to help them solve some minor dispute.

Remember, Adjudication is also private which has advantages for the builder and the Client in terms of reputation and privacy.

Disadvantages to both sides

From a builders point of view, a difficult Client could start referring all sorts of minor issues to Adjudication and make the simplest of projects very difficult.

But Adjudication both sides are responsible for their legal costs so would a home occupier really spend money on legal fees to fund adjudications?. Even if the occupier represented themselves they would still have to pay the fee for the application form. And Adjudicators do look to see if a genuine attempt was made to solve the dispute before it was referred to Adjudication.

From a Clients point of view, if they are not experienced in construction contracts they could inadvertently not follow the rules of the contract and leave themselves open to some ‘rough justice’.

For example, if a builder issues an application for £100,000 and the Client does not pay it on time or issue a payless notice etc then the builder could force payment using Adjudication. This could be totally unfair and be forcing the Client to overpay for the works completed to date.