Khurana and another v Webster Construction Ltd [2015] EWHC 758 (TCC)
It is a fundamental provision of the Construction Act 1996 (1) that an adjudication decision will be binding until the dispute is finally determined in legal proceedings, arbitration or by agreement. This rule ensures that parties who believe themselves wronged by the rough and ready nature of the adjudication process, can still challenge the adjudication award by referring the dispute to the courts or arbitration.
However, the Technology and Construction Court (“TCC”) has recently warned parties that their right to challenge an award can be waived by agreement. If their rights are so waived, the subsequent adjudication decision will be finally binding and will not be capable of review in later court or arbitration proceedings.
Clear wording is needed before the court will find that the right to challenge has been waived.
The case of Khurana And Another v Webster Construction Ltd is a warning to parties to check the wording used in agreements and in letters to the other side, to ensure that rights are not given up unintentionally.
The Facts
The claimants (the Khuranas) engaged the defendant (Webster), the owner of a small building company, to carry out works on their house. A dispute arose between the parties over whether Webster had completed the works satisfactorily. Webster sought payment of its final valuation and release of the retention.
The dispute resolution procedure set out in the contract between the parties was not clear, so the parties, via their solicitors, agreed that the dispute could be resolved via adjudication. The letter from Webster’s solicitors proposing adjudication stated that the Scheme for Construction Contracts 1998 (“the Scheme”) should apply to the adjudication “save that the decision of the independent structural quantity surveyor shall be binding on the parties”. The Khuranas’ solicitors then agreed to this proposal stating “our clients agree to the appointment of a quantity surveyor being made in accordance with the Scheme for Construction Contracts… and that the decision of the quantity surveyor shall be binding on both parties”.
Webster referred the dispute to adjudication and the adjudicator decided that the Khuranas should make a payment to Webster. The Khuranas did not pay and commenced court proceedings regarding the matters that had been decided in the adjudication. Webster applied to have those proceedings stayed or dismissed arguing that the parties had agreed the adjudicator’s decision would be finally binding and as such, it was not now open to the Khuranas to ask the court to consider issues already decided by the adjudicator.
The meaning of the words used by the parties
The court held that clear words must be used before it will find that the parties have excluded their right to challenge an adjudication award in court or arbitration.
However, the court will not adopt an unreasonably strict approach because there are many examples in the construction sector of parties to construction contracts deciding to submit some or all disputes between them to binding determination by arbitration, adjudication or expert determination. There is nothing unusual in itself in the parties agreeing that an adjudication decision be finally binding.
The court considered that an adjudication agreement should be construed in the same way as any other contract. The question is what a reasonable person, with the benefit of all the background knowledge which would reasonably have been available to the parties at the time of the agreement, would have understood the parties to have meant.
Here, the meaning of the phrase “shall be binding” in the letters between the parties depended on the context in which words were used. The parties were both legally represented and must be taken to have been aware that the proposal for an adjudication under the Scheme carried with it an implicit but obvious proposal that, unless expressly stated to the contrary, the decision would only be temporarily binding. As such, the words “shall be binding” was intended to move away from the usual provision and to exclude the parties’ right to challenge the decision.
In light of the above, the court set aside the Khuranas’ claim and they were bound to comply with the adjudicator’s decision.
Comment
This decision does not create new law, but it confirms that when parties agree to adjudicate they need to be certain that they understand the effect of the wording used.
If the phrase “shall be binding” had not been included here in the letters between the parties, the court would have found that the adjudication decision was only binding on an interim basis, as is the usual position under the Scheme, and the Khuranas would have been entitled to ask the court to decide the amount due to Webster.
This article was originally published by Walker Morris on 15/05/15.
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