A David and Goliath Tale

You can't blame a man for trying - or can you?
When Parliament introduced The Housing Grants Construction and Regeneration Act 1996 and its amendments thereto in The Local Democracy, Economic Development and Construction Act 2009, it did so in order to interfere with contracting parties’ rights to agree whatever terms they liked in relation to payment and the resolution of disputes under construction contracts. I suspect there would be very few people who would argue that this was a bad thing or that some form of reform was not needed.
 
At the risk of stating the obvious, when parties amend the adjudication terms in standard forms of contract or introduce onerous terms in their own forms they do so in order to attempt to tip the commercial balance of that contract in their favour.
 
Attempting to make the Referring Party responsible for payment of the Adjudicator's fees regardless of the outcome of the reference and the introduction of trustee stakeholder accounts into which awards have to be paid, are just two examples of the sorts of tricks I have seen on countless occasions over the last 15 years. But we now know that such provisions will not be upheld by the Courts.
 
The latest example of a Contractor receiving a wrap on the knuckles from the Courts for attempting to thwart the will of Parliament can be found in Pioneer Cladding Ltd v John Graham Construction Ltd.
 
Clause 21 of Graham's contract contained the following provisions:
 
"(i) Should any dispute arise under this Sub-Contract, the same may be referred to an Adjudicator (to be agreed between the parties) or in default of agreement, in the manner hereinafter set out...
 
(ii) The Adjudication should be carried out in accordance with the Housing Grants, Construction and Regeneration Act 1996 and the Model Adjudication Procedure ('MAP') published by the Construction Industry Council subject to the amendments set out in schedule 5 hereto.
 
(iii) Notwithstanding clause 29 of MAP the Adjudicator's fees are to be borne by the Party which refers the dispute to adjudication…
 
(v) In the event that the decision of the Adjudicator is the making of a monetary award ("Adjudicator's Award") in favour of the Sub-Contractor, the following provision shall apply:-
 
(a) Graham shall place on deposit the amount of the Adjudicator's award with Northern Bank Limited in the joint names of the solicitors acting for Graham and solicitors acting for the Sub-Contractor within seven days from the date of receipt by Graham of the Adjudicator's decision."
 
Pioneer was successful in two adjudications brought by it against Graham but Graham refused to hand over the cash and the matter was referred to the Courts for enforcement. The case was heard by His honour Mr Justice Coulson who in relation to Graham's stakeholder provision had this to say:
 
"I am in no doubt that clause 21(v) is in breach of both the policy behind the 1996 Act and the Act itself. It is not in accordance with the Scheme for Construction Contracts introduced by the Act. Because it would deprive a claiming party of the money they had been awarded by the adjudicator, the clause is designed to discourage a party from exercising its right to take disputes to adjudication. In line with the decisions in Yuanda (UK) Limited v WW Gear Construction Limited [2010] PLR 435 and Sprunt Limited v London Borough of Camden [2012] BLR 83, such a clause is unlawful and cannot be enforced."
 
Similarly, when looking at Graham's contract in relation to the liability for payment of the Adjudicator's fees Mr Justice Coulson said:
 
"The conventional view is that if one part of the contract offends against the 1996 Act and/or the Scheme, the adjudication provisions in the contract fail in their totality, and are to be replaced by the Scheme. If that view is adopted, then the provision at clause 21(iii), which would make Pioneer liable for the entirety of the adjudicator's fees, must also fail.
 
Even if that is wrong, and clause 21(iii) can survive, I consider that that clause too is contrary to the 1996 Act and the Scheme. Although it is not as extreme as the provision in Yuanda, which made the referring party liable for the whole of the costs of the adjudication, it is still a provision which could discourage a claiming party from commencing adjudication and is therefore unlawful. For either of those reasons therefore, I do not consider that Graham can rely on that provision either."
 
So whilst you may be tempted to mess with the will of Parliament and tamper with a party's right to adjudicate you are likely to end up in a David-and-Goliath-like battle with an outcome very unlike the version written in the Bible which ends with a win for David! 
 
In other words, the Courts will simply not allow you to thwart the will of Parliament.
 
 
Peter Vinden is Managing Director of Vinden. He can be contacted by email at pvinden@vinden.co.uk. For similar articles on construction, corporate protection and dispute resolution generally, visit www.vinden.co.uk
 
 
Peter Vinden

Peter is an experienced professional in the construction industry with particular expertise in quantity surveying and the commercial management of contracting organisations. 

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