Adjudication gets a good press from the industry, so it comes as a surprise when a judge rules that it is unfair when used for disputes with consumers
Bearing in mind the almost universal endorsement of adjudication by the construction industry, it comes as something of a shock to look back at Judge Toulmin’s observations in Picardi vs Cuniberti back in 2003. His view was that in a contract between a consultant and residential occupiers, adjudication was an unfair provision and not binding on the clients.
Why should adjudication be seen as admirable for the commercial and industrial market but unsuitable for the residential sector? The answer of course is that the Unfair Terms in Consumer Contracts Regulations of 1999 impose a unique set of constraints on contracts with “consumers”, meaning individuals acting in a private rather than a business capacity. The regulations have a potentially devastating effect on provisions in standard form contracts. If clauses in a contract with a consumer have not been “individually negotiated”, they will be treated as unfair – and unenforceable – if “contrary to the requirement of good faith, [they] cause a significant imbalance in rights and obligations”.
Clauses in a standard form drafted months or years in advance of signing a contract cannot possibly be regarded as having been individually negotiated. A consultant or contractor dealing with a consumer may therefore have to show, if the client alleges unfairness, that they have complied with the requirements of good faith and that the clause in question does not cause a “significant imbalance” in rights.
The requirement of good faith is at least easy to define. Lord Bingham says it is fair and open dealing. “Openness requires that the term should be expressed fully, clearly and legibly. Fair dealing requires that a supplier should not take advantage of the consumer’s unfamiliarity with the subject matter of the contract or weak bargaining position.”
The message to the supplier is clear: explain to your unsophisticated client any terms in the standard form agreement you are proposing that appear to limit their rights. What kinds of clauses fall into this category? Of particular interest will be terms excluding or limiting the legal rights of the consumer vis-à-vis inadequate performance by the supplier, and terms excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy. So, for example, the consultant architect proposing SFA/99 to his consumer client will need to explain the legal significance of the provision for limited or proportionate liability, the removal of the client’s common law rights of set-off, the obligation on the client to give a withholding notice in certain circumstances, and the adjudication, arbitration and related cost provisions.
In Picardi vs Cuniberti, the architect had failed to follow RIBA guidance to take his clients through these terms in the RIBA conditions of engagement, and also had not inserted the clause recommended by the RIBA that confirms the parties have expressly agreed that those particular clauses would apply.
The Unfair Terms in Consumer Contracts Regulations 1999 impose unique constraints on contracts
There is a real need for a standard letter that architects could produce to explain these things properly, giving the consumer an opportunity to reflect and seek further advice.
But, as the RIBA guidance says, even obtaining agreement may not prevent some terms being successfully challenged. It all depends on how “significant imbalance” is interpreted – which takes us back to the Picardi case.
Adjudication confers benefits and detriments on both contracting parties, and the clauses in the standard forms are clearly and legibly set out. Both parties usually have to bear their own costs so there is no obvious imbalance, as the judge in the later case of Lovell Projects vs Legg pointed out. Therefore, adjudication ought surely to withstand scrutiny under the unfair terms regulations.
Consultants who do follow the RIBA guidance many console themselves with the thought that they are living examples of good faith in contemporary practice.
Tony Blackler is a partner in solicitor Macfarlanes