Adjudication Agreements: When Are They Legally Binding?

Adjudication Agreements: When Are They Legally Binding?

The UK courts have ruled in an important case involving adjudication agreements, affirming the commercial reality that clear drafting of contract documentation is critical. The expert commercial litigation lawyers at Bahamas law firm ParrisWhittaker are highly experienced in advising and representing businesses on the terms and conditions of their commercial contracts.

What Happened in This Case?

In Khurana1, the claimants, a married couple, had engaged a construction company to carry out work upon their house. A dispute arose over the final account and the amount the claimants owed to the company.

Whilst there was no statutory right to adjudication, at the request of the construction company the parties agreed to enter adjudication in accordance with the Scheme for Construction Contracts (‘the Scheme’). The agreement was made subject to the adjudication’s decision being binding on the parties. Adjudication duly took place and the adjudicator decided that the claimants owed a substantial amount to the company.

What Does ‘Binding’ Mean?

A further dispute then arose as to the meaning of the word ‘binding’ in the adjudication agreement. At issue was whether the original dispute could, in fact, be re-litigated in court in the same way as a normal statutory adjudication.

In applying the UK’s legislation on unfair terms in consumer contracts (the UTTCRs) together with consideration of the meaning of the adjudication agreement itself, the court decided that the claimants were consumers for the purposes of the legislation and the company fell within the definition of 'sellers or suppliers.'

The judge’s starting point was that on the proper interpretation of the adjudication agreement, the adjudicator’s decision was to be permanently (not temporarily) binding.

As to the unfair terms issue, the judge decided that the term had been 'individually negotiated,' and the claimants had taken the opportunity to influence the terms.  Therefore, the term was not 'unfair.' Furthermore, there was, for instance, no economic or legal imbalance between the parties, and both parties had access to legal representation and were able to assert their respective interests. 

The court also found that the clause was clear and intelligible for the purposes of regulation 7 of the UTCCRs. 

What Does This Mean?

Opting for adjudication in the event of a dispute can be beneficial, and the ruling makes clear that there is nothing intrinsically unfair to a party in agreeing to adjudication.
Clarity in drafting commercial contract documentation is vital to protect the parties’ interests. Where adjudication is to take place and the parties want the adjudicator’s decision to be final and binding, this must be made clear to minimise the risk of future disputes.

How Can We Help?

The commercial litigation lawyers at Bahamas law firm ParrisWhittaker have years of experience advising commercial organisations on their commercial contracts and adjudications. We can assist you in ensuring draft contracts terms fully and effectively protect your interests, including in light of potential future disputes. Contact us straightaway for urgent, strategic advice.

1Khurana and another v Weber Construction Ltd [2015] EWHC 758 (TCC)
2Unfair Terms in Consumer Contract Regulations 1999 (UTCCRs)