Westminster Building Company Ltd. v Beckingham [2004] EWHC 138

This summary was provided by CMS Cameron McKenna LLP.

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An adjudication procedure was found to have been incorporated into a contract for refurbishment works despite the fact that the defendant had not signed the contract. The defendant was deemed to have accepted the contract by conduct since he had failed to object to the content of the contract and allowed the claimant to continue with the work.

Judge Anthony Thornton QC, Technology and Construction Court

20 February 2004

The claimant tendered for extensive refurbishment works to a property owned by the defendant. The work was described in a specification and associated drawings prepared by a firm of chartered surveyors employed by the defendant. Part 1 of the specification, entitled "General Conditions of Contract", defined the parties to the contract and also contained a provision purporting to incorporate the standard JCT IFC conditions (with amendments). Part 1 concluded with the words "EXECUTION: The Contract will be executed under hand." The specification was sent to the claimant who in turn submitted a tender. The defendant then wrote a letter of intent to the claimant instructing them to proceed with the work in accordance with the specification. The letter also stated that the surveyors would prepare the "formal contract documents … for signature by both parties" and in the unlikely event that matters did proceed then the claimants would be entitled to be reimbursed for any reasonable expenditure which they incurred.

Works started on site on 15 July 2002 and the JCT form of contract was sent to the claimant the next day. Although there were minor differences between this contract and the specification, the claimant signed and returned the contract to the surveyor. Although the defendant never signed the contract, he did not object to its content and the work continued. The works overran and on 23 February 2003 a "capping agreement" was concluded between the parties. The terms of the agreement were that the total fees of the works should not exceed £300,000 (including VAT) plus retention in the sum of £30,000. Following the signing of this agreement, the surveyor issued two disputed certificates (together totalling approximately £93,500). Prior to the issue of these certificates in excess of £284,000 had already been certified and paid to the claimant. The defendant refused to pay any part of either sum due on the basis that the claimant had no entitlement to them as they were in excess of the cap. The dispute was referred to adjudication.

The adjudicator decided that although the capping agreement was a variation of the terms of the original JCT contract, it was unenforceable for want of consideration by the defendant. The defendant therefore had to pay the sum certified in the additional two certificates i.e. an amount in excess of the capping agreement. The claimant brought proceedings to enforce the award.

The issues before the court were:

Whether the adjudicator had jurisdiction (the key issue here being whether the JCT IFC conditions had been incorporated into the contract, as the Housing Grants, Construction and Regeneration Act 1996 did not apply as the contract was for work on a dwelling house and the defendant was a residential occupier);
Whether the capping agreement was a stand-alone agreement; and
Whether the adjudication clause was unfair and invalid for the purposes of the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) (the "Regulations").

The defendant argued that the dispute was one arising out of the separate capping agreement (which in effect amounted to a compromise of the underlying contractual disputes of which the fee claim was one) and that this had no adjudication clause. On another point of law, the defendant also contended that the adjudication clause in the contract was not binding on him since, as the works were being undertaken at his own home, he was a "consumer" under the Regulations. The Regulations provide that if a term is unfair (there are a number of statutory tests to determine this) it is not binding on the consumer.

In rejecting the defendant's arguments, the court considered the three issues and held that:

The letter of intent did not create a completed contract between the parties under the JCT provisions and as such did not incorporate the terms in Part 1 of the specification. It created a simple contract that the claimant would be entitled to be reimbursed for any reasonable expenditure. However, the court decided that the requirement stated in the letter of intent that the "formal contract documents" would be signed by both parties was not a condition precedent to the coming into effect of a formal contract based on JCT IFC. The claimant's act of returning the signed documents constituted an offer to carry out the works pursuant to the contract, albeit coupled with an underlying arrangement of an administrative kind that both parties would sign the contract. By allowing the work to proceed, remaining silent as to his concerns about the contents of the proffered and proceeding throughout the works as though the JCT form was applicable, the defendant was deemed to have accepted the proffered contract by conduct. For those reasons, the contract that came into being contained an adjudication clause. The adjudicator therefore had jurisdiction;
The capping agreement was neither a compromise agreement settling all disputes nor a stand-alone agreement. It was clearly intended to be a variation agreement varying the terms of the underlying contract. In any event, it was not supported by any consideration and therefore was of no effect; and
Although the adjudication clause was not individually negotiated, it was couched in plain and intelligible language (both of these are stated in the Regulations as being factors that should be considered when determining what is unfair). The claimant did no more than accept the contract terms offered by the defendant, who was himself professionally advised by the surveyors. There was no reasonable need for the claimant to draw to the defendant's attention the potential pitfalls to be found in the clause. As such, it did not contravene the requirement of good faith. Additionally, the adjudication clause was held to have provided no significant imbalance in the terms of the contract. (No argument was raised as to whether the requirements for service of a withholding notice was unfair).

The decision of the adjudicator was therefore held to be binding on the defendant and summary judgment was awarded for the claimant in the sum claimed.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

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