In the recent case of Khurana and another v Webster Construction Ltd the Technology and Construction Court (TCC) discussed whether an adjudicator's decision was only of ‘interim-binding’ effect, or finally binding on the parties.
It is now well established that when parties are involved in adjudication proceedings they will be bound by an adjudicator's decision on an ‘interim’ basis. Therefore, the parties must adhere to the adjudicator’s decision until the dispute is determined by either agreement or other means of dispute resolution proceedings (primarily court or arbitration).
Background In the case of Khurana, a final account dispute arose over construction works at a property in Cheshire. As the property was a residential house, the Housing Grants, Construction and Regeneration Act 1996 and the associated Scheme would usually not apply (section 106 of the Act). However the parties entered into an adjudication agreement to use the Scheme for Construction Contracts (England and Wales) Regulations 1998 to resolve their dispute, as they wished this dispute to be referred to adjudication.
Adjudicator’s Decision The adjudication proceeded and an Adjudicator’s decision was issued. One of the parties was unhappy with the result (the Khurunas) and so they commenced a court action to ultimately determine the dispute. The contractor disputed that this avenue was available to the Khurunas, arguing that the adjudicator’s decision was finally “binding”, not only “interim-binding”.
TCC Decision In order to determine this matter the TCC considered various documentation provided by the parties around the adjudicator’s agreement, and the relevant legislation. After consideration, the court held that both parties had agreed that the adjudicator’s decision was to be “finally-binding” and not only “interim-binding” as one would normally expect.
Lessons learned The moral of this story is, firstly, take care when entering into adjudication agreements, as with all agreements, to ensure that the drafting clearly reflects your intentions. In this case the court interpreted “shall be binding” as meaning exactly that in practice, even although the parties may not at the time have meant this to mean ‘finally binding’. Secondly, think twice before agreeing to an adjudicator’s decision being finally binding. The courts have held many times that the adjudication process is rough and ready, and a decision will be enforced even if clearly wrong on the law or facts. Finally, it should be noted that some standard form contracts, such as NEC3, provide for an adjudicator’s decision to be finally binding within a stated period of time, unless a formal notice of intention to challenge the decision is issued within that period.