Judge Strikes Down Withholding Notice Clause In JCT Form

The payment and adjudication provisions of the Construction Act are compulsory in commercial relationships. They can be used in consumer contracts, but if they fall foul of EU consumer protection laws they may be struck down. This happened to the withholding provisions of the JCT Minor Works 1998 form in a recent case before the TCC.

A building contract was entered into on JCT MW 98 form. The employer was a residential occupier, i.e. a "consumer" for EU law purposes. He had no real opportunity to negotiate the contract. Nor was he aware of the withholding notice provisions. Nor did he have any involvement with the management of the project. The consumer withheld several interim payments from the contractor on account of delays and defects in the work, but without issuing withholding notices. The matter was referred to adjudication, where the contractor was successful, because a withholding notice had not been issued. The contractor applied to the court for enforcement of the adjudicator's decision.

• The withholding clause relied on by the contractor was on the facts of this case an unfair term, and breached EU consumer protection laws. It took away rights of set-off and withholding that the consumer would otherwise have. On top of that, the adjudicator denied the consumer procedural fairness.

• Interestingly, the judge held that the adjudication provisions of the contract were not unfair, because they didn’t create a significant imbalance in the parties’ rights.

• Another point of interest: the judge held that where the jurisdiction of the adjudicator arises purely from contract (as it did here) and not from the Construction Act, the court could intervene and overturn the adjudicator’s decision if the adjudicator got the facts or the law wrong. Under statutory adjudications, if an adjudicator gets the facts or the law wrong his decision is still enforceable. The imperatives of the Construction Act (i.e. cashflow for contractors in a commercial environment) don’t apply in consumer situations.

Commercial contracts cannot be applied wholesale to dealings with consumers. This applies even to widely-used forms such as those of the JCT. Where there are terms that remove rights that would otherwise exist, e.g. rights of set-off or withholding, they should be specifically drawn to the attention of consumers, with opportunity for negotiation. Failure to do so can lead to these clauses being struck down under EU law.

Reference: Domsalla (t/a Domsalla Building Services) v Dyason [2007] EWHC 1174 (TCC).

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 22/05/2007.