So can you adjudicate a Defective Premises Act claim?

In a case decided just before the Christmas break – BDW Trading Limited v. Ardmore Construction Limited [2024] – the court has said that where there is a contract between the parties, any claim made under the Defective Premises Act 1972 (DPA), potentially long after a contractual claim cannot be commenced due to limitation), can be decided by adjudication.

DPA claims are generally technically complicated and, because of the potentially 30-year limitation periods, can concern historic defects. Is adjudication suitable for these claims? Can the adjudication system cope with the additional workload? Is the what the case said even right?

The BDW v. Ardmore case

Before addressing those questions, let’s take a look at the case. The property in question was Crown Heights in Basingstoke. BDW, while not the original contracting party, took an assignment of all of the Employer’s rights under the relevant building contract. There were allegations of fire safety defects an adjudication was commenced 20 years after practical completion of the works.

As the alleged breach was well past the normal 12 year limitation period, exceptions to that rule had to be explored by BDW to allow a claim. Due to the changes to the DPA under the Building Safety Act 2022, the limitation period for a DPA claim had been extended retrospectively to up to 30 years. So it was common ground that a DPA claim was not time-barred – the question was whether such a claim could by decided by adjudication or if court/arbitration was the only tribunal. The issue hinged on whether or not a claim under the DPA was a dispute ‘under’ the building contract.

The whole purpose behind the DPA when introduced was to allow homeowners a right to bring a claim against a developer / builder / architect in circumstances where they did not have a direct contract with any of these parties and the property they had purchased was uninhabitable. The DPA had become slightly redundant as it was difficult to demonstrate a property was uninhabitable due to defects (even though whether a property was ‘uninhabitable’ was not quite the same as whether it had in fact been ‘inhabited’).

However, this all changed under the BSA, with defective cladding being recognised as a reason amounting to a property being classed as uninhabitable. The whole premise of a DPA claim is it is a claim in tort. So the typical scenario for a DPA claim was (until recently) where there was no contract between the parties. Most readers of this article would accept that an individual homeowner, who does not have a contract with the party they are bringing a claim against would not be able to avail themselves of the adjudication regime. The appropriate tribunal would be court. So why is it different for BDW?

The Case For?

First, morally why should a party to a construction contract be able to avoid adjudication just because the claim is a DPA claim when there was a contract between the parties and the only reason a right to adjudicate a contractual claim will not succeed is a limitation defence? This moral argument works if you consider limitation periods to be an anathema and that an employer should always be able to recover damages for defective workmanship regardless of the time passed.

Secondly, the judge relied heavily on a House of Lords case – Fiona Trust & Holding Corp v Privalov [2007]. This case (being a House of Lords decision) had significant weight, and related to an allegation of bribery and whether an arbitration could be imposed on a party who alleged it would have never entered into the contract but for the bribery. The court in Fiona Trust effectively said if rational businesspeople make a commercial decision to enter into a contract with an arbitration clause, they are likely to have intended for all disputes arising out of that relationship to be arbitrable – in other words arbitration covers any form of claim. In simple terms, Lord Hoffman in Fiona Trust said a wide interpretation should be applied to dispute provisions. So applying this principle, as the parties had entered into a contract covered by adjudication, a DPA claim “in relation to the contract“ should also be covered by adjudication.

The Case Against?

First, the most analogous situation to a DPA claim is a claim for misrepresentation under the Misrepresentation Act 1967. You have to have entered into a contract for such a claim to even exist, yet the Courts in the case of Hillcrest Homes Ltd v. Beresford & Curbishley Ltd [2014] made clear that a misrepresentation claim could not be subject to adjudication. This seems to directly conflict with the BDW decision.

Secondly, as mentioned, heavy reliance is placed in the BDW decision on the Fiona Trust case. The reasoning behind imposing arbitration for all forms of action in the Fiona Trust case was because the parties had expressly entered into a contract with an arbitration clause. This slightly misses the point in a construction context, as parties to a construction contract cannot choose to apply adjudication – so it is not a choice of the parties at all – it is implied by the Construction Act.

Thirdly, and considering the choice made by Parliament, when introducing the Construction Act there was no suggestion that non-contractual claims were covered by Adjudication. Had this been intended it would have been simple to make clear that the right to refer to adjudication covered a claim under the DPA (and for good measure the Misrepresentation Act 1967) – but the Construction Act does not do this. When the first Construction Act was amended by the Local Democracy Economic Development and Construction Act 2009, again it could have been amended to include a DPA claim – but it was not. Finally, when the Building Safety Act 2022 was introduced Parliament could have amended the Construction Act to make clear that a DPA claim (this being post Grenfell) could be resolved by Adjudication. But again, it did not. In this case, it had already amended the DPA limitation periods, so the use of adjudication can be presumed to have been in its contemplation.

Fourthly, the generally recognised purpose of Adjudication is ensuring cash flow through the construction supply chain. A DPA claim from an alleged breach potentially up to 30 years ago would seem inappropriate for Adjudication. Most relevant documents will not exist and/or be in hard copy only and oral evidence and hearings may be necessary, so an historic DPA claim like this does not seem suited to a 28-day paper-based dispute resolution process – nor can it be said to be necessary for cash flow in the industry. The adjudicator in this case, Mr Riches, is a very well-known and respected adjudicator, but is an adjudicator (who are often quantity surveyors or construction professionals without legal training) really the correct person to decide such a dispute?

Conclusion

Whether it goes to appeal, or whether it is considered in another case, for now at least the effect of the decision is to allow historic cladding claims (which were otherwise time-barred) to be decided by adjudication. That offers claimant parties a potential quick way of unlocking a dispute, but places defendants with the risk of having technically complicated and high value (the BDW decision was for £14.5m) issues determined in just 28 days on a ‘pay now, argue later’ basis.

Although the true impact of this decision is not yet known – it will only really affect cases where there is a contract (which is not always the case with DPA claims) and the contractual limitation period has expired – I suspect we have not heard the last of this issue.