The Court of Appeal has clarified that if an adjudicator's award is not enforceable, you may not have to pay it.

Surprisingly, given the wealth of case law which has grown up around the subject of construction adjudications over nearly fifteen years, very little has dealt with circumstances where an adjudicator’s fee has not been paid because of an unenforceable decision by the adjudicator. 

In PC Harrington Contractors Limited v Systech International Limited, the Court of Appeal looked at just such a case.

The case involved Systech, the firm who employed the adjudicator attempting to recover its fees on three adjudications, (all on an adjudicator’s standard terms), which were governed by the Statutory Scheme for Construction Contracts 1998.  On all three adjudications, the adjudicator believed that he did not have jurisdiction to consider PC Harrington’s defence and awarded the claimant in the adjudications the requested sums and ordered that PC Harrington paid his fees.  PC Harrington contested this as a breach of natural justice and also refused to pay the adjudicator’s fees.  PC Harrington argued that the decision was therefore unenforceable and that because the adjudicator had not provided the service he had been contracted to provide by providing an enforceable decision, his fees were not payable.  The original trial judge found that that there had been a breach of natural justice and therefore the decision was unenforceable, but nonetheless, the adjudicator’s fees were payable.  PC Harrington disagreed and took the case to the Court of Appeal.

Although the adjudicator’s contract contained a mechanism for interim payments and hourly rates, the Court of Appeal found that the agreement with the adjudicator was an entire agreement and was not divisible into other stages such as making directions and dealing with the parties’ submissions prior to reaching a decision.  The “bargained for performance” was that the adjudicator would reach an enforceable decision.

The Court of Appeal said that in any event, the adjudicator’s contract must be read in conjunction with the Statutory Scheme for Construction Contracts and then looked at the instances dealt with in the Scheme where the adjudicator does not reach a decision which are as follows:-

  • Where the adjudicator resigns at any time on notice or the adjudicator’s appointment is revoked because of default or misconduct
  • Where the adjudicator resigns because the dispute is the same or substantially the same as another dispute which has already been referred to adjudication and an adjudicator’s decision given
  • Where the adjudicator resigns because the dispute varies significantly from the dispute raised in the referral notice
  • Where the parties revoke the adjudicator’s appointment without misconduct or default.

The Statutory Scheme for Construction Contracts allows payment of the adjudicator’s reasonable fees and expenses in the second, third and fourth of these instances but not the first and the Court of Appeal found that this was significant in that it limited the adjudicator’s entitlement to carefully defined circumstances, something which Parliament had addressed by means of these carefully calibrated provisions.  As a matter of policy, it was not appropriate for parties to incur cost in adjudicator’s on the pointless exercise of an unenforceable decision.  This would discourage parties referring disputes to adjudication under the Statutory Scheme.  Moreover, the Court of Appeal considered that it could hardly be disputed that the making of an unenforceable decision by breaching the rules of natural justice is a “default” or “misconduct” on the part of the adjudicator.  

Implications

The Court of Appeal acknowledged that this case might cause concerns for adjudicators, but that the solution would be in the marketplace, for adjudicators to include in their terms of engagement (if the parties agree), a term covering payment of their fees if a decision is not delivered or proves unenforceable.  

While adjudicators are probably best advised to do this from now on, this however may still not be the end of the story if the adjudication is under the Statutory Scheme, as parties who are not happy with an unenforceable decision may still try to run an argument based on the defined instances where the adjudicator is allowed to claim payment.