Systech International Ltd v PC Harrington Contractors Ltd [2011] EWHC 2722 (TCC)

This case involved the recoverability of adjudicators’ fees where the decision was said to be unenforceable by reason of a failure to comply with the rules of natural justice. It was suggested that there had been a total failure of consideration. Harrington had instigated proceedings in which they successfully argued that the Adjudicator had “unwittingly [fallen] below the standards which are required to enable the decision or decisions to be enforced.” The grounds included that, by ruling wrongly that issues relating to the fi nal account were outside his jurisdiction, he had put himself in the position that he could not and would not deal with a defence, and further the adjudicator had dealt with the fi nal account exclusion as a matter of jurisdiction without giving either of the parties the opportunity to be heard on that point.

The Referring Party had no funds and so Systech sought recovery of the adjudicator’s fees from Harrington, who also argued that there was an implied term of the contract of engagement that the adjudicator was obliged to conduct the adjudications in accordance with the principles of natural justice. Systech argued that the adjudicator was engaged to act as adjudicator and that he was not simply engaged to produce a decision. The adjudicator said that he breached the rules of natural justice and asserted that the earlier judgment does not bind him. The adjudicator gave evidence and was, as Mr. Justice Akenhead noted, extensively cross-examined about the reasonableness of his fees and the hours recorded but, following that, the parties agreed on a fi gures as fi gures basis the quantum, which was reduced by just over 25%.

Mr. Justice Akenhead explained how the doctrine of total failure of consideration can arise:

  1. In relation to contracts, it is the law relating to quasi-contract and restitution to which one must have regard in addressing total failure of consideration.
  2. One must determine as a matter of ordinary principles of contractual interpretation what the essential contractual performance bargained for was.
  3. Where the bargained for performance is on analysis the provision of one or even a number of services or things, there must on analysis, on the facts, be a total or complete failure to perform on the part of the provider.
  4. Where there has been a total or complete failure to provide any of the services or things bargained for, there will be a total failure of consideration. Where some of the services or things bargained for have been provided, there has not been a “total” failure of consideration.

If the contract, properly construed, involves the provision of at least more than one service, it will be diffi cult to say that there has been a total failure of consideration where some of the services have been provided but not all of them. As the Judge noted, there were no authorities relating to an adjudicator’s entitlement to fees in circumstances where there is a decision, which is unenforceable by reason of a breach of the rules of natural justice. Here the Judge decided that he had to consider what the adjudicator had contractually or otherwise undertaken to provide and, unless there has been a total failure of consideration or bad faith on the part of the adjudicator, the adjudicator would be entitled to payment pursuant to the relationship. He did not think that the earlier decision could be said to be binding on the adjudicator, as the adjudicator had not been a party to those proceedings.

Looking at the Scheme and the adjudicator’s terms and conditions, Mr. Justice Akenhead held that the bargained-for performance here was the provision of the role of adjudicator which covered not only the production of the decision but also the discharge of the remaining aspects of the role including the conduct of the adjudication leading up to the decision. He also noted that in construction contracts, “it is difficult wholly to avoid considerations of policy.” Adjudicators are eff ectively performing a statutory role in that an adjudicator is not merely being employed to produce a decision but also in broad terms to put into eff ect Parliament’s intentions. This meant that one should be “somewhat slower” to infer that what parties and adjudicators intended in their terms and conditions was something which excluded payment in circumstances where an adjudicator had done his honest best to perform their role as adjudicator, even if ultimately the decision is unenforceable. That said, the Judge cautioned that the position might well be diff erent if there was any suggestion of dishonesty or bad faith on the part of the adjudicator, not that this was suggested in any way here. Therefore, whilst there were here breaches of the rules of natural justice and the decisions issued were unenforceable by reason of the adjudicator’s honest and unwitting breaches of the rules of natural justice, the Judge concluded that:

It therefore follows from this reasoning that it cannot be said that there has here been a total failure of consideration by the Adjudicator in this case. As the breakdown of his timesheets indicate, he spent a not insignifi cant time dealing with jurisdictional objections raised by Harrington itself (which Harrington asked him to deal with), reviewing the Referral, the Response, the Reply and the Rejoinder and the very substantial amount of documentation and evidence attached to some of those documents as well as communicating with the parties. All of this was a partial discharge of his role as adjudicator. There has not been a “total” failure and the consideration or bargained-for performance is not “whole and indivisible” and there has been in eff ect at the very least partial performance by the Adjudicator.