PC Harrington Contractors Ltd v Systech International Ltd

[2012] EWCA Civ 1371

We reported this case in Issue 137. Mr Justice Akenhead had decided that an adjudicator appointed pursuant to the Scheme was entitled to be paid when his decision had been ruled to be unenforceable because of a failure to comply with the rules of natural justice. The Judge noted that, as required by the Scheme, the adjudicator had carried out a number of activities, including producing a decision. Further there were policy reasons in favour of the adjudicator. The Judge said:

One should therefore be somewhat slower to infer that what parties and adjudicators intended in their unexceptionably worded contracts was something which excluded payment in circumstances in which the adjudicator has done his or her honest best in performing his or her role as an adjudicator, even if ultimately the decision is unenforceable. The position might well be different if there was to be any suggestion of dishonesty, fraud or bad faith …”

Harrington appealed, arguing that the adjudicator had failed to perform the service which he had contracted to perform. The CA, led by the Master of the Rolls, Lord Dyson, agreed.

The CA did agree that the Scheme imposes an obligation on the adjudicator to produce a decision within a short period. It also agreed that the adjudicator was obliged to perform some ancillary functions and entitled to perform others. He could not simply produce a decision out of the hat. However the question was not whether the adjudicator was obliged or entitled to take these steps. Rather it was whether he was entitled to be paid for those steps, if they led to an unenforceable decision. Here, the adjudicator’s terms of engagement had to be read together with the Scheme. The Scheme carefully defines the circumstances in which the adjudicator is entitled to be paid. For example, the purpose of paragraph 25 of the Scheme is to make it clear that an adjudicator cannot charge an unreasonably high fee. Lord Dyson noted:

I return to the question: what was the bargained-for performance? In my view, it was an enforceable decision. There is nothing in the contract to indicate that the parties agreed that they would pay for an unenforceable decision or that they would pay for the services performed by the adjudicator which were preparatory to the making of an unenforceable decision. The purpose of the appointment was to produce an enforceable decision which, for the time being, would resolve the dispute.”

A decision that was unenforceable was of no value. The parties would have to start again in order to achieve the enforceable decision which the adjudicator had contracted to produce. If the adjudicator’s appointment was revoked due to his default or misconduct, he is not entitled to any fees:

the making of a decision which is unenforceable by reason of a breach of the rules of natural justice is a “default” or “misconduct” on the part of the adjudicator. It is a serious failure to conduct the adjudication in a lawful manner.”

The CA considered the difference between arbitrators and adjudicators. First, an arbitral award is binding, subject to the supervisory jurisdiction of the court under sections 66-68 of the Arbitration Act 1996. Second, when ancillary functions are carried out by an arbitrator, they are binding and therefore the arbitrator gives value in performing them. Thirdly, an arbitrator has inherent jurisdiction to make a binding decision on the scope of his own jurisdiction. Finally, the CA considered the policy question:

I accept that the statutory provisions for adjudication reflect a Parliamentary intention to provide a scheme for a rough and ready temporary resolution of construction disputes. That is why the courts will enforce decisions, even where they can be shown to be wrong on the facts or in law. An erroneous decision is nevertheless an enforceable decision within the meaning of the 1996 Act and the Scheme. But a decision which is unenforceable because the adjudicator had no jurisdiction to make it or because it was made in breach of the rules of natural justice is quite another matter.”

Such a decision does not further the statutory policy of encouraging the parties to a construction contract to refer their disputes for temporary resolution. It has the opposite effect. It causes the parties to incur cost and suffer delay. The CA stressed that what mattered was what the contractual arrangements between the parties actually said. Here, the adjudicator had not produced an (enforceable) decision which determined the matters in dispute. This was what his contract had required of him before his entitlement to fees arose.

Finally, the CA noted that if their decision did give rise to concerns on the part of adjudicators then the solution was:

in the market-place: to incorporate into their Terms of Engagement (if the parties to the adjudication are prepared to agree) a provision covering payment of their fees and expenses in the event of a decision not being delivered or proving to be unenforceable.”