If an adjudicator renders a decision which is unenforceable because he has made a critical mistake, is the adjudicator entitled to be paid his fees and expenses?  If the adjudicator has already been paid, can the parties (or a party) claim back those fees and expenses?  A decision of the TCC, handed down today, suggests that adjudicators are entitled to payment even if they have made serious errors which invalidate their decisions.

Systech v PC Harrington

The relevant facts were as follows:

  • There was a dispute between a subcontractor and a sub-subcontractor concerning the Wembley stadium project.  The dispute primarily concerned the return of retention money.  The sub-subcontractor referred this dispute to adjudication.  (There were disputes between the parties concerning other projects, but these need not be considered here).
  • In the adjudication the subcontractor contended, in its defence, that it was not obliged to repay the retention money, and that it had in fact overpaid the sub-subcontractor.
  • The adjudicator found in favour of the sub-subcontractor, and decided that the retention money claimed should be paid to it.  In doing so, however, the adjudicator expressly disregarded the subcontractor’s defence of overpayment, saying that it was a new dispute that he did not have jurisdiction to consider.  The adjudicator also decided that the unsuccessful subcontractor should pay his fees, which were a little under £20K.
  • The TCC subsequently decided that the adjudicator’s decision was unenforceable, because he had failed to afford natural justice by refusing to consider the subcontractor’s defence of overpayment.
  • Notwithstanding the unenforceability of his decision, the adjudicator sued the subcontractor for his fees.  The adjudicator relied upon his terms of engagement to act as adjudicator, to which both the subcontractor and the sub-subcontractor had agreed.  Those terms and conditions made the parties jointly and severally liable for paying the adjudicator’s fees, which were to be calculated on a time-charge basis for work performed.
  • The subcontractor (who was unsuccessful in the adjudication, but successful in the TCC) said it should not have to pay a penny of his fees because his decision was unenforceable, and therefore essentially worthless.  There had been a “total failure of consideration”.

Mr Justice Akenhead disagreed, and said that the adjudicator was entitled to be paid his fees by the subcontractor.  He said that there was not a “total failure of consideration”, because the adjudicator had undertaken a large measure of work in dealing with jurisdictional objections, reviewing documents and corresponding with the parties, notwithstanding that his decision was ultimately unenforceable.

“Total Failure of Consideration”

The legal expression “total failure of consideration” refers to where a party to a contract has not received any benefit under it, despite the other party possibly having done some work.  If there is a “total failure of consideration”, the other party is not entitled to payment for any work performed, and if payment has already been made, the first party is entitled to claim its money back.  Examples of where there might be a “total failure of consideration” include:

  • Where a bricklayer constructs a wall that is so structurally unsound that it requires demolition;
  • Where a designer prepares a design which vastly exceeds its client’s stated budget, so that the design cannot be used even if modified;
  • Where a person is engaged to perform work by a critical “drop dead” date, such as for the submission of a tender or a plan, and the work is culpably performed late so that the work product is of no use to the client.

Comment

The Construction Act has always made it perfectly clear that an adjudicator is not liable for anything done or not done in the purported discharge of his functions as adjudicator, unless the adjudicator acts in bad faith.  Adjudicators are therefore (like arbitrators) “immune from suit”.  But just because an adjudicator cannot be sued for damages, it does not follow that an adjudicator is entitled to be paid if his mistakes are so serious that his decision is unenforceable.  An adjudicator will not be entitled to payment if the work he has undertaken is truly worthless, so that there has been a “total failure of consideration”.

Although the decision in Systech v PC Harrington will give comfort to adjudicators whose decisions are held to be unenforceable in court proceedings, there is a real question as to whether an adjudicator who has rendered a seriously defective decision has provided anything of value to the parties.  On one view, there may be little difference between the bricklayer who builds a wall that needs demolition, and the adjudicator whose decision is unenforceable because of his own mistakes.  Both may have toiled, but their work product (i.e. the very thing they were engaged to provide) was worthless.  In both cases, is there not a “total failure of consideration”?

Reference

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