Adjudicators get paid to make decisions where parties have a dispute that needs to be resolved. However, up until recently an adjudicator could expect to be paid even if the decision that was produced was unenforceable and therefore worthless. However, in the case of PC Harrington Contractors Ltd v. Systech International Limited  EWCA Civ 1371 the Court of Appeal had to decide whether an adjudicator could recover his fees in circumstances where the decision of that adjudicator was unenforceable by reason of a failure to comply with the rules of natural justice.
In this case, disputes arose between PC Harrington Contractors Limited (“PCH”) and its subcontractor, Tyroddy Construction Limited (“Tyroddy”). Adjudications were commenced to determine whether Tyroddy was entitled to the release of retention monies under a number of sub contracts.
The adjudicator was appointed and the adjudications were subject to the Scheme.
Breach of natural justice
PCH challenged the adjudicator’s jurisdiction arguing that it had been agreed between the parties to put payment of the retention monies on hold until the parties had resolved the issue of an alleged overpayment on another project. Despite this challenge the adjudicator concluded that he had been properly appointed and continued with the adjudication. PCH reserved its position on jurisdiction and as its principal defence claimed that no sums were due as Tyroddy had been overpaid by approximately £225,000. The adjudicator disagreed and decided retention monies were due to Tyroddy under each subcontract.
In the adjudication, the adjudicator failed to deal with PCH’s defence that no retention monies were due as PCH had overpaid. The adjudicator also ordered PCH to pay his fees of £18,144. Two further adjudications in relation to other projects followed in materially the same way with further adjudicator’s fees claimed of over £17,000.
PCH sought a declaration that the three decisions were not enforceable as the adjudicator had breached the rules of natural justice by failing to deal with the principal defence of PCH. The court agreed with PCH and did not enforce the decisions.
PCH argued that the adjudicator was not entitled to be paid his fee because:
- He failed to produce an enforceable decision; and
- He failed to perform the contracted service.
At first instance, Akenhead J rejected these arguments and decided that the adjudicator was entitled to his fees in all three adjudications. Akenhead J was of the view that the function of an adjudicator was not only to produce a decision but also to conduct the adjudication. The Court of Appeal disagreed and decided the adjudicator was not entitled to be paid any fees stating “The purpose of the appointment was to produce an enforceable decision which, for the time being, would resolve the dispute. A decision which was unenforceable was of no value to the parties”.
Make payment terms clear
There is no doubt that adjudication is a quick and effective tool to resolve disputes in the construction industry. However, those who have been involved in commencing or responding to an adjudication will appreciate that a significant amount of time and money needs to be invested into the process. If the final decision is unenforceable then these costs are wasted. This was recognised in the decision of the Court of Appeal where it was stated that an unenforceable decision “causes the parties to incur cost and suffer delay on a futile exercise”.
Following this decision adjudicators may consider altering their terms of appointment. An adjudicator who has issued an unenforceable decision will still have invested a significant amount of time in reaching that decision. As suggested in the judgment by Davis LJ, adjudicators may seek to incorporate provisions into their appointment stating that they will be paid even in the event that a decision proves to be unenforceable. However, any such term is likely to be resisted by both parties in an adjudication.
It is important to remember that the adjudication in this case was subject to the Scheme. The reasoning of the Court of Appeal focused on the wording of the Scheme and particularly the circumstances in which an adjudicator would or would not be entitled to fees. What impact this judgment will have on adjudications subject to different rules will very much depend on the wording of those rules. Where an adjudication is governed by other adjudication provisions, parties should carefully consider the terms. For certainty, and to avoid any expensive and time-consuming litigation, parties should ensure that their contract details the circumstances in which an adjudicator would or would not be entitled to his fees.