Adjudication was set up with the intent of providing parties within the construction
sector a fast and relatively cheap way of resolving disputes.
The amendments to the Construction Act brought about by the Local Democracy,
Economic Development and Construction Act 2009 means that virtually all
construction contracts entered into within the commercial sector, whether in writing
or not, now benefit from adjudication provisions. If the contract is silent then the
Scheme for Construction Contracts will imply adjudication provisions into the
contract.
Adjudication is not cheap. Adjudicators invariably charge between £200 and £275
per hour for their time. Historically there has been little scope to challenge their
fees. Adjudicators fees are not subject to detailed assessment as are solicitors
and barristers costs, but can only be challenged if they are unreasonable. A quite
ridiculous situation developed where adjudicators could deliver a substandard
decision that was unenforceable in the courts and yet still demand excessive fees for
delivering an unenforceable decision. The case reports are littered with cases in the
Technology and Construction Court where a judge has ruled the adjudicator’s decision
is unenforceable and yet the adjudicator has been entitled to recover his fee, often
upwards of £15,000. It is hard to think of another industry whereby somebody could
provide a wholly unsatisfactory service and yet still demand their fee.
The Court of Appeal case of PC Harrington Contractors Ltd v Systech International
Ltd [2012] EWCA 1371 (civ) finally redresses the balance.
The Court of Appeal stated that when the adjudicator issues a decision which is
unenforceable due to a breach of natural justice then the parties are not obliged to
pay the adjudicators fees. The Scheme for Construction Contracts does not provide
otherwise.
This, at first sight, is an excellent decision which hands back power to the parties to
an adjudication and prevent adjudicators securing a windfall when they have provided
a substandard decision, i.e. it means that a party no longer has to pay an adjudicator’s
fee if his decision is unenforceable.
The Court of Appeal decision can only be good news. It will force adjudicators to
up their game. It also restores some fairness in that the adjudicator cannot blindly
proceed with a case on the basis that he will be paid regardless of the quality of his
decision.
There are a couple points for parties to look out for. As was stated by Lord Justice
Davies, adjudicators could overcome this issue by incorporating into their terms a
provision that states their fees and expenses are payable regardless of whether or not a
decision was enforceable. However, there is no reason why parties should not decline
to accept such a provision and in this situation presumably the adjudicator will either
resign or proceed subject to this contractual amendment. Doubtless the market will
ultimately decide what happens in the future; one can certainly see that it would be
in the interests of all adjudicators to refuse to act as adjudicator unless their fees were
to be paid regardless of the enforceability of a decision, although perhaps the Unfair
Contract Terms Act 1977 would provide some relief in this situation.
What of those situations where a party has paid an adjudicators fees when the decision
was unenforceable? Will we see a spate of claims against adjudicators from aggrieved
parties trying to recover fees that were paid when fact they should not have been
paid? Due to the ramifications for the adjudicator’s profession doubtless any such
decision would find itself in the Court of Appeal. Therefore, it would be a brave
contractor to try to recover fees that have already been accounted for.
Taking everything into account, although the decision in PC Harrington is welcome
I am not yet sure that it will really have much significance other than perhaps
increasing the quality of adjudication and putting a stop to unscrupulous practices of
fee churning.
