There seems to be an increasing trend for adjudication to be used by financially strapped parties to bring unmeritorious claims, especially when they can prepare such claims in house.
There is little downside for them. If they are successful, against the odds, then their financial position is improved. If they lose, they have no money to pay the adjudicator’s fees. So the adjudication simply costs them their time in preparing the claim.
But what about the party against whom the adjudication is brought? They are left rather bruised by the whole experience – dragged through an adjudication process that has often been costly to defend, and in which they are successful, only to find they have to pick up the tab for the adjudicator’s fees.
This is because the adjudicator is usually entitled to ask either party to pay his fees. Although there is no reference to this in the Housing Grants, Construction and Regeneration Act 1996, the scheme for construction contracts stipulates that the parties will have joint and several liability for the adjudicator’s fees. The scheme is the adjudication procedure selected by the JCT 2005 suite of contracts.
If the party that the adjudicator has ordered to pay his fees cannot or will not pay, then it is up to the adjudicator which party he decides to pursue for his fees. He is likely to choose the more financially secure party.
The law as it stands offers little, if any, protection to a party caught in this position. Once it has paid the adjudicator’s fees, it could look to recover them from the other party, but that party may well be insolvent by that stage.
What can be done
Clearly it is right that adjudicators should receive payment for their work, but should that really be at the expense of a party who has successfully defended an unmeritorious adjudication? One solution is for adjudicators to have the right to demand security for their fees, either by way payment or by a form of security such as a bank guarantee.
As things stand at the moment, adjudicators have little opportunity to require such security, a situation supported by the courts to protect the quick timescales created by the Act.
These issues are not addressed by the amendments to the Act that are intended to come into force over the next few months. Perhaps they should have been.
Alexandra Price is a solicitor at national law firm Mills & Reeve