Are adjudicators’ fees payable if his decision is unenforceable? This issue came before the Court of Appeal in October this year.
The case was Systech International Ltd v PC Harrington Contractors Ltd. The case is important because it will be of potential relevance whenever an adjudicator’s decision is found to be unenforceable.
Background to the case
PC Harrington had refused to pay its subcontractor (Tyroddy) its retention monies under three contracts.
Tyroddy commenced three adjudications to recover the retention monies from those three contracts, which had been completed some years earlier.
The first decision
The adjudicator, whose employer was Systech International, decided that the retention monies on all three contracts should be released to Tyroddy.
PC Harrington objected on the grounds that the adjudicator had failed to take into account part of its defence, and brought Part 8 proceedings (whereby a claimant can seek the court’s decision on a question which is unlikely to involve a substantial dispute of fact). It argued the decisions were unenforceable.
As the adjudicator had not been paid, Systech (the adjudicator’s employer) then sued PC Harrington for the adjudicator’s outstanding fees of £22,000 (Tyroddy had ceased trading).
The judge ruled that the fees must be paid, even though the decisions were not enforceable. This was on the basis that his role covered not just the decision but also the work involved in the run up to the decision.
PC Harrington appealed and the Court of Appeal found in their favour. It held that the adjudicator was not entitled to his fees because his decision was unenforceable. The statutory Scheme for Construction Contracts was key to the appeal, together with the adjudicator’s own terms and conditions.
What the decision means
The Court of Appeal’s decision will be welcomed by those in the construction sector, at least by those who use the process.
Adjudicators will, understandably, be less happy with it. But it should ensure that even greater consideration is given to jurisdictional issues when they are raised.
Adjudication is now the almost default option for resolving disputes where negotiations break down. It has been a source of considerable concern in the construction sector that an adjudicator’s fees are payable even if his decision is unenforceable.
“The Court of Appeal’s decision will be welcomed by those in the construction sector”
From the referring party’s standpoint, the adjudication will have been an expensive but worthless exercise. The respondent will say he did not commence the process in the first place, so why should he pay for an unenforceable decision.
It is likely that adjudicators will now amend their standard terms to state that they are entitled to be paid even if their decision is held to be unenforceable.
It remains to be seen whether parties will agree to such terms, and if they do, whether such a clause may yet be challenged as unenforceable under the Unfair Contract Terms Act.
Stuart Thwaites is senior associate in the construction and engineering department at Wright Hassall
Liability for adjudicators' fees: background and the case