Understanding Adjudicators' Entitlement to Fees
It is a truth universally acknowledged that adjudication was instituted in order to promote cashflow ("the lifeblood of the industry") by providing a relatively cheap and quick mechanism for deciding construction disputes, albeit that the accepted compromise was that decisions, within the circumscribed time-frame of the process (usually 28 or 42 days) might be "rough and ready". The inability of a party to recover its costs, even if successful, was intended to assist in reducing expense. However, little was said by commentators, or in the legislation, about adjudicators’ fees which, it might be speculated, were assumed by the legislature not to be sufficiently significant to warrant specific attention. However, research by King's College London indicates that the most common fees charged (26%) were between £20,000 and £30,000, and 5% over £50,000. In a recent case, they were over £69,000 (and it is difficult to comprehend how such sums can accrue over the 28 or 42 day process). There have been comparatively few cases on adjudicators' fees, but they have started to accumulate.
Two cases are of particular interest. The first is Systech International v PC Harrington [2012] EWCA Civ 1371. In that case, the Adjudicator (employed by Systech) found, over three Adjudications, that monies were due to a Subcontractor (Tyroddy Construction) from PC Harrington. However, in doing so, he breached natural justice by failing to consider Harrington's principal defence. Harrington then succeeded in obtaining declarations that the Decisions were unenforceable. Systech nevertheless sought its fees from Harrington. The Court of Appeal decided he was no entitled to them. In effect, there had been a total failure of consideration. The parties, by tre-lateral contract, had bargained that the Adjudicator would make a binding Decision (whether or not the Decision accurately reflected the underlying merits).
That case is to be contrasted with Steve Ward Services (UK) Limited v Davies & Davies Associates Limited [2022] EWCA Civ 153. The facts are these. SWS entered into a construction contract regarding a restaurant in Stanmore. There was argument as to whether SWS’s (unsigned) contract was with Bhavishya Investment Limited, or Ms Vaishali Patel (a director and majority shareholder). SWS claimed against BIL for monies due under the contract, BIL arguing a set-off for defects. SWS issued a statutory demand, which it withdrew in the light of a defence, commenced one abortive adjudication, and then recommenced. Mr Davies was nominated as Adjudicator. At no point had BIL claimed not to be the contracting party. The adjudication was to take place according to the RICS Construction Industry Council Low Value Disputes Model for which a fixed fee would be charged of £6,000. On his own initiative, with no representation made by the parties, the Adjudicator decided that Ms Patel was the contracting party, notwithstanding BIL's arguments to the contrary, and despite Ms Patel's representative failing to address the issue at all. He then issued an invoice for £4,290 plus VAT.
BIL challenged the invoice both at first instance and in the Court of Appeal but was unsuccessful. In the Court of Appeal, it advanced a number of arguments.
BIL said that, as in Harrington, the adjudicator had bargained to decide the dispute. However, he had failed to do so and for the unjustifiable reason of deciding that the contract was with a third party - even though that point had never been argued by BIL. The Adjudicator's terms, incorporating the Low Value Dispute Model, were central to the Judgment. They provided that the Adjudicator could resign at any time, and that if the Low Value Dispute Model ceased to apply, he would charge at £325 per hour.
The Court of Appeal decided that SWS’s argument that BIL had waived the right to challenge jurisdiction had not been put to the Adjudicator in clear enough terms and, in any event, that issue was not clear cut (a conclusion which, on the facts, surprised SWS's legal representatives).
The Court also decided that, in refusing jurisdiction, the Adjudicator had not abandoned the Adjudication: he was entitled to resign by vitue of Paragraph 9(1) of the Scheme for Construction and Engineering Contracts and Paragraph 31 of the Low Value Dispute Model.
Further, despite the fact that the Adjudicator had resigned on the basis of an issue not argued by the parties, there was no total failure of consideration and that the resignation (and charge for reaching the decision) did not constitute ‘bad faith’ even within a narrow context of that principle.
Finally, the fact that the Adjudicator’s terms allowed for him to resign in these circumstances, and to charge a fee for reaching his decision (on the unadvanced jurisdictional point) did not offend the Unfair Contract terms Act 1977. Some practitioners may consider that the notion that a referring party, in the context of a 28/42 day adjudication, having just had an adjudicator nominated, is in a reasonable practical position to negotiate the adjudicator’s terms has an air of unreality about it.
As to costs, the Court remained unsympathetic to the Referring Party, for example allowing the Adjudicator £325 per hour for going to the post box.
In short, the Court decided that, on these terms, the Adjudicator was entitled unilaterally to raise a jurisdictional argument contended for by neither party, resign, and then make charges for making his decision which were disproportionate to the total sum allowed to be charged if he had proceeded to a substantive Decision. This emphasises the Court’s current policy of making the protection of the interests of adjudicators a priority.
This article is intended for information purposes only and provides a general overview of the relevant legal topic. It does not constitute legal advice and should not be relied upon as such. While we strive for accuracy, the law is subject to change, and we cannot guarantee that the information is current or applicable to specific circumstances. Costigan King accepts no liability for any reliance placed on this material. For further details concerning the subject of the article or for specific advice, please contact a member of our team.
Julian Critchlow
Construction Specialist
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