Practical Law

In the month since Lord Dyson’s judgment in PC Harrington v Systech was published, and I wrote a blog about it, there has been one subject on the lips of most adjudicators and those involved in adjudication (and it isn’t West Brom holding on to a Champion’s League place in the Premiership). Instead, it is the issue of a party’s liability for the adjudicator’s fees when he produces an unenforceable decision.

Talk of the town

Last week, I attended the Adjudication Society’s annual conference. While the main thrust of the day was the (lack of) impact of the Construction Act 1996 amendments on adjudication, as you might imagine, plenty of concern was expressed over coffee (and lunch) about Lord Dyson’s judgment. Equally, the subject came up at the TeCSA conference the week before, where Akenhead J was the keynote speaker. For anyone unfamiliar with the history in PC Harrington v Systech, it was Akenhead J’s first instance decision that the Court of Appeal overturned. I’m attending another event later this week, and I fully expect the case to be discussed there too!

The general sentiment from both events seemed to be concern that the Court of Appeal’s “entire agreement” analysis of an adjudicator’s appointment, leading to an enforceable decision, will be of wider application. Only time will tell how wide that “wider application” is. Akenhead J commented that it hadn’t been framed as an “entire agreement” before him, rather as a “total failure of consideration”.

For my part, I think that if the Court of Appeal had intended to limit its judgment to only breaches of the rules of natural justice that the parties are unaware of until the adjudicator’s decision is produced (which happened in the case before them), then they could have expressed themselves more clearly. Perhaps they think they did, by including reference to the principles in Linnett v Halliwells in paragraph 44 of Davis LJ’s judgment. Perhaps they think this was sufficient to say to parties that if you challenge jurisdiction (for whatever reason) and then continue to take part in the adjudication, you have an implied agreement to pay the adjudicator’s fees, regardless of whether that decision is enforceable. If that is the case, I’m not entirely sure how that sits with Lord Dyson’s entire agreement analysis. Did the Court of Appeal intend an entire agreement, except in certain circumstances?

“…first rough draft of history”

To borrow a phrase from Lord Woolman, where he compared adjudication to journalism, adjudication is only a provisional assessment of the parties dispute. Lord Dyson established this way back in 1999 in Macob v Morrison, when he said that Parliament had introduced a procedure that was meant to bind the parties provisionally “until the dispute is finally resolved”.

It is interesting looking at Macob again. I’d forgotten that Stephen Furst QC (who was representing the contractor, Morrison) argued that “decision” meant a “lawful and binding decision”. If the validity of the decision was challenged, then the decision was only enforceable and binding, when its validity had been determined. Dyson J (as he was then) didn’t accept this argument, since he said it would undermine the effectiveness of adjudication, it would “drive a coach and horses through the scheme”. The concept of “pay now, argue later” was born.

In Macob, the question was whether the court should enforce the adjudicator’s decision. In PC Harrington v Systech, the focus had shifted to the question of whether the adjudicator should be paid, if the decision proved to be unenforceable. Is that a case of “argue now, don’t pay later”?

What do others think?

In his Building article, Tony Bingham clearly disagreed with the Court of Appeal. He made the point that the Scheme for Construction Contracts 1998 makes no reference to “resolving” the parties’ dispute, simply that the adjudicator is appointed to make a decision. That is his promise or contract with the parties, regardless of whether it is enforceable or not. I’m not sure that an enforceable decision always “resolves” the parties’ dispute, but I can see where Tony is coming from. Equally, I can see that from the parties’ perspective, an unenforceable decision is pretty meaningless to them.

Jon Cope blogged last week about this judgment being limited to breaches of the rules of natural justice made by the adjudicator of his own volition. I agree with him, as does Andrew Kearney (in his comment on my blog). Many others have also said the same.

Should adjudicators be worried?

Given that the actual number of cases where a natural justice challenge has succeeded as a percentage of total adjudications over the last 14 years is very small, in reality I think the impact of Lord Dyson’s judgment may actually be quite limited, although I accept that the risk of not getting paid is slightly higher now.

In the meantime, it has given us all something to talk about.