REUTERS | Petar Kujundzic

Adjudicator wrong on jurisdiction, again

I’ve lost track of how many times, over the last four years, that I’ve said it is tough being an adjudicator, given the pressures that are on us. With that in mind, it doesn’t surprise me when I read a judgment, only to discover the adjudicator did something that means his decision is not enforced.

In the latest instalment before the TCC in Leeds, HHJ Behrens said the adjudicator’s decision on his jurisdiction was wrong. I suppose it makes a change to finding that the adjudicator breached the rules of natural justice, although the end result is the same for the parties involved.

Clark Electrical v JMD Developments

In Clark Electrical v JMD Developments, the adjudicator, Mr Lawless, had to decide whether he had jurisdiction to deal with the parties’ dispute, given there was a debate over whether the parties’ contract was excluded under section 105(2) of the Construction Act 1996 and there was no contractual adjudication provision.

In a 41-page decision on jurisdiction, which the adjudicator accepted was non-binding on the parties, he found that he did have jurisdiction to act because there was an “ad-hoc arbitration agreement arising out of the payment of the £6,000 by both parties”. He found the parties’ agreement to adjudicate was contained in the letter of 5 March 2012 he had sent setting out his terms and conditions of appointment (which had been made by the CIC) and the parties’ subsequent payment of £6,000 each as security for his costs. He also agreed with the responding party (JMD) that the parties’ contract was excluded under section 105(c)(ii) of the Construction Act 1996.

Ultimately the court disagreed with the adjudicator, just as the responding party did at the time, when it indicated that it reserved its position to challenge the adjudicator’s jurisdiction and withdrew from the process. The adjudicator subsequently found for the referring party, in his decision issued just a few days later.

An ad-hoc agreement to adjudicate

The judgment throws up a number of issues, but the one that stands out is the adjudicator’s finding that there was an ad-hoc agreement based purely on the payment of a fee as security for his costs.

While I wouldn’t like to second-guess why the adjudicator reached this finding, it is interesting that the judgment refers to the fact that the parties themselves did not argue that there was such an agreement (paragraph 18). They focused their efforts on the statutory exclusion. However, when it came to the enforcement proceedings, the referring party switched tack, and relied on the payment, suggesting that the responding party had “submitted to the adjudicator’s jurisdiction in the full sense” by making payment and sending a letter, dated 7 March 2012. Obviously the court disagreed.

It’s always difficult when an adjudicator is faced with jurisdictional questions, but sometimes it is safer for the adjudicator to resign, rather than continuing and getting it wrong. This is especially so in a case like Clark v JMD, where the basis for the adjudication agreement is less than clear.

Security for fees

Another point this judgment highlights is security for fees. While there is nothing to prevent an adjudicator from asking the parties for an up-front payment as security for his fees, it is not something that sits easily with me. I accept that it can be included in an adjudicator’s agreement, but what happens if one or both parties either overlook or actively refuse to pay? It may leave the adjudicator exposed to an allegation of bias down the line: “you didn’t like me and found against me because I refused to pay your fee”.

The RICS doesn’t actually tell adjudicators not to ask for an appointment fee or payment of fees in advance (as security), but says it is something that they do not endorse. They go on to say it is unacceptable to make such a payment conditional on starting work as an adjudicator. I’d add to that, and go as far as saying that it is likely to put the adjudicator in breach of the Construction Act 1996 and the Scheme for Construction Contracts 1998 if he refused to act until payment had been made. It would be akin to trying to exercise a lien over the decision, which we all know adjudicators can’t do. However, RICS is more relaxed about interim applications for payment, stating those are acceptable, particularly in long-running adjudications.

What the judgment doesn’t explain is why the responding party paid the sum requested, when it didn’t know anything about adjudication and was unrepresented. Had they not done so, perhaps much of what followed could have been avoided. Isn’t hindsight a wonderful thing!

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