Practical Law

Last year I wrote about the judgment in Davies & Davies Associates Ltd v Steve Ward Services (UK) Ltd, where Roger ter Haar QC (sitting as a deputy High Court judge) granted summary judgment on a claim for payment of an adjudicator’s fees and expenses arising from an adjudication in which the adjudicator resigned prior to issuing a decision.

The matter has now come before the Court of Appeal in Steve Ward Services (UK) Ltd v Davies & Davies Associates Ltd, with Coulson LJ giving the leading judgment. The court upheld the first instance decision and also allowed the adjudicator’s cross-appeal, finding that the judge was wrong to suggest the adjudicator’s decision to resign was erroneous or that he went outside the ambit of paragraph 13 of the Scheme for Construction Contracts 1998.

I think Coulson LJ’s judgment makes some interesting points.

Steve Ward Services (UK) Ltd v Davies & Davies Associates Ltd

I explained the background last time but just so you don’t need to switch to that post, the key facts are as follows:

• Steve Ward Services (UK) Ltd (SWS) was employed to carry out building works at the Funky Brownz restaurant in Stanmore, North London.
• A dispute arose over whether the works were complete and defect free. SWS did not get paid and tried to recover the money it said it was owed via a statutory demand (which it withdrew), before proceeding down the adjudication route. The first adjudication didn’t get very far as the timing of the adjudication notice and the application to the ANB meant the adjudicator lacked jurisdiction and he resigned.
• Second time around, the paperwork was sent in the correct order and the same adjudicator was appointed (properly this time).
• The adjudication proceeded until the adjudicator decided to resign again. This time, he had concluded that he lacked jurisdiction because he’d decided that SWS’s contract was with Ms Patel, rather than the responding party (Bhavishya Investment Ltd (BIL)).
• The adjudicator was paid for just under two hours of time in relation to the first failed adjudication. He claimed for just over 13 hours of time in relation to the second adjudication. This time, SWS refused to pay and off to court the adjudicator went to claim his fees.
• In the TCC, Roger ter Haar QC (sitting as a deputy High Court judge) granted summary judgment on the adjudicator’s claim for payment of his fees and expenses. SWS appealed that decision.

Court of Appeal’s judgment

Coulson LJ upheld the first instance decision that the adjudicator was entitled to resign. The adjudicator could rely on paragraph 9(1) of the Scheme for Construction Contracts 1998 and resign at any time. This was an unqualified entitlement and did not require the resignation to be for “good cause”. However, as paragraph 9(1) was silent on payment of fees, this came down to why the adjudicator resigned (was there default or misconduct  or bad faith) and the terms of his appointment.

Did the adjudicator have good cause to resign?

Yes, “in the circumstances of this case”, the adjudicator was entitled to decline jurisdiction and resign. Thus, “he had good cause to do what he did”.

Coulson LJ felt the adjudicator had spotted a “real issue as to jurisdiction” that went to the “viability of the entire adjudication”. In those circumstances, the adjudicator should not say nothing and “proceed solemnly to the end of the process leaving the point to any disputed enforcement hearing”.

Also, paragraph 13 of the Scheme for Construction Contracts 1998 allows an adjudicator to investigate matters “necessary to determine the dispute”. If the adjudicator deems it necessary to consider whether they have jurisdiction to determine the dispute, then they are bound to consider that issue and they should raise it with the parties. Paragraph 13 gives an adjudicator the express power to raise points with the parties even if they have not raised them with the adjudicator:

“It would strike at the heart of an efficient system of adjudication and adjudication enforcement if adjudicators were encouraged to believe that they must stay silent when they spot a potential jurisdictional problem, and wait for the parties to raise it before considering it themselves. In my view, it would be when an adjudicator took this ‘ostrich’ option, and the jurisdictional challenge was subsequently successful such that enforcement was refused, that an unsuccessful claimant would have a better argument that the adjudicator should not recover his or her fees, because they should have pointed out the jurisdictional problem when they first spotted it.”

Coulson LJ noted that, at first instance, the judge had suggested it would have been wiser for the adjudicator to have asked the parties’ about jurisdiction before he resigned. He agreed with this observation and suggested the adjudicator should have given the parties a final warning that:

“… unless there was an unequivocal acceptance of his jurisdiction and the binding nature of any decision he produced, he would resign.”

However, the adjudicator’s “diligence and honesty were palpable” and he was entitled to decline jurisdiction under paragraph 13 of the Scheme.

Did the adjudicator act in bad faith?

No, there was no bad faith and the adjudicator was entitled to be paid. Coulson LJ said that a finding of bad faith:

“… must involve some form of unconscionable or deliberately unacceptable conduct on the part of the adjudicator. It is more serious than simple default.”

He went on:

“An adjudicator may be guilty of default or misconduct because, as in PC Harrington, he conducts the adjudication in such a way that the parties end up with an unenforceable decision. But that default or misconduct may have been wholly inadvertent on his part: there was no suggestion in PC Harrington that the adjudicator had deliberately misconducted himself or was guilty of acting in bad faith.”

The difference between misconduct and bad faith is also reflected in paragraph 26 of the Scheme for Construction Contracts 1998, where liability for the adjudicator’s acts or omissions is excluded, unless there is also bad faith:

“That makes it plain that bad faith is more serious than simple default or misconduct, and therefore there is a higher threshold before it can be established. This difference also explains why, in the present case, Mr Davies drafted a clause which sought to ameliorate the result in PC Harrington , so the parties could not avoid the payment of his fees on the basis of an inadvertent mistake on his part.”

As the adjudicator was not guilty of default or misconduct, he certainly was not guilty of bad faith. The correspondence with the parties showed the adjudicator had tried to get answers to his questions and had failed. He did not depart from “normative conduct” or act in a way that was contrary to his bargain with the parties. Rather, if anything, he was more faithful to that bargain than they were as he identified a “real point” they had missed.

Were the adjudicator’s reasons for resigning erroneous?

No. Coulson LJ allowed the adjudicator’s cross-appeal, finding that the adjudicator’s decision to resign was not “erroneous”, and the judge at first instance was wrong to say it was.

What do I take from this?

Like I said last time, adjudicators should follow the judge’s advice and make enquiries of the parties before they do something that the parties haven’t asked them to do, even if it relates to jurisdiction. If they plan to resign, they should go further and (as Coulson LJ suggested) should give that final warning. As I often say, we are damned if we do, and damned if we don’t!