REUTERS | Petar Kujundzic

Reasonableness of adjudicator’s fees – a victory for common sense

In adjudication there is always the potential of the losing party who is, probably, liable for some if not all of the adjudicator’s fees, trying to avoid paying those fees. If the losing party can dress that up as a challenge to the reasonableness of the fee they are being asked to pay, the more likely they will make the challenge.

Therefore, I was pleased to see the judgment in Fenice v Jerram Falkus which, I believe, reinforces the previously held view that the courts are unlikely to find that an adjudicator’s fees (both the hourly rate and time spent) are unreasonable.

Reasonableness under the Scheme

Paragraph 25 of the Scheme for Construction Contracts 1998 provides that an adjudicator is entitled to payment of “such reasonable amount as he may determine by way of fees and expenses”. That seems to be a straightforward starting point.

Liability for the fees

Things became even more straightforward in February 2009 with the judgment in Linnett v Halliwells, which confirmed that in the absence of an express agreement, there is an implied agreement between the adjudicator and a party, even if that party hasn’t signed the adjudicator’s terms and conditions of appointment, provided that party takes part in the adjudication. This applies even if that party challenges the adjudicator’s jurisdiction.

This agreement implied by conduct is a very important principle, and it has helped adjudicators when trying to recover their fees.

What about the Fenice judgment?

In my opinion, the judgment in Fenice will provide further assistance to adjudicators trying to recover their fees. In particular, HHJ Waksman QC very helpfully set out the court’s approach when dealing with a claim for an adjudicator’s fees, and made clear that the court is unlikely to interfere (see paragraphs 33-36, judgment). For example:

  • Provided the adjudicator has explained how the fees were made up by reference to rates, hours worked and a summary of what was done, the evidential burden is on the defendant to make out at least a prima facie case that the fees are unreasonable.
  • A considerable “margin of appreciation” will be given to the adjudicator as the work has to be done at considerable speed. Also, different adjudicators may approach tasks in different ways.
  • The court acknowledged that hourly rates can vary considerably and the seniority and experience of the adjudicator concerned is a relevant factor.
  • The court concluded that in the usual run of cases there was unlikely to be any realistic basis for disputing the fees claimed.

The court found that there was no real prospect of the adjudicator’s hourly rate of £350 being held unreasonable and, amongst other things, it relied on the fact that the adjudicator, Dr Franco Mastrandrea, is a barrister, senior chartered surveyor, chartered arbitrator and experienced adjudicator. It also noted that a similar fee had been charged in two previous adjudications between the same parties.

After lengthy analysis, the court also found that the time spent by the adjudicator was reasonable. (In my experience, the total fee of an adjudicator with a higher hourly rate is often less than those with lower hourly rates as a more experienced adjudicator can deal with matters more efficiently.)

Guidance on what to do if it happens to you

The court looked at how the adjudicator’s case had been set out in draft pleadings (paragraphs 12, 17 and 18). I found this section of the judgment helpful and it is definitely something to note for the future, if I ever I find myself in a similar position to this adjudicator.

It isn’t clear why the adjudicator didn’t just sue both parties from the outset, rather than entering into protracted correspondence with the parties, but you could say he got his man in the end. The judgment suggests parties should act quickly (after all, Fenice was penalised for the delay by not recovering all its costs), and that could easily apply to the adjudicator’s actions too.

Conclusion

I don’t think this judgment will lead to a flurry of disputes concerning adjudicator’s fee because it is clear that parties will have a tough job demonstrating that they are unreasonable. Common sense really…

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