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Recovery of an adjudicator’s fees

As much as I love dispute resolving, whether that is adjudicating, arbitrating or mediating, this is not an altruistic endeavour of mine and, just like everyone else, one of the objectives is to be rewarded financially as a return on the investment of the time devoted to the process.

I’m sure I’m not alone in saying that I would prefer not to have to take steps to recover fees incurred by the parties. Therefore, I understand fully where the adjudicator in Davies & Davies Associates Ltd v Steve Ward Services (UK) Ltd was coming from when he sued for his unpaid fees.

It is a case that gave rise to a number of interesting points as you’ll discover if you read on. 

Recovering your fees

Much has been written over the years about adjudicators’ fees. First we had the debate about an adjudicator’s lien (which we lost), then there was all the kafuffle over Tolent clauses (which section 108A was supposed to draw to a close) and, finally, the question of whether adjudicators should be paid regardless of whether our decisions are enforceable (and enforced) by the courts. The Court of Appeal brought this last point to a close in PC Harrington Contractors Ltd v Systech International Ltd with a resounding no (at least for cases involving a breach of the rules of natural justice).

Since then, I know many adjudicators who have adopted Davis LJ’s suggestion (in Systech) and included provision for this in their terms and conditions of appointment. It is worth reminding everyone what the judge said:

“… if this decision does give rise to concerns on the part of adjudicators then the solution is in the market-place: to incorporate into their Terms of Engagement (if the parties to the adjudication are prepared to agree) a provision covering payment of their fees and expenses in the event of a decision not being delivered or proving to be unenforceable. It is of course a consequence of this court’s conclusion that it is for the adjudicator to stipulate for such a term: not for the parties to the adjudication to stipulate to the contrary.”

I’m sure you are all familiar with this type of clause. Ultimately, it was such a clause that helped the adjudicator in Davies & Davies Associates Ltd v Steve Ward Services (UK) Ltd.

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

The details of the underlying dispute are relevant only insofar as they explain how the situation arose in the first place.

The defendant (SWS) was employed to carry out building works at the Funky Brownz restaurant in Stanmore, North London. A dispute arose over the works – whether they 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. Unfortunately, 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). This adjudication proceeded until the adjudicator decided to resign (again). He said he lacked jurisdiction because he’d concluded that SWS’s contract was with Ms Patel, rather than the responding party (Bhavishya Investment Ltd (BIL)).

The adjudicator had been 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 everyone went.

Roger ter Haar QC’s judgment

Roger ter Haar QC (sitting as a deputy High Court judge) decided that the amount being charged by the adjudicator was not excessive and the adjudicator was entitled to his fee. He also held that the Systech clause in the adjudicator’s contract was not UCTA unreasonable.

How did we get to this point?

Adjudicator’s threshold jurisdiction

The issue was whether the adjudicator should have resigned in circumstances where neither party had raised a jurisdictional challenge over who the correct contracting parties were. Clearly the adjudicator took the view that it was SWS and Ms Patel and not SWS and BIL, but was he right to make this decision in the absence of any submissions on the point?

Although the judge touched on whether BIL may have waived the jurisdictional point (by not raising it during the adjudication, it would not be entitled to raise it after a decision had been issued), he appeared less sure whether the adjudicator had:

 “… a roving commission to identify, formulate and decide the reference on the basis of new and fundamental issues neither party raises nor adopts despite invitation.”

He accepted that an adjudicator has the power to take the initiative (under paragraph 13 of the Scheme) as well as avoiding unnecessary expense (under paragraph 12 of the Scheme), which is what this adjudicator thought he was doing. However:

“… it would have been wiser for the Adjudicator not only to inquire as to the parties’ position as to who were the contracting parties, but also to inquire in terms as to whether both parties accepted that he had jurisdiction. However he did not do that.”

The judge concluded that what the adjudicator did was erroneous and went beyond the ambit of paragraph 13 of the Scheme: that empowered him to investigate matters “necessary to determine the dispute” but, when he resigned, there was no dispute as to the identity of the contracting parties or his jurisdiction. However, the adjudicator acted in accordance with what he regarded as his duty and did not breach the terms of his engagement because paragraph 9 of the Scheme permits an adjudicator to resign at any time.

What did the adjudicator’s T’s and C’s say?

The Systech clause was as follows:

“The Parties agree jointly and severally to pay the Adjudicator’s fees and expenses as set out in this Schedule. Save for any act of bad faith by the Adjudicator, the Adjudicator shall also be entitled to payment of his fees and expenses in the event that the Decision is not delivered and/or proves unenforceable.”

The judge held that this should be interpreted as meaning that the adjudicator was entitled to be paid unless there was bad faith. However, an adjudicator could not be acting in bad faith if “with diligence and honesty” he concluded that it was right to resign and exercised his rights under paragraph 9 of the Scheme.

UCTA 1977

I thought the UCTA point was an interesting one, and not one I recall seeing before. As the judge noted:

  • Paragraph 9 of the Scheme for Construction Contracts 1998 allows an adjudicator to resign at any time – it is an unfettered right.
  • Although the Systech clause was in the adjudicator’s standard terms and conditions, it was only concerned with payment. It was not concerned with performance, which section 3 of UCTA 1977 is concerned with.
  • This type of provision is commonly found in adjudicators’ terms and conditions because of David LJ’s judgment in Systech, and is something that the Court of Appeal felt was commercially acceptable.
  • Parties are free to agree terms and conditions and could reject this type of clause, but that isn’t what happened here.

That all seems very straightforward, unlike the point about the adjudicator declining jurisdiction, which the judge had described as not an “easy point”.

What do I take from this?

I understand there is a school of thought that says the principles of natural justice do not apply to questions of jurisdiction (in contrast to substantive issues). However, I would suggest that it would be prudent to follow the judge’s advice and make enquiries of the parties before you do something that the parties haven’t asked you to do even if it relates to jurisdiction.

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