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TCC considers the impact that paying an adjudicator’s fees has on jurisdictional challenges

Fraser J is the latest High Court judge appointed to the TCC. His judgment in Science and Technology Facilities Council v MW High Tech Projects UK Ltd was one of the first that he handed down and the first one that I have written about.

It is good to see a fresh face in the TCC. With the retirement of both Ramsey J and Akenhead J, he is a much needed addition to the judgely fold. While some solicitors will be disappointed to have seen him move up to the bench (because they have lost an outstanding advocate), no doubt he’ll be an asset to it. 

Science and Technology Facilities Council v MW High Tech Projects UK Ltd

I think that there are two interesting points to come out of this case. One concerns the impact on MW High Tech’s jurisdictional challenges of paying the adjudicator’s fees, the other whether the contract complied with the Construction Act 1996. Before looking at those points, it is worth recapping on the relevant facts.

Background

The parties’ contract was based on the GC/Works Design and Build (1998) standard form, with amendment 1 (2000), with a schedule of supplementary conditions. It was dated 20 October 2009.

A dispute arose over MW High Tech’s entitlement to an extension of time for completion of the works and the amount of liquidated damages that were said to be payable to S&T for the delay to completion. In November 2014, S&T referred this dispute to adjudication.

In December 2014, the adjudicator, Mr John Redmond, issued two decisions:

  • On the substantive dispute, he decided that S&T was entitled to £232,000 plus interest.
  • With regard to costs, he decided that MW High Tech should pay £30,500 towards S&T’s costs of the adjudication. He also allocated his costs between the parties, with MW High Tech paying the larger part.

The adjudicator had previously dealt with MW High Tech’s jurisdictional challenges, issuing written decisions on each one.

The impact of paying the adjudicator’s fees

One of the issues the court had to deal with was the impact of MW High Tech paying the adjudicator’s fees without expressly reserving its position when it did so. (It had made a general jurisdictional reservation when the notice of adjudication was first served on it in November 2014.) Here the payment had been made by BACS transfer, so there was no covering letter explaining the basis upon which payment was made.

Such behaviour can be fatal. In Wales And West Utilities Ltd v PPS Pipeline Systems GmbH, Akenhead J held that because the employer had paid without reservation the full amount awarded by the third adjudicator (plus his fees), it had elected to accept the third decision as valid and could not challenge it in enforcement proceedings. The court relied on the judgments in Shimizu v Automajor and PT Building Services v ROK Build.

When reviewing this issue, Fraser J distinguished PT Building Services v ROK on its facts, finding that to have elected a particular course, a party had to take a benefit. On the facts in PT, the payment of fees did not amount to a benefit (although treating the first adjudicator’s decision as valid in the second adjudication was considered a benefit). Those factual components were not present in this case.

Furthermore, here the adjudicator’s terms and conditions included clause 3, a clause known by some as a “PC Harrington v Systech clause“. This clause provided that:

“My fees will be payable notwithstanding that my decision is subsequently found by a court to be unenforceable by reason of lack of jurisdiction.”

Fraser J rejected the argument that MW High Tech could not rely on clause 3 because it had not expressly accepted the adjudicator’s terms and conditions. It was enough to signify acceptance of the adjudicator’s terms by conduct, and that is what happened here (Linnett v Halliwells LLP). Consequently, MW High Tech could challenge jurisdiction regardless of whether (or how) it paid the adjudicator’s fees.

While such clauses have proved to be unpopular with some parties, on this occasion MW High Tech benefited from it. Perhaps we will now see parties’ objections to such clauses fall away.

Were the contract’s adjudication provisions Act compliant?

The second interesting point is the question of whether the contract’s adjudication provisions complied with section 108 of the Construction Act 1996. If not, this meant the Scheme for Construction Contracts 1998 applied and the adjudicator’s appointment had been made under the wrong set of provisions.

Fraser J confirmed that he agreed with Edwards-Stuart J in Twintec Ltd v Volkerfitzpatrick Ltd that, in such circumstances, an adjudicator’s decision will not be enforceable.

I have to say that this makes me somewhat uncomfortable. The parties can spend a considerable amount of time and resources adjudicating a dispute only to find it is unenforceable simply because the appointment was made under the contract rather than the Scheme. This may be the case despite the fact that the same adjudicator nominating body (ANB) was available and the adjudicator’s decision would have been exactly the same.

Anyway, back to my second point.

Fraser J decided the contract complied with the requirements of the Construction Act 1996, which is not altogether unsurprising given that it was a standard form. Fraser J said that MW High Tech had been “scrabbling around” trying to find reasons not to comply with the adjudicator’s two decisions, and was clearly unimpressed with what he described as:

“highly technical and wholly hypothetical jurisdictional challenges.”

Is it worth fighting enforcement?

I think that the lesson here is to try and appreciate what is worth fighting, and what is not. By “scrabbling around” and avoiding enforcement, all MW High Tech has gained is a higher costs bill. Why not pay what the adjudicator decided was due to S&T and then start proceedings for the dispute to be heard again in litigation or arbitration? Although, having said that, given that this was a decision by a very well respected and highly competent adjudicator, the chances of the conclusion being different are not high.

MCMS Ltd Jonathan Cope

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