REUTERS | Mike Blake

The reasonableness of the adjudicator’s fee

What happens when one party refuses to pay the adjudicator and challenges the reasonableness of his fees?

Let’s take a fairly common scenario. Parties A and B are contractor and sub-contractor respectively. They are engaged on a construction project and, when a dispute arises, it is referred to adjudication. Mr X is approached to be the adjudicator and he sends the parties a letter enclosing his terms and conditions, including his hourly rate for the appointment. The adjudication is based on the Scheme for Construction Contracts 1998.

Before the referral notice is served, B (the responding party) raises a jurisdictional challenge, which the adjudicator rejects. B maintains that challenge but takes part in the adjudication process, vigorously fighting its corner. Meanwhile, A (the referring party) accepts the adjudicator’s appointment but, because of the jurisdictional challenge, B never responds to the adjudicator’s appointment letter.

Several months later, the adjudicator is still waiting to be paid. He found in favour of A at the adjudication and decided that B should pay his fees and expenses. B is refusing to pay the adjudicator, arguing that there is no contract with the adjudicator. Mr X decides to sue B (he can’t sue A, as it has gone into liquidation in the interim).

There are two cases relevant to this scenario:

  • In Linnett v Halliwells LLP, Ramsey J gave clear guidance that both parties will be jointly and severally liable for the adjudicator’s reasonable fees and expenses, even if they do not sign the adjudicator’s terms and conditions of appointment and maintain a jurisdictional challenge. Only if the responding party challenges jurisdiction and immediately withdraws from the adjudication, will it escape this liability.
  • in Fenice Investments v Jerram Falkus, HHJ Waksman QC expanded on that principle. The employer had signed and returned the letter but the contractor (like B in my example) had not. However, the court held it had an agreement implied by conduct (that is, by participating in the adjudication). That agreement contained an implied term that the contractor would pay the adjudicator’s reasonable fees. That meant there was an express and an implied agreement with the adjudicator, and the parties were jointly and severally liable for payment of a reasonable fee.

It’s about the reasonableness of the fee

In both Linnett and Fenice, the court held that the parties’ obligation to pay was to pay a reasonable fee. In Fenice the court said that, in practice, the agreed fee was likely to be the same as a reasonable fee. But what happens when there is no agreed fee and a party (like party B) challenges the reasonableness of the adjudicator’s fees?

The emphasis on “reasonable” is derived from paragraph 25 of the Scheme, which provides that the adjudicator is:

“…entitled to the payment of such reasonable amount as he may determine by way of fees and expenses reasonably incurred by him.”

That sounds like a two-stage test to me: a reasonable amount for fees but those fees have to be reasonably incurred.

A claim for an adjudicator’s reasonable fee is, effectively, the same as a quantum meruit claim, and I have seen it argued this way. Those of us involved in the construction world are familiar with quantum meruit claims, as they crop up all the time, usually when one party says there is no fixed price for the extra work that has been done or the parties’ agreement never got as far as including essential terms like price before work started.

A fair commercial rate or the market rate may be easy to establish if you are looking at the price of bricks or the cost of a scaffold, but how do you establish that an adjudicator’s fees or hourly rate is reasonable, that it is the market rate?

How do you ensure the fee or rate is reasonable?

I have seen it suggested that to establish that a fee is reasonable (part one of my two-stage test), an adjudicator must go beyond simply saying “my fee is a reasonable amount for the professional services provided”. How does an adjudicator do that when there are no published guidelines indicating what adjudicators should charge?

While fees and rates are not necessarily in the public domain, one way to do this would be to provide evidence of adjudicators’ charge out rates with details of their corresponding level of experience and qualifications. This would help establish whether a particular charge out rate fell within a range and/or was comparable with adjudicators of a similar level of experience or level of qualifications.

If there is a two-stage test, part one could be difficult to establish. However, I think the second part – how much was done – is easier. An adjudicator should keep records of the time he spends on an adjudication. It is important to keep contemporaneous notes of how that time is spent, as well as retaining documents and other communications to justify the time spent. An adjudicator should also keep a mindful eye on the sum in dispute and the significance of the dispute to the parties, adopting a proportionate involvement commensurate with those factors. He should also be willing to justify his involvement, if necessary.

From time to time I have been asked to provide a breakdown of how I spent my time on an adjudication, with an explanation of what was done and when. An adjudicator should always be able to do this. After all, if you can justify the time spent, even if initially the hourly rate looks high, the overall fee may not. As I’ve said before:

“I think it is fair to say that, on the whole, a higher hourly rate should reflect an individual’s greater experience. With that, you anticipate that the individual will spend less time on a matter than a less experienced individual with a lower hourly rate.”

2 thoughts on “The reasonableness of the adjudicator’s fee

  1. I find your blogs very interesting and informative however I feel compelled to make the observation that Adjudicators’ hourly rates have escalated out of all proportion to any indices that apply to the construction industry; or the UK economy, as a whole, over the last 10 years.

    Whilst there is some merit in the old adage that “you only get what you pay for”, my experience is that some adjudicators are charging hourly rates nearing £400 per hour (which, pro-rata, are way in excess of the maximum daily rate of £1,750 set by TeCSA, for instance); and the quality of their decisions are no better (and sometimes significantly poorer) than adjudicators charging circa £200 per hour.

    No matter how good an adjudicator may perceive him or herself to be, it still requires time to properly read and digest the content of submissions to ensure relevant points and arguments are not overlooked.

    Parties who are in dispute and place their dispute in the hands of a single individual are entitled to expect that individual to give it the due time that it requires in order to reach a fair and proper decision. There is nothing worse for a party (particularly one that is not involved in adjudications on a regular basis) to receive a decision that does not appear to have had the necessary time devoted to it (particularly if a high hourly rate has been charged).

    I believe that the parties (who are effectively the paying client) deserve; and would much rather have a decision (even though not in their favour) that shows that the adjudicator has actually grasped and dealt with all the issues (and got into the detail), which is reflected in his reasoning. Rather than a decision that has the appearance that insufficient time has been devoted, with issues and evidence appearing to be ignored (or not fully understood) because the adjudicator feels he can do it quicker than an adjudicator on a lower rate.

    The majority of disputes concern valuation & payment but all too often nowadays when it comes to the figures, there appears to be a lack of desire for the higher rate adjudicator to get his/her sleeves rolled up and get into the detail in order to come to the correct answer. Often decisions of adjudicators on higher rates give the impression that good old fashioned quantity surveying is beneath them, yet this is what disputing parties crave (a reasonably calculated valuation that shows that each item has been properly considered) and not a Scott Schedule merely favouring one party’s figure over the other; or splitting the difference with a cryptic comment (that means very little and/or shows that it has not been understood).

    If that results in the adjudicator spending more time then so be it. Adjudication is now a costly process and disputing parties would far rather pay for a bit more time to be spent on the correct answer than a wrong answer, which is given in haste. All that leads to is further proceedings between the parties; and parties becoming more disillusioned with the adjudication process.

    Often the lower value disputes involve small firms who desperately need a thorough decision of what is a reasonable and proper value. It is therefore not appropriate, in my view, that because the value of the dispute is comparatively low that the appropriate time is not dedicated to reach the correct answer.

    With regard to your suggestion regarding publishing lists to show experience and qualifications, may I suggest that some form of feedback scoring from parties would be more appropriate as this would provide a more accurate reflection of value for money and quality. I know of quite a few adjudicators who have qualifications as long as your arm and many years experience but they are not a patch on other less experienced adjudicators who have a natural ability at being able to get to the root of issues and give the correct answer.

    I apologise for the length of this comment but over recent years I feel that the process of adjudication has moved away from getting the right result to a dispute; and become far more legalistic with the priority appearing to be on procedural correctness to the detriment of actually spending time calculating the correct answer. Both parties (even the losing party upon reflection after the initial disappointment) will regard adjudicators fees as reasonable if they can see the evidence that the appropriate time has been dedicated to the dispute with a sufficiently reasoned decision that demonstrates that the adjudicator got into the detail and genuinely attempted to reach a fair and balanced decision.

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