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.”