Just the other day, I was reading Tony Bingham’s piece in Building about the return of Lord Dyson to the Court of Appeal as the Master of the Rolls. Tony ended his piece as follows:
“I am excited by the ‘re-appearance’ of this judge. What does he say now about this 14-year old dispute management scheme? Have we strayed off-piste?”
A couple of days later, Lord Dyson’s judgment in PC Harrington v Systech was published. In light of the conclusions he reached about adjudicators’ fees, I wonder what Tony (and a lot of other people) are thinking now.
No fee if no enforceable judgment
In case you missed the judgment, Lord Dyson concluded that an adjudicator is not entitled to be paid if a court finds he is in breach of the rules of natural justice and doesn’t enforce his decision. Essentially, Lord Dyson said that on the facts of the case and under the Scheme for Construction Contracts 1998, there is an entire contract between the parties and the adjudicator, with the consideration being an enforceable decision. The steps an adjudicator takes along the way to reaching his decision may be necessary steps to take, but there is no requirement to pay for them if the decision cannot be enforced.
That’s quite a dramatic turnaround from Akenhead J’s judgment, which was overturned.
At the time of Akenhead J’s judgment, I said that I didn’t think it was unfair to the parties. I was pleased to see the door firmly shut on yet another attack on adjudicators and ways to wriggle out of paying for the work we do. Too often the focus is on the adjudicator and not on the parties’ dispute.
And a year on?
What do I think now that we have Lord Dyson’s considered view on the matter?
My initial reaction was that it is an unfair result for an adjudicator who had (to quote Akenhead J) “honestly and unwittingly misunderstood his jurisdiction”. That could happen to any adjudicator and the implications for those that do could be far reaching and costly. Some commentators have already suggested that it may raise standards among adjudicators, but at what cost?
I also wondered whether the bar for adjudicators was being set far higher than the test would be for other professionals. Had we moved away from a reasonable skill and care obligation to something more onerous, akin to a fitness for purpose or best endeavours obligation?
Looking on the bright side
However, upon reflection, I’m not sure things are so bad.
We have to remember that successful jurisdictional challenges remain relatively rare, so the judgment’s impact may be less dramatic than we first thought, although I may not go as far as to agree with Davis LJ that the judgment should not have “any very great ramifications”.
I think the door has been opened for adjudicators to reconsider the terms of their engagement. Davis LJ suggested that adjudicators could include a term that they should get paid, regardless of whether they deliver a decision or it proves to be unenforceable. While I’ve seen it suggested this type of provision may fall foul of the Unfair Contracts Terms Act 1977 (UCTA 1977), I’m not sure it is going to be acceptable to many parties. I also wonder what would happen in a situation where neither party agrees expressly to the adjudicator’s terms of engagement, or the responding party expressly rejects those terms, along with the whole adjudication on jurisdictional grounds.
I was rather more taken with what Lord Dyson appeared to be alluding to with his references to stage payments. He looked at the various situations where the Scheme for Construction Contracts 1998 provides for an adjudicator being paid, or not, depending on the circumstances. In addition, he drew a distinction between section 109 of the Construction Act 1996 as it applies to parties to a construction contract (an entitlement to be paid in stages or instalments), and adjudication, where there is no reference to such a right. One of the cases he refers to also mentions stage payments.
I am still pondering whether it would be appropriate for an adjudicator to include a term regarding stage payments, but I can certainly see the attraction, particularly in those large disputes that inevitably last far longer than the 28 or 42 days envisaged by the Construction Act 1996. You’d just have to draft in such a way that made it clear that the payments were not to be returned, in the event of a non-enforceable decision. Equally, an adjudicator has the option of asking the referring party for an undertaking in the event that the responding party challenges jurisdiction and the referring party wants the adjudication to continue. This could even be part of the adjudicator’s terms of engagement. Similarly, it is arguable that an analogy could be drawn with what happened in Linnett v Halliwells: that on questions of jurisdiction (that turn out to be wrong), there is an implied obligation on the referring party to pay.
I would also welcome guidance from the adjudicator-nominating bodies (ANBs) on the judgment, particularly in terms of whether and how adjudicators’ engagement terms ought to be amended. Jonathan has confirmed that RICS is currently considering what guidance it should give to its adjudicators, and whether the recently published third edition of the RICS Guidance Note: Surveyors Acting as Adjudicators, requires an addendum. If the market place is to determine the solution going forwards, then the sooner we have that guidance, the better it will be.
If adjudicators are to learn any lessons from this sorry tale, then one of the lessons must surely be to take care when dealing with jurisdictional issues, especially when deciding to exclude a party’s submissions.