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Court of Appeal decision - adjudicators who produce unenforceable decisions cannot recover their fees

1 November 2012

Last week the Court of Appeal handed down its decision in PC Harrington Contractors Ltd v Systech International Ltd [2012] EWCA Civ 1371, confirming that an adjudicator who produced an unenforceable decision, because of a breach of the rules of natural justice, was not entitled to recover his fees. This overturned the 2011 first instance decision of the Technology and Construction Court ( TCC ).

The adjudicators mistake

The case relates to three disputes between the same parties concerning the recoverability of retention. Each dispute was referred to adjudication and in each instance the responding party contended that payment of the retention was conditional upon final valuation, which had not taken place, and that the referring party had in any event been overpaid.

The adjudicator, appointed under the Scheme for Construction Contracts (the Scheme) decided, in favour of the referring party, that retention was owed. He considered he had no jurisdiction to deal with items set out in the final account and therefore did not address them as part of the defence.

Mr Justice Akenhead in the TCC held that the adjudicators approach was wrong and therefore the decisions were unenforceable. By considering that issues relating to the final account were outside his jurisdiction, the adjudicator had put himself in a position where he could not and would not deal with the responding partys defence, constituting a breach of the rules of natural justice. The Court commented that in doing so the adjudicator had "unwittingly [fallen] below the standards which are required to enable the decision or decisions to be enforced."

Given his mistake, could the adjudicator recover his fees?

At first instance, the TCC found that despite producing an unenforceable decision, the adjudicator was still entitled to his fees. It noted that the role of the adjudicator involved not only providing a decision but also certain ancillary services (such as making directions) necessary for the conduct of the adjudication and there was no complaint about these other services in this instance. Given that there had not been a total failure of performance by the adjudicator, he was entitled to his fees.

The Court of Appeal overturned the TCC s decision. Whilst it agreed that the adjudicator was required to perform some ancillary functions, it said the question was whether he was entitled to be paid for them in light of his failure to produce an enforceable decision. The Court considered the terms of the adjudicators appointment and the Scheme. It noted that the Scheme did not provide for payment of the adjudicators fees by reference to the completion of discrete parts of the engagement and contrasted the position under the Construction Act, which provides for staged and periodic payments to contractors. Consequently, it held that the adjudicator had no discrete entitlement to fees for ancillary functions. Further, in the Courts view the Scheme did not intend that an adjudicator should be paid in every case where he did not perform all his obligations. For example, paragraph 11(1) allows the parties to revoke the appointment of the adjudicator at any time and if the revocation is due to the "default or misconduct of the adjudicator" (for example, if during the adjudication the adjudicator indicated he intended to breach the rules of natural justice), paragraph 11(2) provides that the adjudicator is not entitled to his fees or expenses. The Court thought that it made no sense for the position to be any different if, as here, the breach was only discovered after the decision.


Whilst this decision will not provide comfort to parties who must comply (at least in the interim) with adjudicators decisions which might be wrong on the facts or in law (the Court of Appeal was clear that the Courts would continue for policy reasons to uphold "rough and ready" decisions, where validly produced), it makes commercial common sense that parties should not be paid if they have failed to perform the task for which they were hired. It is likely that parties will seek to test the limits of this principle. For example:

1. is the principle restricted to this particular breach of the rules of natural justice (the adjudicator having failed to consider a defence)? and

2. does it apply to any unenforceable decision and not just breaches of natural justice?

Our view is that the answers are: 1. no; and 2. yes. A further issue arises in respect of parties who have previously paid for an unenforceable decision - can those fees now be recovered?

Of equal interest is how adjudicators will react. It may be that given the consequences of producing an unenforceable decision, adjudicators will be more likely to accept challenges to their jurisdiction. With regard to costs, the Courts view was that the solution must be market driven, through adjudicators updating their terms of engagement. Likely amendments include terms stating that adjudicators will be able to recover their ancillary costs in any event and providing for staged payments or simply stating that the adjudicator will be paid regardless of whether their decision is enforceable. Such provisions may be challenged by reference to section 3 of the Unfair Contract Terms Act 1977 and parties will need to consider whether they wish to appoint an adjudicator on those terms. This raises the potential for one party to accept the terms but the other not to. In such circumstances, there may be no contract between the adjudicator and the party that refuses to accept the terms; the adjudicator may then choose to resign or if possible seek to recover his fees through restitution.

In any event, the decision will hopefully improve the adjudication process as a whole, prompting adjudicators to be more careful when addressing jurisdictional points and making sure that they address all the relevant issues.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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