The recent decision in Davies & Davies Associates Ltd v Steve Ward Services (UK) Ltd [2021] is the latest judgment concerning the issue of adjudicator's fees (are they payable or not?) where the adjudication process does not result in an enforceable decision.
Background
- In 2019-2020, Steve Ward Services (UK) Ltd (SWS) carried out works at a restaurant called Funky Brownz in Stanmore. Funky Brownz was owned by Bhavishya Investment Ltd (BIL), of which Ms Patel was the director and majority shareholder at all material times.
- Contract documents were drawn up but never signed.
- A dispute arose and two adjudications followed under the Scheme for Construction Contracts (England and Wales) Regulations 1998 as amended (the Scheme). The same adjudicator was appointed in both, Nigel Davies. Any fees due to Mr Davies as Adjudicator were payable to the Claimant company, Davies & Davies Associates Ltd (D&D). Mr Davies' terms and conditions were the same in both adjudications.
- In the 2nd adjudication commenced by SWS against BIL, following receipt of the Reply, Mr Davies concluded that BIL was not a party to the construction contract as it was actually between SWS and Ms Patel. He therefore resigned as adjudicator on the basis that he had no jurisdiction.
- Three days later, an invoice for Mr Davies' fees in the 2nd adjudication was sent to SWS' solicitors for £5,148 inclusive of VAT.
- SWS refused to pay claiming that Mr Davies had committed a repudiatory breach of his contract of appointment as adjudicator - that repudiation (it was argued) was accepted by SWS, so that the adjudicator's terms and conditions ceased to have effect. Additionally, based on previous case law, fees were not due to the adjudicator in any event.
- D&D commenced these proceedings against SWS to recover the unpaid fees.
Consideration by the TCC
The claim by D&D was successful with payment in full of Mr Davies' fees ordered by the Technology and Construction Court (TCC). The key issues are set out below.
Was there a threshold jurisdictional issue?
Paragraph 13 of the Scheme entitles the adjudicator to investigate matters "necessary to determine the dispute". On this point, the TCC focused on the fact that, at the time when the adjudicator resigned, there was no dispute either as to the identity of the contracting parties, or as to his jurisdiction.
Mr Roger Ter Haar QC, sitting as a Deputy High Court Judge, concluded therefore that Mr Davies' reasoning in deciding to resign on the basis that he had no jurisdiction was "erroneous", as "that was not an issue which the parties had referred to him".
The effect of the adjudicator's Terms and Conditions
Relevant provisions included a fee provision as follows: "[i]n the event of the Adjudication ceasing for any reason whatsoever prior to a Decision being reached, a Fee Invoice will be raised immediately and is due for payment seven days after the date of the Invoice."
Additionally, Clause 1 stated: "The Parties agree jointly and severally to pay the Adjudicator's fees and expenses as set out in this Schedule. Save for any act of bad faith by the Adjudicator, the Adjudicator shall also be entitled to payment of his fees and expenses in the event that the Decision is not delivered and/or proves unenforceable."
The substance of the second sentence in Clause 1 is often known as a "PC Harrington v Systech clause" by reference to the Court of Appeal decision in PC Harrington Contractors Ltd v Systech International Ltd [2012] in which Lord Dyson confirmed that, in the absence of specific contrary provisions, an adjudicator will not be entitled to payment where there is no enforceable adjudication decision. In the same decision, Lord Justice Davis expressly stated that, in order to avoid this outcome, adjudicators could include a term in their appointment stipulating that they would still be paid where a decision was not delivered and/or enforceable.
Mr Davies confirmed to the TCC that he had drafted Clause 1 specifically in the light of the judgment of Lord Justice Davis.
The TCC was satisfied that by itself, Mr Davies's resignation from his role as adjudicator was not a breach of his engagement, as paragraph 9(1) of the Scheme permits the adjudicator to resign at any time on giving notice to the parties. It was argued on behalf of SWS that the resignation was effectively "bad faith" (in that it was contended that Mr Davies was "not faithful to the bargain he had struck to act as Adjudicator"). This was rejected by Mr Ter Haar QC, sitting as a Deputy High Court Judge, who was satisfied that Mr Davies had acted with "diligence and honesty" in deciding to resign - this did not amount to bad faith (which would have disentitled him to payment).
Unfair Contract Terms Act 1977 (UCTA)
It was also argued on behalf of SWS that (viewed as contended for by Mr Davies) under the adjudicator's terms and conditions, the relevant clauses would be void under s3(2)(b) of UCTA in that they allowed performance substantially different from that contracted for, unless it could be demonstrated they satisfied the test of reasonableness.
As well as doubting that Clause 1 actually fell within the ambit of s3 UCTA, the Judge held that the contractual performance expected of the adjudicator was clearly impacted by the unfettered right to resign set out in paragraph 9(1) of the Scheme. To the extent relevant, in any event, Clause 1 satisfied the reasonableness test in UCTA as it was: drafted in accordance with terms viewed as commercially acceptable (in principle) by the Court of Appeal; those terms are commonly found in appointments of adjudicators; there was no inequality of bargaining power; and the terms were accepted twice by SWS, where SWS was represented by solicitors experienced in dealing with adjudications.
Greater certainty on adjudicators' fees
This decision will give considerable comfort to adjudicators relying on the observations of Lord Justice Davis in PC Harrington Contractors Ltd v Systech in their contract drafting. Given the prevalence of adjudication in construction disputes, certainty on the question of adjudicators' fees where there is no enforceable decision benefits both parties and adjudicators.
If you have any queries relating to these issues, please contact Ashley Pigott.