What happens to your bill if the adjudicator’s decision turns out to be unenforceable in the courts? Alistair McGrigor delivers a salutory lesson
Adjudication, a way of resolving disputes quickly to avoid major delays during a project, was brought in by the Construction Act in 1998. Adjudications are mandatory and have a timetable of 28 days from start to finish. Critics argue that this means ‘rough justice’ for parties with a genuine grievance that are unable to marshall the facts and arguments within the restricted timetable.
Conversely, the systems’ champions argue that this ‘quick and dirty’ means of resolving disputes helps projects complete by giving the parties a decision enforceable in the courts.
Defence failure
However, a recent case raised doubts as to whether parties to an adjudication were really getting what they paid for. P C Harrington Contractors was engaged in an adjudication against its sub-sub-contractor, Tyroddy Construction, which Tyroddy had launched to recover retention money which P C Harrington had withheld. The adjudicator, employed by Systech International, decided the retention should be released to Tyroddy.
Unfortunately, the adjudicator failed to take into account a part of P C Harrington’s defence. Therefore, his decision was properly enforceable, because it breached the rules of natural justice.
When Systech sued P C Harrington to recover the adjudicator’s fees, it claimed that even though its decision was unenforceable in the courts, the adjudicator had also carried out other roles and functions. This included reviewing the submissions of the two parties to the adjudication, and administering the adjudication up to the point of issuing his decision. In this way, the adjudicator had discharged some (if not all) of his obligations as an adjudicator. The judge agreed with Systech.
P C Harrington appealed this judgment, on the basis that there is little point in an adjudicator being appointed if he performs some of his obligations, but fails to deliver his primary obligation – an enforceable decision.
The Court of Appeal agreed with this. If an adjudicator’s decision is not enforceable because it breached the rules of natural justice (by ignoring part of one of the party’s defences), he could not be deemed to have performed his primary obligation.
Lawyers will be delighted with the Court of Appeal’s close analysis of the Scheme for Construction Contracts, (‘the Scheme’) which is the statutory set of rules governing adjudication. The court looked at the ways in which an adjudicator might be entitled to be paid before issuing his decision or in situations where his appointment had been revoked.
Decision time
Crucially, none of the provisions suggested an adjudicator should be paid if he had not delivered an enforceable decision. Indeed, the court showed that Parliament clearly intended that the adjudicator should not be paid if he did not perform all his obligations.
The Court of Appeal stated that its decision should not have any very great ramifications, but adjudicators would now be wise to include a provision in their appointment, expressly stating that their fees and expenses are payable whether or not their decision is delivered or enforceable. Certainly they will be wary about reaching decisions which may not be enforceable.
The decision does seem to endorse the common sense view that parties should not have to pay money for an adjudication which is worthless.
Many parties might regard this case as enabling them to claw back some of the costs they had lost in ‘wasted’ adjudications. No doubt we will see those parties testing the boundaries of this decision in the near future.
Net contribution clauses can cap the extent of joint and several claims against you.
Joint and Several
Joint and several liability arises where two (or more) parties (say, A and B) promise both jointly and individually (‘severally’) to a counterparty (C) to do something. The effect is that A and B are jointly liable to C, and C can enforce their promise in full either against A or against B. The fact that the liabilities are ‘several’ between A and B means that if C pursues A to receive payment in full, A is able to pursue B for a contribution.
This crops up frequently in construction contracts in which, for example, an architect, a structural engineer and a contractor might all be deemed by law to be jointly and severally liable to the client for a defect in a building.
Net contribution clauses are a way for the parties in this situation to protect themselves. An architect’s net contribution clause makes clear that it is jointly and severally liable, but the client can only recover from the architect the relevant percentage of the client’s losses which that architect is deemed to have been responsible for.
This puts onto the client (rather than onto the architect) the risk of an inability to recover the remaining losses from the engineer and the contractor.
Alistair McGrigor is with Macfarlanes Solicitors