PC Harrington Contractors v Systech International
Court of Appeal October 2012
Disputes between Harrington and Troddy Construction about the release of retentions under three sub-contracts were referred to adjudication and Mr Doherty of Systech was appointed.
Harrington’s principal defence was that Troddy had been overpaid. The adjudicator considered that he did not have jurisdiction to deal with this defence so decided that Harrington should pay the retentions and his fees.
The court refused to enforce the decisions because the failure to consider the overpayment defence, or invite submissions before declining to do so, was a breach of the rules of natural justice.
Harrington refused to pay the adjudicator’s fees so Systech sued. (It seems Troddy could not pay). The High Court decided that Systech was entitled to payment, but Harrington appealed and won.
The Court of Appeal’s conclusion turned on an analysis of the terms of the adjudicator’s appointment and consideration of the Scheme for Construction Contracts. This weighed in favour of an adjudicator who produced an unenforceable decision not being entitled to payment.
Lord Justice Davis added two qualifications:
- Where a party raises a jurisdictional challenge, but participates under a reservation of their position, the adjudicator is (subject to express terms to the contrary) entitled to their fees even if the challenge ultimately succeeds: Linnett v Halliwells LLP [2009] EWHC 319 (TCC);
- It is open to adjudicators to amend their terms of appointment to enhance their rights to payment for preparatory work or an unenforceable decision.
Peter Stockill’s analysis
Whether this case reflects the position in a non-Scheme for Construction Contracts adjudication depends on the terms of the parties’ contract and the adjudicator’s appointment. Arguably, the onus is on adjudicators to make the position clear.
If a responding party declines to participate in an adjudication on jurisdictional grounds, they will not be liable for the adjudicator’s fees for an unenforceable decision, but if the referring party wants the adjudicator to continue, they will be.
If a party wishes to participate under a reservation in respect of jurisdiction, Linnett v Halliwells suggests they will still be jointly and severally liable to pay the adjudicator’s fees even if their reservation is ultimately vindicated.
Note, the Linnett v Halliwells qualification assumes the basis for the reservation is the same as that which prevents enforcement. If they are different and the latter only became apparent when the decision was issued, Harrington v Systech suggests Linnett v Halliwells will not apply. This suggests adjudicators should, where appropriate, ensure that any potential issues are aired during the adjudication so they have the benefit of Linnett v Halliwells if a party continues to participate.
What if a party has already paid fees to the adjudicator? The court’s reasoning suggests (assuming the terms are the same) they would be recoverable based on a “total failure of consideration” or on the basis that they were paid under a mistake of law.
What if only part of the decision is held to be enforceable? Under a Scheme adjudication, arguably, the “reasonable amount” to which the adjudicator is entitled could be reduced accordingly.
This decision should be borne in mind when reviewing proposed terms of appointment, including in a proforma request for nomination of an adjudicator and when considering how to respond if an adjudicator declines to resign in the face of a jurisdictional challenge.
Its main application will be to cases where one party declines to participate/withdraws or where the jurisdictional issue/breach of natural justice only becomes apparent after the decision has been made.
Seen in that light, the main effect may be to encourage adjudicators to tell the parties how they intend to approach matters. Many users of adjudication will welcome that.
Peter Stockill MSc FCIArb is a partner in the construction team at law firm Berrymans Lace Mawer email: [email protected]
