PCH appealed the Judge’s decision.

The Court of Appeal Decision

In a judgment handed down last week, the Court of Appeal overturned the Judge’s decision, confirming that an adjudicator who produces an unenforceable decision is not entitled to payment of his fees.

The Court was of the view that the parties had entered into a contract with the adjudicator for the production of a decision. It was not a contract for the carrying out of a series of different functions which culminated in the production of a decision. In the absence of the enforceable decision which the parties had bargained for, the adjudicator had no entitlement to be paid for the ancillary work he had carried out in conducting the adjudication.

The Court relied on the following principles in support of its decision:

• The Scheme envisages that the adjudicator will “decide” the matters in dispute.
• The Scheme clearly sets out the circumstances where an adjudicator is entitled to be paid notwithstanding that his appointment has come to an end before he makes his decision. For example, if an adjudicator resigns because the dispute is one which has already been referred to adjudication, he is entitled to be paid, but he is not entitled to payment if he resigns for any other reason. It is therefore clear from the Scheme that if an adjudicator fails to decide the matters in dispute, he is only entitled to be paid in certain carefully defined circumstances. None of those circumstances applied in this case.
• The ancillary functions which the adjudicator had carried out prior to making his decision, such as issuing directions and reviewing the papers, were of no value to the parties.
• The parties had agreed to pay for an enforceable decision. An unenforceable decision was of no value to the parties. There was nothing to indicate that the parties had agreed to pay for an unenforceable decision or that they would pay for the ancillary services performed by the adjudicator prior to making an unenforceable decision.
• The Scheme provides that if an adjudicator’s appointment is terminated due to his default, the parties do not have to pay the adjudicator’s fees and expenses. It is nonsensical to suggest that the parties had agreed (via the Scheme) that the adjudicator would not be paid if his appointment was terminated before the decision was made, but agreed that they would pay the adjudicator in full if his default only came to light after the decision was made.
• The purpose of adjudication is to encourage disputes to be resolved quickly. If the parties are required to pay for unenforceable decisions, this means they will have incurred cost and wasted time on a pointless exercise. This would be contrary to the whole ethos of the adjudication procedure.

Implications

The Court of Appeal’s decision confirms that where the parties to an adjudication do not get what they have agreed to pay for (i.e. an enforceable decision), the adjudicator is not entitled to payment of his fees, notwithstanding that he may have gone to a lot of time and effort conducting the adjudication and producing his unenforceable decision. Whilst this is encouraging for anyone who uses adjudication, it will be a worry for adjudicators, who will no doubt be considering how they can ensure payment in all cases.

Indeed, the Court of Appeal acknowledged that their judgment could cause concern for adjudicators and even went so far as to suggest that adjudicators could overcome any potential problems by including a provision in their terms of engagement which states that they are entitled to be paid even if their decision is not enforceable. It is likely that this practice will become commonplace. Unfortunately, if it does, there may be little referring parties can do about it, at least not initially. Few referring parties will want to risk alienating their adjudicator by objecting to his terms and conditions at the start of the adjudication.

However, even if adjudicators do amend their terms and conditions to insist upon payment in all cases, there may still be a line of argument which could be relied upon by parties who are unhappy at receiving an unenforceable decision.

The Unfair Contract Terms Act 1977 (“UCTA”) states that it is not possible for a contracting party to rely on a term which allows him to render a “performance substantially different from that which was reasonably expected of him” or to render “no performance at all”, unless that term satisfies the “reasonableness test” (as set out in UCTA). Given that the sole purpose of appointing an adjudicator is to procure an enforceable decision, there may well be some merit in the argument that a term which requires the adjudicator to be paid for producing an unenforceable decision (i.e. the opposite of what was expected of him) does not satisfy the requirement of reasonableness.