In Steve Ward Services (UK) Ltd v Davies & Davies Associates Ltd [2022] EWCA Civ 153, England’s Court of Appeal unanimously upheld the decision of the court below which had granted summary judgment to an adjudicator to enforce payment of his fees arising from an adjudication in which the adjudicator resigned prior to issuing a decision. The principal issue raised in the appeal concerned an adjudicator’s entitlement to his or her fees, in circumstances where they have resigned from the referral because they did not consider that they had the necessary jurisdiction to decide the dispute. As the Court of Appeal pointed out, there is very limited authority on this point, and it had been eight years since the Court of Appeal last considered an adjudicator’s entitlement to fees in circumstances where the referral did not go as anticipated. The decision is therefore of some importance.
Background
The Defendant (Steve Ward Services (UK) Ltd) carried out construction operations at a restaurant called “Funky Brownz”, owned and operated by a company, BIL as “Funky Brownz”. Ms Vaishali Patel was a director and the majority shareholder in BIL. A set of contract documents were drawn up but not signed, in which the client was described as “Vaishali Patel Funky Brownz”. Invoices for the works as they progressed were addressed to and paid by BIL. As at completion of the works, the Defendant claimed an unpaid balance of £35,974.29 and the parties then fell into dispute on the unpaid balance and defects.
Subsequently, the Defendant commenced adjudication proceedings and appointed Mr Davies of Davies & Davies Associates Ltd as the adjudicator. However, before making a decision, the adjudicator resigned on the basis that BIL was not a party to the adjudication for which he had been appointed and that the relevant contract was in fact between the Defendant and Ms Vaishali Patel.
The adjudicator’s contract of appointment, was made up of i) his letter to the parties; ii) his own terms of appointment; iii) the CIC Low Value Dispute Model Adjudication Procedure (1st Edition)(MAP); and iv) the Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI 1998 649), as amended (Scheme).
The adjudicator issued an invoice for payment of his fees, which the Defendant refused to pay, on the basis that the adjudicator had committed a repudiatory breach of his contract of appointment. The Defendant was said to have accepted the adjudicator’s repudiation, so that his terms and conditions of appointment had ceased to have effect.
The adjudicator’s terms and conditions of appointment provided that “In 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 7 days after the date of the Invoice”. They also provided that “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.…” (Clause 1).
Decision of the High Court (Technology and Construction Court (TCC))
The TCC held that:
- It would have been wiser for the adjudicator not only to inquire as to the parties’ position as to who were the contracting parties, but also to inquire whether both parties accepted that he had jurisdiction. However he did not do that.
- The effect of what the adjudicator did was to deprive the parties of an answer to their differences as to what sum was payable (either by Ms Patel or by BIL) in respect of the project.
- The route which the adjudicator took was outside the ambit of paragraph 13 of the Scheme: that paragraph entitles the adjudicator to investigate matters “necessary to determine the dispute”, which necessarily involves the question, what is the dispute? 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.
- Accordingly, the adjudicator’s reasoning in deciding to resign on the basis that he had no jurisdiction when that was not an issue which the parties had referred to him, was erroneous.
- However, that was not the end of the matter, as it was necessary to consider whether the adjudicator was nevertheless entitled to the fees claimed.
- The adjudicator acted in accordance with what he regarded as being his duty. Far from there being a “deliberate and impermissible refusal to provide a Decision”, the adjudicator resigned on the basis that it was not open to him to reach a Decision in a dispute between the Defendant and BIL of the rights and obligations of a contract between the Defendant and Ms Patel.
- Further, resignation by an adjudicator is not of itself a breach of the terms of the adjudicator’s engagement since paragraph 9(1) of the Scheme permits the adjudicator to resign at any time on giving notice to the parties: the question here was whether upon resigning, the adjudicator was still entitled to his fees and the answer to that question turned upon the true construction of the adjudicator’s terms and conditions.
- A situation such as this, where an adjudicator acting with diligence and honesty comes to the conclusion that the proper course is for him to exercise his right under Paragraph 9(1) of the Scheme to resign, is not a situation within the expression “bad faith”.
- Accordingly, on the true construction of his terms and conditions of appointment, the adjudicator was entitled to be paid for the work done by him, subject to the application of the Unfair Contract Terms Act 1977 (UCTA).
- The clause in the adjudicator’s terms of appointment regarding bad faith (referred to above) did not fall foul of the UCTA.
The Appeal
The Defendant appealed against the TCC decision and the adjudicator cross-appealed to challenge the one finding made against him, namely that his reasons for resignation were “erroneous” and that, in so acting, he went beyond his powers.
Issues on appeal
Was there a jurisdictional issue in the adjudication?
The Court of Appeal held that there was.
Was the adjudicator entitled to decline jurisdiction and resign in consequence?
The Court of Appeal held that the adjudicator was entitled to decline jurisdiction and resign because:
- The adjudicator was entitled to resign in any event pursuant to the terms of the Scheme, which did not require resignation to be for a good cause;
- Since there was an unqualified entitlement on the adjudicator’s part to resign, it was impossible to say that he could not do just that. However, both the Scheme and MAP were silent about any entitlement to fees, and such an entitlement following resignation may well turn on two matters, namely why the adjudicator resigned and the terms of their contract of appointment.
- As to why the adjudicator resigned, there was no doubt that, in the circumstances of this case, the adjudicator was entitled to decline jurisdiction and resign – he had good cause to do what he did.
- Under the Scheme, the adjudicator has to investigate the matters “necessary to determine the dispute”. If an adjudicator considers that it is necessary to work out if he or she has the jurisdiction to determine the dispute in the first place, then they are duty bound to consider and determine that issue. That in turn means that they should raise that issue with the parties before coming to their own conclusion. The Scheme gave the adjudicator the express power to do just that: to consider and raise with the parties a point which they had not raised but which he thought was important.
- It would strike at the heart of an efficient system of adjudication and adjudication enforcement if adjudicators were encouraged to believe that they must stay silent when they spot a potential jurisdictional problem, and wait for the parties to raise it before considering it themselves. It would be when an adjudicator took this ‘ostrich’ option, and the jurisdictional challenge was subsequently successful such that enforcement was refused, that an unsuccessful claimant would have a better argument that the adjudicator should not recover his or her fees, because they should have pointed out the jurisdictional problem when they first spotted it.
Subject to bad faith, was the adjudicator entitled to be paid for the work done prior to his resignation?
The TCC judge had construed the adjudicator’s terms and conditions to mean that he was entitled to be paid fees for the work he had done, unless there had been an act of bad faith on his part. The Court of Appeal held that, subject to the question of bad faith, the judge’s construction of Clause 1 was correct.
The Court of Appeal noted that there was no binding authority on an adjudicator’s entitlement to fees when he or she resigns and that the leading case on an adjudicator’s entitlement to fees when the adjudication does not go as expected is PC Harrington Contractors Ltd v Systech International Ltd [2012] EWCA Civ 1371.
Drawing the various strands together, the Court of Appeal summarised the applicable principles as follows:
- Under the provisions of the Scheme, an adjudicator is entitled to resign. No reason is required.
- Whether or not the adjudicator is entitled to fees following any such resignation, will depend on i) the precise terms of his or her appointment, and ii) the conduct of the adjudicator.
- The court’s consideration of conduct may involve asking why the adjudicator resigned, so it may matter whether the adjudicator was right or wrong to resign.
- A finding that the resignation involved or was the result of default/misconduct or bad faith, depending on the terms of appointment, will – in accordance with the general approach in PC Harrington – usually be sufficient to disentitle the adjudicator from recovering fees. Conversely, absent such a finding, there will usually be an entitlement to the fees incurred prior to resignation.
Was the adjudicator guilty of bad faith?
The Court of Appeal said that it was made plain in a recent Supreme Court decision that, depending on the circumstances of the case, an act of bad faith will usually require some measure of dishonesty or unconscionability.
The Court of Appeal said that as a matter of principle there was plainly a difference between default or misconduct (an expression used in the Scheme), on the one hand, and bad faith (as per Clause 1 in the adjudicator’s terms) on the other. For the purposes of Clause 1, a finding of bad faith must involve some form of unconscionable or deliberately unacceptable conduct on the adjudicator’s part, which is more serious than simple default. An adjudicator may be guilty of default or misconduct because, as in PC Harrington, he conducts the adjudication in such a way that the parties end up with an unenforceable decision. But that default or misconduct may have been wholly inadvertent on his part.
The Court of Appeal added that the qualitative difference between the two is also reflected in the Scheme. There, liability for the adjudicator’s acts or omissions is excluded, unless there is also bad faith. That makes it plain that bad faith is more serious than simple default or misconduct, and therefore there is a higher threshold before it can be established.
The Court of Appeal held that the adjudicator was not guilty of default/misconduct, much less bad faith. He had raised a real issue as to jurisdiction; he had not received what he quite reasonably considered proper answers; and in the circumstances, in the judge’s words, he had acted with ‘diligence and honesty’ in coming to the conclusion that the proper course was for him to resign.
The only criticism of the adjudicator’s conduct which the Court of Appeal accepted was his failure to give the parties a final warning prior to resigning. However, given the circumstances of this case, that conduct did not fall outside the commercial norms to be expected of an adjudicator. There was nothing unconscionable about what the adjudicator did. He had done his best to get answers to his questions and had failed. Although he should have given the parties one final warning prior to resigning, his failure to do so could not, the Court of Appeal said, by any stretch of the imagination, be described as “bad faith”.
Was Clause 1 contrary to UCTA?
The Court of Appeal held that UCTA had no application in this case.
Adjudicator’s cross appeal
The Court of Appeal allowed the adjudicator’s cross appeal, holding that he did not go outside the ambit of the Scheme and his reasons for resigning were not erroneous.
Discussion
Whilst and to a significant extent, the Court of Appeal’s decision turned on the terms of the Scheme and the adjudicator’s terms of appointment, the key take-aways from this case are (1) whilst adjudication is a fast moving procedure, the parties should nevertheless go through the adjudicator’s terms of appointment carefully before accepting the terms and appointing the adjudicator, and (2) like arbitrations, it is not uncommon in adjudications for there to be questions as to which are the relevant contracting parties. As this case illustrates, the adjudicator should take the initiative and invite the parties to address this issue even if the parties have not raised this as a relevant dispute. If the matter cannot be resolved and the adjudicator has in mind resigning (and depending on the terms of his appointment), he should give a final warning to the parties prior resigning.
For further information, please contact:
Joseph Chung, Partner, Deacons
joseph.chung@deacons.com
