PC Harrington Contractors Ltd v Systech International Ltd (2012) EWCA Civ 1371

PC Harrington Contractors Ltd v Systech International Ltd (2012) EWCA Civ 1371

An adjudicator was not entitled to recover the fees which he had incurred in an adjudication governed by the Scheme for Construction Contracts (England and Wales) Regulations 1998 because he had breached the rules of natural justice in reaching his decision, which was unenforceable.

The issue of an adjudicator's right to recover his fees after production of an unenforceable adjudication award, was the subject of a recent Court of Appeal decision in the case of Systech International Ltd v PC Harrington Contractors Ltd (PCH).

PCH had been involved in three adjudications with it’s sub-contractor, Tyroddy, concerning non-payment of retention monies on three contracts. The adjudicator was employed by Systech.

PCH’s defence was that no sum was due to Tyroddy because it had been overpaid. The adjudicator issued his decision to the parties together with an invoice for his fees which he ordered PCH to pay. He concluded that the retention monies were due to Tyroddy under each subcontract. The adjudicator failed to deal in any of the adjudications with the defence that no retention monies were due because PCH had already overpaid, incorrectly concluding that issues relating to the final account were outside his jurisdiction.

Systech, the adjudicator's employer, commenced proceedings against PCH to recover the adjudicator's outstanding fees. These were awarded in the High Court.

In the Court of Appeal, PCH argued that in view of the adjudicator’s failure to deal with its principal defence, the three decisions were not enforceable by reason of a breach of the rules of natural justice. The court ruled in favour of PCH, stating that by ruling wrongly that issues relating to the final account were outside his jurisdiction, the adjudicator had put himself in the position that he could not and would not deal with a defence, and had reached this decision without giving the parties the opportunity to be heard on the point. It was concluded, therefore, that the adjudicator's decisions were not enforceable.

The Court of Appeal overturned the High Court's decision and decided that Systech were not entitled to the fee. The Court of Appeal considered the terms of the adjudicator's contract and the provisions of the Scheme for Construction Contracts (England and Wales) Regulations 1998 ("the Scheme"). The court concluded that the parties' bargain with the adjudicator was for an enforceable decision. They also concluded that the Scheme clearly showed that Parliament had not intended for an adjudicator to be paid in cases where he did not perform all of his obligations, including the production of an enforceable decision. An unenforceable decision meant that the adjudicator had not performed his obligation at all.

Paragraph 11(2) of the Scheme provides that an adjudicator is not entitled to payment if his appointment is revoked as a result of "default or misconduct". The Court considered that a breach of the rules of natural justice by the adjudicator constituted a 'default' or 'misconduct': it was "a serious failure to conduct the adjudication in a lawful manner".

The Court also examined interpretation of policy behind adjudication, concluding that the statutory provisions for adjudication reflected a Parliamentary intention to provide a scheme for a rough and ready temporary resolution of construction disputes. Therefore a decision which is factually or lawfully wrong is still an enforceable decision within the meaning of the Housing Grants, Construction and Regeneration Act 1996 and the Scheme.

However, lack of jurisdiction or breach of the rules of natural justice can render a decision unenforceable. In such instances if the scheme is used the adjudicator will be at risk for his fees.

 

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