Construction contract – Adjudication – Adjudicator’s fees – Disputes arising under construction contract referred to adjudication – Adjudicator’s decisions held to be unenforceable for breach of rules of natural justice – Whether appellant contractor liable to pay adjudicator’s fees – Whether fees payable only where enforceable decision produced – Appeal allowed
The appellant was a contractor employed to carry out works on three development projects. It engaged a subcontractor in relation to each of those projects. Disputes arose as to whether the subcontractor was entitled to the release of retention moneys that the respondent held under each subcontract. The disputes were referred to adjudication; the appointed adjudicator was an employee of the respondent company. The adjudications were all governed by the scheme for construction contracts introduced by the Housing Grants, Construction and Regeneration Act 1996 and the Scheme for Construction Contracts (England and Wales) Regulations 1998.
The adjudicator produced three decisions, in which he determined that the subcontractor was entitled to the retention moneys under each subcontract and also ordered the appellant to pay his fees of £18,144. The appellant subsequently obtained a declaration of the court that the decisions were unenforceable by reason of a breach of the rules of natural justice. The court found that the adjudicator, having made an incorrect ruling that issues relating to the final account were outside his jurisdiction, had failed to deal with the appellant’s principal defence that no sum was due because the subcontractor had already been overpaid.
The respondent subsequently claimed payment of the adjudicator’s fees. The appellant contended that they were not payable where the adjudicator had failed to produce an enforceable decision. In the court below, the judge held that the service for which the appellant had bargained was not merely the production of an adjudicator’s decision, but also the ancillary and anterior functions including the conduct of the adjudication in the period leading up to the decision. He concluded that there had not been a total failure of consideration, since the adjudicator had done a considerable amount of work on the dispute, and accordingly held that the fees were payable. The appellant appealed.
Held: The appeal was allowed.
The case was not governed by the doctrine of total failure of consideration, since that applied only to a claim in restitution by a party to recover payments made pursuant to a contract where the other side had wholly failed to perform the bargain. The doctrine could not operate as a defence to an action to enforce a contractual promise to pay the contract price. Instead, the relevant issue was whether the contract was in the nature of an entire contract, under which complete performance was required as a condition precedent to the liability to pay. The question was whether the adjudicator had performed the contractual function in respect of which payment was due; that depended on the proper construction of the relevant contract.
The correct conclusion was that the contract governing the adjudication was an entire contract, under which the bargained-for performance was an enforceable decision, rather than a divisible contract for the performance of a series of ancillary and anterior functions. Although the adjudicator could not simply produce a decision out of the hat, and was obliged, or entitled, to perform various ancillary and anterior functions, those steps did not, on proper construction of the terms of engagement and the scheme, amount to partial performance of the bargain for which payment was agreed to be made. The scheme for construction contracts carefully defined the circumstances in which the adjudicator was entitled to remuneration where his appointment came to an end before he had made a decision. The scheme did not provide for payment of an adjudicator’s fees by reference to the completion of discrete parts of the engagement, save in the circumstances specified in paras 8(4), 9(2) and 11(1), dealing with certain cases where the adjudicator resigned or his appointment was revoked. None of the circumstances mentioned in those provisions existed in the instant case. There was nothing in the contract to indicate that the parties agreed to pay for an unenforceable decision or for the services performed by the adjudicator preparatory to the making of such a decision. Those functions had no discrete value to the parties. The purpose of the appointment was to produce an enforceable decision, which, for the time being, would resolve the dispute. A decision that was unenforceable was of no value to the parties.
That conclusion was supported by a consideration of para 11(2) of the scheme, so far as it provided that an adjudicator was not entitled to any fees where his appointment was revoked due to his misconduct or default. The making of a decision that was unenforceable by reason of a breach of the rules of natural justice was a default or misconduct, being a serious failure to conduct the adjudication in a lawful manner. It would make no sense for the parties to agree that the adjudicator was not entitled to be paid if his appointment was revoked for misconduct or default before he made his purported decision, but that he was entitled to full remuneration of the same default or misconduct first became manifest in the decision itself.
Policy considerations also supported the view that the adjudicator was not entitled to payment for an unenforceable decision. Although the statutory provision was aimed at providing a rough-and-ready temporary resolution of construction disputes, and a decision would be enforced even where it could be shown to be wrong on the facts and in law, a decision that was unenforceable was a different matter. Such a decision did not further statutory policy of encouraging the parties to refer their disputes for temporary resolution by adjudication, but had the opposite effect since it caused the parties to incur cost and suffer delay on a futile exercise.
James Bowling (instructed by Speechly Bircham LLP) appeared for the appellant; Dominique Rawley QC (instructed by Systech Solicitors) appeared for the respondent.
Sally Dobson, barrister