The Cost of Adjudication: How much? & When?

It is widely accepted that the initial intention of the Housing Grants, Construction and Regeneration Act 1996, (HGCRA 1996) was that adjudication would be a low cost quick fix method of resolving construction disputes. Glasgow Caledonian University’s research has shown that adjudication has been widely used and at its peak, between May 2001 and April 2002, 2,027 requests for adjudicator appointments were reported by Adjudication Nominating Bodies. However, in the most recent comparable period between May 2010 to April 2011, the number of requests for appointments has declined by nearly half to 1,064.

How much do Adjudicators cost?
It is unclear to what extent the fall in the number of appointments is a reflection of perceptions that adjudication is not a ‘low cost’ option.

The scale and rates of Adjudicators’ costs were reviewed in the paper entitled ‘The Development of UK Statutory Adjudications; its relationship with construction workload and the costs’ which was published by Glasgow Caledonian University in 2011. A total of 80 questionnaires were returned capturing disputes to the value of £32,265,000.

In looking at the responses the most popular range of Adjudicators’ rates were in the banding £176 to £200 per hour with all Adjudicators reporting that they charged on an hourly rate. In respect of the Adjudicator’s overall fee per adjudication, the most popular band range was between £2,500 and £5,000; however this was very closely followed by the band range £15,001 to £20,000.

The results also indicated that the responses captured that the sum of the Decisions issued was £15,021,000.00 which is close to 50% of the value of disputes referred. However, it is noteworthy that within this figure the referring party was between 90% and 100% successful in respect of the value claimed in a quarter of the disputes although 13% received a “nil” award. In 53% of the responses received the adjudicator found the respondent 100% liable for the fee which suggests that the claimant was considered successful.

Following a review of the completed questionnaires and the results, well known experts in the field of construction dispute consultancy provided the following comments ;

“In regard to fees it is reassuring to see that in the majority of instances the adjudicator’s fees are at the lower end of the spectrum.”

“Based upon GCU's findings it seems to me that adjudicators’ fees represent good value for money in relation to middle and higher value disputes.”

Overall the view appears to be that the current costs are reasonable; only the passage of time will show, however, whether there is an increase to this ‘reasonable’ level.

In Fenice Investments INC v Jerram Falkus Construction Limited [2011] EWHC 1678 (TCC), the Court gave some consideration to the paying party’s concerns regarding the level of an Adjudicator’s fees. In Fenice, JFC had not responded to a letter from the Adjudicator inviting the parties to accept his fee of £350 per hour. Having taken part in and subsequently lost the adjudication JFC refused to pay the Adjudicator’s fee on the basis that it was excessive.

The Adjudicator recovered his costs from Fenice on the basis that both parties were ‘jointly and severally liable for any sum’ which remained outstanding. The Judge considered many factors which may influence the level of an adjudicator’s fee in a process which is ‘undertaken at a considerable speed, and sometimes with moving targets’. The Judge acknowledged that:

• Factors for consideration might include experience and seniority.
• The reasonableness of the rate was not to be determined ‘in a vacuum….by reference to some notional adjudicator’ however ‘in the context of the Adjudicator agreed in advance by the parties’.
• An Adjudicator should indicate the hourly rate and invite express agreement from the parties which the Adjudicator had clearly undertaken. It is noteworthy that the Judge commented that:

“If a party simply fails to acknowledge the invitation at all any later complaint that the rate was excessive is unlikely to promote much sympathy.”

This would appear to be a positive result for Adjudicators in terms of the level of their fees for services rendered and recognising the demands of the role.

When should payment be made?

Contracts, Liens and Quantum Meruit

One of the first cases to consider the right of an Adjudicator exercising a lien upon their decision was St. Andrews Bay Development Limited v HBG Management Limited [2003] Scot CS 103.

However this was developed in the case of Mott MacDonald Ltd v London & Regional Properties Ltd [2007] where HHJ Thornton QC, in addition to addressing the dispute between the parties, commented on the Adjudicator’s Decision to withhold the publication of his decision until confirmation of payment by the referring party. It was held that the Adjudicator could not impose a lien on his Decision pending payment of fees as this would be contrary to the obligation to deliver the decision to the parties as soon as possible. The view was taken that a contractual requirement for payment from one party, namely the referring party, prior to release of a decision would lack impartiality. In conclusion HHJ Thornton QC set the tone for Adjudicators by establishing the principle that “any failure to comply with the requirement for a prompt delivery will render the decision unenforceable and, probably, a nullity.”

Interestingly whilst it might have been considered that exercising a lien was common practice prior to the established position in Mott MacDonald recent research has indicated otherwise. In response to research questionnaires 8% of Adjudicators that participated still exercise a lien over their fee although this is reduced from 22% previously.

With a lien on an Adjudicator’s Decision no longer enforceable, Adjudicators are left in the sometimes difficult position of trying to recover their fee. One such case was Christopher Michael Linnett v Halliwells LLP [2009] EWHC 319 (TCC).The relevant facts of the case were as follows:

- Mr. Linnett was appointed as adjudicator in relation to a dispute which arose between ISG InteriorExterior PLC, (ISG) and the defendant, Halliwells LLP, (Halliwells).
- Halliwells raised and maintained jurisdictional challenges throughout the adjudication proceedings and on this basis contended that they were not liable for the adjudicator’s fees. However despite the jurisdictional challenges Halliwells continued to take part in the adjudication.
- Mr. Linnett raised the issue of the non-return of his questionnaire incorporating his terms and conditions advising that unless this was returned it would be assumed that his terms had been agreed. Halliwells again responded stating the return of the questionnaire was irrelevant as he had no jurisdiction.
- Further to Halliwells’ refusal to pay their portion of Mr. Linnett’s fees he raised a court action to recover fees and time spent since the Decision in communicating with Halliwells regarding non-payment.

The view was taken that statutory adjudication was contractual and consisted of two agreements; the first being the Adjudication Agreement and the second the agreement between the Adjudicator and one or both of the parties.

Halliwells argued that, as it had not responded to the terms within the questionnaire, no contract had been formed between it and the Adjudicator and therefore the Adjudicator’s only route for recovery would be via ISG (who would then have to recover this from Halliwells). However, it was argued by the Adjudicator’s representative that irrespective of the jurisdictional challenges the responding party had continued with the adjudication and that the Adjudicator could recover payment in a quantum meruit basis. Mr. Justice Ramsey found Halliwells were liable to pay the reasonable fees and expenses of the Adjudicator and that this applied even if he did not have jurisdiction (although it is worth noting that it was found that Mr. Linnett did in fact have jurisdiction).

Is an adjudicator still entitled to their fees when the Decision is challenged in the courts and found not enforceable due to a fault on behalf of the Adjudicator?

In the case of Systech International Ltd v PC Harrington Ltd [2011] EWHC 2722, PC Harrington (“PCH”) had referred a dispute with one of their sub-contractors (Tyroddy Construction) to adjudication. Mr. Doherty, who was employed by Systech, was appointed as the adjudicator in relation to a series of adjudications. Further to the Adjudicator’s decision being issued on the first three disputes, PCH sought declarations from Mr Justice Akenhead regarding (i) enforcement (on the basis of there having been a breach of natural justice because the Adjudicator had failed to address the defence put forward that no retention was due because PCH had already overpaid Tyroddy on the subcontract); and (ii) directions for the Adjudicator for conduct of the future adjudications. The court found in favour of PCH.

PCH subsequently argued, in an action brought by Systech for payment, that the adjudicator should not be entitled to his fees on the basis that there had been a total failure of consideration. The judge rejected this argument and ruled that the Adjudicator was entitled to his full fee for which both PCH and Tyroddy were liable. In short the Adjudicator had conducted himself as would be expected spending time reviewing the submissions as reflected in timesheets provided. Therefore it was not viewed as a total failure to perform on the part of the Adjudicator. It should be noted, however, that PCH has sought permission to appeal this decision and the position may change if the Court of Appeal grants leave.

In conclusion, it seems Respondents will be held liable for the Adjudicator’s fees in most instances and the level of fees appears to be considered reasonable. However the Adjudicator shouldn’t expect payment prior to issuing his Decision.