Can adjudicators add interest?

Readers may recall John Redmond's illuminating article on adjudicators' power to award interest on adjudication claims ("Can I have some more?", 9 November 2001, page 55). There, Redmond pointed out that whereas arbitrators and judges have statutory powers to award interest if they consider that it would be appropriate to meet the justice of the case, adjudicators have no right or power to go outside the contract from which the dispute arises.

This means that if the contract allows interest on late payments, the adjudicator may add it on. If it does not, however, the situation becomes more complicated. If the parties have adopted procedural rules that permit the adjudicator to award interest, all well and good. Possibly, the parties may have agreed to allow the adjudicator to award interest or interest may be permitted under the Late Payment of Commercial Debts (Interest) Act 1998 if the parties fall within its criteria. All in all, however, it is rather confusing.

Many adjudications are governed by the Scheme for Construction Contracts. Interest under the scheme is dealt with in paragraph 20(c). This specifies that the adjudicator must "have regard to any term of the contract relating to the payment of interest" when considering whether to award it. In Redmond's view: "If there is no such term, the adjudicator cannot invent one."

Now this is perfectly true, but I wonder whether the matter ends there. Consider the present position: if there is a right to award interest on late payments by whatever means, then clearly the adjudicator may do so. Conversely, if there is a clear statement that no interest is to be awarded for late payments, then it seems to me that the adjudicator has no right to award interest. Usually, however, the contract says nothing. Redmond's reading of clause 20(c) is that in such circumstances, the adjudicator cannot award interest because they cannot invent another clause in the contract giving them the appropriate power.

Can paragraph 20(c) be read slightly differently? It permits the adjudicator, among other things, to take into account matters under the contract that they consider are "necessarily connected with the dispute". In particular they may, under paragraph 20(c), "decide the circumstances in which, and the rates at which, and the periods for which simple or compound rates of interest shall be paid".

It seems to me that paragraph 20(c) requires the adjudicator to take note of any contractual term relating to the payment of interest but then (if there is no relevant contractual term) it allows them to decide whether interest is to be awarded. There is nothing in paragraph 20(c) that prevents them from taking this course of action. In these circumstances, it seems to me, the adjudicator is able to award interest even if the contract does not expressly permit them to do so.

I am aware of adjudicators adopting both options outlined above: in some cases they have declined to award interest on the basis that they are not expressly permitted to do so under the contract and in others they have awarded interest in any event because of the latitude afforded by the scheme. It seems to me that the latter course is the more sensible and more closely allies adjudicators with arbitrators and judges who are exercising their right to award interest under statute if the justice of the case requires it. Whereas adjudicators must have regard to the contractual basis upon which they operate, surely they should be allowed to consider the issue of justice between the parties and reflect this by awarding interest on claims allowed.

As far as I am aware (and no doubt somebody will correct me if I am wrong) there is no judicial decision on this particular point. The situation is to be contrasted with the position regarding the adjudicator's power to award costs: it is clear that an adjudicator cannot award costs if they are not empowered to do so [Northern Developments (Cumbria) vs J&J Nichol].

I hope that my understanding of paragraph 20(c) reflects the courts' view, allowing adjudicators the power to do justice to decisions rather than being being fettered too strictly by the contract.