Ad-hoc adjudication: Cheque mate

The adjudicator in this story is not the most popular bloke on the block. Immediately he was appointed to be the adjudicator he required the two parties to stump up a whopping size cheque to cover a guess about his eventual fee. Let me come back to that. Then the responding party said the adjudicator had no jurisdiction. The adjudicator then called for submissions about jurisdiction. In return he produced a beautifully crafted 41-page award, which was non-binding, mere observations about jurisdiction.

These observations had persuaded him that he had no jurisdiction. But he was also persuaded that because both sides had paid his invoice up front, then bingo he had now got authority to adjudicate. Also it meant that now there was a binding agreement by the parties to adjudicate. Hmmmm. He then said, let’s get on with it. The respondent would have none of it and said they were dropping out. In due course the adjudicator awarded the whole claim of about £200k to the referring party. At least someone was now smiling and so too the adjudicator because he has picked up his fees of £18,000.

The “successful” party wanted its £200k and the adjudicator’s fee to be paid by the other party. “Shan’t,” they said. The High Court was the next place to go. The case is called Clark Electrical vs JMD Developments (UK) Ltd. It was Clark that wanted the adjudication winnings. They got absolutely zero save for another bill for the costs of both parties coming to court on the attempt to enforce.

Merely agreeing to pay the adjudicator need not mean you are also submitting to an ad-hoc adjudication process

Now just about everyone was fed up – including about 60 very experienced RICS adjudicators. Not one of them approved the adjudicator’s idea of an “appointment fee” of £6,000 per side + VAT = £14,000. Nor his idea that even if the adjudication settles, the fee will be minimum 50%, come what may. We adjudicators do not approach adjudication appointments in that way. But I really do understand why this adjudicator does it. Getting paid after the match is over has become a pain. The loser has now lost his sense of humour; some get spiteful, “let’s make the swine wait”.

The winner then wants the loser to pay. There is another reason why this adjudicator is comfortable with money up front. He does a lot of work abroad. Across the seas it’s a norm to call for payments on account of work yet to be done. But we don’t do it here.

Now let’s look at this idea that having sent a cheque gave jurisdiction where no right otherwise arose under the contract to adjudicate. By the way, the work was not a construction contract because it was work on a building that is one of the exceptions under the Construction Act. Nor did the contract contain an ad-hoc adjudication clause. So the whole matter comes down to whether sending two lots of £7,200 somehow creates a right to adjudicate. The adjudicator said it did. He said he had sent his terms and the cheques were a contractual agreement under the rules of offer and acceptance. In short, is that what is known as the creation of an ad-hoc adjudication agreement?

The bottom line is whether both parties have “submitted to the jurisdiction of a third party”. Be careful at this point. There are two contracts or two circumstances where you ask if the parties have “submitted”. While adjudication is a creature of statute, it is contractual. That’s one contract. The second is the adjudicator’s agreement. That contract can be with one (only) or both parties. So the adjudicator’s ability to obtain fees requires a contractual right to payment. That’s why the adjudicator is to be paid for his efforts even if there is no jurisdiction to adjudicate. But merely agreeing to pay the adjudicator need not mean you are also submitting to an ad-hoc adjudication process when no right arises anyway. It needs something more. It may even be that serving a response to referral is not enough, especially if sent with a warning about their being no right to adjudicate at all.

If only the adjudicator had taken legal advice it is highly likely he would have stopped and saved the parties many thousands of pounds including his appointment fee or should I say half of his appointment fee. As it is the Technology and Construction Court went against him: no ad-hoc adjudication agreement had been entered into and his decision was not enforced.

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple