Life on the high fees

Legal costs have been in the news recently. On 2 April, the courts adopted a whole new approach to them. Proportionality is now to be a big factor in deciding how much a losing party has to pay. If the costs incurred by the winner are not proportional to the dispute, the recovery will be reduced, perhaps substantially.

But one type of legal cost of particular interest to the building industry seems to be getting more and more disproportionate: adjudicators’ fees.

Adjudication was introduced to give the industry “a sensible way of dealing expeditiously and relatively inexpensively with disputes” (Lord Ackner in the debate about the Scheme in the House of Lords).

Adjudication is certainly quick when compared with litigation in the courts. But inexpensive is not a word that is used a great deal when talking about the process. The costs of professional representation, irrecoverable whatever the result, make adjudication unattractive unless the sum involved is substantial.

Of course, the parties can economise by representing themselves. There is no reason why they shouldn’t, although it is difficult to present the arguments clearly enough in the maelstrom of a 28-day adjudication. There is, however, one cost that they cannot avoid, and that is the adjudicator’s fee. This has never been cheap, but it seems to be getting more and
more expensive.

I have just seen a decision in which The amount of the decision was about £40,000. The adjudicator’s fee was over £25,000. That is not at all unusual

Janey Milligan and Mark McShane of Glasgow Caledonian University have done some academic research. The results were published earlier this year. They found that the most popular band for the fees was £2,500-5,000. That seems reasonable for a dispute about a six-figure sum, but quite expensive for smaller disputes. Worryingly, however, the next most popular bracket was £15,000-20,000. That is a lot for a typical £200,000 dispute.

More worryingly, my impression is that more and more adjudicators’ bills are coming in at considerably more than £10,000. I have just seen a decision in which the amount claimed was under £115,000. The amount of the decision was about £40,000. The adjudicator’s fee was over £25,000. That is not at all unusual.

The adjudicator is only entitled to a reasonable fee, but if the parties refuse to pay and the matter is taken to court, judges are very reluctant to interfere. If the adjudicator says the work took x hours, and the adjudicator’s normal charging rate is y pounds, the fee is payable. There is no effective limit either on the number of hours that is being spent or the hourly rate that is being charged.

Whether the parties can do anything about this depends on how the adjudicator is appointed. This can happen in one of three ways. Theoretically, the adjudicator can be agreed in advance when the contract is signed. This is rare. Alternatively, when a dispute arises, the parties can agree to appoint a named individual to act as adjudicator. Or third, the claiming party can apply to a professional adjudicator nominating body to appoint.

If the parties are appointing an adjudicator by agreement, there is an opportunity to agree the basis of charge. Typically, the potential adjudicator is asked to quote an hourly rate. This is not a reliable guide to the likely fee. Some of the highest fee charges seem to come from adjudicators charging modest hourly rates. There is no reason though why the potential adjudicator should not be asked to quote a fixed fee. Given a simple description of the issue, an experienced adjudicator can have a pretty good guess at how much time will be involved in the adjudication. There will, of course, be swings and roundabouts, and the adjudicator will not quote the lowest possible fee if it is going to be fixed, but this would achieve certainty for the parties.

If the adjudicator is to be appointed by an adjudicator nominating body, such as the RICS or the Chartered Institute of Arbitrators, there is no opportunity to discuss the fee. These institutions do not place any control on the overall fee charged by the adjudicators that they nominate. Perhaps they should. Here are a couple of suggestions for what they could do:

• Offer a review system so that parties can ask for independent assessment of whether a fee is reasonable
• Require adjudicators on their panel to work to scale fees based on the sum in dispute (which would not apply if the main claim is for a non-monetary decision, such as an extension of time or other declaration).

The nominating body that adopts one of these ideas first may find that it has an upturn in business.

John Redmond is a consultant at Osborne Clarke