In praise of common sense in litigation

Of course, of course, “the answer is dictated by common sense”, said the three Court of Appeal judges when ordering the defendant to pay the adjudicator his fees. “Common sense” refers to things that we simply accept we know without further reflection; that’s the unavoidable bedrock of common sense. And that’s where we get to in this very ordinary and very small building contract dispute.

Steve Ward Services (UK) Ltd (SWS) contracted to fit out an Indian restaurant called Funky Brownz, in Stanmore, north-west London. The contractor and employer fell out over the last £36,000, so SWS engaged construction solicitors Costigan King. They advised an adjudication. The RICS nominated experienced adjudicator Mr Nigel Davies, who is a solicitor and chartered surveyor. The rules of the adjudication were those of the CIC Low Value Adjudication and the Scheme for Construction Contracts. An, er, slick, super-straightforward process and, ha ha, trouble‑free.

The referring party, SWS, served the referral document; it said who the contracting parties were and nature of the contract. The respondent made its reply, resisting the claim. So, there you are, Mr Adjudicator, all the paperwork in front of you with the usual list of quarrels about the work and whether any money is payable.

The adjudicator rummages, thumbs pages, hums and hahs to himself. Then – as happens sometimes – he spots a set of circumstances that look iffy. Nigel Davies could find no indication that the named defendant was the actual contracting party. The referral and response both named the defending party as Bhavishya Investment Ltd (BIL). So did the reply to response. But the adjudicator could only find documents indicating that the contract, if any, was between SWS and Miss Vaishali Patel, no sign of Bhavishya Investment Ltd. Put bluntly, there was no dispute as to who were the contracting parties, but the adjudicator thought differently.

They must have felt strongly about this tiny amount of cash, because it is not cheap to go to the High Court and lose and then come to the Court of Appeal – all for a claim of £4,290

Now then, beware. People like Nigel Davies have been adjudicating disputes galore for at least two decades. The sniff factor is sharp. Does he raise the hare or, ostrich-like, just get on with deciding the quarrels? Mr Davies blew the referee’s whistle. He said that he was concerned that he may have no jurisdiction, no authority to decide the dispute if these two parties were not in contract. SWS, via its solicitor, argued that the adjudicator was not correct. The respondent was, for some reason, evasive. Mr Davies was adamant; kerplunk, he resigned.

Now comes the fun. He sent in his time-charge fee note. It came to £4,290 + VAT. SWS said no. It argued that the adjudicator had repudiated the adjudication appointment and he could whistle for his money. Nigel Davies sued. The High Court judge ordered payment, so SWS came to the Court of Appeal. SWS must have felt strongly about this relatively tiny amount of cash, because it is not cheap to go to the High Court and lose and then come to the Court of Appeal, all for a claim of £4,290. By the way, the court said this type of claim involving refusal to pay the adjudicator was unusual and interesting.

The Court of Appeal wholly agreed with Mr Davies. He correctly spotted that the wrong party was put up as defendant. It was a jurisdictional argument. It was also accepted that an adjudicator is entitled to resign when the Scheme for Construction Contracts applies.

SWS argued that the adjudicator ought to have ignored the point because neither party had raised it with him. Lord Justice Coulson said such observation was unsustainable saying, “Can it sensibly be suggested that, where there is a real jurisdictional issue, which the adjudicator has spotted and which goes to the viability of the entire adjudication, the adjudicator should say nothing about it, and instead proceed solemnly to the end of the process, leaving the point to any disputed enforcement hearing? In my view that is not the law and would be contrary to common sense.” Nigel Davies did right.

Now, what about the fee? His terms played a role here and so too does the conduct of the adjudicator. Could the resignation be the result of his “default/misconduct or bad faith”? If so, then no fee would be payable. The Scheme makes clear that liability is excluded unless there is bad faith. That will require some form of dishonesty or unconscionability. A serious procedural irregularity may not amount to bad faith but touch upon fee exclusion. Nigel Davies was praised for his approach to jurisdiction. There was a minor nudge that it is best to give a final warning prior to resigning, but nothing of that ilk deprives him of his fee.

The Court of Appeal expressed concern about the costs in this so-called very small item. £26,328 was awarded to Mr Davies for the first trial costs. It looks to be that, all in, SWS copped it for nudging £67,000 for this excursion into litigation. It was, said Lord Justice Coulson, “wildly disproportionate to the modest sums at stake”. Payable nevertheless.

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