PC Harrington Contractors Ltd v Systech International Ltd

An adjudicator’s contractual entitlement to fees depends on the proper construction of the appointment and the Scheme for Construction Contracts (England and Wales) Regulations 1998, not on the restitutionary doctrine of total failure of consideration.

Absent an express term to the contrary, the Scheme treats an enforceable decision determining the referred dispute as the bargained-for performance. It does not give the adjudicator a separate entitlement for preparatory work where the resulting decision is wholly unenforceable for a material breach of natural justice. The Scheme’s specified cases of remuneration where no decision is completed, and its exclusion of fees on revocation for default or misconduct, reinforce that conclusion.

PCH and its subcontractor referred disputes over retention monies on three projects to adjudication. The adjudicator issued decisions and invoices, but failed to address PCH’s defence that the subcontractor had already been overpaid. In earlier Part 8 proceedings, Akenhead J held that this was a material breach of natural justice and declared the decisions unenforceable: [2011] EWHC 813 (TCC).

In the subsequent fee dispute, Akenhead J nevertheless held that the adjudicator had partly performed his role and was entitled to agreed fees. PCH appealed. The central issue was whether an adjudicator who produced a decision unenforceable for breach of natural justice could recover fees under his appointment and the Scheme.

1. Appeal allowed. The adjudicator was not entitled to any fees. The court unanimously held that he had not provided the contractual performance for which remuneration became due: an enforceable decision determining the matters referred.

2. The question was one of contractual construction. This was not a restitutionary claim for repayment, so the relevant inquiry was not whether there had been a total failure of consideration. The inquiry was whether the appointment was entire, requiring an enforceable decision, or divisible so that the adjudicator could charge for separate preparatory functions.

3. The terms of engagement had to be read with the Scheme for Construction Contracts (England and Wales) Regulations 1998. Although an adjudicator must undertake preliminary and ancillary steps, the Scheme made no general provision for payment for discrete stages of an adjudication. Its express provisions allowed remuneration without a completed decision only in defined circumstances. Those circumstances did not arise.

4. Paragraph 11(2) of the Scheme was especially significant. It excludes fees where revocation is due to the adjudicator’s default or misconduct. A decision wholly unenforceable because of the adjudicator’s material breach of natural justice was such a serious default. It would be incoherent to deny fees if the appointment were revoked before that default produced a decision, but allow full fees once it became apparent in the decision itself.

5. The hourly charging provision and ability to seek interim payments did not alter that construction. They supplied a method of calculating fees and cashflow, not a discrete entitlement to payment for work that culminated in a valueless, unenforceable decision. The adjudicator’s immunity from liability except for bad faith further supported that reading.

6. Davis LJ added that, where a party challenges jurisdiction, elects after the adjudicator’s ruling to continue, and the jurisdictional objection is later upheld, the fees are ordinarily payable unless the parties have agreed otherwise. Adjudicators may protect themselves by securing an express term covering remuneration where no decision is delivered or a decision proves unenforceable.

1. Court of Appeal (Civil Division). Allowed PCH’s appeal and held that the adjudicator could not recover fees after producing wholly unenforceable decisions: [2012] EWCA Civ 1371.

2. Technology and Construction Court. Akenhead J rejected PCH’s contention that no fees were due and held that the adjudicator had partly performed his role. The citation for that fee judgment is not stated in the judgment.

3. Technology and Construction Court (earlier Part 8 proceedings). Akenhead J held that the adjudicator’s failure to address PCH’s principal defence was a material breach of natural justice and declared the decisions unenforceable: [2011] EWHC 813 (TCC).