The importance of the Notice of Adjudication (“Notice”) – the document that sets out the scope of the dispute between the parties and, importantly, sets out the matters that the adjudicator has jurisdiction to decide – is well known. A poorly drafted Notice can lead to jurisdictional arguments as to whether the adjudicator has the power to decide the dispute which, if successful, can lead to the resignation of the adjudicator.

The question which inevitably results in those circumstances, and for which the starting point is PC Harrington Contractors Ltd v Systech International Ltd, is: what about the adjudicator’s fees? This issue has been brought sharply back into focus by the recent Court of Appeal case – Steve Ward Services (UK) Limited v Davies & Davies Associates Limited.

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In this blog post, we consider the case of Steve Ward v Davies & Davies in more detail. We first look at the CIC Low Value Dispute Model Adjudication Procedure (1^st Edition) (the “MAP”), which came under scrutiny as part of the Appellant’s argument in the Court of Appeal, and finally summarise some useful considerations to be kept in mind when drafting the Notice.

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What is MAP and why is it important?

The Construction Industry Council (“CIC”), in collaboration with the RICS, introduced MAP in 2020 as an attempt to ensure that adjudication remained accessible for all parties. The CIC had found evidence to suggest that parties were deterred from using adjudication because of the costs involved, none of which are recoverable. The MAP’s streamlined adjudication process provides parties to low value disputes with certainty as to the adjudicator’s fees because it caps the adjudicator’s fees in bands based upon the amount in dispute.

The MAP only applies to disputes that have a value of £50,000 or less and the adjudicator’s fees are fixed based on the value of the dispute (for example, a dispute worth £10,000 will result in a cap on the adjudicator’s fees at £2,000). The maximum adjudicator’s fee is £6,000. Fees for site visits and meetings are also capped. Importantly, for MAP to apply, it needs to be written into the contract.

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Steve Ward v Davies and Davies

In the first instance judgment, Mr Roger Ter Haar QC (sitting as Deputy High Court Judge) decided that the adjudicator did not breach the terms of his engagement when he resigned his appointment and was entitled to his fees, which were not excessive. The Court of Appeal confirmed the decision.

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Background

Between late 2019 and early 2020, Steve Ward Services Limited (“SWSL”) carried out construction operations at a restaurant in Stanmore, Middlesex. A contract was drawn up but not signed. The “client” was named in the contract as Ms Vaishali Patel.

Disputes arose in relation to defects and payment, and SWSL commenced adjudication proceedings. Communications in relation to these disputes were carried out between SWSL and its solicitors and Bhavishya Investment Limited (“BIL”) and its solicitors, on the basis that BIL was the contracting party liable for any sums due to SWSL. At no stage did BIL suggest that Ms Patel was personally liable instead.

" If you have a concern over the jurisdiction of the adjudicator, these should be raised as soon as possible – it is not a defence to sit quietly. "

In September 2020, after a failed Notice had to be withdrawn, SWSL re-commenced adjudication proceedings against BIL and an adjudicator (Mr Nigel Davies) was appointed. Mr Davies wrote to both parties by post and email, enclosing his terms of appointment – a term of which stated that, save for any act of bad faith by the adjudicator, he would be entitled to his fees and expenses even in the event that the Decision was not delivered and/or proved unenforceable.

The Referral, Response and Reply were provided to the adjudicator. BIL did not raise the issue of jurisdiction in its Response. Following receipt of the Reply, the adjudicator made enquiries of the parties as to whether the contract had been novated to BIL. The adjudicator subsequently concluded that the contract was between SWSL and Ms Patel, and resigned on the basis that he did not have jurisdiction to decide a dispute between SWSL and BIL. The adjudicator issued an invoice to SWSL for his time spent on the adjudication. SWSL refused to pay, and Mr Davies commenced proceedings in the High Court for his fees.

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The TCC Decision

Mr Roger ter Haar QC decided that there was a jurisdictional issue but also considered whether Mr Davies ought to have resigned when neither SWSL nor BIL had raised a jurisdictional challenge as to whether they were the correct contractual parties to the dispute. SWSL asserted that, unless a party makes such jurisdictional challenge, it is not open to the adjudicator to decline jurisdiction. Whilst the Judge agreed that this was a decision beyond the ambit of paragraph 13 of the Scheme for Construction Contracts (England and Wales) Regulations 1998 (the “Scheme”), which provides the Adjudicator with the power to “take the initiative” in ascertaining the facts and law necessary to determine the dispute, because Mr Davies had resigned on the basis that it was not open to him to reach a Decision in a dispute between SWSL and BIL when the true contractual relationship was between SWSL and Ms Patel. However, at the time Mr Davies resigned, there was no dispute as to the identity of the contracting parties or as to his jurisdiction. As a result, Mr Davies was within his rights to resign under paragraph 9(1) of the Scheme (the right to resign at any time) instead.

As to the true effect of the Adjudicator’s terms and conditions, Mr ter Haar QC held that Clause 1 of the terms and conditions entitled Mr Davies to payment save in a case of bad faith. He held that Mr Davies had acted with “diligence and honesty” and, as a result, was entitled to resign under Paragraph 9(1) of the Scheme which, in turn, meant that there could be no bad faith.  

He also said that he had considerable doubt as to the applicability of Section 3 of the Unfair Contract Terms Act to Mr Davies’ terms but, if he was wrong on that, then Clause 1 was reasonable.

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The Court of Appeal Decision

SWSL appealed on 6 grounds:

1. Was there a jurisdictional issue in the adjudication?
2. Was Mr Davies entitled to decline jurisdiction and resign in consequence?
3. Subject to bad faith, was Mr Davies entitled to be paid for work done prior to his resignation?
4. Was Mr Davies guilty of bad faith?
5. Were Mr Davies’ terms of appointment contrary to UCTA?
6. Should this court interfere with the Judge’s costs order?

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For Issues 1 and 2, Coulson LJ held that there was a “real jurisdictional issue in this case”. SWSL and its solicitors were criticised by the Judge for their unhelpful responses to Mr Davies’ questions in circumstances where they were aware that his concern went to lack of jurisdiction. BIL and its solicitors also came under criticism because they “did not answer any of the adjudicator’s questions, and did not tell him anything he didn’t already know”. As Mr Davies had decided that the contractual basis of the Referral was wrong, because the contract was not between SWSL and BIL (and BIL did not confirm that this point had been waived), Coulson LJ held that Mr Davies was entitled to decline jurisdiction and resign pursuant to paragraph 9(1) of the Scheme. Paragraph 31 of the MAP gave him the same entitlement.

As to the fees incurred by Mr Davies prior to his resignation (Issue 3), consideration was first given to the applicable principles to be considered once an adjudicator has resigned (set out at paragraph 76 of the Judgment).

The Court then addressed the question of whether Mr Davies’ terms of appointment conflicted with the MAP or the Scheme. Coulson LJ held that, despite Mr Davies’ letter dated 23 September 2020 confirming his acceptance of the RICS’ nomination to act as the MAP adjudicator, it also referred to his terms of appointment which had been attached. The “Amount of Charge” in the adjudicator’s terms of appointment stated that, should the MAP cease to apply, Mr Davies’ hourly rate would be £325 per hour. Consequently, the decision of Mr ter Haar QC was upheld because Mr Davies had resigned and, therefore, the MAP was no longer applicable. As a result, Mr Davies was entitled to claim for the time he had incurred at the rate of £325 per hour.  

The Court then considered bad faith. For there to be an act of bad faith, there will typically have to be a measure of dishonesty or unconscionability. The Court held that the adjudicator had raised real concerns as to his jurisdiction which had not been answered by the parties, and that he had acted with “diligence and honesty” in resigning. As such, there was no bad faith. Finally, Section 3 of UCTA was held not apply to Clause 1 of Mr Davies’ terms of appointment. The TCC’s costs order was also upheld.

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Practical Tips

1. Ensure that the correct contracting parties are contained in the Notice – failure to do so can result in the entire adjudication becoming invalid and parties potentially becoming liable for the fees of an adjudicator;
2. If you have a concern over the jurisdiction of the adjudicator, these should be raised as soon as possible – it is not a defence to sit quietly; and
3. Answer the questions put to you by the adjudicator in any jurisdictional challenge – the parties in this case came under criticism from the court for not assisting the adjudicator.

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