Linnett v Halliwells LLP [2009] All ER (D) 36 (Mar)
Queen’s Bench Division, Technology and Construction Court, Ramsey J, 24 February 2009
If there is a valid jurisdictional challenge to an adjudicator and if a party has not participated in the adjudication then that party can have no liability for the fees and expenses of the adjudicator. If, however, a party has participated in the adjudication process, albeit without prejudice to its contention that the adjudicator did not have jurisdiction, then in principle by participating the party will generally be liable for the reasonable fees and expenses of the adjudicator.
Emily Monastiriotis of Mayer Brown International LLP for the claimant. David Fearon of Halliwells LLP for the defendant.
In December 2007, the defendant entered into a JCT standard form of building contract with a company, ISG, for the latter to carry out works at the defendant’s new offices. By Art 5 and cl 41A of the contract it was agreed that either party could refer any dispute to adjudication, with any dispute then being finally determined by legal proceedings. Disputes arose and ISG served a notice of adjudication in May 2008.
The claimant was nominated as adjudicator. He provided his terms to the parties. The defendant took the view that the referral had not been served within time and the adjudicator therefore lacked jurisdiction. It further stated that if he was not prepared to withdraw from the adjudication, then he was invited to revise directions requiring service of the response. The adjudicator responded that he did not accept that the referral was out of time. The defendant responded, without prejudice to its earlier contention, that the building contract had been varied by an oral agreement and/or by conduct, and as a result the adjudicator lacked jurisdiction. The adjudicator went on to find jurisdiction. He apportioned his fees entirely to the defendant, who refused to pay on the ground that the adjudicator had never had jurisdiction. The adjudicator issued proceedings seeking to recover his fees.
Ramsey J:
The general position in relation to an arbitrator was that: (i) where a person acted as an arbitrator then by accepting the appointment, that person was entitled to reasonable remuneration from the parties for work done; (ii) where a person acted as an arbitrator then the parties were jointly and severally liable for that person’s fees and expenses; and (iii) where a person acted as arbitrator but did not have jurisdiction then that person might have a claim based on the fact that the useless work was carried out at the request of the parties or one of them.
There was no reason why those general principles should not apply to a person who was appointed as an adjudicator under express or implied contractual provisions for adjudication.
Where one party agreed the adjudicator’s terms but the other did not then, except for such terms as might require the agreement of the other party in order to become binding, the adjudicator could enforce those terms against the party with whom he had a contract. There was nothing objectionable in an adjudicator being appointed unilaterally and, indeed, it was not uncommon in arbitrations with three arbitrators.
In general terms, absent any jurisdictional objections, if an adjudicator was appointed and neither party made a contract with the adjudicator, the parties by participating in the adjudication and thereby requesting the adjudicator to act, entered into a contract with the adjudicator who acted in that capacity as a result of that request. Such a contract would be formed by conduct. There would be implied terms that the party would be liable to pay the reasonable fees and expenses of the adjudicator and would be jointly and severally liable to do so.
In principle, there was no reason why the position should not be similar where only one party made a contract with the adjudicator but the other one did not.
Liability
The question of joint and several liability might give rise to some difficulties in the case where one party agreed the rates of remuneration with the adjudicator but the other party did not and had to pay a reasonable remuneration. However, in practice, the agreed fee was likely to be the same as or accepted to be a reasonable fee.
Where a party wished to raise a jurisdictional argument it had one of two options. First, it could make an assertion of lack of jurisdiction and withdraw, taking no further part in the adjudication proceedings and leaving the adjudicator and the other party to proceed at their risk. It might then seek an urgent declaration as to jurisdiction from the court or seek to challenge any decision on the ground that the adjudicator had no jurisdiction. In such circumstances in the absence of any agreement with the adjudicator, there would be no request for the adjudicator to do anything and it would be difficult to make that party liable for the fees and expenses of the adjudicator.
Second, it could make an assertion of lack of jurisdiction but continue to participate in the proceedings, without prejudice to that contention. It might seek to persuade the adjudicator to make an early non-binding decision on jurisdiction. If that was in favour of the party, the adjudicator would be obliged to withdraw and the adjudication would come to an end. If the adjudicator found that he had jurisdiction that party might continue to participate in the adjudication, again without prejudice to its right to challenge any award on the basis of a lack of jurisdiction. By participating in that way, while the party was not giving the adjudicator jurisdiction to make a binding decision, it was requesting the adjudicator to carry out work and make a decision.
His lordship considered that on the facts of the instant case, the conduct of the defendant had given rise to a contract formed with the adjudicator, rendering the defendant liable to pay the adjudicator’s reasonable fees.
