Ken Salmon MCIArb, consultant solicitor to Slater Heelis Limited and Kuits LLP, explores the tricky world of adjudicators’ fees.

Liability for the Fees

The liability for and any apportionment of the adjudicator’s fees is, subject to any provision in the construction contract, a joint and several one. They may be expressly provided for in the construction contract and are almost always included as express terms in the adjudicator’s terms of appointment. Inconveniently, they are not provided for in the Construction Act[1] itself, but are covered by the various Schemes for Construction Contracts Regulations[2] (where they apply, unless wholly compliant adjudication provisions are to be found in the construction contract).

It is well-established by case law that the parties will attract joint and several liability for fees as a result of their participation in the adjudication, irrespective of any reservation as to jurisdiction and it would appear, whether or not they expressly accept the adjudicator’s terms of appointment, a matter we will return to below.

Potential Problems – can’t pay, won’t pay

Assume that the adjudicator makes their award. The referring party is successful and the responding party is ordered to pay the adjudicator’s fees and expenses of the reference. There will be occasions when the party who is primarily liable, or even both parties, do not have the means to pay. They may actually have become insolvent or be suffering from a cash flow shortage. Parties with the means to pay, still find varied excuses for not doing so. Here are the more common ones.

1. The responding party has brought an unsuccessful jurisdictional challenge, which it now maintains in answer to the claim for payment. Where there is a jurisdictional challenge, the referring party, rather than seeking to enforce the decision, might wait to see if the adjudicator is successful in suing for their fees, and thus establishes that the decision is valid and enforceable. (There are, of course, risks with this strategy, not least the additional costs that will land at that party’s door.)
2. The successful party is simply reluctant to pay; after all it won, so why should it pay first and risk being unable to recover the outlay?
3. The adjudicator got it wrong, so why should we pay?
4. The decision is unenforceable.
5. No decision was made.
6. We expressly rejected or refused to agree the adjudicator’s terms so we are not bound by them.
7. The time spent was unreasonable; the fees are excessive.

The parties might wait to see if the adjudicator is determined enough to take legal action to recover their fees. If they do or it is clear they will, then comes the belated offer of compromise; “it’s all we can afford” or “we will pay £X now and the rest in three months’ time” or “we’ll pay the fees if the adjudicator forgoes interest and the costs of recovery”.

It is worth noting that practical experience shows that summary judgment with the expedited procedure applicable to adjudication cases is effective but not inexpensive, particularly where the fees are modest in amount and only fixed or limited costs are recoverable under the applicable Civil Procedure Rules. The prospects of subsequent adequate recovery of costs is all the greater where there is an express contractual right of indemnity to the costs of recovery and legal action, in the terms of appointment.

What can be done?

First and foremost, adjudicators can conduct due diligence on the parties and decline to accept the appointment if there is a perceived risk of non-payment due to apparent impecuniosity or previous difficulty obtaining payment.

The confidentiality of the process and data protection laws almost certainly prevent Adjudicator Nominating Bodies (ANBs) from keeping and sharing records of parties with a poor payment history, and/or warning panel members. For the same reasons, adjudicators cannot share such information. And whilst enforcement proceedings for payment of adjudicators’ fees leading to unreported judgments in the courts are in principle accessible, finding them can be time-consuming; and practically impossible where there is no judgment.

It seems doubtful there is sufficient reason or means of applying pressure to secure an amendment to the Construction Act or Schemes, to give adjudicators the right to require a deposit on account of fees, and/or exercise a lien over the decision until fees are paid.

There is another possibility, one with more thorns than roses, but which lies in the adjudicator’s own hands. Whilst it is not permissible as a matter of contract or of law to exercise a lien over payment of the adjudicator’s fees[3], we have seen that an appropriate term in the appointment requiring payments on account of fees, even if not readily enforceable, can be effective. This requires us to look briefly at the case of Nicholas James Care Homes Ltd v Liberty Homes (Kent) Ltd [2022] EWHC 1203 (TCC) (Nicholas James).

Upon nomination, an adjudicator would send the parties their terms of appointment containing a provision for the parties to make payment on account of fees from time to time incurred or to be incurred. This would be a joint and several liability which at least the referring party would need to accept before the adjudicator takes up the appointment. In the Nicholas James case, both parties appear to have accepted or at last complied with such a term. In that case, the responding party felt the term was not binding on them, but eventually paid up, for fear of upsetting the adjudicator and harming their case. However, it can readily be imagined that other responding parties might either stay silent or refuse to accept the terms – refusal to do so is not uncommon. That would leave the referring party alone liable to pay as the adjudication progresses. Could this be said to deny a party their inalienable right to adjudicate at any time – especially if the security was substantial and the referring party short of means? Views might differ but the common sense answer is, “probably not”, though nothing should be entirely taken for granted in the world of adjudication, until tested in court. Thus, the unhappy referring party would be left having to seek another nomination where it might hope that no security would be required. In fairness, not all adjudicators would want to insist on security, or be willing to risk the unwanted effects of declining appointments. There is another potential thorn. If the adjudicator accepts payment on account from the referring party only, could this lead to a suggestion of apparent bias? It does not follow and it ought not to be regarded as unfair to accept a payment on account of fees from one party only. But again, nothing should be taken as guaranteed when it comes to adjudication.   

The above  approach is buttressed where there a provision in the terms of appointment, that the adjudicator shall be entitled to payment of their fees whether or not a decision is actually delivered (e.g. because the adjudicator resigns – see below) or is later found to be unenforceable (see the case of Davies & Davies Associates Ltd v Steve Ward Services (UK) Ltd [2021] EWHC 1337 (TCC) (Steve Ward). Such a term is now commonly to be found in adjudicators’ terms of appointments. This follows the ‘advice’ of Lord Justice Davies in the earlier Court of Appeal decision in PC Harrington Contractors Ltd v Systech International Ltd (PC Harrington) that securing payment of fees was a matter for “the market place” and suggesting the adoption of terms to make it clear that the adjudicator was (in the absence of bad faith) to be paid whether or not a decision was delivered or was not enforceable.

Resignation

Assuming then that the potential thorns can be avoided and the adjudicator asks for a payment on account and does not receive it, can they resign? The answer is “yes”. First, paragraph 9(1) of the Scheme says the adjudicator can resign at any time on notice. This right is to be distinguished from the obligation to resign under paragraph 9(2) of the Scheme if the dispute is the same or substantially the same as one previously decided and where, upon such resignation, the adjudicator is entitled to their fees. There is no corresponding entitlement upon resignation under 9(1). Any such an entitlement will depend on the terms of appointment and perhaps, and ultimately, whether the resignation involved any ‘bad faith’ on the part of the adjudicator (see Steve Ward).

It may also depend on whether the party or parties have accepted the adjudicator’s terms, for Davis LJ in Harrington said this:

“In any case, if this decision does give rise to concerns on the part of adjudicators then the solution is in the market-place: to incorporate into their Terms of Engagement (if the parties to the adjudication are prepared to agree) a provision covering payment of their fees and expenses in the event of a decision not being delivered or proving to be unenforceable. It is of course a consequence of this court's conclusion that it is for the adjudicator to stipulate for such a term: not for the parties to the adjudication to stipulate to the contrary."

A decision whether to retire (and if so when) may also depend on factors such as the amount of fees incurred and unpaid, and yet to be incurred and the stage the adjudication has reached. The amount of fees which were the subject of the further demand in Nicholas James was fairly substantial. Although not explicit in the judgment, the fact that it was a considerable sum may have been a consideration. Whether or not that was so in that case, it may nevertheless be relevant in a future case, especially where there is an express right to payment on resignation in the terms, and when the question of the amount of security demanded and the timing of the demand become material to the question of whether the adjudicator was acting in good/bad faith in resigning.

The way Lord Justice Davies dealt with the question of fee entitlement in Harrington and the judgment in Steve Ward both suggest the same considerations are likely to apply in the case of an unenforceable decision as in the case where there is no decision due to retirement. First, that the terms of appointment entitle the adjudicator to payment of fees in those circumstances and barring bad faith; second that at least one party, if not both, has agreed the terms as to fees (agreement being by actual acceptance or deemed acceptance by participation without reservation), and finally that the adjudicator has not in fact acted in bad faith. If both parties, or even the referring party alone were to expressly refuse to accept the adjudicator’s terms, then it would be open to the adjudicator to decline to accept the appointment.

Summary

Unless and until Parliament, or possibly the courts, provide a better remedy, the best that can be done is to include adequate provisions for payment and security for fees in the terms of appointment (avoiding anything amounting to a lien); secure agreement to the terms from at least the referring party or decline to accept the appointment in the absence of agreement; upon acceptance to make regular requests for payments on account, with resignation, acting always with integrity and good faith, as an ultimate sanction in default of payment.

[1] Housing Grants Construction and Regeneration Act 1996 (as amended)

[2] See for example paragraph 9(4) and 11(1) of the Scheme for Construction Contracts (England and Wales) Regulations 1998 as amended by paragraphs 3(4) and 3(5) of the 2011 Amendment Regulations

[3] Cubitt Building & Interiors Ltd v. Fleetglade Ltd [2006] EWHC 3413 (TCC)  

Kenneth Salmon MCIArb is a qualified solicitor in England, Wales and Eire. He is a Ciarb qualified and CMC accredited Mediator and Chair of Education at Ciarb North West Branch. Kenneth is a construction specialist currently working as a consultant to Slater Heelis Limited and Kuits LLP. He has extensive experience of all forms of dispute resolution including arbitration, adjudication, expert determination and mediation. He is the author of Cases on the Enforcement of Construction Adjudication Awards (2012) and the series Cases (on adjudication enforcement) published in Ciarb’s journal Arbitration: The International Journal of Arbitration, Mediation and Dispute Management 1999-2017.

Read more about adjudication.

Develop your knowledge and skills in construction adjudication through our training courses.

Find out more about how to apply to Ciarb's Adjudication Panel.