HT-2023-000006 - [2024] EWHC 2295 (TCC)

There are two fees that I must consider: firstly, those of Mr Blizzard, and secondly, those of Mr Smith.

As to Mr Blizzard’s fees, there was a claim for £34,800 in the original pleading in this Court. In my second judgment handed down on 16 June 2023 (Footnote: ²), I decided at paragraph [46] that A & V could not claim more than 50% of that sum, namely £17,400.

There has been no appeal against that decision: A & V have attempted to resurrect the claim for the 100% figure in Mr Paduraru’s email of 18 June 2024, but it is not within my jurisdiction to allow A & V to revert to that figure. Accordingly, the claim is now for £17,400.

I dealt with these fees at paragraphs 424 to 430 of my last judgment. It has not been suggested by J&BH that there are grounds other than those rejected by me in my last judgment (namely the argument as to a binding agreement, which I rejected) for J&BH to resist an order for it to pay £17,400, and accordingly there will be judgment for A & V in that sum.

Mr Smith’s fees are referred to by me at paragraphs 431 to 436 of my judgment on the merits.

Mr Smith had found in most major respects in favour of J&BH. It followed naturally that he ordered A &V to pay his costs in the sum of £13,962.00.

In Mr Paduraru’s email of 18 June 2024 he said:

A&V contends that JBH should bear the cost of Mr Smith’s fees and pay Mr Blizzard’s fees in full to A&V for the following reasons:

a)

The Court has rightfully overturned Mr Smith’s decision. Consequently, Mr Smith’s “erroneous” assessment of the final account between the parties has failed, meaning that JBH has lost and should bear the cost of Mr Smith’s fees ….

When I rendered my first judgment in this matter (Footnote: ³), I held that Mr Smith’s Decision should be enforced, including the sum of £13,962 in respect of the Adjudicator’s own costs. To that was added interest: see paragraphs 21 to 23 of my second judgment (Footnote: ⁴).

That judgment has never been satisfied.

The question which now arises is what, following my judgment in very large part disagreeing with Mr Smith, is the appropriate approach in respect of his allocation of his own fees, in which he ordered A & V to pay his fees, this being the natural consequence in a situation where J&BH had been the successful party before him, but I have reached the opposite conclusion.

In his first Submissions, Mr Frampton contended that “the position is that the adjudicators’ decisions as to liability to pay their fees is final and is not subject to a final determination or reversal by the Court”. (Footnote: ⁵)

In support of that contention, Mr Frampton relied upon Castle Inns and the following short passage from Coulson on Construction Adjudication (Footnote: ⁶):

In addition, an adjudicator’s decision as to liability to pay fees is final and is not subject to challenge in subsequent arbitration/litigation: see Castle Inns (Stirling) Ltd v Clark Contracts Ltd.

Castle Inns was a decision of lord Drummond Young in the Outer House of the Court of Session. He had before him what in England we would describe as an application to strike out part of the Claimant’s pleading as being unarguable. The Pursuer had claimed to recover an adjudicator’s fees which that adjudicator had ordered should be paid by the Pursuer as the losing party in the adjudication.

The Pursuer claimed in the Court of Session that because the adjudicator’s decision was wrong, it was entitled to recover the amount of fees which the adjudicator had ordered should be paid on the basis that his (the adjudicator’s) decision was correct.

Lord Drummond Young held that those fees were not recoverable. It is important to note that at the time of Lord Drummond Young’s decision, it had not been decided whether the adjudicator had been right or wrong. It was effectively assumed for the purpose of deciding whether the claim for recovery of fees could continue, or should be dismissed as being legally “irrelevant” that the adjudicator had got his decision wrong.

At paragraphs [14] and [15] of the judgment, he said:

 [14] If a dispute between the parties is referred to the court, the court's decision on that dispute will thereafter be binding on the parties, and is clearly implicit in the scheme of clause 41A.8.1 that the adjudicator's decision on that dispute will cease to be binding. If the court's decision on the dispute is at variance with the adjudicator's decision, any sums that have been paid pursuant to the adjudicator's decision must obviously be repaid. Neither section 108 nor clause 41A states the legal basis for such repayment. In theory two possible bases might exist, either an implied term of the parties' contract or a restitutionary obligation based on unjustified enrichment. This is a case, however, where the parties' contract remains in full force and effect and the obligation to repay can be said to arise directly out of the contractual scheme. In such a case the use of an implied term of the contract is a more natural mechanism than a restitutionary obligation based on unjustified enrichment, which is necessarily an extra-contractual obligation. For that reason I am of opinion that the obligation to repay is based on an implied term of the parties' contract. Perhaps the most standard ground for the implication of a contractual term is that it is necessary to give business efficacy to the parties' agreement; that test is clearly satisfied in the present circumstances.

[15]     In his decision, the adjudicator may determine liability for his own fee and expenses. The relevant contractual provisions are found in clause 41A.7.1 and .2, which provide as follows:

"41A.7.1 The Adjudicator in his decision shall state how payment of his fee and reasonable expenses is to be apportioned as between the parties. In default of such statement the parties shall bear the cost of the Adjudicator's fee and reasonable expenses in equal proportion.

41A.7.2 The parties shall be jointly and severally liable to the Adjudicator for his fee and for all expenses reasonably incurred by the Adjudicator pursuant to the Adjudication".

Any finding by the adjudicator on these matters forms part of his decision, as clause 41A.7.1 indicates. Nevertheless, any such finding does not relate to the dispute that is the subject of adjudication; it is merely an ancillary finding, obviously analogous to a court's decision on expenses. The "dispute" that is contemplated by section 108 and clause 41A is clearly something that predates the reference to adjudication, and forms the substantive subject matter of the adjudication; the finding relative to the adjudicator's fees and expenses, by contrast, is something that can only be determined at the end of the adjudication process.

Thus the learned judge started by identifying what the dispute was which wasbefore the adjudicator.

He then continued:

[16]     The critical question that arises in the present case is whether that part of the adjudicator's decision can be reconsidered by the court or, presumably, by an arbiter. In my opinion it cannot, on the basis that such reconsideration would be contrary to the contractual scheme found in clause 41A. I reach this conclusion for four reasons. First, there is no contractual mechanism in clause 41A that would allow such reconsideration to take place. The power in clause 41A.7.1 is conferred specifically upon the adjudicator. No appeal is possible against an adjudicator's decision, and an adjudicator's decision cannot be challenged on the ground that it is a wrong on the facts or in law: see Diamond v PJW Enterprises Ltd 2004 SC 430. It follows that the adjudicator's decision as to liability for his fee and expenses cannot be challenged directly. Secondly, although the contractual scheme does permit an indirect challenge to the adjudicator's decision on any dispute submitted to him by means of court proceedings or arbitration, that mechanism only relates to a dispute or difference; that appears from the wording of clause 41A.8.1, and indeed section 108(3). It accordingly does not apply to the adjudicator's decision on his fee and expenses, as that part of his decision does not involve a "dispute" in the contractual sense. Thus the contract has deliberately excluded any direct challenge to the adjudicator's decision, and does not, at least according to its terms, contemplate that anything other than a "dispute" can be the subject of indirect challenge. The possibility of challenging an adjudicator's decision has accordingly been taken into account in the contract, and the contractual scheme is that an indirect challenge, through court or arbitral proceedings, is possible but only in respect of the underlying dispute. That seems to exclude any challenge to ancillary findings, such as a finding on liability for the adjudicator's fee and expenses. Thirdly, because the adjudicator's decision on liability for his fee and expenses is essentially ancillary in nature, there is no commercial necessity that it should be capable of reconsideration. In any system of dispute resolution the parties are likely to incur irrecoverable outlays and expenses; indeed in some jurisdictions, such as those in the United States, a successful party does not recover anything in respect of expenses, outlays and other costs. Thus the normal criterion for the implication of a contractual term does not apply to the part of the adjudicator's decision dealing with his fee and expenses.

[17]     The foregoing reasons for the conclusion that an adjudicator's decision on his fee and expenses cannot be reconsidered by the court all relate to the contractual structure of clause 41A. The fourth reason indicates an obvious rationale underlying that conclusion; it is the practical difficulty of reconsidering the adjudicator's decision on such a matter. Adjudication is a distinct process, with its own peculiar features. In particular, it is subject to very demanding time limits, which apply both to the parties and to the adjudicator. The result is that the parties' cases may not be as fully prepared as is desirable, and the adjudicator may be compelled to come to a relatively hasty decision. In court proceedings, by contrast, a full and detailed presentation is expected, and the judge has a significantly better opportunity to come to a carefully reasoned decision. Moreover, additional facts may emerge, or additional arguments may be developed. It is accordingly impossible to conclude merely from the fact that the court reached a different decision that the adjudicator's decision was wrong. The decisive factor in the court's decision might not have been presented to the adjudicator, or might have been presented in such a way that its significance was obscured. If, therefore, the court is to reconsider the adjudicator's decision on liability for his fee and expenses, the facts and arguments presented to the adjudicator will frequently require to be investigated and taken into account. That is inevitably a difficult task; it involves weighing the significance of arguments that are not the same as those presented to the court. In addition, in some cases matters may be argued before the adjudicator that are not argued before the court. The present case provides such an example; in the first adjudication the question of the adjudicator's jurisdiction was argued, I was informed, at some length. That issue was determined in favour of the present defender. It is not, however, an issue that can arise in the present proceedings. If it is the case that a large part of the argument before the adjudicator was taken up with the question of jurisdiction, it is obviously likely that his decision on liability for his fee proceeded at least in part on the basis that the present defender had succeeded on that part of the argument. Consequently, even if the pursuer were wholly successful in the present litigation, it would not be appropriate to allow it to recover the whole of the adjudicator's fee and expenses. How any apportionment should be carried out, however, is an extremely difficult task for a tribunal that has not heard the same arguments as the adjudicator. For all these reasons I am of opinion that there are sound practical reasons for holding that an adjudicator's decision on liability for his fee and expenses cannot be reopened in any proceedings before the court.

Thus there were four strands to the judgment:

Further, the learned judge said at paragraph [24] that the basis of the claim for repayment of sums paid was not clearly set out, but the claim in respect of the adjudicator’s fee was based upon the principle of unjust enrichment. He then said at paragraph [25]:

I accordingly agree with counsel for the defender that the pursuer has not adequately stated the basis on which an unwinding of the first adjudication is sought, and should not in any event base that unwinding on principles of unjustified enrichment. My reason for the latter conclusion, however, is that the parties' rights and obligations following a successful unwinding of the adjudicator's decision are better analyzed using an implied term of the parties' contract rather than restitutionary rights based on unjustified enrichment. That is because the obligation to repay monies arises very squarely from the operation of the parties' contract, and in particular clause 48A.8.1; consequently an implied term is the natural mechanism to enable the contract to deal comprehensively with the parties' rights and obligations….

As already pointed out, this authority is cited in Coulson on Construction Adjudication as correctly stating the law.

In TSG Building Services plc v South Anglia Housing Ltd (Footnote: ⁷), Akenhead J. held that an adjudicator had been wrong to require the Defendant to pay compensation to the Claimant, a decision turning upon whether the Defendant had lawfully terminated a contract between them. He issued a declaration expressing that conclusion. He then concluded at paragraph [53]:

However, the adjudicator had jurisdiction to decide what he did, although I have held that he reached the wrong conclusion. It follows that South Anglia must pay the adjudicator’s fee of £12,564 plus VAT.

There is no further elucidation of Akenhead J.’s reasoning, but it is consistent with the view of Lord Drummond Young in Castle Inns.

The issue was adverted to by Edwards-Stuart J. in Halsbury Homes Ltd v Adam Architecture Ltd (Footnote: ⁸). That was a dispute between a client developer and an architect’s firm. It is important to note that in the applicable conditions of engagement, there was a clause 5.20 which provided:

Recovery of costs

5.20

The Client of the Architect shall pay to the other party who successfully pursues, resists or defends any claim or part of a claim brought by the other:

5.20.1

such costs reasonably incurred and duly mitigated (included costs of time spent by principals, employees and advisers) where the matter is resolved by negotiation or mediation; or

5.20.2

such costs as may be determined by any tribunal to which the matter is referred.

In a situation where the learned judge had decided that the adjudicator had reached the wrong conclusion, he had to consider what order to make in respect of the adjudicator’s order that the now successful party should pay his fees.

Edwards-Stuart J referred at length to Lord Drummond Young’s judgment in Castle Inns. He referred to the brief passage from Akenhead J.’s judgment in TSG Building Services which I have set out above, and also cited the relevant passage from Coulson on Construction Adjudication (albeit in an earlier edition). He then said:

[64] …. There is nothing in Lord Drummond Young’s Opinion which suggests that his decision might be confined to Scotland: it seems to me that his reasoning is equally applicable to the relevant provisions of the RIBA Conditions that apply in this case.

[65] However, Ms. Stephens submitted that it would be an extremely unjust outcome if an erroneous exercise by an adjudicator should be at the expense of the (correct) responding party. If this were to be the ultimate position, then there would be some force in her point, but of course an adjudicator’s decision as to how his or her fees should be allocated between the parties may represent more than just the outcome of the decision. An adjudicator is not required to make a binary decision based simply on the result: he or she can, like the courts, take into account the conduct of the parties, other issues that were raised and the overall course of the referral.

[66] However, in this case I do not consider that the outcome rests on the decision of the Adjudicator. The provisions of clause 5.20, which I have already set out, apply equally to costs incurred by the client as well as by the architect. Halsbury is entitled under that clause to its costs of successfully resisting the claim brought by Adam.

[67] I can see no reason why the fees and expenses of the Adjudicator, once paid by a party, should not form part of its costs of successfully resisting a claim brought by the other. I do not regard this as inconsistent with the fact that clause 5.20 does not refer to the adjudicator’s fees and expenses, because the allocation of those is clearly dealt with in clause 9.2.4.

[68] In those circumstances, therefore, I consider that the Adjudicator’s decision in relation to his fees and expenses must be complied with by Halsbury. However, once those fees and expenses have been paid, Halsbury will have a contractual right to recover them from Adam under clause 5.20.

Thus Edwards-Stuart J. followed Castle Inns, but circumvented its effect by the application of clause 5.20.

In the commentary in the Building Law Reports report of this case, the learned editors say:

The case [underlines] a real lacuna in the amended adjudication legislation, which can produce real injustice, whereby substantial sums can be paid out for adjudicator’s fees and, if the underlying contract does not contain something comparable to clause 5.20 of the RIBA conditions, they will never be recoverable even if the adjudicator’s substantive decision is later found to be hopelessly wrong. As the legislation was only reviewed after some 15 years, there may be a long wait for any amendment.

Edwards-Stuart J.’s decision was overturned by the Court of Appeal who did not find it necessary to consider this issue (Footnote: ⁹).

The final case to which I was referred by J&BH was another decision of the Outer House of the Court of Session: D McLaughlin & Sons Ltd v East Ayrshire Council (Footnote: ¹⁰). In that case an adjudicator had found in favour of the Pursuer and had ordered the Defender to make payment not only of a principal sum, but also interest. The Defender paid what it had been ordered to pay.

In the court proceedings the Pursuer sought enforcement of the adjudicator’s decision. The Defender resisted enforcement unsuccessfully, but also lodged a counterclaim seeking orders contrary to the adjudicator’s findings, including a repayment of the sums the Defender had paid.

In respect of the counterclaim for repayment on interest, the Pursuer argued, relying upon Castle Inns, that the Court could not order repayment of interest. The Defender’s argument was summarised by the judge, Lord Clark, as follows:

[16] It was a necessary legal consequence of adjudication provisions which are consistent with the provisions of the 1996 Act that parties must have a directly enforceable right to recover any overpayment to which an adjudicator’s decision can be shown to have led, once there has been a final determination of the dispute. The right arises by way of an implied term to that effect in the construction contract (Aspect Contracts (Asbestos) Ltd v Higgins Construction plc [2015] 1WLR 2961, at para [23]). Such a right arises out of restitutionary considerations (ibid at para [24]). An overpayment arises if and to the extent that the basis on which payment has been made falls away as a result of the court’s determination (ibid). If a more detailed implied term was required, the term averred by the defender would be appropriate. If the present case was resolved in favour of the defender, that would establish that the defender has made an overpayment to the pursuer in the whole amount paid by the defender pursuant to the adjudicator’s decision, including the payment of interest. There 11 was in any event a right to payment of interest, at an appropriate rate fixed by the court, on any repayment to be made to the defender (Aspect Contracts, at para [24]).

[17] The pursuer’s reliance on the reasoning of the Lord Ordinary in Castle Inns (Stirling) Ltd v Clark Contracts Ltd was misplaced. That case preceded Aspect Contracts and in any event concerned the separate question of recoverability of the adjudicator’s fees and expenses. The adjudicator’s decision on interest was, like all other aspects of his decision on the dispute referred to him, only binding until the dispute is finally determined by legal proceedings, such as this counterclaim. In any event, the Lord Ordinary’s reasoning in Castle Inns ought not to be followed in this case, on the ground of it not being in accordance with the normal principles of contractual construction discussed above.

Lord Clark decided the merits of the principal issue between the parties against the Defender, but did deal with the interest issue, albeit on an obiter basis:

[41] As a result of my decisions on the Final Certificate not being conclusive evidence for present purposes and on the Interim Payment Notice, this issue does not arise. However, it is appropriate that I express my views on it. The short point is whether, following enforcement of an adjudicator’s award, interest on the sum awarded for the period from the date of the award until payment, is recoverable if the defender succeeds in its claim for repayment of the sum awarded. In Aspect Contracts Ltd v Higgins Construction plc (at para [23]) Lord Mance (with whom the other Supreme Court judges agreed) stated that the payer “must have a directly enforceable right to recover any overpayment to which the adjudicator’s decision can be shown to have led, once there has been a final determination of the dispute” [emphasis added].

[42] In my view, the adjudicator’s fees and expenses (discussed in Castle Inns (Stirling) Ltd v Clark Contracts Ltd) are quite different from interest which has to be paid from the date of the award. The latter is not ancillary to the dispute; rather, it is part and parcel of the adjudicator’s award. Interest payable from the date of the adjudicator’s decision will commonly arise because the decision is being challenged. It would not be right to allow a party who has received a payment to which it was not entitled to retain that part of the payment which comprised interest arising from the date of the award. Accordingly, if (contrary to the view I have reached) the defender’s counterclaim had resulted in final determination of the dispute in its favour, I would have allowed recovery of this element of interest.

Thus the position is that all the authority in this Court and in Scotland supports J&BH’s position.

It seemed to me when considering this matter on the papers that there may be arguments to suggest that Castle Inns should be reconsidered. However, upon reflection, I have decided that this is not the case to do so.

There was and is no pleaded claim in respect of Mr Smith’s fees, and even in A & V’s very full written Closing Submissions no claim in respect of those fees was put forward. The claim first emerged, probably prompted by the terms of my judgment, in Mr Paduraru’s 18 June email. In his Response to my questions, Mr Frampton has taken the position that there is no pleaded claim relating to those fees. Accordingly, such a claim would involve an amendment to the pleadings. In my judgment it is too late for such an amendment to be allowed, particularly as it could only be successful on its merits if I were to depart from the authorities I have cited above.

Accordingly, I make no order in respect of Mr Smith’s fees: I consider those fees further in respect of interest below.