In PC Harrington Contractors Limited v Systech International Ltd [2013] BLR 1 the English Court of Appeal dealt with an adjudicator’s right to be paid his fee under English law where the adjudicator’s decision had been held to be unenforceable.
In the recent Scottish decision of Stork Technical Services (RBG) Limited v Ross [2015] CSOH 10 Lord Tyre was asked to go one step further and to determine whether a party can recover fees which had already been paid in the same circumstances. Although the decision ultimately turned upon the facts of the individual case, Lord Tyre made a number of comments which provide important guidance as to the parties’ rights in respect of the adjudicator’s fees where a decision is held to be unenforceable.
Case Background
The pursuer was the employer under a contract for the construction of a factory production line. A series of disputes arose between Stork and the contractor, SGL, two of which proceeded to adjudication. In the second adjudication, Mr George Ross was nominated to act as the adjudicator. The adjudication lasted for over 6 months.
In a 228 page decision, Mr Ross decided that that Stork required to pay just over £1m to SGL. Stork refused to pay on the grounds that Mr Ross had failed to comply with the rules of natural justice and had not exhausted his jurisdiction. SGL subsequently raised enforcement proceedings which were unsuccessful. Consequently, Mr Ross’ decision was held to be unenforceable and was set aside.
Stork had paid £140,504.31 in respect of Mr Ross’ fees, VAT and outlays (including senior counsel and QS fees). Those payments had been made to Mr Ross’ then employer who had issued VAT invoices in respect of Mr Ross’ services. Stork sought to recover the money it had paid on the basis of the law of unjustified enrichment. It argued that its contract was with Mr Ross. The payments had been made to Mr Ross’ employer on Mr Ross’ behalf and that it was Mr Ross, and not his employer, that had received a benefit. Stork went on to argue that the money was re-payable because there was no legal justification for Mr Ross retaining the payments once his decision had been set aside.
Tragically Mr Ross died before the case was concluded and the action was then directed against his wife as his executor.
Decision
Lord Tyre decided that he required to answer two key questions. First, who were the correct contracting parties? Second, was Stork entitled to recover the fees paid by it on the basis of the law of unjustified enrichment?
The case was ultimately decided on the basis of the answer to the first question. The Court held that as a matter of fact, the contract had been between the parties to the adjudication and Mr Ross’ then employer.
Lord Tyre found that whilst the nomination of the adjudicator by the ICE was personal and the agreement signed by the parties named Mr Ross as the contracting party, the agreement was for the supply of Mr Ross’s services as an adjudicator. Mr Ross had made it clear in the accompanying correspondence that he was entering the adjudication agreement on behalf of his employer and that his employer would invoice for the services to be provided by Mr Ross. Lord Tyre also considered that Mr Ross’s employment, payment and VAT arrangements provided further evidence that the contract was with his employer not with him as an individual.
Therefore, Stork had no right of recovery from Mr Ross. Stork had not sued the employer and accordingly the claim failed. This part of the decision is specific to the facts of the case but it demonstrates the importance of being clear who the contracting parties are not only in the adjudicator’s standard terms and conditions but also in any correspondence which might be held to be of contractual effect.
Lord Tyre then went on to make a number of non- binding (“obiter”) comments which are of more general application, in relation to (i) the remedy of restitution under Scots law (ii) an adjudicator’s right to interim payments and (iii) the ability of an adjudicator to limit his liability in respect of re-payment of his fees.
Restitution
Lord Tyre provided a detailed analysis of the legal basis for the remedy of restitution in the context of a breach of contract under Scots law. Restitution is a remedy which is concerned with returning gains, as compared with damages which are intended to be compensatory in nature.
Lord Tyre recognised that there were no reported decisions where this remedy had been granted in the circumstances where there had been a breach of contract. However, he considered that a remedy in restitution is available to a party to a contract who has made payment in anticipation of a corresponding performance (the delivery of an enforceable decision) which never occurs. He was satisfied that this right was founded on the law of contract, and not on the law of unjustified enrichment. Therefore, if it had been necessary to do so he would have held that the pursuer’s claim on the basis of unjustified enrichment failed.
Interim Payments
The adjudicator’s agreement required the adjudicator to “keep the Parties appraised of his fees” and to “submit interim fee bills”. The defender submitted that this demonstrated that the interim payments were for services rendered prior to the issue of the decision. Therefore, the fact that the adjudicator’s decision was held to be unenforceable did not affect the adjudicator’s right to payment.
Lord Tyre disagreed. He followed the analysis in PC Harrington Contractors Ltd v Systech International Ltd in which it was decided that interim payments were an advance payment in anticipation of the adjudicator’s performance. The fact that the contract allowed the adjudicator to issue fees on an interim basis did not alter the position. The adjudicator was entitled to be paid for delivering a decision not for undertaking the work necessary to provide that decision.
Limitation of Liability
Clause 10.0 of the Adjudicator’s Agreement was a limitation of liability clause:
“The Adjudicator is not liable for anything done or omitted in the discharge or purported discharge of his functions as Adjudicator unless the act or omission is in bad faith”
The defender argued that clause 10.0 was sufficiently wide to cover a claim for re-payment of the adjudicator’s fees (which included third party disbursements). Therefore, the defender submitted, even if Stork was entitled to be paid the monies claimed by it, clause 10.0 was a complete answer to that claim. Again Lord Tyre disagreed. In his view clause 10.0 did not preclude or limit a claim for repayment by the pursuer based on breach of contract. Rather the clause’s application was limited to losses sustained or liabilities incurred to a third party through the act or omission of Mr Ross. It had no relevance to a claim for re-payment of fees.
Conclusion
In both PC Harrington and Stork, the courts undertook a careful review of the terms of the contract between the parties and determined the rights and liabilities of both parties following that review. Once again this demonstrates the importance of the terms of the bargain reached between the parties.
In Lord Tyre’s opinion the service for which the adjudicator was being paid was for the adjudication of the parties’ dispute. Therefore, if an adjudicator wishes to be paid for the work he does, regardless of whether he produces an enforceable opinion or not, he needs to state this expressly in his agreement with the parties. Otherwise his right to payment will fall with his decision.
Further, on the basis of the obiter comments made by Lord Tyre it is now arguable that, under Scots law, a party can seek to recover an adjudicator’s fees on the basis of a claim for restitution under the contract. Therefore, it seems probable that an adjudicator whose decision has been held to be unenforceable will be faced with a demand that his fees be re-paid.
Finally, a claim for re-payment of the adjudicator’s fee will not be defeated by a general limitation of liability clause. A claim in that situation is not a claim for damages, it is a claim for restitution. A standard limitation of liability clause will only protect the adjudicator against a claim for losses incurred as a consequence of the adjudicator’s acts or omissions. If he wishes to avoid having to re-pay his fee he must spell this out in his contract with the parties.