Jurisdiction challenges to adjudication - responsibility for the adjudicator's fees

01/09/2009

By Chris Kirby-Turner, Solicitor in Construction & Engineering.

Earlier this year, the courts confirmed that a party who objects to the adjudicator's jurisdiction throughout the adjudication will nevertheless be jointly and severally responsible for the adjudicator's fees.

It is common practice for a respondent in an adjudication to look for a "knock out blow" by contesting the adjudicator's jurisdiction, either by seeking a court injunction to declare that the adjudicator has no jurisdiction or (more commonly) by voicing its objections and inviting the adjudicator to decline his appointment. Usually, in the latter case, the adjudicator will not decline his appointment and a party will participate in the adjudication reserving its position (so as to preserve the right to challenge enforcement of the adjudicator's decision, should the result not prove favourable).

The decision in Linnett v Haliwells earlier this year considered whether in those circumstances the responding party is jointly and severally liable for the adjudicator's fees. As is common, the responding party had objected to the adjudicator's appointment throughout and, as such, had not signed his terms of business or agreed to his hourly rate.

The court ruled that the responding party should be jointly and severally liable for the adjudicator's fees, as their view was that the true position is that the responding party had allowed the adjudicator to spend time dealing with the dispute, albeit it was keeping its options open as to challenging enforcement further down the line.

The logic and reasoning for the decision is quite convincing. However, the case creates some considerable uncertainty as to what remedy follows. The referring party will, in these situations, have agreed to the adjudicator's terms of business and hourly rates, whereas the responding party will not. The court said, therefore, that the responding party is responsible for the adjudicator's "reasonable" expenses - these are not necessarily the same as the hourly rate the referring party has agreed to. This is fundamentally at odds with the notion of joint and several liability, as each party has a different liability.

In practice, it seems that the case opens the doors to tactical shenanigans, as the adjudicator is unlikely to want to get into a dispute about the "reasonable" value of their work. Therefore, the responding party could have some leverage to persuade the adjudicator they should chase the referring party for their fees in the first instance, or alternatively they might be persuadable to accepting a lower fee to avoid the time and costs of litigating over their fees.

Now that the court have clarified that the responding party will be responsible (to some degree) for the adjudicator's fees in these situations, it could also make the first option of a court injunction more palatable, given the responding party could be at risk of bearing all of the adjudicator's costs. Arguably, if the injunction route does become more common as a result of this case, it could even make use of the second option appear weaker and less convincing in the future.