Fenice Investments v Jerram Falkus Construction [2011] EWHC 1678 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-lawnow.com/adjudication

Judgment date: 6 July 2011

SUMMARY

Where a party had paid the fees of an adjudicator which the adjudicator had ordered should be paid by the other party, he was entitled to recover those fees from that other party provided that they were reasonable. On the facts of this case it could not be argued that the fees were not reasonable.

Technology and Construction Court, Judge Waksman Q.C.

BACKGROUND

Fenice Investments Inc (“Fenice”) employed Jerram Falkus Construction Limited (“Jerram”) as a contractor to build five residential properties, using the JCT design and build standard form. The contract provided that the Scheme for Construction Contracts (England and Wales) Regulations 1998 (“the Scheme”) would apply if the parties wished to refer to a dispute to adjudication. Paragraph 25 of the Scheme provided as follows:

“The adjudicator shall be entitled to the payment of such reasonable amount as he may determine by way of fees and expenses reasonably incurred by him. The parties shall be jointly and severally liable for any sum which remains outstanding following the making of any determination on how the payment shall be apportioned.”

Fenice commenced an adjudication and an adjudicator was duly appointed. The adjudicator’s appointment letter set out his hourly rate as £350 per hour and asked the parties to expressly confirm their agreement to the rate. Fenice confirmed their agreement but Jerram did not do so. Nevertheless, the adjudication continued. The adjudicator decided in favour of Fenice and ordered that Jerram pay his fees of £23,235.65 including VAT. Jerram initially refused to pay the

adjudicator’s fees arguing that they were excessive but eventually paid £5,000. Fenice paid the balance after the adjudicator’s employer threatened legal proceedings.

Fenice applied for summary judgment to recover the balance of the fees paid from Jerram. Fenice argued that (a) the claim was simply an enforcement of the adjudication, because the sum claimed was what the adjudicator had ordered; (b) the adjudicator’s determination of his fees could only be challenged if there was bad faith on his part (and none was alleged) and (c) the fees were in any event manifestly reasonable and therefore Jerram’s claim that they were excessive had no reasonable prospect of success. Jerram argued that the whole question of reasonableness could not be decided summarily but would require detailed assessment.

ISSUES

The Court was asked to address the following issues:

Whether the claim was a simple enforcement of the adjudication;
Whether the adjudicator’s determination of his fees could only be challenged if there was bad faith on his part; and
Whether the fees were manifestly reasonable and there was no reasonable prospect of having them reduced on an assessment.

DECISION

The Court held:

As between the Fenice and Jerram, the incorporation of the Scheme into their contract meant that if the adjudicator stated which of the parties should be liable to pay the fees, that party agreed with the other that he would do so
As between the parties and the adjudicator, there was a separate agreement or agreements. As to fees, a party may make an express agreement, as Fenice did here, in which case the adjudicator may claim pursuant to that express right. In the absence of an express agreement, a party will nonetheless be taken to have made an agreement by conduct with the adjudicator if he participates in the adjudication, thereby requesting the

adjudicator to act. It would be an implied term of that agreement that the party concerned would pay the adjudicator's reasonable fees.

The adjudicator's contractual right to payment did not arise under and was not affected by the terms of the decision by which the adjudicator decided which party was to pay his fees. That decision determined who, as between the parties, was to bear those sums but it did not affect any contractual right to payment which the adjudicator had.
The claim could not be a simple enforcement of the adjudication: such an argument was inconsistent with the contractual analysis above; the claim for fees was not part of the decision in the same way as the substantive ruling; under paragraph 25 of the Scheme, the adjudicator was entitled to be paid “reasonable” fees and it could not be the case that the adjudicator was entitled to whatever he decided; there may have to be an assessment of the reasonableness of the fees by the court.
It was not necessary to prove that there was bad faith in order to challenge an adjudicator’s fees. Immunity from liability save in the case of bad faith had nothing to do with the entitlement to reasonable fees by an adjudicator. Any gloss in terms of bad faith was inconsistent with the requirement of reasonableness set out in paragraph 25 of the Scheme.
On the facts of this case, there was no real prospect of the adjudicator’s hourly rate being held unreasonable on any assessment. The rate was not unusual given the adjudicator’s experience, Jerram had not specifically objected to the rate and had dealt with the adjudicator in two previous adjudications where a similar rate was charged. Furthermore, there was no serious basis for arguing that the hours spent by the adjudicator on his decision were excessive.
In coming to this decision, the court held that its approach should be robust: the court should take into account that an adjudicator must work at considerable speed on a varying number of issues and that “routine satellite litigation” concerning adjudicator’s fees could not have been intended by the framers of section 108 of the Construction Act or the Scheme.
Fenice was therefore entitled to summary judgment in respect of the fees which it paid to the adjudicator’s employer.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-lawnow.com/adjudication

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