Out-Law Analysis 6 min. read
30 Mar 2023, 1:02 pm
UK law imposes adjudication on parties in construction disputes, but fails to regulate the payment terms and charges which adjudicators may impose on them.
The 1996 Arbitration Act permits arbitrators to refuse to deliver their awards to the parties until their fees are paid. In contrast, there is no similar power for adjudicators to exercise liens over their decisions – which has led some to impose creative payment terms as a means of securing their fees.
The High Court confirmed in a recent case – Nicholas James Care Homes Ltd v Liberty Homes (Kent) Ltd – that “an attempt to exercise a lien over the delivery of a decision within the statutory/agreed time periods is unlawful and that such an attempt may well render the decision once delivered unenforceable”. However, in this case, demands by the adjudicator for substantial advance on-account payments at the outset of the adjudication and prior to reaching and/or issuing his decision did not offend this rule against liens.
The case raises difficult questions about the basis for the rule against liens and its scope. Why are liens unlawful but not, apparently, attempts by adjudicators to secure advance payments as security for their fees?
The first two cases on attempts by adjudicators to exercise liens stressed the incompatibility of imposing a lien with the obligation to reach and issue a decision within 28 days (or any agreed extension) as required by section 108(2)(c) the 1996 Housing Grants, Construction & Regeneration Act (1996 Act) and paragraph 19 of the Scheme for Construction Contracts (the Scheme).
In 2003, a dispute reached the Court of Session in Scotland in which the adjudicator's terms and conditions indicated that she might exercise a lien on the decision until payment of her fees. Lord Wheatley, however, stressed that the adjudicator was not permitted to do so, saying: "Neither can it be said that the adjudicator is entitled to delay communication or intimation of a decision until her fees are paid. There is nothing in the scheme or contract which allows this … it is not permissible in my view for such an arrangement to frustrate or impede the progress of the statutory arrangements for resolving these contractual disputes”.
Although adjudication in the UK is imposed on parties by the state, there is no regulation of adjudicators’ payment terms and charges. Parties, and in particular responding parties, ought perhaps to be better protected
In England, Judge Peter Coulson QC (as he then was) came to the same conclusion in 2006, noting that an adjudicator’s contractually imposed lien was “contrary to s.108 of the 1996 Act, which envisages both completion and communication within the 28 day period. I venture to suggest that an open-ended extension of the kind envisaged by the adjudicator is contrary to the whole principle of adjudication as described in the 1996 Act”.
The following year, in a case involving Mott McDonald, the court in England considered the application of this principle to demands by an adjudicator for advance payment of fees by the referring party. Judge Thornton QC suggested that such a purported requirement breached the rule in paragraph 12(a) of the Scheme that the adjudicator shall “act impartially in carrying out his duties”. An adjudicator’s terms must not make or appear to make them “financially beholden to one party, particularly the referring party, or place himself in the position in which he might appear to be more partial to one side than the other” – a clause requiring only the referring party to make on-account payments of fees to the adjudicator would seem to breach this principle.
Reviewing these cases, in the 4th edition of his leading textbook on construction adjudication, Sir Peter Coulson concluded: “…it seems safe to assume that an adjudicator has no power to exercise a lien over his outstanding fees, if to do so would result in any delay to the completion or communication of the decision. It is recognised that, in consequence, the payment of their fees will remain a problem area for adjudicators but, in the light of the critical emphasis on speed in the 1996 Act, there is little that can obviously be done to alleviate these commercial difficulties.”
Coulson did not, however, address whether Judge Thornton was right to say that a clause requiring advance payments from the referring party would be non-compliant with the obligation to act impartially in clause 12(a) of the Scheme.
It is understandable that many adjudicators are not willing to accept the “problem” referred to by Coulson and take the risk of non-payment of their fees. One common approach is to insist on a deposit or advance payment at the outset of an adjudication and, possibly, during the adjudication. The clause in the adjudicator’s terms in the Nicholas James case was an example of this approach.
The adjudicator’s terms of appointment in the Nicholas James case were similar to those criticised in the Mott McDonald case, again imposing an obligation to pay on the referring party only. In fact, the day after his nomination the adjudicator demanded that both parties should pay a large deposit of £10,000 (plus VAT) each. This was not consistent with his terms which imposed an obligation to pay on the referring party only. Nevertheless, both parties complied.
Some 11 weeks later the adjudicator asked for a further deposit of £15,000 (plus VAT) from both of the parties. Predictably, Nicholas James - the referring party - paid this further sum promptly, but there was a substantial delay in the responding party, Liberty Homes, doing so, of five weeks. The adjudicator chased Liberty on at least five occasions during that period and repeatedly set short deadlines for compliance which were not met. It seems that submissions in the protracted adjudication closed on 8 February 2022 and shortly after that the balance of Liberty’s payment was received on 15 February 2022. The adjudicator’s decision was issued three days later on 18 February 2022, a period of almost four months since commencement of the adjudication.
The adjudicator’s demands for advance payment were described by the judge as “tenacious and persistent”. However, he pointed to the fact that the demands did not expressly state that the adjudicator’s decision would be delayed until after receipt of payment. Also important to the judge was the failure by Liberty Homes’ solicitors to object to the demands for payment. On this basis, he concluded that a lien was not being imposed and he therefore rejected Liberty’s challenge to enforcement.
At first blush this result seems surprising. But it is significant that the adjudicator had no contractual right to demand the advance payments from the responding party, only the referring party – so he would not have had the right to resign if Liberty had not acceded to his requests.
The judge also pointed to the absence of any submission to him supported by authority suggesting that it is “is impermissible for an adjudicator to ask for and indeed to obtain security for fees from both parties during the course of an Adjudication Reference irrespective of whether those are agreed as part of an adjudicator’s terms and conditions”.
The case cannot therefore be taken as authority for the proposition that adjudicators can demand on account payments. The conclusion was simply that requests made of both parties without any sanction for non-payment, and to which both parties acceded, did not amount to the imposition of an unlawful lien.
The judgment may imply that there is nothing wrong in an adjudicator asking both parties for an advance. But such an approach raises many practical difficulties. What is the point in asking for an advance if the adjudicator cannot delay his decision or resign in the event of non-payment? If only one party provides the requested advance, and this will usually be the referring party, the adjudicator will be at risk of being “financially beholden” to it and possibly in breach of their duty of impartiality.
It is understandable that Liberty’s solicitors did not expressly object to the adjudicator’s demands as they would have been concerned that the adjudicator might look unfavourably on their client. They would also have feared that refusal to make the advances might have resulted in the adjudicator seeking them from Nicholas James as per his terms and then continuing with the adjudication.
It is common practice for some adjudicators to demand advance payments from the referring party only. The recent judgment does not assist in clarifying whether this is lawful. The Mott MacDonald case suggests that it is not. That may be why the adjudicator in the Nicholas James case disregarded his own terms of engagement and asked both parties for security.
Although adjudication in the UK is imposed on parties by the state through the 1996 Act, there is no regulation of adjudicators’ payment terms and charges. The Adjudicator Nominating Bodies (ANBs) have taken very few steps to address this lacuna, with TeCSA’s daily cap and the various low value dispute schemes being the main limited exceptions. Parties, and in particular responding parties, ought perhaps to be better protected.
Many adjudicators are, understandably, reluctant to proceed with an adjudication without security for their fees. But at a time when there are waiting lists for new adjudicators to join each of the ANBs’ panels, and a desperate need to introduce new members to increase diversity, it may be time to consider adopting a more prescriptive approach to such adjudicators’ payment terms and charges.