In the first instance judgment (Davies & Davies Associates Limited v Steve Ward Services (UK) Limited [2021] EWHC 1337 (TCC)), Mr Roger Ter Haar QC (sitting as Deputy High Court Judge) decided that the adjudicator did not breach the terms of his engagement when he resigned his appointment and was entitled to his fees, which were not excessive. The Court of Appeal confirmed the decision. 

Background

Between late 2019 and early 2020, Steve Ward Services Limited (“SWSL”) carried out construction operations at a restaurant in Stanmore, Middlesex. A contract was drawn up but not signed. The “client” was named in the contract as Ms Vaishali Patel. 

Disputes arose in relation to defects and payment and SWSL commenced adjudication proceedings. Communications in relation to these disputes were carried out between SWSL and its solicitors and Bhavishya Investment Limited (“BIL”) and its solicitors, on the basis that BIL was the contracting party liable for any sums due to SWSL. At no stage did BIL suggest that Ms Patel was personally liable instead. 

In September 2020, after a failed Notice had to be withdrawn, SWSL re-commenced adjudication proceedings against BIL and an adjudicator (Mr Nigel Davies) was appointed. Mr Davies wrote to both parties by post and email, enclosing his terms of appointment – a term of which stated that, save for any act of bad faith by the adjudicator, he would be entitled to his fees and expenses even in the event that the Decision was not delivered and/or proved enforceable.

The Referral, Response and Reply were provided to the adjudicator. BIL did not raise the issue of jurisdiction in its Response. Following receipt of the Reply, the adjudicator made enquiries of the parties as to whether the contract had been novated to BIL. The adjudicator subsequently concluded that the contract was between SWSL and Ms Patel and resigned on the basis that he did not have jurisdiction. The adjudicator issued an invoice to SWSL for his time spent on the adjudication. SWSL refused to pay and Mr Davies commenced proceedings in the High Court for his fees. 

The TCC Decision

Mr Roger ter Haar QC decided that there was a jurisdictional issue but also considered whether Mr Davies ought to have resigned when neither SWSL nor BIL had raised a jurisdictional challenge as to whether they were the correct contractual parties to the dispute. SWSL asserted that, unless a party makes such jurisdictional challenge, it is not open to the adjudicator to decline jurisdiction. Whilst the Judge agreed that this was a decision beyond the ambit of paragraph 13 of the Scheme, he found that Mr Davies had resigned on the basis that it was not open to him to reach a Decision in a dispute between SWSL and BIL when the true contractual relationship was between SWSL and Ms Patel. As a result, Mr Davies was within his rights to resign under paragraph 9(1) of the Scheme.

As to the true effect of the Adjudicator’s terms and conditions, Mr ter Haar QC held that Clause 1 of the terms and conditions entitled Mr Davies to payment save in a case of bad faith. He held that Mr Davies had acted with “diligence and honesty” and, as a result was entitled to resign under Paragraph 9(1) of the Scheme which, in turn, meant that there could be no bad faith.  

He also said that he had considerable doubt as to the applicability of Section 3 of the Unfair Contract Terms Act to Mr Davies’ terms but, if he was wrong on that, then Clause 1 was reasonable.

The Court of Appeal Decision

SWSL appealed on 6 grounds: 

1. Was there a jurisdictional issue in the adjudication?
2. Was Mr Davies entitled to decline jurisdiction and resign in consequence?
3. Subject to bad faith, was Mr Davies entitled to be paid for work done prior to his resignation?
4. Was Mr Davies guilty of bad faith?
5. Were Mr Davies’ terms of appointment contrary to UCTA? 
6. Should this court interfere with the Judge’s costs order?

For Issues 1 and 2, Coulson LJ held that there was a “real jurisdictional issue in this case” . SWSL and its solicitors were criticised by the Judge for their unhelpful responses to Mr Davies’ questions in circumstances where they were aware that his concern went to lack of jurisdiction. BIL and its solicitors also came under criticism because they “did not answer any of the adjudicator’s questions, and did not tell him anything he didn’t already know”. As Mr Davies had decided that the contractual basis of the Referral was wrong because the contract was not between SWSL and BIL Coulson LJ held that Mr Davies was entitled to decline jurisdiction and resign pursuant to paragraph 9(1) of the Scheme. Paragraph 31 of the MAP gave him the same entitlement. 

As to the fees incurred by Mr Davies prior to his resignation (Issue 3), consideration was first given to the applicable principles to be considered once an adjudicator has resigned (set out at paragraph 76 of the Judgment).

The Court then addressed the question of whether Mr Davies’ terms of appointment conflicted with the MAP or the Scheme. Coulson LJ held that despite Mr Davies’ letter dated 23 September 2020 confirming his acceptance of the RICS’ nomination to act as the MAP adjudicator, it also referred to his terms of appointment which had been attached. The “Amount of Charge” in the adjudicator’s terms of appointment stated that, should the MAP cease to apply, Mr Davies’ hourly rate would be £325 per hour. Consequently, the decision of Mr ter Haar QC was upheld because Mr Davies had resigned and therefore the MAP was no longer applicable. As a result, Mr Davies was entitled to claim for the time he had incurred at the rate of £325 per hour.  

The Court then considered bad faith. For there to be an act of bad faith, there will typically have to be a measure of dishonesty or unconscionability . The Court held that the adjudicator had raised real concerns as to his jurisdiction which had not been answered by the parties, and that he had acted with “diligence and honesty” in resigning. As such, there was no bad faith. Finally, and for the sake of good order, Section 3 of UCTA was held not apply to Clause 1 of Mr Davies’ terms of appointment. For good measure, the TCC’s cost order was upheld.