The potential consequences of the PC Harrington vs Systech International judgment

Johnathan Rosshandler

Johnathan Rosshandler

In his judgment in the Court of Appeal in PC Harrington vs Systech International, Lord Justice Davis doubted whether “the present decision should have any great ramifications”. It is not clear whether he meant that few adjudication awards are successfully challenged for breach of natural justice, or that the Court of Appeal seems to have decided that the decision will not apply where an award is unenforceable for want of jurisdiction (certainly where the party raising the challenge continues to participate in the process).

Lord Justice Davis’ comments were perhaps somewhat optimistic. The decision has already attracted some criticism (not least from Tony Bingham last week, as well as above) and has caused concern among adjudicators. Yet those concerns may well be misplaced and ultimately that the decision is good for the adjudication process generally.

Parties to a construction contract accept the “rough and ready” process of adjudication and that the decision will be temporarily binding even if it does not reflect the position once all the facts and evidence have been assembled. They accept that adjudicators are not required to reach a correct decision, in either law or fact. But they do expect them to reach a valid decision. Lord Justice Davis suggested a possible way forward: “The solution is in the market-place: to incorporate into their Terms of Engagement […] a provision covering payment of their fees and expenses in the event of a decision…proving to be unenforceable.”

Parties to a construction contract accept the rough and ready process of adjudication

Dealing with the commercial consequences of this first - the contracting parties are almost certain not to accept a term in an adjudicator’s appointment. What commercial benefit do the parties derive if there is no decision? What the Court of Appeal described as the performance of “ancillary and anterior functions”
will be of no value to a party if ultimately the decision is unenforceable.

As for to the legal issues, if adjudicators amend their terms, the referring party, anxious to get on with the process, may accept those terms; the responding party, either from conviction or simply to delay the process, may take the opposite stance. The adjudicator will then find himself in a quandary. Linnett vs Halliwell suggests that if the objecting party continues to participate he may still have to pay reasonable fees - but that ignores the responding party’s underlying possition, which is that it is by definition unreasonable to pay any fee for an award that cannot be enforced.

Alternatively, the adjudicator may decide it is not worth a possible fight at the end to be paid his fees, and so he resigns. But that means the process has to start again, which defeats the aim of a speedy resolution to the dispute. Conversely, the adjudicator may soldier on and order the referring party to pay his fees, leaving him (if appropriate) to recover the fees from the responding party. But that simply shifts the problem from the adjudicator to the referring party, which may be unable to recover anything. That is not
what the referring party expected when starting the process.

It’s been argued Mr Justice Akenhead’s decision at the first instance is right as it avoids “disputes about disputes”. We question whether that is in fact the correct analysis: if adjudicators follow Lord Justice Davis’ suggestion, it may well lead to substantial further satellite litigation.

For all these reasons, it is our view that amending the terms to provide for payment even if the decision is a nullity would be
counter-productive. After all, it must be borne in mind that of the hundreds of adjudications each year, only a handful of decisions are challenged on enforceability grounds and even fewer are successful.

Michael O’Connor is a senior assistant and Jonathan Rosshandler is a partner in the construction & engineering team at Speechly Bircham. The authors of this article acted for the successful appellant, PC Harrington Contractors Ltd, in the case mentioned.