Not a total failure
P. C. Harrington claimed that it was not liable to pay an adjudicator's fees because there had been a "total failure of consideration". The adjudicator's decision had not been enforced because he had fallen below the standards required.
The court set out the circumstances when a total failure of consideration could occur, commenting that it would be more difficult to apply the doctrine of total failure of consideration to a contract for the provision of services, and that difficulty applied not so much as a matter of construction of the contract but as a matter of fact.
P. C. Harrington, PCH, was the main contractor on three projects. It engaged Tyroddy Construction Ltd. to undertake reinforcement works on these projects. The parties fell into dispute over the lack of a final account procedure and entitlement to the repayment of retentions. Tyroddy referred a number of these contracts to adjudication. Mr. Philip Doherty, who was employed by the claimant, Systech, was appointed as adjudicator by the RICS. He wrote to both parties enclosing his “Terms of Engagement of the Appointment as Adjudicator” which included his rate of £210.00 per hour plus expenses and disbursements. The Terms also stated that both parties would be jointly and severally liable for the payment of his charges. Both parties accepted these Terms and Conditions. Tyroddy accepted them by virtue of a letter from its claims consultant, and PCH by conduct.
PCH challenged the adjudicator’s jurisdiction on the ground that there was no dispute between the parties because PCH alleged that there had been agreement on a fourth contract relating to “Crossharbour” between the parties that payments of all retentions due or becoming due to Tyroddy should be put on hold until the question of an alleged overpayment of £300,000 on the Crossharbour project was resolved. Tyroddy gave detailed reasons why the jurisdictional challenge was wrong. Mr. Doherty reviewed the parties’ submissions and decided that he had the jurisdiction to continue. Mr. Doherty made awards in Tyroddy’s favour. At the enforcement proceedings brought by Tyroddy, PCH alleged that Mr. Doherty’s decisions were not enforceable on the grounds of breach of natural justice. PCH alleged that he had failed to address the defence put forward in each adjudication that no retention could be due because Harrington had already overpaid Tyroddy on each of the three subcontract projects.
Alternatively, PCH said that the adjudicator had taken it upon himself to deal with the final account exclusion as a matter of jurisdiction without giving either of the parties the opportunity to be heard on that point. The court had agreed with PCH, and that the adjudicator had “unwittingly [fallen] below the standards which are required to enable the decision or decisions to be enforced”. The court decided that by ruling wrongly that issues relating to the final account were outside his jurisdiction, he had put himself in the position that he could not and would not deal with a defence, i.e. that no sums were due to Tyroddy because PCH had already paid more than was due to it. In addition, court found that the adjudicator had taken it upon himself to deal with the final account exclusion as a matter of jurisdiction without giving either of the parties the opportunity to be heard on that point. Consequently, Mr. Doherty’s decision should not be enforced.
In the present proceedings, Systech sought payment from PCH for Mr. Doherty’s fees. Two of these related to the Crossharbour project which the parties had in the meantime settled. The other three sets of proceedings, dealing with the Wembley, Mansfield and Liverpool adjudications respectively, were transferred to the TCC in the High Court where they were consolidated. PCH resisted payment alleging that there had been a total failure of consideration in respect of the adjudicator’s three contracts of engagement, and that the adjudicator had failed to issue “Decisions” in accordance with the Scheme. This was on the basis that he had produced decisions which were unenforceable because of his breaches of natural justice. At least part of this argument was based on there being an implied term of the contract of engagement that the adjudicator was obliged to conduct the adjudications in accordance with the principles of natural justice.
The court set out the circumstances when a total failure of consideration could occur, commenting that it would be more difficult to apply the doctrine of total failure of consideration to a contract for the provision of services, and that difficulty applied not so much as a matter of construction of the contract but as a matter of fact. If the contract, properly construed, involved the provision of services, it would be difficult to say that there has been a total failure of consideration where some of the services had been provided but not all of them. Depending on the terms of the contract and the contractual entitlements to payment for the services, the service provider might well not be entitled to payment for those services which it had not provided, but that had nothing to do with the doctrine of failure of consideration and more to do with straight contractual entitlement.
The first point to be considered was what was the bargained-for performance required from the adjudicator. This was to be taken from the adjudicator’s letter and his Terms of Engagement. In the judge’s view, the bargained-for performance was the provision of the role of adjudicator which covered not only the production of the decision but also the discharge of the remaining aspects of the role which involved the conduct of the adjudication in the period leading up to the decision. In the same way that it was not the function of a judge or arbitrator just to produce a judgement or an award but also to provide all the necessary and important ancillary and anterior functions, so it was, generally, with an adjudicator.
It could not be said that there had been a total failure of consideration. The adjudicator had spent a good deal of time dealing with PCH’s jurisdictional challenges which PCH had asked him to deal with. All of this had been a partial discharge of his role as adjudicator. There was not a “total” failure and the consideration or bargained-for because performance was not “whole and indivisible” and there had been in effect at the very least partial performance by the adjudicator.
Systech International Ltd. v P. C. Harrington Contractors Ltd.,  EWHC 2722 (TCC)
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This article was published on 3 Nov 2011 (last updated on 3 Nov 2011).