Build September 2016

Build Magazine 38 Finance Parties to adjudication have generally accepted the position that they cannot stipulate in their construction contracts that an adjudicator will have the power to award party costs. These costs usually being legal, consultant or experts’ costs incurred preparing for and during the adjudication. This can only be agreed after the service of the notice of adjudication. While this protects parties from onerous drafting that may seek to disproportionately allocate cost risk as a way of deterring a contractor or subcontractor from starting an adjudication it also means that the costs of adjudication are irrecoverable which can put parties under significant financial strain. ontrast this with litigation where the successful party can recover its costs. The downside being that the costs risk to the losing party is significant because it may be required to pay its own costs and a high proportion of the other party’s costs. However, some would argue that is a fair consequence if parties’ have been illegitimately kept out of funds owed to them and the law such as the Late Payment Act 1998 has also served to compensate parties by facilitating the recovery of interest on late payments and fixed sums up to the value of £100. Additionally, the 2013 amendments to the Late Payment Act 1998 have enabled parties to claim reasonable costs of recovering debts which has prompted some to speculate whether this legistlation could be used to argue for costs at adjudication. In Lulu Construction Limited v Mullaley & Co Limited a summary judgment application was made to enforce the unpaid element of an Adjudicator’s decision. The Defendant, Mullaley, had paid the majority of the sum in question but disputed Lulu’s debt recovery costs of £47,666.27 claimed under the Late Payment Act 1998 and refused to pay them. This was “disputed on the ground that the Adjudicator was without jurisdiction to make any decision in respect of those claims because it was not part of the dispute referred to him”. The initial dispute had, somewhat unusually, been referred to Adjudication by the paying party, Mullaley, after Lulu had presented a claim for disputed sums under the contract. The debt Lulu Construction Limited v Mullaley & Co Limited: Debt Recovery Costs and Adjudication C recovery costs were not referred to in the Notice of Adjudication, which is hardly surprising. However, although they could have been raised in the Response, they were instead raised for the first time in the Rejoinder. This was met with a jurisdictional objection from Mullaley. Although other arguments were raised, Mullaley’s substantive objection was that the claim for debt recovery costs “was not within the scope of the Referral and the claim is not something which can be run as what might be called a defence”. The court accepted that the debt recovery costs were not “within the wording of the Dispute referred”, but acknowledged that this was because “the Notice of Adjudication was… issued by [Mullaley] and their only concern was to try to sort out the payments due under the sub-contract… although the Notice does also refer to such other sums as the Adjudicator may decide”. Lulu’s argument that the adjudicator did have the jurisdiction to award the costs relied upon the decision of Akenhead J in Allied P& L Limited and Paradigm Housing Group Limited [2009] EWHC 2890 (TCC) where he noted that it was open to the defendant to raise any defence, thus widening the scope of the adjudication. On this basis, the judge took the view that the debt recovery costs (i.e. the costs of running the adjudication) were “clearly connected with and ancillary to the referred dispute and must properly be considered part of it”. As such, the adjudicator had been correct to say that he had jurisdiction to decide this element of the dispute. Although the claim for debt recovery costs was not within the scope of the referral, it was something which was connected with and ancillary to that referred dispute. Summary judgment was therefore granted to Lulu. On the face of it, this seems to be controversial as recovering costs at adjudication is not permitted as a matter of law. However, what we need to bear in mind is it is established law that the enforcement of adjudicators’ decisions is not contingent on the decisions being correct as a matter of fact or law. The requirements are that the adjudicator has acted within his jurisdiction and without a breach of natural justice. As a consequence, at the summary judgment hearing, the inquiry into the application of the correct law was not undertaken. Arguably, although it would increase legal costs, what Mullaley could have done is applied for a declaration on the correct law to be heard at the same time as the enforcement hearing in addition to its defence to enforcement. If such an application was possible that may have resulted in a different outcome. Therefore, while this decision provides us food for thought it is not cause to suggest adjudication costs can be recovered. The position may of course be different for debt recovery costs incurred before the adjudication. Theresa Mohammed, Partner, & Beth McManus, Associate in Dispute Avoidance and Litigation, Trowers & Hamlins