Introduction
In Adjudication the normal position (under both the Housing Grants, Construction and Regeneration Act 1996, and the Local Democracy, Economic Development and Construction Act 2009, (the Construction Acts)) is that both parties are responsible for their own costs in the adjudication process irrespective of whether they ‘win, lose or draw’ the Adjudication. There can be exceptions to this normal position but those exceptions are rarely encountered, and therefore are ignored entirely for the purpose of this article. The basic premise being taken in this article (a basic premise that applies in the overwhelming majority of cases in any event) is that parties to an Adjudication are liable for their own costs irrespective of the outcome of the Adjudication.
In Adjudication the normal position (under both the Housing Grants, Construction and Regeneration Act 1996, and the Local Democracy, Economic Development and Construction Act 2009, (the Construction Acts)) is that both parties are responsible for their own costs in the adjudication process irrespective of whether they ‘win, lose or draw’ the Adjudication. There can be exceptions to this normal position but those exceptions are rarely encountered, and therefore are ignored entirely for the purpose of this article. The basic premise being taken in this article (a basic premise that applies in the overwhelming majority of cases in any event) is that parties to an Adjudication are liable for their own costs irrespective of the outcome of the Adjudication.
In contrast to the above position, Section 5A(2A) of the Late Payment of Commercial Debts (Interest) Act 1998 (the Late Payment Act) implies a term into commercial contracts for the supply of goods and services which allows for simple interest and for the recovery of reasonable costs to be paid in connection with the recovery of a debt. Therefore, if these provisions were to be applied, there is an arguable case that a successful party in Adjudication would be able to recover its costs incurred in Adjudication proceedings as part of its reasonable debt recovery costs.
Therefore, on the face of it, there would appear to be a conflict between the provisions of the Construction Acts and the provisions of the Late Payment Act, and this issue was considered in the Lulu Construction Ltd v Mulalley & Co Ltd [2016] EWHC 1852 (TCC) case.
Lulu Construction Ltd v Mulalley & Co Ltd
Lulu applied for summary judgment against Mulalley in relation to a contractual claim for payment of an outstanding balance of an Adjudicator’s award. Mulalley agreed to pay a portion of the sums due under the Adjudicator’s award, but it disputed that it was due to pay the outstanding balance of "debt recovery costs" of £47,666 that had been claimed under the LPCDIA 1998.
Mullaley claimed that the Adjudicator did not have jurisdiction to make that part of his award, as the claim in respect of debt recovery costs was not specifically referred to in the initial notice of Adjudication (a notice of Adjudication that Mulalley had itself produced) and it was only mentioned for the first time in Lulu’s Rejoinder.
Despite the case put forward by Mulalley, Mr. Jonathan Acton-Davis QC enforced the Adjudicator’s decision in court, and found that the Adjudicator had jurisdiction to award Lulu its debt recovery costs of £47,666, claimed under the Late Payment Act.
However, and despite the above, the Lulu case is not authority for the proposal that a Referring Party can claim its costs in an Adjudication under the Late Payment Act. In reality, the court simply found that the Adjudicator had jurisdiction to award debt recovery costs as they were connected with and ancillary to the referred dispute; the court did not consider the question of whether the adjudicator was right in law to award those costs, and this is because courts will (generally) enforce an Adjudicators decision even if the decision is wrong in fact and in law.
Conclusion
As set out above, the Lulu case does not give any authority to say that a party’s Adjudication costs can be recovered under the auspices of the Late Payment Act, Therefore, this issue still remains judicially unresolved.
The majority of commentators appear to favour that Adjudication costs are not recoverable under the Late Payment Act, on the basis that if a party has chosen Adjudication (where the tribunal is unable to award party costs unless the parties agree after the notice of Adjudication) those costs are not recoverable.
Adjudications are utilised due to their speed and cost-effectiveness and the ability to claim under the Late Payment Act is considered, by the majority of commentators, to be contrary to the purpose of Adjudication as it could deter parties from using Adjudication ‘at any time’ as a means of dispute resolution in the future.
However, as the matter has not been decided upon by the courts, the definitive answer will not be known about this matter until the courts do consider this substantive issue. Therefore, watch this space, in respect of this matter, to see if the courts do make a ruling on this very important issue in 2017.
Peter Barnes
Blue Sky ADR Ltd
13 February 2017
Therefore, on the face of it, there would appear to be a conflict between the provisions of the Construction Acts and the provisions of the Late Payment Act, and this issue was considered in the Lulu Construction Ltd v Mulalley & Co Ltd [2016] EWHC 1852 (TCC) case.
Lulu Construction Ltd v Mulalley & Co Ltd
Lulu applied for summary judgment against Mulalley in relation to a contractual claim for payment of an outstanding balance of an Adjudicator’s award. Mulalley agreed to pay a portion of the sums due under the Adjudicator’s award, but it disputed that it was due to pay the outstanding balance of "debt recovery costs" of £47,666 that had been claimed under the LPCDIA 1998.
Mullaley claimed that the Adjudicator did not have jurisdiction to make that part of his award, as the claim in respect of debt recovery costs was not specifically referred to in the initial notice of Adjudication (a notice of Adjudication that Mulalley had itself produced) and it was only mentioned for the first time in Lulu’s Rejoinder.
Despite the case put forward by Mulalley, Mr. Jonathan Acton-Davis QC enforced the Adjudicator’s decision in court, and found that the Adjudicator had jurisdiction to award Lulu its debt recovery costs of £47,666, claimed under the Late Payment Act.
However, and despite the above, the Lulu case is not authority for the proposal that a Referring Party can claim its costs in an Adjudication under the Late Payment Act. In reality, the court simply found that the Adjudicator had jurisdiction to award debt recovery costs as they were connected with and ancillary to the referred dispute; the court did not consider the question of whether the adjudicator was right in law to award those costs, and this is because courts will (generally) enforce an Adjudicators decision even if the decision is wrong in fact and in law.
Conclusion
As set out above, the Lulu case does not give any authority to say that a party’s Adjudication costs can be recovered under the auspices of the Late Payment Act, Therefore, this issue still remains judicially unresolved.
The majority of commentators appear to favour that Adjudication costs are not recoverable under the Late Payment Act, on the basis that if a party has chosen Adjudication (where the tribunal is unable to award party costs unless the parties agree after the notice of Adjudication) those costs are not recoverable.
Adjudications are utilised due to their speed and cost-effectiveness and the ability to claim under the Late Payment Act is considered, by the majority of commentators, to be contrary to the purpose of Adjudication as it could deter parties from using Adjudication ‘at any time’ as a means of dispute resolution in the future.
However, as the matter has not been decided upon by the courts, the definitive answer will not be known about this matter until the courts do consider this substantive issue. Therefore, watch this space, in respect of this matter, to see if the courts do make a ruling on this very important issue in 2017.
Peter Barnes
Blue Sky ADR Ltd
13 February 2017
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