Practical Law

A number of recent cases have looked, in part, at adjudicators’ decisions over liability for their fees and the parties’ costs.

The Construction Act 1996 is silent on payment of the adjudicator’s fees. In contrast, the Scheme for Construction Contracts 1998 provides that an adjudicator is entitled to be paid a reasonable amount and can determine how the payment will be apportioned between the parties. In practice, unless the contract says something else, or the parties agree a different split on fees, the adjudicator will usually direct that the “losing” party will be liable for his fees.

Vision Homes v Lancsville

This is an interesting decision of Clarke J, not least because the referring party chose to amend its notice of adjudication to include a request for a declaration that the responding party should be liable for the adjudicator’s fees. This resulted in a technical breach of paragraph 2 of the Scheme for Construction Contracts 1998 and meant that the adjudicator’s decision was not enforced by the court.

The referring party’s behaviour was, arguably, unnecessary, since the Scheme gives the adjudicator a stand-alone right to determine how his fees were apportioned (paragraph 25). If the adjudicator proceeded on the basis of the original notice and this stand-alone power, then he was correctly appointed, had jurisdiction to deal with matters in the original notice and the court was wrong not to enforce his decision. However, the court held that because the adjudicator had made a decision on costs, that must arise from the amended notice and the request for a declaration, and so he was not correctly appointed and had no jurisdiction to make the decision he did.

Some may say this was a very harsh decision.

Camillin v Adelaide

In Camillin v Adelaide, the responding party alleged the adjudicator was biased in his decision to award the referring party approximately 60% of its outstanding claim, but to pay only 10% of his fees; the responding party being held liable for the other 90%. The responding party had made a without prejudice offer to settle during the adjudication, which the adjudicator was able to consider when making his costs award. In order to do this successfully, the adjudicator had made a split decision, dealing with the substantive issues and then costs. I wrote about split decisions recently.

In the enforcement proceedings, Akenhead J held that the adjudicator had considered the fact that the referring party had made a substantial recovery and had beaten the without prejudice offer. He held that the adjudicator had simply exercised his discretion to disregard the offer and to reduce the responding party’s liability for his fees by only 10%.

Akenhead J described the complaint of bias and breach of natural justice as “wholly misconceived”. He also noted that it was not for him to say whether the adjudicator was wrong in allocating 90% to the responding party, recognising that “some judges or adjudicators might have made a greater reduction”.

Estor v Multifit

In Estor v Multifit, the adjudicator’s costs order divided the amount due between the parties, with the responding party being liable for the greater share. The adjudicator also held that the referring party should be liable for the fees that he had incurred in an earlier, aborted adjudication but, where there was overlap with the second adjudication, the responding party should pay. This left the responding party liable for an extra 11 hours of the adjudicator’s time.

The responding party challenged this, alleging in enforcement proceedings that the adjudicator did not have jurisdiction to make such an order.

Akenhead J reviewed the adjudicator’s calculations and how he had attributed part of the costs from the first adjudication to the responding party. He held that what the adjudicator had done fell within the ambit of deciding what a reasonable amount for the losing party to pay was. It was not a jurisdiction issue at all; rather that the adjudicator had exercised his discretion and had done so fairly.

What about the parties’ own costs?

The adjudicator usually does not have the power to make a costs order relating to payment of the parties’ costs. The parties may give the adjudicator an express power to determine costs, either in the contract or by including it in their submissions in the adjudication.

In Adonis v O’Keefe, Clark J held that the parties had not entered into a construction contract. This meant the adjudicator had no jurisdiction and his decision was not enforced. However, had the court agreed with the adjudicator and enforced his decision, then the sub-contractor would have had to pay all the costs of the adjudication (that is, both parties’ costs and the adjudicators fees).

It is rare to see these types of clauses. It is possible that the judge was influenced by this fact when he was looking at whether the parties had a construction contract. However, if the LDEDC Bill 2008 becomes law, they will be outlawed.

What do I take from these decisions?

Any decision I make on costs is open to challenge in enforcement proceedings. However, provided my calculations and logic are clear, it is likely the court will find that I properly exercised by discretion. This is the case even if I am going to make a split order over fees, or something more unusual, such as allocating costs from an aborted adjudication.