REUTERS | Mike Blake

Adjudicators determining party-party costs in adjudication

Over the last year or so, much has been written about the impact of the costs management and costs budgeting aspects of the Jackson reforms on High Court litigation. It doesn’t stop at written articles either. Whenever I go to a construction function these days, it seems to be the one topic that everyone is talking about. Everyone seems to have a “war story” about some aspect of costs management or the impact that the Mitchell decision has had on the conduct of litigation. It is often said that these reforms will push parties away from the courts and into the arms of arbitrators. I do not know if that is true or whether, once everyone gets the hang of the new(ish) rules, things will bed down and it will be business as usual at the TCC. Last year, Jonathan considered some aspects of costs in arbitration, but I wonder if adjudication could be the answer for those with concerns about the courts.

Statutory adjudication

We all know adjudication isn’t the dispute resolution mechanism that Parliament originally envisaged when it was debating the Bill that became the Construction Act 1996. Back then it was all about cash flow, about introducing a quick and dirty way of getting payment to those that needed it (and were being deprived of it), while enabling everyone to continue with the job.

Fast forward nearly 20 years and things have moved on. Yes, adjudication is still quick and dirty most of the time, but it isn’t really just about cash flow anymore. The scope has widened to encompass almost anything that can (and often does) go wrong on a construction project. Lawyers and experts have got involved and the costs have increased. Often, once the adjudicator has made his decision, that’s the end of it. The idea was (and still is) that the parties are bound by the adjudicator’s decision until the matter is finally resolved by whatever means the parties decide is best for them. Interim binding may not be that “interim” in reality. Many parties are content to let sleeping dogs lie.

Adjudication costs

Costs of the adjudication process are one area that Parliament did not originally deal with in the Construction Act 1996, although some changes were introduced (including the outlawing of Tolent clauses) when the Act was amended in 2011. It’s like teaching your grandmother to suck eggs when I say that the adjudicator does not have the power to make a costs order relating to payment of the parties’ costs unless the parties give the adjudicator express power to do so, either in their contract or by including it in their submissions in the adjudication. Jessica Stephens looked at this issue recently and Practical Law considered the recoverability of adjudication costs in subsequent litigation. However, neither looked at what happens when an adjudicator is given the power to deal with party-party costs.

Adjudicator dealing with party-party costs

Although the detailed cost rules in the CPR do not apply (unless the parties agree otherwise), if the adjudicator has the power to deal with party-party costs, he will go about the task of determining liability just like an arbitrator or judge might. In other words, he is most likely to decide that costs should follow the event and the loser pays.

However, given the tight timetable of most adjudications, if I have the power to deal with party-party costs, I find it helpful to agree a costs procedure with the parties. Ideally, the agreed procedure will enable the parties to make submissions on costs once my substantive decision is known. This may be particularly relevant if without prejudice offers have been made before or during the adjudication, or if one party believes it may be appropriate for an issues-based costs order. It will mean deferring my decision on costs for a few days after the substantive decision, but it doesn’t really go much further than that. There is no costs budget or costs management to contend with, no tut-tuting at the amounts each party anticipates spending on the adjudication or capping of costs. Just simple common sense about who should pay for the adjudication.

No costs training I hear you cry! Well, most arbitrators will have received training on how to deal with party-party costs. Therefore parties who wish to confer power upon an adjudicator to determine the parties’ costs could seek to select and/or agree an adjudicator who is also an arbitrator. Also, adjudicators that are members of the RICS have the benefit of its guidance note, Surveyors acting as adjudicators in the construction industry. While I understand judges have been through some training post-Jackson, and they have been making decisions on an interlocutory basis for years, I suspect it was all a bit of a shock to them at first too.

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