Despite the relatively short timetables applied in adjudications, adjudication costs can still be substantial. Significantly, in the absence of an effective agreement to the contrary, the Construction Act 1996 is silent on the issue and makes no provision for the recovery of adjudication costs. Unsurprisingly, and perhaps because adjudication costs bills can become rather huge, over the years parties have deployed various arguments to try and recover their adjudication costs.
The question of adjudication costs can also become more complex where parties are engaged in parallel or contemplated parallel court proceedings. For example, where a party accepts a Part 36 offer, does it have to pay the related adjudication costs? It was this question that was considered recently by Coulson J in WES Futures v Allen Wilson.
WES Futures Ltd v Allen Wilson Construction Ltd
Briefly, the facts were as follows:
- Futures carried out works for Wilson and Futures claimed against Wilson for unpaid invoices.
- On 8 January 2016, Futures’ solicitors wrote to Wilson referring to a previous failed adjudication (where the adjudicator had resigned on jurisdictional grounds) and seeking payment of the unpaid invoices. The letter stated that if payment was not received within 14 days, Futures’ solicitors were instructed to issue proceedings in the TCC.
- Despite meetings between the parties, there was no settlement. So, on 11 February 2016, Futures’ solicitors wrote stating that they were instructed to commence court proceedings.
- On the same day, Futures’ solicitors also wrote a letter stated to be a “Without Prejudice Part 36 Offer” and offering to accept a lesser sum in full and final settlement but stating that if:
“… this offer is accepted at a point which is more than 21 days from the date of this offer, you will be liable for all our client’s legal costs incurred in this case.”
- The sums were not paid. Futures commenced a second adjudication claiming payment of the outstanding sums and the adjudicator found for Futures.
- Wilson refused to pay and Futures commenced adjudication enforcement proceedings.
- Wilson then sought to accept the Part 36 offer.
What was the issue?
There were a number of issues, including whether or not there was a valid Part 36 offer. However, for construction lawyers, the interesting issue was whether, by accepting the Part 36 offer, Wilson was liable to pay Futures’ costs of the two adjudications?
Coulson J’s judgment
Coulson J found that Futures was not entitled to recover from Wilson the costs of the two adjudications.
Applying Dutton and others v Minards and others, Coulson J found that there was a valid Part 36 offer. On this basis, Coulson J applied CPR 36.13(1), which refers to the recovery of the “costs of the proceedings”. As adjudication costs are not “costs of the proceedings”, he found that the adjudication costs were not recoverable.
Helpfully, Coulson J also went on to consider the position if the offer was not a valid Part 36 offer. He found that this would make no difference:
- On the proper construction of the letter, he found it was a letter that was being made in respect of “the costs of the [court] proceedings”. The letter envisaged that there would be court proceedings rather than adjudication proceedings, and therefore did not extend to the adjudication costs.
- Further (and most significantly for construction lawyers), taking into account “wider principles”:
- under the Construction Act 1996, costs incurred in adjudications “are not recoverable”. As with mediation costs, adjudication costs are the subject of a different regime. From this, Coulson J found that:
“… if a successful party cannot recover its costs in the adjudication itself, it cannot recover them in enforcement proceedings either.”
- the relevant wording “costs of proceedings” included “recoverable pre-action costs” (CPR 36.13(1)). However, such costs did not include the costs of separate and standalone ADR proceedings such as adjudication (Roundstone Nurseries Ltd v Stevenson Holdings Ltd).
- under the Construction Act 1996, costs incurred in adjudications “are not recoverable”. As with mediation costs, adjudication costs are the subject of a different regime. From this, Coulson J found that:
No, you cannot recover your adjudication costs
This case serves as a helpful reminder that, in the absence of an effective agreement to the contrary, it is generally accepted that adjudication costs are not recoverable. In practice, where the parties are embroiled in complex disputes with layers of litigation, it can be difficult to separate out the true costs of the adjudication and the true costs of the court proceedings. However, parties should be alive to the court’s approach on the recoverability of true adjudication costs.
Further, where parties are involved in complex proceedings, they should also keep an eye on offers made at an early stage in the dispute. This is particularly important where a party has the benefit of an adjudication decision that awards a higher sum than the amount stated in the Part 36 offer.
But, is there another way?
As mentioned at the outset, over the years disgruntled parties have sought various ways to try and recover their adjudication costs. The recent case of Lulu v Mulalley reignited the debate about whether adjudication costs could be claimed under the Late Payment of Commercial Debts (Interest) Act 1998. This point does not appear to have been argued or arisen in WES Futures but, where a party is claiming a debt that relates to the whole or part of the contract price (that is, being a qualifying debt for the purposes of the late Payment Act), it might be worth a party considering whether its adjudication costs could be claimed under the Late Payment Act.
One thing that is clear from this recent run of cases is that parties continue to try and find ways to recover their adjudication costs. I guess this is hardly surprising when adjudication can be such a pricey business.
