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Costs in adjudication: any way the wind blows?

If you successfully enforce an adjudicator’s decision in the Technology and Construction Court (TCC), you will usually recover your costs. But how much might you recover?

You win some

Under the Civil Procedure Rules (CPR), costs usually follow the event. That is, a “winner” can recover its legal costs. Despite the complications that can occur in commercial litigation, where the parties may make CPR Part 36 offers (or may win on some issues, but lose on others), it is this general rule that typically applies to the costs of adjudication enforcement proceedings.

A second general rule under the CPR is that costs will be agreed by the parties, or assessed by the court on the standard basis. However, occasionally, a claimant may recover indemnity costs from a defendant. For the court to award indemnity costs, the defendant’s conduct must be at fault. See, for example, Gray & Sons Builders v Essential Box Company [2006].

In Harris Calnan Construction v Ridgewood (Kensington) [2007], HHJ Coulson QC awarded indemnity costs, stating:

“…it is plain from the earlier paragraphs of this Judgment that the Defendant had no substantive basis for challenging the decision. This sum ought to have been paid months ago. This court will not encourage parties, who have no defence to a claim based on an adjudicator’s decision, to use up valuable court time and the resources of the successful party in running unmeritorious points that are doomed to fail.” (Paragraph 24, judgment.)

Does that mean if you successfully enforce an adjudicator’s decision in full, you will get your costs on an indemnity basis?

As it turns out, you would be unwise to assume that you will recover costs on the indemnity basis…

You “lose” some

We have just reported on the recent case of Balfour Beatty v Shepherd Construction, which got us thinking again about costs in adjudication enforcement. (The judgment, just published on Bailii, was handed down on 1 September 2009 and related to an adjudicator’s decision dated 2 July 2009.) Tactically, was there a clear “winner?”

On the one hand, following the TCC judgment, the claimant sub-contractor was a clear victor: it now had a TCC judgment in its favour for just under £1.5 million. However, having already “won” the adjudication, it claimed £78,034.96 (exclusive of VAT) in legal costs relating to the application for summary judgment. The TCC awarded only £45,000 (exclusive of VAT) on summary assessment, despite finding for the sub-contractor on each of the six issues raised by the defendant contractor (paragraphs 83 and 84, judgment). That leaves the sub-contractor (on the face of it) £33,034.96 out of pocket.

On the other hand, the contractor successfully delayed payment in accordance with the adjudicator’s decision. However, the court ordered the contractor to pay interest of £3,126.89 (paragraph 82, judgment) and, despite the reduction in the sub-contractor’s claim for legal costs, the contractor must pay its own legal costs and £45,000 of its opponent’s legal costs.

The additional management time lost in dealing with the proceedings, following the hard-fought adjudication, will mean that neither emerges unscathed from the TCC.

Did something go wrong for the sub-contractor in Balfour Beatty?

Although the sums at stake in Balfour Beatty v Shepherd were substantial, the court reduced the sub-contractor’s claim for legal costs considerably (and made its assessment on the standard basis, not the indemnity basis).

It may be that the complexity of the case deterred the judge from awarding indemnity costs. One feature of the Balfour Beatty judgment is its length. Akenhead J considered, in detail, all six of the contractor’s reasons for resisting enforcement and described the factual background to the proceedings in full.

Does that mean that the more straightforward the adjudication, the more likely you are to “win” indemnity costs, if you have to go to court to enforce? Possibly, but it may simply be that fewer “weak” defences are coming before the TCC judges. Many losing parties comply with an adjudicator’s decision, knowing that if they can’t set out a good defence at the TCC they may very quickly face additional costs by way of interest, their own legal costs, their opponent’s legal costs (possibly on an indemnity basis) and their own lost management time.

Time will no doubt tell. Clearly, in a world where cash-flow is king, delaying payment can be a life or death decision for a company. In the meantime…

What should you do?

When representing a party seeking to enforce an adjudicator’s decision in the TCC, you should protect your costs position as far as possible, by:

  • Specifying with as much appropriate detail as possible what work you have undertaken in preparing for and attending the application for summary judgment. Classify what work was carried out on what documents and on attendances on which people. Classifications of costs such as “other”, even if an appropriate classification, may look like an easy target for a reduction.
  • Carefully considering the documents you put before the court. Taking a lesson from one short line in the Balfour Beatty judgment, explain why documents were included in the court bundle, if those documents were not then relied on in written or oral submissions.
  • Asking for indemnity costs in pleadings and referring to that request, if possible and appropriate (given the hearing itself), during the brief submissions on costs at the end of the hearing.

Finally, don’t expect too much. Even on an indemnity basis, some of the bill between a client and solicitor is unlikely to be recoverable from the other party. As a rule of thumb, it has been said that the standard basis means that generally a party obtains an order for around 60-70% of the costs claimed on assessment.

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