How a party finances litigation is usually a matter between it and its solicitor. It may simply agree to pay the costs incurred by its solicitor and the legal team, in the usual way, or it may enter into some form of conditional fee agreement (CFA) that affects the level of those fees, depending on the outcome of the litigation. Nowadays, a party may also consider after the event insurance (ATE insurance).
Costs arrangements are normally based on the assumption that the “loser pays” the other side’s costs. However, in adjudication, the usual “loser pays” rule does not apply (unless the parties have a Tolent-type clause in their contract or have given the adjudicator jurisdiction to decide liability for the parties’ costs). It is therefore unlikely that a party will enter into a CFA with its solicitors at the outset of an adjudication dispute, or even contemplate ATE insurance.
What happens in enforcement proceedings?
If one party wishes to enforce an adjudicator’s decision, it must issue proceedings and apply to the TCC for summary judgment. At this point, financing options (like CFAs and ATE insurance) become viable. Enforcement proceedings should not be as expensive as the adjudication itself (although some may argue that they are), but considerable fees may still be incurred. Since the “loser pays” rule now comes into play, the enforcing (unpaid) party may feel it appropriate to enter into such arrangements.
A note of caution: consider Redwing v Wishart
While nothing in the CPR provides an exemption for adjudication enforcement proceedings, a party should consider Akenhead J’s costs judgment in Redwing v Wishart before committing itself to a CFA or ATE insurance.
In Redwing, the enforcing party (Redwing) was owed £100,000 plus VAT arising from an adjudicator’s decision. It entered into a CFA with its solicitor that included a 100% success fee uplift and it insured £20,000 worth of legal fees through an ATE insurance policy. The enforcement proceedings were successful and Redwing sought to recover its legal fees from Mr Wishart. These included solicitor’s fees of £26,500 (including the 100% success fee) and the ATE insurance premium of £8,500.
Akenhead J awarded Redwing its costs of the enforcement proceedings, but had to consider whether the CFA was a reasonable and proportionate arrangement for Redwing to have made. He cautioned that, in adjudication enforcement, the courts should “think long and hard about allowing a substantial CFA mark-up”, particularly as there is usually no realistic defence. He also had to consider what level of insurance premium was recoverable.
As such, Akenhead J penalised Redwing on the success fee and the ATE insurance premium, allowing only 20% of both because:
- Of the low risk that Redwing faced in the enforcement proceedings: “the large majority of reported cases… are successful”.
- At the time Redwing entered into the CFA, “there was little or no chance that [it] would actually wholly fail in the proceedings”.
- The risk of losing “was sufficiently low to undermine the reasonableness of imposing anywhere near 100% of [the premium] on [Redwing]”.
That said, Akenhead J did not believe that Redwing had acted unreasonably by entering into the CFA and obtaining ATE insurance, although he did see that such financing options could be used by some parties as commercial threats.
In our view, this judgment does not restrict parties from using these financing methods in adjudication enforcement, but it does suggest that they should think carefully before doing so. Success fees and insurance premiums will be scrutinised and a party’s reasons carefully reviewed by the court.
Finally, Akenhead J suggests that CFA/ATE arrangements may be viewed as an aggressive tactic designed to apply pressure to the defendant. When money is owed to it, the unpaid party may believe (wrongly or rightly) that any pressure that it can apply to ensure cash flows in its direction is justified. Since cash flow is often described as the lifeblood of the construction industry, many may agree with Redwing’s approach.