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Party costs in adjudication

I’ve blogged before about the advantages that adjudication and arbitration can sometimes offer over the court system. For example, last year I considered this topic after West Country Renovations v Mr and Mrs McDowell, where Akenhead J decided that claims for less than £250,000 should be commenced in county courts or other High Court centres outside London that have designated TCC judges.

I’ve recently completed an adjudication where the parties decided to use it as a means of finally deciding their dispute.

Final and binding adjudication

In the dispute before me, the parties had already had a preliminary issue of law decided in the county court, and considered that adjudication would be a more effective means of resolving the quantum issues. I don’t think that this was solely on the basis that a quantity surveyor adjudicator would be more suited to this task. I think that the parties were also of the view that an adjudicator could devote more time to deciding the dispute. Both sides had made very detailed submissions on the activities undertaken each day, and they clearly wanted these activities to be analysed in some detail. Given the workloads and pressures facing county court judges, it’s unlikely they would have the time to undertake such a thorough analysis.

Anyway, I’m digressing.

In addition to deciding the substantive issues, I also had the power to decide the parties’ costs. This was not limited to the adjudication, I was also given the power to award party costs relating to the county court proceedings. This is the second adjudication I have completed in as many months where I have been asked to decide party costs. So, are parties increasingly deciding to agree to allow adjudicators to decide costs?

Are parties increasingly deciding to agree to allow adjudicators to award costs?

One of the advantages of adjudication has always been that parties know that, unless they agree otherwise, they will not be lumbered with the other side’s costs. (In case you are wondering, I’m intentionally not mentioning Tolent clause type issues). This has meant that small contractors need not be afraid of pursuing a large multi-national with its legions of City lawyers and QCs.

While I have had recent experience of awarding party costs, I have been appointed on a number of other adjudications this year where I haven’t had this power. I therefore consider it unlikely that it will become the norm for parties to agree to allow adjudicators to award costs.

What’s the best procedure for dealing with party costs?

In both of my recent adjudications, I dealt with the issue of costs in my decision on the substantive issues. Without prejudice offers to settle were included in sealed envelopes, which I only opened after I had decided the substantive issues. The advantage to the parties of this approach was that they could include their submissions on costs together with their main submissions, and they only had one decision resolving all of the issues.

The main disadvantage was that when they made their submissions on costs, the parties did not know the outcome of the dispute. They therefore had to provide for a number of different eventualities.

To avoid this situation, in other adjudications where I have decided costs, the parties have agreed that I should issue a separate decision on costs after my decision on the substantive issues. This is obviously much more akin to arbitration or litigation. What I haven’t come across before is the novel procedure the parties agreed in Farrelly v Byrne, which Matt blogged about a couple of weeks ago. There the parties agreed a procedure whereby the adjudicator issued a draft decision on the substantive issues, then they made submissions on costs and the adjudicator reached his decision a few days later. It was agreed that the draft decision would not be subject to any change save for the application of the “slip rule“.

I can see the advantages of the procedure agreed in Farrelly v Byrne. The parties still ended up with a single decision covering all of the issues, but nevertheless got to make submissions on costs after they were aware of how the adjudicator had decided the dispute.

I would be interested to know whether users of adjudication have a particular preference and I encourage you to comment below.

And finally, “Adjudications – Without the Cost”

Earlier this year, Simon Liddiard blogged about the possibility of claiming costs in an adjudication as a result of the amendments to the Late Payment of Commercial Debts (Interest) Act 1998, which came into force on 16 March 2013 under the Late Payment of Commercial Debt Regulations 2013. In particular, new sub-section 5A(2A) provides that the supplier is entitled to the greater of a fixed sum or:

“…the reasonable costs of the supplier in recovering the debt…”

Simon concluded that this would be unlikely to apply to adjudication because it is directly contrary to section 108A of the Construction Act 1996, which (as we all know) prohibits any provision pre-dating the notice of adjudication that concerns the allocation of the costs of the adjudication.

I certainly agree with the sense and logic of Simon’s conclusion. However, it appears that this is not a view shared by all. One of our clients recently received a flyer from a claims consultant headed “Adjudications – Without the Cost…“. The flyer went on to say that, as a result of the amendments to the Late Payment Act:

“…the costs and fees incurred in debt recovery are paid by the other side…”

So, I suspect it won’t be long before we start seeing claims for party costs in adjudications under the amended Late Payment Act 1998, regardless of the merits of such claims.

2 thoughts on “Party costs in adjudication

  1. The Farrelly v Byrne procedure makes a lot of sense to me, I wonder though whether the ‘draft loser’ may have some opportunity to do something with the time, particularly maybe a newbie to adjudication. If it was the responding party and they then got a second opinion and raised a ‘new defence’, however late, might there then be natural justice issues if it was disregarded by the adjudicator?

    As for the notion of costs and fees in debt recovery – that doesn’t really seem credible to me on the basis of fairness and risk. What is inferred is that the referring party would adjudicate with no risk of meeting the other side’s costs if it was unsuccessful? But then I suppose if this bit of the LPA doesn’t apply then neither would the interest provisions so it seems a bit problematic to me. Strictly if it was said that the ‘debt’ does not exist until (amended HGCRA) there is a revised Notified Sum then these ‘costs and fees’ are not part of debt recovery prior to the award so outwith the LPA – but then neither would interest (other than contractual interest at least) so maybe that is a new conundrum adjudicators will have to wrestle with!

  2. Some points well made Mat. I don’t believe there would be a problem implying the interest provisions of the LPCDIA into a construction contract, but not the provisions regarding the costs of debt recovery: the former provision doesn’t conflict with the HGCRA, whereas the latter provision does. Only time will tell as to how the new provisions are interpreted…

    As for dates, I think that the debt exists from the date that the adjudicator/arbitrator/judge determines the sum should have been paid.

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