Adjudication – Allocation of the parties’ costs
Since the amendments to the Construction Act 1996 became effective in 2011 parties have been prevented from agreeing in a construction contract (i.e. before an adjudication has commenced) who will pay each other’s’ legal costs of an adjudication. The parties are only able to agree who pays legal costs if they do so in writing after service of the notice of adjudication on the responding party. Without such an agreement the adjudicator cannot award one party’s costs should be paid by the other.
The wording in the Construction Act 1996 does not, however, sit happily with a recent amendment to the Late Payment of Commercial Debts Act 1998, which allows a supplier to recover the reasonable costs incurred in recovering a debt if those costs are not met by the fixed compensation regime. The Courts have not had to look at this point and decide which act should take precedence and so the current uncertainty gives parties wishing to recover their adjudication costs some hope.
There has been a case recently reported (Lulu Construction Limited v Mulalley & Co Limited  EWHC 1852 (TCC)) where a party indeed managed to recovered its adjudication costs using the Late Payment of Commercial Debts Act. The Technology and Construction Court were asked by the successful party to enforce the adjudicator’s decision as the losing party had refused to pay the costs awarded as it said the adjudicator lacked the right to decide on such a point. The Court decided that as the adjudicator, based on the statements made in the adjudication, did have the right to decide on such a point then the Court should simply enforce the decision. The Court did not, however, have to look at whether as a matter of law the adjudication costs should have been awarded (as it was the wrong type of hearing for such a question) and so the position is still unclear. Parties may therefore in the meantime still argue (and have to spend time counter-arguing) that adjudication costs are recoverable, even without an agreement in writing after service of the notice of adjudication on the responding party, based on the Late Payment of Commercial Debts Act.