Recovery of Adjudication Costs
The recovery of adjudication costs is an often talked about topic and given the complexity and detail often required in presenting a case to an adjudicator those legal costs can add up and so even a small change in the wind regarding the court’s view on recoverability of costs is important news.
Construction Act 1996
Under the amended Construction Act 1996 parties are generally considered to 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.
Late Payment of Commercial Debts Act 1998
The wording in the Construction Act 1996 does not sit happily with a recent amendment to the Late Payment of Commercial Debts Act, 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 Court has previously upheld an adjudicator’s decision to award a party their legal costs as part of “debt recovery costs”. That may not have changed the overall assumption that legal costs are not recoverable but it did bring an element of uncertainty. The TCC has since, in a different decision (Enviroflow Management Ltd v Redhill Works (Nottingham) Ltd (unreported, 16 August 2017)), held that an adjudicator did not have jurisdiction to award the unpaid party its “debt recovery costs” without a written agreement to allow such a power.
The reasoning behind the TCC’s recent decision appears to be that although the Late Payment of Commerical debts Act does in certain situations allow for a party to be paid the costs of recovering a debt, the Construction Act requires that in relation to adjudications any such agreement must be in writing. As such, if there is no written agreement, any potential implied term allowing a party to be paid the costs of recovering a debt would not be effective as it would not meet the stipulations in the Construction Act.
The decision is unreported and it may be that the argument for recovery of adjudication costs based on the Late Payment of Commercial Debts Act has not been fully closed off but for now it seems arguments like these have become weaker given the TCC’s recent judgment.