The Board of Trustees of National Museums and Galleries on Merseyside ("the Museum") v AEW Architects and Designers Limited ("AEW"), a decision of the Technology and Construction Court (TCC) issued on 31 July 2013, confirmed that legal and other costs incurred during an adjudication may be recovered from the losing party.
In this case AEW, the Contractor, had referred a dispute to adjudication seeking a declaration from the adjudicator that AEW were not responsible for certain defective designs. The adjudicator agreed with AEW in this regard and issued the declaration to that effect and also determined that the Museum should pay the adjudicator's fee for the adjudication.
The Museum subsequently raised proceedings in the TCC seeking to recover damages arising from the defective designs. The damages claimed included the adjudicator’s fees and the Museum's legal and expert costs incurred in defending the adjudication. The Museum argued that the adjudicator’s fees were caused by AEW’s breach of contract. AEW argued that the Museum had fought the adjudication knowing that the costs would not be recoverable in subsequent proceedings and that the court proceedings should not be allowed as a backdoor method of recovering legal costs.
The judge agreed with the Museum and held AEW liable for these costs. The judge formed the view that as adjudication was "a fact of life" in construction contracts it was reasonably foreseeable that an adjudication could be initiated by AEW in relation to the dispute over design responsibility.
The judge also decided that there was a sufficient causative link between the defaults of AEW and the costs of the adjudication, a link which would only have been broken if the Museum had acted unreasonably or if their solicitors had acted negligently in advising the Museum that it had an arguable defence in the adjudication.
Emphasis was also put on the fact that if AEW had done its job correctly there would have been no need for adjudication as the design issues would not have arisen and therefore no reason for the incurred costs.
The judge was, however, critical of the costs claimed in the absence of direct evidence explaining how and why all the costs were attributable to the adjudication and as a result he restricted the award of damages to £53,000 from the sum claimed of £119,000.
This decision may now allow parties significant scope to claim, in subsequent court or arbitration proceedings, for the recovery of costs other than the adjudicator's fees which are incurred during an adjudication. This is a significant shift in the previously perceived wisdom that such costs were not recoverable from the losing party.
As a result we may find that the brakes are placed on some speculative adjudication referrals (or perhaps an increase in commercial settlements prior to the conclusion of such adjudications) in circumstances where the responding party are alleging that the claim arises from the referring party's own breach of contract. The view may be taken that it is simply not worth the risk of paying for the other sides' costs further down the line.
The decision also serves as a general reminder to all to claimants that adequate records are necessary to justify the sums being claimed.