After the 2016 judgment in Lulu Construction Ltd (“Lulu”) v Mulalley & Co Ltd, the door on recovering costs in adjudication was ajar. The recent unreported case of Enviroflow Management Limited v Redhill Works (Nottingham) Limited may have closed it.
The issue is how the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the “Construction Act”) and the Late Payment of Commercial Debts (Interest) Act 1998 (as amended by the 2013 Regulations) (together the “Late Payment Act”) interact in the context of parties trying to recover costs in an adjudication.
The Lulu case concerned enforcement proceedings of an adjudicator’s decision. Before this case, it had generally been accepted that adjudication costs could not be recovered under the Construction Act. However, Lulu sought recovery under the Late Payment Act.
The issue the court was concerned with was whether the adjudicator had jurisdiction to make such an award for costs under the Late Payment Act. The court found in favour of Lulu and stated that the adjudicator did have jurisdiction. The question however remained: are adjudication costs recoverable under the Late Payment Act? Section 108A of the Construction Act makes it clear that an adjudicator cannot determine that one party is responsible for the other party’s costs, unless both parties have agreed to this in writing. Conversely, Section 5A of the Late Payment Act implies a term into contracts that states that where the contract does not provided an adequate remedy for late payment of a debt, a party recovering a debt under the Act can recover any sums reasonably incurred in recovering the debt. The phrase ‘any sums reasonably incurred’ has been argued as being applicable to the costs of adjudication.
In Enviroflow Management Limited v Redhill Works (Nottingham) Limited, the claimant sought to recover adjudication costs under the Late Payment Act. Mrs Justice O’Farrell concluded that the adjudicator did not have jurisdiction to make an award for such costs. The reason this case brought about a different result to Lulu was because the building contract in question was an oral contract. She held that whilst the Late Payment Act implied certain terms into the contract, “such an implied term was caught by s.108A of the 1996 Act and was ineffective unless an agreement had been made in writing” (emphasis added).
The key point here is that it looks as if the implied terms of the Late Payment Act cannot be relied upon without more i.e. without expressly incorporating them into the relevant construction contract. To date, this is not a practice that we have seen.
Whether the costs of an adjudication can be recovered are potentially unclear. Nevertheless, we appear to be going back to what has long been understood to be the standard position – both sides bear their own costs.