[2016] EWHC 2863 (TCC)

There were a series of disputes (including adjudication) between the parties. In February 2016, WES made a Part 36 offer, which included the statement that if:

“… this offer is accepted at a point which is more than 21 days from the date of this offer, you will be liable for all our client’s legal costs incurred in this case”.

As Mr Justice Coulson said, “out of the blue” on 4 November 2016 that offer was accepted. Both sides expressly agreed that as a result there was a binding compromise between the parties. However, there was a dispute as to whether or not the agreement included the cost of two adjudications in 2015 and 2016. The Judge noted that the approach to disputes under Part 36 was confirmed by the CA decision in Dutton & others v Minards & others [2015] EWCA (Civ) 984, where LJ Lewison said that:

“If an offer is expressed to be a part 36 offer it should be interpreted if possible to make it effective as what it purports to be, rather than ineffective.”

The key to the dispute here was whether the wording of the Part 36 offer, which included the “costs of the proceedings”, included not only the cost of the court proceedings but the costs of the adjudications as well.

Mr Coulson was very clear that it did not. As a starting point, the Judge did not think it would make any difference if the offer was not a Part 36 offer. The offer referred to “all [Futures’] legal costs incurred in this case” but that, in the view of the Judge, meant the imminent court proceedings. The offer letter made no reference to the costs of adjudication proceedings, either as costs incurred in the past or to be incurred in the future — something which the Judge considered to be “unsurprising” because the offer envisaged that there would be court proceedings instead.

The Judge also referred to two wider principles which supported this point of view. The first was that in “an ordinary case”, a party seeking to recover a sum awarded by an adjudicator is not entitled to (and cannot seek) the legal costs it incurred in the adjudication itself. That is because, pursuant to the Housing Grants Act, as amended, costs incurred in adjudications are not recoverable:

“… if a successful party cannot recover its costs in the adjudication itself, it cannot recover them in enforcement proceedings either.”

Second, adjudication is similar to mediation. The Judge referred to the case of Lobster Group Ltd v Heidelberg Graphic Equipment Ltd (Dispatch Issue 94), where it was held that the costs of a pre-action mediation could not subsequently be recovered as costs of the proceedings because the parties had agreed that they would each bear their own costs of that mediation. That was “effectively achieving”, by an agreement to mediate, what the 1996 Act requires for adjudication. The costs are the subject of a different regime and are not recoverable.

Whilst the phrase “costs of proceedings” includes “recoverable pre-action costs” this will not normally include the costs of separate, stand-alone ADR proceedings. Here, the Judge included adjudication within the definition of ADR noting that similar principles should therefore apply to the costs of adjudication as they do in mediation: both parties bear their own costs. Accordingly, Futures were not entitled to recover from Wilson the costs of the adjudications

Accordingly, Futures were not entitled to recover from Wilson the costs of the adjudications.