13th January Journal Column

By Graham Sutton, Associate Solicitor at Hay & Kilner

Adjudication is the process of resolving disputes without lengthy and expensive court procedures. Following changes to the Construction Act in 2011, specifically Section 108 A, it is generally accepted that in the absence of an effective agreement to the contrary, the parties involved in an adjudication cannot recover the costs of the adjudication process. However, given that those costs can be substantial, it’s no surprise that parties still try, and fail to recover them – trying various ways to get around the “no costs” rule.

One attempt to overcome the prohibition on costs can be seen in the recent case of WES Futures Limited (‘Futures’) v Allen Wilson Construction Limited (‘Wilson’). Futures started adjudication proceedings to recover payment of unpaid invoices. The proceedings stopped when the adjudicator resigned because he lacked jurisdiction. Futures then instructed their solicitors to issue court proceedings to recover the outstanding payments, but before doing so, the solicitors wrote to Wilson confirming that their letter was to be regarded as a “Without Prejudice Part 36 Offer” offering to accept a lesser sum than the full amount claimed in the full and final settlement of Futures’ invoices. The letter also said that Wilson had 21 days to accept the offer, and if acceptance occurred later, Wilson would be liable for all Futures’ legal costs incurred in the case.

Wilson made no payments and Futures started a second adjudication. This time the adjudicator was in favour of Futures and ordered Wilson to make the payment.  However, Wilson continued to refuse to pay and Futures began adjudication enforcement proceedings. Wilson then backtracked and decided to accept the Part 36 Offer of settlement that Futures had earlier offered.

Seeing an opportunity to recover costs, Futures argued that acceptance of the earlier offer meant that Wilson was liable to pay not only all the legal costs incurred in the legal proceedings, but also the costs of the two previous adjudications. The Judge rejected the argument and found that Futures was not entitled to claim any of the adjudication costs.

The Judge re-iterated the accepted rule that under the “Construction Act” adjudication costs are not recoverable. He found that if a successful party cannot recover its costs in the adjudication itself, it cannot recover those same costs in the enforcement proceedings either. However, the separate and distinct costs of the enforcement proceedings were recoverable. The Judge also pointed out that the Part 36 Offer letter referred to “the costs of proceedings” which included the court proceedings but could not embrace the costs of separate and stand-alone adjudication proceedings.

This case serves as a helpful reminder that if the parties to an adjudication wish to recover the costs of the process, they need to enter into an express agreement to that effect. In the absence of such an agreement we await with bated breath for the next attempt to straddle the “no costs” hurdle.