It has long been understood that although an adjudicator can direct which party should pay his fees, the parties to the adjudication cannot recover their costs and the adjudicator cannot therefore award such costs. The Local Democracy, Economic Development and Construction Act of 2009 introduced an exception to this rule, which allowed the parties to agree that costs could be awarded and by so doing, conferred jurisdiction on the adjudicator to do so. In the Lulu case, there had been no such agreement.
Lulu Construction Limited (‘Lulu’) sought, in the context of enforcement proceedings, to claim ‘debt recovery’ costs of £47,666.27 (the legal costs of its involvement in the adjudication), plus interest amounting to £9,794.70, for late payment of sums awarded to them in an adjudication against Mulalley & Co Limited (‘Mulalley’).
The dispute which had been referred to adjudication by Mulalley, as the paying party, was for the determination of the value of Lulu’s claim under a subcontract. Mulalley paid the sum due further to the adjudicator’s decision, save for the outstanding balance of debt recovery costs and continuing interest claimed under the Late Payment of Commercial Debts (Interest) Act 1998 s.5A.
In the enforcement proceedings, the Court noted that the claim being pursued was “not specifically referred to in the Notice of Adjudication, nor in the Referral Notice, nor in the Response. It was pleaded for the first time in the Rejoinder.” It was for this reason that Mulalley argued that the adjudicator lacked jurisdiction to consider the issue, as it did not form part of the scope of the referral, nor could it be run as a defence by Lulu.
Lulu submitted that that issue had in fact been referred, and that, in any case, the question of jurisdiction had been waived.
The Court found in favour of Lulu and held that the adjudicator was right to consider Lulu’s claim as being part of the dispute, despite it not having been raised in the referral. Deputy Judge Johnathan Acton-Davis noted that because Lulu were not in fact the referring party it was “hardly surprising” that the claim for debt recovery costs did not appear within the referral.
The decision reached by the Court was based on the case of Allied P & L Limited and Paradigm Housing Group Limited [2009] EWHC 2890 (TCC), in which Akenhead J stated that if claims for relief are “so connected with and ancillary to the referred dispute” then they must properly “be considered as part of it”.
Deputy Judge Johnathan Acton-Davis relied on the comments made by Akenhead J and said that the costs claimed by Lulu were “…clearly connected with and ancillary to the referred dispute and must properly be considered part of it.” Therefore, it was found that the adjudicator was correct, he did indeed have jurisdiction to consider and decide in relation to the claim for costs made by Lulu as part of the overall dispute referred.
It is important to note that the issue considered by the court was purely one of jurisdiction. The Judge did not make a determination as to whether the adjudicator was ultimately correct in his decision, but instead that he had the jurisdiction to make it.
Given the specific facts of this adjudication, it was possible for a claim, which did not form part of the referral, to fall within the issues which the adjudicator had jurisdiction to decide upon. Any attempt to claim costs in this manner would require evidence that they are ‘connected’ or ‘ancillary’ to the dispute, to be properly considered part of it.
This case by no means grants an automatic right for a party to claim fees or costs expended in an adjudication process. However, the Court’s decision is likely to result in an increasing number of successful parties attempting to claim their costs in an adjudication by reference to the late payment of debts regime.
This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.