Adjudication and Back Door Cost Recovery

Statutory adjudication was 16 years old on 1 May this year. Where has the time gone?
Take the recovery of inter-party costs for example. You would think that the development of law from the original Housing Grants Construction and Regeneration Act 1996 and the original version of the Scheme For Construction Contracts (England and Wales) Regulations 1998, together with case law developed through the handing down of 100s of judgements over this same period followed by introduction of The Local Democracy, Economic Development and Construction Act 2009 and the new Scheme for Construction Contracts (England and Wales) Regulations 1998 (Amendment) (England) Regulations 2011, would have settled any uncertainty and the recovery of inter-party costs. But think again. There is still much uncertainty and this means fees for lawyers, more headaches for adjudicators and unsettled clients.
Can a party to an adjudication recover its costs?
The short answer is only if the contract clearly says so, the parties expressly reach such an agreement prior to or during the life of an adjudication or this power is conferred on the adjudicator because both parties request the adjudicator to decide that one party is liable to pay the other party’s costs. We also know that a contractual provision which requires one party to pay all the costs of the reference, a so-called Bridgeway -v- Tolent provision after the case in which such a provision was declared to be void, is illegal.
All this is pretty much settled law but recently the door has been pushed open slightly to introduce the possibility of inter-party cost recovery in adjudication through the back door. Here are three potential routes to “back door” cost recovery in adjudication.
Route 1
My last article explored the possibility of a referring party claiming its costs as part of a claim for recovery of statutory interest under The Late Payment of Commercial Debt Regulations 2013 and concluded that this back door method remains very much in vogue until the courts address this matter.
Route 2
In National Museums and Galleries on Merseyside (Trustees of) v AEW Architects and Designers Ltd [2013], the claimant was able to recover its costs incurred in an earlier adjudication because it was held that the adjudication between the claimant and the contractor on the same job would not have been incurred had the defendant Architect done its job correctly. In legal speak, there was said to be a direct causative link between the breach by the defendant of its duties and the costs incurred in the adjudication by the defendant with the contractor as a result.
Route 3
The following is the sort of provision I am now starting to see appearing in non-standard sub-contracts:
“The Sub-Contractor shall hereby indemnify the Contractor in respect of any costs, charges, expenses, damages or any loss resulting from the Adjudicator’s award which is subsequently changed or amended howsoever by decision of an arbitrator or the Court”
As much as I say I don’t like this provision, I would strongly suggest that it does not fall foul of Section 108A of The Local Democracy, Economic Development and Construction Act 2009, a poorly drafted provision which was supposed to make any clause in a contract dealing with the allocation of inter-party costs in an adjudication ineffective.
Any Sub-Contractor thinking of agreeing to such a provision should think about having its head examined at the same time.
So all of you who thought the recovery of inter-party costs in adjudication was settled law and the back door methods were closed off, think again. Clear as mud? Welcome to the club.
Peter Vinden is Managing Director of Vinden. He can be contacted by email at pvinden@vinden.co.uk. For similar articles on construction, corporate protection and dispute resolution generally, visit www.vinden.co.uk
Peter Vinden

Peter is an experienced professional in the construction industry with particular expertise in quantity surveying and the commercial management of contracting organisations. 

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