Musical Chairs – Cost Recovery in Adjudication
When I was a child, not so long ago (no sniggering please), my favourite game was musical chairs. I loved waiting for the music to stop and then dashing for one of the vacant chairs. Oh, what fun we had. I never knew when the music would stop and which chair would be free. I never thought for one minute that I would still be playing a version of that game so far down the road into my professional career. What am I talking about? Well, what I am referring to is yet another twist in the “recovery of inter-party costs in adjudication” road.
You will recall from previous articles that the Late Payment of Commercial Debts (Interest) Act 1998 (“LPCDIA”) includes the right of a Claimant to recover its reasonable costs above the fixed sums of compensation included in the act. This provision led to the start of referring parties claiming debt recovery costs through this piece of legislation in adjudication cases, with varying degrees of success.
Then came the judgement in Lulu Construction Ltd v Mulalley & Co Ltd  EWHC 1852 (TCC) (“Lulu”) which potential claimants in adjudication had been waiting for. This judgement supported the concept of obtaining inter-party cost recovery in adjudication under the LPCDIA where the contract failed to include an adequate remedy for the payment of interest. The judgement in Lulu, which addressed a jurisdictional issue on whether an adjudicator could answer a question on costs recovery rather than looking at the substantive law on the issue, had many people convinced that this would mark the start of parties successfully bringing claims in adjudication which included an element for cost recovery, where the underlying contract had failed to include an adequate remedy for dealing with the recovery of interest, and both interest and costs recovery were claimed under the LPCDIA .
Now it appears that the chairs have been shuffled and the prospects for the recovery of inter-party costs in adjudication allowed in Lulu has now been slain by an unreported decision of The Technology and Construction Court in Enviroflow Management Ltd v Redhill Works (Nottingham) Ltd.
Enviroflow was engaged as a sub-contractor by Redhill to provide internet installation works. The Parties fell out and Enviroflow commenced an adjudication claiming payment from Redhill and an order for recovery of its reasonable costs under the LPCDIA. The adjudicator found in Enviroflow’s favour and the decision awarded Enviroflow a sum of £81,000 plus interest, together with £14,900 in costs under the LPCDIA. The adjudicator also decided that Redhill should pay his fees. Redhill didn’t pay Enviroflow and Enviroflow commenced court proceedings and applied for summary judgement.
The judge had little hesitation in awarding payment of the principal sum of £81,000 and interest to Enviroflow but dismissed its application for costs recovery under the LPCDIA for the following reasons.
Although section 5A of the LPCDIA provided for an implied term in a contract that a successful party was entitled to its costs of recovering a debt, section 108A of the amended Housing Grants Construction and Regeneration Act 1996 provides that, where a construction contract had been referred to adjudication, the costs of an adjudication can only be awarded where such a provision has been made in writing.
Accordingly, whilst Enviroflow was entitled to seek its reasonable costs by reason of an implied term from the LPCDIA, such an implied term was caught by s.108A of the 1996 Act and was ineffective unless an agreement had been made in writing. It was common ground that no agreement had been made in writing. Thus, the adjudicator had had no jurisdiction to make a costs award and Enviroflow was awarded judgment of its claim, less the sum awarded, in the reasonable recovery of its costs.
So, at least for the time being, it appears that we have some clarity on the position. There is no right to claim inter-party costs where the underlying contract has failed to include an adequate remedy for dealing with the recovery of interest, and both interest and costs recovery are claimed under the implied terms of the LPCDIA. But will the Court of Appeal decide to shuffle the chairs again if this issue comes before them? We will just have to wait and see.
Peter Vinden is a practising Arbitrator, Adjudicator, Mediator and Expert. He is Managing Director of The Vinden Partnership and can be contacted by email at firstname.lastname@example.org. For similar articles please visit www.vinden.co.uk.