The question of the recoverability of adjudication costs is one that has reared its head from time to time ever since adjudication was first introduced by the Housing Grants, Construction and Regeneration Act 1996 (“the Construction Act”). The case law resulted in so-called Tolent clauses (allowing the parties to agree that the paying party would pay the costs regardless of the outcome) before a change of direction indicated such clauses conflicted with the Construction Act. This resulted in the introduction of section 108A of the Construction Act which was introduced to address the perceived injustice of Tolent clauses but which instead lead to yet further debate about what the clause actually means.
A new angle to the arguments was introduced by the Late Payment of Commercial Debts (Interest) Act 1998 (“the Late Payment Act”). This was amended in 2013 to allow recovery of reasonable costs of pursuing a debt. From a construction perspective the question then arose as to whether this right extended to the costs of adjudication. There was much discussion about whether the provisions of the Construction Act “trumped” those of the Late Payment Act.
Debate on this latter point was further provoked by the decision in Lulu Construction Ltd v Mulalley & Co Limited last year. The court upheld the decision of an adjudicator to award “debt recovery costs”. However, the judgment did not address whether those costs were recoverable under the Late Payment Act.
Further light may now have been shed by O’Farrell J in the case of Enviroflow Management Limited v Redhill Works (Nottingham) Ltd. The judge decided that the Late Payment Act did indeed imply a term into a contract that a successful party was entitled to its costs of recovering a debt. However, she found that under the Construction Act, costs of an adjudication could only be awarded where such a provision had been made in writing. If it was not then the implied term was ineffective. As there was no written agreement here complying with section 108A of the Construction Act, the costs of the adjudication were not recoverable.
The judgment was delivered extempore so this analysis is based on a Lawtel summary. However, expect to see it relied upon in future by parties seeking to avoid paying adjudication costs under the Late Payment Act.
For more information about the issues raised in this article or to find out more about how the Construction team can help you please contact Rowan Turrall on 0118 952 7206 or email [email protected].
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.