The Court of Appeal has overturned a first instance decision on the construction of a provision in an adjudication clause entitling the adjudicator to award a party its legal costs. The Court of Appeal held that, to interpret an adjudication clause which stated that an adjudicator could award a party its legal costs "as part of his decision" as meaning that the adjudicator could not award costs where he did not give a substantive contested decision as to the matters referred to him, would lead to an odd and uncommercial result. On the proper construction of the clause, the adjudicator was entitled to award a party its costs despite the fact that he had not made a substantive decision.
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John Roberts Architects Limited v Parkcare Homes (No.2) Limited
To interpret an adjudication clause, which stated that an adjudicator could award a party its legal costs "as part of his decision", as meaning that the adjudicator could not award costs where he did not give a substantive contested decision as to the matters referred to him, led to an odd and uncommercial result. On the proper construction of the clause, the adjudicator was entitled to award a party its costs despite the fact that he had not made a substantive decision.
Lord Justice May, Lord Justice Keene and Lord Justice Baker – Court of Appeal (Civil Division)
In October 2002, Parkcare Homes employed John Roberts Architects (JRA) to provide architectural services in relation to certain building works. A dispute arose which was referred to adjudication. The first adjudicator resigned on basis that he lacked jurisdiction. On 10th June 2004, Parkcare issued a second adjudication, in the same terms as the previous notice. JRA had agreed not to take any points as to the adjudicator's jurisdiction but, when it served its response to the notice, it did raise jurisdictional points. The day after JRA served its response (7th July), Parkcare's solicitors wrote to JRA and the adjudicator accepting that the adjudicator did not have jurisdiction on the ground that no dispute had arisen, and that it was therefore inappropriate for the adjudication to proceed. Parkcare paid the adjudicator's costs up to the date of discontinuance.
JRA subsequently asked the adjudicator for an award of costs. The adjudicator concluded that he did have jurisdiction to award costs and he ordered that Parkcare pay JRA £87,131.04. He also ordered Parkcare to pay £14,643.44 in respect of his additional fees following the discontinuance of the adjudication.
Parkcare refused to pay and JRA brought Part 8 proceedings, claiming the £87,131.04 as damages for breach of contract. The contract between the parties incorporated the Model Adjudication Procedures (MAP) published by the Construction Industry Council, with amendments. Clause 20 of MAP stated that the adjudicator "shall decide the matters set out in the Notice…" Clause 29 (as amended) stated that - "The Adjudicator may in his discretion direct the payment of legal costs and expenses of one party by another as part of his decision".
The Judge at first instance held that the adjudicator could only direct the payment of legal costs as part of his substantive decision on the matters referred to him. Since the adjudicator had had not made a substantive contested decision (i.e. he had not made a decision on the basis of matters set out in the Notice of Intention to Refer to adjudicate), he had no jurisdiction to decide liability for costs.
JRA appealed. The Court of Appeal did not agree with the Judge that clause 29 limited the adjudicator’s power to direct the payment of legal costs to circumstances in which he makes a substantive decision on the dispute referred to him.
Lord Justice May noted that adjudications could be "fiercely adversarial and expensive". In the circumstances, he considered that it was not commercially surprising that parties might want to give the adjudicator a jurisdiction to direct the payment of legal costs. Further, Lord Justice May considered that it would be odd if the parties had intended to give the adjudicator power to award costs only in circumstances where he had made a substantive decision. In particular, he noted that a party, having agreed to be at risk as to the other party’s costs, could run an unmeritorious defence and then withdraw at the 11th hour "without being at risk of paying the legal costs which their conduct had generated… Why should parties want to agree to draw this particular line?"
The Court of Appeal concluded that the more natural meaning of the clause, and the more commercially sensible meaning, was not that the adjudicator could only decide costs as part of his substantive decision, but that he could decide a party’s legal costs "as part of what he may decide." The Court noted that this interpretation of clause 29 might be challenged by a "linguistic purist" but that to interpret the clause literally gave rise to a "very odd and uncommercial result".
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The original publication date for this article was 14/02/2006.