Summary and implications
Adjudication can be a costly and time consuming process. The costs involved in an adjudication can be substantial for the parties involved and generally cannot be recovered except under limited circumstances.
However, in a recent decision which will be of interest to everyone in the construction industry who is involved in adjudications, the Technology and Construction Court has indicated that the costs incurred by a party in an adjudication may be recoverable as damages in subsequent litigation proceedings.
The adjudication process
Adjudication is intended to provide a speedy and cost effective mechanism for determining construction disputes with the aim of maintaining cashflow within the construction industry.
However, as those who have been involved in adjudication will be aware, the process has in many instances become increasingly complicated and lengthy, with many adjudications involving multiple rounds of submissions and lasting far longer than the envisaged period of 28 days.
Inevitably the costs which are incurred by parties in adjudication have also risen accordingly.
Costs in adjudications
The starting position in adjudication is that:
- each of the parties will bear its own costs and expenses; and
- these are not recoverable as part of the adjudication process.
Under the changes to the Housing (Grants Construction & Regeneration) Act 1996 (HGCRA) which came into force on 1 October 2012, so-called 'Tolent Clauses', whereby the parties would agree in advance who was to be responsible for all of the costs and expenses of the adjudication, are no longer enforceable.
Under new section 108A of the HGCRA parties may only agree who will pay each others' legal costs where such agreement is made in writing after the service of the adjudication notice. In practice, the circumstances where the parties seek to reach such an agreement at this late stage are likely to be very limited.
NationalMuseums andGalleries onMerseyside v AEWArchitects and Designers Limited and PIHL Galliford Try JV
Facts
This case related to the construction of the Museum of Liverpool (the Museum) and involved a claim for various design failings brought by the Museum against its architect, AEW Architects and Designers Limited (AEW). AEW in turn brought in PIHL Galliford Try JV, who were the main contractor for the project with responsibility for certain design elements, as a third party.
During the course of the project various claims and counterclaims had passed between the Museum and the contractor as to who was responsible for various design problems which had arisen. In December 2010 the contractor referred these disputes to adjudication and obtained a decision that these design problems did not relate to its design responsibilities.
In the subsequent court proceedings against the architect, the Museum claimed as damages for breach of contract the costs and expenses which it had incurred in respect of this adjudication. These comprised significant sums including legal fees of £95,831.32.
Decision
The court considered whether there was sufficient foreseeability and causation so as to link the architect's breaches of contract to the costs incurred by the Museum in the adjudication.
The court decided that:
- construction adjudication was by the time of this project very well established and so it was reasonably foreseeable that adjudication could be deployed by the contractor against the Museum;
- in simple terms there would have been no dispute at all between the Museum and the contractor but for the architect's breaches of contract and negligence;
- if the architect had done its job properly in the first place there would have been no adjudication and the Museum was put in the position it was in relation to the adjudication by reason of the architect's defaults. There was therefore sufficient causative link between the architect's defaults and the adjudication.
As a result the court determined that the Museum's adjudication costs were recoverable.
Implications
The court was also willing to assume that costs were not consciously wasted by the Museum and that the Museum and its advisers believed that there was an arguable case that the Museum was right in the adjudication against the contractor.
It is interesting in this decision that the court allowed the Museum to recover its adjudication costs despite the fact that the adjudication in question related to an adjudication with a third party, the contractor, and despite the fact that the Museum had incurred those costs unsuccessfully arguing that the contractor was responsible for design problems affecting the project at that time. Although it is not explicit in the Judgement it is likely that the court recognised that, as the issues were arguable, the Museum was required to defend its position in such adjudication despite the fact that these issues were caused by the architect's unwillingness to accept responsibility for the problems which had arisen.
Comments
It remains to be seen how the courts will subsequently deal with any claims seeking to recover adjudication costs and whether this decision will be applied to court proceedings to enforce an adjudication decision or subsequent proceeding between the same parties to an adjudication.
What is clear though is that, where the requirements of foreseeability and causation are met, adjudication costs are potentially recoverable as damages in court proceedings.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.