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Construction Law Update - Recovering Adjudication Costs

Gary Ashton regularly acts for parties in adjudication.  He successfully acted for the claimant in the adjudication enforcement case of Enviroflow Management Ltd v Redhill Works (Nottingham) Ltd (2017), which came before Justice O’Farrell in the Technology and Construction Court.    

The Court’s decision is important because it provides much needed guidance on the ability to recover adjudication costs. 

Background

A payment dispute arose between the parties regarding telecommunications infrastructure work. Enviroflow commenced adjudication proceedings seeking payment, as well as its ‘reasonable costs of recovery’ under Section 5A of the Late Payment of Commercial Debts (Interest) Act 1998 (the “Late Payment Act”).

The adjudicator decided in favour of Enviroflow and awarded the principal sum of £81,030, together with £14,093 in respect of reasonable costs of recovery claimed under the Late Payment Act. 

Redhill refused to pay.  Enviroflow issued enforcement proceedings.  Redhill argued (i) that the adjudicator did not have jurisdiction because it had contracted with Enviroflow’s sister company and (ii) that the adjudicator had no jurisdiction to award Enviroflow its legal costs of the adjudication.

The Decision

The Judge concluded that the correct contracting parties were Redhill and Enviroflow and therefore the principal sum of £81,030 awarded was enforced by summary judgment. 

On the second question concerning the recovery of adjudication costs, the Judge agreed that Section 5A of the Late Payment Act provides for an implied term in a contract that a successful party is entitled to its costs of recovering a debt.  However, s.108A of the ‘Construction Act’ provides that where a construction contract has been referred to adjudication, the costs of an adjudication can only be awarded where such a provision had been made in writing after the notice of adjudication was given.

Enviroflow was entitled to seek its reasonable costs by reason of the implied term under s.5A of the Late Payment Act, but such a provision was caught by s.108A of the Construction Act and was ineffective unless an agreement had been in writing after the notice of adjudication was given.  It was common ground that there was no such agreement and therefore the adjudicator had no jurisdiction to award reasonable costs of recovery.  Accordingly, the costs of £14,093 were severed with the balance enforced.

Conclusion

This decision should put an end to claims for adjudication costs under the Late Payment Act. 

Parties now wishing to claim adjudication costs are limited to the two narrow exceptions contained within s.108A of the Construction Act, namely:

  • made in writing after the service of a Notice of Adjudication; or
  • if made before, the adjudicator’s power is limited to allocating his fees and expenses as between the parties.

If you would like to discuss the issues raised above further, please do not hesitate to contact Gary Ashton on 0113 2462196.

About the Author

Gary Ashton

Partner

Gary leads the specialist construction & engineering offering at Schofield Sweeney and advises…

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