Cornerstone - Adjudication Costs

26 January 2017

The Technology and Construction Court recently confirmed the position regarding the recoverability of costs incurred in adjudication.

In Wes Futures Limited v. Allen Wilson Construction Limited [2016] EWHC 2863 the Technology and Construction Court confirmed the position regarding the recoverability of costs incurred in adjudication.

In short, Wes Futures Limited (Wes) was appointed by Allen Wilson Construction Limited (AWCL) to carry out subcontract works at a building on the Strand. By early 2016, Wes claimed AWCL had failed to pay invoices in the sum of £86,469.21 plus VAT. On 8 January 2016 Wes’ solicitors at the time wrote to AWCL demanding payment of the outstanding invoices in full within 14 days and, if not, “we are instructed to issue court proceedings against you at the Technology and Construction Court without further notice”.

Payment was not forthcoming and on 11 February 2016 Wes’s solicitors wrote again to AWCL stating “Therefore we are now instructed to issue court proceedings against you without further notice”. On the same day, a second letter was sent, headed “Without Prejudice Part 36 Offer”. The second letter said:

“We refer to our client’s claim against you in the sum of £86,469.21 plus VAT.

We are instructed to make a settlement offer in accordance with Part 36 of the Civil Procedure Rules. Our client is prepared to accept the sum of £65,000 plus VAT in full and final settlement of its claim.

If this offer is accepted at a point which is more than 21 days from the date of this offer you will be liable for all our client’s legal costs incurred in this case”.

AWCL again failed to make payment of any sums and in August 2016, with new solicitors acting for them, Wes commenced adjudication proceedings to recover the outstanding sum. Wes was successful in the adjudication, but AWCL still refused to pay. As such, Wes commenced enforcement proceedings on 6 October 2016.

The parties followed the Court’s directions however, out of the blue on 4 November 2016 (six days before the hearing), AWCL’s solicitor wrote to Wes’s previous solicitors saying “We write to confirm that the Part 36 offer made by your client on 11 February 2016 is accepted by our client”. A similar letter was also sent to Wes’s new solicitor.

As the offer was accepted more than 21 days after 11 February 2016, Wes sought recovery of its legal costs incurred from 4 March 2016 to acceptance of the offer, relying on the final sentence in the letter. However, despite the wording of the offer itself, the Court held that it did not include Wes’s costs of the adjudication: it simply referred to any costs incurred in legal proceedings (which had been threatened in the earlier letter of 11 February 2016) and not any other costs.

This is just one example in recent months of a party unsuccessfully arguing it was entitled to payment of its costs incurred as a result of adjudication. The Court appears, for now at least, to support the position laid down in statute that costs in adjudication are not recoverable. Although in Lulu Construction Limited v. Mulalley & Co Limited [2016] EWHC 1852 the court opened the door to the recoverability of adjudication costs by virtue of the Late Payment of Commercial Debts (Interest) Act 1998, for these purposes, if a party wishes to make an offer conditional upon payment of Adjudication costs, this should be made clear.

The content of this article is for general information only. For further information regarding adjudication costs, please contact Hanna McNab. Law covered as at January 2017.