Adjudication: Lame Submissions, Indemnity Costs And Set-off

• Published date: 08 June 2021
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Trials & Appeals & Compensation, Construction & Planning
• Law Firm: Shepherd and Wedderburn LLP
• Author: Mr Iain Drummond

This case concerns an adjudicator's decision issued on 7 December 2020. The adjudicator found in favour of Faithdean plc, ordering Bedford House Ltd, the employer, to repay deductions of around '1.5 million.

No payment was made to Faithdean and enforcement proceedings were issued in January 2021. Bedford did not put forward a defence. Instead, it argued it could not pay as it wished to know the exact amount in order to make a single payment to Faithdean. A small amount of liquidated damages was in dispute, rendering the exact amount due uncertain. Bedford also argued that its non-payment did not matter because Faithdean would be compensated by interest.

Faithdean's position was that Bedford should have made immediate payment, as it should have known there was no substantive defence beyond the small amount of liquidated damages in dispute. Faithdean therefore sought costs on an indemnity basis. This came before the Technology and Construction Court (TCC) as Faithdean plc v Bedford House Ltd No 1 [2021] EWCH 961 (TCC) (Faithdean No 1).

Separately, Bedford claimed that it could set off against the repayable deductions a relatively small amount of liquidated damages it claimed it was owed. The court answered this question separately in Faithdean plc v Bedford House Ltd No 2 [2021] EWCH 962 (TCC) (Faithdean No 2).

Faithdean No 1: "lame submission" and indemnity costs

The usual basis of assessment of a party's costs of litigation is the standard basis. Here, the court will only allow costs that are proportionate to the matters in issue. In comparison, indemnity costs may be awarded upon the request of a party where there is some circumstance that takes the case "out of the norm" (Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879). Indemnity costs are penal in nature and there is no requirement for them to be proportionate, so they represent a higher recovery than standard costs.

The court, referring to Bedford's "lame submission" that it wanted to make only one payment, accepted Faithdean's position that Bedford should have made an immediate payment. The court held that Bedford "knew or ought to have known they had no defence to the claim to enforce the adjudicator's decision".

Faithdean No 1 is a reminder...