Recovery Of Costs In Adjudication

The issue of costs has troubled adjudicators and the courts since the Housing Grants Construction and Regeneration Act 1996 was introduced. This article seeks to clarify the statutory position in the light of the case law.

Costs of Adjudication

The HGCRA 1996 was silent as to the adjudicator's power to make orders as to the payment of either side's costs of the adjudication. The Scheme for Construction Contracts gave the adjudicator power to determine which of the parties was liable for his fees or expenses but did not expressly empower the adjudicator to order one party to pay some or all of the other party's costs.

Parties could expressly agree contractually or during the adjudication itself to the adjudicator determining liability for a party's costs. The latter approach conferred ad hoc jurisdiction on the adjudicator: see, for example, Northern Developments (Cumbria) Ltd v J & J Nichol [2000] BLR 158.

Some standard form clauses preserved the statutory position that an adjudicator has no power to determine liability for a party's legal/expert costs: eg CIC Model Adjudication Procedure. Others such as RIBA Standard Conditions empowered adjudicators to direct the payment of legal costs and expenses as part of their decisions. There was no difficulty with clauses such as these.

In the absence of jurisdiction, any adjudicator's decision requiring a party to pay the costs of another would be unenforceable, although it is likely that this part of the decision would be severable from the remainder: see Cantillon Ltd v Urvasco Ltd [2008] BLR 437 at [78].

Costs where referral withdrawn

What about liability for a responding party's wasted costs in the event of a referring party withdrawing a claim? Ordinarily, where the adjudicator has no power in respect of party/party costs, he cannot make an order for costs against the party who discontinues.

However, where the adjudicator was permitted to award legal costs against one party, discontinuance is likely to lead to the discontinuing party paying the costs of the other. The Court of Appeal's decision in John Roberts Architects v Parkcare Homes (No 2) [2005] EWHC 1637 (TCC) strongly supports that approach.

'Tolent' Clauses

As well as clauses that enabled costs allocation as part of a decision, clauses were devised that dictated the costs position following an adjudication. The most potent were clauses that required the referring party to pay the responding party's costs regardless of outcome.

This was initially permissible. In Bridgeway Construction v Tolent Construction [2000] CILL 1662, the contract included a clause that required the party serving the notice of adjudication to bear all the costs and expenses of the adjudication incurred by both parties, including, but not limited to, legal costs and expert fees.

HHJ McKay upheld this clause (which became known as a Tolent clause) finding that the term was not contrary to the Act and could not be unfair because (notwithstanding its...