Water cooler and triangular chairs

Adjudication costs not recoverable as costs of proceedings

23 November 2016. Published by Felicity Strong, Partner

The Technology & Construction Court ("TCC") has recently considered whether there are circumstances in which a party can recover adjudication costs; the position, ordinarily, being that the costs of adjudication are not recoverable from the other side.

The Claimant subcontractor, Wes Futures Ltd ("Futures"), carried out works for the Defendant contractor, Allen Wilson Construction Limited ("Wilson"), at a property in central London. Futures claimed unpaid invoices from Wilson. The parties commenced adjudication, which did not proceed following the adjudicator's resignation. Subsequently, in February 2016, Futures confirmed that it was instructed to issue proceedings in the TCC. The same day, it made an offer to Wilson, stated to be pursuant to Part 36:

"We are instructed to make a settlement offer in accordance with Part 36 of the Civil Procedure Rules… 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."

Instead of issuing proceedings, however, Futures commenced a second adjudication and was successful. Wilson refused to pay and Futures commenced adjudication enforcement proceedings in the TCC. Subsequently, and apparently out of the blue, Wilson accepted the Part 36 offer.

The issue for the Court to consider was whether Futures' offer was a valid Part 36 offer and, if it was not, whether Futures was entitled to recover the adjudication costs. Both parties appeared to have accepted that, if the offer was a valid Part 36 offer, Futures' adjudication costs would not be recoverable from Wilson.

Futures submitted that their offer was not a valid Part 36 offer. Despite being expressed to be pursuant to Part 36, their position was that the wording of the offer ("you will be liable for all our client's legal costs incurred in this case") included the costs of both adjudications and, therefore, took the offer outside the scope of Part 36 because it purported to exclude the court's power to determine liability for costs. The Court considered this argument to be artificial. It also considered previous case law regarding the validity of a Part 36 offer and, in particular, Dutton v Minards in which the Court had held that, if an offer is expressed as a Part 36 offer, it should be so interpreted as far as possible.

The Court's conclusion was that the offer was a Part 36 offer, under which adjudication costs were not recoverable as "costs of the proceedings". However, the Court also held that the position in relation to the adjudication costs would have been the same whether the offer was a valid Part 36 offer or not. The Court took the view that the offer, being made on the same day as Futures intimated court proceedings, presupposed that there would be court proceedings in which the offer would operate: the offer was therefore made in relation to "the costs of court proceedings".

There were also two wider principles which supported the Court's conclusion that Futures could not recover its adjudication costs: (i) costs of adjudication are not normally recoverable in an adjudication, in accordance with the Housing Grants (Construction and Regeneration) Act 1996; and (ii) the "costs of proceedings" includes recoverable pre-action costs, which does not, normally, include the costs of separate standalone ADR, such as adjudication.

The decision in this case is not surprising but it is worth remembering that costs incurred in adjudication are not ordinarily recoverable from the other side, whether or not a successful Part 36 offer is made and Insurers will, generally, be pleased to note that the cost consequences of a Part 36 offer will ordinarily not apply to adjudication costs.

Wes Futures Limited v Allen Wilson Construction Limited