| Date | 8 September 1999 |
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| Judgment | John Cothliff Limited -v- Allen Build (North West) Limited Liverpool, CC 29 July 1999 |
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| The Issue | Awarding of parties costs in adjudication. |
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| Implication |
An adjudicator may be given powers, even in the absence of express agreements between the parties, to award costs in favour of the successful party. |
printIt is established in arbitration that a successful party may recover the reasonable costs it incurs in pursuing the arbitration. Sections 59 to 65 of the 1996 Arbitration Act set out the manner in which such costs should be dealt with, and provide that "costs should follow the event" unless the arbitrator considers that there are reasons to deviate from this general principal. The "costs follow the event" rule means that a successful party is entitled to recover its reasonable costs, though it is often extremely difficult in complex arbitrations to determine precisely the "event", where there are multiple claims and counterclaims. The costs which would normally be recoverable would be the expenditure of the successful party for the purpose of conducting the arbitration. These would include the fees of lawyers, the expenses of witnesses and the parties' own disbursements in travelling, copying documents and the like. It has been established practice in construction arbitrations, however, that the salary costs of the parties' employed staff engaged in the arbitration are not recoverable, presumably on the basis that these represent a part of the fixed overheads of the business. Thus an uncertain process has evolved, whereby a successful claimant in arbitration may recover the costs of a claims consultant or solicitor engaged to prepare and present its case in arbitration, but may not be able to recover the costs of its own surveying staff engaged upon the same purpose. Whether a successful party in adjudication might be able to recover its costs has recently been examined in the case of John Cothliff Limited -v- Allen Build (North West) Limited in the Liverpool County Court. The implications of this decision are extremely wide reaching. It would not be at all surprising if the decision was overturned or severely curtailed in due course. The parties appointed an adjudicator pursuant to the provisions of the Housing Grants, Construction and Regeneration Act 1996. The Scheme for Construction Contracts applied. The adjudicator decided in favour of Cothliff to the amount of approximately £28,500, and this sum not having been paid, Cothliff applied for summary judgment to enforce the decision of the adjudicator. Cothliff had asked for costs. In his decision, the adjudicator effectively awarded Cothliff 70 per cent of its costs of the adjudication, postponing assessment. He then gave what the County Court described as a supplemental decision upon the amount of costs. He reduced the claimed cost of about £26,000, which coincidentally was about the value of the claim, to £13,500 or thereabouts, and awarded the appropriate sum calculated as 70 per cent of this figure. How adjudicators are supposed to do all this within the 28 day period allowed to them, or within the unilaterally extended 42 day period, remains a mystery. Before making his decision to award costs, the adjudicator noted that he had carried out considerable research on the subject. It is true that there is no end of written guidance on adjudication, but regrettably there is also no amount of certainty. The adjudicator concluded that provided the parties had requested him to deal with costs, then he had the authority to deal with the matter. Even on this, His Honour Judge Marshall Evans QC was prepared to go further, noting that under paragraph 20 of the scheme the adjudicator may take into account matters under the contract which he considers are necessarily connected with the dispute. Judge Evans noted that the power to award costs is conferred upon courts and arbitrators expressly by statute. These are contained within the Supreme Court Act and the Arbitration Act. Conversely there is no statute which confers such power upon adjudicators. He also noted that during the consultation phase prior to the enactment of the 1996 Act, the question of the adjudicator's power to deal with parties' cost was raised but not incorporated into the Scheme or the statute. Nethertheless, Judge Evans concluded that the adjudicator had the power to award costs where these had been expressly sought in the application placed before him. In particular this would be the case where the adjudicator had allowed representation by lawyers or claims consultants, since the adjudicator had the power to dictate how the adjudication should be carried out under paragraph 13, and how, and in what manner, the parties might be represented under paragraph 16. As if this were not enough, Judge Evans also concluded that it would be appropriate to imply a term into the contract that the adjudicator should have the power to award costs to give business efficacy to the contract. This opens a Pandora's box for adjudicators. If they are now to deal with costs, are they also to deal with "Calderbank" type offers to settle the disputed matters. The entire costs game will be played by parties to the detriment of the overriding principles of the Act aimed at obtaining speedy and effective resolution on a "temporarily binding" basis. Conferring the power to make a costs order may deter frivolous applications for adjudication, but may also deter genuine applications, where the referring party fears a more powerful respondent engaging in the most expensive defence and counterclaim tactics. Unless the parties have expressly agreed in their contract to confer powers upon the adjudicator to deal with costs, it might be considered better that the costs will lie with the parties as they are incurred. This judgment may however add to the considerable uncertainty surrounding this matter.
CJ-9934
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