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01st March 2017

Can Adjudication costs now be recovered by way of the Late Payment of Commercial Debts (Interest) Act 1998 as amended by the Late Payment of Commercial Debts Regulations 2013?

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The position for the last few years after the Housing Grants, Construction and Regeneration 1996 Act was amended was no. The intention of Parliament was to reinforce the fact that each party to adjudication would have to stand its own costs of the adjudication unless otherwise agreed. i.e. The awarding of costs (apart from his/her own costs) would be outside of the adjudicator’s jurisdiction unless both parties agreed to that jurisdiction.
What has “thrown the cat amongst the pigeons” is the amendment to the Late Payment of Commercial Debts (Interest) Act 1998 and the case Lulu Construction Limited v Mulalley & Co Limited (2016). The Late Payment Act allows a term to be implied into commercial contracts which allows for interest and the recovery of reasonable costs. Section 5A(2A) states “If the reasonable costs of the supplier in recovering the debt are not met by the fixed sum, the supplier shall also be entitled to a sum equivalent to the difference between the fixed sum and those costs.”

The highlighted text has given rise to parties requesting their own costs of the adjudication.

In the Lulu case, an adjudicator did award Lulu its costs and the decision was enforced in court. However, this is not to say that the courts agreed with the adjudicator’s reasoning. The courts have a history of enforcing adjudicator’s awards whether they are correct or not.

This is a legal point which has yet to be tested in court but will, no doubt, be tested sooner rather than later. It will be interesting to see which way the court decides as in the past the courts have not wished to fetter a parties right to adjudicate which the awarding of costs may do.

For more information please contact Charles McDermott on 01908 247033 or click here to email Charles.