Loser pays, we all win

Rudi Klein tells us that to allow the winning party to recover its costs from the loser would be utterly inappropriate to adjudication. Worse, he suggests that it could deter people from using the process (28 September, page 55).

Rudi's starting point is what he perceives to be the danger that adjudication might become like arbitration. Nobody would argue with Rudi that parliament's intention in introducing adjudication was that it should be a quicker, cheaper and more effective method for resolving disputes than arbitration. However, there is no evidence to support his assumption that what makes adjudication more effective than arbitration in achieving those objectives is the fact that the cost award principle applies in arbitration, but does not in adjudication. Rudi's view is that if the principle were applied to adjudication, it would become just like arbitration, warts and all.

What Rudi ignores is that, whether or not the costs award principle did apply, adjudication would still be a 28-day process. It would also remain a "pay now, argue later" process, although in practice most parties seem content to let matters rest once a dispute has been resolved by an adjudicator. Rudi also ignores the fact that whatever might have been the original intention, it is not just small claims arising in the course of the project that are referred to adjudication. Many disputes of a relatively complex nature with millions of pounds at stake are referred, and are dealt with within its constraints.

Rudi's main complaint is that adopting the costs award principle would make adjudication less accessible for the industry. He suggests that many parties – and especially small businesses – would be deterred from going to adjudication by the risk of having to pay the other party's costs if they were unsuccessful. I do not accept that generalisation. However, if the costs award principle did deter some parties from bringing spurious claims, surely that would be no bad thing for the industry? In the words of a 19th-century judge, discussing the position in litigation, the costs award principle operates "as a guard against unjust litigation". Indeed, that golden thread has run through our justice system since time immemorial.

Parties have resorted to arbitration simply because of the potential injustice of not being able to recover their costs

My own experience suggests that, far from deterring parties from going to adjudication, applying the costs award principle would do the opposite. I have acted for many small businesses bringing strong claims in adjudication against bigger businesses. In every case, those big businesses have engaged big lawyers to defend them – and nobody would seriously challenge their right to have the representation of their choice. In those circumstances, my clients have quite understandably felt that they had to follow suit, only to see a large chunk of their recovery disappearing to pay for their lawyer. I have also acted for parties that have been discouraged from going to adjudication and have had to resort to arbitration simply because of the potential injustice of not being able to recover their costs.

By providing a party that has a strong case with a means of recovering its expenses, the cost award principle would make adjudication a more effective tool commercially. Parties would stand a much better chance of recovering what other parties actually owe them. It would also provide adjudicators with a long overdue sanction against parties that seek to flout their procedures.