The cost of winning

"Mark my words, Rudi, adjudication will go the same way as arbitration." These were the words of an industry sage, uttered shortly after the Construction Act had received the Royal Assent.

His point was that adjudication would eventually be taken over by lawyers and refashioned in their image.

My response at the time was fairly brusque. I more or less replied that this suggestion was nonsense: there was no incentive for lawyers to take over the process because winning parties would not be able to recover their legal costs from the other side. As the Construction Industry Board made clear in its report to the government at the beginning of the year: "We all agree that each party in an adjudication should be required to pay their own legal costs; that is, there should be no provision for the adjudicators to award costs against the other party."

The recovery of costs is wholly inappropriate to adjudication. Adjudication is independent of arbitration or litigation – it is not a step, stage or tier in these processes. As a concept, it is very different from other dispute resolution mechanisms. The nature of adjudication is that it involves a "snapshot" determination of the parties' entitlements at a particular time; it is not intended to be a forensic process in which all evidence relevant to the dispute is comprehensively examined.

Adjudication was intended to be accessible to all in the industry in order to reduce arbitration and litigation; the risk – however small – of a liability for the other party's costs would deter firms (especially small businesses) from going on to adjudication.

Allowing a party to recover their costs in adjudication would change the nature of the process, making it more like arbitration and litigation; parties with greater financial clout would be tempted to deploy greater legal and technical resources, forcing the weaker party to either follow suit or decide not to exercise its statutory entitlement. There is some evidence that this is already occurring.

Adjudication was meant to lubricate the payment process; it was not to be a definitive statement of entitlement

The adjudicator does not have the means (why should they anyway?) to assess parties' costs; a technical adjudicator is unlikely to have the necessary skills to determine whether the costs claimed by a party are reasonable, or whether they were reasonably incurred.

It has now been suggested that if there was a statutory requirement that each party bears its own costs, this would prevent recovery of a party's adjudication costs in subsequent arbitration or litigation. But an adjudicator's decision is merely a holding decision issued within the constraints of legislation. How can an arbitrator or court declare that – on any grounds – such decision was wrong, when it is intended that the adjudicator's decision should be enforced "warts and all"?

Conceptually, an adjudicator's decision will always be "correct" provided that it is given within the constraints of the legislation. By the time a dispute, originally decided by an adjudicator, goes to arbitration or litigation the evidence available to the arbitrator or judge is likely to be different from that made available to the adjudicator. The award or judgment is on the evidence presented to the arbitrator or court and, therefore, is not concerned with the adjudicator's decision but with the parties' entitlements at that particular time.

We should remind ourselves of Lord Ackner's description of adjudication. He described adjudication as coming under the rubric of "pay now, argue later". The objective of adjudication was to lubricate the payment process; it was not to be (and could not be) a definitive statement of the parties' entitlement.