The Court of Appeal has said a party that withdrew a £1.3m adjudication claim will still have to pay the other side's costs. Now that's a radical departure …
Words are elusive things. Sometimes you think you know what they mean, but then you find that not everyone else agrees with you. Take the word "decision" for example. We all know that judges hand down judgments, arbitrators make awards and adjudicators make decisions. We know this because the Construction Act refers to their "decisions".
The Court of Appeal has now blurred the adjudicator's functions though. In a recent case it considered the scope of an adjudicator's authority in relation to costs: did the adjudicator have the authority to award costs in favour of one party or another? In that case, one of the standard forms of adjudication had been used; the CIC Model Adjudication Procedure, or MAP. This states that the parties are to bear their own costs and expenses - but the wording had been amended to read: "The adjudicator may at his discretion direct the payment of legal costs and expenses of one party by another as part of his decision."
The case concerned an adjudication that had been brought against John Roberts Architects over an allegation of poor performance. After the response had been served, the client, Parkcare Homes, discontinued its claim. This meant the adjudicator never made a "decision". So did the adjudicator have any residual discretion to direct payment of legal costs and expenses?
The first instance judge in the Technology and Construction Court said the word "decision" referred to a decision on the matters set out in the notice of adjudication, and that an award of costs could not be a decision on its own. In the absence of a decision on the matters raised in the notice, the adjudicator could not award costs. He said the meaning of MAP, as amended, could be understood "from the plain meaning of the words in their context", which included the Construction Act.
The judge also took into account the fact that under the statutory Scheme for Construction Contracts the adjudicator has no power to order one party to pay the other's costs. He rejected the idea that there could be an implied term that the adjudicator would have the power to order payment of costs in these circumstances.
The Court of Appeal has taken a rather different view. It has said the Construction Act and the Scheme are relevant "only as context", but irrelevant to the interpretation of the contract, which is a very fine distinction. The Court of Appeal thought it odd that the adjudicator should have the power to order costs only if they made a substantive contested decision. However, the contract was largely in the standard MAP format, which gives the adjudicator no power to order costs in any circumstances.
The balance of power will have shifted again if the threat of costs could be used as a lever to deter smaller organisations from going to adjudication
As MAP states: "The object of adjudication is to reach a fair, rapid and inexpensive decision upon a dispute arising under the contract and this procedure shall be interpreted accordingly." In most cases (although, as it happens, not this one) the speed of adjudication means that the costs are kept under control. MAP in its original wording was consistent with the Scheme, approved by parliament, which does not give the adjudicator power to award costs.
Ultimately, the Court of Appeal held that it was a more natural and "commercially sensible" to interpret the words "as part of his decision" to mean "as part of what he may decide",
which gave the adjudicator the discretion to make an order for costs, even after the adjudication had been discontinued. This is a significant lurch in the direction of making adjudication more like litigation or arbitration, where the judge or arbitrator has a wide discretion on costs.
So are the courts giving us a signal here that adjudication should not be the quick and cheap solution to disputes that we thought the Construction Act had given us?
This is important: adjudication, with its access to a quick and usually cheap method of resolving disputes, has transformed the balance of power within the construction industry. If the courts are now moving in favour of awarding costs this will again change the balance quite radically, as the threat of costs could be used as a lever to deter small organisations from going to adjudication.
Gillian Birkby is a partner in Fladgate Fielder. Email her at: email@example.com