Who's going to pay?

Let me tell you of a very important turn of events in adjudication under the Construction Act. It occurred during a dispute between John Cothliff, a plastering and screeding subcontractor, and Allenbuild (North West) Ltd.

The plasterer said he was owed outstanding sums by the builder. This was disputed, and an adjudicator was appointed. The contract did not include an adjudication clause but that didn’t matter; in those cases the Scheme for Construction Contracts applies. This is very straightforward; the scheme has been used many times since all this got under way in May 1998.

The adjudicator, Robert West, decided that about £25 000 should be paid to the plasterer.

He also decided that Allenbuild should pay 70% of the costs Cothliff had incurred in arguing the case. The scheme is clear that the adjudicator can decide how his costs shall be apportioned, but is less certain what to do about the parties’ costs. A moot point since the act came into force.

Allenbuild thought this was wrong. It argued that the adjudicator’s jurisdiction to oblige one side to pay the other’s costs is unclear under the Construction Act and the scheme.

It was also not certain whether the costs could be recovered as part of subsequent proceedings if they were paid over to Cothliff. So, Allenbuild paid costs into a trust account and invited Cothliff to consent to costs following subsequent proceedings. Cothliff did not consent but took that part of the decision to the Technology and Construction Court in Liverpool.

Judge Marshall Evans QC heard the case on 29 July 1999. He explained that an adjudicator’s decision is there to be enforced, but that when the contract is silent on adjudication, then the scheme is imported into the bargain by an “implied” term.

The scheme is clear that the adjudicator can decide how his costs shall be apportioned, but is less certain what to do about the parties’ costs

Paragraph 20 of the scheme allowed the adjudicator “to take into account any other matters which the parties to the dispute agree should be within the scope of the adjudication or which are matters under the contract which he considers are necessarily connected with the dispute”.

Costs are subject to wide discretion and they naturally follow the event. The judge meant that the winner of a major issue or event should be paid the costs expended in arguing that issue.

The court decided that the crucial parts of the scheme were paragraphs 13 and 16. Here, the adjudicator is given the power to decide on which procedure be followed. Judge Marshall Evans QC had allowed representations by lawyers and a firm of dispute specialists. Paragraph 16 anticipated assistance by advisers whether legally qualified or not, in which case the intention was to give the adjudicator a great deal of discretion for the hearing, procedure and all ancillary matters.

Judge Marshall Evans QC went further. He had in mind that this subcontract was substantial, saying: “I would myself believe that it would be appropriate to imply a term that an adjudicator has a power to award costs under an adjudication under the scheme, to give business efficacy to the contract or as a necessary incident to the contract of this nature, in accordance with the principles of implying terms of the contract.” He gave judgment for Cothliff. He also gave leave to Allenbuild to appeal. The parties agreed that the arbitrator (in subsequent proceedings) could review the adjudicator’s costs.

The judge commented: “I cannot believe that in seeking to achieve a just overall resolution of the financial implications of construction work, the final arbitrator or judge would be unable to adjust, disallow, revoke – whatever the word may be – the costs allowed on an interim adjudication which was eventually disapproved or revised.”

It would be unwise to comment on this decision, because the issue of costs is soon to be decided by an arbitrator. Whatever the outcome, it would not be surprising to see the question being answered by the Court of Appeal. I am sitting here today as an adjudicator being asked to award the parties’ costs under the scheme in a different matter. I will not say what I have decided, but I will admit that it wasn’t easy.