The argument has cropped up because the court in Cotliff vs Allen Build (27 August 1999) decided that the loser should pay the winner’s costs. That meant shelling out for lawyers’ and experts’ costs in the adjudication. But let’s not talk about that case – let’s talk about the arguments. By the way, some standard forms of contract and adjudication rules are in the red corner and go with the idea of ordinary costs being paid by the loser; others in the blue corner say that both sides shall bear their own costs, irrespective of who wins.
The red camp says this. If Smith and Jones have a quarrel and someone calls for a ref, it costs money to do so. Money has to be paid out not only to the ref but to put up the case. Smith might have an in-house lawyer or commercial manager or claims surveyor who will present a file of papers, produce the evidence, tell the story, explain the breach of contract, link the breach with a loss and prove the loss. Jones might go to an outside lawyer or consultant or claims expert who will answer all the accusations and explain why no breach, no causal link, no loss has been proven. Get the idea?
Either way, both Smith and Jones spend time and money putting up their arguments. Say Smith wins; then the red camp says that he should not only get a decision on the quarrel but an order that Jones pays the costs, too. The red camp says that if you put someone to added expense because of a breach of contract, you should compensate the winner. It should not be deprived of its costs. Strangely, the blue camp agrees in principle.
But blue has another think. The worry in the Smith and Jones adjudication is that Jones will go to all sorts of lengths to engage the very best and most expensive team in the land, nay the world, and defeat Smith. Then Smith will be liable for the horrendous costs.
The little bloke may not be able to afford decent advice, or may take no advice, if he will be barred from recovering the costs
Stop, stop. Let me explain something. In litigation and arbitration, there is a principle that is very firmly entrenched. It is a phrase that says costs will follow the event. It has been like that since before your grandad was born. Not surprisingly, professional dispute folk may also say that principle applies in adjudication, too. But the blue camp is fretting that by bringing in the allocation of costs, rather than each side suffering their own, then a little firm may be fearful of being landed with the big costs of a big gun on the other side.
The reverse argument also applies. The little bloke may not be able to afford decent advice, or may take no advice, if he will be barred from recovering those costs. Put it yet another way. The reds say there is not much point in coming to adjudication with a £10 000 quarrel if it costs a non-returnable £3000. Also, what is worrying is the contractor or subcontractor who comes to an adjudication taking a flyer. If it comes with nuisance claims but is not at risk of paying the other side’s costs, it can happily take punt after punt. It won’t do that if it risks paying costs each time it loses its try-on.
Now let me tell you a secret. How do adjudicators decide costs? First, they identify each and every event or issue and oblige the loser to pay up those costs on the event he lost. Ah, but what if the winner had a band of highly expensive consultants, lawyers, experts – will all that get thrown at the loser? The answer is yes, unless, unless, the winner racked up unnecessary costs. The adjudicator will use his discretion on what sum to order by way of costs against each event. And, if it was unnecessary to use up masses of hours with highly paid folk when it could have been done with lesser mortals, then the adjudicator will so decide.
If you adjudicators out there don’t understand how awards of costs are made, let me comfort you. They are dealt with on a common sense basis, whereby you assess which issues took what time and you ask yourself what is a fair amount to award. It’s not much different to valuing variations on a fair and reasonable basis. Identify the events or issues and then ask what it cost to argue that issue. If someone has engaged a £300 hour lawyer to argue a £10 000 issue, you can politely tell him you will award costs if, and only if, you believe such a fancy pants was necessary.
Tony Bingham is a barrister and arbitrator specialising in construction.