HGCR Act 1996 - Costs and Fees in Adjudication© Daniel Atkinson 2001 02 October 2001 Revised 12/01/02
SummaryThe Housing Grants Construction and Regeneration Act 1996 is silent on
the matter of parties' costs and the Adjudicator's fees.
The Adjudicator has immunity for the act of deciding his fees. The level of fees can only be challenged if it can be shown that they are so excessive as to amount to misconduct. It must be shown that the Adjudicator has put his own interest before those of the parties or misconstrued the basis on which to calculate his fees.1. Adjudicators Fees - The SchemeParagraph I.25 provides that the Adjudicator is entitled to payment of fees and expenses reasonably incurred. He determines the reasonable amount to be paid. Paragraph I.25 states:
The Scheme therefore envisages that the parties will have made payments of the Adjudicator’s fees before the Adjudicators determination, and that the Adjudicator may apportion his fees on a basis other than equal shares. 2. Decided CasesIn John Cothlif Limited -v- Allen Build (Northwest) Ltd (1999) TCC, the issue was the adjudicator's power to award costs between the parties. The matter had been referred to the Adjudicator and submissions had been made to him. There appeared to have been a submission to his jurisdiction on this issue. It was decided that an adjudicator has the power to award costs, at least where, as in this case, costs have been expressly sought in the application to the adjudicator, and where he had allowed representation on the issue. It was also decided on alternative grounds that it would be appropriate to imply a term that the adjudicator should have power to award costs, to give business efficacy to the contract. This alternative ground is doubted. In Northern Developments v J&J Nichol (Jan 2000) TCC it was held that there is no implied statutory power granted to the Adjudicator to award costs, disagreeing with the decision in Cothliff. Although the terms of the statutory scheme are required to be given effect as terms of the contract, the parties are nonetheless free to add their own terms provided they do not detract from the Act. In particular there is no reason why they should not expressly agree that the Adjudicator should have power to order one party to an adjudication to pay the costs of the other party. There would be no difficulty if such an agreement were made expressly and in writing. In the instant case however each party was represented and each had asked for costs in writing. There was no submission to the adjudicator that he did not have jurisdiction. Either party could have asked for costs whilst still objecting to the adjudicator’s jurisdiction to make an award of costs, in case the adjudicator decided he had such jurisdiction. That had not happened, so it was held that the adjudicator had been granted such jurisdiction by the parties’ implied agreement. The adjudicator had decided that one party should pay the costs of the adjudication and this was enforced by summary judgment. It is suggested that the parties should consider carefully whether to place the issue of costs before the adjudicator. The effect of bringing costs into the proceedings may have a dramatic effect on the dynamics of the process. The party starting the process may be tempted to expend considerable sums in anticipation of winning and recovering its costs. The defending party may do likewise. Faced with a large costs bill, neither party will be able to accept the decision but may feel driven on to recover its "investment". In short the adjudication process will begin to mimic other processes of dispute resolution. It is suggested that a defending party should always challenge the jurisdiction of an adjudicator to award costs, unless such a power is expressly stated in the contract or in the applicable rules of adjudication. The decision in Cothlif is only authority for the adjudicator's power to award costs where the parties have given him this power. Faced with such a challenge it is unlikely that an adjudicator will go on to award costs. In Nolan Davis Limited v Steven P Catton (2000) TCC there were cross submissions to the Adjudicator on the issue of costs. It was held that it could be inferred from the evidence that the parties had conferred upon the Adjudicator the authority to give a decision as to costs and the award of costs was properly made Northern Developments (Cumbria) Ltd v J&J Nichol (2000) TCC. In Bridgeway Construction Ltd v Tolent Construction Ltd (2000) TCC the issue was whether a provision in an adjudication procedure on the matter of costs was void if it inhibited a party from pursuing the remedies provided by the adjudication process. The subcontract between Bridgeway and Tolent incorporated the CIC Model Adjudication Procedure, but with amendments. Two amendments were relevant to the issue of costs. A new clause 28 stated: "The party serving the Notice to Adjudicate shall bear all of the costs and expenses incurred by both parties in relation to the adjudication, including but not limited to all legal and expert fees." A new clause 29 stated: "The party serving the Notice to Adjudicate shall be liable for the adjudicator's fees and expenses." Bridgeway the subcontractors made an application to the adjudicator and the adjudicator awarded them a sum of money. Bridgeway also asked for their costs, but the Adjudicator rejected this request because of the terms of the contract. Bridgeway relied upon a House of Lords case Johnson v Moreton (1980) which dealt with the Agricultural Holdings Act 1948 and a lease that prohibited a tenant from acting under that Act in taking a benefit of that Act. The House of Lords held that such a term was void in that it purported to avoid, get round, eliminate, the difficulties caused to the landlord by the operation of law in that Act. Bridgeway argued that similar considerations applied to the new clauses 28 and 29. Tolent argued that the clauses were not void. They were not unfair since they applied to both parties. in particular they were not void because they were part of a procedure which adopted the Act. The clauses referred to the matter of costs, an issue on which the Housing Grants, Construction and Regeneration Act 1996 was silent. His Honour Judge Mackay held that the clauses were not void nor voidable. In this case the alterations were to a CIC Model Procedure and not alterations to any Act of Parliament. Also Bridgeway had argued matters before the Adjudicator on the principle as to who should pay and who should not pay, so they were bound by the adjudication. They gave the adjudicator the right to determine such issues and they were bound by his determination. In Faithful and Gould Limited v Arcal Limited (2001) TCC the issue was whether a party to an adjudication under the Housing Grants Construction and Regeneration Act 1996 was liable to pay the Adjudicator's fees to the Adjudicator's employers. Arcal had commenced an adjudication and Mr Gray had been appointed as the adjudicator. Arcal were in receivership. The decision went against them. Mr Gray was not paid his fees and his employer Faithful and Gould Limited claimed payment of his outstanding fees. Arcal together with the co-defendant receivers applied to have the claim struck out as disclosing no cause of action. The original dispute had arisen between Arcal and Admiral Construction Limited in which Arcal wished to seek an adjudication claiming the sum of £36,212.13. Arcal argued that the contract they made was to pay the fees of Mr Gray and not Faithful and Gould Limited. Arcal stated that the rules require an adjudicator to be a natural person acting in his personal capacity (Construction Contracts (Exclusion) Order 1998 Schedule 1, Part 4). The reason for this is that the role of the adjudicator must be carried out by one person, an individual. It was held that there was nothing in the Regulations that requires an adjudicator to sue for his fees in any personal/natural capacity. It was held that the application was both unattractive and untenable. The application to strike out was dismissed. In Stubbs Rich Architects v W H Tolley & Son Ltd (2001) it was held that if the adjudicator’s fees form an integral part of the adjudication agreement, then they could be challenged if, and only if, the adjudicator had acted in bad faith under the terms of immunity as required by Section 108(4) of the Housing Grants Construction and Regeneration act 1996. In the absence of a statutory regime the adjudicator’s fees could only be challenged in very limited circumstances. It was also held that the role of an adjudicator is wholly different from that of a solicitor who is preparing a client's case for trial. The solicitor prepares a one-sided case for argument in court. The adjudicator, on the other hand, had to read the files, interview the parties, visit the sites, and then prepare his decisions. He acts in the role of both investigator and Judge. If comparative evidence of reasonable fees was relevant and admissible then it should have been in the form of an expert architect/adjudicator. A court must be very slow to substitute its own view of what constitutes reasonable hours. In Paul Jensen v Staveley Industries plc (2001) the Adjudicator decided he had no jurisdiction to decide the dispute that had been referred to him. He invoiced Staveley for his fees, but they refused to pay on the basis that he was wrong. It was held that the Adjudicator was entitled to his fees. It was not for the Court to decide whether the Adjudicator was right or wrong. An Adjudicator was entitled to his fees whether or not the parties agreed with his decision. Practice NoteThe cost of Adjudication depends upon the complexity of the issues to be decided. In practice because of the timescale involved, Referring Parties are beginning to devise Adjudication Strategies for resolution of its disputes which may involve a number of adjudication. The first Adjudication may decide essentially legal issues such as the right to payment or the interpretation of a particular clause or the entitlement under a particular clause. Later adjudications will deal with other discrete issues. This approach appears to reduce the cost of adjudication and increase the likelihood of high quality decisions.
The costs of the proceedings are not normally awarded to the successful party, although Cothlif is authority that this is within the Adjudicator’s power if referred to the Adjudicator.
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