Costs in Adjudication   © Daniel Atkinson 2000                   5th February 2000

The Housing Grants Regeneration and Construction Act 1996 does not allow all disputes to be decided by Statutory Adjudication. It was never intended to be all encompassing. Given the success of the process, can parties agree to have all their disputes decided by adjudication even if not caught by the Act? Of course they can, and many parties already have. Indeed many standard forms have been amended so that adjudication is available whether or not the contract is caught by the Act. Such an adjudication will be a common law adjudication, but will it be enforced by the courts as if it was a statutory adjudication?

What is the situation if the parties do not expressly agree, but simply do not object during the adjudication to the jurisdiction of the adjudicator to decide the issues? They may instead argue the issues before him and make representations as if the adjudicator had jurisdiction.

It is suggested that the Courts will enforce a decision in both situations in the same way as a statutory decision. There is some indication that this would be the approach taken, in the decision in The Project Consultancy Group v The Trustees of the Gray Trust (1999) TCC. Reference was made to the principles stated by Devlin J in Westminster Chemicals & Produce Ltd -v- Eicholz & Loeser (1954) which were held to be applicable to an adjudication. If two people agree to submit a dispute to a third person, then the parties agree to accept the award of that person, or, putting it another way, they confer jurisdiction on that person to determine the dispute.

Whether or not there has been a submission to jurisdiction is a matter of fact. If a party wishes to object to jurisdiction they must state at the beginning that the Notice of Reference to Adjudication was invalid. If the adjudication continues the party must continue to dispute the Adjudicator's jurisdiction and state that they will put these issues before the Court in any enforcement proceedings. They must continue to refer to the issue of jurisdiction in all communications.

In 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.

If an adjudicator is faced with a challenge to his jurisdiction, what can the parties expect him to do? He will obviously have to decide for himself whether he has authority to deal with the matters before him. If he decides he has, then such a determination will not be binding on the parties and they can if they wish immediately seek a Court ruling on the issue. The Adjudicator is likely to continue to act in accordance with his determination unless the parties agree otherwise.

If the adjudicator decides that he does not have authority to act at all, then he will advise the parties and withdraw, no doubt seeking his fees from the party who referred the matter to him. This decision is not binding on other adjudicators who might be appointed it is suggested. The situation may be different if the parties have asked the adjudicator to decide this very point.