07 October 2016 #Construction
The TCC decision in Lulu Construction Ltd v Mulalley & Co Ltd (2016) opens the door for payees to attempt costs recovery in adjudications relating to the recovery of monies owed under the contract, but it does not confirm that they will be successful…
At adjudication, Mulalley & Co Ltd (“Mulalley”) were ordered to pay outstanding debts and interest to Lulu Construction Ltd (“Lulu”). In addition, Lulu were awarded their debt recovery costs of £47,666 under the Late Payment of Commercial Debts (Interest) Act 1998 (“the Late Payment Act 1998”).
Mulalley settled the debts but withheld payment of the debt recovery costs. Accordingly, Lulu applied for summary judgment against Mulalley for payment of the outstanding balance of the adjudicator’s award.
It has been a matter of ongoing debate as to whether or not the Late Payment Act 1998 does provide a mechanism by which costs of adjudication may, in certain circumstances, be recoverable by the successful party.
The Housing Grants, Construction and Regeneration Act 1996 prohibits the recovery of the legal costs of adjudication unless there is an express agreement between the parties allowing the same. Such agreement must either be written into the contract or agreed in writing after the giving of the Notice of Intention. In practice, these agreements are rare.
Conversely, Section 5A of the Late Payment Act 1998 provides that a payee may recover a fixed amount of compensation (up to a maximum of £100) for late payment of debt. The 2013 amendments further provide that where the payee’s reasonable costs of recovering the debt are not met by that (incredibly modest) fixed sum, the payee will be entitled to such further amount as makes up the difference.
On the premise that a payee’s legal costs of adjudication might be considered part of their reasonable costs of recovering an owed debt, it would appear that these two provisions are somewhat at odds.
Mulalley argued that the adjudicator lacked jurisdiction to make the debt recovery costs award. Debt recovery costs had not been referred to in the Notice of Adjudication as, rather unusually, it was Mulalley, as the paying party, who commenced the adjudication, in order to determine the value of Lulu’s claim under a sub-contract. Instead, the debt recovery costs were mentioned for the first time in the rejoinder.
It should come as no surprise that Lulu’s entitlement to the debt recovery costs was not an issue Mulalley elected to include within their Notice of Adjudication. However, in making his award, the adjudicator took the view that the debt recovery costs were both connected and ancillary to the referred dispute, and it did not matter that the costs were not referred to in the notice of adjudication, thus justifying their inclusion.
In the present case, it was for the court to decide whether or not the adjudicator had the relevant jurisdiction to make the award for debt recovery costs claimed under the Late Payment Act 1998.
Lulu’s application was granted. Mr Jonathan Acton-Davis QC agreed with the adjudicator’s assessment that the debt recovery costs were connected to the referred dispute and that he therefore had jurisdiction to award the costs claimed under the Late Payment Act 1998.
It is very important to note that the TCC ruled only in respect of the adjudicator’s jurisdiction to make the award.
The court did not rule upon whether or not the adjudicator had been right, as a matter of law, in making the award.
We can no doubt expect several subsequent attempts by payees to recover their adjudication costs in this manner, but we must wait and see whether or not such an award is considered right in law.
For further information or support with recovering legal costs of adjudication, please feel free to contact our construction law team.