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Recovery of legal costs in Adjudications

November 2016 - Issue 87

Recent changes to the UK’s late payment legislation, Late Payment of Commercial Debts (Interests) Act 1988 (‘the Act’) have potentially made available additional means of recovery in adjudications. There is now an increasing trend in adjudications for parties to seek recovery of their legal costs, although traditionally these attempts would not usually succeed. Claims for legal costs are now being accepted by adjudicators, although there is much debate concerning whether they are well founded at law.

The purpose of the Act was to discourage late payments through the provision of a default rate of 8% interest over the base rate where the contract is silent on its own remedy for late payment. However, sections 1(1) and 5A(3) allow a party to recover its ‘reasonable costs in recovering the debt’. It is these sections which parties are now relying on to seek legal costs in an adjudication.

The recent case of Lulu Construction Limited v Mulalley involved a claim for debt recovery costs of £47,000. The court held that such costs were “clearly connected with and ancillary to the referred dispute and must properly be considered part of it” and therefore the adjudicator did have jurisdiction to make such an award.

However, the Court has not addressed whether or not these costs should be recoverable and as such there is increasing debate and confusion in this regard. Whatever the case, claims are being made and some adjudicators are prepared to make the awards.

To avoid this, a contract needs to be drafted correctly to contain a ‘substantial remedy’ for late payment so that the Act is not engaged. Although there may be some instances where this may not be the case, such as John Sisk & Son v Carmel Building Services Limited [2016] EWHC 806 (TCC), it is important to undertake a review of contracts.

If you would like some help with your contracts, please contact a member of our team today.

Ian Seeley

Associate

e iseeley@prettys.co.uk

t 01473 298228

"Very good team with an excellent reputation locally for construction-related matters."

 

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