How to pick a winner: adjudication

The adjudicator’s decision is binding until the dispute is determined by legal proceedings such as arbitration. And if there is an arbitration, the arbitrator will order the loser to pay the winner’s legal costs. The rule is that “costs follow the events”. But the arbitrator has some discretion; some call it common sense. So, if a lump of money is to be paid, you might think that the payer is the loser and that it will be thumped for legal costs. Well now, let’s have a closer look shall we?

Martin Dawes is the owner of a world-class stud for showjumping horses. He spent a whopping £15m on building work at his manor in Herefordshire. He and his builder, Treasure & Son, got on well until they quarrelled over the final account. The adjudicator eventually ordered £1m-odd to be paid by Mr Dawes to his builder, which he duly did. That’s the way it works, and most times that’s that. Not this time. The quarrel was started all over again in arbitration. The arbitrator was the experienced Ian Salisbury and he was appointed by the RIBA.

Mr Dawes claimed £869,000 back from the million he had paid in honouring the adjudicator’s award. The builder replied that not only was it was right to claim the million but it wanted £250,000 on top. That’s how it goes. Mind you, you’d have thought these two would have had enough of legal quarrels. They had, by now, had four adjudications and appeared in front of two High Court judges. One remarked that he couldn’t fathom why legal costs had been allowed to get to this level.

You’d have thought that these two would have had enough of legal quarrels. They had had four adjudications and appeared in front of two High Court judges

So the scene was set for another ding-dong in arbitration. Then the builder had a rethink. Instead of arguing for millions this way and millions the other way, it told Mr Dawes that he would write a cheque for £600,000 to (almost) end it all. Mr Dawes accepted. Well, well. Sounds good. But what is the “almost” about? It was all about the arbitrator’s fees so far and who pays the party’s legal costs so far. Dawes and Treasure remained at odds about that final part of the marathon.

Credit: Simone Lia

"If it's another draw then we'll have to try the pole vault"

They finally agreed that it would be left to the arbitrator, Mr Salisbury, “to determine liability and quantum of costs up to the date of the offer”. The £600,000 cheque came in. It was followed by the arbitrator’s award on costs. I bet Mr Dawes’ face fell. He thought he was the winner: after all, he had walked away with that hefty cheque. The arbitrator decided things were the other way. What do you say?

What happened next? Well, inevitably, they all went to court again; this time it was up to Judge Stephen Davies to sort it out. He could see that the arbitrator was quite right. The important point here is that the adjudication and then arbitration of the same dispute is one process. The adjudication produced an arbitration and that produces a final result. That’s quite a different way of thinking about things when it comes to awarding costs. Put it this way: Mr Dawes and Treasure had claims and cross-claims about the final account. It’s one dispute. Now then, if they had brought that dispute straight to arbitration (which they were entitled to do instead of first using adjudication), and if Mr Dawes had succeeded in walking away with a £600,000 award, he would be highly likely to obtain his legal costs from Treasure. Dawes would be the winner; costs would have followed the events. Instead, the dispute went to adjudication first. The winner there was Treasure, to the tune of £1m. After they brought the dispute to arbitration, Treasure compromised by giving back £600,000 of the million. So – and this is the key point – Treasure still “won” £400,000 in the joint adjudication and arbitration. Therefore Treasure had to have the legal costs of the arbitration.

Inevitably, they all went to court again; this time it was up to Judge Stephen Davies to sort it out. He could see the arbitrator was quite right

European Cup football is a two-leg affair. The fact that Real Madrid thump Manchester United at Old Trafford in the first leg doesn’t make it the winner until they play again at the Bernabeu – unless, of course, they agree to quit before the second leg. In Dawes and Treasure, they did not. The two-leg match made the loser the winner.

Incidentally, I’m obliged to Peter McCartney of Contract & Construction Consultants (Southern) for sending me the judgment of the High Court in this case.