In Lulu Construction Limited v Mullalley Co Limited  EWHC 1852 (TCC),Lulu sought to enforce the unpaid portion of an adjudicator’s decision, which awarded it interest on an outstanding payment due under a construction contract as a debt, as well as its costs of the adjudication.
Of note, it was the Employer, Mulalley, and not the Contractor, Lulu, which had commenced the adjudication, to determine the amount of the payment it was required to make to Lulu. At a later stage of the adjudication, Lulu asked the adjudicator to award it interest on the outstanding payment and its costs of the adjudication.
Mulalley resisted enforcement of that part of the adjudicator's decision which related to interest and costs, on the basis that Lulu had not originally claimed such relief in the adjudication and therefore the adjudicator had no jurisdiction to make the award.
The Technology and Construction Court (TCC) disagreed with Mulalley's arguments and found that the adjudicator did have jurisdiction to award such relief to Lulu. Although acknowledging that interest and costs were not part of the dispute which had been originally been referred to adjudication by Mulalley, the TCC found that this was not surprising given that it was the paying party, i.e. Mulalley, who had commenced the adjudication, to establish the amount of the outstanding payment due to Lulu. It was Lulu, the payee, that had raised claims for interest and costs in the adjudication belatedly.
The TCC held, following previous authority, that a reference to arbitration or adjudication "may unavoidably be widened by the nature of the defence or defences put forward by the defending party...", and that a:
"dispute referred to adjudication will or may include claims for relief which are consequential upon an[d] incidental to it and which enable the dispute, effectively, to be resolved."
The TCC therefore ruled that the dispute referred to adjudication by Mulalley did include the claims for interest and costs raised by Lulu, as they were "…connected with and ancillary to the referred dispute [and] properly to be considered as part of it".
The TCC commented that a party pursuing an outstanding debt was permitted to claim its reasonable costs of recovering the debt under ss 1(1) and 5A(3) of the Late Payment of Commercial Debts (Interest) Act 1998 (as amended in 2013).
Consequently, the TCC held that the adjudicator did have the jurisdiction to award the debt recovery costs which Lulu claimed, and which he included in his decision in Lulu's favour. This was so, even though they were not claimed in Mulalley's Adjudication or Referral Notices, and the parties had not agreed, after the service of the Adjudication Notice, that the adjudicator would have the power to order one party to pay the other's adjudication costs.
The key implications of the ruling are:
- Payee parties may claim interest and costs in adjudication when claiming overdue payments under a construction contract as a debt; and;
- n adjudicator's jurisdiction will extend not only to the dispute expressly referred to adjudication, but also to the award of any relief which is consequential upon or incidental to it.
Written by Rupert Coldwell, Associate, Projects & Construction Group