Prior to the enactment of the Local Democracy Economic Development and Construction Act 2009 (“the New Construction Act”), there was nothing to prevent parties to construction contracts from agreeing that in the event that a dispute was referred to Adjudication, the Adjudicator could determine “inter partes” costs or, agreeing that one party had to pay the costs of the Adjudication come what may (a so-called “Tolent” clause).
However, one of the effects of the New Construction Act was to significantly limit the circumstances in which an Adjudicator can award inter partes costs. In disputes between parties to construction contracts entered into on or after 1 October 2011, the Adjudicator can now only award inter partes costs in the unlikely event that the parties agree in writing, after commencement of the Adjudication, to give the Adjudicator such power.
When the New Construction Act came into force, the immediate effect was that it was often not cost effective for parties whose contracts were dated on or after 1 October 2011 to refer any claims worth less than perhaps £10,000 – £15,000 to Adjudication, simply because the costs incurred in the Adjudication could often be of a similar order.
The alternative was therefore, until recently, to use the slower and often more expensive option of litigation where (at least for claims worth more than £5,000) costs were generally recoverable.
However, as part of the recent Jackson reforms to the Civil Procedure Rules, which came into force on 1 April 2013, the limit for the Small Claims Track in the County Court has been increased to £10,000. Readers who are familiar with County Court litigation will know that the general rule in the Small Claims track is that parties are limited to recovering “fixed costs,” which fall far short of the actual costs parties are likely to incur if they retain legal representation throughout the case.
The combined effect of the changes that were brought about by the New Construction Act and the recent increase in the Small Claims threshold is that parties to construction contracts dated 1 October 2011 or later, with claims worth less than £10,000, are now unlikely to find it cost effective either to adjudicate or to litigate, unless they are prepared to conduct a significant proportion of those proceedings themselves. This will be off putting to those with genuine claims who do not feel adequately equipped to pursue a claim in person. However, with a minimal amount of legal assistance at an early stage, claimants can significantly improve their prospects of either settling their dispute or, if that is not possible, succeeding at a Small Claims hearing.
Those with potential claims valued at under £10,000 , which arise out of construction contracts dated 1 October 2011 or later, are therefore encouraged to seek sound advice at an early stage and on an ad hoc basis as and when required in order that they can embrace the Small Claims process. Certainly one of the key benefits for those willing to do so, and perhaps the silver lining in this instance, is that claims dealt with in the Small Claims track tend (ironically) to be listed for a hearing much more quickly than those in the Fast Track.
Holmes & Hills Solicitors in Essex and Suffolk act for construction companies across the South East and East Anglia, in construction dispute matters.
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