Aqua Leisure International Limited v Benchmark Leisure Limited

AQUA Leisure International Ltd v Benchmark Leisure Ltd [2020] EWHC 3511 (TCC) – Debt recovery costs under Late Payment of Commercial Debts (Interest) Act 1998.  

In a judgment handed down shortly before Christmas, the TCC may now have finally laid to rest the continuing uncertainty as to whether s.5A of the Late Payment of Commercial Debts (Interest) Act 1998 (the “Debts Act”) could be used as a mechanism for the recovery of costs incurred from running an adjudication. Also worthy of note is the Judge’s opinion regarding waiver on the point.

The original uncertainty stems from the seemingly incompatible positions of s.5A Debts Act and s.108A Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”), the Construction Act being the statute that created the right to adjudication. Both Acts imply several terms into contracts.

Section 108A Construction Act provides that contractual terms regarding allocation of costs for an adjudication are ineffective unless they are in writing and to the extent, they grant the adjudicator the power to allocate their fees; or the agreement as to parties’ costs is made in writing after the notice of adjudication. However, s.5A Debts Act gives a party the right to claim its ‘reasonable debt recovery cost’ which are above the statutory late payment penalty contained in the same act (maximum of £100).

Inevitably the costs of adjudication will exceed the statutory penalty (the nomination fee alone will exceed this is most cases), thus parties have attempted to use s.5A as a basis of recovering the costs of adjudication that s.108A would otherwise deprive them of. The position was largely in limbo until the case of Enviroflow Management Ltd v Redhill Works (Nottingham) Ltd [2017] EWHC 2159 (TCC). In this case Mrs Justice O’Farrell explained that as s.5A (albeit implied) related to the allocation of costs arising from an adjudication, it was caught by s.108A, and therefore, ineffective. Therefore, the adjudicator in that case had no power to award costs arising from the adjudication and that part of the decision was severed.

This brings us to the present case of Aqua Leisure International Ltd v Benchmark Leisure Ltd [2020] EWHC 3511 (TCC), although it should be noted that the adjudicator’s decision being enforced was prior to the Enviroflow judgment. Like Enviroflow, Aqua had sought its costs of the adjudication based on s.5A Debts Act and had been successful. Following the adjudicator’s award, the parties sought to achieve a full and final settlement of the dispute which was ultimately unsuccessful and leading to enforcement proceedings being brought in relation to the adjudicator’s decision years after the event.

One of the points argued by Benchmark, and agreed by Aqua, was that in light of Enviroflow, the adjudicator did not have jurisdiction to make the award of costs that had been made. However, Aqua argued Benchmark had waived its right to contend the adjudicator and that it had no jurisdiction to award costs as it there had been no specific or general reservation of jurisdiction in relation to the award of costs at the time of the adjudication.

HHJ Bird confirmed that Enviroflow was the correct position in law and disagreed with the Aqua’s argument regarding waiver and considered that the issue of costs in adjudication was a question of jurisdiction in the most ‘fundamental sense’. While participation in adjudication can amount to a waiver to challenge jurisdiction, the judge did not consider there was a small procedural error, but instead a statutory authority which nullifies the rights under s.5A Debts Act altogether which the parties cannot expressly agree to override, let alone for this to be done by the conduct of one or both parties. In such circumstances, Benchmark had not waived their right to challenge jurisdiction. Arguably, the judge went even further to suggest that such a fundamental point is incapable of being waived, although the judge himself acknowledged that this point had not been argued before him.

The case is welcome confirmation that costs cannot be recovered in adjudication via the Debts Act. What may be of even greater comfort to users of adjudication services are the comments of HHJ Bird that even if jurisdictional challenges are not raised at the time of the adjudication on costs, they might still be raised at the enforcement stage, although it would still be better to raise them sooner rather than later. For practitioners, it raises an interesting question as to whether there are any other rights in adjudication that are so fundamental that they cannot be waived.