Construction firms may be able to recover their costs when they successfully take a claim to adjudication, following a Court ruling. In Lulu Construction Limited v Mulalley, the Court decided that an adjudicator was allowed to award ‘debt recovery costs’ under the Late Payment of Commercial Debts (Interest) Act 1998. The case is not binding, but is likely to influence future claims for costs.
Construction firm Mulalley took Lulu to adjudication to clarify the payments due under a sub-contract. In its response Lulu claimed payment for the works it had undertaken and an additional sum for debt recovery costs and interest. The adjudicator ruled that Mulalley should pay just over £240,000, which included nearly £48,000 in costs and interest.
Mulalley paid the sum due for the works, but disputed Lulu’s claim for interest and debt recovery costs. Lulu then took Mulalley to Court to enforce the adjudicator’s decision. In Court, Mulalley agreed that interest was payable, but argued that the claim for debt recovery was not valid as it had not been referred to in its initial notice of adjudication.
The judge observed that “it is hardly surprising that the claim for debt recovery costs was not referred to in the Notice of Adjudication” as it had been prepared by Mulalley. He referred to the principle established in an earlier case and concluded that the debt recovery costs were “clearly connected with and ancillary to the referred dispute and must properly be considered part of it”. He added that the costs claimed “are the costs of running the adjudication which was instituted by the Notice of Adjudication”. The judge enforced the adjudicator’s decision against Mulalley.
“It is likely that adjudicators will take Lulu v Mulalley into account if either party requests debt recovery costs in the future,” said James Burgoyne, Director – Claims & Technical, Brunel Professional Risks. “However this may not be the last we hear of this as the Court’s ruling is not binding. There is also some tension between the Late Payment of Commercial Debts Act, which allows recovery of debt recovery costs and Housing Grants, Construction and Regeneration Act, which does not in the absence of express contractual agreement. I expect we will see further court cases on this point before the matter is finally settled.”